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A taxonomy of 24 digital transformation KPIs
Digital transformation initiatives often fail because they lack clear objectives. Michael Wade and Massimo Marcolivio propose a set of KPIs to measure results in a pragmatic way.
In our 2021 article “Measuring Digital Transformation”, we argued that applying appropriate KPIs (Key Performance Indicators) is essential for the success of digital transformation initiatives. Further research and experience continue to highlight the importance of relevant measurements and the challenges of defining, collecting and analyzing this data. Therefore, we developed a comprehensive KPI taxonomy to help organizations move from ‘what’ to ‘how’ when it comes to assessing their transformation journeys and improving value creation.
Why Measures Matter
Digital transformation initiatives often fail because they lack clear objectives. When organizations pursue digital technology upgrades without carefully identifying the goals of each aspect of digital transformation and how to define a successful implementation, they put new projects at risk. Objectives need to be specified and measured. Progress towards identified goals must be assessed so that appropriate adjustments are made, and resources reallocated along the way, based on real numbers. Thankfully, digital projects lend themselves well to measurement. Gathering relevant data before, during and after a given initiative is essential to tracking digital transformation KPIs. These are the indicators – the proof – that show the value created to skeptical executives. ‘Good numbers’ – metrics that prove that technological enhancements are leading to value creation – are key to winning the intra-organizational competition for budgets and other limited resources, and for securing management support.
24 digital transformation KPIs
Our taxonomy of 24 digital transformation KPIs encompasses four categories (see Table 1). Two categories – Operational Efficiency and Employee Engagement – are largely inward-facing, while the other two – Customer Engagement and New Sources of Value Creation – are outward-facing. These categories represent the main areas where digital transformations can create value: through improved operations and efficiency on one side, and enhanced revenues on the other.
Operational Efficiency
This category of KPIs focuses on cost-saving and improvements in speed and efficiency. It includes measures to: increase execution speed, reduce errors, reduce maintenance costs, increase service availability, reduce cyber-attack recovery time, and enhance sustainability. If time is money – and in many regards it is – then measuring execution speed – the time needed for essential activities – is an obvious focal point of analyzing value creation. GE Healthcare Japan utilizes digital technologies in radiology and medical imaging to provide accurate diagnostic services and recommend treatments. The company was able to reduce the time from order receipt to fulfillment, from one and a half months to less than one month, by adopting embedded and edge solutions to bring computation and storage closer to the data sources.
Digital technologies can also be used to reduce defects and errors. The Airbus Group adopted wearables (smart glasses using contextual marking instructions) on the assembly line, reducing its error rate to zero. The reduction of errors/defects is a valuable KPI to measure digital transformation.
Uptime – the percentage of time a service or piece of equipment is functioning and available for use – is another vital KPI for every organization. Equipment downtime for front-end, customer-facing services have obvious negative consequences on a business. But internal, behind-the-scenes performance issues can be just as damaging, especially when they prevent access and analysis of high-value data. Under Armour, for example, put data aggregation and protection at the center of product development while unveiling its Connected Fitness application. By investing in more dependable and streamlined access to high-value data, it achieved 100% uptime within an infrastructure that protects 300 applications and 1,000 virtual machines, and is replicated across two data centers hundreds of kilometers apart.
Digital transformation KPIs are increasingly linked to sustainability objectives. Depending on the industry, this can focus on different aspects of sustainability, from the savings on energy, water, or paper, to space optimization and more. AeroFarms is active in indoor vertical farming. Leveraging digital solutions such as advanced IoT and data analytics, the company carefully measured the effects of its technology innovations on its impact on the planet. The company saw a 95% saving on water compared to conventional farming, with yields up to 390 times higher.
“‘Good numbers’ are key to winning the intra-organizational competition for budgets and other limited resources, and for securing management support. ”
Employee Engagement
Tracking digital transformation that aims to improve employee engagement requires KPIs that gauge employee productivity and job satisfaction. Some KPIs should focus on employee usage of digital tools, hours of work saved, reduction in safety incidents, extent of remote work, satisfaction with digital tools, and employee recruitment and retention. When it comes to evaluating employee engagement and efficiency improvement, tracking the working hours saved by the implementation of digital operational enhancements and digital tools is a gold standard with KPIs. Document management is one common worker efficiency focal point, as research has shown that simply digitizing data collection, making it searchable for instance, can save 528 hours per employee per year. Furthermore, when L’Oreal Paris adopted the chatbot Mya, it found that up to 75% of questions people have during the recruiting process were automatically addressed, saving the UK HR team 45 days of work over six months.
Few digital transformation KPIs may be as important as those tracking employee incident reduction, especially for businesses with large manufacturing, warehouse and shipping operations. On a fundamental level, reducing workplace incidents that affect employee health and well-being should be of paramount importance to every company. But they also carry residual productivity implications related to morale and efficiency. KPIs tracking improved safety and security, then, are worth focusing on and will pay dividends. When Faurecia Interior Systems and OTTO Motors partnered on integrating robot co-workers in manufacturing premises, the result was zero accidents involving humans or near-miss incidents.
