How to Measure the Impact of Your Digital Transformation Using KPIs

Measure the Impact of Your Digital Transformation Using KPIs

The last several years have made digital transformation an essential part of every organization’s standard operating procedure. But whether you manage a large organization or a small business, at some point you’ll need to adopt new digital practices to help your company grow. You might be adopting a new cloud computing solution or another type of digital tool. Digital transformation is an inevitability for operators in any industry. The question then becomes, how do you determine the impact of your digital transformation efforts?

The answer is defining your metrics upfront using key performance indicators (KPI). Let’s take a closer look at what digital transformation really means, the challenges you may experience, and the KPI you should look for as you measure the impact of your digital transformation.

What is Digital Transformation?

Not only will you undergo a digital transformation at some point in the future as a business, but you’ve already likely undergone one already – or several, in fact. Digital transformation is when you implement a new kind of business technology to help your business perform better. These tools can help you develop a stronger strategy, operate more effectively, or be generally more efficient in a way that helps lower overall costs.

For an example of digital transformation, look at the onset of the personal computer. There was a time when businesses kept records on paper. As computer technology has developed, it’s become commonplace for businesses to use computers to track records, communicate, and collaborate. Of course, these transformations continue to happen in much smaller sample sizes as new business technologies are developed.

Common Digital Transformation Challenges

So what problems do businesses commonly run into when facing a digital transformation? One major problem stems from communication issues between the C-Suite and the IT team. Executives demand a change and IT operators are the ones tasked with implementing the new technology. If they aren’t on the same page and there is a gap in understanding the new technology, there can be a gap in understanding between what capabilities exist and whether the new technology addresses the business need.

A successful digital transformation requires alignment from three components of a business: people, process, and technology. A company must understand its staff (people), understand the systems in place to support them (processes) before it can advocate for the right solution to help them (technology).

A business must go through the following steps before settling on a solution:

• Meet with stakeholders to identify the digital transformation’s goals and expected outcomes. Identify the team responsible for carrying out the transformation.
• Conduct interviews with company leaders, users, and vendors to understand what problems exist and understand what technology is needed to address them.
• Use the data from your interviews to craft a digital transformation plan with a mission, goals, strategy, tactics needed to complete your goals, and a timeline.
• Share the plan with company leadership and the team involved before execution.

Once you go through these steps, you’ll have a clear idea of which KPIs you’ll need to measure to grade your digital transformation a success.

How to Measure the Impact of Your Digital Transformation

Using metrics is how you determine how successful a plan is. Let’s say you’re planning to hike somewhere using a map. If your goal is to reach a specific destination, your metric for success is whether or not you reach it after following the steps laid out.

Your KPIs for your digital transformation plan function the same way, telling you whether you missed the mark on the plan’s true intent. Your KPIs allow you to navigate – and course correct, if needed – while undergoing a digital transformation.

The most critical KPI to measure is user experience. Ultimately, you’ll want the people using the new technology to approve of it. It should make their jobs easier to do. If the user experience leaves them wanting, it can undermine the point of the whole process.

The second most important KPI is measuring productivity. While it’s critical for users to be able to use the new technology, it should also be aiding them in performing their jobs better. Improvement can be incremental, but it should be apparent.

These two KPIs reflect the experience of two distinct groups that need to be aligned: the end-user and management. The user wants a tool that can help them do their job more effectively. Management wants improved productivity. Measuring for both of these satisfies both groups.

You can track user experience by interviewing users and getting their feedback. To determine productivity, work with management to measure how operations have improved and how efficient users have been thanks to the new tools.

Your specific KPIs will vary depending on what you’re trying to accomplish, but listed below are some other common ones you’ll want to keep in mind:

• Active users involved in the change
• Implementation costs
• User engagement/participation with the new tool/technology
• Number of processes impacted

Determining the ROI on Your Digital Transformation

Digital transformation needs to lead to some kind of benefits or improvements to ensure it is worth a company’s time and effort. The return on investment (ROI) for a digital transformation can be calculated by determining the amount of time your staff spent implementing the change combined with the costs associated with the results for the company. In other words, you measure the KPI to determine whether the change was worth it. Think of it in terms of a math equation:

ROI = net gain/cost

Every digital transformation should have an ROI. When you perform each step above correctly – accounting for people, process, and technology and fine-tuning your KPI to accurately measure improvement – this shouldn’t be an issue.

Your ROI includes increased productivity, increased growth of your business, and cost reduction. These should be built into your digital transformation plan. Having your KPIs well-defined before you begin the transformation allows you to set a baseline and then better understand performance.

Keeping these KPIs in mind – and using them to evaluate ROI – will help you understand:

• Has this change helped our employees?
• Has our business improved its bottom line?
• Are we creating a better product/service as a result of this new technology?

KPIs are the only way to help you definitively answer these questions, which is how you know whether a digital transformation was successful.

If you think your organization needs a digital transformation but aren’t sure where to start, our team can help. For more on how to successfully execute a digital transformation, contact our team today.