Beyond Digital Transformation Part 3 – What will it all cost?

We are past the time when not understanding the power of technology is an issue. It is generally and widely accepted that technology is a necessary driver in most organisations. Now, instead of the issue of whether we need technology, it has become one of the value of technology. Unfortunately, value is measured differently according to perspective.

Unfortunately, value is often translated as cost. One of the most common reasons cited, especially by CIOs, for failed or aborted digital transformation projects is that it ran out of money, or the ongoing cost could not be justified. When you dig deeper into these assertions, the issue is often less of cost and more of perceived value.

Organisations see the value of digital transformation but are often unable to articulate that value clearly and so we end up with the seemingly contradictory data that 73% of UK organisations consider digital transformation will fundamentally and positively affect how they operate but only 32% of their budget is allocated to digital projects. The only way to create a change in this is to articulate the value of the transformation early and allocate appropriate budget towards the realisation of value rather than treating it as a cost.



Digging deeper into cost?

Cost is seen differently across any organisation, and so one of the critical success factors of any transformation project is establishing a common and accepted definition. This definition will vary from sector to sector, from organisation to organisation, and between roles within an organisation, so establishing what ‘cost’ really means can be challenging, yet it is rarely undertaken.

Whatever the definition, the cost is often attributed to specific operating units within an organisation, and this is where digital transformation projects become unstuck. Too often, the cost of implementing whatever is agreed upon is aligned with the IT function budget. Yet, any benefit is rarely aligned, making it virtually impossible to measure success. Seeing money flow out without any perceived benefit is disturbing in any walk of life. So, it is unsurprising that many digital transformation projects are halted because they are considered ‘too expensive.’ Any project in any organisation is likely to be seen as too expensive if no revenue matches the cost.

It is rare to see an organisational-level financial model that reflects digital transformation across all functions, and therefore, it is extremely hard to manage the value of any such programme of work effectively.



Isn’t it a technology cost?

Many ‘digital transformation’ projects are conceived within IT, and most of these are positioned back to the organisation as cost efficiencies. ‘Doing more with less’ has become a mantra internally and as headline marketing messages from vendors and consultancies alike, especially in the current age of automation, Machine Learning and AI. While looking for operational savings is laudable, rarely are all the available efficiencies realised, as most of these projects change the underlying platform. Still, they do not realise changes in the operational process or provide a platform for further innovative change.

Reports indicate that most transformation projects, especially those predicated on migrating to the cloud, fail to deliver the promised cost reductions.

When exploring the business cases for many transformation projects, it rapidly becomes clear that very simple metrics are used. IT functions have spent years being regarded as cost centres, and this attitude has become part of their own DNA, so there is a defensive approach. Cost becomes the primary driver rather than value, and this results in essentially flawed business cases, many of which fail because the ultimate cost of transformation exceeds the option of doing nothing.

IT functions tend to view cost and the associated Business Case as the direct costs associated with operating an environment. They often lack insight into the wider business and the impact of the change, so value is rarely defined, let alone measured.

Any digital transformation measured in terms of cost, especially technology cost, is doomed to failure simply because not attaching benefit to the cost means success is essentially impossible. A technology update may succeed on this basis, but truly transformational work requires a comprehensive measurement of value.


Measuring value?

Technology is only ever of value to an organisation if it delivers benefit, and for value to be recognised, it must be positive. Reducing costs is of value, but it is not value simply because it is an unsustainable approach in any organisation that wishes to grow. Cost reduction can be a driver for some projects in an overall transformation programme, but if these projects are not linked to value creation projects, then the overall net value gain will be negligible.

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