How to make the right levels of investment for your Digital Transformation

A vital ingredient for successful digital transformation is making the right levels of investment. To do this you need to have clarity in your planning and a realistic approach.

In this blog, we are going to address an often secondary, albeit vital, consideration in digital transformation – how you work out the investment you need and the returns you can expect – a critical success factor in your approach.

Whilst few businesses would argue that digital transformation is not important, many struggle to successfully adapt to today’s ‘digitally driven’ complex and rapidly changing environment. Ultimately putting them at risk of market disruption.

Altimeter’s ‘The 2017 State of Digital Transformation’ found:

• Only 37% of businesses view digital transformation as an investment in the fight against market disruption.
• 30.9% viewed digital transformation as a short-term cost centre, rather than long-term investment in competitiveness.

Our digital transformation series looks to share practical and proven advice for businesses faced with the need to create and execute a digital change strategy. Providing you with approaches to avoid common mistakes and ultimately make change smoother and faster.

If you haven’t had a chance already, you may find these blogs useful:

1. What is Digital Transformation and the Best Way to Get Started?
2. Moving Your Business up the Digital Evolution Curve
3. A Digital Change Framework to Drive Successful Digital Transformation
4. How to Create a Clear Vision and Strategy for Your Digital Transformation

What we will cover in this blog:

1. You must know what you want to do
2. Intimately understand your business model
3. Prioritising change
4. Timings
5. A hybrid approach
6. Being realistic
7. Budget with expertise
8. Keeping on track

1. You must know what you want to do.

While many businesses have begun to understand the benefits digital will bring, the vast majority underestimate the true cost of change. This is usually because they don’t think things through fully or in ‘good enough’ detail.

Without a clear idea on what your business needs to do, you can’t budget effectively or reconcile the scope and timing of the benefits, and you simply set yourself up for failure or create unmet expectations.

Which links to this fundamental part of the proven change framework  –

How to Create a Clear Vision and Strategy for Your Digital Transformation

Broadly, without being clear on this your CFO has virtually no chance to construct an accurate investment model for you. This may sound obvious, but many companies simply don’t do this, and ultimately wonder why the budget or benefits are not what they contemplated.

Therefore, in order to help your CFO, planning should be developed across all areas of your business:

• Sales and Marketing
• Operations
• Organisation
• Technology and Data
• Financial and Support

Resulting in a defined vision of where the whole company should be tomorrow.

Then by comparing this to where you are today, you can begin to generate a clear understanding of the difference and where change needs to happen to meet your business objectives. Ultimately, highlighting all of the actions you need to undertake to make the change, what they will cost and what benefit they will bring.

What is clear from our experience is that business change is not about operating in silos. It is about taking a holistic approach across the whole of the business. So all actions are aligned with your vision and strategy; while linking investment to benefits and ROI.

2. Intimately Understand Your Business Model

As part of the above planning process, it is essential to have an intimate understanding of your company’s business model. So investments can not only be measured in terms of cost, but those are ultimately aligned to generate positive business model effects. Whether benefiting reach, revenue, profit or longer-term strategic positioning.

To illustrate this, let’s take a client as an example and why constructing the business transformation plan became easier when we understood the underpinning business model of the organisation.

In this example, it was an insurance business which sold through the broker channel. For this case, we developed a strong understanding of what the ‘critical levers’ of the business model were, and correspondingly what actions would positively affect growth, retention and upsell.

For example:

• For acquisition – actions which could add or reactive more brokers.
• For conversion – giving the brokers the right products so conversion would increase.
• For upsell – adding more relevant products to give brokers a greater ability to upsell and increase the revenue per customer.
• For retention – giving the brokers the right tools, so they could improve their customer experience and so retain their customers.
• While, at the same time, looking for activities to control the costs of delivery. To ensure that not only revenue increased but also profitability.

Understanding your business model and its ‘levers’ is crucial in constructing your plan, so you not only have accurate budgets and business cases, but you can use this to help prioritise your activities for fast return and benefit.

3. Prioritising change

Your next task is to ask how I will prioritise these actions. So you don’t preclude any of the long-term change, but you get the best benefit fastest. Ultimately helping you to understand when things will be done and the effect it will have on the shape of the investment case and return. Helping your CFO’s investment model.

Going back to our case study. We clearly identified where they needed to get to and where they were today. Allowing us to identify the redress activities throughout all the areas of their business.

