By: Emad Al Subehat, Director of Finance & Corporate Services
The journey to digitally transform a company or organization encompasses numerous advantages to obtaining comprehensive visibility over operations, data-driven insights, strategic decision-making, and overall, to achieving a smoothly smart and successful business. But there is more to it than that, digital transformation was seen to present a significant impact on profit & loss (P&L) statements, and major effects that are reflected over time and in later phases.
The Profit & Loss statement supports companies in discovering how their profits can skyrocket, whether by cutting costs or boosting sales. The way it works is simple, P&L statements will show companies their own realized profits or losses after conducting a comparison procedure between total revenues and total costs and expenses. Taking on the digitization path has been proven to result in a direct and indirect impact on companies’ profits and losses.
The foreseen results, as businesses should keep in mind, vary from one company and one industry to another. For instance, the retail industry reported reduced costs and an increase in efficiencies of 69% after adopting new digital solutions. On a more general note, human-centered technology is expected by Forrester to drive competitive advantage and a rise in productivity of 3-5%.
Digital growth has been an incredible added value to companies and organizations adopting innovative solutions and technologies. In turn, there have been several common ways that were found to contribute to Profit & Loss effectiveness, including cost reduction, revenue growth, improved profit margins, enhanced customer engagement, operational agility, and competitive advantage.
The Smart Way to Go Digital
Digital transformation is the most reliable way to empower a company, even though it can be a complex and resource-intensive endeavor that demands specialized knowledge, expertise, and investment in technologies and infrastructure. Instead of attempting to manage the transformation process internally, many companies have found it beneficial to seek the assistance of external companies specializing in digital transformation services. This approach can have a positive impact on a company’s Profit & Loss statement in several ways.
Businesses determined that relying on an external specialized company in the quest for digital transformation is the secret to receiving the best level of positive impact on Profit & Loss statements. It was discovered that companies can realize a reduction of up to 30-35% in talent costs when pursuing external support. Taking on external resources is considered the smart way to digitally transform operations and businesses, especially in terms of cost efficiency, quality, and expertise.
Deploying external support would mean that your company’s digital transformation journey will not start from scratch, considering that companies specialized in the field provide at least 30% of a concrete base characterized by reliability and proficiency. Accordingly, external professionals would have the capability to boost a company’s development to contribute more positively to the Profit & Loss statements.
It is notable to mention that overhead costs can be high within an organization. Hence, when resorting to external resources for digital transformation and implementing innovative solutions, companies can save up to 22% in direct costs and about 35% in indirect costs.
Companies can navigate their digital transformation journey more effectively to maximize their long-term profitability. A successful transformation is better guaranteed when leveraging external expertise and resources after a careful process of evaluating potential partners and selecting a reputable tech company that aligns with the organization’s goals and objectives.
Profit & Loss: Gains Through Innovation
Technology in work operations was found to significantly reduce human error by adopting automation and reducing the workforce, which in turn offers a direct value from a financial perspective. Moreover, profit and loss statements can be positively affected by reducing timing costs, which parallels revenue growth.
The most common ways that were found to impact a company’s Profit & Loss statement upon digital transformation are as follows:
- Cost Reduction: Solutions to improve a business can be a main driver for increasing profit and saving costs over the long term. This is led by the results of transformation such as reducing labor costs, minimizing errors, and boosting the overall operational efficiency of an organization among other targets that are met.
- Revenue Growth: Companies can achieve an increase in sales along with improved customer retention, leading to noticeable revenue growth. Transformation is a solid method for revenue generation as it leads to an excellent improvement in the customer experience as well as reaching new customers and markets.
- Improved Profit Margins: Digital transformation unlocks many capabilities that enable businesses to optimize their pricing strategies in the best way possible, while also presenting reliable data analytics that facilitates better demand forecasting and enhanced customer insights. In turn, companies will see an improvement in their profit margins by optimizing product mix, pricing structures, and inventory management.
- Enhanced Customer Engagement: The more customer engagement a company can obtain, the higher the sales and long-term revenue growth are. With digital transformation solutions, companies can offer all the strategies that drive enhanced customer engagement such as personalized marketing, targeted promotions, and customized experiences.
- Operational Agility: Financial performance can be incredibly improved thanks to a company’s agility that can support adapting to market dynamics, optimizing resource allocation, and identifying opportunities. Operational agility is gained through the new capabilities that come with transformation, including real-time data, analytics, and predictive resources that enable a quick response to market changes and emerging trends, thus encouraging companies to make informed business decisions.
- Competitive Advantage: Gaining a competitive edge in the market empowers companies to attract new customers and retain current customers, consequently contributing to long-term profitability for the company. Digital transformation can support companies in having a distinguished status by presenting advanced products, services, and business models.
While a successful digital transformation will always deliver a positive impact on the Profit & Loss statement, this impact varies based on the digital strategy, execution, and industry dynamic of each company and organization. Over time, companies have found that to secure an effective Profit & Loss statement, it is fundamental to have an unclouded vision and align digital initiatives with the company’s own personalized goals and continuously monitor and measure outcomes while making the necessary changes during the implementation of transformation.
To Recap,
Digital transformation is continuously growing for its well-known benefits and advantages to gain new capabilities from smoother operations to strategic decision-making. Companies have found that the benefits of digital transformation go beyond, encompassing a positive impact on their profit and loss (P&L) statements. Those effects are reflected in the long term, enabling businesses to identify cost reduction and sales increase for skyrocketing profits. Companies have also found that seeking external resources to implement digital transformation can play a significant role in receiving the best possible impact on P&L statements. This approach is effective in many ways, as it guarantees cost reduction, revenue growth, improved profit margins, enhanced customer engagement, operational agility, and competitive advantage, truly empowering businesses and easing the path to successful operations, and larger profits.
About the Author
Emad Al Subehat is the Director of Finance & Corporate Services at Technology Strategies Middle East (TSME), with 15 years of experience in the financial industry. He presents rich expertise in all levels of finance and accounting in the High Efficiently Group with a prominent level of compliance, control, and maturity. Mr. Emad is skilled in leading and motivating staff teams for superior customer service and smooth office operations, he excels in interacting with diverse groups and individuals while being recognized for consistently maintaining a positive and professional attitude.
