Ask a CIO how he or she quantifies the impact of their\u00a0digital transformations\u00a0and 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.\n\nBut 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\u2019re tracking and what they aim to accomplish.\n\n\u201cThe 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\u2019t have a measuring stick for."\n\nWhat are digital KPIs?\n\nDigital 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.\n\nCompanies 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.\n\nDigital KPIs are more difficult to define, as businesses from various industries have different ways to quantify their digital initiatives. Moreover, attaching the word \u201cdigital\u201d can make the meaning of such KPIs murky, particularly in enterprises that view digital business and business as indistinguishable.\n\nHow to define digital KPIs\n\nGartner\u2019s 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.\n\nA 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.\n\nDigital KPI adopters\n\nSenior 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\u2019s progress for automating repetitive tasks, Bedi created a system that calculates how the company is progressing along its digitization journey. Though Bedi doesn\u2019t describe it as such, it\u2019s a measurement model for digital KPIs, per Gartner.\n\nThe 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 \u201cclunky, slow and frustrating,\u201d while a level 4 rating indicates that the company is using platforms to automate and execute work.\n\nCompanies needn\u2019t 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.\n\n"The framework isn\u2019t perfect, but having one is better than not having one," Bedi says. Moreover, organizations can "adopt it, tweak it and make it their own.\u201d\n\nBuilding 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 \u201ctrue business value,\u201d Bedi says.\n\nTo 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.\n\nFridays 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\u00a0is working for consumers trying to \u201ctalk\u201d to the platform. Page views, click-throughs and how often a consumer has completed or abandoned his or her checkout round out Fridays\u2019 KPIs. \u201cIt\u2019s not always perfect, but when you try stuff and it doesn\u2019t work you learn,\u201d Mityas says.\n\nAt industrial manufacturer Schneider Electric, CIO Elizabeth Hackenson uses digital KPIs to track anything from the company\u2019s cybersecurity posture to the number of staff she identifies as \u201cdigital citizens,\u201d those who casually consume technology, to \u201cdigital disruptors,\u201d those who conceive of and champion changes in business processes. \n\nSchneider also tracks how many of its products are digitally connected through internet of things (IoT) sensors and internet connections, Hackenson says.\n\nDigital KPI best practices\n\nServiceNow, 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:\n\nThe benefits of digital KPIs\n\nThere are no magical formulas for digital business success, but KPIs can help.\n\n\u201cThe digital KPI is all about understanding where you\u2019re 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,\u201d 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."\n\nThe stakes are high for CIOs and their C-suite peers to cement a digital strategy \u2014 and even higher to establish KPIs to measure its effectiveness. Disruption occurs in a market once digital revenue hits 20 percent of the total. \u201cIf you\u2019re not [reasonably] digital at that point, you\u2019re toast,\u201d Proctor says.