In a European car maker’s manufacturing plant, a car rolls off the production line every 90 seconds. One hour of line stoppage due to IT issues means 40 “lost” cars. This is how the IT department puts digital risk in a business context, by reporting on inventory, revenue and other direct business impacts instead of downtime.
Paul Proctor, Distinguished VP Analyst at Gartner, says that that to measure digital transformation progress, CIOs need to shift from using operational efficiency metrics to measures that interest executive decision makers.
“When a metric has business context, it is much more interesting to the intended audience — and more effective,” Proctor says. “Good digital transformation metrics aren’t rocket science, but many organizations struggle because they are all over the map. If you want to find out what is important to the executive team or board, you have to ask them.”
Select just 5 to 9 metrics to track, report and act on. The value of a metric lies in its ability to influence business decision making
Digital initiatives are the top priority for 2019, according to Gartner’s latest CIO survey. Only 4% of organizations have no digital initiative at all, which signals a shift from digital as an option to digital as a mainstream platform. And yet, an earlier Gartner survey found that almost half of CEOs had no metrics for digital business transformation.
Boards of directors typically look for benefits, costs and risks of following a digital transformation plan — or of not doing anything at all. To do this they need a set of key performance indicators (KPIs) to measure digital transformation progress.
Measure what matters
When it comes to creating digital KPIs, keep it simple.
“Choose KPIs that you can measure easily. Don’t try to build a KPI hierarchy. Select just 5 to 9 metrics to track, report and act on,” Proctor says. “The value of a metric lies in its ability to influence business decision making.”
According to Gartner, the best metrics:
- Have a clearly defined and defensible causal relationship to a business outcome
- Work as a leading, not lagging, indicator
- Address a specific, defined audience
- Can be understood by a non-IT audience
- Drive action when they change from green to yellow to red.
“Get your transformation metrics right and you’ll improve your ability to succeed and describe that success to your key stakeholders,” says Proctor.
How to create digital KPIs that work
Proctor says that one of the most popular questions Gartner clients ask is how to create key performance metrics or digital KPIs — and whether a standard set of KPIs to choose from exists.
“Stop looking for a list everyone else is using, because done properly, someone else’s list won’t apply to your transformation,” Proctor says. “KPIs need to be industry-specific and then organization-specific to be meaningful and useful.”
To create a digital KPI, ask these five key questions:
- What is being measured? An example might be the percentage of customer interactions that are virtual/digital.
- Where are we today?
- What is our target goal?
- What is our desired business outcome/benefit (for example, 50% better customer outcomes and 20% lower cost)?
- What is our balance point?
A “balance point” describes the reasons why an enterprise shouldn’t overdigitalize. The law of diminishing returns applies in digital business, and sometimes it makes no sense to have 100% as a goal. For example, a South American company might want to move all its customers to mobile transactions, but in some countries 100% of consumers use a smartphone, while in other countries only 15% do.
This article has been updated from the original, published on October 31, 2018, to reflect new events, conditions or research.