What’s the ROI of Digital Transformation? (And how to measure it)

Less than 1 in 3 companies reach their digital transformation objectives.

What seems like a staggering data point makes sense when you learn what meeting them requires—leadership buy-in, a hefty financial investment, a reliable and capable staff, and a deep understanding of customer needs, to name a few non-negotiables. 

With such low odds, why are 80% of companies still planning to invest in a digital transformation?

Because if you get your digital transformation right, you can significantly improve the digital customer experience, streamline workflows, and enjoy a high return on investment. 

Done right, the reward is worth the risk.

In this article, I’ll share digital transformation success stories from two well-known companies, and what they did right. I’ll also share why tracking what you can measure is important (but not everything) when it comes to calculating your true ROI. 

Target and The New York Times are two companies whose digital transformations checked the right boxes and provided a tangible ROI. 

Here’s how they pulled it off.

In 2013, a data breach jeopardized the personal and payment information of more than 110 million Target customers. 

But through an extensive digital overhaul, they managed to go from a 40% drop in Q4 profits in 2013 to a 50% increase in their stock price over the last six years. This didn’t happen overnight—they strategically planned, pivoted, and innovated. Here are three major events that contributed to their success: 

Next up, The New York Times.

Flashback to 2013 again. It’s been two years since they introduced their paywall and they now have four main revenue streams. A step in the right direction, but there are a few issues.

Print advertising and digital advertising are declining, print subscriptions are stagnant, and digital subscriptions (what everyone was banking on to save the day) just began to plateau.

Eight years later, they nearly 10x’d their digital-only subscriptions from 600,000 to over 5.7 million and quadrupled their digital-only subscription revenue from $113M to $460M. 

Here are four tactics they used to achieve this:

Despite being two completely different companies, Target and The New York Times’ digital transformations had three things in common:

Crisis management requires quick pivoting. But the rewards Target reaped from its digital overhaul (prompted by the data breach) during the pandemic weren’t a quick win. They laid the groundwork three years prior with a $7B investment to revamp their supply chain, digital, and in-store experiences. 

The NYT experimented rapidly with product development. But they took their time (six months, to be precise) building their 14-person executive committee and finding journalists who could write and code. 

Target replaced hundreds of IT projects with just a few high-priority digital initiatives to jumpstart their digital transformation.

In 2015, the NYT leadership team outlined their digital roadmap with their Project 2020 plan, clearly defining their priorities and objectives, plus specific goals and strategies to achieve them. Successful execution required this explicitness, as did support from higher-ups. 

Target’s DriveUp program was both the MVP of the pandemic and a major piece of their digital transformation. However, aversion to shopping in crowded stores (especially with young children) didn’t start in 2020. Target knew about (and addressed) this pain point years prior when it launched its DriveUp program in 2018.

For The New York Times, leveraging customer data to learn buyer behavior drove their subscription increases. But this approach was just one piece in an overall strategy that favored creating content people were eager to pay for versus relying heavily on advertising dollars for revenue. 

​​Metrics don’t matter if you’re not using the right ones. The best way to figure out what those are is by first outlining what you want to accomplish with your digital transformation project.

Lack of clarity and specificity at this stage may cost you. So be sure to take your time and remain honest and realistic when establishing your digital transformation focus. 

Here are two examples of clear digital transformation aims:

Notice how each company focuses on both optimization and innovation. This is key.

To be clear, optimization on its own can drive results. Just ask Hasbro and Unilever.

But the true digital transformation champions are those that innovate and respond to the customer’s ever-changing demands through a new tool, product, or even a brand new business.

When defining success for your digital transformation, keep in mind that triple-digit percentages may not just be impossible, but they may not be necessary to drive meaningful change. 

Digital transformations can pay dividends, but they’re not immune to the law of diminishing returns. It’s absolutely possible and not uncommon to overdo a digital transformation. 

Now it’s time to determine your key performance indicators (KPIs) or how you’ll measure the success of your digital transformation.

Paul Proctor, a VP Analyst at Gartner, suggests keeping it simple, developing between five and nine, and not using a hierarchy.

According to Proctor, the most effective metrics have these five qualities:

Clarity and a healthy dose of realism are critical at this stage as well. But I want to add another important component: staying in your own lane. 

It’s beneficial to objectively study other successful digital transformations (like we’re doing here), but it should be just that.

Seeing another company in your industry nail their digital transformation can be inspiring. Assuming you can replicate their success by just doing what they did, however, is dangerous.

What worked for one company, even if they’re a direct competitor, may not work for yours. 

After doing your homework, put your blinders on and keep your focus on your customers and employees.

