Evaluating and Measuring ROI from Your Digital Transformation Initiatives
Digital transformation is helping enterprises achieve unprecedented margin improvements, smudging the lines between industries, and creating a need for dramatic efficiency gains across the board. Enterprise digital transformation carries the ability to streamline your business process, manage and reduce your operational cost, and contribute to revenue growth. According to a recent global report, 91% of businesses are engaged in some form of digital initiative, and 87% of senior business leaders say digitalization is a priority.
However, many organizations fail to create a well-structured, constantly rethought digital transformation strategy to avoid the downfalls of the digital transformation initiatives. According to another global report, a massive 70% of all digital initiatives fall short of their goals despite having key-in from senior stakeholders within the organization. Digital transformation is more than simply installing a piece of software, rather it is amassive and complex undertaking with 360-degree approach to revolutionizing processes. Enterprises that have undertaken digital initiatives understand the complexities involved. Simply having a good digital transformation and execution strategy is not enough to guarantee success. Businesses need to continually measure the return on investment (ROI) from their transformation initiatives to ensure that they are aligning with larger business goals.
Good Practices in Calculating Return on Investment (ROI) from Digital Initiatives
Achieving digital transformation and reaping tangible benefits out of them is a goal worth pursuing, but it must be done within the purview of establishing and achieving a specific ROI. Enterprises should undertake a digital initiative if they can prove it has provided quantifiable benefits. Here are some good practices in calculating ROI on digital initiatives.
Identify Initiatives:
Constantly assessing the market and identifying opportunities can help the business work better. There are a few steps that can help simplify the process. Taking a close look at your target market and understanding what needs are not being met and what trends are emerging are the initial steps in identifying a good initiative.
Define Investment Goals:
Digital transformation is a significant undertaking and defining goals can be a detailed process including assessment of costs associated with purchasing new technologies, implementation, training, marketing and communications, and maintenance.The organization should identify specific objectives with digital transformation, and each goal should be achievable and measurable. Goals can include particular revenue targets, a 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.
Digital Experiences
It is imperative to focus on the kinds of digital experiences your customers and employees expect. Human-centered design puts the individual at the center of the interaction and is critical to determining how your customers and employees will interact with each other and what experiences they need, want, and expect. Focusing on the needs and desires of each customer group and mapping out the full customer journey, from initial interaction to customer support will yield benefits for the organization in more ways than one. Some of the important metrics in assessing digital experiences can be Net promoter scores or likelihood to recommend, Customer reviews and feedback etc.
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. Few Metrics to set for measuring ROI include:
- Cost reduction of operations
- Productivity boost
- Business growth
- Data security
- Organizational culture
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
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).
Digital transformation could be a complex undertaking but once the first digital transformation project 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.