5 Questions CFOs Should Be Asking About Digital Transformation
by Tom Wentworth
2014 was the year of digital transformation. Digital excellence is no longer simply a way to outperform competitors, it is table-stakes for the long term existence of businesses.
Research firm Gartner just released its 2015 CIO agenda, a survey of over 2800 global CIOs who represent nearly $400 billion in IT spending. Their primary finding? That “Digitalization” is no longer a sideshow — it has moved to center stage and is changing the whole game. CIOs have a unique opportunity, but they must “flip” their information, technology, value and people leadership practices to deliver on the digital promise.
The primary piece of advice from Gartner is to flip information and technology leadership from “legacy first” to “digital first”.
Seizing the digital opportunity requires agility, adaptability and speed. However, existing business processes, business models, information, technology and talent suffer from legacy inertia and “bad complexity,” the Gartner report declare. “Even IT planning horizons do not reflect the new era, with its potentially massive disruptions. IT simplification to make space for and enable digital business is a good start, but simplification needs to extend to the entire business stack: business processes, business models and the business ecosystem.
CFOs should ensure that technology budgets are aligned with the needs of becoming a digital business, and to that point, here are 5 important questions CFOs should be asking CMOs and CIOs in 2015.
1. How are we investing in improving the digital customer experience?
According to a study from Watermark Consulting, delivering a great customer experience has a enormous impact on revenue growth and customer acquisition cost. And these both have a huge impact on stock price. Companies who emphasize customer experience outperformed the broader market, generating a total return that was 26 points higher than the S&P 500 Index while laggards trailed far behind, actually posting a negative return during a period when the broader market rose sharply.
While digital customer experience is a clear driver of growth, many organizations are held back by legacy technology platforms and a “channel-centric” view of the customer. In fact, Marketing departments are often organized around specific channels, like web, mobile, social, and email, resulting in a silo’d customer experience strategy. Consumers don’t see marketing channels, and expect companies and brands to be everywhere they are.
2. What is our cloud strategy?
According to a recent survey from Atos, 75% of CFOs think their business is missing out on revenue opportunities by not having the right cloud applications and infrastructure in place to support digital business transformation. As a result, 70% of CIOs and CFOs fear their business will become uncompetitive with the majority (76%) of them estimating this will happen as fast as the end of 2015.
Cloud computing services from Amazon and cloud-first digital platforms have changed the way corporate IT teams source, provision, manage and spend on technology -- especially digital experience technology. This is more than a mere trend; IT shops that for decades sourced, built, maintained and staffed corporate data centers and managed application stacks see salvation in a cloud-first focus.
The cost and complexity of building and staffing data centers, managing and scaling servers, grappling with security, deploying and managing on-premise software (and paying yearly software maintenance fees) is an inefficient way to run a business today. Cloud options should be making CFOs and other business execs rethink how they invest in technology: subscribing to cloud-based infrastructure and software reduces overall spending and shifts costs from a capital expense to a recurring operating expense - like paying your electric bill each month. Moving to cloud reduces costs for all that hardware and the people needed to manage it, freeing up time and money so the company can focus on high-value activity like creating great digital experiences, writing great digital content, and other things. And, moving to the cloud brings agility and flexibility to the hard work of digital teams, which translates into real money via quicker time to market for new sites and experiences, and reducing the overall effort to keep the lights on.
3. How can we increase the productivity of resources assigned to our digital transformation initiatives?
Shifting digital experience tools and tech to the cloud is one way to be more effective and productive with your digital experience resources. But think bigger: what if software tools could let you be twice as productive at one-quarter of the cost?
For example, Forrester Research studied large global organizations who managed hundreds of websites. In one example, a global pharmaceutical company standardized on a unified platform for its digital experience initiatives, avoiding the cost of hiring five more full-time employees to its digital engineering team to launch 300 websites over three years. To launch these websites in its previous environment, it would have hired three additional FTEs in Year 1 and two additional FTEs in Year 2. At an average annual fully loaded compensation of $110,500 per engineering FTE, this represents $331,500 in net present value savings in the first year.
CFOs should be challenging CIOs and CMOs to lower the total costs of deploying digital customer experience technologies. The full report from Forrester Research is available here.
4. What is our strategy to modernize our digital customer experience technologies?
Many CIOs are still purchasing legacy enterprise software, relying on long standing relationships with legacy technology vendors like IBM and Oracle. The outcome of many of these purchases is so-called “shelfware,” where the product is never deployed as intended and the cost is ultimately written-off by the CFO.
The antiquated habit of buying expensive software licenses is being destroyed by open source and SaaS business models, which align the needs of the buyer and vendor. According to Forrester Research, companies who move their legacy digital experience technologies to a modern platform will experience substantial cost savings.
For example, one organization studied by the Cambridge, MA research firm had migrated from a legacy web content management system to a modern Software-as-a-Service digital experience platform, noting that “our homegrown CMS was not moving at the pace the digital landscape was moving. We needed social media and database management. We hacked our system, but it wasn’t enough.”
5. What new digital revenue streams are we creating?
CFOs should be on the lookout for new ways to generate revenue from existing products and services by deeply understanding customer behavior. Data plays pivotal role, with actionable conclusions being drawn via complete view of customer behavior across web, mobile, email, social platforms, commerce, call center transactions, and other data sources.
For example, when analyzing customer loyalty, CFOs might use customer data to identify their most loyal customers, and then provide them with personalized offers. For many organizations, personalization remains an untapped revenue stream, as almost half of consumers say they would make additional purchases if products were marketed to them in a way that reflected their personal circumstances.
This is especially true in the media and entertainment industry. New competitive pressures aren’t just coming from established media companies, they are coming from an individual consumers with access to a video camera and and a media platform like Youtube. These new publishers can personalize their content to very specific audience, engaging them more effectively than traditional mass media.
Research firm Gartner validates this change in the media and entertainment industry, noting that: “In the year since publishing the 2013 media and entertainment Hype Cycle, we’ve seen several examples of how the media industry is still looking to find its collective footing after the disruption caused by the collision of Internet distribution technology with the industry’s legacy business and operating technology models.”
A Clear Business Case for Digital Transformation
The modern CFO must understand the implications digital transformation has on financial performance and growth. Their C-suite peers - the CMO and CIO - are often challenged to plan and execute the sweeping changes needed to compete in today’s highly competitive economy. The CFO should ask tough questions of the CMO and CIO to ensure they are making the right investments needed to address the needs of the changing consumer.
Consider this: According to Forrester Research, 70% of the companies that were on the Global 500 list only 10 years ago are no longer in existence. Over those 10 years we’ve seen digital transformation change the business forever. We’ve watched the Internet evolve to become the primary customer channel, we’ve seen CIOs embrace cloud-based applications that update multiple times a year to gain greater agility, and we’ve seen mobile devices connect everyone, everywhere, and at all times.