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The Return on Investment From Digital Transformation

By
Charles
November 2, 2023
•
7
min read
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Determining ROI for digital transformation

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Companies with high levels of digital maturity achieved an average revenue growth of 13% over three years, compared to 4% for companies with low levels of digital maturity.

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Determining the return on investment (ROI) that your organisation can expect from investing in digital transformation is not a straightforward task. It depends on several factors, including:

  • The nature, scale, and scope of the digital transformation project
  • Industry and market conditions
  • Current level of digital maturity
  • Anticipated outcomes and benefits

However, there are some general guidelines and best practices that can assist you in estimating and maximising your digital transformation ROI.

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Define primary motivation and objective

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Before embarking on any digital transformation you should firstly clearly define the primary motivations and objectives. Examples include:

  • Improving efficiency
  • Enhancing customer experience
  • Gaining a competitive advantage
  • Increasing social and environmental benefit

Making this clear enables you and your team to align your digital transformation strategy with the businesses goals and measure progress and success.

Select relevant metrics

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Second, you should select metrics that reflect the primary motivation and objective, such as:

  • Cost savings
  • Revenue growth
  • Customer satisfaction
  • Market share
  • Climate and social impact

These metrics should be measurable, relevant, and realistic. They should also be regularly tracked and monitored to assess the performance and impact of the digital transformation project.

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Deloitte found that companies with high levels of digital maturity achieved an average cost reduction of 15% over three years, compared to 6% for companies with low levels of digital maturity.

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Calculate ROI

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Third, you should calculate the ROI of the digital transformation project by comparing the gains from the investment with the costs of the investment. The gains can be estimated by multiplying the expected improvement in the chosen metrics by the baseline value of those metrics before the digital transformation project. The costs of the investment can include both direct and indirect expenses, such as software, hardware, training, consulting, maintenance, and opportunity costs.

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For instance, let's consider a business that intends to invest in a digital transformation project to enhance its customer service by implementing a chatbot solution.

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You anticipate that the chatbot will:

  • Reduce the average customer service response time by 50%
  • Increase the customer satisfaction rate by 10%
  • Generate an additional £100,000 in annual revenue

You estimate that the implementation and maintenance of the chatbot solution will cost £50,000. To calculate the ROI of this investment, you need to know the baseline values for:

  • Customer service response time (10 minutes)
  • Customer satisfaction rate (80%)
  • Annual revenue (£1 million)

Let's assume these values are the baseline values before the chatbot solution. The gains from the investment would be:

  • (10 minutes x 50%) x (number of customer service requests per year) x (average value per request) = £25,000
  • (80% x 10%) x (number of customers per year) x (average value per customer) = £16,000
  • £100,000

The total gains from the investment would be £25,000 + £16,000 + £100,000 = £141,000.

The ROI of this investment would be:

  • (£141,000 / £50,000) x 100 = 282%

This means that for every pound invested in the chatbot solution, the business would receive £2.82 in return.

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Companies with high levels of digital maturity achieved an average market share growth of 9% over three years, compared to 2% for companies with low levels of digital maturity.

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It is important to note that this is a simplified example that does not consider other factors that may impact the ROI of digital transformation, such as time horizon, risk level, discount rate, or external influences. Therefore, organisations should also conduct a sensitivity analysis to evaluate how their ROI would change under different scenarios and assumptions.

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Maximising ROI for Digital Transformation

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Tips:

  • Start with a small-scale and manageable pilot project: Gradually scale up your digital transformation. Achieve quick wins, demonstrate value, and learn from any mistakes before taking on larger projects.
  • Prioritise the needs of your end-users: Conduct user research to understand their pain points, preferences, and expectations. Involve them in testing and feedback sessions to ensure your solutions meet their needs.
  • Make use of your existing assets: Leverage your existing data to train AI models and integrate legacy systems with cloud platforms. Enhance capabilities and complement new solutions.
  • Adopt an agile mindset: Be flexible and adaptable to changing requirements and conditions. Iterate and improve solutions based on data-driven insights and user feedback. Foster a culture of innovation and collaboration.
By following these steps and tips, you can estimate and maximise your return on investment (ROI) for digital transformation. However, it's important to remember that digital transformation is an ongoing journey that requires continuous learning and improvement.

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Keep an eye on market trends and customer needs, and adjust strategies accordingly.

If you want to learn more about digital transformation and its benefits for businesses across various industries, get in touch with us via the chat window in the button right on your screen, or using the contact form!

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Non Yopla resources on the ROI of digital transformation

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Digital Transformation
Charles
Co-Founder, Yopla
Some of the clients we've worked with...