Measuring ROI of Digital Transformation

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Hello and welcome to Momentum Office Hours. My name is Yash and I'm joined by my co-founders Jay and Koushik to discuss topic of the week, is measuring ROI of digital transformation for your business. Our goal with these sessions is to provide you with actionable insights and practical strategies that you can apply at your own business. Throughout the session, we encourage you to engage with us by asking questions and sharing your thoughts. This is a fantastic opportunity to learn from each other and gain new insights.

that can help drive your business forward. So let's get started. Jay, Koushik, how are you doing today? Doing great. Good, nice. Doing good? Working on a Saturday? Making a habit out of it? So last Sunday was Jay's birthday, I think. Yeah. Yeah. Yeah. So he'd gone home and then last, so...

I remember that when we did the last live, I very clearly remember that during the introduction I said that it's so cool that a lot of people start initiatives and then they don't follow up. And I'm so proud of the three of us that we started office hours and we are consistently going live every week. And then as soon as I said that, we were not able to go live for two more weeks.

So this is the third week that we are live. But better late than never, we are back and we promise to be more regular going forward. But coming to the topic, measuring ROI of digital transformation. So what are your thoughts? What do think?

So, I mean, I was just trying to wonder that when we are talking about measuring ROIs for digital transformation, how, when these initiatives are considered, what are the exit points or parameters that we consider beyond just cost savings? Because there's a lot of discussion going on with respect to when to think on digital transformation. A lot of businesses grow and they have these challenges.

Are there any other factors apart from cost savings that are also to be considered while we do measuring ROI? So as a business, ideally if you break them down into fundamental like first principles right after a certain scale as a business you are ideally every day you're trying to do either of these three things right you're trying to save time, save money or make more money. So all metrics that we measure

within a business are essentially if you break them down, are functions of or indicators of these three things. Are we saving time? Are we saving money or are we making more money? And digital transformation, a lot of business owners think that digital transformation will help us save on costs. It will mean, you know, some certain processes will run faster. Certain things will become more efficient.

certain, you know, some amount of manpower that we needed before because we had manual interventions for most things will not be required anymore. But I'd say that it is a it is sort of a myopic view of looking at it. So the way that you look at digital transformation is that given that your current business systems exist in different silos, you as a decision maker are not able to make

informed decisions. Because the data does not reconcile, the data never reconciles. And so this is something that you can ask any executive or any person in a decision making position that once the company, once an organization crosses 10 million dollars annual run rate mark, their data does not reconcile. So accounts data, purchase data does not reconcile, procurement data

you know, customer data is not reconciled, marketing data, sales data does not reconcile, significant amount of attribution needs to happen. And so the decisions that are being made are on inaccurate data, which means that, and decisions are being made left, right and center within an organization. And so that's the first biggest impact that digital transformation has on any organization.

It makes sure that your data across all the departments, across all the functions that you have, it starts to reconcile. So you're able to make informed decisions. The second higher order sort of impact, the second sort of higher order impact of digital transformation is that you genuinely as an organization are able to figure out newer channels and

better ways of serving your existing or potential customers. Which means that your customer services or like services to your customer, the deliveries to your customers become better. Which means that the experience that your customers have interacting with your brand, purchasing your products or experiencing your services also significantly enhances. Better customer experience typically leads to higher referrals, typically leads to

ability to price higher and so on and so forth. And so, digital transformation is sort of one of those initiatives which apart from cost savings because of certain automations and lower manual paperwork and all of those things, it also has significant impact on saving, not just saving money, but also saving time and also having the ability to generate more value out there in the market.

Interesting. think as I follow up to that thing, irrespective of whatever business I have, there are certain silos within my business which would be standard among all the businesses, Like, finance and accounting is something I know that irrespective of what business you are, you're going to have it for sure. So, could you tell certain common silos of a business that is like standard among irrespective of what business you are and what sort of metrics

are relevant with respect to those silos? yeah, absolutely, lots of them. So let's start with each and every sort of major function, right? So one of the things that you as an organization do is procure things. so procurement can be that of anything. It could be raw material or it could be for distribution purposes, it could just be the final product and so on and so forth. A lot of times the procurement data

So the total amount of PO purchase orders that you have raised does not reconcile with the total amount of payments that you have made. Which should, there's no, if rationally, logically, these two numbers should be the same. That in one year, let's say I purchased things worth a million dollars and I paid for a million dollars as well, but they don't end up reconciling.

