A disproportionate number of Australia’s local businesses are struggling to keep up with global digital adoption and transformation, according to new data from Accenture’s local arm.

The consultancy found that 40% of local companies rank in the bottom quartile of companies when ranked by their level of digital maturity against global competitors in countries in North America, Europe and Asia.

Matt Coates, chief technology officer at Accenture Australia and New Zealand, told TechRepublic:

• Local businesses will need to consider investing more of their IT budgets in strategic innovation rather than simply maintaining existing systems to keep pace.
• Companies must also take a balanced approach to managing technical debt, with Accenture advising clients to direct 15% of IT budgets to debt relief.

Digital maturity was ranked based on how advanced they are in adopting a “digital core” – a term Accenture uses to describe the cloud infrastructure, digital platforms, data architecture and security backbone that enable an organization to innovate and grow.

Australian businesses are not as digitally mature as global counterparts

Accenture ranked the digital maturity of global companies in its Reinvent with a digital core Report. It revealed that 40% of 50 Australian organizations surveyed were placed in the “global bottom” quartile of companies – meaning Australia has more than its fair share of companies that fail to meet this standard.

In contrast, Australia’s top companies measured up favorably to the rest of the world: 24% of local organizations were represented in the global top 25%. Another 36% were judged to fall either in the “global middle” of digital maturity or the middle two quartiles.

“We have been aware that there is a wide range of digital opportunities between organizations in Australia,” Coates said. While he said the top quarter of Australia’s leading organizations appeared to be keeping pace with global counterparts, “there is then quite a sharp decline” to those at the bottom, he noted.

Growth and profit are left on the table

Australian organizations lagging behind in digital transformation may be missing out on significant business benefits. Accenture’s research suggests that companies with an advanced digital core are experienced in:

• 20% higher revenue growth.
• 30% higher profitability globally.

Combined with investments in strategic innovation and a balanced approach to technical debt, these efforts can lead to 60% higher revenue growth and 40% higher profits, Accenture found.

SEE: Australian companies come fourth in 2024 global generative AI adoption survey

What factors hold companies back?

Accenture outlined several reasons why Australian organizations lag behind global competitors in digital adoption.

A “short-term” mindset

Some business leaders still mistakenly view digital transformation as a cost rather than a growth driver, according to Accenture. “We know this is not the case with the right strategy in place, but this short-term thinking persists and it results in insufficient investment in technology,” Coates said.

Balance technical debt with innovation spending

Many organizations struggle to manage technical debt in a way that allows them to innovate. “Managing technical debt remains a significant challenge; many organizations fail to balance spending between debt relief and future growth investments,” Coates explained.

Cultural resistance to digital and change

Although CIOs, CTOs, or financial managers across Australia are strong advocates for digital adoption and maturity, internal cultural resistance may still hold them back. Coates said that, to the frustration of senior technology leaders, there is often difficulty getting this across in local organisations.

Technical challenges include human factors

Accenture’s research shows that while many ANZ executives have adopted digital platforms, 61% report that these platforms are not being used effectively within their organizations. Another 41% say the integration of these new technologies is an uphill battle.

Coates attributes some digital adoption issues to people within the organizations rather than the technology itself.

“In the market, we see these types of problems arise if effective change management and talent upgrade programs are not part of the technology strategy,” he explained.

Hybrid cloud, data governance and cyber security risk are all challenges

Technologies that local organizations are struggling to adopt are particularly:

Cloud: Accenture sees partial cloud migrations as a problem. “Cloud transformation often stalls due to the complexity of hybrid environments and legacy systems,” Coates said.

SEE: Gartner’s 7 Big Predictions for Cloud Computing

Data: Australian businesses face challenges in ensuring data quality and governance, something “crucial for effective decision-making and (for) adoption of new emerging technologies such as Gen AI”, Coates noted.

Cyber ​​Security: Organizations must strengthen security frameworks and compliance measures to protect against evolving threats and to ensure regulatory compliance as risks grow exponentially.

How to increase your organization’s core digital maturity

Coates laid out three recommendations for companies looking to build a leading digital core.

Educate stakeholders on the benefits of a strong digital core

Educating stakeholders is a critical part of the digital transformation battle. Accenture argues that Australian IT leaders should focus on educating their entire organizations about the importance of a strong digital core. Coates said this is no longer limited to the “technical department”.

“Technology is at the heart of every business now, and the potential of AI will keep it there,” Coates noted.

“When all leaders understand how critical the digital core is to a company’s ability to adopt new technologies and remain agile and competitive, they are more likely to demonstrate the commitment required to invest in a strategic work program to deliver digital transformation .”

Allocate enough IT budget for strategic innovation for the future

Companies should consider investing more of their IT budgets in strategic innovation rather than simply maintaining existing systems. Accenture’s global research found that leading quartile companies consistently increased IT budgets for strategic innovation by at least 6% year-over-year.

However, Coates said it is critical to balance this investment in innovation with the need to manage technical debt.

“We advise our clients that around 15% of IT budgets should go towards deleveraging to maintain evergreen IT capabilities while investing in future growth,” he said.

Create a culture that puts digital supremacy first

Finally, Coates said a cultural shift towards continuous reinvention is needed, focusing on:

• Develop digital competence.
• Encourage innovation.
• To foster an environment that embraces change.

“By addressing these areas,” he explained, “ANZ organizations can bridge the digital divide and compete better on the global stage.”