The ROI Challenge Interview With Fergal McHugh, Arekibo
With five weeks to go until our "Digital Success: Meeting The ROI Challenge" event on the 7th of November, we have interviewed our speakers to chat about their views of what digital ROI is, their connection to digital transformation and how they measure ROI. Starting off we have Fergal McHugh, Head of Strategy at Arekibo.
Tell us about yourself?
I am Head of Strategy at Arekibo and I help our customers plan out and deliver their digital strategies. I advise on all aspects of the digital journey, from developing business cases, to selecting products and vendors, to considering the impact of adopting new technology across the customer organisation. I also spend time thinking about how digital can be done better and bringing together people who have views on that, so holding an event like this is a good way to do this.
Why is there so much interest in Digital ROI?
Well it’s something that people are getting challenged on. Any activity that involves investment is going to provoke questions about what kind of value that investment brings to the organisation. And digital is no different in this regard. We collectively need to know if we are going in the right direction and that what we are doing benefits the organisation. And of course, the more precise form of that question is “are we getting a return?”. All of this is very sensible — where it gets challenging is when we think about what a good “return” looks like for, how we qualify and quantify success in these cases. So, it depends on what one thinks Digital ROI is.
What is Digital ROI?
Well straightforwardly, Digital ROI is the return-on-investment on an organisation’s digital activities — the ratio between the resources we put into our digital activities and what we get back out of them. But is easier to ask the question than answer it. Once we start thinking of ROI from an organisation-wide perspective we come against problems about how to make different concepts and metrics work together. The way I see it ROI in a digital context has broad and narrow meanings. The narrow meaning might relate to a specific range of activities, for example digital advertising. While demonstrating proven ROI in the narrow sense comes with a number of challenges, conceptually it is relatively simple. The broader sense of ROI relates to the expected return from an organisation’s overall investment in digital. In this case we need to blend different perspectives, and tie together activities with different time horizons and create a birds-eye picture of how we are doing.
And organisations find this challenging?
Yes, and with good reasons! For example, the contrast between the return from a specific digital campaign which might run over months, and the introduction of new digital platforms and associated ways of working which might take 2 years to mature. And so, if we want to answer the questions about how we are doing overall, we need to find some place these activities in some kind of meaningful relationship to each other and to what we are trying to achieve from an organisation perspective.
These activities with longer maturities. Are they connected to digital transformation?
Yes. An organisation’s more expansive and longer running digital activities are more than likely going to be organised as part of a programme of digital transformation. Something specific about our current situation and our relationship with digital is that most organisations experience digital as change — it is new, and they are not always read for what it offers — and so being able to harness digital and get a return is transformational.
What does this mean for people tasked with digital transformation? How should the questions about ROI shape what they are doing? Should they just be asking for the time and space to breathe and experiment without having conversations about return?
I can see the appeal of that when you are in the thick of things and it seems like pressure is coming from every direction! Nevertheless, it’s important not to underestimate the positive role that can be played by constraints. Any specific initiative, bringing a new product, or service or experience to market, will have to balance a range of important variables: budgets, timeframes, customer expectations, the current state of the market etc. And we are never going to be successful if we think we can run free of these constraints. A budget investment in a product is wasted if the product does not meet user’s needs, the opportunity for a new market intervention may disappear if the product takes too long to deliver.
So, conversations about return can help an organisation focus and deliver?
Yes. Thinking from a ROI perspective puts constraints on how spend our time and money on. So even on longer-running, less tangible activities — activities often run under the banner of digital transformation — it is important to plan and execute them in a ROI sensitive framework. In fact, it is perhaps more important to since what is at stake in terms of investment, reputation and market standing is often much higher.
A worrying trend is that digital transformation programmes have — for some organisations — become a kind of junkyard where things that don’t fit elsewhere are thrown in together. Of course, this is not real digital transformation and value-oriented mindset can help make sure that programmes don’t degrade and do the opposite of what they were intended to do. Again, this is more easily said than done and having a value-oriented mindset is not enough. We also need concrete ways of measuring and reporting on that value.
How do you measure ROI?
I think answer to that question goes a lot deeper than specify a formula and then applying it. But nevertheless, as I said earlier, we do need to end up with something concrete and actionable. It really involves taking a birds-eye perspective of what you are trying to do on digital challenges and this needs to span a few different dimensions.
So, it seems obvious but one thing you need to do is get a sense of what you are spending, or what you plan to spend. There are the channels you are using and the products and services you have deployed on those channels and the cost of these. But you also need to be looking at the programmes and patterns you use to deliver those products and services and figuring out the various visible and sometimes invisible costs involved. For example, when you look at organisations and they products they use for digital it can be surprisingly hard to get an accurate sense of the total cost of ownership for those products. There is often a focus on things like licensing, implementation and customisation, and so forth and no attention at all to the cost of using and maintaining the product, and more importantly the cost of really adopting, make that product really work for your organisation. It depends on the way an organisation is set up, but you might have a focus on how much you are paying for a product subscription and no idea about time investment, say by a marketing team, in learning how to use it.
Something we are seeing a lot more of today is the requirement for a fluid integration of digital with the way we do our jobs. And often we don’t have models for that — and so we don’t necessarily see the time and monetary costs that relate to inefficiencies in those areas. And there is a straightforwardly human cost as well — if we are not thinking about the impact of digital on people’s roles, we might be creating efficiencies in one place, but are damaging team integrity and effectiveness, and even contributing to higher training and recruitment costs.
And when you are able to accurately assess the “cost” of digital, what options are there for figuring out the return?
Well as I said earlier, figuring out ROI on individual activities is primarily a technical challenge, not to dismissed, but far from impossible either. Putting individual ROI metrics together into a more holistic view that is the interesting challenge. Useful here is the idea of the strategic and tactical dimensions of how we use digital. Tactical uses of digital are usually straightforwardly means-end and they are reasonably discrete. I can design a digital campaign, give it a narrow focus, do the technical work in making sure I can gather the information I need to get an understanding of how it is performing. And If I keep a clear sense of my investment, recording all of my inputs in terms of finance, time etc and keep my objectives precise and narrow — say acquire 100 new subscriptions — then I can effectively measure the return.
And the strategic uses?
They are different. Here I am often going to be refining my objectives as I go, I may be constantly re-calibrating my investment and I might be seeking out a range of rather different outcomes. So, if I am investing in a new enterprise digital experience management product, I am aiming for lots of different things. I want my customers to have a better experience, but I also want to reduce incursion on my call centre, empower my marketing staff by making it easier for them to their jobs, giving them capabilities in automation and so for. I don’t have the simpler perspective I get with the tactical case.
So, these ideas of strategic and tactical pair up with the narrow and broad conceptions of ROI I brought up earlier, and to get the broad to work with the narrow we need a sort of common language. For this we need to build the right models and that is something organisations have to do for themselves, to get the right fit. I talked earlier about digital transformation. In my experience building out these models in your organisation are transformational in their own right, because you often come out the other side with a different understanding of what ROI is and how to measure it than you began with. And great deal of the difference involves broadening out our conception of ROI so that it includes not just short-term financial return but a range of other indicators that also impact the organisation’s bottom line, even if it is at a slower pace and in a less obvious way.
Are you interested to find out more? Fergal will be discussing the importance of making and valuing connections on the 7th of November at our "Meeting the ROI Challenge" event in the Marker hotel.
Interested in attending? Register your interest today.