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Investments in digital technologies should build strong, Return on Investment (RoI)-focused business cases
A sound digital RoI calls for a holistic approach that looks beyond costs and distinguishes between implementation of fundamental and incremental digital in organizations
An RoI-based approach will strike the right balance between investments in digital and their benefits accrual
Every January, Londoners, including myself, wake up to the harsh reality of train fare rise. I wonder if there is any other service provider in any other sector that conducts such prompt inflation adjusted rate increase. The rail sector in the U.K. has invested significantly to develop and upgrade its core assets and to modernize through digital technology. This is true of not just the main rail operator, Network Rail, but for a number of passenger train and freight operating companies as well. As a passenger, I am waiting for the day when rail operators start yielding benefits from technology upgrades and pass on the benefits to their customers.
A similar paradox is visible in the healthcare sector. In fact, any sector that is investing and updating its core infrastructure with digital technologies must see benefits coming in. However, in most cases we only see investments pouring in while benefits accrual is in wait mode. To build a strong Return on Investment (RoI)-focused business case, there are three areas to consider.
Investments in digital technologies seem to have picked up pace, but when can end users and customers expect companies to share the returns with them? The fundamental need for digital comes from customers who are seeking convenience across channels, speed of information and flexibility. Companies are however struggling to drive pure dollar gains on some of the softer benefits. The challenge for most organizations is to strike a balance between run operations and change programs to embed digital in their ecosystems.
The business case for digital comes from certain fundamental changes in the business operating model thanks to digital disruption across industries as against a specific business use case for productivity gain or cost savings. Digital has entered the business core as against merely adding a stack of tools and technologies to the existing infrastructure. Organizations should recognize that digital is a disruptor and a catalyst that is driving the business context.
Digital business cases often tend to focus solely on productivity gain and cost savings associated with either direct or indirect costs. The cost of labor and service delivery is critical for ensuring operational stability. But companies should not have a myopic view of automation and digitization of the entire value chain as a means to reduce costs. Complete automation takes away human interaction and with that the intelligence required to deal with changes. Moreover, there are limitations to cost arbitrage through automation alone; it requires fresh thinking on other possible levers of efficiency gain.
I have seen many customers in fintech, insurtech and travel use digital to build their core business platforms and business operations. They are driving digital benefits through their core operating models and platforms, thereby creating new streams of revenue and growth.
Digital tools and interventions operate at two levels. Level 1 is around ensuring that the core business operates efficiently and effectively, and delivers the promised value to key stakeholders. The business case here is around ensuring the smooth working of an organization. When was the last time someone wrote a business case for Microsoft productivity tools such as Office 365 or SharePoint or even Enterprise Resource Planning software such as SAP or Oracle?
Level 2 is clearly next-generation technologies embodied around digital. However, the new set of digital tools bring in additional capabilities that can enhance and accelerate organizational capability by driving efficiencies in asset management, effective customer delivery or eliminating waste in the supply chain, among other benefits. It is paramount for an organization to ensure that it identifies digital as either fundamental or incremental, or a combination of both, since the benefits it can expect will depend on the approach it takes.