How to Measure ROI for Your Digital Investments

With companies facing challenges in the VUCA (Volatile, Uncertain, Complex, Ambiguous) world, the prime topic across the board is ‘Being Digital’ that enables them to embrace the benefits of Digital Transformation.

It is anticipated that companies which fail to adapt to the digital world will undoubtedly fall victims to “Digital Darwinism”, where rigid incumbents may disappear and only the most agile, adaptable and responsive enterprises will survive and remain in the competitive landscape through the integration of the right technology adoption strategy with business strategy.

All organizational leaders would agree with this! But when the board asks, “So what is the ROI that we can expect from the investments made in these digital technologies?”, most of the initiatives start taking a seat on the back burner.

Then how can we define the metric to measure the ROI on digital investments? Before we move on to that, let’s understand what is a metric. A metric is a quantifiable measure used to find the best answer to the posed question in given time and more importantly, with available resources. The metric aims to have a practical impact by translating it into a specific call to action by communicating it to the relevant decision-makers using visual metaphors and non-technical language.

Since now we know what metrics are, let’s discuss how we can identify and classify them to highlight practical business impacts. So, as analyzed during various consulting assignments across industries, all business metrics can be classified into three broad categories:

1. Revenue Metrics
2. Profitability Metrics
3. Risk Metrics

Just to keep the definitions simple and easy to understand, a revenue metrics is outward-facing i.e. mainly related to the marketing and sales function, while the profitability metrics is focused on operations highlighting the efficiency of the processes by which an organization creates and delivers its products and services to its customers, and the risk metrics, as the name suggests, is associated with risk management i.e. tracking potential risks/dangers and identifying ways to mitigate them.

So, to explain the aspect of measuring Digital ROI let’s elaborate this with an example for Revenue Metric (since this is a major challenge associated with the VUCA world for businesses). One of the common challenges today faced in Sales to Order process is that of partial automation. So, what do I mean by partial automation? It is the use of applications to automate the process as it is in order to assist the field salesperson with regular tasks of data entry and alerts/notifications. But such applications can only help you achieve productivity gain, not revenue gain. Instead, let’s look at a sales application embedded with advanced analytics and AI to help the field sales person with right insights at a given time i.e. to provide appropriate answers to the right questions at any given point. Let’s elaborate this further by assuming that a field-salesperson is about to visit 8 dealers today as per the visit plan flashed by the sales application. While he is visiting each dealer, the application can highlight some of the critical insights like how much sales has the dealer booked till date versus that of last year same time, how much of competitor stock does he have today (based on his visual analysis and insights from the field which these guys are good at  ), opportunity to cross-sell products from the catalogue considering the dealers market share and customer base (company marketing team captures this data as part of the dealer meets they conduct).

With the plethora of information gathered from across various touchpoints in a customer journey, the application can share visual reports for faster and easy decision making. Here the various metrics which can help the field salesperson book more sales leading to increased revenue can be Dealer Performance (YoY Contribution), Customer Lifetime Value, % of sales lost, Sales Cannibalization rate, and many more.

To reiterate on the categories of the metric, I cite an interesting definition I came across- “Revenue metrics are for optimistic extroverts, profitability metrics for fastidious perfectionists, and, risk metrics for informed skeptics”.

So, I am sure that with the focus of all organizations towards harnessing the power of technology, identifying and defining right metrics across all the three broad categories discussed today with help track, they can monitor and act on the expected ROI from the identified initiatives.

Reach out to us at Nitor Infotech if you want to know more about the relevance of measuring Digital ROI and, empower your Organization to reap the benefits of Digital Transformation.