Digital Business Ambition for Midsize Enterprises:

Transform or Optimize?
Published 12 September 2023 - ID G00792312 - 9 min read
By Analyst(s): Roger Caleya

Becoming a more digital enterprise starts with a clear ambition. Is

the enterprise leveraging digital to optimize its current business or
to create net new products, services and business models? CIOs in
midsize enterprises can use this research as a guide to set their
digital ambition.

Overview
Key Findings
■ Without a clear and shared vision for digital, midsize enterprises risk deploying their
scarce resources to a set of disconnected digital initiatives serving individual needs.

■ Timing of digital initiatives is key. Moving too slowly and missing an industry shift,
or moving too soon when the market is not ready, can significantly impact revenue
and profitability.

Recommendations
■ Determine the enterprise’s digital ambition by focusing on business outcomes and
assessing the different investment and risk levels of digital business optimization
and transformation.

■ Choose the enterprise’s digital journey by looking at three factors — technology,

culture and regulation — and your organization’s competitive stance.

■ Develop a common vision for the digital journey by driving collaboration and
agreement from the executive leadership team.

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 Introduction
Becoming a more digital midsize enterprise (MSE) starts with a clear focus on how the
enterprise intends to leverage digital technologies and approaches to improve its results.
It’s a difficult but important question for MSE CIOs to answer in collaboration with their
key stakeholders. It is also a question that must be revisited periodically, depending on the
state of disruption or opportunity in the industry.

To what extent should the digital business journey aim to optimize the existing business
model versus introduce new business models and revenue sources?

For many midsize organizations, the desired outcomes of a digital journey center on
creating better, more “modern” versions of themselves, not on transforming their entire
business. Using digital technologies and approaches to improve the many parts of an
enterprise’s existing business is called digital business optimization.

However, for an industry that is facing major structural disruption, no amount of

“polishing today’s business model” will suffice to save a business. Using digital
technologies and approaches to add net new products, services and business models is
called digital business transformation.

Figure 1 illustrates how an enterprise’s digital ambition is a mix of optimization and

transformation, supported by a digital technology foundation, the enabler for digital
business. It is meant to help visualize the primary focus of your enterprise’s digital journey.

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 Figure 1. Digital Ambition

Analysis
This research has been adapted from Digital Business Ambition: Transform or Optimize?

Determine Your Enterprise’s Digital Ambition Mix

Is your digital ambition leaning heavily toward optimization or is it focusing on pursuing a
transformation initiative, or balancing both approaches? The answer to this question
fundamentally changes the scope of work, technology investment and roadmap in
becoming a more digital business.

Be Realistic and Clear About Optimization Versus Transformation

The transformational aspects of digital business receive the most attention, hype and
confusion, especially when thinking about growing the business. However, midsize
organizations have to be particularly cautious when considering a transformation effort.

Limited financial resources put a disproportionate importance on the role cost plays in
investment decisions in MSEs. 1 Investing in new technologies, products and business
models typically calls for long time cycles and significant resources and carries more
uncertainty. Most MSEs will have a greater focus on digital business optimization 2 (see
Figure 2). Digital business optimization provides significant near-term benefits, as well as
a foundation for future digital business transformation plays.

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 Figure 2: Objectives of Digital Investment at Midsize Enterprises

Nevertheless, examples of MSEs truly transforming their business model exist. 3 In fact,
MSEs can leverage their size, inherent agility and their closeness to their customers to
enable them to identify early changes in their market and quickly adapt as fast followers
or even as first movers.

The key for MSEs when selecting the optimum mix of optimization and transformation is
to be diligent in assessing the investments and resources needed, as well as the expected
returns.

Digital Business Optimization

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 In the pursuit of digital business optimization, an enterprise may seek a combination of
outcomes that can range from improving its current revenue streams to optimizing its
existing assets. A more detailed perspective on the categories for pursuing digital
business optimization is shown in Figure 3 and provided in Tool: 8 Approaches for Digital
Business Optimization.

Figure 3: Digital Business Optimization

Digital Business Transformation

Pursuing digital business transformation, an organization seeks to create net new digital
revenue (or citizen value in the public sector). This may be from launching new digitally
enabled products and services or from developing new digital business models that are
made financially viable and technically possible by digital technologies.

A more detailed perspective on the options for pursuing digital business transformation is
highlighted in Figure 4. You can also reference Digital Revenue: What It Is and How to
Pursue It for more detailed insight and examples.

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 Figure 4: Digital Business Transformation

Choose Your Enterprise’s Digital Journey

Once the digital ambition has been set, the next step is to define the journey. Two factors
hold major influence on that decision: the timing of disruption in your industry and your
organization’s competitive stance.

Consider the Timing of Structural Disruption in Your Industry

A key factor in determining the ambition ratio of optimization versus transformation is
gauging the timing of the next major industry disruption. Moving too slowly and missing
an industry shift risks irrelevance and erosion of profitable customers, revenue and
margin. Moving too quickly when a technology is still very immature or getting ahead of
customer adoption carries the risk of expensive distraction, impacting profitability and
tarnishing stakeholder expectations.

At a simplistic level, if its industry is about to tip, then the enterprise should pursue a
higher-quotient transformation path. If it is not about to tip, then it should focus on a
digital business optimization path. For example, automotive is going through a tipping
point (think of shared mobility, electric vehicles and autonomous driving), so most
automotive enterprises follow a more transformational digital journey.

