Getting a clear understanding of the return on investment (ROI) is crucial for any organization looking to justify the expense of implementing new technology. Despite this, many organizations have a difficult time determining the true ROI of such investments in technology. According to one estimate, $1.5 trillion was spent on digital transformation globally in 2021, and it is expected to reach $6.8 trillion by the end of 2023. Another estimate suggests that as of 2021, 56 per cent of companies had prioritized digital transformation worldwide. Here are some tips for measuring the ROI of technology investments:
Identifying the specific business objectives that the technology is intended to support is one of the key factors that should be considered when estimating the ROI of technology investments. Some common business objectives that technology is intended to support are operational excellence, new products and services, customer and supplier intimacy, improved decision-making, and competitive advantage. For example, if the objective of technology is to improve customer service, then metrics such as customer satisfaction and response times should be used. These metrics should be used to measure how successful technology has been at improving customer service.
On the other hand, if the goal is to increase efficiency and productivity, then metrics such as employee productivity and cost savings should be used. It’s important to align the technology investments with the specific business objectives, this way the ROI can be measured effectively and the true impact of the technology on the business can be determined.
Measuring the ROI of technology investments requires setting a baseline to compare results. This means determining the current state of technology and performance before investing. This baseline can be used to measure progress and success over time. For example, an organization that wants to improve customer service through a CRM system should first establish a baseline for customer satisfaction and response times before implementation. This baseline can then be compared to post-implementation results to determine ROI.
Once the business objectives and baseline have been established, it is imperative to track and measure the progress of technology over time. This can be done by implementing key performance indicators (KPIs) that are specific to the business objectives and are aligned with the baseline. For example, if an organization is looking to increase efficiency and productivity through the implementation of a new enterprise resource planning (ERP) system, they might track KPIs such as employee productivity and cost savings. These KPIs can then be used to determine the ROI of the investment by comparing the results to the baseline.
It’s also pertinent to consider the total cost of ownership (TCO) when measuring the ROI of technology investments. TCO includes not only the initial costs of the technology, but also ongoing costs such as maintenance, upgrades, and support. By considering TCO, organizations can get a more accurate picture of the true ROI of their technology investments. For example, the cost of the software may be low, but if the system requires a large amount of maintenance and upgrades, the total cost of ownership may be much higher than other software options.
In a study by Gartner, Inc., it was found that organizations are more likely to achieve their business objectives when they accurately measure the ROI of their technology investments. The study found that organizations that effectively measure ROI are more likely than those that don’t achieve their business goals. Additionally, the study found that organizations that effectively measure the ROI of their technology investments are three times more likely to meet their business objectives. This is compared to those that do not.
This is similar to an athlete measuring their performance to track their progress – understanding how they are performing in relation to their goals helps them focus their energy and improve their outcomes. Measuring performance and tracking progress allow organisations to identify areas where they can focus their energy to achieve their goals more effectively.
Ultimately, for any organization seeking to justify the costs associated with implementing new technology, measuring the ROI is essential. Identifying specific business objectives, establishing a baseline, monitoring progress over time, and considering the total cost of ownership can help organizations determine the ROI of their technology investments. As the famous Italian scientist Galileo Galilei once said: “Measure what can be measured, and make measurable what cannot be measured.”