Counting the costs in your DX journey

Digital transformation is a cost-intensive programme — the promise is that future costs are defrayed by investing in the present. The C-suite and senior IT executives are often faced with the dilemma of spending on transformation initiatives when ongoing operational expenditure just on keeping the lights on is already substantial.

A strategic approach to digital transformation is necessary — one that fully takes into account capital expenditure (CAPEX), operational expenses (OPEX), potential pitfalls, and ‘Black Swans’ that may come into play. The cloud and complementary technologies assure cost savings in the long run, but if implemented without sound tactics and solid strategies, these technology investments may end up sinking a company’s IT funds over the years with no perceptible benefits in return.

In order to ensure that transformation initiatives hit the mark and technology investments are optimally exploited, certain business-related decisions need to be made at the outset. For example, consolidating workflows, applications and software instances as well as licences can greatly help in standardising operating procedures and also save short-term costs. These steps can help an enterprise ready itself for digitalisation, and provide deep insights into the existing state of technology consumption.

In an increasingly interconnected, globalised and complex world, it has proven more difficult for organisations to accurately predict where and how the next disruption in their industry may arise. Author Nassim Nicholas Taleb explains in his book ‘The Black Swan’ that certain events — such as the 2008 financial crisis — are impossible to predict and rare, and are statistical outliers.

IT teams need to take into account such risks as well, and large up-front investments often end up compounding these risks, as technology disruptions may make certain technologies obsolete, regardless of how much has been spent on them. One such example is how Zip disks became obsolete just a decade after they were introduced, supplanted by cheaper CD-R technology and later by USB flash storage. Companies that had made up-front investments in large volumes of Zip drives and disks therefore lost competitive advantage to other companies that were able to switch to more cost-efficient forms of storage.

IT investments, therefore, need to be based on the possibilities that a certain architecture, device or platform may need to be discarded in the future and an organisation needs to be agile enough to pivot itself away from legacy technologies. The key is to prevent lock-in to particular vendor ecosystems or formats, and invest in technologies that allow an enterprise to keep its options as open as possible with canonical standards and open APIs.

In general, IT investments are made with a definite idea of how long it will take to amortise the costs of up-front payments. When projects overrun or prove more complex than previously envisioned, costs add up, leading to decreasing returns on investment and hurting the bottom line.

Constant vigil is necessary in this case, and digitalisation helps in this regard by providing insight into every aspect of technology implementation and how it impacts the business. Harvesting low-hanging fruit and modularising infrastructure refresh can break projects down into smaller, more manageable chunks, keeping timelines from spiraling out of control. Close collaboration between vendor and in-house IT teams is of great importance, as this will form the crucial chain from line-of-business needs to technology deployments.

The gains in customer experience (CX) — improved customer retention, fewer service calls, potential cross-selling and up-selling opportunities — often cannot be systematically quantified in most enterprises. Technology investments that lead to long-term benefits in terms of CX can result in massive competitive advantage for a company.

Repeated, methodical testing and customer feedback is essential in this case, as digital transformation needs to keep the customer at the forefront, rather than IT teams. Working backwards — from designing blueprints of customer journeys and architecting systems to align with that — not only help streamline an organisation’s systems for CX, but also help an enterprise “do more with less”. Working with CX in mind helps strip away all non-essential technology investments and prioritises those that directly affect line of business. This moulds a digital transformation strategy to make it more agile, less dependent on proprietary platforms, more aware of timelines, and less prone to risky investments in the long run.

Speak to us to find out more about the strategies to DX.