Ask a CIO how he or she quantifies the impact of their digital transformations and you may get a funny look, like you told tasteless joke. The reality is that many CIOs don't have metrics for gauging the success of digital projects, such as new ecommerce platforms, mobile apps and chatbots. But CIOs who fail to quantify these initiatives may find themselves outflanked by nimbler rivals, analysts say.
To score the value of their transformation efforts, CIOs must use digital key performance indicators (KPIs) as their "enterprise compass,” Peter Sondergaard, Gartner's global head of research said at the company's Gartner Symposium/ITxpo 2017 this October. But there's a chicken-egg quandary at work: You can't measure what you haven’t defined.
“The biggest limitation [of digital KPIs] is the lack of a clearly defined digital ambition," or strategy, Gartner analyst Paul Proctor told CIO.com recently. "Having a clear idea of your digital ambition will give you some ideas of what you should be measuring to measure your progress. You can't measure something you don’t have a measuring stick for."
Digital KPIs are measurable values for evaluating the performance of digital business initiatives. Digital KPIs can help an organization ascertain how far it has progressed on its digital strategy and how well it is improving its digital business outcomes.
Companies have traditionally measured business performance based on net profit, earnings per share and other Wall Street metrics — numbers that in turn are supported by more specific KPIs such as inventory turns, production quotas and customer satisfaction. Digital KPIs, on the other hand, are more difficult to define, as businesses across different sectors have different ways to quantify their digital initiatives.
For some industries, a key digital KPI may be the percentage of revenue generated through digital channels such as the web and mobile apps. A life insurance company may measure the percentage of sales made through self-service digital channels, while a property-and-casualty insurer may measure the percentage of claims submitted through digital channels.
DBS CIO David Gledhill created instrumentation and metrics to track operational efficiency and digital engagement for the bank's customers. “Digital engagement drives business and revenue volumes and so just the metric of how many times a customer touches you is important,” Gledhill told CIO.com earlier this year.
Gartner’s Proctor says that enterprise CIOs seeking to craft digital KPIs should begin by targeting two broad categories. The first set of KPIs should assess the company's progress in digitizing its current business model by measuring goals in sales, marketing, operations, supply chain, products/services and customer service. Several restaurants, including TGI Fridays and Wingstop, for example, are using chatbots to help digitize order taking and transactions. Starbucks, Target and several other consumer-facing organizations now let consumers pay for goods from their phones instead of cashiers. CIOs should evaluate such digital operations using metrics that assess adoption rates and business impact relative to traditional operating modes.
A second set of KPIs should assess new revenue sources generated from new digital business models. These KPIs should represent growth, revenue, market share and margin metrics that are differentiated from physical assets. Proctor & Gamble acquired Dollar Shave Club, giving it a platform from which to sell razors online. Caterpillar acquired Yard Club to rent heavy machines through an online marketplace.Cleveland Clinic sells algorithms for analyzing cardiology and oncology through Apervita's online marketplace. These new sources of revenue based on digital models should be evaluated separate from analog revenue streams to assess how they impact the bottom line.
While many companies are undertaking digital transformations, only about half of CEOs Gartner has surveyed have KPIs to measure digital success, Proctor says. He recommends several steps CIOs can take to measure the value of their digital business:
There are no silver bullets or magical formulas for digital business success, but KPIs can help. “The digital KPI is all about understanding where you’re making money or improving an existing business model, how to measure that and work with your non-IT execs to achieve new business outcomes that you've set based on the fact that you're going digital,” Proctor says. "Outside of that all that you have is a collection of new projects that are using technology to do new stuff and unfortunately that's where most businesses are today."
The stakes are high for CIOs and their C-suite peers to cement a digital strategy — and even higher to establish KPIs to measure its effectiveness. Disruption, the kind that Amazon.com has unleashed across the retail landscape, occurs in a market once digital revenue hits 20 percent of the total. “If you’re not [reasonably] digital at that point, you’re toast,” Proctor says.
Gartner has positioned Vodafone as a "Leader" in its Magic Quadrant for Managed M2M Services, Worldwide report 2017, for the fourth consecutive year