Special Feature
Part of a ZDNet Special Feature: Digital Transformation: A CXO's Guide

How to use digital transformation to win budget

Digital transformation has become a catch-all term for everything from systems upgrades to new product launches. Here's how to leverage interest in digital transformation to win budget.

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Digital transformation is on everyone's lips, from boards of directors, to fresh-faced consultants straight out of university. While this strong interest in digital transformation can certainly be a conversation starter for technology leaders, it's also fraught; with so much interest in digital transformation, the term has lost concrete meaning. Ask one person to define digital transformation, and it might be an upgrade to a decades-old mainframe application. Ask someone else, and it could be launching a new platform business where the technology allows for a novel business model.

This wide-ranging understanding of what digital transformation means is more than a semantic game, as a technology leader who creates a strategy based on one understanding of transformation may find it falls completely flat with his or her executive colleagues or the board when they're expecting something completely different.

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How to frame your digital transformation discussions

Perhaps the best way to calibrate the interests of the various stakeholders is determining whether the organization views digital as a means to transform its core business, or as a way to expand into new products and services or access new customer groups. Starting with assessing whether transformation efforts are targeted at the core or new businesses avoids the typical misunderstandings brought about by focusing on the technology first. Digital transformation has become a catch-all term for emerging technologies from artificial intelligence (AI) to virtual reality (VR), but mistargeting the technology, no matter how cool, at the wrong set of products, markets, and customers will reduce the impact of your strategy and your ability to get it funded.

Tell a compelling story

The hackneyed stories about Uber, Kodak, and Blockbuster Video that were once associated with digital transformation no longer resonate with savvy executives and boards. Everyone understands that technology can now underpin organizational transformation. Whereas your admonitions about technology-driven change may have fallen on deaf ears in the past, your industry or similar industries likely have examples of disruption based on digital that are front-of-mind with your colleagues.

Once you've calibrated whether your organization envisions digital as a means to turbocharge the core business or allow for entry into areas outside the core, identify concrete, impactful capabilities that digital can provide. Rather than starting with the technology, tell a story about a new capability that might range from faster back office processes that allow you to get products to market faster, or understand customer needs in a unique way that lets you build better products.

The challenge of IT budgeting, especially for large-scale initiatives, has always been connecting the spend to the results. With digital, however, this exercise becomes easier since there is a more concrete connection between technology and results. Rather than painful machinations about total cost of ownership (TCO) or return on investment (ROI), a new platform might allow you to deliver a game-changing new service, or create a capability that's unique in your industry, or even conserve enough cash to allow other investments that redefine your company.

Seek input and buy-in from your peers once you have your initial digital 'story' developed, as this will ultimately be the foundation of your digital transformation budget. Time invested in circulating and refining this story will pay dividends later, as each element of your transformation budget will link back to enabling your digital story.

SEE: Guide to Becoming a Digital Transformation Champion  (TechRepublic Premium)

Budget for capabilities, not systems

Once you have a shared definition of digital transformation and compelling story about how technology can drive business results, narrow the focus to a collection of business capabilities that are linked to the underlying technologies that 'activate' the new capability. A budget item for new HR systems looks like an expense that should be mitigated, while an organizational capability to leverage alternative talent sourcing approaches ranging from crowdsourcing to contract workers looks like an asset that an executive might even overfund if it gets the capability faster.

A shared definition of digital transformation, backed by a compelling story about how technology can power transformation inside or outside the core business, serves as a foundation of your budgeting. Laying out a set of business capabilities that bring the story to life, powered by technology, creates an unassailable link from the vision, to the business outcomes, to the building blocks required to bring the vision to life.

While IT budgeting is often marketed by painful debates about whether a theoretical 'productivity benefit' will result in 2% savings or 2.25%, digital transformation presents an opportunity to strongly link strategy to technology. This ultimately elevates the budgetary process to discussions about where the organization sees the strongest growth opportunities and the capabilities required to realize those opportunities, versus debates about how you've calculated TCO and estimated various cost efficiencies. With proper preparation and a compelling, shared vision of the future, you may find your budgetary discussions become more about how quickly you can execute given additional resources, versus where you can squeeze more blood from a stone.