The age of digital disruption is here, and no company is immune. Leaders who believe their companies can afford to be cautious in their digitization overhaul should think again. While they may be moving slowly and carefully, competitors are moving at great speed. Still, companies can’t afford to hastily throw resources into strategies that won’t work. So what’s a company to do? That’s where the digital ROI framework comes in.
Digital ROI allows companies to gauge how well investments are paying off throughout a firm’s entire ecosystem during a digital transformation. It reveals whether companies should pause and reset if necessary or push harder for strategies that are working.
The digital ROI framework balances digital investments in several focus areas. Each focus area is then associated with specific performance indicators. In this way, the framework can provide the holistic view companies need to ensure an organized and effective digital transformation while adhering to broader strategic goals.
Key to the framework is taking frequent measurements of what is working and what isn’t, how much time those actions are taking, and whether they are boosting revenues and cutting costs. This allows companies to track and calculate the impact of their digital initiatives more accurately, retool when necessary, and make teams accountable for their roles. The exhibit below shows how a company’s digital ROI framework might look.
For most companies, regardless of size, industry or geography, digital investment can be broken down into six strategic focus areas: customers, employees, operations, safety and soundness, infrastructure, and disruption and innovation. Each focus area is assigned a goal (or goals) that works toward the desired digital transformation, and each goal is given specific performance indicators and a timeframe to hit that mark. Many of the metrics will be quantitative, but they should be balanced with softer, more qualitative judgments of progress. Both kinds of metrics must be appropriate to the company’s industry and geography and aligned to its overall strategy. And they must be made a part of every employee’s individual performance objectives in order to drive the change required.
A digital ROI framework allows companies to gauge how well investments are paying off across a firm’s entire ecosystem.
Why is keeping close tabs on your digital overhaul important? It’s expected that by 2019, companies around the world will have spent a total of US$2.1 trillion on digital transformation as they work to answer a wide range of demands: ever greater mobility; easier access to more transparent information; and flexible, pleasing user experiences. Basic operations, too — the factory floor, the supply chain, marketing and sales — are being transformed.
Further, companies are moving to capture revenues by shifting from strategies based on selling physical products to those built around selling the data and services now becoming available through digitization.
This massive investment brings with it huge risks, especially for companies that neglect to take into account the impact of digitization in every aspect of their business. Indeed, by 2018, 70 percent of siloed digital transformation initiatives are expected to ultimately fail.
A holistic digital transformation that uses the digital ROI framework can help companies navigate around the potential pitfalls. The rewards of a successful transformation are great, but companies embarking on the process are well advised to expect an ongoing, complex, and expensive process, even with a digital ROI road map in place.