Securing Dollars for Digital
The COVID-19 pandemic continues to have multiple economic impacts, and two, in particular, create tension for many businesses: the acceleration of digital transformation and, concurrently, an unforeseen decline in revenues with related liquidity challenges. Companies must forge ahead to drive recovery and emerge thriving on the other side, but the challenges presented by the crisis make it difficult to fund the critical initiatives that can help.
Resource constraints are particularly acute in industries significantly affected by the pandemic, including retail, hospitality and natural resources, among others.
The most effective organizations are shifting more budget to innovation, but for those businesses facing budget cuts and revenue declines, it can be difficult to make the case for spending on digital transformation—especially for projects not clearly linked to near-term revenue gains. To devise a robust digital strategy, it’s helpful to have an overarching plan that accounts for both near-term and long-term goals, with a view to the next 12 months, three years and five years.
Executing a digital strategy is more important now than ever, and it’s vital to assess the people, process, technology and change management aspects of each investment. There are several key stages and considerations to help businesses secure the necessary resources for digital initiatives and ensure successful implementation. In broad terms, they are:
• Outline a digital strategy with specific objectives and identify a champion to lead the initiative.
• Establish milestones tied to the business case, assess total cost of ownership (TCO) and measure return on investment (ROI) against revenue, margin and/or risk as applicable.
• Assess total costs for the initiative and avoid common budgeting pitfalls.
Addressing each of these stages not only helps secure adequate budget by clarifying expected costs and outcomes, it greatly increases the likelihood that the initiative will succeed.
STRATEGY AND PLANNING
Many businesses have a clear sense of the objectives they want to achieve with a digital initiative but strategizing to meet those objectives can be fraught with complexity. Some initiatives are innovative and forward-looking to achieve improvements or differentiation, while others are reactive and urgently needed to continue operations. But urgency is not a justification for haste. It’s important for businesses to assess their current technology state in relationship to the business strategies and priorities, evaluate key considerations and next steps to take, and determine where they may need help. Agility is central to business transformation and focusing on key results and objectives can help guide agile decision-making during the process.
The costs of effective planning, strategy and design in the initial stages can sometimes be substantial, but underinvestment in this phase can prove to be much costlier down the line. An incomplete or poorly conceived strategy can cause delays and misalignment, which increases the chances that the initiative will be unsuccessful or never get off the ground at all. Selecting the right digital initiatives requires careful prioritization and clear-eyed analyses of TCO and expected ROI.
Digital transformation can improve a business’ metrics in several ways, such as:
• Unlocking new revenue streams
• Improved sales performance
• Better understanding of customers
• Reduced churn
• Improved data management and analytics
• Elimination of repetitive manual processes
• Rightsizing IT support
• Scalable infrastructure
• Reduced technology maintenance costs
• Streamlined compliance reporting
• Improved data protection
For example, a business that can reduce the sales cycle by leveraging process improvements and a new CRM can generate additional revenue. Or using automation to reduce manual processes in product acquisition that are prone to human error could improve efficiencies and yield cost savings.
An adequate tech foundation is also needed to implement digital initiatives effectively. Every year you keep a legacy system, the transition to a new system becomes more expensive. It also increases maintenance costs and exposure to risk while perpetuating outdated practices. Businesses should evaluate the TCO associated with modernizing their back-end technology platforms, so they have accurate expectations and can budget accordingly. Fortunately, there have been significant advances in cloud-based apps and services, which organizations can leverage without needing to overhaul existing back-end technologies in-house. The cloud may substantially reduce certain costs that previously could have been a barrier.
There are human capital costs with innovation as well. Businesses need to determine if they should use outside consultants or build in-house innovation teams. Leveraging a managed services provider can address many different needs for a business in a cost-effective way, but those needs will grow over time. Digital-first organizations emphasize constant innovation to stay competitive and building in-house talent can help ensure the digital strategy reaches its full potential. Although an in-house team gives more control over decisions, it can be costlier and cause delays, especially if the team has limited bandwidth. It’s possible to take a hybrid approach by collaborating with an outside firm to gain specific expertise and help with ideation, while still building in-house capabilities over time to foster that culture of innovation.
Organizational alignment is a critical component of strategy and planning. Thorough strategizing for each initiative helps specify the benefits for both business systems and financial outcomes, with a view of TCO and ROI to maintain alignment. Change management is another pivotal area to invest in and identifying a product owner or champion helps drive change from the top to ensure enablement and adoption.
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Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your needs.
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