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Five key strategies to making savvy digital investments

'Digital' is all the rage in enterprise technology. Here's advice on defining what the concept means for your organization, so you don't risk falling for the hype.

Despite the hype and explosive uptake of digital technologies in all their forms, evidence suggests that the majority of established organizations continue to fall short of realizing the full potential of conventional IT, let alone the latest digital investments. Additionally, industry research suggests that the stubbornly low rate of truly successful IT initiatives has been a consistent theme over the years.

A critical success factor for any IT investment to deliver sustainable business value lies in the continued validity of the assumptions underpinning that specific investment proposal over time. One limitation of the conventional approach to IT investment justifications is that the rapidly evolving IT landscape (not to mention business environment) may invalidate key investment assumptions over time. The question is: How, then, can today's business executives be confident that their proposed IT investments, including the so-called digital investments, deliver sustainable value in the face of rapid technology change?

In attempting to address this challenge, consider incorporating these five strategies.

Understand what digital means for your business

Develop a robust, rapid prototyping business modeling capability that will underpin your technology investment strategies.

The lack of a universally accepted definition of what the concept digital means is the first hurdle that business leaders face. Without a contextually relevant and consistent definition of digital, decision-makers risk being distracted by the current hype and misinformation.

Put another way: What matters is how a particular technology or service contributes to your organization's stated strategies, objectives and goals. These could be driving innovation, disrupting your industry, increasing productivity, lowering cost, and improving enterprise adaptability, agility, customer and user experience, or any other tangible business value driver for that matter.

Takeaway: Define a consistent and relevant definition of digital for your organization, and then extend that information to the entire enterprise.

Clarify how digital investments will foster success

If the realizable business value and risk of IT -- let alone the latest digital technologies -- is either poorly or inconsistently understood at the executive level, IT's full potential will not be realized and sustained.

Indeed, evidence suggests that executives' digital literacy remains low, which in turn lowers the odds that an organization will be able to fully exploit technology's potential. That lack of understanding also increases the risks associated with executives developing a bias toward apparently compelling technologies, without assessing their actual ability to deliver business value.

Takeaway: Ensure your organization's executives and key decision-makers understand the relationship between the business drivers of IT and strategic outcomes.

Look to adaptive strategies

The traditional investment model of "invest now -- generate value in the future" has the potential to be upended in the new world of IT. For example, with the maturing and prevalence of cloud computing systems where anything as a service is possible, users and organizations have the ability to rapidly prototype, select and implement technology solutions that deliver immediate results in certain instances. This shifts the basis of the investment justification from assumptions to hard evidence. The rapid prototyping will generate evidence of success or otherwise, thereby reducing the error rate intrinsic to business case assumptions.

Takeaway: Develop a robust, rapid prototyping business modeling capability that will underpin your technology investment strategies.

Manage shadow IT

Shadow IT is a term to describe the proliferation of locally sourced IT systems without enterprise governance oversight, and presents a specific information architecture and security risk. Despite the risk, astute leaders recognize that shadow IT is often filling a need, and identifying the drivers behind that need could foster innovation in how, where and when technologies could be used to benefit the organization.

Takeaway: Both business and IT leaders should ensure that they develop a collaborative culture supported by appropriate business processes that encourage shadow IT in a controlled environment where its potential to add value to the organization can be rapidly assessed with known risk and cost.

Base IT ROI on intangibles

The typical financial measure of a return on investment includes payback period or internal rate of return. The challenge with defining the ROI for enterprise IT investments is that defining the return and investment with relative certainty is problematic. First, while the direct cash costs of onboarding the technology are usually known with some reliability, the contingent and lifetime costs are less certain. These factors are diverse and often include aspects such as the effort and cost associated with business transformation initiatives, upskilling staff, adapting business governance and risk management processes or cyber-risk mitigation measures.

Takeaway: Ensure that the contingent costs associated with your technology investments are clearly defined, understood and modeled to maximize business value.

The current hype surrounding digital technologies should be a warning to business leaders and decision-makers to keep a strategic mindset. Indeed, the fundamentals of defining the value proposition for any enterprise IT or digital offering investments should not be ignored.

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This was last published in October 2016

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