ROI of Digital Transformation is Still Elusive

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A company that beats its digital transformation expectations will see more than twice the return on investment as the one that misses it.

Enterprises are now investing at least five percent of their annual revenues on digital transformation efforts, but only about half have seen positive returns on these efforts. Is it too early to gauge, or are there some fundamental changes that need to be made in digital adoption?

That’s the question asked in a recent survey of 500 executives, released by PTC. Of the 1,500 DX projects represented in the study, nearly half have failed to show positive ROI. “However, that is an improvement over a few years ago, a 2018 McKinsey study suggested less than 30% of digital transformation projects ultimately succeed,” the study’s authors, Catherine Kniker and Will Hastings, point out.

Tellingly, the survey finds a “striking disparity” between digital transformation programs that exceed and those that fall short of financial expectations. On average, successful transformation programs beat ROI goals by 50%, while programs that miss ROI goals do so by 30%.

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“The takeaway: all else being equal, the company that beats its digital transformation expectations will see more than twice the return on investment as the one that misses,” Kniker and Hastings state. “With trillions of dollars being invested globally in DX over the next few years, swings of this magnitude will without question disrupt the competitive landscape of industries around the world.”

See also: Importance of Application Modernization for Business

The PTC study authors outline three key lessons learned from transformation initiatives:

Digital technology must bridge gaps and reduce friction. “Companies with a high degree of cross functional integration throughout their product lifecycles – namely across engineering, manufacturing, and service organizations – are far more likely to have exceeded digital transformation expectations,” Kniker and Hastings state.”

Leadership must redefine boundaries. “Technology alone is only an enabler and without process changes true transformation cannot take place,” the authors point out. “This requires executive leaders to have a rich understanding of the opportunities afforded by greater cross-functional collaboration and to take a committed role ensuring necessary changes to departmental and functional boundaries are made. Organizations with executive leadership that possess these qualities are nine times more likely to uncover more value in their digital transformation journey and beat financial expectations compared to those that don’t.”

Culture change must be driven from top and bottom. “Even with sound leadership and best-in-class technology, a digital transformation project will not succeed if it is not embraced by company culture,” Kniker and Hastings state. “The organizations that we see tackling the culture challenge with the most success are those that inspire a sense of project ownership at every level. Companies that take a combined top-down and bottom-up approach to their cross-functional initiatives are two to three times more likely to beat their financial expectations and three to six times less likely to miss those expectations compared to companies that take either a top-down or a bottom-up approach.”

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About Joe McKendrick

Joe McKendrick is RTInsights Industry Editor. He is a regular contributor to Forbes on digital, cloud and Big Data topics. He served on the organizing committee for the recent IEEE International Conference on Edge Computing (full bio). Follow him on Twitter @joemckendrick.

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