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October 2019, IDC #US45587619

IDC FutureScape

IDC FutureScape: Worldwide SMB 2020 Predictions

Shari Lava Naima Camara Hitoshi Ichimura Daniel-Zoe Jimenez

IDC FUTURESCAPE FIGURE

FIGURE 1

IDC FutureScape: Worldwide SMB 2020 Top 10 Predictions

Note: Marker number refers only to the order the prediction appears in the document and does not indicate rank or importance,

unless otherwise noted in the Executive Summary.

Source: IDC, 2019

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EXECUTIVE SUMMARY

This study provides IDC's top 10 predictions for small and medium-sized businesses (SMBs) in 2020:

Prediction 1: By 2023, SMBs will represent 35% of the total IT spend and effective application development and deployment will have risen in importance, as analytics and AI will make up

the fastest-growing spend.

Prediction 2: By 2021, 50% of SMBs will adopt a cloud-first approach when sourcing new

software, infrastructure, or platforms, though transition of legacy systems will lag behind due to

migration cost concerns.

Prediction 3: By 2022, over 40% of SMBs will have a defined strategy and goals developed for the changing nature of work but will not have begun to align this across their entire

organization.

Prediction 4: By 2021, 50% of SMBs will use cloud-based cybersecurity services due to growth

of cyberthreats for digital payment/transactions.

Prediction 5: By 2023, 40% of SMBs will adopt process automation–related solutions, such as

RPA and/or AI, caused by a fundamental shortage of the right skill sets.

Prediction 6: By 2021, driven by a customer- and data-centric mindset, at least 20% of SMBs will embark on a race toward becoming Future SMBs, delivering breakthrough solutions and

creating new markets.

Prediction 7: By 2024, at least 15% of SMBs will adopt an experience-centric business model

as they focus on delivering agile experiences to compete effectively in the digital marketplace.

Prediction 8: By 2023, 50% of SMBs of all sizes will report that transacting digitally is a critical

priority and digital-native/contender SMBs will be at least 20% higher than technology-

indifferent SMBs.

Prediction 9: By 2021, over 25% of SMBs will prioritize the development of a broader, connected (partner) ecosystem of platform and content management providers to accelerate

digitization.

Prediction 10: By 2021, at least 30% of digital-novice SMBs will increase spend in connectivity and digital technologies to expand their value chains and ecosystems, becoming more

competitive in the digital economies.

IDC defines the worldwide SMB market as follows:

Small business (1–99 employees): All regions

Medium-sized business 100–999 employees: United States and Japan

Medium-sized business 100–499 employees: Rest of the world

Recent IDC research shows that, in the United States, only 39.2% of small businesses have any full-

time IT staff in-house and already are using a mix of third parties to support technology needs. As

small businesses grow, in-house IT tends to grow with it, adding core front- and back-end systems.

Medium-sized businesses tend to have an appropriately sized IT footprint and core systems.

Digital transformation (DX) has become an imperative for small and medium-sized businesses

globally. It can provide insulation from disruption (or cause it), create new markets, and build new

business models for SMBs that embrace it as a key enabler of their business strategy. Historically,

most SMBs have not placed much emphasis on digitalization or technology. Small businesses often

prefer to focus on growing revenues and tightly controlling costs. Medium-sized businesses tend to

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focus on improving productivity and efficiency. But as more SMB digital natives and digital contenders

— those that have already made significant progress in transforming — capitalize on the opportunities

afforded by DX, other SMBs that have resisted transformation up to this point will be forced to

reevaluate their business strategy or face declining revenues.

This IDC study provides the top 10 predictions and underlying drivers that we expect to impact SMBs

in 2020 and beyond.

"Effective senior executives, business unit heads, and IT managers in small and midsize businesses

worldwide will be looking to harness a wide range of transformative technology to support the digital

transformation goals imperative to Future SMBs. While SMBs historically seek the near-term benefits

of new technology, successful SMBs will also invest at the same time in transformational technology to

support digitalization, which our research shows will lead to stronger revenue growth." — Shari Lava,

research director, SMB research at IDC

IDC FUTURESCAPE PREDICTIONS

Summary of External Drivers

The age of innovation: Driving the future enterprise

The platform economy: Competing at hyperscale

Sense, compute, act: Maximizing data value

Geopolitical risk: Societal and economic tensions rise

Intelligence everywhere: AI's opportunities and implications

Rising customer expectations: More convenience, customization, and control

The future of work: Agile, augmented, borderless, and reconfigurable

Note: A fuller discussion of the external drivers underlying all the predictions in this IDC FutureScape

can be found in the External Drivers: Detail section

Predictions: Impact on Technology Buyers

Prediction 1: By 2023, SMBs Will Represent 35% of the Total IT Spend and Effective Application Development and Deployment Will Have Risen in Importance, as Analytics and AI Will Make Up the Fastest-Growing Spend

