Digital transformation isn’t just a trend, but critical for business survival. A Frost & Sullivan report, released on Monday, found that the Internet of Things (IoT) is spearheading digital transformation, aiming to enhance customer experience and digital presence for organizations.

In Asia-Pacific and Latin America, improving operational efficiencies was the top priority in digital transformation initiatives, while upgrading customer experience and satisfaction was most important in North America and Europe, the report found.

SEE: Digital transformation: An IT pro’s guide (free PDF) (TechRepublic)

Frost & Sullivan’s Top End User Priorities in Digital Transformation report surveyed 1,636 IT decision makers from across the globe. The report evaluated the main trends in enterprise digital transformation implementation, especially for technologies including artificial intelligence (AI), IoT, and blockchain.

IoT, in particular, was the most popular tool for digital transformation, with 65% of companies reportedly using the tech, the report found. IoT has long been expected to drive digital transformation, mainly due to the helpful insights generated by IoT sensors and devices.

These sensors give organizations useful data in real-time, enabling enterprises across industries to make crucial business decisions. The number of IoT devices worldwide is projected to reach 75 billion by 2025, according to Statista, indicating IoT growth isn’t slowing down anytime soon.

Industries at the forefront

The retail (44%) and transportation (43%) industries are leading the pack in digital transformation.

“Frost & Sullivan define digital transformation in a very traditional sense, which emphasizes the ‘digital’ side of change. Retail and transportation are among the most important sectors in the economy,” said Brian Solis, digital analyst and futurist.

“Retail is under tremendous pressure to update and upgrade systems because of what I call ‘digital Darwinism,’ the effects of technology on rapidly evolving markets and also the digital evolution of customer behaviors and expectations,” Solis said.

In the retail space, AI is saving brick and mortar stores from closing. To keep up with online shopping giants, physical stores are turning to IoT sensors and AI systems to make the in-person retail experience more personalized and interactive.

“The same is true for transportation. Across most transportation industries, the movement of people and products is vital, yet much of the infrastructure is legacy-based, i.e. outdated. Digital transformation is a critical enabler of not only modernization but also performance, security and scale,” Solis said. “Everything is accelerating and will do so whether organizations keep up or not. This is why disruption is so pervasive. It has no agenda.”

IoT is definitely making cars smarter in the automotive industry, even though fully autonomous cars are years away from becoming a reality.

“The modern automobile is fast becoming a sensor-laden mobile Internet of Things device, with considerable on-board computing power and communication systems devoted to three broad areas: Vehicle location, driver behavior, engine diagnostics, and vehicle activity (telematics); the surrounding environment (vehicle-to-everything or V2X communication); and the vehicle’s occupants (infotainment),” reported ZDNet’s Charles McLellan.

Sales and marketing drive digital transformation

While improving customer experience and digital presence are two of the main goals driving digital transformation, sales, and marketing effectiveness is also a significant contributing factor, the report found.

More than two-thirds of organizations said that its sales and marketing department will be most impacted by digital transformation, according to the report.

The report established that data generated by IoT sensors and devices provides businesses with insights into customer preferences. Sales and marketing teams can use this data to better cater to their audience.

“Early in my research, 2012 to 2015, CMOs were leading digital transformation because of the rapid evolution of customer behaviors. Social media, mobile devices, popular apps and services, transformed how customers go through the journey and make decisions,” Solis said.

“CX immediately rose to the top of the investment list, compelling CMOs to rapidly upgrade customer-facing touchpoints and also back-end systems to integrate and personalize experiences,” Solis said. “This forced IT to expand its role in digital transformation to partner with CMOs and integrate technology investments across marketing and other corresponding functions.”

The top industries implementing AI are IT and communications, finance, banking, and insurance, according to the report.

Global spending on AI systems is expected to hit $97.9 billion in 2023, IDC predicted. In the banking and finance sectors, AI will be especially useful for threat prevention and fraud detection, according to IDC’s data.

Biggest obstacles

While digital transformation initiatives can help prevent cybersecurity issues, the projects can also be vulnerable to them, the report found.

Malware (41%) was cited as the greatest security threat for organizations, followed by security misconfiguration, and hacking.

Companies are all too familiar with Malware, as it has been a top cybersecurity threat for years.

“Malware is not new, but it is more potent at scale,” Solis said. “A new generation of security leadership and capabilities is needed. Threats are becoming more sophisticated and so is technology to defend against them.

“Many weaknesses, however, are still human. Security and digital literacy always struggles to keep up with employee awareness and their digital habits (good and bad),” Solis said. “Digital transformation creates new capabilities in work, but also exposes new opportunities for threats that create a security gap between literacy, cybersecurity and employee practices.”

However, organizations can protect themselves by not installing apps from unknown sources, clicking links with caution, downloading software directly from the source, and using mobile security software.

Other than security issues, companies also face difficulty with the cost of digital transformation, according to the report.

Digital transformation initiatives can be expensive, which is why companies must be intentional when undergoing these projects. Implementing technology for technology’s sake is one of the top ways to both fail at digital transformation and waste money.

To be successful, organizations must set clear reasoning behind digital transformations and budget to those accordingly.

For more, check out How to optimize IT costs to fund digital transformation: 3 steps on TechRepublic.

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