Business Value Unlocking through Digital Transformation Programs

Are you able realize envisaged $ benefits from your Digital Transformation Investments and are they in line with your expectations or industry trends? Are you able justify Digital Investment budget through $ benefits?

While taking investment decisions on digital initiatives most of the organizations either follows leading industry trends on digital initiatives or utilizes allocated IT budget. While it is good starting point, but it is very important that your digital investments are resulting in Unlocking of multi-X benefits for business and accelerated ROI for the program so that your Digital Transformations not only get self-funded but also funds your continuous Digital Transformational journey for competitive advantage in the market. This becomes even more important during lean business cycles when technology investment is curtailed because of budget constraints.

How Value is Unlocked from Digital Transformations?

Most of the organizations calculates benefits from Digital Transformation in terms people productivity and process turnaround time, however when these benefits are translated to $ benefits the results are not very encouraging to justify the investments. This is even more challenging in scenarios where cost of manpower is relatively low.

What is really missed out is the benefit from “new digital-decision support system” and the benefit from “focus on high-value decisions”. The benefits from these areas are multi-fold and need redefining of the KPIs and Operating model. While significant focus is given on adoption of new digital system implemented, focus on driving $ value before , during and post Digital Transformation are often overlooked.

Let's understand this from few examples

1.      Manufacturing areas: An organization is pursuing Digital Transformation for its manufacturing plant by going paperless which would eliminate 1000s of paper from shop floor across departments.

The benefits which are prominently visible in this case are – paper savings, people efforts saving in entering data on papers, visibility through system, time reduction in tracking information on paper. If all these benefits are quantified in $ terms it would be challenging to justify the investment.

What is really missed out here is impact of paperless initiatives in improvement of plant throughput / OEE through focus on new set of KPIs and redefined focus of shop floor team on improving those KPIs. If paperless captures start time and end time of production processes, quality inspection processes, rework processes and if these are used to provide insights on avoidable time losses then this will lead to increase in plant OEE/ throughput a major revenue driver for any business. For this, additional responsibility needs to be defined for production personals i.e. to analyze loss data coming from paperless and log actions in system for improvement in OEE

2.      Procurement areas: An organization is looking for S2P (Source to Pay) Digital Transformation through investment in best-of-breed application with added workflows and system integration for seamless end to end processes.

Clearly visible benefits are improvement in productivity of procurement team and process turnaround time. However, $ benefits from these areas would be challenging to justify such large-scale Digital Transformation.

What need to be looked here is how S2P Digital Transformation would enable Procurement Cost Reduction through redefined KPIs such as real-time visibility on Share of Business of Lowest Cost vendor and Value of leakage, Decision Support System such as negotiation assistant/ AI agents to equip buyer to have favorable negotiation strategy and redefined responsibility of buyer such as creation of Category Playbooks across spend categories. In some of the cases, in to-be state the low-value add activities such as PO creation, Responding to Queries, Supplier Follow ups etc. can be moved to shared services / outsourced to low skillset resources from category leads/ lead buyers.

3.      Supply Chain area: An organization is looking for Supply Chain Planning and Execution Digital Transformation through investment in best-of-breed application. Evident benefit from this Digital Transformation is improvement in planning team productivity.

However major benefits are derived from improvement in KPIs such as OTIF, Forecast Accuracy, Inventory Levels, and Redefined Strategy for Segmentation, Replenishment and Fulfilment. Focus of planning team need to shift from firefighting for fulfilling demand to improving these KPIs through data insights and adoption of new strategies. Planners can even start focusing on orchestrating advance AI algorithms in alignment with the Supply Chain need such as Supply Risk Sensing and respective mitigation recommendation for high value critical product segments thus avoiding sales loss. In some cases, in to-be state Planning COE can be formed with focus on driving revenue for target high margin segments.

There are similar scenarios from Sales, Finance, HR and After Service function.

 Steps to Unlock Value from Digital Transformation

1.      Setup Value Transformation Office: A team having good understanding of both Business and Digital Technology under consideration. Focus of this office is unearth, implement, realize and sustain value through continuous tracking and improvements.

2.      Define and baseline KPIs impacted by Digital Transformation: KPIs should lead to quantifiable $ benefits, ideally having impact on P&L

3.      Define Decision Support Systems to be orchestrated for stakeholders to drive value from Digital Transformation

4.      Define new operating model to drive $ benefits enabled through Digital intervention

5.      Quantify, Implement, Realize and Sustain $ benefits in Sprints through improvement in focused KPIs such as Revenue, Spend, Working Capital, OEE , OTIF, FTE Productivity etc.

Approach to Unlock multi-fold Value from Digital Transformation Programs

There are 3 approaches to unlock the multi-fold value, and these are dependent on organization's priority

1.      Value Unlocking and Digital Transformation driven together: Preferred approach because of very reason that benefit realization is accelerated to make the program self-funded and organization achieves envisaged competitive advantage of Digital Transformation

2.      Value Unlocking before Digital Transformation: Cost effective because investment on Digital Transformation is still not committed but delays realization of competitive advantage from envisaged Digital Transformation

3.      Value Unlocking post Digital Transformation: Not very cost effective and benefit realization are delayed. Preferred only if there are challenges in time commitment from stakeholders for both digital intervention and value unlocking because of multiple ongoing initiatives.

Irrespective of approach followed Value Unlocking from Digital intervention is very important and should not be ignored for very reason that it not only makes the Digital Transformations self-funded but can also fund continuous Digital Transformation journey targeted at achieving competitive advantage in the market.