Digital transformation is a big change. It is a continuous process that does not end overnight. In today’s world, every company needs to get going at some time. As many as 70% of digital transformations fail. This is why it is so important for companies to come up with effective digital transformation KPIs.
What is Digital Transformation?
Put simply, it is the digitization of certain processes that may have been manual or inefficient. Digital transformation can take many shapes. It can be the rollout of digitization in a single department in an organization, or it can be an enterprise-wide change.
Some companies are at the very beginning and some are well-advanced. Sometimes digitization is a whole new suite of applications or a bolt-on to an older system. Any area of the business can be digitalized, which is why creating KPIs to measure success is such a challenge.
Why are digital transformation KPIs so tricky to decide?
Settling on metrics to measure digital transformation is a challenge. Digital transformation looks different for every company, so there are no universal KPIs (Key Performance Indicators).
It is also a big culture change, so there is often fear and resistance. Some departments can believe that metrics are intended to make them look bad or to cause redundancies.
The question of where the measurement lies is also a problem. Does it lie within the brief of the CIO? But then how does he or she translate their KPIs to useful information for the board? Digital transformation KPIs have to be simplified and have to be operational.
It’s tough to keep it simple, but you should
The very essence of digital transformation cuts across many departments, so it is best to centralize and simplify metrics. This may put divisional leaders out of their comfort zone, but a good and meaningful divisional KPI does not always mean the number is useful to the whole business.
Ultimately, good digital transformation KPIs are simple and speak to the senior leadership and the board in a way that makes them make decisions better and faster. Deciding on easy to understand KPIs that are small in number is the best way to keep leadership on board.
It’s also useful to not get too hung up on metrics, as digital transformation is continually evolving. As customer requirements fluctuate and market pressure is brought to bear, digital transformation KPIs need to change and be flexible.
Some questions to ask
The reason digital transformation happens in the first place is to improve a previously inefficient process. This is always linked to a core business objective. It’s important for businesses to be absolutely clear from the outset that they are trying to improve on something that was sub-optimal.
Businesses must therefore ask four basic questions:
- Where are we right now in the journey?
- What is our intended digital destination?
- What is the win if we get there?
- How are we going to get there?
Good digital transformation KPIs are always tied to the health of the business and are part of a sound business strategy. Once a business puts a stake in the ground and has a clear direction, then digital transformation has the impetus it needs.
Measure what matters
All business is fundamentally the same. Digital transformation journeys have been undertaken by business across the world for decades. You are just putting your own spin on it. Cut away the fluff, and ask if you are measuring the following:
- Return on investment. Every leader will listen.
- Cost control. One of the most important levers to pull in business.
- Quality. If we do it better we will get more success.
- Productivity and agility. Are we ready for market changes?
- Customer satisfaction and experience. We are nothing without our customers.
- Innovation. Every company needs to innovate to stay ahead of the game.
Don’t fall into common traps
When it comes to deciding how to communicate the progress or success of digital transformation, don’t fall into common traps when defining digital transformation KPIs:
- Don’t over-complicate your KPIs.
- Avoid vanity metrics.
- Aim for leading indicators, not lagging ones.
- Know your audience, and aim for them.
- But remember that not everyone knows IT language.
- Finally, you should always be able to drive action from KPIs.
Ask yourself even more questions
According to Peter Sondergaard, VP of Research at Gartner, the indicators that measure the success of the digital transformation almost always answer these questions:
- How fast are changes occurring within the company? More agile and flexible models must be adopted.
- Have the barriers between departments been removed? Collaboration between functional areas of the company must be facilitated.
- How is the digital strategy integrated with the general strategy? You have to align particular objectives of each area or department with the overall strategy of the organization.
- How is new talent managed? We must innovate in management and recruitment of talent, continuous training is essential.
- Do people feel involved and in continuous growth? Personal development must be linked to personal and group involvement
- Are the company’s culture and values in tune with the team’s work? These aspects must be reviewed to avoid contradictions or resistance.
- Do we take people and teams into account? Remember that each person is important in your teams and value your people and involve them in the joint success.
Digital transformation KPIs
To measure the success of digital transformation strategy, the long-term plan must be divided into small projects with specific KPIs, which answer the above questions and many others.
Normally we will take into account traditional indicators of revenue, costs and customer satisfaction, but much more is needed. Very broadly these can be other KPIs to consider:
Focused on the organization
- Amount of marketing expenditure in digital channels
- Level of participation and positioning of the organization in the market
- Level of digital maturity, training and experience of partners, employees and management
- Percentage of revenue from digital channels
- Contribution and involvement of company departments in digital initiatives
Customer and business management focused
- New customer acquisition rate
- Improved user experience
- Increasing customer participation in digital channels
- Reduced time to market for new products
- Change in customer/user behaviour
Focused on innovation
- Innovative ideas being implemented and their level of success
- New products or services launched on the market (percentage of revenues)
- New business models adopted for different markets
- New applications, technologies and innovative solutions applied
- Innovative methodologies and adaptation to new situations or markets
Make it your own journey
Stop looking at everyone else. You might do some research to know what is out there, but your transformation is likely to be different to everyone else’s. You could have specific business, industry, or market quirks that make a copy and paste process impossible.
What is your balance point? It is possible to over-digitalize. Every company intuitively knows that digitalization is the way forward, but don’t fall into an arms race for the sake of it. The law of diminishing returns applies in digital business too. Knowing when to stop is a skill.
Remind your stakeholders during this information-intensive journey that you have set out on a specific path to a defined place. They should not get caught up in stories about what the competition is doing. Having your own digital transformation KPIs that have been clearly communicated is a great start.
Above all, digital transformation is an exciting journey. You are learning about the performance of your initiative and by extension the performance of your business. The nature of a transformation journey is to head towards a better future state.
It is a privileged position to be in for a department or a business that is crying out for change. Reporting can be exciting and innovative. And at the end, if you are driving value then the journey has been worth the trouble.
Be open-minded, know that your journey is individual, and keep your digital transformation KPIs simple and useful.