So that's one. There are other such examples. another one that comes to mind is a lot of times marketing and sales data will not reconcile. So marketing will say that we generated and passed on these many leads, whatever highly qualified leads, warm leads, every company has a different definition. But marketing will say that we passed on these many leads and sales will say, no, we received fewer leads. I don't know why.

but we received fewer leads. Right? And so that data does not end up reconciling. Another one that does not reconcile is essentially the data between the amount of invoices that you have raised and the amount of payments that you have received, which should absolutely reconcile. Right? So you end up raising, you know, very simple, raising a million dollars in invoice, but getting paid lesser. Why? Because

some amount of deductions would have happened for tax purposes, some amount of additional payments would have been charged for service taxes and income taxes and so on and so forth. And certain payments are part payments, some payments are late payments, sometimes credit notes are issued, some goods were returned. And so that a lot of times also does not end up Reconciliation.

Another example that comes to mind is, this is specific to manufacturing sector, but the amount of things that moved out of my factory or moved out of my manufacturing unit is not equal to the amount of things that reached to the warehouse. And it's not that it was stolen or anything like that. So no foul play has happened.

But just that there is a discrepancy in the way in which the amount of output is calculated at the manufacturing unit and there is a discrepancy in the way in which the amount of input is calculated at the warehouse. These both are different systems. And then so on and so on. All of these lead to leakages, confusion, spreadsheets upon spreadsheets with different formats.

and so on and so forth. But these are the 3-4 examples that come to mind. Very serious ones. There are smaller ones in terms of tens of other things not reconciling within the company. But these are the serious ones that come to mind. I think that's where even digital transformation makes more sense, right? With respect to you having a single source of truth in the form of system that everyone can align upon. That's where it all tends to happen.

Yeah, yeah, no, absolutely. Absolutely, for sure.

Yeah, definitely. So at a point when the decision makers in the leadership team, when they come to a conclusion that, I want to move ahead with the digital transformation, but then it happens, right, that they want to calculate the ROI based out of it. They may not be to calculate it accurately, but could you give some tip on someone who is looking out to compare the ROI of doing in-house digital transformation or outsourcing it to any external partners?

So digital transformation should ideally should not be done in house. I'll tell you like one key reason why. So some of the largest companies in the world, think of Coca Cola, think of Apple. Apple is a different example. Think of Coca Cola. Think of Coke Brothers. So all of these things, all of these companies are billion dollar companies. And even they don't do digital transformation in house.

The reason why Apple, Google, Microsoft and companies like that have in-house systems is because that is their core business. That's the business that they have built. So as an example, Momentum, while we offer digital transformation services to our clients, we will never outsource our own digital transformation because we know how to do that and we'll be able to do it in-house. And that's why Google and Microsoft and those sort of companies don't do it. But any other large company, typically if you see

any company in the boring sector, right, which is your logistics and real estate and all of these textiles and distribution and all of these sectors, right, or the middle chain for FMCG, right. So the manufacturing is sexy, the distribute, the end retail is sexy, but the middle chain, which is the distributors and then wholesalers and so on and so forth. So those pieces or those parts.

All of these companies are great at doing their own business. They are great at doing what they do. Technology is ideally not what they are good at. They have subject matter expertise as to how to make a pen that has a very satisfying ink flow. They are extremely good at making that pen and then pricing that pen and designing that pen and all of those things.

It's like me saying that I will make all my pens in house. I wouldn't do that. I just go out there and purchase that. So it should ideally be done with a third party vendor. that's one. Secondly, if a business, so in our limited experience, what I realized is that if a business owner is making a decision to do digital transformation, the ROI calculation to them is very clear.

because typically it ends up coming from a place of a referral or a recommendation from a friend or a peer who's also running a similar business at a similar scale. So someone in their close-knit community or circle or group has said to them that, know, this is something that's interesting and this is something that you should check out and strongly consider. Here are the benefits that my company has received and Jay, you should also do it for your own. So if a decision maker or the owner of the business is making this decision,

then the ROI is very clear. The place where the ROI is not as clear is essentially where this task is given to a senior enough sort of a stakeholder, where his job is not to figure out whether there will be ROI on digital transformation, but their job is to identify and convince other stakeholders as to what will be the ROI. So they are being asked, so a senior leader

who's not a decision maker, but a senior leader in the company, is being asked to do an analysis and a study and essentially put their neck on the line and say that, you know, if we invest whatever, half a million, 200K, a million dollars, whatever, depending on the size and scale of the transformation, if we invest this much amount of capital in digital transformation, here's the ROI that we expect to get out of.

So that's typically the scenario. And so the way that they go about it is within the organization for like a quarter or so, they just study and talk to stakeholders and understand their processes as to what is it that is, what are the problems that they have, what is it that they end up spending a lot of time on and so on and so forth. And then if all of that sort of goes away, then what the company and their processes could look like.

