Gauging (early) benefits of digital transformation

Why do you think as many as half of organisations don’t measure digital transformation? Because it can be challenging. And, let’s face it, determining the key performance indicators (KPIs) for digital transformation isn’t the most exciting part of the process. However, it is crucial for success. When you can complete early check-ins on your progress because you have defined KPIs for digital transformation, you can make changes and implement course corrections to improve your chances of success.

Beyond traditional KPIs

Organisations that default to applying their traditional KPIs to measure digital transformation will find that they aren't useful indicators of the success or challenges of the process. One reason for this is that digital transformation occurs as a series of changes, and in the early stages, there aren't usually traditional indicators of success, such as an increase in sales for the effort.

Traditional KPIs are usually tied to longer-term business outcomes or a specific department and therefore reflect a fractured view that isn’t helpful when measuring digital transformation. Digital transformation often affects the entire organisation, and the KPIs for it should span multiple functions and not be siloed.

Map out digital transformation goals

The first step, when mapping out digital transformation goals, is that you start strategically. Your organisation needs to define and track the benefits from day one. If you begin with a vague goal of digital transformation and kick off a lot of projects without defined goals and impact metrics, it’s fairly impossible to measure it later.

The strategic goals that you want to achieve should be from a business-wide rather than a department-wide perspective. Since every digital transformation is unique to each industry and company, don’t expect that your organisation will have the same goals as others.

Digital transformation goals should link to your company’s overall business objectives and KPIs. You want to identify how any digital transformation projects affect the overall performance of the business but set quantifiable and measurable project milestones that help you track progress even before you expect an actual effect on the company’s KPIs. The aim should be to measure only what’s important rather than gather a bunch of vanity metrics that might fill up reports but not really tell you anything meaningful about the progress and impact of your digital transformation.

Good digital transformation metrics are those that show a holistic view of the impact on the entire business and offer a continuous view of what’s working or not. Be sure all your key stakeholders are included in the conversation when you develop your metrics.

In order to develop your organisation’s digital transformation KPIs, a Gartner digital transformation analysis suggests you answer these five questions:

1. What is being measured? This could, for example, be the number of licences purchased, together with metrics on how digital tools are being used.

2. What’s the baseline measurement? You need to know where you’re starting from to properly track the progress towards your goal.

3. What is the target goal? This is the number that would indicate you achieved success for that metric.

4. What is the desired business benefit? Good digital transformation metrics will tie directly to a business objective or KPI.

5. What is the balance point? There is often a law of diminishing returns when it comes to digital transformation. That means, in some cases, it wouldn’t make good business sense to have 100% as a goal (eg, moving 100% of customers to digital channels when not all of them have access to such channels).

Examples of digital transformation KPIs

The KPIs you define will depend on the circumstances of your organisation, such as if you are just introducing digital systems, updating to different technologies, or adding new tactics to supplement existing digital initiatives. In most organisations, research firm Gartner notes, boards of directors want to know the benefits, costs, and risks of following a digital transformation plan, and whatever they are, they should be able to influence business decision-making.

While you shouldn’t find and then replicate another organisation’s metrics, here are some tips from Gartner about key elements of the best metrics. They should:

• Drive action when they indicate poor performance;
• Act as a leading indicator;
• Have a causal relationship to a business outcome; and
• Be easy to understand by those without technology experience.

Here are some examples of digital transformation metrics used by some organisations:

Scale: Metrics such as the number of processes performed on software and the number of new users compared with the number of licences purchased are important to show how digital tools are being exposed to your organisation or customers.

Productivity: Most organisations are adopting digital transformation to realise time and cost efficiencies. Productivity metrics can help identify the benefits of the digital tools to your organisation.

Usage: Adoption metrics of digital tools that have been deployed are a good way to determine how they are transforming an organisation. You can track the ratio of new users/repeat users over time, decline in usage, and more.

Engagement/retention: Metrics that measure user experience are important. Metrics such as the customer lifetime value (CLV), "customer friction" (how much effort or time it takes to get something done), and more can help indicate success or opportunities for improvement in the customer experience. When you view the user journey, you can identify where issues pop up.

Constant monitoring and evolution

It’s important that every organisation responds to constant change — from fluctuating customer requirements to market pressures and technology updates. Organisations that clearly define metrics from the start and then continue to monitor them and alter their digital strategies in response to the data are the ones that are going to succeed. 

According to Forbes, nearly 70% of digital initiatives fail, so it's important to manage your digital transformation carefully. When you set up metrics for your digital transformation at the start and continue to monitor and adjust your efforts based on the insights from your metrics, you will significantly improve your chances for success.

— Bernard Marr is a thought leader, speaker, author, and business, tech, and data adviser. The second edition of his book Data Strategy: How to Profit From a World of Big Data, Analytics and Artificial Intelligence will be released later this year. To comment on this article or to suggest an idea for another article, contact Chris Baysden, an FM magazine associate director, at Chris.Baysden@aicpa-cima.com.