Why ‘digital’ is no different when it comes to valuation

Ask any dozen business leaders how they define “digital,” and you will probably get just as many different answers. For some, digital is just an upgraded term for what their IT function does. For others, digital refers to the use of online tools and technologies to make process changes, or performance improvements, or to pursue organizational transformation. For still others, it’s an excuse to question the how and the why of their core business.

Our colleagues examined how a typical consumer-packaged-goods (CPG) company defined the term and identified at least 33 types of digital initiatives—digital marketing, optimization of sales-force coverage, predictive maintenance, supply-chain planning, and robotic process automation in the back office, to name a few.

Given the prevailing fuzzy definition of digital, it is not surprising that business leaders are often unsure how to evaluate the myriad technology-enabled initiatives being proposed to them and how much value they may create. In a 2018 survey of 1,733 managers, about eight in ten said their organizations were pursuing digital initiatives. But only 14 percent of the managers said they had realized significant performance improvements from these efforts, and only 3 percent said they had successfully sustained any changes.

Our advice to these business leaders? Don’t get tripped up by digital labels. Follow the same principles that apply to all investment decisions. That is, evaluate digital projects and strategies based on the cash flows they are expected to gen­erate, making sure to factor in “do nothing” or base-case scenarios as well as the overarching objectives of the digital project or strategy being proposed.

While that approach sounds simple, getting it right requires some thoughtful strategic analysis.

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Πηγή: mckinsey

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