Estimating the value created and ROI for digital innovations

Estimating the value created and ROI of digital innovations

 

In a business-to-consumer (B2C) setting, sellers of technological innovations have a powerful tool at their disposal to assess the value and revenue potential of their offerings - the buyer-utility map. Introduced by Kim and Mauborgne in 2000, this framework allows sellers to evaluate the standalone value of their technological innovations and estimate the sales revenue they can generate.

 

However, in a business-to-business (B2B) setting, sellers of technological innovations face a different challenge. They need to go beyond assessing standalone value and instead focus on quantifying the impact their offerings have on their customers' businesses. To achieve this, Nirji and Geddes (2016) propose a comprehensive approach that involves organizing the impact of digital initiatives into six distinct business areas: customers, employees, operations, infrastructure, safety, and the innovation process.

 

By considering these areas, sellers can gain a deeper understanding of how their innovations generate utility for their customers' organizations. Each of these areas has its own set of specific metrics and Key Performance Indicators (KPIs) that help sellers gauge and quantify the value created by their innovations. By leveraging these metrics and KPIs, sellers can accurately estimate the potential sales revenue of their offering.

 

Let's take a closer look at an example to illustrate this concept. Suppose an innovation improves a customer's operations by streamlining processes and enhancing efficiency. In this case, the potential sales revenue can be estimated based on the customer's willingness to pay for benefits such as decreased response times and improved interactions. By aligning the utility generated by the innovation with the specific metrics and KPIs in each business area, sellers can gain a comprehensive understanding of its sales revenue potential and overall value proposition.

In summary, sellers of technological innovations in both B2C and B2B settings can benefit from utilizing frameworks and metrics to assess the value and revenue potential of their offerings. By understanding the specific metrics and KPIs relevant to each business area, sellers can accurately estimate the sales revenue generated by their innovations and effectively communicate their value proposition to customers.

 

A digital ROI framework and potential metrics

Business areas 

Customers 

Creating compelling experiences; meeting and exceeding customer expectations 

Employees 

Enabling and engaging employees 

Operations 

Digitizing business processes 

Safety and soundness 

Protecting digital assets and customer data 

Infrastructure 

Implementing and running new systems and tools 

Disruption and innovation 

Prototyping, testing, and learning; promoting digital culture 

Examples of possible metrics or KPIs 

  • Net promoter scores (NPS)
  • Average Order Value (AOV)
  • Social media sentiment 
  • Customer reviews and feedback 
  • Engagement scores 
  • Collaboration 
  • Likelihood to recommend 
  • Turnover 
  • Adoption of new practices
  • Manufacturing throughput 
  • Just-in-time inventory levels 
  • Supply chain efficiency 
  • Response times in problem-solving interactions
  • Number of interactions to resolve an issue 
  • Number of threats detected and defended 
  • Number of privacy breaches 
  • Fraud losses 
  • Speed of new technology implementation 
  • Uptime 
  • Response time to resolve issues/ outages 
  • Percentage of budget allocated for disruptive technologies and services 
  • Proportion of new ideas that reach concept design 
  • Number of new customers/ segments/sectors from new products and services

Impact on Profitability (NPV) of Digital Innovations (examples)

  • Sales Revenues: Willingness to Pay for Brand Equity
  • Sales Revenues: Willingness to Pay for decreased turnover 
  • Sales Revenues: Willingness to Pay for decreased response times and interactions 
  • Sales Revenues: Willingness to Pay for Safety and Soundness
  • Sales Revenues: Willingness to Pay for Uptime
  • Sales Revenues: Willingness to Pay for new customers