5 Steps to Value Proofing your Digital Transformation Program

Nearly $200 Billion and climbing. That’s how much utilities and energy providers have spent thus far on digital transformation. Current projections are for that to more than double to $425 Billion by 2030 given the pace of industry transition and the new opportunities and challenges that are emerging with it.

As the magnitude of investment increases, investment committees, boards, and regulators alike are placing enormous pressure on utilities to demonstrate (and ideally quantify) the value those investments are creating---a connection utilities have traditionally found difficult to establish.

Value Paradox

Over 70% of industry executives now point to their ability to define, measure, and realize value as being “mission critical” to the success and sustainability of their digital transformation programs, while at the same time acknowledging this to be one of their biggest weaknesses.

This “value paradox” is not unique to the utility sector. At the end of 2023, other industries with mature digital transformation programs, e.g., banking, were realizing less than 30 % of promised value in terms of cost savings and revenue uplift.

It’s unlikely that this level of ROI will be sufficient to sustain digital portfolio investments at the magnitude we’re now seeing, particularly in utilities where regulatory and public pressure on prudency and oversight is more prevalent.

It’s for these reasons that leaders need to rethink how they define, measure, and deliver tangible value from investments across their digital portfolio. Securing the funding and support needed for the long haul will demand deeper clarity and transparency into the specific sources of value and risk, along with more systematic approaches to investment screening, optimization, prioritization, and closed-loop management of portfolio performance.

Understanding the Disconnect

For some parts of our business, establishing the connection between an investment and a tangible business outcome has been easy to discern, particularly in the operational domains. Replace an asset, and you’ll likely see fewer failures, greater efficiency, etc. Add capacity to a call center, and response times will go down. In these cases, the line of sight between investment and value is intuitive and unambiguous.

In the digital transformation and innovation space, however, establishing that “line of sight” can be challenging. These investments have long been viewed as “enablers” of change, rather than the central actors accountable for realizing the result. The more indirect the impact, or further removed the supporting technology is from the operational activity, the harder it is to establish accountability for the business outcome. Such is the case with many investments in today’s digital portfolios such as advanced analytics, deep learning, AI, blockchain, and a litany of others like these that are geared toward generating intelligence, situational awareness and optimized decision making. All valuable contributions, but still quite distant from where the action occurs and value manifests.

Utilities can accept that ambiguity or look for ways to strengthen the connection between these enabling technologies and the value ultimately produced. One thing is clear---without a clear line of sight to value, it will become increasingly difficult to justify and sustain investments in technologies that are essential in future-proofing our organizations for the next phases of industry transition.

Creating Digital “Line of Sight”

Creating a seamless line of sight between technology investments and value realization (regardless of investment type) depends on our ability to clearly articulate what we mean by value, and recentering our organization and portfolio around that.

First, we re-ask some basic questions about every project within the digital portfolio. What does success look like? Can it be measured? How long will we have to wait for it to happen? And, specifically, how will that value show up when implemented in its operational settings.

From there, we put in place practices to ensure that we stay true to those measures as we approve/defer investments, optimize the portfolio, deploy initiatives and manage performance. We track outcomes early and often, course correct/rebalance where needed and declare success when value is realized.

What we are establishing is a “new way of working” that will add rigor to your investment planning process, produce alignment, drive accountability, and create a sustainable pipeline of value for your digital portfolio.

Here are 5 things utilities can do now to bring a more “value centric” posture to their portfolio, open “line of sight” between investment and business results, and proactively manage these value commitments over the investment lifecycle.

1. Defining Digital Success

Take a look at every project in your portfolio, and challenge your project leaders with several key questions:

• What are the goals of this initiative?
• WHAT DOES SUCCESS LOOK LIKE?
• How will we measure it?
• How long will it take to materialize?
• WHERE AND HOW will success of that investment show up for the business in the course of its daily operations

Be thoughtful and specific, and ask your team and internal customers to wade in. Challenge yourself to go beyond the instinctive answers.

Let’s say your project is designed to produce added intelligence on assets to support a grid resiliency strategy. Rather than sticking with the “what” (new data, insights, or situational awareness), focus on the “how” and “where” that will result. In this context “success” might involve things like eliminating specific constraints on high-risk feeders. “Success” for

an AI chat capability in a customer portal might mean that more interactions are completed successfully by the “AI Agent” without escalation, callback rate is reduced, or that CSR’s using an augmented/agent assist tool deliver faster resolution and higher satisfaction.

