We have been in the business of selling and implementing software solutions for manufacturers for 35+ years and have been asked the question many times “what is the ROI (Return on Investment) of your solution(s)?”.
Although a good question, not an easy question to answer.
We have approached our Clients (QAD users large and small) over the years and have asked them to help us understand the ‘quantitative’ value of our solution(s), and repeatedly we have been told (almost routinely) that the solution has generated value, and in some cases very significant value, “but it’s hard to put the value into hard numbers”.
Of course this is a bit frustrating since it would be very nice to respond when asked the ROI question, “our Clients generate an ‘x’% ROI annually, or they have reduced their costs by ‘y’%, etc.”; but they can’t seem to make those specific calculations.
On the same hand, they will then say that they know the solution(s) improved sales performance, reduced purchasing costs, reduced process time, improved employee productivity, and so on.
This is not a new phenomenon, as it has been this way for 35+ years…!
We have learned that calculating ROI is more of a marketing and sales activity vs. a critical operational activity. Please do not misunderstand, we are not saying that ROI is not important, nor are we saying that the finance professionals don’t attempt to calculate it as required by the Shareholders and the Executive Suite, we’re just saying that in our experience organizations do not seem to have the time (or will) to actually calculate quantitative ROI on many of their business improvement investments. They know intuitively, in their gut, that they are generating value and positive ROI. They see the sales numbers improving, they see the purchasing activities running smoother, they see less errors occurring, less paper being used, more control of approvals and workflow, and more.
Now let’s throw into the conversation the term ‘Digital Transformation’. Some like to call it ‘Business Digital Transformation’ or ‘Digital Business Transformation’. You say potayta, I say potata!
We first need to define Digital Transformation (DT).
ISS Group defines DT as ‘Connecting People and Processes via the Cloud, Mobile Devices, and Social Media with Approval Routing and Workflow Technology’. To expand further, a Digitized Process utilizes current technology to provide functionality that facilitates Connectivity, Communication and Collaboration (the 3 C’s). Our development and implementation methodology to provide this functionality for a specific process is called Process Digitization, which results in a Digitized Process.
As we Digitize more and more processes, from front-office Customer related processes to back-office purchasing and financial control activities, the Digital Transformation way of ‘thinking and behaving’ throughout the organization becomes the new norm. It’s not just automating a process, which we have all been doing for many years, it’s about taking advantage of 21st century technology to afford real-time collaboration on any device and platform, improve process efficiency via rules-based workflow, and provide 24/7 availability.
Digitization, not just automation.
According to industry analysts such as McKinsey and Company, Employees spend 20% of their time looking for internal information or contacting colleagues for help to find information, 74 minutes per day trying to contact business partners, and 69 minutes duplicating communications. The good news is the analysts then say, Employee productivity can be increased by 20-25% with improved collaboration.
As a result of our Process Digitization engagements, our Clients have experienced various ‘qualitative’ ROI’s which of course translate into various levels of quantitative ROI’s, including:
- Improved Sales Performance
- Improved Employee Productivity
- Improved Pricing Controls
- Improved Financial Controls
- Reduced Auditing Costs
- Reduced Process Cycle Time/Costs
- Improved Process Flexibility and Standardization
- Improved Process Visibility/Tracking
- Elimination of Redundant Data Entry
- Improved Process Controls
- Elimination of Paper Forms
Our experience providing solutions to hundreds of companies over the last three and a half decades is that every company is relatively unique, so the value each company generates from a solution (even the same solution) is also unique. As an example, some Clients told us that they generate significant value in the area of reduced process cycle time due to our solution(s), while others told us that they generated more value by improving process visibility and connectivity across the enterprise.
So what is the ROI of Digital Transformation?
It varies depending on 1) the level of ‘pain’ that was being experienced prior to resolving the pain, 2) the solution which was implemented, 3) the culture of the organization embracing Digital Transformation and other factors unique to each individual organization. In the same way that two students can attend the same school, take the same classes, use the same books, have the same teachers, etc.; but achieve different results based on the effort put into the learning process (ie; the more that is put in, the more that is achieved and taken out), the same applies to the ROI of Digital Transformation.
The ROI of Digital Transformation is not a ‘one size fits all’ number, but rather it is a representation of value generated by changing the way an organization thinks and behaves on their Digital Transformation journey.
In Part 2 of ‘The ROI of Digital Transformation’ we will attempt to develop some ‘quantitative’ ROI measurements for the ‘qualitative’ benefits listed above, as well as to provide specific examples of Client Process Digitization engagements and the ROI (value) that is being generated.
Who is ISS Group?
ISS Group delivers Solutions which Digitize Business Processes to Connect People and Processes via the Cloud, Mobile devices, and Social Networks
55 Madison Ave, Suite 400
Morristown, NJ 07960
Toll Free: 888-547-7476
Direct: (973) 729-0013