Driving Digital Success: Three ROI Criteria for Competitive Advantage
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Driving Digital Success: Three ROI Criteria for Competitive Advantage
- 1. Driving Digital Success Three ROI Criteria for Competitive Advantage. . . Apigee @apigee Bryan Kirschner @apigeeinstitute Sam Ramji @sramji
- 5. If everyone* believes digital transformation is important Why do we see a big gap between leaders and laggards? ROI criteria as key pivot—which ones improve decisions? Which three together drive competitive advantage? How do I bring them to my company? *99% of Marketing and IT executives in large companies
- 6. Digital Transformation is Happening Today
- 7. 99% of IT & Marketing executives expect digital impact in next 12 months… 99% expect digital impact to increase or continue over next 5 years… Moderate 53% Big 31% Little 15% None 1% Increase Somewhat 43% Increase great deal 45% Stay Same 11% Decrease 1% Expected impact of technology-enabled capabilities such as "big data" and analytics, digital marketing, apps, or APIs on overall enterprise results
- 8. 4 41% Extremely Relevant (5) 40% 3 14% 2 4% Not at All Relevant (1) 1% Relevance to company’s competitive position over next five years, 5-point scale where 5 is extremely important The number of connected devices-from smartphones to smart cars and even wearable computing devices-is heading for a tipping point at which most work, play, and commerce will have a digital dimension. As a result, software will touch nearly all social interactions or commercial transactions, with the potential to generate data of unprecedented scope.
- 9. 20% 30% 20% 22% 32% 17% 22% 16% 19% 27% 4% 9% 9% 15% 21% Bringing New Products &… Gross Revenue Margin Market Share Customer Satisfaction Top Digital Performers Overall Weakest Digital Performers • Deploying apps • Using data analytics • Operating APIs “Top Digital Performers” are best at: % of companies strongly outperforming their competitors in the last 12 months and
- 10. 24% 48% 8% Executive opinion implies gaps will widen, not narrow: Expect both “big” digital impact in next 12 months and “Increase a great deal” over next 5 years… Overall Top Digital Performers Weakest Digital Performers
- 11. Empirical Patterns for Success: Building Digital Performance
- 12. Digital Performance Organizational Alignment 1. Deploying apps such as mobile or tablet applications to employees, customers, or partners 2. Using "big data" and analytics to enhance internal processes, existing products / services, or new offers 3. Operating APIs to make systems and data available for self-service access or mash-ups 1. Ensuring alignment between marketing and IT 2. Establishing a framework to connect digital investments more directly to enterprise KPIs 3. Choosing ROI criteria that drive better decisions about digital investments Σ Σ
- 13. Why Focus on ROI?
- 14. ROI criteria establish the conditions for not only what you invest in But also whether you invest at all Both are critical to what see as the empirical pattern for success investing in digital right now…
- 15. http://stockcharts.com/freecharts/historical/djia1900.html • Start investing as soon as possible • Don’t stop investing • Invest in a well-structured portfolio – There’s no “magic bullet” – Some assets will underperform – Re-balance systematically
- 16. We must do something. This is something. Therefore, we must do this.* *“The Politician’s Fallacy,” Yes Prime Minister Panic
- 17. This is too risky… That’s too risky too… And this is too risky as well. Paralysis
- 18. A pilot can be strategic But a pilot is not a strategy Is the “something we’re doing” really enough to fight disruption or seize opportunities? Polite Fictions
- 19. Enemies: • Panic • Paralysis • Polite Fictions Objectives: • Start • Sustain • Smart Portfolio
- 20. How Leaders Use 3 ROI Criteria, Together to Drive Digital Success
- 21. 8.1 7.6 6.9 6.4 Using Customer Satisfaction + Efficiency + Real Options Valuation Using Customer Satisfaction + Efficiency + NPV Overall Average Not Using Satisfaction and Efficiency Three ROI metrics together: • Efficiency • Customer Satisfaction • Financial – specifically, real options valuation The keys to confidence in ROI criteria that drive better decisions about digital investments? Average company performance “Choosing ROI criteria that drive better decisions about digital investments” (10 point scale where 10 is “very strong”)
- 22. “Best” …would you say are the best for driving decisions that deliver the most long-term, strategic value for a company “Frequent” … are used most frequently in your company To evaluate and make decisions about investments in technology-enabled capabilities such as "big data" and analytics, digital marketing, apps, or APIs, which 3 criteria…. and We asked…
- 23. Tag Full Description “NPV” Financial metrics, using approaches such as discounted cash flow (DCF) and net present value (NPV) “Real Options” Financial metrics using approaches such as real options valuation and Monte Carlo simulation “Comparison” Comparative targets such as matching best-in-class benchmarks or competitor capabilities “Efficiency” Efficiency goals such as reducing time-to-market or increasing re-use of existing assets “Innovation” Innovation targets such as percent of sales through new offerings “Satisfaction” Customer satisfaction or brand reinforcement goals “Share” Share, adoption, or market penetration goals “Ad Hoc” Ad hoc criteria or manager discretion What do you think?
