The digital transformation of business is the process of integrating digital technology into all spheres of your business. It is a completely operational and cultural change aimed to deliver the best to the customer by leveraging trending digital technology.
Statista predicts that digital transformation global market revenue is expected to amount to 2.3 trillion USD by 2023 (Source). But, are you still wondering why businesses need digital transformation?
Well, with time, businesses need to evolve and innovate for survival. Businesses that fail to evolve, move towards failure as customer interests and preferences are changing rapidly. According to a Tech Pro Research survey, 70 percent of companies in 2018 either had a digital transformation strategy in place or were working on it (Source)!
Important Considerations While Budgeting for Digital Transformation
Budgeting for digital transformation in business is tough and requires careful consideration of numerous factors. Any major element missed out can result in a huge loss or budget crisis at a later stage.
1. Follow a Collaborative Approach Across the Business Units
Digital transformation is a complex process. Budgeting and planning for digital transformation in your business can have an enormous impact on your staff and business as a whole. So, it is necessary to involve more and more departments and people in the process.
Involve all the departments and their heads. If you have multiple locations, involve representatives or heads from all the locations in the initial planning itself. Ensure that all department heads are clear about the vision and aim behind digital transformation.
Digital transformation is a long-term process and a collaborative approach needs to run throughout the process. Seek a response from all the departments at regular intervals. Budgeting is not just for all different departments, but should also accommodate cross-department and cross-functional needs. Cross-department needs require detailed analysis.
Not just internal stakeholders, do involve end-users too in the process as much as possible. These are the ultimate stakeholders and their reactions decide the future of your business. You can seek customer opinions through customer interviews, surveys, and other feedback activities.
2. Flexible Budgeting Model
When you are planning for the digital transformation of your business, a strict budget will not help. The budget needs to be flexible or agile so as to accommodate unforeseen needs and issues. Keep enough buffer while budgeting.
In a flexible budget model, you need to keep enough scope for contingencies. Set short-term budgets and goals in addition to the long-term goals. With short-term goals, you can monitor the results at short intervals and discard the elements that are not performing well.
Short-term goals help keep a stricter check on the process and results. With short-term goals, you can monitor the digital transformation process and results better and modify the budget allocation accordingly to reduce wastage and improve returns. In the absence of short-term goals, any failures are realized at a much later stage and it becomes costlier to correct the errors.
3. Critical Components to Consider in Costs
A critical component often underestimated while planning a budget for digital transformation is data migration costs. This is one of the most crucial elements. When your business undergoes digital transformation, all the data needs to be migrated from the existing set-up to the new system. This can be costly as it must be done in the best possible manner to ensure there is no damage or loss of data.
Allocate enough budget for compliance and security requirements as these are other major heads to be considered in digital transformation planning.
Another important component that needs to be considered and accommodated well during budgeting is planning for staff-time for the personnel involved in the digital transformation process.
For a safe and fruitful digital transformation process, your business requires continued consultancy from industry experts. The experience of these experts can help eliminate many common risk factors and make the process smooth. So, you must keep liberal considerations for consultancy costs in the budget.
4. Allocate Separate Budget for R&D and Training
Another important budget consideration is the training of staff. Digital transformation requires proper training of the staff, without which it can be a complete failure. Investing enough time and money in training can prevent failure and give quicker results. This can also involve significant costs, but this is inevitable.
Include a budget for Research and Development needs in your budget considerations. R&D will help monitor returns and modify the budget at regular intervals.
Do not underestimate the role of R&D and proper training in digital transformation for your business. You need to plan enough budget for these, as any compromise here can prove very costly to the business later and even result in complete failure.
5. Accept and Plan for the Risk
Digital transformation that involves innovation and evolution of your business, is a type of cannibalization strategy where businesses need to accept the risk aimed at ultimate improvement and growth. So, it is a necessity. Accept it and be prepared for the negative possibilities.
The goal of digital transformation is to create new markets. This process can even bring negative results. You need to catch the cause at the right time and solve the same. In short, the digital transformation of your business is a risk, but if you plan well and take prompt action, the results can be magical.
So, accept and plan for the risk points while budgeting! Keep enough backup funds ready for unexpected budget issues. You need to have a small buffer budget to accommodate for mistakes. Most importantly, keep a separate emergency fund source for survival in case a major failure occurs.
Planning and budgeting for digital transformation is a complex and lengthy process. For any business, digital transformation creates a new path for success, but it has risks. To achieve heights, it is imperative to take this risk.
Those who do not innovate, get lost in the crowd. The way we need to keep learning, be informed, and aware to sustain and progress in life, businesses today need digital transformation. It is not a choice, but a necessity that you cannot afford to ignore. Diligent efforts on budget planning can help reduce the negative impacts of digital transformation to the business.
So, start planning for digital transformation and do not forget to accommodate these budgeting considerations. Have a smooth and safe digital transformation! When you are ready, contact Blue Whale Apps for digital transformation engineering services.