Any business person worth their salt will tell you that they expect a return on investment from their digital transformation operation. But, while it is undoubtedly essential to measure and set targets for this return, it is not necessarily an easy thing to do. For Chuck Donnelly, CEO of RockStep Solutions “It is key to define clear business value with KPIs to measure your progress.” Measuring ROI is difficult and time-consuming, and everyone has to find their own criteria.
This ROI is inevitably different for each company or business unit. Cap Gemini Consulting has even put together a paper on this very point to help identify a method: Measure for Measure: The Difficult Art of Quantifying Return on Digital Investments (PDF). In their study, the consulting firm notes that many companies struggle to calculate the ROI for digital investments. For example, proving the value of initiatives in social media is notoriously difficult, although organizations do try to find a link between metrics such as customer sentiment and revenue growth.
It also notes that a recent survey of marketing specialists provides strong evidence that is difficult to find the links (see graphic below). Only 16% of marketers said they were able to prove the quantitative impact of social media on their business.
Method for measuring ROI
Waiting for short-term financial results in an evolving, zigzagging transformation is a surefire recipe for failure. A business that only sees things through this prism has no chance of supporting its digital transformation to the end.
Conversely, sweeping away any form of ROI is also problematic. Any transformation must prove it bears fruit. But the fruits are different depending on the timing. A fruit tree that does not bear fruit or even show any potential to do so needs to be dug out and replaced quickly.
How do you identify quantitative and qualitative results? Defining your ROI obviously depends on your sector – everyone has to set their own relevant objectives. IDC Research carried out a survey in the logistics sector which showed the measured returns with KPIs that had been adapted to the business: a 62% improvement in the speed of resolution of delivery errors, equating to a 1.6% increase in revenues.
What’s the true payoff for companies that embrace digital transformation? Here’s a peek on numbers from an IDC Research analysis of Oracle #SCM Cloud: a five-year ROI of 267%, a 12-month breakeven, and 28% more productive supply chain teams. Read more – https://t.co/4KjgicezuQ pic.twitter.com/b5Ni1BnwZr
— Oracle Supply Chain (@SCMOracle) 11 octobre 2018
Set the right metrics
Depending on the length of the transformation, we can arrange our metrics into two categories: qualitative (for example, SEO, web traffic, social network size and engagement) and quantitative (turnover, margin, lead acquisition). The latter are often top management’s favorites because they translate into cold, hard cash. But they are difficult to achieve in the short term.
The Net Promoter Score is a tried and tested method. It is a qualitative tool, but you have to take care because it is demanding, brutal even. But it is also a way to measure progress and the improvements brought about by the process through those who use it directly.
Pick your moment
The time that you measure is important. For example, an inbound marketing or word of mouth marketing strategy takes time to get the content out there. This has to be taken into account.
Invest in the long term
Stopping mid-flow will ruin everything. According to a study by Deloitte Digital (PDF), the benefits of a digital transformation often take time to show and require a change of mindset. Hence the need to think and act in pursuit of a long-term goal – but with short-term steps.
According to this study, 94% of respondents indicated that digital transformation is a major strategic goal for their organization. However, only 68% of all respondents and only 50% of CEOs indicated that these transformations were vital to maintain profitability.
Also, the study showed that digital transformations are often considered as “defensive” investments, to protect rather than to develop their business.
Develop a new digital culture or change the existing culture?
While the understanding of digital by leaders is not always perfect, according to a 2018 Constellation research study (download the study here), digital transformation projects are more and more often carried by CIOs or CDOs and, while implementation is sometimes difficult, for 68% of the companies surveyed, digital transformation projects have generated a positive return on investment. While companies involved in digital transformation projects are aware of the importance of measuring their ROI, many are struggling to achieve it or to take into account the importance of extending their efforts over time.
Xavier de Mazenod if the founder of consulting firm Adverbe and Zevillage.net, a leading online news website dedicated to new working patterns and innovative working spaces. Xavier is a journalist by training and the coauthor of many books on blogs, new media and an ebook on influence and e-reputation.