Budgeting smarts for digital transformation: 4 tips

Budgeting smarts for digital transformation: 4 tips

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So your company has seen the light: You better get busy with digital transformation – or get killed. But don’t forget that money talks. Without enough funding, digital transformation is rendered as just empty promises.

Like digital transformation itself, budgeting for digital transformation requires a corporate rethink. Consider these four best practices to ensure that your digital transformation efforts get the resources they need.

1. Ensure a C-suite mandate for change. Digital transformation isn’t cheap. Home Depot, for example, planned to spend $300 million on technology allowing customers to order on their phones and pick up in the store, but ended up increasing that fivefold to cover additional digital innovations, according to analyst firm Forrester. Wal-Mart and General Electric, among others, are devoting more than $1 billion to digital transformation.

While most companies will spend far less than these giants, the CEO must embrace the transformation as a business imperative. Transformational initiatives live or die based on C-suite commitment. Without enough funding, digital transformation is just lip service and nothing will be accomplished other than a bunch of presentations and erratic process changes. 

2. Define the company’s specific transformation story. Is the company on the verge of being disrupted by a more innovative, nimble competitor? Or, conversely, does the company have an opportunity to play offense and disrupt its market through digital technology? Your budget priorities should follow accordingly. The digital transformation budget should focus on initiatives that truly grow or defend the company’s market position.

Each “chapter” of a transformation story, such as an opportunity you've identified for automation, involves a series of processes to be executed. GIve each chapter a budget target. By breaking down the overall problem, organizations can develop a more manageable picture of cost.

3. Plan for flexibility.  Because these efforts contain so many unknowns, budgets should reflect the incremental nature of the transformation. While many organizations will expand efforts over time, after pursuing quick wins, the commitment to investment in the overall initiative must be strong. Digital transformation can't be seen as a discretionary activity “as time allows.”

While the overall timelines for digital transformation are longer than the planning for capital expenditures, the individual budget allocations should be done on shorter time scales with the ability to change and adjust as the transformation continues. For example, you'll probably change how capital is allocated across business units.

4. Highlight growth results. As a business becomes more friction-free and automated, it is fairly easy to see the savings in terms of reduced headcount or less capital spend. However, you can only optimize so far. Successful digital transformations focus more on measuring added business value from new services, new delivery mechanisms, and the ability to leverage existing processes in new ways.

Digital transformation is complicated enough. By following these four best practices, you can better navigate paying for it.

As Chief Technology Officer, John is responsible for driving AUTOMIC's automation strategy. With more than 20 years of IT industry leadership experience, John was most recently CTO of CenturyLink Innovation Labs focusing on new and emerging cloud technologies, including multi-cloud interoperability and DevOps.

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