- 24. 14% 15% 28% 44% 38% 46% 39% 64% 9% 21% 36% 31% 39% 32% 52% 66% Ad Hoc Financial: Real Options Financial: NPV Comparison Innovation Share Efficiency Satisfaction IT Marketing A B C “Best” …which would you say are the best for driving decisions that deliver the most long-term, strategic value for a company
- 26. 11% 48% 32% 11% 75% to 100% 50% to 74% 1% to 49% 0% Breakdown of companies by extent “Best” matches “Frequent” “3 for 3” “0 for 3”
- 27. -20% 0% 20% Finaicial Combined (62%) Satisfaction (50%) Compare (43%) Efficiency (42%) Share (40%) Financial: NPV (37%) Innovation (28%) Financial: Real Options (25%) Ad Hoc (24%) IT Marketing Best minus most frequent, ordered by frequency used… Use this more! Use this less!
- 28. Is it only about aligning on what’s preferred? Or is that one piece of the puzzle?
- 29. Satisfaction* Efficiency* Comparison* Financial: Real Options* Share Innovation Financial: NPV Ad Hoc Which criteria predict higher than average confidence in decisions?* *regardless of how people feel about them (and taking match into account)
- 30. A word about “Comparison” Not preferred (why would reacting be inspirational?) …But it “keeps you in the game” “No matter how much evidence I present, I can’t get people to move…but as soon as a ccompetitor does something, all of a sudden there’s urgency to ‘do that’…” Strategy Director, G2K Company
- 32. Efficiency: Time to market & re-use but also new ways of doing things Satisfaction: Both leadership and meeting minimum expectations Together: Mutually Reinforcing “…because of APIs we were able to put a prototype in the market in two weeks with a small team...we not only understood real demand better, but also how to deliver exactly what users wanted.” Dev Director, G2K Company
- 33. NPV: Any uncertainty militates against action Real Options: Better for changing conditions With Sat & Efficiency: Drives a flexible & responsive portfolio ”…the greater the impact of digitization on your business, the more urgent the case for buying strategic options for the future.” Weill/Woerner, MIT Center for Information Science Research
- 34. S1 S2 S3 Project S4 S5 Efficiency Satisfaction FinancialYear 1 Year 2 “Real options thinking”…it’s the logic not the math ✓ ✗ ✓ ✗ ✓
- 35. How real options thinking changes the basis of competition [emphasis added] “……All teams will henceforth expose their data and functionality through service interfaces. All service interfaces, without exception, must be designed from the ground up to be externalizable. That is to say, the team must plan and design to be able to expose the interface to developers in the outside world. No exceptions. Anyone who doesn’t do this will be fired. Thank you; have a nice day! Jeff Bezos CEO, Amazon
- 36. Driving Digital Success Through ROI
- 37. Enemies: • Panic • Paralysis • Polite Fictions Objectives: • Start • Sustain • Smart Portfolio Keys: • Efficiency • Satisfaction • Real Options
- 38. Efficiency goals such as reducing time-to-market or increasing re-use of existing assets • Imagine transformative, not just marginal gains (e.g., rapid prototyping & fast failure) Customer satisfaction or brand reinforcement goals • Consider threshold conditions for both leadership and meeting(rising) minimum expectations for digital Financial metrics using approaches such as real options valuation and Monte Carlo simulation • Architect for re-use, plan to re- balance, and give digital its due when projecting scenarios
- 39. Harvard Business School Course Number 2134 Digital Innovation and Transformation is a new course designed to equip students…to conceive, lead and execute digital innovation initiatives… [T]he digital revolution is rapidly transforming the fundamental nature of many companies in a wide range of industries… Today firms are now establishing market leadership by mastering digital innovation… Ford is realizing that its future competitors are likely to be Facebook and Google and not BMW and Toyota…. You will be required to write an HBS style case study on an organization of your choice facing a digital challenge… [emphasis added]
- 40. What will your case study say?
- 41. Questions
- 42. pages.apigee.com/institute Take the Apigee Institute Straw Poll on ROI
- 43. THANK YOU Questions and ideas to: @apigeeinstitute @sramji
Editor's Notes
- Creative Commons Attribution-Share Alike 3.0 United States License99% of IT & Marketing Execs surveyed see Digital Transformation critical to their company's competitive position.The attached slidedeck summarizes the data from a new report just published by our colleagues at the Apigee Institute. Check the slidedeck for the stats:- 99% of IT & Marketing executives expect digital impact in the next 12 months and increase over the next 5 years- Today’s Top Digital Performers are more likely to report strongly outperforming others in their sector over the past twelve months on key business metrics.- ROI = satisfaction + efficiency + financialsUpcoming Webcast:Three ROI Criteria to Drive Digital SuccessThursday, July 18, 11:00am PT / 2:00pm ET Bryan and Sam will deep dive into patterns and practices for digital ROI that drive more confident decision-making and stronger results - based on emperical analysis of 200 large companies.
- http://www.jokeroo.com/pictures/funny/misalignment-of-the-rails.html