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.
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.