Unilever wanted to simplify the way employees found information across processes, systems and content resources, freeing up support agents’ time for higher-value human interactions. Hence, the company reimagined the overall employee experience around three pillars: human experiences, simple interactions, and meaningful impact. The vision converged on a tool that integrated ‘Una’: a chatbot operating as a personal assistant to guide employees, and whose conversations were continuously improved through a built-in learning loop. Una was tested and fine-tuned in a pilot project, earning an 85% employee satisfaction rating.
Customer Engagement
Improving customer satisfaction, the holy grail for so many businesses, is another essential KPI category thanks to the universal focus on customer experience. Measures include: customer usage of digital tools, increase in lead generation, customer hours saved, various digital marketing KPIs, customer retention, and platform registrations.
In our previous article, we described how Singapore-based bank DBS developed the ‘customer hours’ concept to save customers’ time. Here, we would like to provide some other examples of how organizations have developed KPIs to measure driving customer engagement as part of their digital transformation.
Actual customer use of digital tools (not just an app download) is an important digital transformation metric. Yum China operates KFC, Pizza Hut and Taco Bell restaurants. Its rapid expansion and high popularity have meant long lines for customers in many restaurants, with a negative impact on revenue maximization. To address the issue, Yum China built a mobile ordering system with multiple functions. Since the launch, the app has been downloaded by over 8 million devices and is registering more than 200,000 mobile orders daily. Yum China has also seen a 15% revenue boost (plus a 30% cost reduction) – digital transformation KPIs that demonstrate the importance of upgrading technology to improve value creation through improved customer experience loud and clearly, will generally show increased revenue.
In financial services, Polish bank PKO Bank Polski launched a mobile application to reach new – especially younger – customers. The app quickly became the most popular mobile banking application in the country, scoring very high customer ratings of 4.7 out of 5. Indeed, in 2018, the app was voted the best mobile banking app worldwide. PKO continues to innovate: in late 2021, it introduced a new contactless payment system, processing more than 30,000 transactions per day.
Lead generation through digital is another important KPI. When Italy’s UBI Banca needed to find new leads in the highly competitive mortgage market, it created a Center of Digital Excellence with a content factory and a comprehensive marketing strategy. The result was 8 times more leads generated (with a 66% decrease in costs for lead generation and 25% increase in organic web traffic).
New Sources of Value Creation
New value creation aims to find innovative ways to increase revenues and profits. In a sense, all the digital transformation KPIs we’ve discussed above are tied to value creation, as they help to evaluate performance benchmarks to create a stronger, more efficient business. Top line value creation measures include: revenues from digital offerings and channels, digital cross-selling effectiveness, new customer acquisition, effectiveness of digital advisory tools, and digital business profitability.
A KPI measuring revenue from digital products or services is important even for organizations with a non-digital origin. The New York Times introduced a paywall for digital in 2011, with news subscriptions bundled with access to other digital-only products, and with standalone subscriptions for elements such as games, cooking, and audio. Since the introduction of the paywall, the number of paid digital-only subscriptions has grown from about 0.5 to 7.5 million. In 2020, for the first time, the New York Times reported higher revenues from its digital business than its print operations.
Information can be digitized, but the same is not easily true for physical objects such as consumer goods; nevertheless, digital marketing channels can become a powerful force to boost revenues. Eighteen months after illycaffè, an Italian coffee brand, re-designed its entire digital customer experience from website to social media channels and customer care, the company saw a 24% improvement in site revenues from SEO activities, as well as a 15% increase in social media reach and engagement.
Digital transformation allows organizations to re-invent the concept of cross-selling by building new ecosystems or boosting brand extensions. Amazon is often cited as an archetypal digital transformer in this space, but there are many others. Insurance company Baloise invested in a digital platform that enables consumers, insurers, agents/brokers, vendors, and other participants to interact along the insurance process anywhere and at any time. A quantitative KPI measuring the change in new business issued by brokers saw an increase of 50% following the introduction of the platform.
In the fashion industry, customers of Stitch Fix buy via digital advisory tools. By completing a ‘style profile’, they provide on average over 100 data points, like detailed style, size, price preferences and which parts of their bodies they like to flaunt. This is also reflected in revenue from digital services, as the company offers a yearly subscription to a ‘Style Pass’ for a $49 fee.
Not all the proposed KPIs are needed for every digital transformation. However, we recommend adopting measures across the categories (breadth) in addition to within a category (depth). One of the main failure points comes from not considering the wider implications – breadth matters.
Even when the necessary data is not available, organizations should make an extra effort to establish and track as soon as transformational planning begins. Measures may start off as percentage improvements or absolute gains, and they can be fine-tuned in time, based on additional findings, resources, results obtained and evolving needs. The measurements don’t need to be perfectly correct from the start, but it is critical that KPIs should be adopted before the transformation project is initiated. Simply hoping for good numbers ‘after the fact’ means there is no baseline to compare incoming metrics and greatly reduces the chances of a successful digital transformation.
The era of digital disruption is far from over, as evidenced by the declining corporate longevity of S&P 500 firms – companies continue to drop off the index, as new, disruptive entrants who have mastered value creation rise on the index. In our previous article, we revealed that 87% of digital transformation projects fail; evidence across all sectors, from consumer products to industrial goods, show that this continues to be the case. We believe that effectively measuring progress using KPIs is essential to ensuring a positive, successful digital transformation.
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