Digital and the Incompatible Business Case
Unlike traditional investments, measuring ROI for digital has proven to be difficult. For example, during the rapid growth of Facebook marketing in 2011 a lot of effort was put into trying to quantify the value of a “like”. Despite this effort the figures varied massively from $0 (Forrester) through to $136 (Syncapse). This struggle has continued through to today as businesses continue to face challenges building confidence in a benefits case to invest in digital.
And it’s clear why this is a difficult task. Looking at traditional business cases these generally have a clear linkage between the change that’s being made and the impact that this change will have. The complexity isn’t defining this relationship but being able to predict how much impact it will have; a 5% improvement? Maybe more? Even this is relatively straight-forward since it’s supported by a back catalogue of case studies that are similar to what you’re doing. These provide a good grounding to make confident assumptions and, ultimately, get the go ahead from the Board. When it comes to digital investments, however, complexity exists on lots of levels;
(1) Customers are making decisions differently;
Google call this the ZMOT (Zero Moment of Truth). Customers are making decisions about brands at the precise moment when they have a need, intent or question they want answered. This could be when they do an online search, read a review on Yelp, get location-based marketing message etc. It could be any one of these moments, with the relationship between how one influences the other, for that particular customer, varying almost infinitely. How can you model this with any confidence to define the benefits of a digital transformation?
(2) Case studies are rare…;
Unlike more traditional technology implementations a large proportion of digital investments are in emerging technologies. Whether it be big data analytics (customer and operations), social media, mobile apps., enterprise collaboration, the internet-of-things etc.; the number of cases studies is comparatively few. Because of the reasons described above, benefits are either rarely included or not directly quantified.
(3) …and get outdated quickly;
Things move so quickly with digital that by the time something is near being an established way of working it’s been superseded by a new innovation (see Page 2 in this summary of "The Second Machine Age"). This means available references points are often lacking. Moreover, since the investment often includes a new way of working ,the precedent you’re looking for is the one you’re about to set yourself.
A Leap of Faith
Whilst this might seem like a challenge that’s confined to the finance department, this is often the biggest barrier to getting digital transformation started. So it’s not just important to get past this, it’s essential otherwise you might never begin. So how have the world’s digital leaders, the ‘Digirati’, made this step to lead the market both in their application of digital but also in financial performance? Often it’s the result of a visionary CEO who’s seen how customer’s expectations have changed and how digital is at the core of responding to this from a channels perspective, but also at the core of the solution from an operations perspective.
Take Angela Ahrendts, CEO of Burberry from 2006 until earlier this year who is widely credited with taking the 155 year old company from one that actively shunned digital to the world’s leading luxury brand, pushing innovation after innovation in digital; Burberry Bespoke, Burberry Kisses, The Art of the Trench, TweetWalk etc. But this isn’t just about being a digital innovator. Since 2006 the company’s share price has risen over 250% and they’ve consistently outperformed the rest of the sector. Digital is credited with much of this success.
In Burberry’s case the CEO saw the direction digital was taking the world, set a vision and focused the resources of the company into achieving it. Boards that make this step have often “seen the light” of digital and make that leap of faith. This isn’t without some sort of understanding of the benefits of making this leap, it’s just more heavily driven by vision than business case.
However, many companies are waiting until they “feel the heat” before they react holistically to digital. As such current initiatives require a detailed business case before they can proceed and thus are often muted or never go ahead. The challenge with digital disruption is that it moves quickly and unexpectedly and this strategy can leave a company exposed to catastrophic impacts (see diagram).
Responding to Digital - Seeing the Light vs. Feeling the Heat
So, is it a leap of faith? Right now, in the absence of well documented case studies to support business cases, in some ways it is. However, with the pace of change continuing and established companies and ways of doing business constantly being challenged or even disappearing completely, can we really afford not to take it?
To find out more follow the #OurDigitalFuture tag on Twitter, explore more on digital transformation at bengilchriest.tumblr.com, and read the recent Capgemini publication “Measure for Measure: The Difficult Art of Quantifying Return on Digital Investments”.