The most dangerous step leaders take in pursuit of digital transformation is declaring digital transformation their goal. More than any other error, confusing the means with the end is responsible for the dismal digital track record of transformation efforts.
While there are many reasons why so many companies report poor results from their digital initiatives, what stands out for us is how many aspiring transformers seek to measure the wrong things. They consistently pick poor and misleading key performance indicators, such as the number of users per license purchased or the number of processes performed using new software.
These digital KPIs miss the point. Transformational leaders recognize digital strategy not as an end but as a means to achieving measurably better business outcomes. They design digital plans around strategic objectives. And, crucially, they identify a portfolio of enterprise KPIs that measure business value delivered by the transformation — not the company’s technology infrastructure.
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In platform economies, radically enhanced digital capabilities become critical to actually achieving the results that manifest a company’s strategic objectives. The ability to meet complex supply chain challenges, innovate, enable hybrid distributed workforces, and continually improve both virtual and real-life customer experiences increasingly relies on digitally enabled capabilities.
Unfortunately, we find KPIs undervalued and underutilized as analytic assets for leading digital change. Most legacy companies treat KPIs as reporting and accounting mechanisms rather than strategic decision drivers; they’re used more to keep score than change the game. Clinging to these legacy KPI perspectives gets in the way of successful digital transformation strategies; these KPIs are literally counterproductive.
We argue that KPIs should lead, not track, digital initiatives. Top management must define and communicate both the key performance that is required to execute its strategic plan and the digital capabilities that will enable that performance. That distinction is not subtle: Dramatically upgrading technology infrastructure — so-called lift-and-shift approaches — typically results in nothing more transformative than the same old operating models running in the cloud. The real transformation opportunity lies in making strategic enterprise metrics both individually and collectively more visible and valuable. Dramatically increasing ROKPI — return on KPIs — should be leadership’s goal.