Where is the ROI?
Companies are making record-breaking investments in digital transformation this year, up 65% from 2020. There have been breakthroughs in uncovering returns for these investments, but the picture can still be murky. Are digital funds being well spent?
This is the question posed in a recent survey of 1,500 global executives from EY-Parthenon, which finds that after years of heavy digital investment, companies are still figuring out ways to show hard-number results.
Executives are optimistic, but still in mainly the dark when it comes to tangible results from their investments. Only 16% of respondents strongly agree they have a clearly defined strategy for digital. However, the numbers do suggest progress compared to the last survey — when only 1% indicated having a strategy.
“Many still struggle to measure and achieve results from digital investments,” the EY authors note. “The concept of measuring ROI for digital projects, programs and use cases is still not applied systematically.” Three out of five companies don’t know how much they spent in digital operating or capital expenditures last year. or what value it yielded in incremental revenues, reduced cost and working capital.
Still, there is abundant optimism that investing heavily in digital is the right course of action. Executives even feel their spending increases will nearly double their return on digital investments this year compared to last year. More executives are also measuring return on digital investment. Forty-one percent report measuring “return on digital investment} — up from 29% two years ago.
The pressure is intense to spend the money. Still, speed and success are critical, as nearly three-quarters of executives (72%) say they must radically transform their operations during the next two years to compete effectively in their industry — up from 62% in 2020.
Executives plan to allocate 5.8% of their revenues to digital as compared with 3.5% in the 2020 survey — an increase in spending of 65%, not accounting for increases in revenues.
More companies are connecting their digital strategies with successful implementation, factoring in culture, agility, clear accountabilities, measurement and execution pathways. Companies that measure return on digital investment expect a 7.6% average return on digital investment in 2022, which would exceed the 4.4% ROI reported in 2021.
This year, 31% of digital spending is being dedicated to building capabilities, while 69% of spending has shifted to running — up from 64% in 2020. “This suggests that companies are pivoting from core internal operational efficiencies to new digital products and services that enable them to get closer to their customers and generate revenue,” the survey’s authors state.
The survey’s authors urge the following actions to see more tangible results from their technology spending:
Where is the ROI?