We then layered a phasing approach on top of that. Identifying activities that provided benefits fast, tackling the low-hanging fruit. This approach will also help to drive momentum, so you start to see the positive impact of your change programme as quickly as possible.

The second phase was to look at the slightly harder stuff and get those actions done. Then finally, it was about getting the really hard stuff done, because there was going to be a fundamental benefit for the organisation into the future.

4. Timings

Once you know the priority, then you can work out the informed timings of investments and benefits.

Being really clear on what you want to do and when effectively allows you to develop a more realistic ‘investment budget’ and ‘benefit case’. And this comes from the clear planning approaches defined in steps 1-4 above.

Critically allowing you to set expectations and resource more precisely.

5. A hybrid approach

Agile is a really good thing for customer experience in some scenarios, but it is hard to apply to your investment model.  Agile is about reacting to market demands, but it can’t be planned out over a longer period of time.

At DWG we prefer to talk about a hybrid approach. This is broadly right to left planning; then delivering all those elements in a manner which is as agile as possible – left to right – within the parameters of the activity of the roadmap you need to develop.

It is essential to get that discipline into your creation process when you are going through a significant transformation of your business.

The vast majority of businesses need a good understanding of the period they need to invest, ensure it as accurate as possible, with a variance either side, so you can work out whether you can afford it. This allows for some certainty around your transformation costs, and a high degree of transparency.

6. Being realistic

It may sound obvious, but as you build-up the costs of investment and the associated investment – you need to be realistic.

Using expertise, as per the next section, can help. It is surprisingly common for businesses to misjudge this. Some organisations think they can go through large-scale digital transformation cheaply, even though it is complex. Others massively overestimate and put themselves off.

Taking another client example – in this case, a client looking to innovate within their company by developing a new digital environment. Initially, the client hadn’t defined what they needed to do in a formal strategic planning process. After going through this activity, it went from an initial quote of £75,000 into a £2.5 million pound investment. They needed to go through the process of understanding what the roadmap and various activities were, with realism and prudency. While this is a very extreme example, it does highlight the benefit of planning and experience within that process.

The reality also works both ways! We have seen businesses spending vast amounts of money on changes that are really quite simple. Due to rework caused by a lack of clarity in what was desired.

Both scenarios can be avoided by going through this planning process. A lack of it has given ‘digital’ a bad name at times when in reality, it is lack of planning that has resulted in overspend or lower than anticipated benefit.

Planning will allow you to understand the level of investment and when you will start to feel the benefit.  It also allows you to answer some important questions upfront – can you afford the way you have planned and shaped it – or does the plan need to adapt (rather than x months down the line when you have spent money).

7. Budget with Expertise

As noted above, you can improve the accuracy of your estimations by getting relevant change and subject matter experts to work with your financial team. This is vital.

Subject matter experts will help you budget for specific areas, but change experts will also ensure this is also accurately calibrated together. Stopping the siloed issues we referred to above.

It is here that external experts can often help.

8. Keeping on track

Now it is about good business practice and working together effectively, monitoring how you are spending against the budget as you go. Flagging variances and issues as soon as you become aware. This means the relevant team, at each phase, in each element can work to redress it.

Final words

Approach any business transformation exercise in a joined-up way. Don’t just simply ‘throw money’ at something and hope to see a clear benefit.

Instead, you need to:

Build your strategic picture.

By setting your vision and creating a clear strategy, you will begin to understand what it is going to take to drive the change. Do the planning upfront and blend in the right insight. Understand what you need to do at each stage and area of your business. Budgeting should form part of the strategy relating to clear objectives, how you will measure it, and how it relates to your business model.

Get the right expertise

If you don’t have the expertise, get help. This will ultimately de-risk what you are trying to do. Get the right teams working together and think across the business in a joined-up way.

Think about the ‘total’ cost of change and the commitment needed.

Understanding the magnitude of what you are taking on, not just financial but from a personal commitment from the senior management team. Are we prepared to do what it takes? Are the right people behind it? Are they committed?

Digital transformation may not be cheap – we are not talking about just ‘buying/investing’ in tech – but fully comprehending the time and monetary investment of the change across the business and for the full journey.

But the result can mean your business is 26% more profitable than your competitors. You just need to ensure you control the spend to benefit, all at the right times.