Evaluating Digital Investments: Top-line or Bottom-line ROI
Many ROIs for digital investments are poorly constructed. They focus on cost savings rather than top-line benefits.
As an analogy, why might most people upgrade to a Tesla? I'd argue is mostly about the experience. Tesla’s are cool; they’re fast, they have autopilot, zero emissions, they’re roomy and practical, with great infotainment and kit. In short, the investment is justified on positive attributes, over and above potential savings.
OK, we also have cost savings, from using an electric, rather than petrol or diesel motor. Tesla drivers often access free charging points. This is definitely a worthy consideration but it's rarely the primary reason for buying a Tesla. Mostly the top-line benefits rather than bottom-line savings drive the purchase.
And so it should be for most Digital Investments. Why? Well here's a few pointers:
By 2020 every business will become a digital predator or digital prey. (Forrester).
20% of CEOs are now taking a “digital-first” approach to business change (with profits and growth remaining the number-one business priority for 58% of CEOs (Gartner).
The Future Of Business Is Digital; every business needs to become a digital business (Forrester).
According to Gartner, customer experience is your primary competitive differentiator (CMS-Wire).
If a digital investment speeds up digital capability - and improves customer experience - shouldn’t this be the primary objective in the ROI?
This should also be framed in the context of competition, or driving new business models to stay relevant. A good digital investment should further enable your digital strategy which is now key to business strategy and execution, either improving customer experience, increasing operational efficiency, or directly mitigating risk. In short, we should be looking at the strategic importance not simply cost takeout.
In summary, for most digital investments, it is more interesting (albeit more difficult) to focus on top-line benefits rather than bottom-line / cost savings. It's often easier to look at savings, in terms of effort and cost takeout. And historically we've mostly focused on this area to justify an expense. But in the age of digital, we should think about driving the business and the cost of doing nothing. That's where the true ROI is likely to kick-in.