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 There are three crucial variables that combine to determine the moment of industry
transformation:

■ Technology — In a world that is becoming more digital, all companies must closely
monitor new technologies and assess the potential impact to their industry and
business model.

■ Culture (business and customers) — Cultural and social boundaries impact

customer or business technology adoption. Leaders must be alert to early signs of
behavior change and make judgment calls about when massive adoption will
happen.

■ Regulation — New regulations can create or suppress new business opportunities.

More often, regulation lags and holds back digital business innovation. And
sometimes, the lack of regulatory certainty enables market disruptors to leverage the
gap and be first movers.

Consider Your Competitive Stance

Industry dynamics are not the only determinant. Enterprise culture and risk profiles also
influence the digital journey. Combining the estimated timing of an industry’s
transformation point with the enterprise’s chosen competitive stance or culture results in
one of the journeys depicted in Figure 5.

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 Figure 5: Planning Your Digital Journey

MSEs should choose which class of digital journey will suit them best:

■ Industry-Vision-Class Journey: A few enterprises will try to tip the industry by

pushing the limits of regulation, experimenting with emerging technology and
aggressively pushing the “new thing” on consumers. Startups or ad hoc created
startup-like business units of enterprises will opt for this type of riskier highly
transformative journey.

■ Transformation-Class Journey: The enterprise sees industry transformation

occurring within its planning horizon. It will invest early in digital business
transformation, without losing sight of the current business model.

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 ■ Optimization-Class Journey: A majority of midsize organizations will fall in this
category. These enterprises view industry transformation as occurring beyond their
planning horizon. Although they focus on optimization, they might also have a
modest effort in exploring and monitoring upcoming transformative and disruptive
opportunities (represented by the thin blue line in Figure 5).

■ Enablement-Class Journey: CIOs and digital business leaders in these enterprises

may not be able to win support for either a digital business optimization or a
transformation strategy. Instead, they can lay some of the groundwork by
implementing technologies that enable digital, while getting ready to evolve faster
once the enterprise agrees on the need for a digital journey.

Drive Agreement From the Executive Leadership Team

The enterprise’s digital ambition and journey should be defined together with the business
executive leadership and IT. In midsize organizations, which sometimes tend to be more
operational, it can be hard to start the exercise with a theoretical discussion. In this case,
start with the existing strategic planning goals and build a common vision of where digital
can have the greater impact.

Recommended Steps

■ Identify desired business outcomes for digital business optimization. Choose a set
of two to three outcomes with one focal point (from Figure 3). For example, many
B2C enterprises choose “enhance customer experience” as their focal point, whereas
many industrials choose “optimize physical assets.”

■ Identify desired business outcomes for digital business transformation (refer to

Figure 4). Prioritize initiatives based on customer demand and competitive
landscape. These initiatives consume considerable resources. Be careful not to
spread focus and resources too thinly by pursuing too many endeavors.

■ As an alternative, start by listing your strategic planning goals. If the two previous
exercises prove difficult, identify the corresponding business outcomes for each of
the company’s strategic goals, and identify which ones can benefit the most from
digital initiatives.

■ List your current digital initiatives under the business outcome categories to
identify gaps. In many enterprises, digital initiatives are already underway without an
overall digital business strategy. Categorize these initiatives using Figures 3 and 4 to
see if the identified digital ambition has any gaps.

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 ■ List the main components of digital technology enablement to support both digital
business optimization and transformation. For example, enterprises often need to
finish modernizing part of their core systems. They complement these core systems
with customer experience, IoT, data and analytics platforms, and technologies
required to work in ecosystems (e.g., API technologies).

■ Choose the style of roadmap. Leveraging one of the journey styles in Figure 5 helps
the planning teams as it develops the more detailed roadmap.

■ Drive agreement from the executive leadership team on the declared digital
ambition. It is critical that all executive leaders contribute to and agree on the digital
ambition, or else the digital journey will be unbalanced. For example, the CEO might
push digital business transformation, focusing on the future. However, COOs and
CFOs usually prefer a heavier digital business optimization focus. A balanced digital
ambition should reflect both needs.

Evidence
1
3 Dynamics That Drive Midsize Enterprises.

2
2023 Gartner CIO and Technology Executives Survey: This survey was conducted to
help CIOs and technology executives overcome digital execution gaps by empowering and
enabling an ecosystem of internal and external digital technology producers. It was
conducted online from 2 May 2022 through 25 June 2022 among Gartner Executive
Programs members and other CIOs. Qualified respondents are each the most senior IT
leader (e.g., CIO) for their overall organization or some part of their organization (for
example, a business unit or region). The total sample is 2,203 respondents, with
representation from all geographies and industry sectors (public and private), including
358 from midsize. Disclaimer: Results of this survey do not represent global findings or the
market as a whole, but reflect the sentiments of the respondents and companies surveyed.

3
La segunda Nannyfy: de las niñeras a la educación, La Vanguardia.

Document Revision History

Digital Business Ambition for Midsize Enterprises: Transform or Optimize? - 21 December
2021

Recommended by the Author

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 Some documents may not be available as part of your current Gartner subscription.

Digital Business Models Compendium

Tool: 8 Approaches for Digital Business Optimization

Digital Revenue: What It Is and How to Pursue It
The 4 Critical Components to Accelerate Your Digital Transformation
Toolkit: Gartner Global Scenarios 2020: How to Accelerate Business Success in a Time of
Worldwide Disruption
Infographic: Digital Outlook for Midsize Enterprise CIOs

2023 CIO and Technology Executive Agenda: A Midsize Enterprise Perspective

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