The Worldwide Semiannual Spending Guide for SMB projects the SMB IT spending habits across

various technology details across services, infrastructure, and products including but not limited to

content sharing and collaboration, CRM applications, storage software and, of course, analytics and

artificial intelligence (AI). Understanding spending habits of SMBs is essential for an SMB to

successfully benchmark itself and keep pace with peers.

According to IDC's 2018 European Vertical Markets Survey, over 40% of SMBs are already using AI,

currently planning to adopt it, or evaluating the technology for their business. IDC predicts that, as

barriers to adopting artificial intelligence and analytics diminish over the next five years, SMBs will

increasingly cultivate, analyze, and capitalize on data through analytics and AI to remain competitive.

The compound annual growth rate (CAGR) of artificial intelligence and analytics for the SMB market is

10.1%, which is growing at nearly double the rate of SMB IT spending overall.

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Associated Drivers




IT Impact

Pressure will mount for SMBs to use new IT investment dollars to acquire technology to support digitization, even in cases where foundational elements and efficient processes are

lacking.

IT will need to find value in the data with analytics first, then artificial intelligence and machine

learning.

SMBs will also need to use the investment dollars to acquire new analytics skills in order to

slowly close the gap between themselves and larger businesses.

Guidance

Prioritize optimizing processes to both increase productivity and effectiveness in the short term

and set the stage for process automation in the midterm.

Allocate IT investments to accelerate IT process improvements and automation.

Train or hire new analytical skills to keep the organization working with more insights.

Prediction 2: By 2021, 50% of SMBs Will Adopt a Cloud-First Approach When Sourcing New Software, Infrastructure, or Platforms, Though Transition of Legacy Systems Will Lag Behind Due to Migration Cost Concerns

SMBs have historically lagged behind their enterprise counterparts in embracing cloud for

infrastructure, software, and platform needs, particularly in North America, Japan, and much of

Europe. SMBs of all sizes in emerging markets such as Brazil and India, as well as technology-driven

innovation regions such as China, have been much faster to adopt cloud in part because there is less

concern with integrating into legacy technology. That trend is quickly changing.

Over the past several years, both acceptance and desire for cloud-based solutions have increased

significantly worldwide, first in medium-sized business and more recently in small businesses. A U.S.

example from 2018 shows that only medium-sized businesses (100–999 employees) were more likely

prefer cloud over on-premise solutions, and all small business segments (1–99 employees) continued

to prefer on-premise solutions. Yet, in 2019 — just 15 months later — businesses from just 10+

employees were more likely to report a preference for cloud. As SMBs continue to innovate and

transform their business models, this trend will accelerate, particularly for fast-growing SMBs that need

to scale quickly. That said, accessing the right skills and integrating or replacing legacy systems will

make it more difficult for some SMBs to transition quickly. Partnerships with third parties will be key.

Associated Drivers



IT Impact

SMBs will need more integration resources to integrate cloud with on-premise solutions as

they transition some solutions to the cloud and rationalize legacy solutions.

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Skills will be difficult to acquire due to skill shortages in the marketplace globally and

challenges in competing with the enterprise segment.

Many SMBs will find they need third parties to augment internal staff capabilities to facilitate

the transformation.

Guidance

Assess internal skills across the organization, including skills that may be available outside of

traditional IT to understand where supplementation is necessary.

Plan to augment internal staff with third-party resources having deep experience both in

industry and with similarly sized organizations.

Increase vendor management skills and processes to effectively ensure partners and service

providers are delivering as promised.

Prediction 3: By 2022, Over 40% of SMBs Will Have a Defined Strategy and Goals Developed for the Changing Nature of Work But Will Not Have Begun to Align This Across Their Entire Organization

Recent technological innovation, the consolidation of millennials' roles within the workforce, and the

entry of Generation Z have resulted in a significant transformation in both workplace dynamics and

societal expectations of work. This paradigm shift has created an increasing need for higher employee

engagement and increased productivity and business agility. In fact, future SMBs in the early stages of

growth could see significant cost savings in the early phases by adopting this type of working style,

coupled with the "work anywhere" mentality.

