1. Driving Digital Success Three ROI Criteria for Competitive Advantage. . . Apigee @apigee Bryan Kirschner @apigeeinstitute Sam Ramji @sramji

2. youtube.com/apigee 3. slideshare.net/apigee 4. @apigeeinstitute Bryan Kirschner @sramji Sam Ramji 5. If everyone* believes digital transformation is important Why do we see a big gap between leaders and laggards? ROI criteria as key pivotwhich ones improve decisions? Which three together drive competitive advantage? How do I bring them to my company? *99% of Marketing and IT executives in large companies 6. Digital Transformation is Happening Today 7. 99% of IT & Marketing executives expect digital impact in next 12 months 99% expect digital impact to increase or continue over next 5 years Moderate 53% Big 31% Little 15% None 1% Increase Somewhat 43% Increase great deal 45% Stay Same 11% Decrease 1% Expected impact of technology-enabled capabilities such as "big data" and analytics, digital marketing, apps, or APIs on overall enterprise results 8. 4 41% Extremely Relevant (5) 40% 3 14% 2 4% Not at All Relevant (1) 1% Relevance to companys competitive position over next five years, 5-point scale where 5 is extremely important The number of connected devices-from smartphones to smart cars and even wearable computing devices-is heading for a tipping point at which most work, play, and commerce will have a digital dimension. As a result, software will touch nearly all social interactions or commercial transactions, with the potential to generate data of unprecedented scope. 9. 20% 30% 20% 22% 32% 17% 22% 16% 19% 27% 4% 9% 9% 15% 21% Bringing New Products & Gross Revenue Margin Market Share Customer Satisfaction Top Digital Performers Overall Weakest Digital Performers Deploying apps Using data analytics Operating APIs Top Digital Performers are best at: % of companies strongly outperforming their competitors in the last 12 months and 10. 24% 48% 8% Executive opinion implies gaps will widen, not narrow: Expect both big digital impact in next 12 months and Increase a great deal over next 5 years Overall Top Digital Performers Weakest Digital Performers 11. Empirical Patterns for Success: Building Digital Performance 12. Digital Performance Organizational Alignment 1. Deploying apps such as mobile or tablet applications to employees, customers, or partners 2. Using "big data" and analytics to enhance internal processes, existing products / services, or new offers 3. Operating APIs to make systems and data available for self-service access or mash-ups 1. Ensuring alignment between marketing and IT 2. Establishing a framework to connect digital investments more directly to enterprise KPIs 3. Choosing ROI criteria that drive better decisions about digital investments 13. Why Focus on ROI? 14. ROI criteria establish the conditions for not only what you invest in But also whether you invest at all Both are critical to what see as the empirical pattern for success investing in digital right now 15. http://stockcharts.com/freecharts/historical/djia1900.html Start investing as soon as possible Dont stop investing Invest in a well-structured portfolio Theres no magic bullet Some assets will underperform Re-balance systematically 16. We must do something. This is something. Therefore, we must do this.* *The Politicians Fallacy, Yes Prime Minister Panic 17. This is too risky Thats too risky too And this is too risky as well. Paralysis 18. A pilot can be strategic But a pilot is not a strategy Is the something were doing really enough to fight disruption or seize opportunities? Polite Fictions 19. Enemies: Panic Paralysis Polite Fictions Objectives: Start Sustain Smart Portfolio 20. How Leaders Use 3 ROI Criteria, Together to Drive Digital Success 21. 8.1 7.6 6.9 6.4 Using Customer Satisfaction + Efficiency + Real Options Valuation Using Customer Satisfaction + Efficiency + NPV Overall Average Not Using Satisfaction and Efficiency Three ROI metrics together: Efficiency Customer Satisfaction Financial specifically, real options valuation The keys to confidence in ROI criteria that drive better decisions about digital investments? Average company performance Choosing ROI criteria that drive better decisions about digital investments (10 point scale where 10 is very strong) 22. Best would you say are the best for driving decisions that deliver the most long-term, strategic value for a company Frequent are used most frequently in your company To evaluate and make decisions about investments in technology-enabled capabilities such as "big data" and analytics, digital marketing, apps, or APIs, which 3 criteria. and We asked 23. Tag Full Description NPV Financial metrics, using approaches such as discounted cash flow (DCF) and net present value (NPV) Real Options Financial metrics using approaches such as real options valuation and Monte Carlo simulation Comparison Comparative targets such as matching best-in-class benchmarks or competitor capabilities Efficiency Efficiency goals such as reducing time-to-market or increasing re-use of existing assets Innovation Innovation targets such as percent of sales through new offerings Satisfaction Customer satisfaction or brand reinforcement goals Share Share, adoption, or market penetration goals Ad Hoc Ad hoc criteria or manager discretion What do you think? 