So that's typically how we've seen it happen. And also there's other extension to this, right? For example, as a business owner, me realizing the value before the implementation is done. And then after the implementation, at what different milestone do I actually understand the value of what I have implemented? So I can actually understand, yes, this is what, this is the, this is

how it was previously before the implementation and this is how it is what it is now that I am realizing. So a good way to think about it is that digital transformation should not be looked at as like one activity. So it is always digital transformation and the transformation partner who put together will generate that much value for an organization.

It is both of these things, the act of transforming the company and the group of people or the organization who are doing that act. Both of those things are equally important variables in the equation of figuring out the ROI. If you don't have the right partner to conduct digital transformation for your organization, then it is doomed. More than half of digital transformation initiatives within organizations fail.

because they are not able to find the right partner. They are not able to find the partner or even if they find a partner, don't have the maturity to be able to actually take it step by step and fulfill it. So one of the things that we strongly recommend to our prospects and our clients, whoever engages with us for the digital transformation requirements is one, put both the things together and think about it and second,

Don't think of it as an event in the life cycle of your company. Think of it as an ongoing exercise and activity. So don't pressure and think of it as this needs to happen in three months or this needs to happen in six months or this needs to happen next month. That's the wrong way to work. Because even if the partner is able to deliver in three months, the organization will not be able to adopt it within three months.

there's going to be resistance, you will have to do change management. And so any transformation should always happen slowly and gradually over a period of time. So ideally what you should do is ideally you should figure out the whole scope of transformation in the first few weeks and then identify the balance of that particular process within the organization where there's

just enough resistance, this like in comparison to that, there's disproportionate amount of ROI. So as an example, just transform the, if you sign a lot of contracts as an example, just transform the contract life cycle management piece. If you procure anything in excess of $3 million a year, just transform the procurement piece.

If you have more than a hundred team members, just transform the HR MSPs, right? So, the key portal and stuff like that. So, identify... One second, someone was calling me. Okay, correct. So, figure out what is that one part or one journey in your business that... So, firstly, you identify the stack. Sorry. Firstly, you identify the partner.

then you identify the stack, assuming that all of transformation is going to happen in the next three months or six months. And then you slowly and gradually transform one piece each, knowing that at some point of time in the next two years, the whole thing will be transformed. And that's a great way to make sure that you are able to build the right integrations. You're able to sit on processes long enough that you have some time to observe what you have transformed and then even optimize that a little further.

and there's lesser pushback from the team in terms of adopting that and so on and so forth. So that's a good way to go about it. ideally what we've seen is a lot of companies transform just the procure to pay piece, which is called P2P or also called quote to cash, Q2C. Both of these things are largely one and the same, but just that piece. Some set of customers will...

only transform the shop floor of their manufacturing, only transform the post part of their retail outlet and so on and so forth. So do that and slowly and gradually transform the whole organization. So it's not an event, it's a journey. That's a good way to think.

Make sense. With respect to industry specific, know that there will be lot of metrics to measure especially the ROI. But if you could share for certain industries like retail and manufacturing for instance, what should be the core metrics that needs to be tracked upon for measuring the ROI while planning for digital transformation? So there are different metrics again as I said, so they are function of saving time, saving money and making more money.

But let's, so there are different metrics for different journeys and processes that you are transforming. So, so let's assume that, that you are transforming the, just the POS, the in store POS for a retail chain. So let's assume that there's a retail chain that has 200 odd stores and they are transforming their, their POS across all the 200 stores. And so a new app sort of needs to be built on the ERP system and a new journey.

needs to be designed. The journey and how to design that journey for folks who are watching this we've a separate our last live was with Koushik leading that session on how to do services design and if you can if you go to that you'll be able to find how to sort of design that journey as well but let's take that is the let's say that that is a scenario right retail outlet retail company 200 outlets just transforming the possibilities then

some of the good metrics to look at are the repeat purchases increasing? Are people spending more time within the store? Is the amount of time between the decision of purchase being made by the customer to them moving out of the store, which is like one small part of the turnaround time.

Is that getting shorter? Are the queues getting shorter? better products being recommended by to the like do the existing salespeople or representatives within the store? Are they able to recommend better products in the retail store to the people who are walking in? So these are some three or four. So these will also vary from industry to industry.

So as an example, some of the metrics that I sent will not be applicable to something like a 7-Eleven, right? Which is sort of a grocery mart of sorts, right? Because you don't a person to recommend products. Groceries are things that people already know and they just generally have questions. And the nature of those questions are also as to where does this product exist? Which aisle is this?

product in, they don't have questions on whether this product is good or that product is good. But yeah, so for some industries, just for transforming the boss for the retail chain has 200 odd stores. These are the three, four metrics to measure or these three, four KPIs to measure. And then you can directly link the good part about this is, is that since everything has been averaged out,

doesn't matter what positioning change, what pricing change or what marketing channel change that you are running on the business side of things. If the turnaround time of a customer from making the decision to walking out of the store is shorter, it means that the pause transformation has worked. If more better products are being recommended to each customer who's walked in, it means that your pause transformation has worked.

and so on and so forth. So, here are some the KPIs that you can have or some metrics that you can measure for this particular example. Ideally, in the journey, what you want to do is when you are documenting the digital transformation, at that point of time, you also want to work with the business and identify what are the metrics that you will measure. So, you can have those APIs and analytics built in while the transformation is happening.

