Measuring value from digital transformation
Optimism isn’t enough: UK struggles to realise value from digital transformation
Deloitte analysis reveals that although organisations in the United Kingdom are optimistic and ambitious about the possibilities of digital transformation, they are failing to realise the full value. Despite their ambition, UK organisations lag the global average in several key metrics for creating value from investments in digital capabilities. This article identifies how UK organisations can extract the maximum value from their investment in digital capabilities today to then navigate to a tech-empowered tomorrow, enabling true digital transformation.
The Institute of Chartered Accountants in England and Wales report that in terms of productivity growth, the UK “lags its peer group of the world’s most developed economies”.1 An integral component of closing this differential in productivity is for UK organisations to maximise the potential that digital technologies hold.2
Digital transformation has the power to transform the processes and culture of an organisation, while accelerating growth and creating competitive advantage. Digital capabilities are essential for growth, and they are recognised as a cornerstone upon which organisational change is built and value created. This view is widely held as our analysis reveals 74% of the UK business and technology leaders surveyed in Deloitte’s Measuring value from digital transformation research collection think digital transformation is “the single most important investment now and into the future that organisations can make to drive enterprise value”.3
Digital transformation has the power to transform the processes and culture of an organisation, while accelerating growth and creating competitive advantage
Many organisations are now taking a broader view of the benefits that digital transformation can bring, focusing not only on financial key performance indicators (KPIs), but measuring the impact on areas like purpose and the workforce. However, despite its widespread and all-encompassing nature, business leaders have struggled with how to maximise and measure value from digitally enabled transformations.
C-suite executives find it difficult to measure the value of tech investments, with a global sample of CxOs identifying key challenges as the inability to show how tech enables growth, fragmented reporting (separate KPIs and metrics) and a focus on short-term performance.4
After finding in 2019 only 6% of managers believe their company is deriving the maximum return from digital investments,5 the Deloitte Centre for Integrated Research (CIR) set out to tackle this challenge with a large scale, multi-year research project to identify how organisations can measure and achieve value from digital transformation. New data from this global research suggests many UK organisations are facing greater difficulty in generating value from their investments in digital capabilities – lagging the global sample in value generated from almost every form of tech.6
Therein, lies the key question. If almost three quarters of UK organisations believe that digital transformation is the single most important investment they can make, why has the region struggled to generate as much perceived value from tech capabilities as their global peers? The answer is two-fold: it lies first in the ability of UK organisations to create value and second to effectively measure that value using KPIs. This article will explore why the UK has generated less perceived value from digital transformation than the global sample and offer insight on what UK organisations must do to catch up.
Organisations in the UK report having high digital ambitions. When defining digital technology investments, 73 per cent of UK respondents consider digital transformation to fundamentally change how the business operates, however, currently only 44 per cent share of digital spend is for that type of initiative. In essence, UK organisations recognise the transformative power of investing in digital capabilities, but only 32 per cent of their budget is allocated to digitisation. This will not fundamentally change how organisations operate and it is preventing full transformation. It is likely that as UK organisations become more digitally mature, that a greater proportion of their annual spend on transformation will be allocated to those initiatives which have an integral impact on way in which they operate.7
UK organisations recognise the transformative power of investing in digital capabilities, but only 32 per cent of their budget is allocated to digitisation
UK organisations also stand forthright in their view that digital transformation is critical to their success and are 8 per centage points more likely than global organisations to attribute medium-to-high enterprise value to digital initiatives.8
However, despite attributing a high amount of value to the concept of digital transformation, UK organisations perceived a lower return on investment from investments in individual technological capabilities (figure 1). This is problematic, as it shows that these organisations are failing to extract full possible benefit from their investments. It also points to a wider problem, that while organisations in the UK value digital transformation very highly, they are yet to achieve the same level of value from their investments in technical capabilities as their global peers.
Figure 1. Belief that current investments in digital tech generate enterprise value
Question asked to those respondents that affirmed they are investing in these capabilities: To what extent do you believe the following technology capabilities generate enterprise value as a part of your organisation’s digital transformation?
The UK furthest lags the global respondents on the value generated from: edge computing (19 per centage points) and conversational AI (15 per centage points). Our analysis shows UK respondents are more likely to report lower enterprise value from almost every technology capability investment category. For the subset of twelve technologies we explored, in enterprise value reported the UK respondents lag the global sample by 8 per centage points on average. Despite the largely ambitious attitudes towards digital transformation in the UK, why are respondents perceiving less value from their investments as their global counterparts?
Almost all barriers to value creation are more pronounced in the UK
Organisations in the UK face more difficulty in extracting the full possible benefits from investment in digital capabilities. The data suggests that one reason for this is because of greater barriers to value creation and monetisation of digital capabilities. Creating value from digital transformation is undoubtedly a complex task, with many potential pitfalls. Organisations in the UK perceive all of the barriers to the creation of value more intensely than their global peers.
Figure 2. Barriers to creating value from digital transformation
Question asked: To what extent are the following digital transformation challenges a barrier to value for your organisation? The figure shows the per centage of respondents who experience each challenge to a large or a very large extent.
Like global, the most prevalent barrier among UK respondents is legacy systems dependency, but with slightly greater intensity. Why? Many UK organisations are now bearing the burden of intergenerational tech debt, where there is fragmentation of digital assets and data.9
Organisations that rely on legacy systems and code often struggle to connect old technology with new which makes implementation of the latest technologies challenging. This points to the need for firms to upgrade their infrastructure to allow them to embrace new digital capabilities. One emerging solution for organisations to explore to scale engineering capabilities and use generative AI to update old code with greater speed and efficiency.
