We have previously had a high-level discussion of digital transformation budgets, but as you get ready to actually set the budget, you need a more practical guide to budget strategy and execution. Here are 8 steps that will help you solidify your digital transformation budget.
Part One: Creating a Strategic Budgeting Plan
The first part of setting a digital transformation budget is to define what your strategy is for the year. Here are the 4 steps to strategic digital transformation thinking that will set you up to execute in the coming year:
- Looking at the Business as a Whole: As an IT leader, you can’t just think about how you can deploy the next wave of technology, or get stuck trying to untangle a spaghetti set of legacy integrations. You have to look at the business from end-to-end and consider the digital opportunities that are available to your business in your current market conditions. Think about where the industry is going and what you can do to change the path of your business now to head that direction.
- Don’t be Afraid to Cannibalize: Your digital transformation goal should be to create new markets. You might have to cannibalize your existing business, but that’s not a negative thing to do. Consider how you can move up the supply chain—from a middle-man only company to either a supplier or content producer. Or you can broaden your downstream reach by thinking of your solution as a platform. A platform can help you own the monetization of your market. iTunes doesn’t own music, but the platform created the digital music category and pushed Apple to market dominance.
- Talk to Your Business Partners: Digital transformation isn’t just for IT to lead. You have to go beyond your main finance and operations partners and talk to your CEO, the sales team, marketing, and product teams. These departments are where your best bets for innovative market change will come from.
- Talk to Your Customers: What specific pain points are your customers experiencing? When you understand where customers see their market heading, where they turn for services other than yours, and who the up-and-coming companies are, you can more effectively plan your own digital transformation. Interview your customers, conduct surveys, and analyze support tickets to understand deeply what they are thinking.
These 4 steps will help you set the table to actually plan your digital transformation budget. From here, the final 4 steps focus on what you need to plan for when actually executing the strategy.
Part Two: Plan with an Eye Toward Execution
Getting your digital transformation moving will require a budget focused on real-world execution. The last 4 steps of the budgeting process will leave you in a better position to execute your digital transformation:
- Be Bold, But Start Small: Digital transformation is most successful when you think like a VC—creating a portfolio of small bets with the aim that at least one hits big, making an impact within your organization. Too many companies place the future entirely in one big product push rather than starting several smaller projects and iterating to gain continuous feedback. Starting small is essential to realizing digital transformation ROI.
- Review Your Processes (Especially Customer-Facing): Seeing where current processes can intersect with new technology can help execute digital transformation. For example, how could you make your employee training processes more effective with virtual/augmented reality? Or how could IoT sensors make it easier to collect factory metrics in real time? The point is to commit to digital transformation and make changes rather than stumbling along with broken or inefficient processes and old technology.
- Fill Out the Details for Plans A, B, and C: Finance executives and CEOs won’t be on board with a budget process that has holes in it or doesn’t have hard numbers. To sell your executives on digital transformation, you need a budget that is as tangible as possible with details filled out across multiple plans - Plans A, B, and C. Your details won’t be perfect, but you want to get as close as possible to instill confidence in executives. Several plans are better than ranges of numbers for programs.
- Have a Reactive Fund in Place: The first 7 steps in this budgeting process are responsive—responding to what you’ve seen in the marketplace or technology. However, market innovation is moving faster than budget cycles and your digital transformation budget must be prepared for it. Including a reactive fund in your budget will help you adjust to new innovation in the middle of the year rather than reallocating funds.
If you already have a handle on the key pillars of an effective digital transformation strategy and want to take things a step further, download our latest ebook, Making Your Mark on the Top Line: A CIO’s Primer, and see how you can truly impact your company with digital technology.
Following this 8-step process will put you in a position to really capitalize on digital transformation opportunities. The heart of your budget planning has to include a deep understanding of what you can do to succeed with emerging technologies.
Succeeding with digital transformation isn’t just about setting the right budget—it requires a more holistic, company-wide approach. For more information about the keys to implementing an effective digital transformation strategy, download our free ebook, The Pillars of a Successful Digital Transformation Strategy.