Selecting the right metrics to measure the impact of digital initiatives is a complex task for organizations undergoing digital transformation. CIOs play a critical role in providing their boards, executive committees, and employees with well-defined definitions of successful outcomes and measurable Key Performance Indicators (KPIs) throughout the transformation journey.
Numerous frameworks and recommendations exist for identifying digital KPIs, adding to the complexity of the selection process. McKinsey suggests five metrics for digital CEOs, including financial returns on digital investments, the percentage of leaders’ incentives linked to digital, and the percentage of the annual tech budget spent on bold digital initiatives. Deloitte provides a taxonomy of 46 digital transformation value KPIs, acknowledging that not all are widely used. MIT warns that inappropriate KPIs can jeopardize digital transformation success and advocates for a portfolio of enterprise KPIs measuring the business value delivered.
This plethora of options creates a paradox for CIOs, who must navigate the challenges of having no KPIs, dealing with an overwhelming number of metrics, or investing in the wrong ones. Martin Davis, CIO and managing partner at Dunelm Associates, emphasizes the importance of carefully selecting what to measure to achieve desired results. He advises keeping the number of metrics small and manageable, ideally between three to seven key indicators, as people cannot effectively focus on extensive data sets.
To simplify the selection process, CIOs can focus on three key digital transformation objectives:
- Digital Transformation Strategy: This involves realigning targeted markets, creating new business models, and evolving operations based on changes in customer expectations, technology capabilities, and the impact of data, analytics, and AI. Outcome-based metrics should guide the selection of KPIs.
- Digital Transformation Initiatives: The portfolio of transformation initiatives typically includes programs aimed at growth, efficiencies, and enhanced end-user experiences. Each initiative requires specific KPIs for adequate evaluation of outcomes.
- Culture Transformation and Digital Core Competencies: As CIOs target new collaborative operating models and cultural shifts, KPIs become essential to guide executives on where to focus leadership efforts, communications, and process improvements.
While these objectives may overlap and be interdependent, separating them highlights the three crucial steps CIOs should take to ensure their KPI strategies align effectively with the organization’s overarching digital transformation goals.