As digital transition accelerates across the world, CEOs face an increasing challenge in quantifying their digital initiatives’ bottom-line impact. How to avoid the dumbstruck?
Reporting the progress of digital initiatives is a relatively easy task.
What’s harder to explain is how they move the needle down there at the earnings line; this doesn’t refer to cost cuttings, quick fixes, and efficiencies that can deliver short to mid-term gains. It relates to structural gains that will improve the financials and the company’s market position in the long term.
An organization that is seriously embracing digital transition knows that it requires commitment and engagement from the very top.
Yet, it’s not always the case that the leaders are sufficiently comfortable with the topic. Instead, they avoid it because they simply don’t understand how to track the value it creates.
But, since it’s their neck on the line, it’s imprudent to delegate the monitoring of digital initiatives. Moreover, there’s nobody else than the CEO with a better position to assess and influence how digital can leverage the business. Hence, having a set of overarching metrics is definitely worth it.
Time to focus on the impact of Digital
1. The Red Queen’s RDI — Return on Digital Investments
Bluntly speaking, the first measure is pretty obvious.
The return on anything invested is something that CEOs are used to a lot! Still, when it relates to digital, there are few things to take into consideration.
The first is that everyone else is investing in the digital transition. The entire environment where the organization plays, including competitors, new entrants (especially these), suppliers & customers, are all investing in digital.
Although the pace and breadth of initiatives may vary significantly, every organization lives in an evolutionary ecosystem where a natural digital selection is in place.
To survive pitted against ever-evolving stakeholders, the organization must adapt, evolve, and proliferate fast. In other words, just like the Red Queen told Alice in Wonderland, “it takes all the running you can do to keep in the same place.”
This means that despite CEOs striving for positive RDIs (righteously), sometimes investing in digital may return nothing apparently, but most likely, it may have kept the organization alive.
The second is that it doesn’t make sense to rubber-stamp every project. Instead, organizations must have a roadmap of priorities, with a maximum of five key initiatives that support the strategic vision and goals and will change one business area at a time.
Like this, everybody gets on board, learnings and successes are gradually delivered, and overall impact gets more easily assumed.
Finally, adopting new digital tools is a key determinant of return, which takes significant resources and communication efforts.
Put Your Money Where Your Mouth Is. A metric related to the budget weight that it’s put on the key digital initiatives.
The more legacy an organization has, the more budget is allocated to intricate and incumbent technologies. What results in leaving little to no resources left to what really matters for the future.
There are numerous cases where the tech budget is 80-90% skewed towards legacy, hindering innovation and change.
It seems an insurmountable task to cut off with existing systems due to the risk of business downtime, insecurity, not to mention the cost! An excellent tip to chew this challenge is cutting the elephant into pieces.
Breaking down legacy systems into multiple different microservices that can be prioritized will enable change faster and with less risk.
That’s the only chance for large organizations with complex infrastructures to cut through the clutter and bring quick solutions and improvements that will deliver customer satisfaction, internally and externally.
3. Time to Market and Release Frequency
There’s nothing more vital for survival than speed.
Any deferral puts your organization in the mouth of another, or the least bad it can happen is to become useless — for launching something outdated.
Another word for speed in the digital world is Agile. It refers to small but immediately useable increments, in opposition to big bang launches.
Continuous-delivery processes and sprints require a new culture, one that thinks customer first because usability and functionality are their top concern when releasing a minimum viable product. And improvements will keep being deployed over and over in the following releases.
How many of us have apps in its latest version and are already expecting the next update? The same logic applies to any digital organization, where deployment speed — a combination of time-to-market and release frequency; is among the most critical KPIs for the top management.
The faster an organization is in deploying new applications puts in evidence the ability to compete for customers based on new functionalities. The more frequent is the release, the greater the ability to test and improve customer experiences; this is definitely a measure that should be at the top of the mind of any C-level executive.
4. Weight of Digital incentives
The impact of digital transition is a cross-functional responsibility; hence the CEO must ensure that business incentives have a fair share of the whole package.
It relates very much to PYMWYMI since the staff is hardly accountable if their attitudes and behaviors are not rewarded by the tangible digital impacts they bring.
For example, a company has a rule for incentive setting across the organization that includes one-fourth of each: business results, projects delivery, market share & customer satisfaction, and people-related metrics.
To promote a digital transition, such an organization should review those shares by giving a significant amount to digital initiatives or defining that each incentive area must be determined but an amount (let’s say half) of digitally related initiatives. The alignment of incentives with a digital mindset will have a massive impact on business results. But, above all, in resetting people’s attitudes, behaviors, and skills.
Tech talent acquisition, retention, development, and promotion
CEOs have incorporated the importance of talent, but many fail to understand that tech talent is scarce. The competition? Ferocious.
A match that doesn’t stay at the company’s marketplace; cities and countries fight globally for tech talent as a key competitiveness factor.
Recently, a widely successful municipality in attracting international tech businesses to invest and open new offices, or to build R&D centers in the city, is now facing a severe risk of investment contraction — because the source of talent dried out! In fact, they have a gap of a few thousand tech-background profiles to fill.
It’s dramatic for companies living in this digital selection era not to attract talent in the first place.
It’s not just money that moves them; but also the attractiveness of the brand and the projects they have to offer, making even more critical the need for strategy and culture to be in place.
Second, they want to be developed. One of the greatest fears a tech professional faces is becoming outdated, having obsolete knowledge.
For this reason, companies need to raise their development plans and upskill them. They need to focus on new areas of knowledge that are constantly arising.
Third, make sure to maintain their interest high in the organization because they will be frequently scanned and poked by the temptation to move elsewhere that seems more attractive to them.
Finally, they, too, want to climb up the ladder. They, too, are savvy for leadership, for making decisions, and biting the taste of business. Every metric related to the number of tech people hired, retained, developed and promoted, is today one of the most critical long-term metrics that any CEO should know.
The impact of CEOs in the Digital
A CEO that embeds metrics related to the five areas mentioned above is one step closer to success with the digital transition efforts that they envision for the organization they lead.
There is no one-size-fits-all recipe for specific KPIs in each one, but it will inspire adjusting these concepts to real-life businesses.
Alice learned from the Red Queen that it doesn’t take running faster and faster to get somewhere. Although it may be sufficient to survive, she also learned that it takes being smarter and co-evolve with the systems we interact with to grow and prosper. Time to focus on the impact of Digital.