Benchmarking your digital transformation journey can help you learn and benefit from your competitors.
Digital transformation is perhaps one of the most widely recognized and bandied about terms in today’s business world. While we use it freely, many may not even be sure what it really means. As a follow-up to my earlier blog where I shared insights into five key steps to help businesses seamlessly embark on their digital transformation journey, in this blog I’ll focus on the second step, and take a deeper dive on the importance of benchmarking.
Benchmarking refers to the process of comparing one’s business processes and performance metrics to industry best practices from other companies. It looks at your business compared to others within your industry to see how it stacks-up in terms of efficient processes, profitability, and core technology. For any organization embarking on a digital transformation, having a process in place that benchmarks your business over time can prove financially beneficial.
While it may be tempting to assume that the ‘grass is always greener’, the reality is that undertaking a benchmark assessment of where your business stands in comparison to your industry cohorts can help you identify whether you even need to embark on a transformation. For example, if your assessment reveals that your business already employs more sophisticated technology than your competitors, has more efficient processes in place, and is more digitally-fluent in customer engagement, embarking on a digital transformation may not be in your best interest right now. That’s because as businesses adjusts to new digital transformation processes they can experience a temporary decline in output and productivity which can subsequently impact profitability.
However, should a business be in the position where it appears to be lagging behind competitors in terms of technological proficiency, a benchmark process can help provide valuable insight into how competitors are faring on their digital transformation journeys, and provide information regarding what areas you should or should not consider adopting. Comparing your transformation roadmap to your competitors, who have already embarked on their digital transformation, will provide you with real-life insights into what changes worked for them and what ones didn’t. Understanding what changes benefited your competitors, will tell you where to focus, what to avoid, and whether there may be potential gaps in your digital transformation strategy. This will help you avoid pitfalls and wasting money, as well, it will help you stay one step ahead of the competition.
Comparing different approaches will help you proactively identify potential hazards that could delay your transformation journey. What’s more, benchmark findings can facilitate your ability to respond to emerging opportunities or threats that you may have previously ignored. For example, as of 2017, no insurance company had managed to complete a full digital transformation, but there were a few that were making progress on their journeys. As a result, many executives across the industry began to realize that a successful digital transformation could ‘give birth to entirely new business models that shake up sectors, leaving companies that fail to adapt struggling to survive’. These findings led many insurance companies to embark on digitally transforming their businesses.
Digital transformation is a comprehensive process that can require significant investment. Depending on how outdated business systems and processes are, some leading consultancies suggest that upgrading an IT system could mean spending double the amount over a five-year period. And, even with that kind of significant investment, the business is likely to see in a drop in profits as it works through the initial impact of the digital transformation. More importantly, however, when a digital transformation is needed and not carried out, there is a serious risk to revenue in the longer term.
All of this to say that before committing to embarking on any digital transformation journey, it is imperative that businesses undertake a comprehensive benchmark assessment not only to determine whether it is required for their business, but also to learn from the mistakes and the successes of their competitors. After all, there is no point in re-inventing the wheel.
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