Normal metrics ‘don’t always apply’ to digital initiatives

If business leaders were asked to assign a Facebook-style status to their relationship with digital transformation, it would probably read: “It’s complicated.”

That is the view of researchers from MIT Sloan Management Review, a US-based business journal, and Capgemini, an IT consultancy, who last year co-authored a report about the digital ambitions of more than 1,550 executives worldwide.

On the one hand, bosses recognise the importance of digital transformation: 78 per cent of those surveyed said it would become critical to their organisation within the next two years.

On the other hand, there is a lack of clarity about the pay-off they can expect to see from investing in digital initiatives: about half of the companies surveyed said that they create a business case for these programmes, but many of them are “guilty of fuzzy math[s],” the report finds.

But should company leaders be held back by the lack of a watertight business case accompanied by solid growth projections and return on investment calculations?

Not necessarily, says Jerome Buvat, global head of research at Capgemini Consulting. Digital transformation projects “take companies into uncharted territory, where traditional payback metrics don’t always apply”.

Instead, he says, smart companies take small steps forwards, via pilot and “skunk works” projects that focus on identifying “quick wins” for further investment.

A skunk works project is one that is developed by a small, autonomous unit with a remit to innovate, often to tight deadlines and on a limited budget.

The term originated at Lockheed Martin, the US aerospace company, in the 1940s, as engineers and pilots worked to refine jet fighter technology, but has since been adopted more generally.

This technique, for example, is often adopted as a necessity by start-ups that disrupt established markets with new products and new ways of interacting with customers, according to James McQuivey, an analyst at Forrester Research and author of Digital Disruption: Unleashing the Next Wave of Innovation.

He notes, however, that it is also an approach with which older, more traditional companies frequently struggle.

Yet Mr McQuivey has also seen significant successes among older companies that are prepared to throw away the research and development rule book and think differently.

“Small, independent teams are critical to digital transformation projects, because they need to be nimble and they have to be free to pursue entirely new thinking,” he says.

When these small teams have direct support and encouragement from their organisations’ leaders, he adds, their independent status – which lends them some distance from day-to-day organisational politics – gives them the confidence to propose the best ideas, regardless of the impact these may have on deeply entrenched corporate behaviours and beliefs.

The approach is very resource-efficient, adds Mr Buvat at Capgemini. Projects that fail to thrive, or lose their way, can be killed off quickly, leaving resources for more promising ideas.

“Based on what works and what doesn’t, an organisation’s road map for digital transformation often becomes clearer quite rapidly, without too much time or money being spent.”

This should make digital transformation a more manageable prospect for companies.

In any case, it is not as if standing on the sidelines until a rock-solid business case becomes clear is a more sensible option – at least, not according to the MIT/Capgemini report.

“The connected world creates a digital imperative for companies,” it says. “They must succeed in creating transformation through technology, or they’ll face destruction at the hands of their competitors that do.”