Digital transformation is on every leader’s agenda. Yet less than 15% of companies can quantify the impact of their digital initiatives, according to McKinsey’s Digital Quotient analysis.
Traditional KPIs are poor indicators of the effectiveness of ongoing digital efforts; they are best-suited to measuring long-term impact, revealing improvements annually or quarterly. Today’s marketplace is changing too rapidly for such horizon-gazing, according to Steven Skinner, senior vice president of Cognizant Business Consulting.
“As organizations become more agile, the KPIs must be tailored for new operating capabilities,” Skinner said in an interview with CMO.com. “Digital transformation metrics must be aligned with measuring where traction is achieved in a digital capability versus the results achieved at the end of a transformation. This helps assess and refine transformation efforts continuously.”
Digital transformation is a series of changes—the earliest of which are not likely to increase sales or a bump up a Net Promoter Score. But incremental change can “lead to more informed and better decision making,” said Ashley Stirrup, CMO of software integration provider Talend, in an interview with CMO.com. “Therefore it’s very important that companies really think through leading indicators that will help them measure the impact of their digital investments ahead of the actual impact on things like revenue and customer satisfaction.”
What’s more, conventional corporate metrics generally offer a narrow view of results, linked to a particular silo in the organization. But digital transformation isn’t an IT project or a marketing plan, said CarMax CIO Shamim Mohammad, in an interview with CMO.com. “It’s a company initiative. The senior leadership needs to be aligned around what they’re trying to achieve and, more specifically, they need to organize around business outcomes they can measure every week—in some cases, daily.”
Focusing on pre-digital KPIs can be worse than unhelpful—it can thwart transformation. When an organization is not aligned around cross-functional metrics, “each group has a set of objectives that are frequently in conflict with each other, and the business value of the digital transformation is left unmeasured,” said Michael Witty, director at global technology research and advisory firm ISG.
For digital leaders in the marketing group, that means metrics such as lead generation, campaigns launched, or website visitors fall flat. They “represent a myopic view of the ultimate power and effect of digital transformation,” said Debbie Qaqish, chief strategy officer at The Pedowitz Group.
What’s needed instead are digital transformation metrics that span functions and can be measured on a continuous basis to provide the most insight into what’s working and what’s not. Requisite measures will vary by industry—or even company. But these new metrics designed to track the ongoing business impact of digital transformation tend to fall in three categories: operational improvement, customer experience, and financial impact.
At its core, digital transformation is a continuous improvement initiative as much about changing mindsets and behaviors as it is bottom-line results. But cultural shifts are difficult to measure. Adoption metrics can be a great proxy, according to Aaron Goldman, CMO of media technology company 4C. “You need to make sure your organization is using the tools you’ve employed,” Goldman said in an interview with CMO.com. “Adoption should be measured no less than weekly. It’s the only way to gauge and generate momentum.”
One example of continuous improvement is technology stack use and optimization. “Most companies skim the surface in terms of technology use and optimization,” Qaqish said. “A key metric of the marketing ops team is to go deep across a fully integrated tech stack that results in improved business performance.”
When Cognizant is working on digital transformation efforts, “speed to transform” is a key measure, composed of a concise list of metrics that serve as indicators of progress. “We may work with a client to create a new application to reduce process cycle time or reduce rework,” Skinner said. “This type of project is successful when processes cycle more quickly or when there are fewer errors—and would appear to be less successful if using only a ROI-style metric.”
Other operational or capability metrics that could be useful include task automation, quality metrics, productivity, or application performance, according to ISG’s Witty.
Most marketing KPIs are “vanity metrics,” said Jen Grant, CMO of business intelligence software maker Looker, in an interview with CMO.com. They “feel good but don’t really give you a good view of whether your business is healthy or in trouble.” Digital transformers will look for signs of improved customer experience.
“You need to be able to measure how successfully a customer can navigate across an ecosystem,” said Ingrid Lindberg, president of Kobie Marketing, in an interview with CMO.com. Lindberg became the health-care industry’s first customer experience officer when she took the role at Cigna in 2007. “When leading a digital transformation, I look for KPIs that cut across traditional delivery silos and identify measures that can be applied across all of those experiences,” she said.
Forget website traffic, bounce rates, and referrals, said Mark Nardone, executive vice president of marketing and new business at PAN Communications, in an interview with CMO.com. He advocated measuring share of voice, customer acquisition costs, and customer lifetime value (CLV), ultimately improving retention rates: “The digital disruption within the industry allows modern marketers to easily measure the value your brand gets from each customer relationship.”
CLV tends to get increased attention in digital transformation. “It represents the role of marketing across the entire customer lifecycle—not just the top of the funnel,” Qaqish said.
Cambell Holt is chief customer officer of Mercer Australia, a $4.2 billion institutional investment, retirement, and health services firm that is investing $50 million over three years on customer-centric digital transformation. Measures like NPS and customer satisfaction surveys have their place, Holt told CMO.com. But one of the most important measures for Mercer Australia’s digital transformation is customer friction. “We measure how much customer effort or time it takes to get something done with us,” he said.
Kobie Marketing’s Lindberg, who led a digital transformation at Prime Therapeutics, said ease of completing tasks is one of the main measures she tracked as well. “But we can’t ask channel by channel,” she said. “We need to be smart enough to find the spot where we can get the clearest look back possible.”
She suggested looking at customer contact in a different way: not by number of calls or average handle times but by types of inquiries. “In health care and finance, I want to see an increase in calls where customers are asking for advice, not trying to solve a problem. In retail, I want to see an increase in calls of customers asking for more information or for a deeper connection to a product or service, not complaints,” she said. “When you begin a digital transformation, you should see simple tasks being diverted, which means that your more intricate will affect your average handle time.”
CMOs and other digital transformation leaders are being held to significant growth targets. But the impact on revenue or margins does not happen overnight. Digital leaders should instead seek out measures that are meaningful when monitored on a daily or weekly basis and give a good indication whether efforts are headed in the right direction.
Since taking over as CMO of Bynder three years ago, Lidia Lüttin has focused empowering more data-driven decision making at the brand management software company. “It can be difficult at times, as in this case digital transformation does not only involve ‘being digital’ but changing the mindset of people,” Lüttin tol CMO.com. “And change management can be a strenuous process.”
She illustrated the financial value of those sometimes painful efforts by tracking increases in productivity or revenue per employee and decreases in customer acquisition costs. “By freeing up brainpower, we get more new initiatives as we bring down the number of repetitive tasks, which is more efficient for our bottom line, while simultaneously being a more attractive and innovative place to work for our talent,” she said.
For David Gee, CMO of Zuora, whose SaaS business is built around enterprise software subscribers, the magic financial metrics are annual recurring revenue, recurring profit margin, and growth efficiency. “Tracking growth efficiency, or how much it costs to acquire $1 annual contract value, gives companies a sense if they effectively transforming,” he said in an interview with CMO.com.
It’s critical to look for financial measures that provide incentives for the entire enterprise to embrace ongoing digital change, ISG’s Witty said. For example, one retailer is measuring gross margin by category, rather than by channel, to track how well the organization is working together to drive sales. That financial data complements operational metrics for channel integration and customer-focused KPIs measuring share of wallet, loyalty, customer growth, and cross-channel satisfaction.