The changing face of digital transformation

Shining the spotlight on digital transformation

It is now well over a decade since disruptors such as Airbnb and Uber – founded in 2008 and 2009 respectively – triggered seismic shifts in consumer-facing sectors from hospitality to transport and beyond.

Since then, the effects of digital transformation have increasingly been felt in markets away from the consumer spotlight. Changes in demand, technology and competition have led to evolving business operating models, meaning that digital transformation plays a more vital role now than ever before in companies competing in their respective markets.

This innovation of products and services has moved beyond the traditional technology focused base of digital transformation projects.

Digital transformation is no longer just the domain of IT

Typically, digital has been synonymous with IT – that is no longer the case. Contemporary digital transformations encompass the entirety of a business – from internal departments like finance and HR to customer-facing functions like sales and client support. This theme repeats across all sectors. Whatever the industry – health, finance, engineering and beyond – the impact of digital transformation across any given organisation now intersects across a range of business processes. For example, cyber security has become an imperative for all, whilst companies are also looking more to artificial intelligence (AI) to manage data, as well as the use of cloud technology to facilitate innovation.

It is worth pointing out the obvious: these advances only occur when there is need. Like most business practices, transformation should be driven by the demand of users – whether by employees or customers. The force majeure challenges of this decade have expedited digital transformations that were already underway, but they have also driven novel innovations that have impacted on almost every part of business and consumer life.

Why is digital transformation important?

In a world beset by significant challenges, it’s essential that businesses are best equipped to adapt to and overcome these issues and any that arise in the future. Much of this requires a more radical approach modernisation and the widespread adoption of new technologies to improve existing processes and systems. It is for these reason that digital transformation projects are becoming increasingly common.

By adopting technology and embracing digital you can reduce operating costs and improve efficiencies throughout your organisation. You can move away from manual and outdated processes to become more agile and ultimately be in a position to achieve your growth ambitions.

Investing in digital transformation has numerous other benefits, from improved collaboration across your organisation to getting the edge over competitors in increasingly competitive markets to increasing your speed to market. It also has cultural advantages, helping you attract and retain talent by fostering a culture of innovation.

As well as efficiency gains, there are financial benefits too. There are often significant costs involved in maintaining legacy systems and the resource it takes to keep them operational.  

Ultimately, digital transformation gives you the opportunity to take advantage of new ways of working and innovate. This ability to innovate is how you survive and thrive as a business.

The pandemic as a catalyst for digital transformation

The pandemic enforced a physical and cultural shift with regards to workplace locality, and in many ways, has also changed the nature of work itself.

The overnight necessity to embed the digital ecosystems required to make remote working practical was perhaps the large-scale business digital transformation of the century. But however ubiquitous this challenge was, the most complex digital transformations brought about by Covid-19 are to be found in the catalysation of processes and systems.

The world is many times more online than it was even just a few years ago. As such, innovations in cyber security have been required to protect businesses, their clients and consumers. This is not to mention the unique implications of Blockchain technology on transactions and supply chains.

As businesses and consumers enjoy the benefits of recent digital transformations that only a few years ago would have felt beyond the imagination of even the most ambitious Chief Innovation Officers (CIOs) – focus now shifts to ask what will bring about the next wave of digital transformation?

5G as a driver of digital transformation                                                   

The impact of fifth-generation mobile networks is often viewed through the prism of consumer benefits. New and improved user experiences in 5G have helped to facilitate remote working in previously inaccessible and desirable locations for workers through expanded bandwidth and better connectivity, helping to shape the change in working culture brought about by the pandemic. But the potential impact on businesses could be equally as profound.

In sectors such as logistics and manufacturing, businesses are already tapping into the transformative potential that private 5G networks can offer. Reductions in latency, improvements to bandwidth and increased response times through edge computations linking connected devices with Robotic Process Automation (RPA) and AI, are opening new opportunities to gain insights more rapidly due to data analysis happening at the point of production.

In many industries, such as the aerospace and defence sectors, 5G is facilitating real time fault detection and predictive maintenance. The capacity for innovative solutions due to advances in 5G technology is becoming increasingly apparent but increasingly accessible to businesses of all sizes. Companies and manufactures looking to create greater energy efficient processes and products, or to reduce carbon emissions in line with wider net zero policy ambitions have found a confluence of cost-effective and innovative solutions in the introduction of 5G into their practices.

Such examples of systems integration helping to achieve advances in scientific or technological uncertainty could quality for R&D tax relief.

Digital transformation strategy

A digital transformation is not something that happens overnight. Due to its all-encompassing nature and complexity, you need to plan rigorously and create a digital transformation strategy tailored to your business. It needs to closely align with your overall business growth strategy. If you want to make sure your digital transformation is a success and delivers on the benefits, then you need a clear roadmap with defined steps. It’s also critical that you understand what can be achieved internally and where external partners may be required.

By having a clear vision and a shareable digital transformation strategy, you can get buy-in throughout your organisation from the top-down. It will help inspire the cultural change within your organisation, something necessary when it comes to the adoption and buy-in into new technology and ways of working.

Alastair Barlow – CEO and Co-Founder of flinder (smart finance function pioneers) notes that “For more than a decade finance has been driving business forward with cloud technology. In most cases, digital transformation has been driven by finance and, interestingly, has often been hindered by IT.”

At a time when all costs are under increased scrutiny, you need to be able to justify investing in a digital transformation. One way to help make your case is to consider any digital transformation funding opportunities including the powerful R&D tax incentives.

Digital transformation R&D

As you look to digitalise more processes, integrate, migrate or recreate legacy systems, look to move to and adopt the cloud, you will be carrying out digital transformation R&D. Some of the in-house projects undertaken will qualify for R&D tax relief.

In our experience many businesses aren’t aware of the true scope of R&D tax relief when it comes to digital transformation projects.

Digital transformation qualifying R&D costs

The key area for qualifying R&D in digital transformation is around internal software projects. If your internal teams are writing, modifying, and testing software or designing systems that use hardware and software combined, then these are a great candidate for relief.

Here is a brief and non-exhaustive list of potential areas where you may be able to claim R&D relief:

• Developing or modifying control system software to improve production processes.
• Creating AI software to make your business more efficient.
• Creating a new software platform for managing workflow.
• Adapting and improving existing technologies to suit the particular needs of your business.

At ForrestBrown, our software sector specialists are able to help define project boundaries and identify all qualifying digital transformation R&D costs.

Recent changes to R&D tax relief

Following the feedback received as part of a wider consultation on the future of the R&D tax relief incentive, changes announced in the Spring Statement 2022 recognised the important role of data feeds and storage, cloud computing and pure mathematics in high growth sectors.

This widening of the incentive will lead to new opportunities for companies undergoing digital transformation once it comes into effect from April 2023. The inclusion of pure mathematical advances and licence payments for datasets used in R&D will unlock value in some cases. However, it is likely that the addition of cloud computing costs will have the broadest impact on R&D tax relief claims for companies working at the frontiers of technologically focused sectors in particular.

These changes – which were called for by ForrestBrown – mean that digital transformations, whether the integration of systems through 5G connectivity, or the development of products and processes using AI, quantum computing or robotics as a result, mean that more traditional sectors including manufacturing and design using these technologies in their R&D could also benefit from the incentive.

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