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    How to boost the rate of return on digital investment: Here are a few tips

    How to boost the rate of return on digital investment: Here are a few tips

    How to boost the rate of return on digital investment: Here are a few tips
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    By Manali Rohinesh   IST (Updated)


    Innovation is key to really thriving these days. Surviving is an old game. To get ahead of the competition, enabling digital innovation is what companies need to do.

    Innovation is key to really thriving these days. Surviving is an old game. To get ahead of the competition, enabling digital innovation is what companies need to do. To get started, companies can begin their assessment by asking themselves the following questions:
    1. How much support can we provide to scaling efforts without jeopardising legacy products and services?
    2. How do we think about deploying platforms, technologies, skills and ecosystem partners?
    3. Do we focus on key organisational levers, like champions do?
    4. Champions are those companies that are far ahead of the learning curve. In fact, they did their thinking, researching and implementing ahead of everyone else and hence benefitted from their foresight. So how does one become like that? The automotive interior manufacturer Faurecia launched a Digital Enterprise Strategy in 2016. This was to take their legacy operations to the next level, which will enable them to “capture 20-30 percent of the SUV/CUV/ Premium segment and a 60-80 percent share of new electric vehicle customers in 2025 as compared to 5 percent and 20 percent respectively in 2017”, stated an Accenture report.
      To achieve the above, their factory has installed automated guided vehicles that transport parts within the plant. There is connected machinery in place for predictive maintenance and machine operators get help with repetitive tasks from co-bots. It also has leveraged its various acquisitions: Parrot, Clarion and Coagent Electronics to build the Cockpit of the Future and Cockpit Intelligence Platform.
      That’s not all. They have shown interest in moving out of their comfort zone and have established scholars in academic research institutions and startups in innovation hubs, such as Silicon Valley, Toronto, Tel-Aviv, Shanghai and Paris, to ramp up development and industrialisation of emerging technologies in healthcare, cybersecurity and zero emissions.
      A lot of corporates would like to emulate this and do so, but digital return on investment (ROI) has not been great for many of them. Accenture surveyed 1,350 global senior executives in key industrial sectors and found that “between 2016 and 2018, industrial companies spent a little over $100 billion on scaling digital innovations to drive new experiences and efficiencies.”
      But 78 percent of industrial companies in the survey just about managed to achieve expected earnings and the remaining 22 percent achieved a return on their digital investments that was more than expected. What this latter group must have done right is that their approach was more strategic. They clearly identified the value they wanted to achieve and knew how their innovation efforts will affect their organisation. For such ‘champions’, it’s not just about earning more digital ROI - it’s about earning more by scaling better.
      The laggards had challenges that need to be looked into and these were across discrete industries, such as those that assemble parts for auto and aircraft manufacturers and process companies, which make entire products in-house, like pharmaceuticals and chemicals. Research showed that discrete industries gained more than process industries from addressing the challenges. But process industries also showed significant returns on investment compared to not taking any sort of innovative step.
      So what were the challenges? They were: skills deficit, alignment deficit, infrastructure deficit, cultural deficit, partnership and measurement deficit. Here are the easy definitions:
      1. Alignment deficit: This occurs when top and middle management can’t decide on the definition of digital value, or on the proper ways to leverage assets, talent and ecosystems to create the same.
      2. Infrastructure deficit: Inadequate technology architecture which makes collaborative innovation difficult. This can make it hard to manage complex integrations of services with products.
      3. Skills deficit: Lack of adequate skills needed to identify, articulate, and innovate value through digital platforms and technologies.
      4. Partnership deficit: Partners lack a shared view on how to build and scale data-driven, digital value.
      5. Measurement deficit: The absence of processes and metrics to systematically track returns on digital investments. Lack of this data means informed innovation decisions can’t be made.
      6. Cultural deficit: The absence of appropriate culture in the organisation, which allows for the design and development of digital customer experiences that can be monetised.
      7. If these issues are addressed, companies can unlock almost double the rate of return on their digital investment. Even the champs can up their game by almost 3.5 percent, if they smoothen out any organisational culture issues, innovation hurdles, burden of legacy technology and tussles between the in-house team and the agile newcomers.
        Champion companies have done this, so it’s not a miracle that happens rarely! They have managed this by defining the value so that innovation efforts are guided rather than stuck in the middle or with the top management. They have also focussed on internal organisational changes which mixed with digital transformation initiatives, have created an ‘ambidextrous’ organisation. Champions across discrete and process industries preferred to do this 10 percent more than other manufacturers - 62.2 percent of discrete manufacturers and 63.5 percent of process industries.
        They also seed and build organic technology in-house with the help of new talent and the team already on their payroll. So both learn to work in sync and add value to the company’s products and services. Lastly, these winners use enablers -- be it software, data-mining for relevant insights or support operations, and they match support to function in the best way possible, where it is most needed and will be most useful. Support can also come in the form of key new partnerships within the ecosystem.
        Manali Rohinesh is a freelance writer who explores financial and non-financial subjects that pique her interest.
        Read her columns here.
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