Technology will continue to make remote collaboration easier. There are already several examples in

Europe of SMBs in architecture and manufacturing using virtual reality (VR) to increase collaboration

between different parts of their business, whether for training or project collaboration. As these

examples become more commonplace across the SMB segment, and more use cases are identified,

adoption of advanced technologies and smart working becomes increasingly important to stay

competitive. However, it requires boldness in leaving legacy infrastructure behind and obtaining buy-in

both internally and externally when it comes to consequential changes.

Associated Drivers



IT Impact

Over the next couple of years, SMBs will have to shift their KPIs to adapt to changing business

models as the technology sector becomes more expansive.

The increase in partnering and coopetition will lead to Future SMBs reconfiguring their

relationships with hosted cloud infrastructure service providers and beginning to retire their

legacy systems.

SMBs will begin to reconsider their approach to mundane tasks that could be automated to

remain competitive and will look to IT resources to provide solutions and support.

Guidance

Build newer KPIs that are better measures of customer satisfaction and employee experience,

as well as measures of productivity that focus on outcomes versus face time.

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Invest in building cloud integration skills internally as it makes sense for the organization to

ensure a smoother transition from legacy systems.

Adopt automation of repeatable tasks to significantly transform business models and free up

staff, including IT staff, to become more strategic.

Prediction 4: By 2021, 50% of SMBs Will Use Cloud-Based Cybersecurity Services Due to Growth of Cyberthreats for Digital Payment/Transactions

Improving security is a top-priority issue for most SMBs, especially for devices and business systems;

yet many SMBs are not paying attention to other cyberthreats. Transactions using electronic data

interchange (EDI) or ecommerce are increasingly digital. As a result, even SMBs with less mature

operational capabilities can easily conduct business transactions with companies and consumers

around the world in the same way as large companies. Increasingly, SMBs can transact at lower costs,

fueling even more digital-based commercial transactions in the future.

However, digital-based payments also come with increased security risks, not only for information

leakage but also forgery and fraud. If such a security incident does occur with an SMB, customer trust

as well as partner trust may be lost, making it difficult for the SMB to continue to do business. Security

measures must be taken, but security systems built and operated as an on-premise system can

increase operational costs and take up scarce, valuable technology resources just to maintain systems

to guard against new threats. As a result, there will be an increased need and adoption of cloud-based

security solutions, which will not only reduce the burden of installation and operation but also increase

responsiveness to day-by-day threats. There are suppliers that are already contracted by midsize

companies in developed countries, but these will expand in the future, including small businesses or

regions where historically cloud-based security adoption has been lower.

Associated Drivers


Geopolitical risk: Societal and economic tensions rise


IT Impact

IT will need to craft a cloud security management solutions road map for digital payment in

order to mitigate the risk of cyberattack.

IT has a role to play in ensuring that the business considers cloud-based security solutions

such as cloud security gateways and CASB as part of its security strategy.

Cyberthreats and cyberattacks will happen. IT should create "aftercare" processes for specific

policy, operations rules, and reporting systems following a cyberincident.

Guidance

Adopt a cloud-based security strategy. Even companies that are reluctant to adopt cloud

should consider this approach to access functionality at a feasible cost.

Select a cloud-based security system. The system selection will need to be based on

understanding the company's transactions, business system characteristics, and security

issues.

Plan meticulously for cyberattacks to limit scope of any potential damage, as well as reputational damage to the business. Ensure the process is well understood by all IT and line-

of-business (LOB) stakeholders that have a role to play if/when the plan is needed.

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Prediction 5: By 2023, 40% of SMBs Will Adopt Process Automation–Related Solutions, Such as RPA and/or AI, Caused by a Fundamental Shortage of the Right Skill Sets

SMBs are now understanding the potential business value of process automation, though the benefits

vary from larger enterprises. Traditional process automation in large enterprises is often a necessity to

help organizations break down silos inherent in large businesses to smooth out rocky handoffs

between departments that can impact the experience in the customer journey. In large enterprises,

automation of workflows using robotic process automation (RPA) and artificial intelligence has already

become commonplace due to the increase in the number of processes, as well as the lack of human

resources to complete the process.

