Learn about investment portfolios to achieve successful digital transformation. Knowing the performance of each portfolio will allow you to optimize time, money, and effort.
Digital transformation is indispensable nowadays. We cannot afford to refrain from transforming our businesses when the world is constantly changing. The need to reorganize and restructure business models must become one of the most important priorities today. Globalization and the digitalization of companies generate greater competition in all economic sectors. This means that businesses must move quickly but efficiently.
Where and how to invest in digital transformation?
Undoubtedly, one of the most common questions within businesses is "Where and how to invest in digital transformation?" While there isn't a single correct answer, it's important to take into consideration the current situation, type of industry, competition, business model, weaknesses, and strengths.
According to Nils Fonstad, a researcher at MIT Sloan Center for Information Systems Research (CISR), there are four portfolios of digital innovation:
- Employee Experience
- Business Operations
- Customer experience
- New Business Models
The first two portfolios are focused on internal innovations, while the last two focus on external innovation.
Employee Experience
Employee experience relies on the digital tools you can offer to your workers to make them more efficient. Producing digital tools or providing them with the right information generates higher productivity and employee retention, as well as better collaboration among them.
Business Operations
Investing in business operations focuses on producing digitized operational processes to increase efficiency, such as automated and standardized internal business processes. It also enables the flexibility to adopt new business models easily, quickly, and securely.
Customer experience
The customer experience portfolio aims to centralize all attention on the service provided to customers, from the first point of contact to loyalty. Producing new or improved services or solutions, as well as services that complement products, for example, predictive maintenance, and enriched customer experiences, such as ensuring that services are available across multiple channels, e.g., mobile, web, call center, with the goal of increasing revenue per product/service and per customer.
New Business Models
New business models focus on generating new revenue streams from new customer segments, primarily focusing on finding new lines of business based on the information and data obtained through digitization.
The Figure 1 represents the total expenditure on digital innovation by the surveyed companies: producing any new or significantly improved product/service/process for the company that relies heavily on digital technologies such as social networks, mobile, cloud computing, analytics, and/or the Internet of Things (IoT).
According to the survey conducted with companies, it is shown that on average, they decided to invest 40% of their budget in internal innovations, that is, directed towards their employees, and 60% in external innovations, that is, directed towards their customers.
In the previous figure, we can observe the result of the investment in each of the portfolios in the different KPIs of the companies: innovation, efficiency, customer satisfaction, and profit growth.
Innovation
The portfolio that contributed the most to innovation was the customer experience with 45%, followed by new business model with 25%, then we have business operations with 20%, and finally employee experience with 10%.
Efficiency
The portfolio that contributed the most to efficiency was the digitization of business operations with 50%, followed by a tie of 20% each between customer experience and employee experience, and finally the new business model with 10%.
Customer Satisfaction
In the case of customer satisfaction, the portfolio that achieved the best result was customer experience with 40%, followed by a tie between business operations and employee experience with 25%, and finally a new business model with 10%.
Profit Growth
For profit growth in companies, the portfolio that yielded the best results was customer experience with 35%, followed by business operations with 30%, then new business model with 25%, and finally employee experience with 10%.
“We have to make sure that innovation does not sit at the periphery; it has to be embedded into the core, because then we can disrupt to the next technology. You can’t digitize on the outside unless you digitize on the inside. Don’t think you can do it half baked. You need to think about how you run your business internally the same way you run it with your external customers.”
JAMES SWANSON, CHIEF INFORMATION OFFICER
To be competitive in the digital economy, a company needs to design its innovation portfolio sensibly. The key lies in:
- Invest in all four types of digital innovation.
- Take advantage of synergies among the four types of digital innovation, specifying who will identify and organize the synergies and how they will do it.
- Promote investments in employee experience and new business models.
- Ensure that teams are sufficiently trained to innovate iteratively with evidence.
- Make investments in new business models to help identify and prioritize operational improvements that could enable future revenue streams.
There's no perfect formula for digital innovation; however, your ability to design a strategic investment model across different portfolios will yield the results you're expecting. It's a step-by-step process, trial and error, so that in the end, we achieve the most important objectives of the company.
Source: Fonstad, N. (2017). "Designing a Competitive Innovation Portfolio.” MIT CISR Research Briefing . Vol. XVII, No.7. July 2017.