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Digital transformation ROI: How to check a project's payoff
Trying to do an investment check on digital transformation projects? 5 expert tips
5 digital transformation ROI best practices
In order to set up a holistic view of digital transformation performance, IT leaders can take a number of actions:
Set initial metrics in advance
In many cases, these metrics will be hypothetical, and that’s okay. “The value of an investment will only be proven by the business outcome; there is no other measure,” says Prashant Kelker, partner with technology research and advisory firm ISG. “The challenge is that business outcomes cannot be predicted; they have to be guessed as a digital transformation progresses. This means a fundamental pivot from a large transformation mentality to an approach focused on continuous business outcomes.”
[ Read our related story: Digital transformation: Are you using outdated IT metrics? ]
Develop micro-metrics for agile experiments
“Enterprises should not focus on the big change, but instead the step-by-step process,” Kelker says. “This forces companies to change from one large plan and one large target architecture to having to manage dozens of microplans. This protects investments because you are constantly either getting immediate business value or killing things that don’t work.”
However, these discrete efforts “should be evaluated across integrated processes from an investment perspective to ensure ROI,” says Andrew Alpert, managing director with Pace Harmon.
Incorporate business outcomes
“A look at the total value will include impact in three areas,” says Edwards. IT leaders should incorporate strategic impact (e.g., revenue growth, lifetime customer value, time to market), operational impact (e.g., productivity improvements, scale, operational efficiencies), and cost impact.
Look beyond cost savings
“While the business cases for technology projects have most recently been heavily focused on cost savings, organizations that make strategic and operational impact their objective consistently achieve higher returns across all dimensions,” says Edwards. Be sure to include those in the digital transformation metrics.
Don’t forget to include the digital transformation of IT itself. “Digital transformation initiatives should help identify new possible requirements for technology vendor relationships based on new available capabilities, such as agile collaboration with providers driving faster delivery times,” says Caplan.
Use metrics to review and adjust regularly
“On a periodic basis, perhaps quarterly, a check should be made to determine whether there are signs that [projects are] having the type of impact anticipated or [are] contributing in an unintended manner,” Edwards advises. When a project is falling short, IT can make changes. “If business requirements have changed, sufficient learning has been gleaned from the project, or it is determined the project will not deliver results, the project may be terminated.”
[ 7 new rules of the road for IT leaders: Get our infographic and learn from CIOs succeeding with digital transformation. ]