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Are you measuring these 5 metrics of digital progress and success?

McKinsey Digital | Matt Fitzpatrick and Kurt Strovink | Jan 29, 2021

markers of digital sucecss CEOs should monitor - Are you measuring these 5 metrics of digital progress and success?

As organizations launch more and more digital initiatives, CEOs must monitor whether they are delivering business results. These metrics are ones to watch.

In a time of seemingly nonstop digital disruptions, which have only accelerated during the COVID-19 pandemic, the business imperative to embrace digital, data, and analytics is widely understood. The link to business value, however, is not. When we ask CEOs how their transition to digital is progressing, they often respond with a list of initiatives under way across the business—building a new tech platform, launching new products, or investing in infrastructure, to name a few. But when we ask them to quantify the impact on the bottom line, there’s usually a long silence.

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While business and technology leaders might report good progress on those initiatives to the CEO, simply getting projects off the drawing board doesn’t guarantee that the organization is increasing revenue, profitability, market share, efficiency, or competitive moats as a result. Organizations pursuing digitization need a fully engaged CEO to take charge and drive actual performance gains from digital investment. That means prioritizing scalable initiatives capable of substantially improving the organization’s performance; insisting on fast, minimally viable outcomes that can be improved over time; and, importantly, measuring and tracking the impact and value creation of all digital initiatives.

Map before you measure

Prioritizing digital initiatives is an essential first step we’ve written about frequently, but it’s worth repeating—and it falls directly on the CEO’s shoulders. CEOs should ask themselves today, “Does my organization have a clear road map of digital priorities, rather than a basket of digital projects?” The purpose of this road map is not just to get from point A to point B. It’s to force the organization to prioritize three to five bold initiatives, meaning digital moves that have potential to make a material difference in the organization’s overall performance, and to focus resources accordingly. Perhaps the most common pitfall we see in failed digital strategies is the tendency for leaders to greenlight every project. However, doing so runs the risk that none will achieve enough scale to change behavior, mobilize the broader organization, or drive material impact.

Five metrics for the digital CEO

1. Return on digital investments

Measuring the return on digital investment is both standard and essential. CEOs should look not only at the value being provided by individual priority digital initiatives but also at initiatives’ collective support of strategic organizational goals.  To maximize returns, we recommend transforming one business domain at a time and broadening from there for traction and coherence. “Domain” here refers to a critical process, customer or employee journey, or function. For example, a marketing domain for a consumer-goods company might include customer acquisition, pricing, cross-selling, and retention.

2. Percentage of annual technology budget spent on bold digital initiatives

Organizations that spend only a small proportion of their technology budgets on enabling the most strategic, bold digital initiatives are unlikely to maximize return on digital investment. Business technology is shifting away from a monolithic IT architecture and toward microservices, best-of-breed tools for specific use cases, and custom application development.

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Consider the banking industry. Our research suggests that many banks spend about 92 percent of their digital budgets on infrastructure and maintenance, leaving only 8 percent for business-improvement initiatives that can fuel growth. That is not a sustainable paradigm for any business, given the current pace of innovation and disruption.

3. Time required to build a digital application

Our experience suggests timelines for getting applications to market and for new releases. For an analytics model (such as one that predicts customer churn or identifies microsegments to allow for more personalization), putting it to work in the field should take less than four months. We see many organizations still taking as long as two years or more to complete these builds, largely because they lack agile continuous-delivery processes and wrestle with overly burdensome documentation and nonfunctional requirements such as security and single-sign-on authentication.

4. Percentage of business leaders’ incentives linked to value-creating digital builds

A CEO needs to ensure that all organizational leaders are accountable for digital transformation and are driving tangible value. Aligning incentives is critical to achieving these ends. Importantly, this includes linking digital incentives among these leaders, including the organization’s head of technology.

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5. Top technical talent attracted, promoted, and retained

The ability to attract and retain exceptional tech talent is arguably the most crucial driver of long-term success in this increasingly digital age. Tech talent includes individuals with expertise in data engineering and analytics, design and user experience, and core technology.

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