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Getting digital investment right when it really matters

01 July 2020Shaiyan Shaikh

The arrival of COVID-19 has seen an estimated five-year leap in digital adoption from both consumers and businesses in just 12 weeks.

There is now no going back in the widespread use of digital services and while we enter a global recession, catalysed and made worse by the pandemic, organisations will be battling with the need to maintain digital investment to ensure stability and growth, against the incompatible budgetary cuts that accompany an economic slowdown. This recession driven paradox brings with it one certainty; budgets will be hard fought for and a strong and tangible return on investment will be more important than ever.

Failing to invest in technology is borderline suicidal for any modern company at any time. But placing investment efforts against the wrong objectives can be even more detrimental than being technologically stagnant. So, in this climate, how can businesses know that they are making the right digital investments?

And how should they balance making short-term decisions based on COVID-related business cases, with focusing on longer-term investments that are aligned with strategic goals and objectives?

Short-term problem-solving v. long-term investment?

In recent weeks, many businesses have had to make quick decisions to solve very specific and immediate problems. These decisions have been necessary and tactical but may not always have aligned with the longer-term vision. In fact, global pandemic notwithstanding, technology investment tends to fall into two distinct categories: problem-based and innovation-based scenarios.

In problem-based scenarios an organization primarily invests in technology to improve performance and/or overcome challenges:

  • Reacting to an external or market event
  • Overcoming an existing disadvantage against competitors
  • Achieving short term business targets
  • Removing constraints that are preventing opportunities from being taken

In innovation-based scenarios, an organization invests in technology to exploit a business opportunity, to create potential competitive opportunities, or to build new organizational capabilities by:

  • Doing something new using technology
  • Doing something in a new way using technology
  • Using new technology to do something the organization could not do before
Businesses that are more digitally mature will be in a better position to make decisions based on innovation-based scenarios. Digital maturity requires a combination of two separate but highly related dimensions; digital capability and transformation management capability. Investing in technology alone may solve for overcoming immediate problems but will not allow businesses to derive true value through innovation in the long term.

Aligning digital investment with strategic goals

Digital maturity sets a context for technology investment. The more mature a company’s systems, skills and processes, the easier the assimilation of any investment. Greater digital maturity brings you more advanced digital capabilities, which deliver specific outcomes, which, in turn, deliver on your strategic goals. So, the closer that technology investment is aligned to business strategy, the greater the rewards.

This example from an online retailer shows that tight alignment:

Capability maturity schema

A framework for digital investment

So how do you make better sense of investments in a way that maps digital outcomes to overall strategy? A common approach is to start grouping the scope of investments along a timespan of returns; short and long term. Acknowledging that any company lies somewhere on the maturity spectrum, we can already judge its position to be more inclined to either problem-based (short-term) or innovation-based (long-term) investments as the logical next steps.

Framework for digital investment

Reference: J. W. Ross & C. M. Beath. (2002). 'Beyond the Business Case: New Approaches to IT Investment'. MIT Sloan Management Review, (Winter Edition). Print, p51-59.

Using this framework, we can categorise technology investment decisions into four areas:

  1. Process Improvements:
  2. Opportunities to improve operational performance, typically originating from a business case. Examples include ways to capture new data automatically, shift data capture to customers, or enabling employee self-services.

  3. Renewals:
  4. Opportunities to reduce cost or augment IT service quality. A vendor could also close support for a product/technology. These often originate from business cases but can also be from an allocated budget pool for general improvements. This usually involves system upgrades and facilitating more cross-channel data accessibility.

  5. Digital Transformation:
  6. This is a heavy investment that focuses on reforming or reinventing core infrastructure both at a technology platform and operational level. Transformations generally originate from exec-level directives and affect an entire company or most business units.

  7. Experiments & Innovation:
  8. These investments focus on combining both existing and new technologies with opportunities that use new business models. Experimentation is the cornerstone of innovation and finding those sweet spots that yield high value from low-cost operations is the North Star.

Investing for the future

It’s a given that short-term survival will always be a priority. A bountiful future is dependent on a solid baseline, after all. But what the current Covid-19 crisis has shown, is that it is vital to trigger the required investment and actions attaining higher digital maturity in order to do more than just survive. As we try to navigate the deepest global recession of our lifetime, the results yielded from investing in experimentation can vary quite drastically between industries. Those who are lucky enough to be in such exploratory positions, are already brainstorming.

Meanwhile companies of all shapes and sizes are busy assessing post-Covid-19 changes to client expectations and tweaking their digital roadmaps. Whether upscaling infrastructure, growing new skillsets, fast-tracking upgrades or committing to that big picture transformation - shifting gears sooner rather than later - can help assure safer passage through any challenge. Even one of this magnitude.

Factors such as cost, scope and schedule, or more intrinsic factors like stakeholder expectations, strategic alignment, or the current state of organisational change, can all be barriers to attaining higher digital maturity. However, if careful consideration is placed on the ways, means and ends, then an appropriate investment strategy can be better constructed. That’s to say organisations must consider the combination of technology and skills available to them (the means); their ability to make effective use of old and new capabilities (the ways); and the strategic objectives that they play into (the ends). In the new-normal, we expect a focus on agility, scale, speed, and simplicity.

If you would like advice on your digital investment strategy, or need help assessing where you are on the digital maturity spectrum, get in touch.

Photo by Micheile Henderson on Unsplash

 

Author: Shaiyan Shaikh
Published: 01 July 2020
Tags:
change managementcustomer experiencedigital transformationcustomer insightmarketing technology
 

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