McKinsey: Five Ways To Determine Whether Digital Investments Are Paying Off

McKinsey: Five Ways To Determine Whether Digital Investments Are Paying Off

The urgency to keep up with data, analytics and digital advancements has only sped up during the pandemic, but CEOs aren’t sure how to measure the impact of their initiatives on profitability, according to consulting giant McKinsey.

CEOs should prioritize projects that have the potential to improve company performance significantly rather than approving too many at once, write McKinsey partners Matt Fitzpatrick and Kurt Strovink in one of the most popular McKinsey articles in 2021.

CEOs should monitor these five metrics, they write:

Return on digital investments – Transform one business process or function at a time and expand from there. “Transforming domains one by one allows organizations to leverage similar data sets, technology solutions and team members for multiple use cases, which ultimately saves time and expense.” Also, they write, ensure enough resources are put toward adopting the tools, not just creating them. For example, data that identifies customers most at risk of buying elsewhere can retain customers only if actions are taken to keep those customers happy. Change management initiatives will also help maximize investments.

Percentage of annual technology budget spent on bold digital initiatives ­ – Smaller percentages are unlikely to result in maximal returns. Consider “microservices” for specific uses and customized applications. “These tools and approaches allow teams to rapidly create products and services that will drive maximum value.”

Time to market of digital apps ­– Speed is critical, and may be the most important KPI in digital and analytics. “It reflects the degree to which all elements of a technology organization are working together, and it determines how quickly data and modeling insights can reach the field to test, learn and improve. An analytics model should be put to work in less than four months. A software application tool should be less than six. “Overly long timelines could indicate that the organization is failing to institutionalize best practices, a necessary step toward positioning the organization for digital success in the long term,” the authors say.

Percentage of leaders’ incentives linked to digital – Many organizations have multiple IT leaders – a chief digital officer and chief information officer, for example – but a chief technology officer should make sure all organizational leaders are accountable. “In the age of technology disruption, the CEO needs to empower and incentivize a CTO mindset of builder and change agent, not merely head of IT. Realigning incentives and changing the mindset to one of value creation can have a massive impact on culture, pace and business.”

Top technical talent attracted, promoted and retained – Having the right people is the most important driver of success over the long term, the article states. Ensure team members have a mindset of “building and transforming, rather than just maintaining what is already there.” Also make sure the team works in partnership with the business side, not in a silo, and continually train existing teams to improve their skills.