As you do this, you may find that some of your answers are misaligned or incongruent with your organization’s stated strategy, or that you don’t have enough strategic guidance from the organization to be certain of the outcome. That is actually a ‘good find’ at this juncture, as it can catalyze the conversations needed to gain clarity and bring an investment into alignment with your organization’s strategy and goals.

2. Targeting Specific Outcomes & Results

Once key outcome areas have been defined, we now need to focus on the metrics we will use to quantify those outcomes and ultimately track value. We want to have as little ambiguity in the outcome as possible. As the old adage goes, ‘we can’t manage what we can’t measure’.

We also need to establish a baseline upon which we can understand trends/gaps and discern the degree to which the investment will impact the result. Where are we today? How much can this technology we are implementing move the needle? How long will that take?

This is where the rubber meets the road in terms of value realization, and what differentiates sustainable digital initiatives. It illustrates and quantifies what success looks like and reduces the subjectivity and waste that plagues traditional IT investment review and approval cycles.

3. Optimizing/ Realigning the Portfolio

Armed with clear definitions of value and the degree to which each initiative will contribute to those outcomes, you now have a great foundation to begin “optimizing” the portfolio. This is more than a ‘pass/fail’ on project-specific ROI. It’s a collective analysis of the portfolio---the value of projects relative to each other and the portfolio as a whole. It considers project dependencies, risk of investment deferral, and implications for the overall portfolio.

Based on this objective assessment, utilities can easily simulate different funding levels, project configurations, and investment horizons to develop the “optimal” portfolio that maximizes value and minimizes risk---all relative to the goals we’ve defined above.

This framework further reduces the subjective variability that traditionally muddles investment decisions. It grounds the conversation around tradeoffs and risks of deferral, creating stronger stakeholder commitment and higher confidence in the company’s ability to realize value.

4. Aligning and Enrolling Stakeholders

With the optimized portfolio in front of you, you’re ready to enroll the organization and its stakeholders in the specific outcomes that grounded each investment decision and the integrated portfolio plan.

The goal here is to ensure that the outcomes and results we’ve aligned around are translated into the fabric of the organization---from portfolio managers to project leaders and staff.

We next factor in the desired outcomes, results, and value indicators for the selection criteria, SLAs, and performance contracts we’ve established with technology vendors and service providers. This helps develop and sustain trust between the organization and its partners. It creates transparency in the outcomes and commitments promised during selection while affording vendors the opportunity to showcase their contributions in a more measurable and defendable way.

5. Managing the Digital Program

Building on that alignment, we then establish a management structure for the portfolio. We deploy our DIGITAL DASHBOARD and PROGRAM SCORECARDS---a multi-level view of portfolio and project outcomes, progress and activity, all linked through a seamless “line of sight” back to our digital strategy.

As with any business priority, management of the digital portfolio is dynamic and evolving. Plans change, priorities get accelerated, projects overperform, others hit stall points along the way.

Using the Digital Dashboard and scorecards described above, we continuously monitor the progress of our investments---activities, outcomes, schedules, and any other implications to the value and risk profiles of the investment. That way, we can reprioritize resources

deliberately in a way that is objective and transparent to the business, allowing us to drive projects methodically across the finish line and reward successes along the way.

2025 will be another banner year for digital transformation. We’ll see more record spending in all corners of our digital portfolios. Replacement and upgrade cycles will continue to accelerate. New application areas will mature and move mainstream. AI use cases proliferate across the industry at a breakneck pace with applications we couldn’t have imagined just 12 months ago.

We will see more participation and broad-scale adoption across the industry. Businesses will no longer be able to sit on the sidelines. Staying relevant will demand heavy investment that will stretch the capacity of large and small utilities alike. The questions we would pose to any utility today are:

• Do you have the full picture of value needed to secure approvals and fund your program at the right level?
• Do all stakeholders understand the specific outcomes and results their projects are designed to produce for the business?
• Do you have the tools needed to reliably assess and optimize investment tradeoffs and risks across the portfolio?
• Do you have the reporting and management processes in place to hold project leaders, stakeholders, and vendors accountable for their contributions to outcomes and key results?

We’ve provided a high-level picture of some steps utilities can take to begin answering these questions and lay a foundation for the type of value-based portfolio management we believe is needed to sustain your gains and build for the future.

We’d love to hear what you think. Whether you are just starting out, or well into your digital transformation journey, BHC Global can help your program drive and demonstrate the quantifiable value needed to solidify alignment, accelerate success of your program, and sustain it for years to come.