SMBs face a shortage of staff skilled in the latest technologies, such as RPA/AI, and instead focus on

many back-office/front-office applications. Traditionally, workflow automation has not progressed as

quickly. But now digital transformation is forcing SMBs to change business models to cope with

increasing customer expectations. SMBs lack resources with customer behavior analysis and order

forecasting skills, which require big data, analytics, and data science experience. SMBs are

discovering that it is possible to substitute these skills with RPA/AI, allowing for customer

responsiveness while controlling costs. Process automation in SMB will be considered not only to

automate the customer journey but also as digital labor support that increases service delivery

capabilities.

Associated Drivers




IT Impact

SMBs will need to analyze workflows to determine which processes are the best fit for RPA

and AI automation.

IT will need to make a short-term/long-term deployment plan for AI, natural language processing (NLP), and RPA/AI technologies as a digital workforce prioritizing customer

journey pain points.

Back-office and front-end solutions/applications with AI will likely need to be deployed to better

manage the customer experience (CX).

Guidance

Consider new and required processes as customers digitize and expand requirements. Map

the skill sets needed to execute the processes.

Review what skill sets are lacking in your company (analysis work, appropriate reception work, etc.), and consider whether it can be replaced by solutions/applications for SMB including

RPA/AI.

Clarify the boundary between the digital workforce with SMB solutions and the work performed

by humans in a balanced manner. Not all work can be accomplished with a digital workforce.

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Prediction 6: By 2021, Driven by a Customer- and Data-Centric Mindset, at Least 20% of SMBs Will Embark on a Race Toward Becoming Future SMBs, Delivering Breakthrough Solutions and Creating New Markets

In 2019, the market has reached an inflection point that will force SMBs across industries and

countries to digitalize. The ecosystems that they belong to and the potential of leveraging technologies

that are delivered in more digestible ways provide immense opportunities for SMBs to evolve and grow

their businesses — or risk survival, if no actions are taken.

IDC research shows that a significant proportion of SMBs have already begun their digitalization

journeys and are making progress — albeit challenges in cash flow, balancing product and service

quality and growth, and sourcing/retaining the right talent still abound. While some of these challenges

persist across various stages of maturity, they are exacerbated for the less mature SMBs.

On the other hand, the most advanced (digital maturity stages 3 and 4), represented by a minority of

worldwide SMBs today, are already benefiting from significant competitive gains and are focused on

mastering the dimensions of agile culture to embrace a change-driven mindset, agile capital to drive

sustained profitability and cash flow, agile experiences to create an experience-centric business

model, agile processes for continuous automation and adaptability, and agile partnerships for

augmentation and having a dynamic ecosystem that can extend their capabilities in the digital

marketplace. Also, these SMBs tend to manage talent and cultural change effectively and are

characterized by having created a formal digitalization strategy, full process automation, and by

leveraging digital technologies to transform their businesses.

Associated Drivers



IT Impact

A long-term road map for technology investments to support digitalization will be required. IT will need to support business leaders in driving innovation and competing in the digital

economy.

IT will have to actively collaborate with business stakeholders to address the challenges in

evolving model deployment, as well as in providing governance.

To reach new highs, IT should increase focus on leveraging AI/analytics and other digital

technologies to deliver breakthrough solutions and innovative experiences to customers.

Guidance

Define a long-term digitalization strategy and ensure metrics to track progress are linked to

business success — this should be foundational.

Adopt a change-driven mindset that can allow for the company to be more resilient and

adaptable to the evolving market change. Pressures from start-ups and leading businesses in

the industry will make digitalization essential for survival.

Ensure core processes are fully automated and assess which processes can be digitalized.

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Prediction 7: By 2024, at Least 15% of SMBs Will Adopt an Experience-Centric Business Model as They Focus on Delivering Agile Experiences to Compete Effectively in the Digital Marketplace

In some developed countries, SMBs have started customer experience initiatives centered on digital

marketing and customer support. Expectations for digitized customers are expanding, and customers,

including consumers, are starting to use technologies such as AI and AR/VR via smartphones and

social networks. Business model changes that respond to customer expectations changes will occur in

most, if not all, businesses, leading to intensifying competition in the digital marketplace. To win this

competition, it is important to provide customers with an "agile experience."

An agile experience is a more complete customer experience where the company executes agile

customer touches and repetitively engages to achieve the customer's desired story and to provide an

experience. Businesses "detect" customer stories using the latest technologies such as sensing,

AR/VR, and AI. Such light and agile customer engagement is preferred by SMBs versus their larger

company counterparts because of organizational silos that exist within larger businesses. By providing

responsive, agile experiences to customers, SMBs will compete against large businesses more often

than was typical historically because they will essentially act as responsively as a large business.

