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Digital Transformation

Return on Transformation

What’s the biggest issue preventing your organization from starting a digital transformation program?

Last week, my colleague Michael Porter and I hosted a webinar in which we posed that question to our audience. From choices like attaining fundingsecuring executive buy-instaffing the right team and others, we learned that demonstrating return on investment (ROI) was their top challenge. Not surprising, considering the time and resource commitments required for successful transformations.Biggest barrier poll results gray 2

If you’re new to the topic, here’s a primer. Digital transformation is the use of technology to the realign a business so it can compete in the “age of the customer.”1 This work brings digital capabilities to bear on operational systems in order to better serve digital natives and other customers who have adopted new behaviors, devices and channels, along with the increased expectations of service, support and ease-of-use that accompany with them. To learn more, watch the replay of the webinar.

While no single mathematical formula can calculate transformation ROI for every organization, we can offer the following advice and a few select questions to help make the case. Anticipating ROI helps determine what to invest in, and perhaps more fundamentally, whether to invest at all. For some, this may be the first hurdle.

On that issue, consider these questions:

  • What will be the impact or cost of forgoing transformation action?
  • Can you anticipate digital disruptions that may occur in your industry, while ensuring enough time to react?
  • Do you want to be a leader in your sector, or can you execute a fast follower strategy successfully without investment now?
  • How confident are you that competitors are not enacting their own digital transformation programs?
  • Is this something your competition already does and which your customers already expect? If so, this becomes a must-have without ROI.

Especially at successful organizations, such questions may seem unwarranted or premature. Leaders may think it unnecessary to engage in talk of digital transformation initiatives and be unwilling to see beyond perceived risks. For those organizations, we encourage open-mindedness, as well a look at the long list of once-flourishing brands diminished by digital leaders in recent years.

Diving Deeper
If you’ve cleared the “whether to invest” hurdle and are still in the race, consider this second set of questions:

  • By how much might the transformation increase revenue?
  • How much might it reduce costs?
  • How much more productive will it make employees?
  • How much could it improve customer satisfaction and other brand health metrics?
  • How will it impact current, ongoing and future resource commitments?

These can be addresses at different levels of specificity, the need for which varies from company to company. What doesn’t vary is when such evaluations should be made. Two points in time come into play. The first is at the start of the strategic planning phase, when an initial ROI model is developed. The second is at the conclusion of planning, when a detailed model is finalized. Developing ROI estimates in two steps like this balances the need for robust financial conclusions with the availability of reliable input data.

At the start of planning, you should seek to understand economic value in broad terms, adding detail as the strategy takes shape. Perficient is often asked to assist clients with this process. We begin with areas that have potential for high ROI, diving in to make a case for either direct or indirect value based on a variety of calculations. Total cost of ownership is also factored and then delivered with ROI calculations in a final report designed to provide guidance on whether it makes sense to proceed.

Initial estimates should be detailed enough to generate support for a focused strategy and road map planning effort. During this phase, research is conducted to understand customer needs (current and future), organizational digital readiness and customer maturity levels are assessed and the overall market context explored. These inputs are used to fuel the creation of strategy, communicate visualizations of the future state and to plan the execution of specific initiatives. And while we’re budgeting, assume planning phase costs to be 5 to 25 of the overall transformation effort.

As ideation in the planning phase begins to generate specific transformation initiatives, the second more detailed round of financial modeling can begin. The same questions about revenue, costs, productivity and brand health apply. But the answers should be more robust and true-to-life, guided in part by a better understanding of the value being delivered and of the technology, human resource and operational investments needed to support those initiatives.

Determining a company’s return on transformation is more art than science, and thus requires a careful balancing of potential risks and rewards. Perficient guides organizations through the steps needed to start transformation conversations. We can help reduce the ambiguity inherent in this kind of dialog and enable your transformation initiatives to take flight.

We invite you to join us on March 19 for the next webinar in our Digital Transformation series, when we’ll look at the role of mobile in driving transformation initiatives.

[pardot-form height=”800″ id=”34944″ title=”SAT: 2015-3-19: Webinar BLOG Form: Build a Mobile Foundation to Drive Digital Transformation Initiatives”]

1. Forrester Research. “Competitive Strategy In The Age Of The Customer,” June 6, 2011

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David Stallsmith

David has expertise in applying user insight and design thinking methods to solve complex customer experience, marketing, and employee engagement challenges. He’s an accomplished strategist with extensive experience across a range of industries, notably branded manufacturing, technology, financial services, retail, and healthcare.

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