The UK also faces greater challenges than the rest of the sample when it comes to securing funding for the digital technology investments and finding executive sponsors at the board or CEO level. Better understanding of the multi-faceted benefits of digital transformation at the leadership level may change attitudes towards spending on digital transformation and allay some of the fears that come with investment in new technology. Indeed, 30% of UK respondents see lack of understanding of the technology as a barrier to value creation to a large extent. Staggeringly, almost a third of UK organisations reported that to a large extent they lack a transformation strategy. Organisations need a transformation strategy to allow them to understand how developed their technical capabilities are. The strategy must also be frequently updated to reflect fast-moving tech landscape.
Without proper data it is hard to create a transformation strategy
Organisations should also realise that many of these barriers are interlinked. When you rely on legacy systems it is difficult to collect the necessary data. Without proper data it is hard to create a transformation strategy. Without proper understanding of the available technology it is hard to convince senior leaders to invest more. Once there is an understanding of how the various barriers reinforce one another, they can start to be dismantled.
Leaders in the UK must consider which of these barriers exist within their own organisation and strategise to overcome them. Otherwise as long as they exist, the barriers will have a detrimental impact on tech investments. To achieve the full value of digital transformation, UK leaders need to develop a strategy based on a strong understanding of the technology, otherwise the UK will continue to lag the rest of the world in creating and measuring value.
UK organisations have greater difficulty monetising digital technology
Financial KPIs are some of the most widely used metrics to capture the success of digital transformation, so perhaps unsurprisingly, being able to monetise digital transformation is commonly an end goal for many organisations. However, the global spend and adoption of data monetisation strategies across industries remains relatively low, given prevalent challenges. It is also important to understand that industry is a key determinant of the way in which an organisation perceives digital transformation and subsequently the barriers they face to capturing that value – which is explored in Digital value and the industry context.
Those sampled from UK organisations reported that they felt almost all of the same challenges to monetisation reported by global respondents, but again more strongly than the rest of the sample.
Figure 3. Challenges to monetising digital technology
Question asked: How challenging are the following factors to data monetising your organisation’s digital technology? The figure shows the per centage of respondents who experience each challenge to monetising their organisation’s digital technology to a large or a very large extent.
The most pertinent challenges to monetising digital technology include: disruption of the traditional business model, (lack of) ability to benchmark monetisation budgets against peers to know how much to invest, and regulatory barriers and constraints. The perception of these challenges is reflected by the data which shows UK respondents believe data monetisation strategies face greater challenges as a potential new value realisation challenge compared with the rest of the sample.
Unmasking the value of digital transformation in the UK
UK organisations must also reflect on the multifaceted benefits that arise from digital transformation and determine appropriate and diverse Key Performance Indicators (KPIs). Organisations can only understand and appreciate the value generated from digital transformation when they have adequate means of measuring it. Organisations in the UK may lag the global sample in terms of perceived value generated from digital transformation, in part, because they are not as adept at measuring it.
Digital transformation impacts every part of an organisation and its measurement must reflect this. Organisations find themselves compelled to re-examine and reflect on their criteria for evaluating the success from digital transformation. Digital transformation can be all-encompassing, and it is important that measures properly reflect a holistic view to tell the full story. Organisations can better manage value when they use a diverse range of KPIs.10 Investment in digital transformation can create value throughout an organisation – even in areas where it was not necessarily intended or expected.
While the UK falls broadly in line with global averages when it comes to the use of financial KPIs to measure value from digital transformation – UK respondents lagged in their use of KPIs related to customer, process, the workforce, and purpose.
Figure 4. Five key performance indicator categories used to assess value gained from digital transformation
Question asked: To what extent does your organisation use the following performance indicators to assess the value gained from digital transformation?
When organisations start measuring the effect of digital transformation, they often try to measure predominantly in terms of financial KPIs. As UK organisations become more mature in the space of digital transformation, they should broaden the KPIs which they use.
Understanding indicators around purpose, workforce and process are more vital than ever with the uncertainty organisations are facing in the UK. Leadership needs to look at the bigger picture, as each KPI tells a story of how the organisation is doing in relation to objectives. As demonstrated in Mapping digital transformation value, by using a more comprehensive framework of KPIs, organisations can begin to unveil the full value of their investments in digital transformation – much of which is likely not currently being captured by existing measures. Organisations are so focused on removing cost that they miss the human benefits of digital transformation, which will be financially advantageous over time but not necessarily immediately. Organisations should look beyond the use of KPI’s to increase efficiency and optimisation but also include KPI’s related to growth that tell the bigger picture of digital transformation.11 Technology investment needs to look beyond productivity as only a cost-cutting measure and move towards growth. Using a more diverse and comprehensive range of measures will give organisations better data to make future investment decisions upon. In turn, this will help organisations to make the most impactful possible investment decisions, creating further value down the line.
The possibilities of digital transformation are boundless, but optimism alone will not harness the full potential. Technology remains a key factor of the UK’s productivity gap, and to traverse that gap and catch-up with their peers, UK organisations must unlock the full utility of their digital capabilities. Organisations that develop a transformation strategy, use diverse KPIs to measure value, and establish an appropriate time-frame will be those that reap the results of true digital transformation.
How can UK organisations create maximum value from their investments in digital tech?