Associated Drivers




IT Impact

SMB systems will increasingly focus on the role that data needs to play for decision making. This will mean getting the foundations in place and collecting the data and building analytics

and AI capabilities.

IT will need to develop a platform-based data strategy for richer customer data analysis.

IT will be expected to provide more "real time" CX insights, processing power, and AI for data

analytics to power real-time response to customers.

Guidance

Consider what elemental technologies (e.g., sensors, AI) are required to detect the customer's

desired journey and also design the process for detecting the journey.

Invest in tools to help compile and profile customer data and ensure all interactions on the

client journey are being captured.

Align the organization on the importance of compiling as well as using customer data. Agile

experiences only work if the customers feel they are appropriately known and valued across

all touch points.

Prediction 8: By 2023, 50% of SMBs of All Sizes Will Report That Transacting Digitally Is a Critical Priority and Digital-Native/Contender SMBs Will Be at Least 20% Higher than Technology-Indifferent SMBs

Digitalizing is now an imperative for SMBs. IDC data from 2019 shows that globally digital natives and

contenders are nearly twice as likely as technology-indifferent SMBs to report double-digit revenue

increases and three times less likely to report flat revenue. Digital natives and contenders are those

SMBs that are using technology to deliver better experiences, build new business models, and access

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new markets. In short, they are disrupting industries and taking on competitors that traditionally they

could not compete with.

As this kind of success becomes the standard, table stake expectation, more SMBs will come to

understand that digitalizing is no longer just for start-ups or enterprises. Also, should the economy

contract in the coming years as some experts expect it will, technology-indifferent SMBs that are

currently reporting flat on revenue will be more likely to experience revenue decreases, increasing the

urgency to transact more digitally.

Associated Drivers



IT Impact

Continued pressure on IT resources to solve break/fix issues while delivering strategic projects will lead to a need to augment internal staff with third parties, including partners and service

providers.

New skills will be required in both the SMB's IT department and LOB to transition business

models.

Guidance

Prioritize digitalization by incorporating it into the business strategy, regardless of the size of

the company or the existing IT head count.

Recognize and champion the importance of digitalization as part of the business strategy. Partner with line-of-business leaders more tightly than ever before. SMBs need reliable and

trusted partners to advise and augment staff in order to transform.

Prediction 9: By 2021, Over 25% of SMBs Will Prioritize the Development of a Broader, Connected (Partner) Ecosystem of Platform and Content Management Providers to Accelerate Digitization

The complicated world of hyperscalers, platform providers, and vendors has resulted in the increasing

need for a well-defined partner strategy for SMBs. In the past three years, we have seen the

proliferation of partner programs by vendors to successfully manage their complex ecosystems as they

develop. In the next year, we will see SMBs increasingly develop strategies to engage better with

partners as part of obtaining the technology products and services they require. This creates the need

for strong partner strategies and also provides an opportunity to gain more SMB customers as they

make higher-volume IT purchases, move to the cloud, and experiment with emerging technologies.

Associated Drivers



IT Impact

Growing interdependency between organizations across all industries and verticals creates

the need to careful select service and delivery partners.

SMBs will need to align on priorities and successfully build partnerships to alleviate their

challenges.

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SMBs will need to partner as they transform their content management and storage from on-

premise to the cloud.

Guidance

Partner with vendors with clearly defined ecosystems that resolve the challenges relating to

platform, content management, and storage.

Look for "packaged solutions" from partners that encompass platform, content management,

and storage with the overall aim of DX.

Prediction 10: By 2021, at Least 30% of Digital-Novice SMBs Will Increase Spend in Connectivity and Digital Technologies to Expand Their Value Chains and Ecosystems, Becoming More Competitive in the Digital Economies

Competitiveness is gained not just by leveraging a company's own resources but through its ability to

tap into a partner ecosystem that can amplify its presence and capabilities. To succeed in the digital

marketplace, the need for a robust ecosystem is more important than ever. This need is even more

critical for SMBs. Because of their size and resource constraints, SMBs are more dependent on

partners (from supply chain, logistics, to financing) and can be more impacted by unexpected changes

in their value chains.

