Leadership Strategies

Why Digital Transformation is Demanding New KPIs for IT

Explore the shift from traditional IT KPIs to new, digital transformation-driven KPIs.
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Digital transformation (DX) is causing a shift in the enterprise. Business leaders must rely on new KPIs for effective IT measurement. This blog covers the shift from traditional IT KPIs to the new KPIs that are being demanded as organizations are disrupted by digital transformation.

Digital technologies and the new business models they fuel have significantly impacted most enterprises. Executives are called upon to leverage digital transformation (DX) to change and disrupt their business, customers, markets, and competitors. This shift is driving tremendous changes to the rules for IT measurement, as many IT organizations still lack the ability to run IT as a service business and address the business value of their contribution to enterprise imperatives.

Traditional IT measurement, with its long-term focus on efficiency metrics for managing infrastructure, applications, and components, is no longer adequate. A new IT contract with Line of Business (LOB) executives continues to mandate the reliability, availability, responsiveness, and flexibility for delivery of IT services critical to achieving target business outcomes …but “more” is now the imperative for IT metrics that matter.

Currently organizations are challenged to transform IT measurement to effectively broker, integrate, and orchestrate IT “business oriented” services empowered by 3rd Platform (i.e. cloud, mobile, big data/analytics and social business) as well as innovation accelerators (e.g. Internet of Things, robotics, 3D printing, next-gen security, cognitive interfaces, and virtual reality.) There are multiple issues created by this shift.

DX requires differentiated measurement of IT’s immediate contribution to business objectives

  • Like the delivery of water and electric utilities, LOB’s simply expect reliable, high-performance IT services without having to understand the distribution channel, storage mechanisms and utility’s source. LOBs demand IT capabilities when and where they’re needed for achieving DX goals.
  • Delivery of IT technical services is of minimal interest to LOB executives whose career, salary and bottom line are focused on achievement of digitally oriented business outcomes.

DX demands measurement of traditional end-state business objectives commonly understood by corporate boards, investors, and upper management

  • “Trailing KPIs” are indicators that measure what has already been achieved (e.g., ROI, cost amortization, sales revenue booked, etc.), and set clear and reasonable business expectations to help focus and prioritize the organization around high-priority, longer term DX initiatives

Examples of DX Trailing KPIs:

  • Omni Experience DX – Improve customer NPS to positive 50/100 by 2019
  • Operating Model DX – Process effectiveness measured by ROA (operating assets) improves by 25% each year thru 2020

DX investments also need short term, measurement of potential business contribution early in the life cycle of the digital initiative

  • “Leading KPIs” are operationally-driven predictors for measuring achievement, progress and success of near-term business goals (e.g., sales pipeline, customer satisfaction, process improvements, etc.) which enable DX initiatives to “fail fast” and avoid nonproductive funding.

Examples of DX Leading KPIs:

  • Omni Experience DX – 1) 20% more profitable customers each year for 3 years and 2) Increased customer interactions for 50% of non-profitable products within 1 year
  • Operating Model DX – 1) Business operating capabilities expand by 20% each year for 3 years using on-demand services and 2) Increase the % of self-healing processes by 10% per year for 3 years

Essentially, “leading KPIs” create timely notification of the digital innovation’s expected success in fulfillment of the more traditional “trailing KPIs” leveraged by upper management.  DX “new” requirements for KPIs are primarily driven by the uniqueness of the short term operational goals that reflect how DX initiatives must perform “now” versus waiting for the desired DX end-state to register win or loss. The above examples of digitally-oriented KPIs demonstrate the effectiveness and immediacy so essential in fulfilling DX targeted business outcomes.

Adjunct Research Advisor, IT Executive Programs (IEP)