To what extent can the progress of an organization on the path to digital transformation be measured objectively?

Marc K. Peter: Measuring the success of digital transformation - the development of strategy in the digital age - is quite possible. The difficulty lies in the fact that a holistic and strategic digital transformation takes several years. Quick wins, i.e., initial transformation initiatives that produce a quickly measurable benefit, can be recorded in the short term. However, with multi-year initiatives, there are many challenges: Management loses focus, energy, or interest in the transformation projects, executives and project members leave the company and previous initiatives stall, or their goals and content are forgotten. If a company is serious about strategic digital transformation, defining projects for it, and releasing budgets, it must also establish and use a transformation controlling system designed for the long term.

What is the best way to do this?

It is measured in two ways. First, based on the project's progress. The digital master plan or digital strategy consists of several initiatives and projects. You can measure their progress with project reports or a traffic light system, for example. Secondly, you have to define key performance indicators (KPIs) in advance.

In your opinion, what kind of indicators are particularly reliable?

The most important three indicators in all transformation strategies are 1. financial: Is the company making more money; is profitability increasing? 2. customer orientation: am I making customers more successful and happier, thus binding them to the company? 3. employee orientation: am I creating a modern working environment that is appreciated by the employees?

Where is the danger of measuring the wrong thing with such KPIs?

Short-term project successes should be celebrated, but the focus of digital transformation is on the sustainable, long-term increase of a company's competitiveness in the digital age. Therefore, the focus should be on long-term measurable indicators with time series analogous to the KPIs recommended above.

Which typical targets can be measured quantitatively - and which would be better determined using qualitative criteria?

In addition to the three main indicators, there are a large number of other possible quantitative metrics, depending on the projects defined, such as increasing process quality, increasing process automation, or reducing IT security vulnerabilities and attacks. More difficult to measure are innovation strength and culture development. Here, qualitative criteria are recommended, such as employees' ideas and projects to increase customer orientation.

Many business metrics are lagging, i.e. they map past developments. Are there also useful leading indicators that can be used to prospectively assess the development of digitization projects, for example?

Many operational metrics can be used to extrapolate, i.e., to calculate trends. For example, customer interactions on websites or in social media, product usage data, ideas for product innovations from employees and the clientele, customer inquiries for new services, and so on. Within months, these indicators can show whether the company has taken the right course with its initial measures.

What are the typical pitfalls to watch out for when defining KPIs?

Many companies, especially the larger ones with defined processes for investment projects, still focus on business plans and project budgets that show a positive return on investment (ROI). These often fabricated budgets and KPI targets only work to a limited extent in a fast-paced, digital world. This is where knowledge and culture work is needed at the board and executive management levels to bring new approaches, methodologies, and KPIs to the forefront for strategy and technology discussions.

Let's take the buzzword employee engagement as an example. Suppose a company wants to measure this to, say, increase employee satisfaction as well as productivity. How could you assess the implementation of these targets using KPIs?

Our research projects show that there are particularly important success factors in the working world 4.0 and for employee orientation, namely the topics of leadership methods and quality, culture development, flexibility in work models and work locations, existing communication technologies in companies, and employees' digital skills. I would use these topics to develop KPIs.

For example, what about an online retailer that wants to improve customer engagement? What would be useful KPIs and corresponding measurement methods in this case?

The degree of customer orientation of a company can be measured qualitatively through discussions and workshops with representatives from the various customer segments, and quantitatively excellently through automated, transaction-based short surveys. Here, the degree of one's own customer orientation can also be queried in comparison to the competition, with a simple question as to whether they (the customers) also buy from companies X and Y, and how they experience the service quality there, for example.

What should be kept in mind when measuring KPIs and interpreting the measurement results?

The most pointless use of KPIs is the ongoing generation of reports and dashboards that are sent out to companies on a weekly or monthly basis, but with which nothing is subsequently done and consequently, nothing happens. Digital transformation KPIs should be embedded in leadership principles and corporate culture: leaders and employees use feedback from the market and the business to continuously improve and thus develop high-performing teams.

Are there also data protection aspects that companies should consider when implementing KPIs?

The new data protection law will help companies review their approaches and practices, specifically regarding customer-centricity measurement. This includes issues such as the collection and sharing of customer data or the development of personality profiles.

This article was originally posted by: NETZWOCHE