ROI Calculation for Digital Transformation


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The Paradox of Calculating ROI in Digital Transformation - See more at: Paradox of Calculating ROI in Digital Transformation - See more at:
Financial projections vs. vision and execution

By Isaac Sacolick, Global CIO and Managing Director, Greenwich Associates

This article is by Featured Blogger Isaac Sacolick from his blog Social, Agile, and Transformation.

If it is digital transformation you are seeking, you're probably not going to see the results in the quarter after you complete your first major milestone.

Digital technology organizations have adapted to agile practices in order to make incremental improvements to the products and processes they support. Product managers have adapted to release Minimally Viable Products and capture customer feedback in order to make better prioritization decisions on how to enhance offerings. Digital marketers employ a toolkit of web, mobile, and social analytics to capture customer engagement and maximize return on marketing investments. All these practices aim to adjust product and practices to improve customer experience, drive revenue, secure offerings and other more substantial pivots.

But financial practices and thinking remains stuck in quarterly performance objectives and measurable ROI objectives. And therein lies the paradox:

  • If milestones delivered through digital transformation can't drive significant quarterly performance changes, then financially driven organizations and leaders will drive digital teams to present longer term ROI projections.
  • Developing multi-year strategic plans, product roadmaps, or technology plans is difficult for many organizations and including financial projections adds complications especially if you are trying to drive a data driven organizational practices. These financial models must include assumptions and projections in years 2-3+ that create significant variability and uncertainty. Assumptions on impacts of new competitors on revenue, macro markets and technology trends, estimates on workflow or productivity improvements, adoption rate and pricing of customers buying new revenue programs, and other assumptions.

So this leaves me with a closing question:

Do you build ROI stories on projections and financial assumptions knowing all the pitfalls in trying to develop reasonable models that the organization buys into, or do you rely on vision, strong execution, and agile practices to adapt to market conditions and customer feedback to drive you to a cloudy digital business future?

I'm still pondering this one but I believe the answer requires a balanced effort between vision, agile execution practices, and nimble financial methodologies.

Originally posted on Social, Agile, and Transformation.