24. 14% 15% 28% 44% 38% 46% 39% 64% 9% 21% 36% 31% 39% 32% 52% 66% Ad Hoc Financial: Real Options Financial: NPV Comparison Innovation Share Efficiency Satisfaction IT Marketing A B C Best which would you say are the best for driving decisions that deliver the most long-term, strategic value for a company 25. Got alignment? http://www.jokeroo.com/pictures/funny/misalignment-of-the-rails.html 26. 11% 48% 32% 11% 75% to 100% 50% to 74% 1% to 49% 0% Breakdown of companies by extent Best matches Frequent 3 for 3 0 for 3 27. -20% 0% 20% Finaicial Combined (62%) Satisfaction (50%) Compare (43%) Efficiency (42%) Share (40%) Financial: NPV (37%) Innovation (28%) Financial: Real Options (25%) Ad Hoc (24%) IT Marketing Best minus most frequent, ordered by frequency used Use this more! Use this less! 28. Is it only about aligning on whats preferred? Or is that one piece of the puzzle? 29. Satisfaction* Efficiency* Comparison* Financial: Real Options* Share Innovation Financial: NPV Ad Hoc Which criteria predict higher than average confidence in decisions?* *regardless of how people feel about them (and taking match into account) 30. A word about Comparison Not preferred (why would reacting be inspirational?) But it keeps you in the game No matter how much evidence I present, I cant get people to movebut as soon as a ccompetitor does something, all of a sudden theres urgency to do that Strategy Director, G2K Company 31. Efficiency & Satisfaction 32. Efficiency: Time to market & re-use but also new ways of doing things Satisfaction: Both leadership and meeting minimum expectations Together: Mutually Reinforcing because of APIs we were able to put a prototype in the market in two weeks with a small team...we not only understood real demand better, but also how to deliver exactly what users wanted. Dev Director, G2K Company 33. NPV: Any uncertainty militates against action Real Options: Better for changing conditions With Sat & Efficiency: Drives a flexible & responsive portfolio the greater the impact of digitization on your business, the more urgent the case for buying strategic options for the future. Weill/Woerner, MIT Center for Information Science Research 34. S1 S2 S3 Project S4 S5 Efficiency Satisfaction FinancialYear 1 Year 2 Real options thinkingits the logic not the math 35. How real options thinking changes the basis of competition [emphasis added] All teams will henceforth expose their data and functionality through service interfaces. All service interfaces, without exception, must be designed from the ground up to be externalizable. That is to say, the team must plan and design to be able to expose the interface to developers in the outside world. No exceptions. Anyone who doesnt do this will be fired. Thank you; have a nice day! Jeff Bezos CEO, Amazon 36. Driving Digital Success Through ROI 37. Enemies: Panic Paralysis Polite Fictions Objectives: Start Sustain Smart Portfolio Keys: Efficiency Satisfaction Real Options 38. Efficiency goals such as reducing time-to-market or increasing re-use of existing assets Imagine transformative, not just marginal gains (e.g., rapid prototyping & fast failure) Customer satisfaction or brand reinforcement goals Consider threshold conditions for both leadership and meeting(rising) minimum expectations for digital Financial metrics using approaches such as real options valuation and Monte Carlo simulation Architect for re-use, plan to re- balance, and give digital its due when projecting scenarios 39. Harvard Business School Course Number 2134 Digital Innovation and Transformation is a new course designed to equip studentsto conceive, lead and execute digital innovation initiatives [T]he digital revolution is rapidly transforming the fundamental nature of many companies in a wide range of industries Today firms are now establishing market leadership by mastering digital innovation Ford is realizing that its future competitors are likely to be Facebook and Google and not BMW and Toyota. You will be required to write an HBS style case study on an organization of your choice facing a digital challenge [emphasis added] 40. What will your case study say? 41. Questions 42. pages.apigee.com/institute Take the Apigee Institute Straw Poll on ROI 43. THANK YOU Questions and ideas to: @apigeeinstitute @sramji