What gets measured, gets managed. In order to effectively measure something, there must be parameters and consistency. 

It can be a fine line between patience and knowing when to cut your losses, especially when higher-ups are demanding results last week. 

That’s why it’s important to come up with agreed-upon deadlines ahead of time that answer the question: when do you need to see an ROI on your digital transformation to know if it was worth it?

Different objectives have different metrics, so they also need different time frames, even if all the digital transformation initiatives begin at the same time.

Consider a real estate company doing a basic digital transformation. We’ll use an SMB to keep the numbers simple, but the principle is the same for all businesses regardless of their size. 

After years of relying on word of mouth, a real estate company with ten employees is ready to clean up its processes and scale by leveraging SaaS products (like a CRM) and building an online presence (optimized website, landing pages, organic and ads, social media, etc.).

Here’s a quick breakdown of their potential costs:

SEO traction in a competitive niche can take years, but smaller businesses may not have that kind of time. A 3-month deadline for impactful results from SEO would be shooting yourself in the foot, whereas that’s about how long it takes to start seeing results from Google Ads, for example.

To split the difference, let’s say this company set the deadline to see an ROI of 18 months after breaking ground. 

That means, after a year and a half, the above efforts would need to bring in leads valued at $178,250 or above:

$14,000 (initial one-time investment) + $109,500 (monthly investment x 18) = $178,250

In a perfect world, the story would end there. Except not all leads are created equal. A high-value lead that’s not a fit is not as valuable as a lower-value one that is. 

In this instance, and for most digital transformations, establishing “check-in” deadlines in addition to the main one to assess the quality of the leads would be prudent.

Ambitious projects usually take longer than expected. The issue is in the expectations, not the inevitable bumps in the road. 

Add in buffers for things like learning a new project management tool, onboarding a new hire, testing a new website for bugs prevents minor issues from becoming roadblocks to meeting deadlines to avoid feeling blindsided by events that are par for the course.

Additionally, take the time to keep track of your processes in company-wide documentation, even if they are always evolving (thank you, Airtable), to keep everyone on the same page, get new teammates up to speed, and avoid reinventing the wheel.

This practice packs the added benefit of revealing gaps, bottlenecks, and inefficiencies that you wouldn’t see otherwise.

Digital transformations aren’t linear. There can be setbacks and detours that may look like an absence of progress when really it’s just part of the process. 

Hitting the sweet spot between patience and staying true to your pre-determined deadlines while not being afraid to try something new is a byproduct of clear and realistic KPIs and investing in a well-seasoned team.

They also don’t happen in a vacuum. Agility, humility, and remaining open to feedback and new data from other departments, customers, or new developments within the industry while planning and during your digital transformation is imperative.

Done right, you may end up with a strong ROI when it comes to the hard numbers and outcomes. 

But regardless of your opinion of what’s on the spreadsheet, it’s also important to keep tabs on your brand equity. 

What are people saying about your company when you’re not in the room? 

What are they saying about your competitors?

What aren’t people saying about you?

The world has moved online. Monitoring channels and discussion boards such as Reddit, Quora, and Glassdoor and social media platforms like LinkedIn and Twitter, conducting surveys, investing in focus groups, keeping an eye on search volume for your brand, and media mentions are helpful ways to answer these questions.

However, many conversations still happen where cookies, tracking pixels, or UTM tags can’t find them. Moreover, word of mouth is powerful.

That means you’ll have to make an effort to build relationships with customers and employees, develop ways to consistently source anecdotal data, and put the time in to analyze it. 

Many companies shy away from this type of qualitative data gathering because it’s hard and it takes time.

This is a mistake. If your company focuses mainly on quantitative ROI as a signifier of success or failure, your otherwise successful qualitative results that are adding value can get overlooked. Worse, management could pull the plug if they aren’t seeing traditional results fast enough. 

To ensure both quantitative and qualitative ROI is recorded, reported, and taken into consideration, track what you can’t measure alongside what you can, and make the case for both.

Most digital transformations fail. But yours doesn’t have to. Take the time to establish well-defined objectives followed by clear ways to measure them that are tailored specifically to your business goals and tied to objectives. 

You will encounter obstacles, and new information will come to light that can impact the trajectory of your digital transformation. Make sure your project plans are flexible and generous enough to allow for these things.

While important for proving a business case and getting buy-in from leadership, relying solely on quantitative data to gauge success can backfire. Feedback from current and potential customers and employees can provide valuable real-time insight that numbers can’t communicate.

A foundation combining the right mix of people, tactics, and tools is a fundamental step toward digital maturity. And a mature digital customer experience will pay for itself many times over.