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Digital transformation: How to beat the funding challenges
Executives continue to struggle with how to fund digital transformation projects. Let's examine three funding pitfalls and approaches that avoid them
Proven approaches to transformation funding
To succeed in a multiyear IT modernization or digital transformation initiative, companies must take an agile, iterative approach, and that includes the funding strategy.
Venture Capital Approach. The model used by venture capitalists and software startups, as well as R&D funding models, is an effective model. Startups, for instance, associate each step of funding (Series A, Series B, and Series C) with completing milestones or stages of the journey.
Portfolio Funding Approach. Transformation journeys require developing new ideas. Many different projects will need funding across multiple departments or business units. One way to de-risk these activities is to consider funding from a portfolio approach instead of individual projects that pay for themselves. Many individual projects will lack an ROI at the initiative level, but there will be a strong ROI at a portfolio level.
Both approaches break funding down into more bite-sized pieces, which helps gain buy-in and ongoing support because it minimizes risks.
Budgeting and allocating resources and capital at the project or stage level, rather than the overall initiative at the outset, allows companies to adjust funding according to the risk profile of each stage in the initiative. It also ensures budget flexibility for unknown factors that may arise at any stage on the journey.
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