A recent CIO.com article titled CEO’s lack of success metrics dampens digital prospects, by Clint Boulton, notes that “CEOs view digital technologies as a vital engine to drive revenue growth and boost the bottom line.” The resulting proliferation of digital transformation initiatives puts pressure on CIOs to ensure they have the funding, customer focus, and budget agility to capitalize on digital disruption. But how do IT leaders know that they’ve laid the proper foundation for their organizations to rapidly experiment and iterate toward digital success?
Apptio recommends 6 metrics to help you gauge your IT organization’s readiness to tackle digital transformation:
Percent of investment moved from run to grow and transform
Use this metric to report where operational efficiency gains have enabled you to shift spend to digital innovation. This helps business leaders understand IT budget priorities and how IT is accelerating initiatives aligned with your digital business strategy.
Percent of shift from CapEx to OpEx
For most organizations, CapEx investments are not a good fit for digital transformation initiatives. While the spending certainty of capital expenditures is alluring, it rarely aligns perfectly with what’s actually needed, especially in digital initiatives where rapid experimentation and changing customer expectations defy predictability. That’s why IT leaders flock to pay-as-you-go solutions such as public cloud that fluctuate with usage. Use this metric to quantify improvements in the flexibility of your technology investments.
Percent of project spend on customer-facing initiatives
Digital transformation revolves around the customer experience, so spend on customer-facing initiatives is likely to increase in an organization that adopts digital business. This metric will help you communicate the investments you’re making in digital transformation projects and the prioritization you’re giving to the customer experience.
Fixed vs. variable cost ratio
In addition to the shift from CapEx to OpEx, you need to actively monitor your ratio of fixed to variable costs. This provides another window into the flexibility of your cost structure for supporting the changing conditions inherent with digital business. Variable costs allow you to initiate projects without heavy, long-term commitments that lock you into inefficiencies if you need to scale up or don’t go away if you shut down the project.
Variance between planned and actual spend
With increased financial agility, there’s increased risk of going off-target. You need to ensure you’re spending what you intended to spend. This metric helps you detect and correct anomalies before they become budget crises and helps you foster a culture of accountability. Tighter conformance to plan across all IT reduces the need for budget padding, freeing up funds for digital innovation.
Transition from rigid annual plans to monthly rolling forecasts
In an environment of rapid experimentation, yearly or even quarterly planning isn’t enough. Replacing a rigid annual planning schedule with a monthly rolling forecast allows IT leaders to be more nimble and responsive to innovation opportunities, while maintaining a high level of fiscal responsibility and discipline.
Digital business presents an opportunity to improve the company’s bottom line by transforming the customer experience. Measuring these 6 metrics will shed light into whether you’ve created the best financial conditions for IT to successfully execute your digital business strategy. Don’t get stuck in the dark. These metrics will help you determine whether IT is making the right investments and allow you to course correct when things go off track.
Are you a CIO looking to take the reins of your company's digital business transformation? Download the Forrester report Unleash Your Digital Predator to find out how digital innovation can help you win, serve, and retain customers.