Digital transformation (DX) is currently one of the biggest buzzwords in the IT world.

It seems like everyone is talking about how they can use the latest technology to improve the experience that they give their target audience, engage their employees, or just improve business efficiency. The question is, how do you know whether your DX initiative is paying off?

According to Smart Insights, 34% of companies have already undergone some form of digital transformation, and IDG says that 44% of companies have taken a digital-first approach to customer experience.

Unfortunately, measuring digital transformation ROI is rarely as simple as it seems.

If you’re thinking of investing in a DX roadmap for your business, here’s what you’ll need to know about how to measure digital transformation.

Step 1: Know your objectives

First, one essential component of any digital transformation strategy is figuring out what your goals are. There are a lot of things that a company can do with the right technology. For instance, do you want to improve your business performance and agility with streamlined IT services? Are you looking for opportunities to improve operational efficiency? Maybe you want to transform your reputation with your customers and gather more repeat purchases.

Knowing your objectives will give you a starting point when it comes to deciding which KPIs you need to use for your digital transformation ROI. For instance, here are some of the most common objectives that appear in DX programs, and the KPIs they connect with:

Improving customer experience: Measure net promotor scores, the number of repeat customers, review scores, and brand awareness
Boosting employee engagement: Measure engagement scores, turnover rates, collaboration performance, likelihood to recommend new staff, and performance rates
Increasing agility of operations: Measure deadline management rates, response times to conversations, manufacturing throughput, and first-time resolutions to problems
Perfecting business safety and security: Measure number of privacy breaches, fraud losses, and threats detected and defended against
Upgrading company infrastructure: Measure uptime and reliability rates, response time to dealing with issues and outages, and speed of new technology adoption.

Step 2: Define your cost centres

If you want to know how to measure digital transformation ROI, then you can’t just know how much value you’re getting back from your initiatives. You’ll also need to measure the investments that you’re making into your programs. For instance, a large number of DX strategies today relate to improving customer experience. In fact, around 40% of all data analytics projects are likely to link back to customer experience support strategies by this time next year.

Measuring digital transformation ROI for a customer experience initiative means thinking about how much money you’re putting into CX with things like:

Agent labour
New contact centre tools
CRM software and analytics
Data management and machine learning
New process training

Step 3: Take the right view of your measurements

Once you know what you’re spending and what kind of KPIs you need to measure to check your digital transformation ROI, make sure that you’re not missing anything that could have an impact on your revenue. For instance, if you’re focusing on customer experience, are you looking at things like increases in customer lifetime value, as well as changes in return customer numbers?

Alongside your satisfaction scores, are you considering how many of your clients might be willing to refer new people to your business? Sometimes, a strategy that brings you a lower number of high-quality loyal customers will be better for you in the long-term than a campaign that delivers a higher number of one-time purchases.

Step 4: Have realistic milestones and timescales in mind

Remember, the best business goals are “SMART” – that means that they’re specific, measurable, attainable, relevant, and time-based. Think about what kind of period you’re going to be measuring the success of each new element of your digital transformation strategy over. For instance, when Seagate surveyed companies about their digital transformations strategies, 34% said they would be fully adopting digital strategy within 12 months.

The speed at which your company moves will depend on how complex your new campaign is and how long it takes for everyone to get used to new software, tools, and strategies. Don’t push yourself to move faster than you reasonably can.

Step 5: Never stop measuring

Finally, a real digital transformation rarely happens overnight. Moving into a more digital environment with your workforce is a process that’s going to take time and focus. You’ll need to think carefully about how you’re going to keep track of your performance over time, with ongoing analytics and reports. This will show you when your current strategies start to grow outdated and may need to be upgraded.

An effective digital transformation strategy isn’t a one-size-fits-all thing. However, if you can get your initiative right, you’ll be on your way to the future in no time.