Ask a CIO how he or she quantifies the impact of their digital transformations and you may get a quizzical look. Most CIOs don’t have metrics for gauging the success of digital projects, such as new mobile apps or chatbots.
But CIOs who fail to quantify these initiatives may find themselves outflanked by nimbler rivals, analysts say. Digital key performance indicators (KPIs) are one way to track transformation progress. But to avoid wasting time and resources, CIOs need to make sure they know what they’re tracking and what they aim to accomplish.
“The biggest limitation [of digital KPIs] is the lack of a clearly defined digital ambition,” or strategy, Gartner analyst Paul Proctor tells CIO.com. “Having a clear idea of your digital ambition will give you some ideas of what you should be measuring to measure your progress. You can’t measure something you don’t have a measuring stick for.”
What are digital KPIs?
Digital KPIs are metrics for evaluating the performance of digital business initiatives. Digital KPIs can help an organization ascertain how far it has progressed on its digital strategy and how well it is improving its digital business outcomes.
Companies have traditionally measured business performance based on net profit, earnings per share and other Wall Street metrics, which are supported by KPIs such as inventory turns, production quotas and customer satisfaction.
Digital KPIs are more difficult to define, as businesses from various industries have different ways to quantify their digital initiatives. Moreover, attaching the word “digital” can make the meaning of such KPIs murky, particularly in enterprises that view digital business and business as indistinguishable.
How to define digital KPIs
Gartner’s Proctor says that CIOs should craft digital KPIs by targeting two broad categories. The first set of KPIs should assess the company’s progress in digitizing its current business model by measuring goals in sales, marketing, operations, supply chain, products/services and customer service. For instance, many concerns in retail, casual dining and other sectors use chatbots to digitize order taking. CIOs should evaluate such digital operations using metrics that assess adoption rates and business impact relative to traditional operating modes.
A second set of KPIs should assess growth, revenue, market share and margin metrics for digital platforms. Caterpillar acquired Yard Club to rent heavy machines through an online marketplace. Cleveland Clinic sells algorithms for analyzing cardiology and oncology through Apervita’s online marketplace. Such digital revenue streams should be evaluated separate from analog streams to assess their impact on the bottom line.
Digital KPI adopters
Senior business leaders will gripe that estimations of digital maturity are more based on anecdotes than hard data, according to ServiceNow CIO Chris Bedi. To quantify his company’s progress for automating repetitive tasks, Bedi created a system that calculates how the company is progressing along its digitization journey. Though Bedi doesn’t describe it as such, it’s a measurement model for digital KPIs, per Gartner.
The model starts with a questionnaire, which HR, IT, sales and other business groups apply to each process, such as automating accruals, transferring employees from one department to another, or provisioning laptops. Responses are color-coded and rendered in a visual heat map that details the digitization metric for every process, with variables such as the inclusion of real-time analytics and machine learning algorithms influencing the score. A low score nets a level 1 rating, described as “clunky, slow and frustrating,” while a level 4 rating indicates that the company is using platforms to automate and execute work.
Companies needn’t fear being stuck on level 1; the scorecards trigger recommendations that business lines can follow to boost their score. ServiceNow customers such as Humana are using the scorecards.
“The framework isn’t perfect, but having one is better than not having one,” Bedi says. Moreover, organizations can “adopt it, tweak it and make it their own.”
Building on the momentum of the scorecards, Bedi is building a diagnostic model that helps organizations estimate digital KPIs such as operational metrics, speed and cycle time, as well as Net Promoter Scores based on customer and employee feedback. This diagnostic model will help quantify “true business value,” Bedi says.
To learn how its customers are interacting digitally with its brand, TGI Fridays tracks daily active users of its website and mobile software and follows posts on Twitter, Facebook and other social media, says Chief Experience Officer Sherif Mityas.
Fridays also closely analyzes interactions consumers have with its chatbots, including number of conversations and conversation length, which gives Mityas a better understanding of how natural language processing is working for consumers trying to “talk” to the platform. Page views, click-throughs and how often a consumer has completed or abandoned his or her checkout round out Fridays’ KPIs. “It’s not always perfect, but when you try stuff and it doesn’t work you learn,” Mityas says.
At industrial manufacturer Schneider Electric, CIO Elizabeth Hackenson uses digital KPIs to track anything from the company’s cybersecurity posture to the number of staff she identifies as “digital citizens,” those who casually consume technology, to “digital disruptors,” those who conceive of and champion changes in business processes.
Schneider also tracks how many of its products are digitally connected through internet of things (IoT) sensors and internet connections, Hackenson says.
Digital KPI best practices
ServiceNow, TGI Fridays and Schneider Electric may be digital outliers; only half of CEOs Gartner has surveyed have KPIs to measure digital success, says Proctor, who recommends several steps CIOs can take to measure the value of their digital business:
- Work with senior executives to quantify the extent to which their areas would benefit from digitalization. A CIO might work with a COO to define how much of the company’s manufacturing operations should be digitalized and what benefits to expect.
- Set KPIs and goals that lay out the digital business journey and sharpen expected business outcomes. For example, Proctor recommends that healthcare CIOs shift from talking about connected healthcare as a vision to proposing the potential percentage of patient “visits” that will employ telemedicine, and then describe the expected benefits of achieving this goal.
- Measure the progress of your digital journey and the business value it creates. Here, some KPIs will be “transitional,” while others will become permanent metrics for business performance as transformation is achieved and digital business becomes standard operating procedure. For example, an enterprise that builds a digital ecosystem may permanently add ecosystem metrics to its ongoing business performance KPIs. Good metrics should influence C-suite decisions such as budget allocations, business process improvements and culture changes.
- Use KPIs to support specific outcome expectations, such as, “by reaching our 2020 goal of digitizing ABC, we will benefit from an X increase in these business and financial metrics.”
- KPIs should influence business decision-making. KPIs should inform course corrections. For example, as a business approaches 50 percent of customer calls through an automated system, customer Net Promoter Score may materially fall, indicating a need to invest more in the system or change technologies. Good KPIs will inform the need to change before material loss occurs.
The benefits of digital KPIs
There are no magical formulas for digital business success, but KPIs can help.
“The digital KPI is all about understanding where you’re making money or improving an existing business model, how to measure that and work with your non-IT execs to achieve new business outcomes that you’ve set based on the fact that you’re going digital,” Proctor says. “Outside of that all that you have is a collection of new projects that are using technology to do new stuff and unfortunately that’s where most businesses are today.”
The stakes are high for CIOs and their C-suite peers to cement a digital strategy — and even higher to establish KPIs to measure its effectiveness. Disruption occurs in a market once digital revenue hits 20 percent of the total. “If you’re not [reasonably] digital at that point, you’re toast,” Proctor says.