The Crucial Mistakes Digital Transformation Strategy Leaders Make with their Business Case

What was Blockbuster Inc. focused on when Netflix started to show traction?

Not realizing that their customers’ behaviors had changed, the company focused on improving the in-store experience and expanding the game selection, which did very little for customers in the coming years who had seen how convenient Netflix made the entire video experience. Companies who only focus on their current customers’ needs, rather than trying to plan for future digital disruption risk making the same type of mistake.

A lack of alignment like this stems from the two foundational mistakes companies make with their digital transformation strategy:

• Not knowing where to start with digital innovation, or choosing projects that do not provide hard ROI.
• Not having an ROI-driven digital strategy with major stakeholders still in silos.

Both of these are key to convincing the business line and other executives that digital is worth the investment. These are the two key inputs to your digital strategy. Without an understanding of the return on investment for these large software projects, executives are loathe to consider more investments when they are wary of IT projects that under-perform and over-promise, often running roughshod over the requirements and budget set out at the beginning of the project. 

Where to start with digital innovation strategy

A large industrial plant company in a highly regulated industry came to ChaiOne to inquire about digitizing data entry on a form to speed up their inspection officers who are responsible for checking in all of the raw materials. Once the human factors and user researchers got out into the field, however, it became very apparent that the inspections themselves accounted for less than 10 percent of the delay. The majority of the delay came from not being able to get approval from different stakeholders for sign-offs. Rather than look into a mobilized form, the process owner can maximize the ROI and solve the delay with mobile solution that tailors the urgency of the message to the content, from push notifications to in-app messaging. In this case, the improvement in inspection speed saved millions at each plant.

In the medical field, the act of prescribing a solution before verifying the problem is called “malpractice.” Yet, that is what many IT leaders do when selecting projects without doing field research into the root cause of the problem. To extend the medical analogy, if someone comes in with chest pains, does the doctor immediately prescribe pain medication and send the person on the way? No, they look into if the root cause is a life-threatening heart attack.

This is the same investigation process that now needs to happen with software, because at least 60 percent of software development projects produce ineffective or substandard products, with 25 percent failing outright.

Realistically, sending user researchers out into your entire business is not possible for large enterprises. When selecting which departments or areas of the business to investigate first, it’s important to consider the following factors:

• What areas of operations are behind industry benchmarks?
• What business models are most under threat from digital disruption and competition for customers?
• What workflows in operations are contributing the most to the bottom line?
• What areas of the business are most crucial to the company’s gross revenue?

Crafting your ROI-driven digital transformation

Once a department or operations area to investigate has been chosen, the next step is to assess what is achievable and cost-effective. Some functions of the business may have a lot of waste, but the implementation of a new solution would be technically too costly for the business. After whittling down farther by those parameters, then human factors experts and user researchers can go out into the field to conduct observations. Identify the business problem at hand and let the field user research team take that assessment beyond the initial understanding and remove assumptions from the process.

After identifying the financial benefits of project the next step is to identify the cost of project. To do this identify the high-level requirements, identify the roles needed to build the solution, then estimate how long it will take the team to deliver. Typical team composition will include:

• Project manager
• Developer
• Interaction Designer
• User researcher
• User representatives

Once the team identifies the objectives, team-members needed and high-level requirements, the next step is for the team to determine all the associated costs for the project. It is important to be very detailed in all anticipated costs. Typical expenses include:

• The number of members from each discipline, e.g., how many developers, designers and researchers will be needed for the project?
• What deliverables will each team member produce and how long will each deliverable take
• How many end-users will be needed throughout the lifecycle, how much time of their time will be needed for surveys, ideations sessions, usability testing and what is their cost to the company being away from the job
• What is the cost of of any hardware or special equipment needed to deliver
• What is the estimated maintenance cost for the solution

Once an estimated cost for the project is determined, it is possible to estimate ROI which is benefits minus cost.

Consideration needs to be taken to ensure the estimation is accurate. Teams often fail at capturing ROI because the analysis was done inaccurately. To ensuring the ROI estimation is accurate the following needs to be true:

• The financial benefits have been realistically estimated. E.g., if it was estimated that there can be a 25% increase in productivity, or a 5% decrease in costly errors, there needs to be valid reasons for why these number are achievable. This evidence can be derived from the methods listed above.
• The cost of the project needs to be accurately estimated. The key to making sure these estimations is to remove as many assumptions from the estimation as possible. This means:
  • Sourcing requirements based on identified user needs from user research
  • Having requirements that are well defined
  • Doing appropriate technical spikes to make ensure that all requirements can  be implemented and the complexity to implement has been properly scoped
  • Ensure the team’s ability to execute is high and the project manager is experienced enough to manage the team
• Built in checkpoints with end users throughout the lifecycle to ensure that the solution is on track to meeting specific needs and capturing the estimated ROI -- typically done in the form usability testing, participatory design and experimentation
• All major uncertainties have been accounted for and there is a risk mitigation plan to deal with worst case scenarios

Validating the statements above will increase the likelihood that the financial benefits are real and accurate, the project is likely to be delivered in the boundaries of the estimated cost, and the majority of ROI will be captured. Customer experience will own the next evolution of your company— it's up to you to decide to capitalize on that opportunity.