The growth of digital
It’s clear that now, more than ever, digital technologies offer huge potential for organisations looking to improve the day-to-day running of their operations as well as drive long-term business performance. Armed with effective digital strategies, organisations across all industries have been able to achieve significant process efficiencies, expand their reach globally and tap into new revenue streams, with a recent Salmon and Forrester report showing that 55% of organisations classed as ‘Digital Experts’ (those demonstrating a strong grasp of digital strategy, organisation and technology) have achieved increased competitiveness as a result of their investment.
However digital technologies have also led to the creation of radically new business models and service offerings that, while providing great opportunities for those organisations able to rapidly take advantage of new advances, can present a substantial threat to established brands operating in more traditional, slow-moving markets.
A new way to budget
There’s an imperative, therefore, for organisations to evolve their approach to digital, and we’re seeing initiatives such as digital transformation programmes grow in popularity as a result. Nimbus Ninety’s latest Digital Enterprise Trends Research reflects this movement, reporting that 88% of organisations are undertaking or preparing to undertake digital transformation, while a new Gartner CEO survey has revealed that half of respondents expect to see either substantial digital transformation in their industries, or for their industries to be almost unrecognisable within five years.
Of course, this means that the way digital initiatives are budgeted for is shifting too - and with the rapid rate of change in this environment, it’s likely that evolution will continue apace.
So let’s explore some of the differences between traditional digital budgets and those models that are now emerging, as well as looking at what may lie in store, to help ensure your budgets remain aligned with current trends and demands for the greatest chance of success.
While once it was only the IT department that was investing heavily in digital technologies, these days departments ranging from marketing and customer support through to finance and operations are looking to take advantage of the latest in digital. Consequently, not only is digital growing as a proportion of an organisation’s budget but it’s doing so to such an extent that many argue the concept of a distinct ‘digital’ budget has become outdated. Indeed, 98% of CMOs already agree that traditional and digital marketing disciplines are merging, according to Gartner.
Looking ahead, perhaps we’ll see digital transformation budgets follow the same path, particularly as the investment allocated to this area is already growing at an incredibly rapid rate. In fact, IDC predicts that worldwide spending on digital transformation technologies will surpass $2 trillion in 2019, and some industry commentators are even recommending that up to 1% of an organisation’s entire revenue be invested back into digital transformation initiatives.
Typically, budgeting has been managed on a departmental basis, with the financial director approving a high-level organisational budget that is shared out among the various teams. However, as digital becomes more deeply embedded throughout the entire organisation - touching every team, region and customer experience - this model is simply no longer viable. The planning process must instead be undertaken in a collaborative way, to ensure that the final budget addresses the needs of the entire organisation and supports a holistic, joined-up digital strategy that has the customer at its centre.
Freed from traditional departmental budget streams, the way is clear for organisations to structure budgets differently to focus on delivering value rather than just features or functionality (and thus better reflect real-world challenges and opportunities). For example, a specific customer journey may have a dedicated budget, encompassing all the various touchpoints, tools, and departments or individuals needed to facilitate the achievement of this journey and any related goals.
As a result, alternative measures of success are emerging that serve the whole organisation (such as efficiency gains over existing processes or improved analytical insight) rather than a single department or function (as number of features delivered or output generated might).
Now: test and learn
It has been common for budgets to be agreed in advance, without those signing off on the programme of work possessing a full understanding of its scope. However, this approach can lead to projects failing as critical requirements are overlooked, and so cannot be delivered. To mitigate this risk, then, many organisations now choose to commit a proportion of the budget to initial discovery activities, validating requirements before pursuing any single approach or solution. This also facilitates a more ‘bottom-up’ form of budgeting that starts with the work required and shapes the budget around this, rather than reverse-engineering projects to fit to already allocated budgets and timescales.
An alternative model that organisations are increasingly embracing is to budget for dedicated innovation projects and other R&D activities. Allowing teams to explore new ideas without necessarily having to demonstrate return on investment, this approach means that a business case can be proven in a low-risk environment, with successful initiatives then going on for wider roll-out.
While the delivery of digital solutions is increasingly iterative (seen in the growing adoption of Agile ways of working, for example), budgets often still adhere to fixed annual cycles that are at odds with the culture of flexibility and responsiveness organisations are trying to foster elsewhere.
Some organisations have responded to this challenge by running shorter budget cycles twice or even four times a year, as well as tracking against goals that can be more immediately realised - such as conversions and engagement - as well as longer-term financial performance. Other budgeting models advocate allocating set investment to overarching ‘epics’, while allowing more granular decisions as to where that investment is directed to be made on the spot by those individuals that are more intricately involved with the project.
Balancing the imperative to react quickly to new opportunities with the necessary governance demanded by senior stakeholders, it’s likely that we’ll see more and more organisations adopting these (and similar) approaches in future.
In line with the shift towards digital transformation and Agile techniques, discrete digital projects with a clear final launch date are giving way to programmes of continuous improvement, and today digital budgets may be broken up to cover the various different stages of a single initiative. Solutions may be initially launched in beta, for example, so that feedback can be gathered in advance of future iterations, or a new approach could be trialled with a pilot team to confirm its validity before being rolled out across the entire organisation.
In a rapidly-evolving digital landscape, the way in which you define and allocate your budget can have a significant impact on the ultimate success of your initiatives. Here I’ve covered just some of the trends you should be aware of right now, but what’s most important is that you continue to review and refine your processes as you go. Enabling you to respond to changing requirements and new advances, it’s only by doing this that you’ll be able to take advantage of the latest tools and trends, and so thrive in the digital age.
For more information on budgeting for digital transformation, and the hazards that can trip you up along the way, download our white paper on the subject, and check out our Digital Transformation Toolkit where you can find further resources.