Measuring return on investment (ROI) for digital projects and programs of work continues to be a challenge for many organisations. What happens when as a digital leader you are convinced of the merits of an investment but you can't create a compelling ROI driven business case?
In a recent paper, Capgemini highlighted the challenges in quantifying the impact of digital transformation. These measurement difficulties have a material impact on funding projects since most CFOs are hardwired to divert organisational funding to initiatives that can clearly be measured.
The solution may well be using a blend of art and science in creating business cases. This is particularly the case in instances where traditional metrics such a ROI do not capture the full gambit of impacts of digital investments.
One of the key challenges in measuring the impact of digital activities is the traditional organisational silos that are influenced by digital technologies. Business functions such as marketing, IT, customer service and operations could all be effected, however many organisations don't have an organisational wide methodology to assess these investments. Recent Capgemini research indicated that only 19% of companies have cross functional steering committees at a corporate level that manage and foster digital investments.
Another challenge is the lack of translators between digital teams and CxOs. The nomenclature of digital activities can be bewildering in the boardroom (sentiment analysis, multivariate testing or a private trading desk anyone?). Conversely, CFO Research Services recently found that common finance metrics used to evaluate technology investments are not commonly understood across the organisation. As a result, objectives and outcomes are getting lost in translation with both parties evaluating the same initiative but through different lenses.
So how can organisations measure digital initiatives? Capgemini provides a 3 faceted model based on the different investment types:
- Maintenance/ Business As Usual investments (BAU) - these are a pre- requisite for the business and are needed to keep the business running (eg ongoing maintenance activities for the website). This is ordinarily the largest component of budgets and expected goals for these activities are clear upfront. As such, it makes sense to use a traditional project methodology and metrics of time, cost and quality.
- Transformative - transformative investments have an explicit mandate of supporting an organisational wide digital transformation. Examples include investments in core platforms or services to support advancements in digital customer experience. In most cases they are cost intensive with widely distributed benefits.
- Emerging investments - emerging investments require iterative assessments and are best managed venture capitalist style. Generally, investments in these areas are where technologies are rapidly evolving and ROI will be speculative. The lack of historical benchmarks requires an incubator approach where small investments are made in a variety of ideas allowing them to rapidly iterate and prove their worth. Those that show value should be nurtured and piloted within the organisation on a limited release basis to build a business case and associated KPIs whilst those that don't show merit should be shut down. A blend of art and science is needed in creating these business cases since there is a risk in identifying the right time to evaluate ROI - too early will kill a good idea while too late will result in sunk investment costs.
Any of these investment decisions should be made with a consistent methodology and guidelines. Capgemini provide a simple digital investments evaluation toolkit in their full research paper. A critical component of the investment methodology should be the evaluation of the investment decision via a central digital steering committee running across traditional silos and aligned around the company vision. According to the Capgemini research, this is still missing in over 60% of businesses where there is no centralised function to prioritise and fund digital initiatives.
So in summary, we need translators to bridge the current gap in the digital dialogue in the boardroom, a consistent digital initiative evaluation framework and the faith to act like a venture capital backed start up to incubate and pilot ideas.