How to measure digital transformation effectively

What is the role of measurement?

While popular metrics may categorise performance levels, they don’t account for differences in skills or team maturity.

Key performance indicators will be specific to individual industries and companies, so there isn’t a magical list of digital transformation KPIs.

The business value of metrics also lies in their ability to influence decision making. KPIs are primarily used to report on past success, rather than as a strategic tool to define how to succeed in the future.

Measuring success allow organisations to assess digital transformation progress and identify what is and isn’t working, so they can make better decisions and/or improvements in the future.

This starts by setting clear goals and metrics, so progress can be tracked against them.

What makes digital transformation a success?

A recent interview on the topic if digital transformation, with James Goldhill, CEO at DCX, highlighted some of the principles for getting it right. He stressed the importance of taking a holistic approach and “focusing on the three C’s” - customers, colleagues, and commercial gain, to keep digital transformation programmes on track.

A holistic approach to digital transformation also requires a holistic approach to measurement – one that can evaluate both digital adoption and transformation success across this broad range of perspectives (see Figure 1 below).

This includes financial measures about the results of actions already taken, and operational measures such as levels of customer satisfaction, employee productivity or effectiveness of internal processes, that are vital to competitive success.

Figure 1. A holistic approach to transformation requires a holistic approach to measurement.

A fourth dimension is building a “culture of change” as an organisation’s ability to learn, improve, or innovate, determines their ability to create value in the future.

This was highlighted in a recent post by Pete Paterson, MD at DCX, about how “digital transformation starts with people” and having the right skills, ways of working, and mind-sets in place creates the foundation for success.

Let’s discuss how we can put this theory into practice.

1) Start by defining more meaningful goals, not more KPIs

One of the reasons digital transformation efforts fail is when objectives are not made clear at the start.

Companies must first identify their top transformation goals, such as improved customer retention, self-service, or employee experience, before selecting performance metrics.

Transformation goals should also be in line with the vision and overall objectives of the company, to avoid creating a standalone set of KPIs.

Analysing how the four dimensions (4 C’s) are interconnected also reveals the drivers that will be critical to success (see Figure 2 below).

Mapping the strategy in this way helps visualise the cause-and-effect relationships that exist between digital transformation investments. This will show how your transformation strategy contributes to overall business goals, enabling managers to focus on the actual growth drivers that lead to success.

Figure 2. Mapping the strategy and causal relationships

2) Set KPIs that quantify success, not just measures of performance

When transformation goals have been mapped out, performance metrics can be applied.

The best way to start is by asking questions, rather than picking KPIs. If you can answer “how do we know if we’ve been successful?” and “how do we know if we’ve failed?”, then the measures of digital transformation success lies somewhere in between.

For example, let’s say the goal is ‘improved digital technology innovation’. Success might be a higher-than-average rating in the app store or increasing active usage metrics each quarter. On the flipside, failure might be a lower than the average rating vs. other apps in the category. If your app has a rating of 4.3, and the industry average is 3.5, it’s a success! If it’s 3.1, then you’ve not (yet) been successful in achieving your objective.

It’s also important to connect each measure to specific targets and initiatives, otherwise it’s hard to track progress over time.

Knowing where you are today, and what the target goal is, makes it clear what the desired outcome is and the improvement in performance needed to achieve this (see Figure 3 below).