2025 digital transformation budgets: Realigning expectations

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When “digital transformation” first emerged as a strategic priority nearly a decade ago, it promised to revolutionise all industries by integrating cutting-edge technologies to drive efficiency, innovation, and growth. Companies raced to modernise legacy systems, embrace data-driven decision-making, and adopt automation, but often with mixed results.

While some companies have achieved significant ROI through increased efficiencies, the more common scenario includes setbacks due to unclear objectives, fragmented implementation strategies, and underestimated organisational barriers. In fact, a McKinsey study found that “while 90% of companies have launched some flavour of digital transformation, only a third of the expected revenue benefits, on average, have been realised.” This trend underscores the need for clear expectations, alignment, and processes when organisations are looking to digital transformation efforts to drive growth and accelerate operations within their business.

In science-driven industries like pharma, biotech, and materials, these challenges are even more pronounced. However, it’s clear that traditional research and development (R&D) strategies are no longer adequate for driving discovery and innovation – or competitive advantage. As we enter 2025, the digital transformation landscape is evolving once again with the advance of generative AI, and now AI agents, and the budgets funding these efforts need to keep up to bring improvements and success to organisations.

Recalibrate expectations

As leaders finalise their budgets for 2025 and plan for 2026, the first step they need to take is to recalibrate expectations and recognise the fundamental differences between digital enhancements and true digital transformation. Each path carries its own set of costs, benefits, and implications for the business. Misunderstanding these differences – or investing in one while expecting results from the other – often leads to misalignment, diminished ROI, and stalled progress.

Digital enhancements – such as introducing a new SaaS product in the lab – can streamline specific tasks and processes, improving efficiency and performance. However, these incremental improvements do not fundamentally change how work is done. Digital transformation, by contrast, is a more profound evolution. It redefines how business units and researchers operate, integrating technologies along with coordinated changes to skills, processes, and data to enable new ways of working, collaborating, and innovating.

Both approaches are valuable, but digital enhancements alone are unlikely to deliver transformative results. Instead, they should be implemented as part of a broader, strategic roadmap that connects short-term incremental gains to long-term transformation objectives. This approach to change ensures that enhancements contribute meaningfully to larger goals and helps organisations maintain focus on building sustainable competitive advantages.

Effective budget structuring

After allocating a budget for digital transformation, many leaders mistakenly assume the process will progress organically. However, how the budget is structured can significantly influence the success of the initiative. Fragmented allocation often stalls or stops progress, leading to uncoordinated efforts and missed opportunities for impactful change. To address this, my second piece of advice for leaders is to structure their budget in a way that enables strategic alignment and sustained momentum.

In many organisations, technology budgets that include digital transformation initiatives are under the control of siloed business units (BUs), who are tasked with achieving short-term growth targets. This structure often creates a conflict of interest, given digital transformation is viewed as a long-term investment, and the business unit’s focus is typically on immediate performance metrics. For example, a lab pressured to maintain or improve productivity levels might deprioritise new transformation initiatives that inherently disrupt existing workflows, even if those initiatives promise long-term gains.

A more effective approach is to establish a centralised digital transformation authority responsible for managing and distributing funding across projects with short-, medium-, and long-term objectives. In industries like pharma, where innovation cycles often span several years, this centralised structure supports a cohesive strategy, ensuring projects are evaluated and prioritised based on their alignment with overarching transformation goals. It also eliminates redundancy and enables resource sharing across departments, accelerating progress.

With this structure in place, progress can be tracked across the organisation, allowing business units to tangibly see the value of digital transformation efforts. This, in turn, can create broader support for these initiatives, reinforcing the importance of continued investment. If it is desirable for the business units to provide the budget for initiatives that benefit them, then it is still a good idea to create a centralised budget for bootstrapping transformation projects for a year or so, and then leaving it up to the BU leader to decide if they want to continue funding the project after that. We have found this to be an effective strategy for overcoming internal resistance for new initiatives in the short term while distributing authority and accountability appropriately over the longer term.

In addition to centralisation, it is critical to define clear decision-making mechanisms for budget allocation. These mechanisms should prioritise projects based on their potential to drive strategic objectives such as innovation while balancing near-term business needs. For example, initiatives with scalable, cross-functional benefits might take precedence over smaller, localised improvements. Decision-making frameworks can include criteria such as alignment with strategic goals, ROI potential, and readiness for implementation.

Looking ahead

The urgency to modernise has never been more acute, and 2025 technology budgets should reflect this reality. While there is no one-size-fits-all formula for digital transformation budgets, leaders must approach them differently moving forward to ensure the success and ROI they’re seeking. A strong start begins with rethinking budget structures and realigning expectations, while having an understanding of the difference between digital enhancement and transformation, laying the strong foundation needed for sustained innovation and growth.

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Michael Connell
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Michael Connell