This blog formalises the insights, ideas and opinions voiced at the Thriving Through Digital lean beer conversation held in Auckland on 6 June 2018. The specific topic that we discussed at this session was “what is success [for digital], how do you justify the investment and how do you measure impact?” You can find more information / join the group conversation here
In developing this blog I have considered the conversation and resulting online dialogue, research findings and also my own views on the topic. The intention is that this blog (as amended and updated over time) will be combined with future blogs and insights to form the basis of a book which addresses the question “What does it take to transition from a successful “analogue” organisation to a successful digital leader?”
For ease I have split this blog into three and will answer each of the questions separately. (What is success? How do you measure the impact? How do you justify the investment?)
When it comes to Digital what is success?
Many organisations are investing millions of dollars and a significant amount of the organisation’s scarce resources and leadership time in pursuit of digital. But why? What is it that they hope to achieve? Ultimately the answer to that question is it depends. It depends on why the organisation exists in the first place, what it’s purpose, vision or mission is. In the end, “digital” has no inherent value. It simply provides an ability to do things in a more effective way than was available in the past.
Digital is a means to an end, and the end that digital contributes to is making it easier, quicker, more cost effective or even possible to fulfill your organisation’s purpose or vision. The “value” that digital brings is the same as any technology, whether that is information technology, bio technology or the now old fashioned industrial technology. It helps us achieve something that wouldn’t otherwise be possible. It is the organisational equivalent of the Olympic motto “faster, higher, stronger”.
Value is a notion that I am somewhat obsessed with, as is the question “Does digital add value?” The answer is yes, when you get it right. The upsides for organisations that get digital right are considerable but many organisations are not getting digital right. Forbes reported at the end of 2016 that 84% of organisations had failed to deliver any value from their digital transformations. Bain recently reported that a mere 5% of digital transformations delivered to, or exceeded, expectations while over 75% outright destroyed organisational value.
The counter point is that when you get it right the rewards are significant. My summary of the research (which you can find here) suggests that digital leaders outperform their industry peers by an average of about 40%.
Digital success needs to be measured in terms of digital’s ability to add value to the organisation by contributing to the fulfillment of the organisation’s purpose and vision and yes digital does and can achieve this but it is far from a sure bet. There are major issues and risks. There isn’t time and space to discuss and resolve all of the issues and risks in this blog but if digital is about enabling purpose and vision then it begs the question:
- Do you have an agreed, well understood purpose or vision for your organisation? Depending on your organisation this may be as simple as the profit motive, or it may be broader social outcomes, or it could be a combination of the two.
- Within the context of this vision or purpose do you understand what value means to your organisation?
- Do you understand how digital does or could contribute to this?
How do you measure the impact?
Several months ago I was talking to a senior fund manager for one of New Zealand’s premier private equity / angel investment funds. This fund invests predominantly in early stage technology companies. The fund manager and I have had a significant history together and the conversation was wide ranging but one theme that kept coming up for me was his relationship to data and measurement. He was completely obsessed with measurement and that they measured everything.
Why wouldn’t you? Digital makes it very easy. In a digital world you can capture / measure everything that happens on your digital platform and bring evidence to the effectiveness of, well everything. Process execution, decision making, design. Everything.
As you can measure everything the big question is what measures do you need to define, report on and manage to be able to understand the impact of digital on your organisation?
The starting point is understanding your purpose and vision. As discussed above, digital is a means to and end not an end of itself and the “end” that digital is contributing to is supporting you and your organisation to fulfil purpose and vision. As a result, if you want to know the impact of digital you need to be able to measure the extent to which you are succeeding in delivering on your vision. As mentioned above, depending on your organisation this maybe profitability or social outcomes or a combination of both. Whatever it is, you need to define it and you need to put measures in place to track your performance.
Typically this will require a number of measures as organisations often have multiple objectives and you will want to break high level measures down to understand how value accrues. In the end the value that digital / technology provides is about helping us to fulfil purpose and vision more effectively. In most organisations value accrues from improving 6 measures, what I have called previously the sources of value (read more here – note – if you are a not for profit or government organisation substitute social outcomes for revenue).
With this level of measurement you can begin to measure and track value. You can model and track changes “…. if I change this by implementing this initiative, the value that will deliver is…. “. Then implement these measures into your digital platform to track impact.
One last point on measuring impact. Kaplan and Norton taught us that when it comes to performance you need to track both outcomes as discussed above (lag indicators) and the dynamics or drivers of performance (lead indicators). Kaplan and Norton created the balanced scorecard to capture both lead and lag indicators of performance.
What are the lead indicators of performance in a digital world?
Digital by its nature enhances the importance of “service” in every business interactions even in the most commoditized product based companies. Because of this service orientation the dynamics of the service profit chain apply. The service profit chain was first proposed by Heskett et al in an HBR article entitled Putting the Service Profit Chain to Work and is perhaps best summarised in a quote attributed to Richard Branson that goes something like, if you take care of your employees, they’ll take care of your customers and your customers will keep coming back taking care of the shareholders (I couldn’t find the exact quote).
How do you measure the impact of digital:
- Define measures that represent what success looks like in terms of achieving your vision or purpose
- Use your digital platform to break measures down into your sources of value so you can track changes in detail back to the high level sources of value and vision achievement
- Track service dynamics, which provide you with lead indicators of performance, which you can manage and track within your organisation.
- Utilise your digital platforms to capture, analyse and report on performance and value.
How do you justify the investment?
Our final question on justifying investment is largely answered above. You justify the investment in digital by demonstrating how digital impacts the service dynamic (ie lead indicators), the sources of value and therefore supports the organisation to deliver on it’s vision and purpose. Ideally you do this through data by ensuring that your digital platform not only captures the organisation’s interactions and transactions but does that in a way that supports effective measurement to support performance management and decision making.
So, what is success for digital? Success is that you can demonstrate that digital initiatives and digital ways of working are adding value to your organisation and supporting you to achieve your vision and purpose.
I would love your feedback, suggestions and improvements.
- Do you agree with this definition of success? If not what is the alternative?
- What else do we need to consider when discussing the the definition of success in digital?
- Is the definition of the “sources of value” complete and accurate?
- Do you have any case studies of organisations who have or are moving in this direction?
- How are you defining, capturing and using success measures to understand the success of your digital programme.