Transformative digital investments tend to play out over the long term and have broad implications for business processes across the entire value chain. This is where more accurate ROI calculations become critical, as:
- Your organization’s digital investments need to reflect its vision. Your organization’s vision forms the guiding light for developing the right investment strategy for digital transformation.
- The linear value chain is shifting toward ecosystem-based value creation. Digital leaders must move beyond a fixation on operational processes and expand into customer-experience-driven benefits to boost the ROI from digital investments.
In a day-to-day context, budget decisions for digital investments hinge on the ability to track the financial return on these investments. Of course, you can only evaluate the impact of what you can measure, so businesses must be able to calculate the ROI of digital investments to justify that spending. However, calculating the precise ROI for digital transformation at a group level is nearly impossible. Our research shows that:
- Traditional ROI models work poorly for transformational digital investments. Traditional ROI models don’t effectively capture many of the benefits that transformative investments deliver. Yet these soft benefits are central to digital transformation activities.
- Managers dislike making investment decisions based on assumptions about soft benefits. Using traditional ROI calculations, you might not be able to persuade budget holders to invest in digital initiatives. As a result, you risk underinvesting in transformational projects.
- You must break down ROI calculations into smaller projects to get tangible results. ROI accuracy increases if you focus on specific customer benefits. Your ROI calculations should target specific business processes and user experiences at defined stages of the value chain.
The report Building The Business Case For Your Digital Investments provides a framework for ROI calculations of transformative digital investments. It highlights examples of customer usage scenarios and how you can design ROI calculations to measure customer benefits at different stages of the value chain.