How to Measure Digital Transformation Results and Value Creation

Written By: Eric Kimberling
Date: July 21, 2023

Most organizations aspire to achieve success in their digital transformation endeavors. However, many of them struggle to grasp the true meaning of success in this context. Therefore, the primary focus of this discussion is to define the concept of digital transformation success.

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Most of the organizations we work with are eager to succeed in their digital transformation journey. However, when we delve deeper into understanding what success means to them, we often receive vague or no answers.

The reason behind this is that organizations often overlook defining what success entails for them. They fail to consider the criteria that would signify victory or determine success, as well as the parameters indicating failure. Hence, it is crucial for organizations to have a clear vision of what success means to them concerning their digital transformation initiatives.

Today, I will discuss five different dimensions and measures of success that you can utilize to ensure the success of your digital transformation project. Be sure to pay close attention to the last dimension as it holds significant importance.

On Time Delivery

One of the most fundamental measures of success that organizations often define is on-time delivery, which means completing their digital transformation within the expected timeframe. However, many organizations face challenges from the start due to unrealistic expectations. They set timelines that are not feasible, leading to difficulties in achieving their intended goals.

Even with a realistic timeline, organizations may still struggle to manage the project and keep it on track for timely completion. The reasons for these difficulties are twofold. Firstly, as previously mentioned, it's because of the initial unrealistic expectations set. Secondly, organizations often fail to execute crucial tasks at the beginning of the project that would ensure they can finish on time. These tasks include defining a clear future state vision for the organization, going through an effective implementation planning process, and developing a solid change management strategy.

To improve the chances of success, it is vital to establish a realistic timeline and diligently adhere to it throughout the project. This will significantly contribute to the project's overall success.

On Budget

Another measure of success that organizations often pursue is staying on budget throughout the transformation. In other words, they aim not to exceed the allocated project funds. However, just like with implementation duration, organizations struggle to establish a realistic budget from the start. This issue is partly due to software vendors downplaying the risks and costs associated with deploying their software, leaving organizations uncertain about what a reasonable budget should look like.

Another challenge is the project management component of the delivery process. Without effective project management, the budget is more likely to overrun, leading to unexpected additional expenses. These issues are root causes of why organizations often struggle to achieve success in terms of implementing within a reasonable budget.

To avoid this common pitfall, it is essential to start with a realistic budget and manage it carefully throughout the project. Incorporating project governance and controls will help ensure that spending remains in line with the budget. Additionally, understanding implementation time and cost benchmarks can aid in setting realistic timeframes and budgets for the project.

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In Scope

The next measure of success that organizations often pursue is delivering within the defined scope. In other words, they aim to provide process improvements and technological capabilities that are not currently in place. This measure is crucial because the scope determines the project's budget and timeline, which are the first two success measures mentioned earlier.

To ensure success, it is imperative to assess and evaluate all three aspects - scope, budget, and timeline - in parallel. Organizations should be cautious not to attempt to accomplish too much at once, a phenomenon often referred to as "boiling the ocean." This tendency can arise from the belief that the implementation will be easier, cheaper, and faster than reality dictates. Software vendors in their sales efforts may inadvertently contribute to this perception by encouraging organizations to purchase and deploy more of their software than is necessary or feasible within a reasonable timeframe.

The key to success lies in being realistic and developing a measured plan for the project's scope, phasing, and deployment strategy. Often, organizations facing budget or timeline constraints may be tempted to reduce the scope of the project. However, it is crucial to find the right balance between delivering real value and business improvements while avoiding overambitious objectives that could lead to scope cuts and under-delivery in the future.

Objectivity is essential in this process. Organizations should conduct a realistic sanity check of their implementation plan, budget, and scope early in the project before committing resources and time to move forward. This proactive approach ensures that the project is grounded in attainable goals and sets the stage for a successful outcome.

Operational Disruption

The next measure of success, which could be seen as a defensive measure, is often overlooked by organizations, yet it is crucial. This measure involves minimizing operational disruption during the go-live phase of new technologies. Many organizations fail to consider the potential costs and risks associated with being unable to perform essential operations when implementing new systems. For instance, they might overlook the impact on product shipments, financial closing processes, or payroll processing.

In their eagerness to complete projects on time, within budget, and as promised in terms of scope, organizations sometimes rush through the implementation phase. However, this haste can lead to overlooking the long-term costs and risks associated with not adequately planning for operational disruptions.

It is essential for organizations to understand and measure the types of disruptions they are willing to tolerate and those they are not. Some level of temporary productivity reduction is normal during the initial transition to new technologies, but extreme disruptions that impede critical business functions are unacceptable.

Proper change management and project activities can help navigate the usual learning curve issues associated with new technologies in a live environment. However, the goal should be to avoid disruptions that could lead to customer dissatisfaction, loss of customers to competitors, employee frustration, and internal chaos, all of which result in significant time and financial losses.

To ensure success, organizations must thoroughly understand and quantify the risks of potential operational disruptions and take steps to mitigate them. By proactively managing these risks, they can safeguard their operations and minimize the negative impacts of the transition to new technologies.

Long Term Business Value

The most significant and crucial measure of success often goes overlooked by many organizations: the long-term business value derived from their digital transformation. Instead of focusing solely on basic reasons and justifications for undergoing the transformation, organizations should delve deeper into understanding and optimizing the long-term business value it can bring.

For example, in the current phase of digital transformation, ERP software vendors are pushing migrations to new Cloud Solutions. While this may be a viable long-term strategy, it should not be the sole justification for the transformation. Organizations need to define and quantify the expected business value and create a benefits realization plan to achieve it. Aligning the overall digital transformation plan and strategy with the expected business value is essential.

This underrated measure of success not only optimizes long-term value but also assists during the transformation itself. It provides a valuable project governance tool to guide decision-making throughout the journey. By having a clear understanding of the expected business value, organizations can make informed decisions regarding scope, process improvements, software customization, third-party integration, and additional technology investments.

Ultimately, the most critical measure of success should revolve around the business value gained from the digital transformation. Considering the significant investments of time, money, and effort involved, organizations should strive to emerge from the transformation with substantial improvements and benefits.

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I would enjoy brainstorming ideas with you if you are looking to strategize an upcoming transformation or are looking at selecting an ERP system, so please feel free to contact me at eric.kimberling@thirdstage-consulting.com. I am happy to be a sounding board as you continue your digital transformation journey.

Be sure to download the newly released 2023 Digital Transformation Report to garner additional industry insight and project best practices.

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Eric Kimberling

Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.

Author:
Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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