Digital transformation has many components, from process transformation and business model transformation to cultural and developmental transformation.
The analytics to gauge the level of success of digital investments are based on the key performance indicators, which measure profitability of the digital transformation investment.
These analytics ensure the investment meets or exceeds the hurdle rates originally projected for the initiative.
However, a recent survey
of 1,500 global C-level executives by EY-Parthenon revealed that while companies are doubling down on tech investments, they struggle to clearly define their digital investment strategy.
Centralized Governance Approach
Those who are succeeding have taken a centralized governance and oversight approach to benefits and associated cost outlays. These leaders have also developed formal programs to identify, measure and report digital investment outcomes.
“The central issues to determine are how you’re allocating capital to make this digital transformation and how you are measuring the return on the investment,” says Laura McGarrity, EY-Parthenon Principal of digital innovation and one of the report’s authors. “If you’re saying that you’re going to get 5x return, how do you make sure you pump that return back into the business and are measuring it accordingly along the way?”
She says all stakeholders, from the CEO down through to the individual business units, need to be clear about the metrics that are driving that return on investment.
“The core issue is knowing what you’re trying to achieve,” McGarrity says. “The ultimate goldmine is creating a data lake that enables you to bring in all of this exhaustive data you’re collecting, actually make sense of it and actually democratize it for the organization.”
Digital Governance Framework
Having a well-designed digital governance “framework” is essential and should include establishing decision making roles and identifying who is accountable and clearly establishing accountability and ownership.
This framework must also maintain ongoing change management authority for the organization’s digital endeavors and support the mantra of increased sales, decreased costs, meeting regulatory requirements, and risk mitigation.
“The key is to use the governance framework to ensure digital transformation is not blocked, but encouraged and nurtured,” says Rich Quattrocchi, vice president of digital transformation at Mutare, an enterprise communications and security provider. “Capital allocation should always be tied to the enterprise’s hurdle rate for investment and speed to market, and digital transformation is no exception.”
From his perspective, balancing the two is essential, keeping in mind that “perfection” is the enemy of “good enough.”
“The projects that support the mission, strategy, and tactics yielding the highest ROI should attract the capital,” he says. “Keep in mind that speed is a competitive advantage so digital transformation efforts must be agile. Not every bet will succeed, so don’t bet the farm on any one thing, but it is ok to bet an acre here and there.”
Variety of Stakeholders Needed
He pointed out the key stakeholders measuring digital returns will depend on the digital transformation project.
The stakeholders involved include the C-suite, key business units, implementation teams and ongoing support teams, and since the stakeholders vary, the key stakeholders are the ones who are ultimately responsible for profit improvement.
“The entire point of digital transformation is increase sales, decrease costs, meet regulatory requirements, and mitigate risk,” Quattrocchi says.
McGarrity adds that the CFO will ultimately be the central stakeholder and the one who must always be in lockstep with the plan to use digital transformation investments to drive business value.
“There are nuances and layer to the key stakeholders involved in sort of determining those metrics,” she adds. “It really starts with who is driving the digital strategy for the organization. Is it the chief strategy officer? Is it the chief digital officer? Typically, it falls within those two roles.”
Rick Sbrocca, CMO at IT solutions provider MNJ Technologies, adds that while centralized IT is the leadership hub of digital transformation, key departmental stakeholders are more involved than ever before.
For example, sales and marketing leaders may require a CRM system, chief people officers may need more HR automation tools and CFOs may require fintech and data analytics support.
“The key to analyzing success is data,” he says. “Data drives the business and having access to the right data at the right times is becoming more important for all key stakeholders.”
How to Apply Measurements
Sbrocca explains that it is important to keep in mind that the same measurements used to measure overall corporate business success such as return on invested capital (ROIC), ROI, Net Promoter Score and employee engagement, can be applied to digital transformation initiatives.
“Methodologies and technologies for data analytics should be determined on a case-by-case basis and focus on the percentage of business growth that the digital transformation effort has enabled, and how teams have been able to perform as a result,” he says.
Technologies that are becoming more relevant here include cloud migration, security enhancements, AI exploration and robotic process automation (RPA).
“Businesses should develop a digital transformation governance strategy and plan, which should be a subset of the organization’s business,” Sbrocca adds.
This can include continual evaluation of business goals and where further optimization can be achieved, as well as an investment of time and resources to research available tools that will help the organization achieve its goals.
Measuring Results: It’s a Struggle
Quattrocchi points out that many businesses still struggle to measure and achieve results from digital investments due to poor planning and the lack of establishment of KPIs before taking on a digital transformation project.
“The first step of any digital transformation project is identifying the problem you are solving for, the KPIs you will use to define success, and the building in the hooks to provide the measurements,” he says. “Measurement should be objective, quantifiable, transparently communicated and, most importantly, there should be no repercussions for failure.”
However, if the investment does fail, it needs to fail fast, which enables the enterprise to pivot if required and move to the next objective.
EY-Parthenon’s McGarrity recommends starting with incremental digital improvements and developing the metrics to be able to see some of those success.
“This also means understanding the metrics you’re creating in the near-term, while certainly tied to your strategy long term, may not drive instant revenue or drive an instant transformational impact,” she says. “You have to be realistic and say, look, we think we can free up, $500,000 in cost if we can automate this particular activity.”
She points out not everything successful can be measured in revenue, and not every digital investment will have an instant impact.
“That’s really important to communicate back to executives,” McGarrity says. “It’s about starting small and learning through those incremental opportunities.”