A short guide on how to measure digital transformation

I was recently asked how the digital transformation can actually be measured. My inner voice first instinctively told me: Digital Transformation cannot be measured since it is too complex for a few KPI to show whether the organizational change is successful. But this reflex does not do justice to the problem. Measuring and identifying progress is not only important for controllers, it also helps for orientation and motivation. But there are a few pitfalls to avoid.

Impact goals, not behavior goals are needed

One of the biggest mistakes – and I deliberately call it that categorical – is the formulation of behavioral goals. These incapacitate the acting humans and lead easily and often to behaviors, which are not intended at all. Either behavioral goals are a well-intentioned but trivialized orientation for employees. Or they still originate from the Taylorist paradigm, in which human are reduced to the executing machine. Either way, behavioral goals are not used to measure the things that are to be achieved, but only levers that have a hypothetical influence on intended effect. An example: „advised customers per minute“ is a behavioral goal; „customer satisfaction“ an impact goal. The former is easier to measure and influence. However, if it then leads to employees shorten the customer interaction or approaching clients who do not want to be adviced, then the behavioral goal hardly had the desired effect.

There are various measuring instruments for digital transformation

Nevertheless, it is completely legitimate to want to know how „well“ the digital transformation is managed. Various consulting firms have already developed an assessment of the degree of maturity:

In essence, digital transformation means satisfying customer needs better and/or cheaper

A successful digital transformation essentially means that a company satisfies customer needs better and/or cheaper with the (new) possibilities available. However, the instruments mentioned above primarily focus on the maturity of an organization. This can give an indication of possible problems or need for action. But (customer) problems have not yet been solved. There is therefore a certain risk with these instruments that projects are initiated that tend to contribute to the test value and do not necessarily contribute to solving (customer) problems.

The focus of the measurement should be the solution of (customer) problems

So the question is, how can it be measured if we do satisfy the customer better and/or cheaper? In most cases, there are innovations involved. How these can be measured has already been described in various sources. Here you can find a concise overview by showing relatively comprehensive ideas for impactful KPIs.

A proposal for measuring the digital transformation

With this short introduction to measuring digital transformation, I am trying to make a suggestion. In doing so, it is particularly important to me to emphasize those aspects that differ from a classical approach.

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As it is already a standard, complex problems should be solved iteratively. Important steps in this circular procedure are:

1) Select focus

Digital transformation does not affect every organization equally. And not every organization needs the same focus. For one company, the business model needs to be revised, for another, the culture. The maturity models mentioned above can provide an indication of the „correct“ focus. Customer surveys or customer observations also provide important information.

2) Identify problems

On the basis of the determined focus, it is necessary to define which (customer) problems must be solved thereby. The definition of adequate problems is very demanding. However, there are now numerous instruments in the Design Thinking literature to help. The important principle is that „real“ problems are chosen. This means, that their solution will help the organization move forward.

3) Determine impact goals

Based on the defined problems, it is now necessary to define impact goals. So do not choose input factors such as „two projects to promote customer advisory services“, but rather impact goals such as „customer satisfaction“. Above I have linked an overview of possible impact goals for innovation projects. This can serve as inspiration.

4) Solving problems

The next step is to solve the defined problems and thus achieve the defined impact goals. For this I recommend a „Lean Design Sprint“. By „Lean“ I mean the procedure that has become known under keywords such as „Lean Startup“ or „Lean Change“. More concrete: Iterative building, measuring and learning. The defined impact goals also help when measuring. By „Design Sprint“ I mean the combination of Design Thinking and Scrum. Because often knowledge workers run from meeting to meeting and barely are able to implement something. Problem solving then takes months because the working group can only meet every few days for a few hours. Jake Knapp describes a great inspiration on how to solve this differently (and better) in his book „Sprint – How to test new ideas and solve problems in just five days“.

How do I integrate this into a dashboard?

At least the controllers will ask themselves how this approach can be integrated into a dashboard. After all, it does not provide a holistic (and long-term) overview. The difference to project controlling is also not obvious. That’s right. One possibility would be to define several focuses simultaneously and then execute the cycle with different workgroups in parallel. Then there would be several KPIs per action field and the controller would have his/her dashboard and management its holistic overview.

Rather stay focused on one problem at a time

The disadvantage of this approach: This increases complexity exponentially. If different working groups work on such strongly related topics, then interfaces inevitably arise. Coordination takes a lot of time and makes problem solving slow. A somewhat pictorial comparison: If we try on a new shoe in the shop, then we do not take the left and the right shoe and try to tie the left shoe with the left hand and the right shoe with the right hand at the same time. We’ll try one and see if it’s the right size. If it fits, we’ll take the other one and see if we can walk comfortably in it.

A step by step approach helps us to keep our focus and to focus our resources exactly on what makes sense at the moment. Of course, a long-term vision makes sense because it provides orientation. But segmenting a vision into different fields of action or even measures is an activity that takes a lot of time. Time we could invest to solve problems. The likelihood that the focus of action will change in the meantime is relatively high. And then we would have been glad we would have preferred to use the time for something that also had an impact.

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