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Record-Breaking Investments for Technology, But Murky Goals

Record-Breaking Investments for Technology, But Murky Goals

Companies are making record-breaking investments in digital transformation this year, up 65% from 2020. There have been breakthroughs in uncovering returns for these investments, but the picture can still be murky. Are digital funds being well spent?

This is the question posed in a recent survey of 1,500 global executives from EY-Parthenon, which finds that after years of heavy digital investment, companies are still figuring out ways to show hard-number results.

Executives are optimistic, but still in mainly the dark when it comes to tangible results from their investments. Only 16% of respondents strongly agree they have a clearly defined strategy for digital. However, the numbers do suggest progress compared to the last survey — when only 1% indicated having a strategy.

“Many still struggle to measure and achieve results from digital investments,” the EY authors note. “The concept of measuring ROI for digital projects, programs and use cases is still not applied systematically.” Three out of five companies don’t know how much they spent in digital operating or capital expenditures last year. or what value it yielded in incremental revenues, reduced cost and working capital.

Still, there is abundant optimism that investing heavily in digital is the right course of action. Executives even feel their spending increases will nearly double their return on digital investments this year compared to last year. More executives are also measuring return on digital investment. Forty-one percent report measuring “return on digital investment} — up from 29% two years ago.

The pressure is intense to spend the money. Still, speed and success are critical, as nearly three-quarters of executives (72%) say they must radically transform their operations during the next two years to compete effectively in their industry — up from 62% in 2020.

Executives plan to allocate 5.8% of their revenues to digital as compared with 3.5% in the 2020 survey — an increase in spending of 65%, not accounting for increases in revenues.

More companies are connecting their digital strategies with successful implementation, factoring in culture, agility, clear accountabilities, measurement and execution pathways. Companies that measure return on digital investment expect a 7.6% average return on digital investment in 2022, which would exceed the 4.4% ROI reported in 2021.

This year, 31% of digital spending is being dedicated to building capabilities, while 69% of spending has shifted to running — up from 64% in 2020. “This suggests that companies are pivoting from core internal operational efficiencies to new digital products and services that enable them to get closer to their customers and generate revenue,” the survey’s authors state.

The survey’s authors urge the following actions to see more tangible results from their technology spending:

  • Establish governance, key metrics, and realistic timelines and goals to achieve positive investment results. Seventy-nine percent of the most forward-looking digital leaders have a formal program to identify, measure and report digital investment outcomes, the survey’s authors report.
  • Build a flexible, open work culture that encourages innovation. This includes development of strategies that can be adjusted in the event of unforeseen disruptions. Forty percent of digital leaders say they maintain a fail-fast culture that encourages employees to be unafraid of experimentation and allows for increased agility and speed. In addition, forward-thinking leaders “empower teams to socialize and champion digital projects requiring more scrutiny. A vast majority of leaders have also taken to heart lessons of the pandemic: ensuring flexibility in their workplace, developing new strategies to attract talent and formalizing approaches to measure digital investment outcomes.”
  • Decouple innovation operating models, incentive structure and measures of success from the mother ship to encourage futureproofing. Focus digital investments on innovation and new products and services, the survey’s authors recommend. They are “judicious about investing and scaling foundational technologies so they can quickly focus on advanced initiatives aimed at bringing greater integration and agility to the operating model. They are successful at bringing together corporate, business units and functions to collectively focus on specific customer needs.“
  • Take a lean portfolio approach, carefully prioritizing use cases and establishing a formal funding process with milestones tied to the investment and corporate objectives. “Leaders create an outcome management office-style governance program with an agile operating model to provide rigor, speed and meaning to investment decisions,” the survey’s authors state. This office can also track user and customer feedback using formalized, real-time dashboards to provide direct input into current and future strategies.”

What do you think?

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