New digital economies have increased access to resources, knowledge, and data at a speed much

faster than any single organization can hope to build by itself. These digital connections allow

companies to tap into private resources (in sharing economies), talent (in gig economies), and attract

co-innovators and collaborators (in open innovation platforms) — thereby forming digital ecosystems or

digital economies (e.g., the last-mile economy, the gig economy, and the marketplace economy). For

SMBs to benefit from this, fundamental changes across processes, skills, and technologies are

required.

IDC research indicates that a large proportion of SMBs worldwide are in stages 1 and 2 of their

digitalization journeys. Those in stage 2, or "digital novice," are characterized by only having tactical

plans for digitalization, high preference for on-premise resources, and a significant amount of manual

processes — attributes that correspond to their degree of digitalization maturity. While the most mature

Future SMBs are already participating in these digital economies, most digital novices are only

watching from the sidelines, unable to benefit from the opportunities created by these ecosystems.

Therefore, IDC expects that, driven by the need to expand their value chains and ecosystems and

become more competitive, an increasing number of SMBs will focus on acquiring the necessary skills

and technologies.

Associated Drivers



IT Impact

IT needs to recognize the importance of digitalization as part of the company's plans and

define its role to help accelerate new projects and initiatives.

IT departments in digital-novice SMBs need to ensure that appropriate talent is available to implement and manage new technologies. IT managers in smaller businesses may feel less

pressure to adopt digital technologies, but to participate in these new emerging economies,

new skills are required.

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SMBs relying on traditional channels will be at an increasing disadvantage as the decentralization of technology acquisition and the use of new channels and new sources

provide more flexible, agile access to advanced technology resources.

Guidance

Perform a digital maturity assessment to identify areas of focus as well as key gaps across the dimensions of agile culture, capital, experiences, processes, and ecosystem. Defining a robust

strategy that shows near-term cost savings while improving efficiency and productivity can

help solidify stakeholder buy-in.

Start conversations with other key stakeholders around how to create a change-driven mindset in the company, where employees understand how their role relates to the company's vision

and goals. Incentivize risk-taking, ongoing learning, and accountability.

Collaborate with business and IT to ensure digitalization projects are not siloed and you can ensure repeatability across the business. This can be done via a collaborative-based funding

or accountability framework.

ADVICE FOR TECHNOLOGY BUYERS

IDC's SMB predictions culminate into three themes that echo throughout — the need to digitalize, the

need to effectively acquire skilled resources, and the opportunities to make use of data. While the

benefits of different IT investments must be evaluated independently, there are important ways in

which coordination and systematic deployment of technology can ensure SMBs keep pace with the

changes the rest of the market is predicted to see. These include:

SMBs need to begin digitalizing yesterday. Digital transformation is already, and will

increasingly be, a disruptive force in the SMB. Digital transformation is defined as transforming decision making with technology, allowing for better business results. To take full advantage, SMBs need to rethink their approach to technology and replace limited function systems that

create gaps in the customer experience and/or employee experience. Cloud adoption, analytics, and even basic automation are critical first steps in what needs to be an ongoing strategy. Once these are in place and generating value, the ability to "see" the best path to

new business models and best markets in which to expand will be easier to uncover.

SMBs need strong partnerships with third parties to succeed and unlock value. Staffing will

continue to be a key challenge in SMBs. Any scarce IT resources that the SMB may have internally with foundational knowledge of the organization will need to be redeployed to ensure transformation success. SMBs will need strategic third-party partners to assist and augment

the IT team, not just to keep IT operating but also to help it transform with the business. Change management will be a key competency that all senior management will need to be skilled at and use with staff. Pick partners that understand the business and industry, with a

strong track record of success and several long-standing client relationships.

SMBs need to use their own data more effectively. SMBs need to make more use of the data

they already have in-house. It must be clean, integrated, updated, and protected, which will enable business analytics to guide critical decisions and also to understand where the customer experience needs improvement. Once these opportunities are identified and the

data is clean, automation can be used to streamline workflow that leads to better customer and employee experiences, which keeps loyalty and engagement high. Getting all the related data in one place will likely require integration skills as well as rationalization of single-purpose

legacy applications.

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EXTERNAL DRIVERS: DETAIL

The Age of Innovation: Driving the Future Enterprise

Description: Digital transformation — the continuous process by which enterprises adapt to or drive disruptive changes in their operations, customers, and markets — is now being driven by multiplied innovation. Competition is powered by platforms and ecosystems where network

effects and innovation feed off themselves. But the changes and innovations aren't accidental; they are driven by data, analytics, and learning, which feed and multiply more innovation. Data drives intelligence yielding insight and knowledge, allowing for action and creating value.

