The Cost of Digital Transformation

Spend money to make money—we’ve all heard this business cliché hundreds of times.

And it’s not even always true!

Ask anyone who hired a sales team without properly assessing product/market fit, or built an expensive app without vetting the competition—both of those items are super expensive and, in those scenarios, don’t make any money. Let’s trade in that catchphrase for something more realistic.

Look into the future, research your options, and invest in assets that will contribute to long-term goals.

Sure, it’s not as catchy, but certainly shows better business acumen.

The investment we’re talking about today is digital transformation (DX). And we’re not the only ones. In EY’s recent Digital Deal Economy Study, 87% of respondents say that they are explicitly considering digital transformation in their capital allocation planning for the next two to three years.

As with any investment, the first thing you need to do is compare your anticipated return with the upfront and ongoing costs. In this post, we seek to clear up some of the misconceptions around the investment in digital transformation projects, explain the results you should expect, and of course, provide some insight to help you avoid problems along the way.

If you’re thinking of dipping a toe (or just launching like a cannonball!) into DX at your company, this post will help guide you.

What You GET with Digital Transformation

If you’ve already bought into the idea of DX, we know you don’t need the full-on sales pitch. But, it’s still important to have a clear idea of what’s waiting for you at the end of the tunnel.

The scope of cost savings that DX can produce is wide-ranging and unique to each organization, but here are a couple areas that should experience significant savings. Let’s look at two examples:

  1. Virtualization and networking. Centralizing all of your company’s desktop computers and applications with a network can radically reduce IT-related costs.

    First, virtualizing computers allows the desktop support team to deliver updates, deploy security upgrades, and fix issues remotely. Not only does this save time in terms of travel and communication, it allows businesses to maintain smaller, leaner technical support teams. For example, depending on how your network is set up and your needs, you may not need a full-time staff position to deliver that type of service.

    Additionally, virtualization allows for easier implementation of patches and updates, which can extend the life of your existing hardware. Just imagine not having to buy a new fleet of desktop computers every three years to keep up with technology.

  2. No more “paper pushing." Filling out forms by hand slows things down. We all know this. Fortunately, in business we now have more choices than ever, and an analog process like handwritten forms and faxes can be the difference between signing the big account, or not.

    And digitizing forms and documents is only the beginning! Once they’re in a digital system, you can roll out automated document workflows to speed the process along. A fully automated process from signature to team handoff to customer onboarding and payment—THAT’S the power of digital transformation.

The benefits of DX come with costs, of course, and we’d like to address those upfront.

The Cost Of Organizational Buy-In

This ‘price’ of DX in dollars is nothing compared to the uphill battle you can potentially face from your board, your investors, or your co-workers. The process, both in terms of implementation and day-to-day activities, doesn’t occur in a vacuum.

DX must be rolled out from the top-down with company-wide support and buy-in—no easy task. Additionally, you can’t really implement in a single department, such as IT. Without digital processes and procedures across the board, the whole “transformation” bit (and the benefits that go with it) are null.

The solution for organization buy-in is to create a long-term digital transformation strategy based on a vision that involves your customers, enables your workforce, and digitizes your process, all while focused on top line growth.

Read more about forming a comprehensive DX strategy in our recent post “Digital Transformation: A Primer on Positioning Your Company for the Future.”

The Cost Of Technology and Systems

Buy some software, spend a few weeks implementing and training your staff, message your customers, and BOOM, digital transformation.

Not quite.

There’s no one piece of software that you can bolt onto your processes and see the results you’re looking for, hence the name “transformation.” The DX journey requires significant investment in technology. According to a new Forrester Report, companies are investing in new technologies, applications, and platforms (32%) and are upgrading legacy systems (33%) to support digital transformation goals.

Apart from an outright investment in technology and innovation, additional ways to foster DX include:

  1. Mergers and acquisitions
  2. Partnerships
  3. Divestment and restructuring

How you choose to tackle the budgeting aspect depends on your unique situation and resources, but know that there are diverse options for transformation.

4 Mistakes to Avoid During Digital Transformation

Digital transformation involves plenty of risk, and there are dozens of binary corpses of failed DX projects littering the path to the promised land. As you begin your research and planning phase, here are a couple of things to watch out for.

Not transforming. Sounds obvious, but unfortunately happens all the time. Without a vision, a long-term strategy, and accountability measures in place, you might end up with a few new software purchases with none of the benefits described in the post.

Not taking advantage of your unique situation. The value your business receives from DX largely depends on your industry. Take these examples from McKinsey: Full digital transformations in grocery may not produce huge revenue gains for many years (though it certainly can), but if you work in music or video distribution and haven’t already executed a successful DX implementation—you’re probably no longer profitable in that industry. Industries like banking and insurance need to move quickly to achieve the revenue gains that are now possible.

To summarize:

"The clear message from our research is that companies need to fully embrace digital but should do so in line with their own unique opportunity."

Budgeting. Yes, you need a budget for DX, and yes, it will require its own special allocation. Simple as that. Avoid at your own peril.

Getting derailed. There’s few things as frustrating as agreeing to a large-scale initiative, then having to discuss or defend the decision six months in when somebody raises his hand in a meeting and says, “Why are we doing this in the first place?”

A few ways to keep from getting derailed include:

  1. Keeping the CEO engaged and active in internal messaging and support
  2. Maintaining a dedicated team of individuals responsible for details and execution
  3. Avoid short-term outlooks and keep your eyes on the future

Digital transformation takes planning, patience, and of course, budget. And as a fully digital endeavor, why not familiarize yourself with the technological landscape? Watch our webinar "IT in the Modern Enterprise" to see a few easy wins in IT and how to avoid common pitfalls.

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