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Measuring Digital Transformation ROI
Fifteen or more years ago, digital transformation was an exciting notion that only the bravest executives considered for their high-tech organizations. Today, digital transformation is a critical imperative for most companies, regardless of industry or size. Defined as the innovative application of new technologies designed to improve processes, products, and services, many leaders are now embracing digital transformation as the best way to deliver long-term business value.
In some sectors, technology is advancing faster than some companies can implement. Not only should executives keep their finger on the pulse of the latest technologies promising digital transformation, but they must also commit themselves to measuring return on investment once a solution has been implemented. This is why digital transformation ROI is so critical.
Digital transformation is more than simply installing a piece of software. This complex undertaking is a comprehensive, 360-degree approach to revolutionizing an operation and positioning it to compete effectively, whether locally, nationally, or globally. As organizations that have undertaken a digital transformation initiative know, it's a challenging endeavor. But the silver lining – and it's a rather significant silver lining – is that the return on investment can set a company on an upward trajectory not possible before the transformation.
Calculating Digital Transformation ROI
Achieving digital transformation is an objective worth pursuing, but it must be done in conjunction with establishing and achieving a specific ROI. In other words, organizations should not undertake digital transformation unless they can prove it has provided quantifiable benefits.
There are several steps organizations should take when measuring digital transformation success.
Identify the project
In the first step, those overseeing the digital transformation must identify what the project will set out to accomplish in conjunction with other stakeholders. One example of a digital transformation project might include converting as many manual processes as possible within a manufacturing operation to automatic. The specifics are to be determined, but the drivers behind this may be competitors gaining a more significant foothold in the market after implementing automation.
Identify the goal to be achieved
The organization should identify specific objectives with digital transformation, and each goal should be achievable and measurable. Goals can include particular revenue targets, reduction in manual processes by a specified percentage, or a specific increase in new customers. Other goals could consist of metrics around customer satisfaction or decreased product defects.
Determine necessary investments metrics
Digital transformation is a significant undertaking, requiring financial and personnel resources. Leaders must calculate the costs associated with purchasing new technologies, implementation, training, marketing and communications, and maintenance.
Determine the value metrics
In addition to calculating the costs, organizations must also identify metrics associated with the value related to return on investment. This could include an increase in brand value, positive social media mentions, and other metrics around how much weight is associated with the digital transformation results.
Establish a timeframe
Everything measured concerning digital transformation outcomes must include a timeframe. Establishing measurement metrics is essential, but it must be associated with a specified timetable to show real return and value. If one of the objectives is automating the customer ordering process, a realistic yet meaningful timeframe to determine an ROI might be 6 to 12 months.
Measure regularly and adjust accordingly
Digital transformation, while likely having a beginning, middle, and end, requires ongoing measurement to ensure continued ROI or correct course when warranted. New technologies and changes in the market may warrant pivoting well after the transformation has been achieved. One of the hallmarks of digital transformation is that transformation never truly ends. What digital transformation does is allow the organization to remain flexible to address changes or opportunities in the marketplace now and in the future.
One easy example of digital ROI measurement is calculating the net profit divided by the investment costs. Other ways to measure digital transformation are through active usage metrics (how many people use the digital assets), participation level (how many end-users are engaged as a percentage of the total audience), and workforce productivity (calculate the increase in revenue per employee).
How to Improve Digital Transformation ROI
Digital transformation is multifaceted, and determining ROI is challenging yet very possible. Several additional factors must be considered, including net present value, depreciation, additional ancillary costs, and more. The key to determining long-term success is starting with baseline figures, measuring improvement, and tracking costs within the timeframe selected.
As each digital transformation initiative concludes successfully, organizations can learn from each journey and use those learnings to inform the next digital transformation.
There are several recommendations to keep in mind to help organizations measure real ROI from digital transformation initiatives.
Take time to plan
Organizations undergoing digital transformation must determine which metrics are essential to track and estimate what they anticipate achieving. It’s also vital that leaders build an ROI model beforehand to measure metrics related to the objectives they identified when planning the initiative.
During any change management undertaking – and digital transformation is one – make sure changes, new technology, new expectations, and updated processes are communicated clearly, often, and to the right audiences.
Carefully evaluate every technology
Not every new technology is suitable for every organization. Selection based on price is not necessarily the best course of action. Organizations must choose the best technology to deliver the best ROI for their specific situation.
Create a repeatable process
Once the first digital transformation is completed successfully and an ROI established, companies can learn from their experience and incorporate those practices that worked and discard those that did not work during their next digital initiative.
How Blytheco Can Help
Digital transformation is a complex and daunting undertaking, but companies don’t have to go it alone. Blytheco can provide the necessary expertise to navigate the often-difficult selection and implementation process associated with every digital transformation initiative.
Contact one of our digital transformation experts and learn how we can tailor a solution for your organization and help you establish a return on investment that benefits your business.