An Investment Roadmap for Digital Transformation for Distributors

Digital transformation isn’t as simple as just selecting software and then hitting go.  

To be successful, you need to do the research and build a technology investment roadmap. This roadmap should align with your customer base’s needs and go-to-market strategies.  

It’s all about customer experience. What are the forces that customers are dealing with? How are things changing, and how will they change over the next three to five years? 

With those answers, you can create a value proposition and customer experience that, even years from now, makes you the blindingly obvious choice.  

You need to build a roadmap to create growth and shareholder value by becoming your customers’ North Star. 

Where to Start  

Start with building a high-level digital transformation ROI model. 

Step 1: Executive Research 

Leadership should start with research on your digital technology options. Talk to experts, hire consultants, and discuss the ins and outs with peers who are ahead of you. Don’t consult your friends. Talk to people who will tell you about their wins and losses – not only the things you want to hear. Trade associations are a great place to make these connections. 

Step 2: Identify Your North Star 

Remember: Digital transformation is all about the customer – their experience and their buying journey. Start with gaining new customer insights. These insights should come from talking directly to the customer, not your sales reps. Conduct interviews and launch a trusting conversation between your marketing team and the customers. Ask customers what their pain points are, what the experience is like buying from you and what that journey looks like. Provide them with the space to answer rather than trying to guess what’s important to them. 

Step 3: Build and Launch the Minimum Viable Product (MVP) 

Build out a multi-year investment roadmap, and fund the first year aggressively. Monitor the results of this launch carefully to learn how to react and respond next year.  

Understand digital transformation is not one-and-done. Your feedback loop should be ongoing … never-ending. By continually evaluating your progress, you’ll stay ahead of the game. 

How to Calculate the ROI of a Digital Innovation Investment 

You know how to calculate ROI: the benefit (or return) of an investment is divided by the cost of the investment. 

However, the return on innovation investment is calculated differently. You need to compare the profits of the new product or service to the research, development and other direct expenditures generated by creating these new products/services.  

This new ROI calculation takes into consideration four investment stages that require executive time and capital: 

Research  

Executives must spend money to get smarter. Identify the impact of external forces that affect your specific market to the technology and tools required to create your North Star. Executives should be discovering how to create growth and shareholder value at this stage – often with the help of consultants.   

Although distributors can spend money on this research, they usually don’t understand enough about the technology and how the costs break down. There’s a reluctance to invest because of the perceived risks and their worry about investing in the wrong technology. This is where consultants can help separate the wheat from the chaff. 

Capital investment and non-recurring start-up costs 

These expenses bring the new model online at MVP performance. This version should have just enough features to be usable by early customers.  

The organizational change management process  

How do you make existing employees more effective and increase productivity? Answer this question and update your organizational structure accordingly. Embrace and utilize the new tech as clearly defined in a project plan. To do this, you need buy-in from the entire organization.  

Recurring costs to operate the model 

These costs are the technology upgrades so you can continue to use the most up-to-date software. 

Many distributors today are actually viewing ROI on innovation investments as more of an ROP, or return on productivity. By making their employees more efficient, distributors can unleash this newfound productivity in other areas of their business. 

Managing the Risk of an Innovation Investment 

The probability of success plus the probability of failure always equals one. Without taking that first step toward change, the cost of not doing so is a slow death. 

Here are some proven risk-reduction strategies when investing in technology: 

Ensure leadership knows and understands the North Star and Go-To-Market pivot project plans. Leading from the front helps get everyone else onboard. 

Invest with enough scale to warrant the necessary executive attention. In other words, ensure that the C-suite has skin in the game. 

Start on a smaller scale. Investing in a point solution has limited risk because it’s small and only addresses a single pain point. This is a manageable way to begin.   

Seek regular direct customer insight but not from your sales team. Sales reps are trained to listen to make the sale. They’re not trained to listen to understand. Although they’re very good at reacting to threats and opportunities, they’re not trained to truly understand life from the customers’ perspective. Have another department conduct these continuous interviews and feedback loops.  

Choose best-of-breed software rather than single software provider. Choose the best tools to solve particular problems, not a solution that provides everything from a single source. This strategy also provides breathing room and time to get familiar with the investments and changes. Incremental, short-term returns also help fund the next investment.  

Be a fast follower with a strong sensing mechanism. Know where the leaders are in your industry and gauge what they’re doing.  

Create Your Organization’s North Star 

In two to five years, you want your customers to look around at all their options and see your organization as the one they want. You have your act together. You might be more expensive, but the cost of working together is worth it because you know how to win. 

To create your company’s North Star, start by having discussions about your customers with key stakeholders and leadership. Sort your customers into categories: winners, losers and uncertain. How are you determining these criteria? List the selection details as well.  

Consider those change scenarios you created during the executive research stage. Think about your winners in these scenarios and how they’ll respond. Will they compete differently? Source differently? How do you respond to their actions and increase purchase concentration? 

Next, define any new capabilities those winning customers will need to succeed. With that information, you can create a value proposition that makes you the best, most obvious – and only – choice. 

Lastly, build plans to realign your resources to the emerging growth opportunities. 

Track Your Progress, Carefully, with Discipline  

According to the experts at McKinsey, prioritizing digital initiatives is essential to digital transformation. It’s the first step and falls directly on the CEO’s shoulders. They should monitor the five key performance indicators below to assess the company’s digital progress: 

  • Return on digital investments  
  • Percentage of annual technology budget spend on digital initiatives 
  • Time to market of digital apps 
  • Percentage of leaders’ initiatives linked to digital  
  • Top talent attracted, retained and promoted  

The Foundation of Your Innovation Investment 

At the end of the day, the CEO should be able to clearly identify a roadmap of digital priorities, rather than “a basket of digital projects.” Include these updates in formal quarterly reviews as well as monthly meetings. 

Invest time and effort before you invest financially. Create a plan, build executive buy-in into the process and don’t set unrealistic goals or deadlines. Given what a digital investment requires, you want to do it right. 

The details matter. Engage people who will benefit from the technology and get their input, then apply that to your plan. 

Talk to other companies who have implemented the technology and been successful. What did they do? More importantly, when you hit a roadblock, ask them how they overcame it.  

Lastly, don’t get upset when you start to see the differences between what you’ve always done and what the customer thinks. This moment of realization isn’t just an opportunity to see what you’re doing wrong. It’s an opportunity to be aware of your customers’ pain points and fix them. Become their North Star. 

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