In today's rapidly evolving landscape, digital initiatives have become pivotal to remain competitive, but companies struggle to measure the potential impact of their efforts because of a lack of consistent frameworks and few benchmarks that provide an accurate apples-to-apples comparison.
For CEOs and COOs, ensuring digital initiatives contribute to shareholder value remains paramount. In fact, we at Cognite have found that having value as a North Star ensures that the stakeholders of a digital initiative are aligned and laser-focused on the highest impact and highest value business opportunities, which can create tremendous clarity and excitement throughout the journey.
"Only what gets measured gets managed."Peter Drucker
However, we have also seen that for many companies, making a direct link between deploying a new digital program and the shareholder value it is intended to generate can be a struggle. So, after countless hours spent with customers, here's the blueprint for success that helped Cognite uncover more than $1bn in customer value during 2023. It makes it easier for executives to make informed decisions and deliver on their initiatives.
Identifying value:
- The majority of companies already have a long—very long—list of potential use cases they could deploy, but rarely has it been prioritized for feasibility and business impact.
- Companies need to combine executive-level imperatives with a true bottoms-up approach that combines the overall strategic direction of the company with improving the execution ability of their frontline personnel.
- We at Cognite often see that allowing operators to tell stories about their day-to-day challenges enables them to start crafting solutions to the larger problems the company faces and that can generate significant business impact. Using tools such as the value map (below), Cognite works with customers utilizing the value map to help articulate the underlying value drivers, tying them to shareholder value creation.
- Customer example: Cognite worked with the frontline operators of one of the worlds largest LNG terminals to help them craft a prioritized roadmap which centered around replacing a Sharepoint based way of working with direct access to data in the field to enable more effective operations and maintenance.
Figure: Example value framework specific to manufacturing. Cognite has developed domain specific ones across upstream, downstream, chemicals, grid, power generation, etc.
Measuring Value:
- Pinpointing value is an art form, not a science, and can feel a bit scary at times. It requires trust and a bit of a leap of faith, but by gathering a small group from operations, finance, and strategy, companies can articulate the key metrics that they are trying to improve in their business, these typically sound like, “an X% increase in production, hours saved in a turnaround, or productivity for subject matter experts measured as the number of hours saved”.
- With the help of benchmarks, companies can then begin to assign potential improvement potential to each initiative and ultimately arrive at an EBITDA improvement number.
- Most of the time, operators have a really solid understanding of how much they can realistically move the needle. More importantly, just doing the exercise is important because, even if you are off by a magnitude, companies can still get a feel for whether they are looking at pennies or dollars.
- Customer example: Cognite worked with a large Canadian chemicals company to build a bottoms-up business plan by estimating the total EBITDA impact based on the estimate for each solution deployed. Taken against the total cost of investment (Cognite Data Fusion license, implementation costs and internal spend) they were able to arrive at an estimated ROI of the digital initiative, which they could compare against other investment programmes at the company.
Communicating Value:
- Cognite has combined a typical management consultant toolbox and with our domain expertise and operational knowhow to ensure that the value companies identify for their digital initiatives also gets communicated in a way that executive stakeholders are familiar with.
- Often, this can be as simple as a clear graph with a breakdown of a business plan in an easy-to-understand format with an emphasis on the EBITDA impact and ROI of the proposed digital initiatives.
- Providing clear and well-articulated ROI estimates helps the executive management team prioritize strategic initiatives across their business, whether that is investing in new machinery, hiring for a new function, or deploying digital solutions.
- By speaking the Board's language and emphasizing not only the transformative impact on operation0,s but also the attractive returns on investment to shareholders, we have found that the likelihood of getting to yes increases dramatically.
- Customer example: A forward thinking Chief Digital Officer at a large Energy company struggled to convince her CEO that the company needed to invest considerable more resources into their digital programme. By putting together a succinct presentation with a clear investment ask and the expected ROI front and center, she was able to ultimately gather the necessary support.
Tracking Realized Value:
- Continuous monitoring and evaluation are crucial for ensuring that digital initiatives are delivered with the intended results. By tracking key performance indicators and real-time data analytics, companies can course-correct as needed and make sure they maximize value realization.
- Tracking realized value, however, is not an easy exercise and has to consist of a triangulation between closely monitoring usage (measured as e.g., monthly active users) along with interviewing frontline employees to pick up stories from the field and putting out surveys to hear how a broader group of employees see their day to day changed.
- While value might be hard to track directly, we believe that if you see usage increase over time, it is probably because your people are using Cognite Data Fusion and getting value out of that usage. There is a correlation between usage and value, one that companies can track in real-time by looking at usage numbers.
- Customer example: A US based continuous manufacturing company struggled to reap the benefits of their digital initiative and decided to focus on increasing the amount of Monthly Active Users. As a result, over time the company started to see concrete situations in their operations in which easy access to operational data in the field had saved them from costly incidents in the magnitude of 10s of millions of dollars.
In conclusion, while value can seem a bit arbitrary and potentially even an afterthought when implementing a large-scale digital transformation program, we believe there are three steps to ensuring a successful program.
First, companies can more easily navigate the implementation of their digital programs by adopting value as the North Star to drive meaningful business impact. Second, we recommend that companies assign a person responsible for driving digital initiatives that can span both the digital and business domains. Third, companies should team up with a trusted advisor that is able to not only provide the right solutions, but also guide the company during the process from helping them articulate the value to ensuring it gets realized.