Digital Transformation
How to Measure the ROI of Your Business Digital Transformation?
Most of the digital transformation service providers have recently agreed that measuring the
ROI of digital transformation is challenging. In fact, 70% of the
transformation leaders believe calculating digital transformation ROI is
difficult because customer interactions with a business can’t be quantified
using traditional methods. A single metric is not enough to calculate
transformation in any business. Hence, adopting a portfolio approach is crucial
when measuring ROI for your digital innovation efforts.
We also believe that no major
project should be undertaken without having a clear understanding of how to
calculate its ROI. Having a pre-agreed definition and consistent, tangible goal
are two prerequisites for ROI calculation. But most businesses start digital
transformation projects without considering these two important aspects.
So, to help you out, the
article will provide accurate strategies to create a realistic ROI model. But
before that, let’s first understand:
Digital Transformation Metrics
To attempt digital transformation
in a more compelling and disruptive way, businesses can gauge into the below
metrics:
- Boost in sales
- Higher employee engagement
- Process quality improvement
- Product quality improvement
- Increase in customer satisfaction
and engagement levels
- Digitization of businesses
process
- Enhance engineering
productivity
- Improve custom service
levels
- Switching from Legacy to Cloud
Infrastructure
The video
streaming app, Netflix example can be taken to best understood business
digital transformation. The company drives its digital transformation efforts
by focusing on three important elements - customer experience, returns on
innovation, and digital capability.
Setting Up a Realistic ROI Calculation Model
Step 1: Revisit Your Digital Transformation Objectives
To define a business case and
roadmap successfully, it’s important to know what you want to accomplish as an
end result. Are you looking to elevate customer experience? Modernize business
processes? Integrate touchpoints? Boost operational efficiency? Increase
customer satisfaction rate? Having clarity over transformation objectives is
vital to understand how financial KPIs will be measured. For making ROI
calculations, the below framework from PwC can be helpful which explores
several business areas.
Step 2: Identify Business Areas with Burning Costs
Often digital transformation
strategy consultants put the IT department at the center as the primary
cost-consuming entity for transformation efforts. This is primarily because you
need tech-savvy staff and additional software and hardware to drive your
efforts.
However, that’s not always true.
While making cost calculations, it’s important to consider additional
expenditures made in other business areas (sales, support, etc.). For example,
consider the cost incurred for training your call center staff about the newly
implemented web portal or app as part of your transformation initiative.
Also Read: Digital
Transformation in IT Technology, Adapting to the Global Revolutionary Trends
Step 3: Take a Wider View for Measurement
Make sure you’re considering all
crucial aspects that are impacting business revenue due to your digital
transformation efforts. For example, if customer experience has been
improved, consider factors like
- Customer churn rate
- Satisfaction score
- Customer referrals
- Repeat purchases
- Increase in customer value
(spends)
Analyzing such factors help you
determine how your digital transformation efforts are affecting your customers.
It’s important to assign a financial value for metrics for which making
calculations, otherwise is not possible. For example, provide a lifetime value
to a customer who rates you highly after a second purchase. It can later on be
used for calculating improved customer scores.
Also, don’t forget to analyze the
impact of transformation efforts on your staff, Operational costs like
training, recruitment, and incentive schemes - they all affect your bottom
line. Improved employee satisfaction, engagement, and efficiency are also
crucial factors, so must be a part of your ROI model when relevant. If you’re
finding it hard to draw an ideal ROI calculation model that considers all
affected areas by digital transformation, team up with a seasoned digital
transformation consulting company or consultant.
Step 4: Set Up Realistic Expectations and Milestones
Be very clear with establishing
milestones and timeframes for your digital transformation initiative. Because
of high motivation at early project stages, it is common to set goals that are
unachievable in a given time period. For example, while building an app to
improve customer experience, a mobile app development company often considers
decrease in inbound call level as a success factor, which is not very accurate.
Adopting a longer view is important as your customers experience the benefits
of your new digital services and products.
Step 5: Analyze Results Regularly
Don't relax after seeing positive
results in a set time period or duration. Instead, keep measuring the KPIs and
milestones set at the start. This helps you better understand what is working
and what’s not. Identifying weak areas, processes, and solutions become easier,
as well as addressing them before facing an adverse impact.
Key Factors Affecting the ROI of Business Digital Transformation
Calculating ROI for digital
transformation is easy if you have a well-established product at hand. Things
become tricky when you’re breaking into a new market with an innovative
product, service, or technology. In that case, customer satisfaction trends and
positive reviews towards your product or services become more important.
For new products, the timing of
your marketing efforts is crucial to ensure long-term and elastic ROI. Getting
a head start over competition also becomes easier with innovative products or
services. Take the example of a taxi
booking app like Uber, the company revolutionized customer travel
experience through its sharing economy business model and innovative
technology. For calculating the ROI of your digital innovation efforts, focus
on factors such as your total revenue, market value, and year-over-year growth
figures.
Before are some crucial
factors that influence the ROI of your business digital transformation
efforts:
1.Understanding Customer Needs
This probably is the most
important factor for an upward or downward trajectory of your digital
transformation ROI. It’s important to deliver digital experiences that match
your customer expectations. Collect and analyze customer feedback based on
interactions on company’s social handles, client portals, and more.
2. Investment in Digital Infrastructure
It’s crucial for businesses to
establish new tools and systems to support their digital transformation
endeavor. Digitizing the business processes means improved customer experience
at every touchpoint. Implementing new digital tools also promote a digital
culture with effective communication and collaboration between key
departments.
3. Data-driven Decision Making
Data is the oil of the modern
digital economy. It helps you a lot while forming digital transformation
strategies. Driving meaningful, actional information from customer data across
all channels (social media, sales, support, etc.) helps you make decisions that
add value to your digital innovation initiatives.
4. Regular Monitoring
Constantly prototype, test, and
promote a digital culture while tracking its performance regularly. Regular
monitoring of your digital transformation efforts will translate into better
sales, revenue, and customer satisfaction. The speed at which you adopt new
technology in your businesses will affect the overall effectiveness of your
digital innovation initiatives.
Maximize Digital Transformation ROI by Working with Experts
Overall, if you’re planning for
digital transformation in your business, it’s important to understand the
context of your business. Setting clear goals, performance benchmarks, and
communicating those digital innovations to your customers is vital. For best
results, team up with an expert digital transformation consulting company like
A3logics. With an established enterprise
software development company, the ROI for business digital transformation
is usually static, However, with new technology introduction, the possibility
of digital growth becomes ten times.
We work along with our clients at
every stage of their digital transformation journey - from strategy
formulation, implementation to ROI calculation - for driving the best
results.