How to finance the digital transformation?

To be honest, financing the digital transformation of your company is “easy” if you apply at the same time the 3 following principles. ?

1-Courage

In traditional manufacturing companies, everybody understands very well that in order to produce additional cars, airplanes, batteries, etc. you need to invest and build additional manufacturing capabilities before you can produce more. The reasoning is exactly the same to build digital capabilities (or digital factories). Now the challenge is how courageous your executives are? The reason is that at the beginning they will have to constraint existing successful business units and regions to do more with less. The story will be that by deploying digital technologies across the company, you will be able to impact positively the top and bottom line of the various business entities. You will have to be very deliberate on the capabilities that you would like to build to demonstrate as soon as possible to the C-Suite (CEO, CFO) and the business executives the financial contribution of the digital transformation (Start on areas as close as possible to the business).

2-DROI

As a Chief Digital Officer, you have to make sure that your team is obsessed by the Digital Return On Investment. I still remember the day my team published a dashboard for the C-Suite. From one day to the next, our credibility increased 1000x and across the company people were not complaining as much to have to do more with less in order to finance the digital transformation. In addition, we made a deal with the CEO that if due to digital the company will save 100, then 50 will get back to the bottom line of the company and 50 will be re-invested on digital capabilities. This smart mechanism creates a virtuous cycle for the corporate and for the digital teams (all aligned on the same goals).

3-Skin in the game from the Business Leaders

The last principle is very easy, engage the business leaders AS SOON AS possible. We created a 3 phases way to finance the digital transformation in a sustainable way.

Phase 1: Build capabilities

This is the investment phase. You build capabilities in each domain (CRM, Consumer Experience, Connected, Digital Manufacturing, DATA, AI, Employees). At this phase 100% of the investment are coming from the corporation (central funding). The objective of the team is to build capabilities AND at the same time demonstrate the financial value to the business leaders (more revenue, better costs, productivity gains). Usually, this phase will last for one financial year.

Phase 2: Accelerate, Innovate

When you enter this phase, you created capabilities and you started to demonstrate the financial value for the business leaders. If you did your job correctly, the business leaders will ask you to do more, faster and bigger. At this phase, you will continue to grow capabilities in full alignment with the business leaders. To finance this acceleration, you will agree that the business leaders will finance 40% of your digital activities and 60% will come from the central budget.

Phase 3: Scale

This phase is all about scale in everything that the company is doing in each domain. The business leaders are integrating the scaling of Digital technologies inside their strategic plans. They saw the business results you deliver, and they want more, faster. At this phase 60% of the budget will come from the business leaders and 40% from the central budget. Why keep 40% central? Because if you have 10 regions and 10 business units with 40% of the budget you will have the more decisive chair at the table. As such, you will be able to continue to invest on new disruptive technologies.

I had a chance to lead as a Chief Digital Officer a global team following these principles and clearly, they are fundamental to the success of any digital transformation. Spend as much time as needed with your executives to agree on these principles. They will enable you to go far and fast. I was always surprised year after year to see the digital budget increasing drastically not having to convince many people year after year (even in challenging economic times).

Any questions please let me know (if you are interested to understand which type of dashboard make sense happy to write on this topics).