Just about every company understands the importance of digital transformation in 2021. From surging online consumer activity to the digital tools that can drastically improve communication, collaboration, and productivity, it’s clear that the companies that fail to digitize their operations and services will be at a severe competitive disadvantage.
But for a company’s digital transformation work to be deemed successful, you will need to assess several key performance indicators. An effective digital transformation isn’t a box companies can check: It’s an ongoing process that requires constant evaluation and adjustment.
Measuring digital transformation success: 5 questions to ask
With that in mind, here are five key questions to ask about your digital transformation. Do your current digital transformation metrics reflect these factors?
1. Has employee productivity improved?
The whole point of a digital transformation is to create value by enabling employees to work more efficiently. Companies need to track whether their digital transformation strategy is actually meeting this goal: Are employees more engaged and productive than before? Have automated tasks opened up more time for other strategic activities? Has productivity increased?
McKinsey reports that $13 trillion could be added to global GDP by 2030 through digitization, automation, and artificial intelligence (AI). But to take advantage of this windfall, companies must be able to determine whether their digital transformations are working as intended. According to PwC, companies cite several obstacles to productivity tracking – from time and budget constraints to employee resistance to a lack of technology tools.
These are reminders that digital transformation managers need to allocate resources to evaluate whether these transformations are achieving their goals, get buy-in from employees on the implementation and tracking process, and keep the focus on concrete indicators of success throughout the process.
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2. Have you received a return on your investment?
Along with employee productivity, revenue growth is one of the clearest metrics for digital transformation success. The 2020 PwC Global Digital IQ survey found that two-thirds of companies say “revenue growth and profitability would suffer if they didn’t digitally transform quickly enough.” The same survey found that the companies with the most effective digital transitions had 17 percent higher profit margin growth than their peers over three years.
When evaluating their digital transformations, companies shouldn’t examine only whether revenue went up or down. They should compare sales figures before and after the transformation, taking project costs, changing economic and market conditions, and other variables into account. This will provide an accurate picture of the transformation’s impact on their bottom line.
If the return on investment (ROI) isn’t immediately apparent, this doesn’t mean the transformation has been a failure. There are often hidden costs associated with digitization, and companies should be agile enough to absorb them and determine whether or not they need to change course. PwC found that the top-performing companies actually spent 33 percent more than their peers on the digitization process, which helped them get the most out of it.
3. What is the level of adoption and usability?
Successful digital transformations are all about integration – if employees don’t adopt new technologies, digitization will be more of a hindrance than an asset.
During a digital transformation, companies need to discover whether and how employees are using new software so they can make informed decisions on which technologies to deploy and where. This process will also enable them to audit legacy systems to determine which ones are adding value and which ones are no longer viable. It’s essential to develop a digital integration strategy that incorporates legacy systems to the extent possible while discarding ones that cost more money than they return.
Remember, you could have the most sophisticated technology in the world, but it won’t do much good if your employees don’t want to use it.
[ Learn the non-negotiable skills, technologies, and processes CIOs are leaning on to build resilience and agility in this HBR Analytic Services report: Pillars of resilient digital transformation: How CIOs are driving organizational agility. ]
4. Has your rate of innovation improved?
Another key performance indicator for companies in the process of a digital transformation is innovation – more specifically, how much innovation can be attributed to digitization. As the global economy becomes more dynamic, complex, and interconnected every day, constant innovation is vital for companies to remain competitive.
The digital transformation reflects dramatic shifts in consumer demand. According to a Gartner survey of almost 2,000 CIOs, more than three-quarters of respondents said demand for digital products and services increased in 2020, while 83 percent said it would increase in 2021. This doesn’t just mean companies have to provide high-quality digital products and services, it’s also crucial to focus on making digital experiences as intuitive and streamlined as possible.
Meanwhile, the digitization of internal processes facilitates innovation – from the use of cloud-based communication and productivity tools to logistics management systems that reduce waste and help you use human capital more efficiently.
5. Are you reaching more customers?
The digital transformations taking place across the economy have changed the competitive landscape for good. There have never been more digital channels for consumers to discover and interact with brands, and Nielsen reports that American adults spend around four and a half hours per day online.
Companies should continuously monitor whether and how consumers are finding them online, and they can do so with an ever-expanding suite of digital tools (from marketing attribution software to customer experience solutions that track engagement at many different levels). Companies also need to use what they learn about customers to improve retention rates – one-third of consumers say they’ll even leave a brand they love after a single bad experience, according to a report from PwC.
The necessity of digital transformation is becoming clearer all the time. To fully leverage this process, companies need to be capable of tracking the effectiveness of their digital investments, ensuring high levels of adoption and integration, and developing a digital transformation strategy that will ultimately grow the business.
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