Automation and machine learning revolutionize operations, providing major increases in productivity and efficiency. To compete, companies must balance digital and industrial competencies and master them at scale. Yet these efforts will not succeed without leadership

and talent and the enterprises' ability to affect change.

Context: With direct digital transformation investment spending of $5.5 trillion over the years

2018–2021, DX continues to be a central area of business leadership thinking. Industry leaders are transforming markets and reimagining the future through new business models and digitally enabled products and services. At the same time, companies that digitize their

operating model may see a 40% increase in productivity. Purely digital opportunities aren't enough anymore. New opportunities will come increasingly from combining digital technology with physical assets. To succeed, digital natives need to adopt and transform the traditional

world of industrialization and specialized assets. Industrial natives need to adopt and master

digital technologies that could affect robustness, reliability, and safety.

The Platform Economy: Competing at Hyperscale

Description: Understanding and provisioning the platforms that will sustain, advance, and

scale business and operations are essential for every business. The platform is where the future of software, infrastructure, and connectivity will evolve and where edge will be accessed, integrated, and optimized. Megaplatforms compete to own infrastructure, artificial

intelligence, and development environments. Application-centric platforms look for the network effect to expand their reach. Industry-specific platforms harness multiplied innovation to build niche ecosystems. Capturing profits will be highly dependent on controlling or participating in

the right platform. Every business must incorporate these new realities into its platform

strategy.

Context: Today, we are in a platform economy — one in which tools, capabilities, and frameworks based upon the power of information, cognitive computing, and ubiquitous access will frame and channel our economic, business, and social lives. Leading organizations are

shifting to platform thinking to evolve their business models and manage their technology architecture. Platform thinking is a fundamental shift in business strategy, moving beyond product differentiation and pricing and toward ecosystem-based value creation. It is also a

long-term, sustainable response to new realities in the DX economy, one in which

organizations digitally transform themselves into digital-native enterprises.

Sense, Compute, Act: Maximizing Data Value

Description: Today, data and intelligence represent a unique opportunity for creating

unimaginable value. Real–time data from IoT, mobile devices, and other devices at the edge —combined with historical data, enterprise systems, and global information — continually sense an environment and put it into new contexts. Combining data with AI and machine learning,

organizations are spreading intelligence from the core to the edge to turn data into action and

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action into value. Automation literally extends beyond decision making and optimization into life–and–death dependencies. Competitiveness is determined by how data is transformed into

insight and knowledge to create high–value differentiators for products, customers, and markets and deliver meaningful, value–added learning, predictions, and actions that improve

experiential engagement, industrial processes, enterprise decision making, and much more.

Context: In this "data driving action" world, ensuring the veracity of the data and transforming data into insights become strategic imperatives. Sometimes called "decision-centric

computing," the need to understand and utilize data goes beyond data integration and governance. What becomes essential is: first, to put data into context to provide meaning; next, to understand it in relationship to other data and events to gain knowledge; and finally, to

add judgement and action to achieve the full potential of value realization.

Geopolitical Risk: Societal and Economic Tensions Rise

Description: Social and political discourse have risen to a new level of dysfunction causinginstability in social and economic foundations. Fueling much of this is the unprecedented

impact of information. Social media has made it possible for anyone to create and disseminate ideas, true or not, to millions. Offensive AI technologies and automated bots spread targeted misinformation to achieve social engineering or nation-state goals, fanning the flames and

creating uncertainty and risk. The Digital Iron Curtain threatens to separate nations with free information from those that control it for political purposes. The impacts of escalating trade and software wars, supply chain disruption, diverging technology stacks, national and international

balkanization, and more affect profits and investments. Environmental risks not only impact populations and drive regulatory changes but also provide new opportunities. Businesses require new strategies and the ability to pivot from these risks; at the same time, they must

account for government's difficulty in addressing internal and geopolitical challenges, the rise

of nationalism, worldwide social stratification, and the like.

Context: Instability in global economics, politics, and society is increasing. A digital backlash is seen in widespread demands for privacy, legislative limits on business models, and a push for antitrust activities to break up platform owners. The circular economy (cradle-to-grave

resources) and climate change are forcing major disruptions in the business and regulatory environment. The Digital Iron Curtain is the new face of the cold war, managing information access to exert control of citizens. Countries and economies are stalled or held hostage to

divisive issues such as Brexit or immigration as divided governments fail to muster consensus

to deal with them, and businesses are left unable to plan.

