Worldwide spending on digital transformation technologies and services will reach $2.3 trillion in 2023, forecasts IDC in its Worldwide Semiannual Digital Transformation Spending Guide. That will mark an important milestone, notes Craig Simpson, research manager at IDC’s Customer Insights and Analysis Group: It will be the first time digital transformation will account for the majority of IT spending (53 percent) in the IDC forecast.
Measuring the return on this increasingly significant category of the technology budget is tricky since these initiatives transcend functional and business boundaries and take time to yield results.
But IT leaders can take a number of actions to boost the long-term value that their organizations derive from digital transformation dollars. Taking these steps is especially important now for IT leaders, who face greater funding hurdles as the pandemic puts pressure on technology budgets.
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7 tips for increasing digital transformation ROI
“Return on investment (ROI) analysis is an important component of the business justification behind any digital transformation effort,” says Elizabeth Ebert, IT advisory lead for North America at IT consultancy and service provider Avanade. “While occasionally a CEO-aligned, board of directors-supported strategic initiative can gain approval without ROI justification, having an ROI framework to guide a transformation effort is actually an important aspect of guiding the process and measuring success.”
Consider these seven tips to boost digital transformation effort ROI:
1. Find a focus
“It is crucial that there is agreement on what the transformation will deliver in very specific terms,” Ebert says. “Strategic transformation direction may be hard to quantify, so some flexibility may be necessary to drive particularly innovative or critical efforts.”
This becomes the North Star guiding the initiative. For example, many organizations may be currently focusing on projects that increase business resiliency, which has proven vital during the COVID-19 crisis.
“Establishing that direction, building consensus, and setting expectations in terms of ROI/investment is key,” says Ebert. “Aligning with the business strategy foundation is likely to unlock ROI contributions that accelerate return through revenue uplift or tapping into new customer segments or markets.”
2. Ask (and answer) the right questions
IT leaders who achieve the best results from digital initiatives use comparative analytics to measure the effectiveness, adoption levels, and business impact of their digital programs, says Shafqat Azim, partner in the digital practice at global technology research and advisory firm ISG. Specifically, they gather data that helps them answer three important questions:
- Is the organization adopting and scaling the right digital capabilities at the right pace?
- Is the organization investing in the right capabilities at the right levels?
- Is the organization getting the expected value and returns from its digital investments?
3. Assemble a dream team
“Truly transformative digital initiatives will be cross-functional, so the team needs to represent the parts of the organization that will benefit from the targeted outcomes,” Ebert says. This not only creates the necessary business and technical understanding foundation for the initiatives but also engenders greater commitment to the long-term success of the effort.
“High-functioning teams will consider business and technical challenges more holistically and drive to higher quality outcomes and ROI,” Ebert says.
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4. Don't over-rely on DIY
Internal expertise is critical. However, those organizations that see the biggest bang for their bucks do so with a little help from their digitally experienced tech partners. “The most successful organizations are leveraging market expertise to accelerate digital transformation,” Azim says, “versus trying to do everything themselves in-house.”
5. Consider agile bursts
Ebert advises structuring transformation efforts into “agile bursts” of activities that allow the organization to continually refine objectives as more is revealed during the journey. “Long transformation efforts run the risk of being unwieldy to manage and stay focused on objectives,” Ebert says.
“Smaller work segments allow a ‘try and learn’ approach to continuously respond to rapidly changing business conditions but accelerate delivery of targeted outcomes.” IT leaders are more likely to prevent project overruns and other inefficiencies by taking this approach.
6. Call out the bright spots
“Digital transformation is a journey and not a single enterprise-wide program, says E.G.Nadhan, Red Hat’s Chief Architect and Strategist, North America Commercial. “It is a combination of several activities and projects across the enterprise that gain momentum and realize outcomes at varying pace during this journey. A common theme across these activities is instrumenting welcome change for the internal employee experience as well as the external consumer experience.
“Calling out the bright spots – the projects and activities that realize tangible, quantifiable outcomes – is vital to fueling such change with a purpose.
“Bright spots are fine instruments for measuring – and augmenting – the returns from digital transformation for these reasons:
- The number of such bright spots is an easy metric to track
- Recognition of the techniques and best practices behind these bright spots can fuel their adoption across the enterprise, thus augmenting the ROI
- Diversity of these bright spots can fuel innovation at the intersections of their respective domains – business units, technologies, architectural layers, geographies, etc.,” Nadhan says.
7. Pay attention to what matters most
“When you look at the organizations that have the most success in implementing digital transformation campaigns… they have ‘capability groupings’ that are driving the highest value,” says Azim. Their digital initiatives may fall into three categories of business outcomes:
Revenue increases: Organizations that see higher than average revenue increases have adopted regular assessment of the impact of automation on their employees, are processing and analyzing IoT data streams, and co-create digital products with customers and partners, Azim says.
Customer retention improvements: Those doing significantly better with incremental customer retention tend to adopt common tech platforms and have enabled end-to-end visibility, says Azim.
Operating expense reductions: Organizations reaping higher than average operating expense reductions are more likely to have adopted personalized content, leveraged IoT data better, and embraced common tech platforms and digital product and service co-creation, Azim says.
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