Evolution, Leadership, Management, Strategy, Technology

What is the REAL COST of Digital Transformation

Well that’s a loaded question…. and for something that quite complex, ambiguous, and something that varies greatly depending on industry as well as organizational maturity.

But enough excuses / disclaimers! Let’s dive in…

Data is scarce, but we do have some info about what companies are actually spending on Digital Transformation:

Both Forrester, Gartner, and IDC are making heavy predictions in this area.

OK but most of us don’t work for these giants. How does this help us? Two pieces of information are useful and can be extended to every organization.

Percentage of operating costs is a relative measure and can apply to any company. This % varies greatly depending on market and organization… but 5% of operating costs is a good start.

The other piece of information is what the budget covered. Here are the typical costs we INCLUDE when we budget for Digital Transformation:

  1. Third party consulting costs to assist with the vision and implementation plan
  2. New tech / platform acquisition, implementation, and support costs
  3. Costs related to operational changes for existing systems and teams
  4. Various staff training costs to ensure smooth transition and support for new tech / platform
  5. Costs of new positions to lead and manage Digital Transformation
  6. Some contingency costs for unknowns… a type of buffer as we venture into “the unknown”

Here are some of the things we often MISS in our Digital Transformation budgets:

  1. Culture change costs including various workshops to provide a compelling reason for change, getting staff input & buy-in, and mitigate any backlash or morale drop.
  2. Training for management to manage the items below and accept changes themselves. If you digital transformation also includes implementation of Agile practices, additional training to changes of their management roles.
  3. Costs of increased communication (really over-communication) and change management to manage confusion, negative perceptions, misconceptions, and staff morale.
  4. Work disruption from any related departmental restructure, operational changes, and new approach / platform implementation issues.
  5. Drop in sales from staff effected by any related departmental restructure, operational changes, and new approach / platform implementation issues.
  6. Cost of resulting changes to how you integrate with partners, supplies, vendors, etc.
  7. Cost of transition for existing staff you want to keep, layoff costs for those you don’t, and recruiting costs (internal and third part) for acquiring new staff to fill these gaps.
  8. Costs of increased risk management for new risks resulting from the transformation. This may include additional legal and insurance costs.
  9. Cost of failed initiatives due to unknown unknowns. Cost of re-planning and restarting these initiatives.
  10. Cost of additional communications and change management related to communicating changes and progress to Board of Directors, Shareholders, and even the Media.

With such high costs, why would we even take the risk and change at all? Wouldn’t you SAVE a ton of money if you didn’t go forward with any Digital Transformation? I love that question. It forces us to be real and precise in our estimate of the impact we need to achieve. That one piece of info is exactly what you need to justify the expense and guide what to include and not include in your Digital Transformation.

Same as the ever popular topic of “climate change”… yes there is a high level of unknown but every research ultimately ends in a doomsday scenario. It may be a low probability risk but it has an enormous impact. Just ask Blockbuster, Nokia, RIM, Sears, and the list goes on. This isn’t only a risk. It’s an opportunity. This opportunity can change your entire organization. Just ask Amazon, Google, Apple, and the list goes on.

 

Image credit: Cognizant 40 Months of Hyper-Digital Transformation 2016

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