Intelligence Everywhere: AI's Opportunity and Implications

Description: Accelerating progress in AI is impacting experiential engagement, business

processes, strategies, and more — autonomously creating a significant portion of new innovations. But, as automation and augmentation increase, so do the ethical issues and opportunities for misuse, surveillance, invasions of privacy, and more. Many future

applications will be developed by AI without human supervision. Beyond that, augmented humanity — the fusion of digital technologies and humans — for improved mobility, sensing, and cognition will become routine. There are justifiable concerns and issues around AI–enabled

applications, bias, and transparency and the long–term impacts of these on workforce transitions and the essential elements of being human. Social pushback is demanding accountability and rights. Business and governments need to address the ethical and legal

issues of AI to realize its opportunities.

Context: AI innovation and application are being driven by massive investments in all kinds of

industries. Hospitals are testing how AI can enhance care, school districts are looking at AI-

©2019 IDC #US45587619 15

equipped cameras that can spot guns, and human resources departments are using AI to sift through job applications. Government agencies, including law enforcement, are looking for

ways to harness this next technological revolution to meet their ends, while others are demanding accountability and an "algorithmic bill of rights." With industries investing aggressively in projects that utilize AI software, IDC forecasts AI systems will more than

double from 2018 to 2022 to $79.2 billion with a compound annual growth rate of 38.0%.

Rising Customer Expectations: More Convenience, Customization, and Control

Description: Customers accustomed to the personalization and ease of dealing with digital-native companies such as Google and Amazon now expect the same kind of service from every business in every industry. The changing expectations are most evident in the newest

generations of customers, but all customers are demanding more convenience and personalization. At the same time, they want more control of what data is collected and how it is used. Intelligent customer agents will start to intermediate the relationship on the customer's

behalf, taking more control from the vendor. Companies that systematically collect, measure, and analyze data to create exceptional, personal, relevant, and compelling experiences can

set themselves apart from their competitors.

Context: With new customer expectations being set by thriving companies that disrupt markets, the previous levels of customer service are no longer good enough. New business,

operational, and organizational models are required to meet continually growing consumer expectations. 38% of companies that are digital natives report that they are "almost constantly online" through their device of choice, the mobile phone, providing unparalleled access to

behaviors and preferences, that they expect to be turned into customized engagement and experience. While there is also backlash, customers seem willing to relinquish some control

over their data in exchange for a sufficiently engaging personalized experience.

The Future of Work: Agile, Augmented, Borderless, and Reconfigurable

Description: Technologies are rapidly changing who or what — and where or how — work is being done. A new generation of workers have new expectations for work, culture, and space. The future workspace will be a mix of physical and virtual. Work culture will be more

collaborative, while the workforce will be a combination of people and machines working together. Organizations are using new contracting models to create an agile, borderless, and reconfigurable workforce. However, the new skills required to thrive in this new era are still in

short supply. To bridge the digital talent gap, organizations need to retrain and reskill existing staff, develop access to new talent pools, and attract new resources. Society must equip and educate up-and-coming generations for the future while bringing existing workers up to speed

to address current needs. Employees must become lifelong learners.

Context: The demographic shifts led by millennials entering the workforce and technology

advances are driving fundamental changes in the workplace. Good pay, positive cultures, diversity, flexibility, and access to leading-edge technology are all important keys to keeping workers happy at work. The short supply of digital talent, particularly in data science, security,

and CX design, is forcing organizations to adopt new approaches to work. IDC predicts that,by 2021, 60% of G2000 companies will have adopted a future workspace model — a flexible, intelligent, and collaborative virtual/physical work environment — to attract new talent and

improve employee experience and productivity.

©2019 IDC #US45587619 16

LEARN MORE

Related Research

Critical External Drivers Shaping Global IT and Business Planning, 2020 (IDC #US45540519,

October 2019)

2019 U.S. Small and Medium-Sized Businesses: Successful SMBs Act Differently by Leveraging Digital Transformation (IDC #US45548119, September 2019)

IT Staffing and Resourcing in Small Business (IDC #US45551519, September 2019)

Future SMB: The Time to Digitalize Is Now (IDC #AP45211719, June 2019)

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