100 % So this makes sense completely because it is always going to be specific to business needs and hence the ROI will be very subjective for sure. Are there any mistakes like this you mentioned earlier you know at times business owners think this as one instance of a complete life cycle of the business. Are there any common pitfalls which people make on you know considering the ROI of especially while considering digital transformation?

Bitfalls, think some mistakes or certain or certain points that they are missing out on even though when they are calculating ROI. So for example, at times it happens that know, product overall employees product, employers productivity is happening on let's say certain cloud systems are in, you know, set up for any particular activity. So as

so that they don't have to go through manual activity of searching certain things but they can just have a search directly from the complete database for whatever product in the inventory that they are looking for Now in this way productivity is increased but by this productivity is increased there are other things which the employee could have done which I mean it reduces the time ultimately and then efficiency has overall increased but these things do not come to

people's mind at times when you know thinking of digital transformation because all they see is the numbers that have been built upon but so are there any other things that you could share on like some points which they don't see there while... thing that I would point out that lots of times people miss it so each and every point where any asset that you have built whether it is digital physical

any asset that you have built is interacting with the customers. Measuring metrics on a spreadsheet and looking at graphs and making decisions is only one part of it. There's also an emotion part of it that people forget about it. So I'll give you a very simple example. as an example, this is just an example for the emotion part of it. So as an example, there was a government initiative in...

where they built a bullet train between London and Paris. And it reduced like underground bullet train. It reduced the travel time from I think about two hours to one hours and 10 minutes. So they saved about 50 odd minutes for people who were commuting between London and Paris. It sounds like if you look at it on a spreadsheet, it makes sense, right? So many people are going to save 50 minutes and if they are doing back and forth, they are going to save, you know, one hour 40 minutes every day.

So it makes sense. But there's also an emotion part of it, right? And so another company came up with a solution that, let's not make the bullet train, let's not make it underground, let's not do all of that. Let it be to ours, that's okay. Whatever mode of transportation that people are on, we just give them Wi-Fi. And so we'll give them high speed Wi-Fi from point A to point B that is uninterrupted.

They can get work done, can have entertainment, can listen to podcasts, they can do whatever it is that they want while they are going. And so it's not necessary that metrics are always the right answer. so wherever the digital or the physical asset is interacting with customers, there's also an emotional aspect of it as well, which is where you want to understand as to how does this make the customer feel. So there are certain...

areas of your services design. Koushik is definitely more qualified to speak on this than I, but there are specific areas of a service design where inefficient manual interactions are significantly better than automated efficient robotic interactions. So, and this is something that all of us experience every day when I get on a call with my telecom provider, I don't want to talk to a bot.

I want to talk to a human and it just makes me feel frustrated that I have to talk to the bot and so on and so forth. that is the number one pitfall I would say. For everything else, So for internal workflows, for dealing with, working with vendors, for all of those things, metrics are absolutely, you know, that's what you want to go by. But on this side, you want to have some space for emotions also.

And so more amount of research on how the customer or the group of customers will react to that. That I would say is the number one pitfall that I've seen. Number two pitfall that I've also seen is trying to look for transformation in metrics very, very early on. So setting incorrect expectations in terms of

Because we are living in the era of instant gratification. So I want the metrics to move as soon as the transformation project is done. I don't care whether people have actually been onboarded to this and people have actually started using it well. I stop caring about all of that and I just want instant results. And so that's another pitfall that you want to give it some amount of time. You want to give people...

some time to adjust to newer processes, newer systems and newer softwares as well. So these are the two most common pitfalls that I would say. But with that, I think we come towards the end of the conversation that we have for you today. Any last thoughts, any last comments? Koushik, Jay? No, I think whatever we discussed is sort of the voice of the people

and business owners who wanted to ask these questions. So that's why we were trying to fill in their shoes and try to pose those questions. most of those got covered. I thought you were saying that whatever we discussed is the voice of the people. Stop listening after that. Amazing. We are the voice of the people, is, which kind of makes people, like me feel good.

Awesome. Anything Jay? What do think? I guess this is a good conversation especially as Koushik mentioned it's more about us trying to bring on the questions which people... Voice of the people. Awesome. For all the people who joined in whether you are on YouTube or on LinkedIn thank you everyone for joining in. Hope this conversation was helpful. We will see you.

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