The return on investment (ROI) of digital transformation has been a long-lasting discussion. After all, not all projects yield revenue right away.
This risks strategic initiatives to fall off the radar, hurting your budget.
However, in a Harvard Business Review article published over a decade ago, Christensen, Kaufman and Shih,(1) share an alternative perspective:
When making decisions for investments with future paybacks, relying solely on financial metrics like NPV (net present value) and DCF (discounted cash flow) can be misleading. As an example, it is not possible to see if the health of an organization will persist when an investment is not made. The latest pandemic proved how delicate organizational health can be under unpredictable circumstances. Making decisions based on the assumption that existing circumstances will continue is risky.
“Long term competitiveness” or “strategic thinking” should be the decisive factor for new investments rather than project-based evaluations.(1) These, in turn, require non-financial information (NFI) to be taken into account.
NFI are internally generated intangibles, such as organizational health and resilience (“governance”), customer satisfaction (“customer experience”), employee retention (“people and culture”), quality standards (“processes”) and other value drivers that are not measured in monetary terms.(2)
In their December 2019 report(2), Accounting Europe stressed the increasing significance of NFI for investors and decision makers. There is a mission to develop standardized NFI reporting just like IFRS.
If you are at the beginning of or at the crossroads with your digital journey; or you are the CEO/CXO to approve/reject investment budgets, start with incorporating NFI into your decision-making process.
To help with this, we propose a holistic framework: “Digital Maturity Index”, focusing on 6 dimensions: Governance, Customer Experience, Innovation, People, Technology and Processes.
To find out more or to have a discussion on Digital ROI, please contact us.
(1) Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Thing by Clayton M. Christensen , Stephen P. Kaufman and Willy C. Shih, January 2008 Issue
(2) Accounting Europe, Interconnected Standard Setting for Corporate Reporting, December 2019
THE BETTER NORMAL SERIES
THE BETTER NORMAL #1: “THE BETTER NORMAL” WILL BE CREATED BY US
THE BETTER NORMAL #2: NO WAY OUT!
THE BETTER NORMAL #3: SYSTEMIC CHANGE OR NUDGE FOR THE BETTER NORMAL
THE BETTER NORMAL #4: A CRITICAL APPROACH TO DIGITAL
THE BETTER NORMAL #5: A CUSTOMER EXPERIENCE PERSPECTIVE
THE BETTER NORMAL #6: THE “REAL” RESILIENCE OF SUPPLY CHAINS
THE BETTER NORMAL #7: AIM FOR DIGITAL GREATNESS
THE BETTER NORMAL #8: THE BALANCED VISION
THE BETTER NORMAL #9: OPERATIONAL EXCELLENCE
THE BETTER NORMAL #10: Don’t Carry “Covid-19 Impact” Too Far
THE BETTER NORMAL #11: Workplace of the Better Normal
THE BETTER NORMAL #12: The Post-Covid Era Requires Digital Transformation
THE BETTER NORMAL #13: The Time of The Synthesists Has Come
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