Woman sits at a long table in a bright conference room and analyzes how to measure digital transformation ROI.

How to Measure Digital Transformation ROI

11/13/2020

Companies implement digital transformation strategies to increase efficiency, reduce costs, improve experience, and more. Here's what to know about its ROI.

Now more than ever, organizations are realizing the promise of technology to increase efficiency, reduce costs, improve the customer experience, and drive revenue. And the imperative to invest in digital transformation is only growing; 70% of companies report they already have a digital transformation strategy underway. In particular, companies are ahead of the curve in digitally transforming their supply chains in order to capitalize on data-sharing and collaboration opportunities to gain competitive advantage.

However, underpinning these strategies is a considerable amount of time and money. And given the current economic challenges, organizations need to ensure that their investment in technology provides a real ROI. In fact, despite the focus on technology investment, a recent McKinsey survey reports that just 16% of companies say that their digital transformations improved their performance.

Driving transformation requires more than just the latest technology. Instead, you also need a strategy to evaluate the return on your investment and optimize your technology spend. That way, you can help to ensure that your digital transformation efforts yield results that benefit your customers, staff, and bottom line.

Understand Your Objectives From the Start

Global companies will spend an estimated $2.3 trillion in digital transformation initiatives by 2023, according to a report by IDC. Purchases on software, hardware, IoT technology and more can easily cost a company five or six figures a year. But to what end? That's the critical question to answer before you make a significant technology investment.

It's easy to be swayed by the potential of specific technologies. However, any digital transformation investment should first be connected to specific objectives. For instance, an overarching company goal may be to improve the customer experience, eliminate manual processes from key workflows or optimize operations.

Connect your investment to one of these—and then explore all the ways that the technology you're considering will help you achieve it. This may mean diving deep with vendors to make sure they understand your current processes and needs as well as collaborating with IT to align on the capabilities and resources needed for success.

By starting with an objective in mind, you'll be able to create a framework for what a successful transformation looks like—and evaluate whether your project is on track as you move forward.

Choose the Right Metrics

When it comes to digital transformation, there's a wide world of metrics that provide insight into your investment's effectiveness. Gartner recommends choosing a select group—usually five to nine—of key performance indicators (KPIs) that provide insight into the impact of your technology projects.

The best metrics are those that can influence business decisions. That means establishing KPIs for your digital transformation projects that function as leading indicators and can be understood by a non-technical audience. Perhaps most importantly, they need to have a direct, causal relationship with a business outcome.

Instead of looking for common indicators that everyone else is using, find ones that point toward precisely what your organization wants to accomplish. Lastly, stay away from vanity metrics and prioritize actionable metrics that allow you to make decisions based directly on the insight. For instance, if your objective for automating your accounts payable department is increased productivity, an actionable metric would be invoices processed over a period of time (versus, say, employee logins to the new system).

Build a Culture That Encourages Digital Success

Establishing your objectives for transformation and creating metrics to track your progress is just part of the work of ensuring digital transformation success. The other critical component is building a culture that responds to this data and makes changes accordingly. A recent study from McKinsey reveals that organizations that completed successful digital transformations were more likely to have the talent to support the efforts.

They also created and supported new ways of working and incorporated employee feedback along the way. The result is an environment that encourages and enables your organization to get the most from its technology investments—because the people are encouraged and empowered to do so.

The digital transformation KPIs then provide guidance for change, and your organization can respond in kind. For example, say you've implemented an AI-powered chatbot to elevate the customer experience, but your metrics reveal that customers are converting less when they interact with the bot. The next step isn't to abandon the effort or ignore it, but instead, investigate what's behind the failure—something that the culture must encourage. Then you can reboot the initiative with changes in place to solve the problem.

There are numerous ways that innovations can impact your business. Implement a strategy to get the most from your investment, and you could increase your digital transformation ROI and overall company success.

The views expressed by the authors are not necessarily those of Fifth Third Bank, National Association and are solely the opinions of the authors. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank, National Association or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank, National Association. Member FDIC.

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