How CIOs can approach digital transformation investments to increase value

Daniel Williams guides CIOs in tackling digital transformation like an investor.

With nearly every industry experiencing increased competition, businesses now face a critical juncture. Leaders must proactively invest in digital transformation tools or risk getting digitally disrupted in major ways.

As such, CIOs and their executive peers must view digital transformation as the core of the business rather than as a supporting enabler of the company. CIOs and IT leaders will need to play a more vital role in critical growth areas as a result.

SEE: Research: Digital transformation initiatives focus on collaboration (TechRepublic Premium)

Many organizations and CIOs look at digital transformation as a one-time cost and don’t actually maximize the value derived from digital transformation. Historically, CIOs managed the IT infrastructure spending of the organization, mainly as a cost center. However, as technology capabilities evolved from a “nice-to-have” to an absolute must-have, many IT organizations still rely on antiquated budget processes without connecting to an expected ROI.

The reason for this gap is twofold. One, CIOs and IT leaders must shift the culture from IT implementation and support to becoming more of a technology investor, with new skill sets such as investment modeling and analysis. And two, CIOs must expand their vision across the entire organization to invest and drive transformation projects and enable growth across functions, divisions and business units.

Find the most effective path

Digital transformation is about much more than just new technology and applications — it’s about investing in a complete transformation of the business, processes, skill sets and ways of working to increase the competitiveness and value of the organization.

There are two key areas that CIOs should focus on. To increase the growth and ROI of technology investments, CIOs must be proactive in developing a digital transformation strategy that includes a sound “investment thesis.” Where do they believe the opportunities exist for transformation to support the business strategy of growth: Expansion or new customers? Are there shifts in the market or industry that open the door to calculated bets on digital initiatives?

Beyond that, IT leaders must be able to connect, articulate and report how IT metrics align with key business metrics. For example, how does application availability impact monthly active users? Are these trailing metrics or forward-looking?

Approach digital transformation like venture capital

CIOs need to transition their mindset to more of a venture capital or private equity executive and approach many technology investments as they would a venture portfolio. PE and VC work in different time frames, driving much quicker decision-making. Therefore, CIOs should adopt the mindset and organizational capabilities needed to rapidly scale the enterprise and create the best offense in a competitive environment: rapid growth.

According to research from ThoughtFocus: “The PE model for the CIO also includes creating value in portfolio companies by increasing customer revenues and driving cost efficiencies with the effective use of technology.”

Industry CIOs must also focus on the outcome of their company’s investments. This is what private equity firms are very astute at — orchestrating financial outcomes — which means CIOs are on the hook for justifying the investments that the company makes and explaining the eventual outcomes in clear terms.

How to view digital transformation like an investor

For CIOs who want to take more of a PE or investor approach, there are four strategies to start now. First, shift your focus from the traditional CIO lens of “keeping the lights on” to transforming the entire business through technology. It’s a subtle difference — business leadership versus business acumen — with a potentially massive impact on ROI.

Second, leverage PE strategies such as “platform/add-on” acquisitions when it comes to technology investments. For example, when investing in IT, you might start with your centerpiece or platform first and then invest in complementary solutions that give your organization an outsize competitive advantage.

Third, focus on digital transformation at the organization level, not just tinkering around the edges in areas such as HR and sales systems. This approach is about investing in the best portfolio of digital solutions to transform how the business delivers value to customers and competes in the market.

Finally, develop an “investment thesis” of digital transformation. Where do you believe the opportunity is in your business and industry that others don’t see or have missed? What portfolio of technologies will position the organization to win? What is the mix of skills and capabilities needed in order to execute this vision?

Daniel Williams is a principal with Pariveda, specializing in digital strategy, implementation and analytics.