Measuring the Level of Digitalization (part I)

Written by: Kristjan Eljand | Technology Scout

Making organization more digital is a common goal for most of the enterprises. But how to measure the current level of digitalization across different business units? This article aims to give you some guidance based on our recent experience in Eesti Energia.

Let’s start by defining the difference between digitization and digitalization. The former is all about making content digital while the latter focuses on using the content for value creation. This article will address both concepts but for the sake of simplicity I’ll use the term digitalization to talk about them.

What is the goal of measuring digitalization?

Digitalization can be measured either directly or indirectly. The direct measurement means monitoring the actual process, exploring available data, evaluating the analytical tools, etc. The goal of the direct measurement is to define the next digitalization initiative for the specific process of the specific unit. The method is exact but too slow and resource intensive to be conducted in the whole organization.

Indirect measurement means gathering the opinion of process participants about the level of digitalization. It scales well and only few hours per business unit is needed to carry it out.

Image: Indirect digitalization measurement is all about quantifying the opinions

The goal of indirect measurement is to quantify the opinions. As a result, we would be able to see the level of digitalization in numbers, gain intuition about the general bottlenecks and prioritize the processes for direct measurement.

Breaking the digitalization into topics

Ideally, we would like to measure the digitalization on the same basis across all business units. But what processes exist in all units?

Firstly, every unit has some kind a strategic plan that they follow. Secondly, each unit have customers (either internal or external ones) and the need to reach to those customers via web or marketing channels. In addition, each unit has day-to-day operations, personnel that is carrying out those operations and physical assets that the unit needs. Hence, it should be possible to use the topics of the following table in each organizational unit.

Table: Topics of digitalization for business units

Not all topics are made equal

Not all topics/processes are equally important to organizational units. The customer services unit might emphasize the digitalization of marketing and customer relationship management while production unit highlights the need of digitalization in asset management. Furthermore, the relevance of topics might vary among the processes of the same unit. Thus, each respondent should give their assessment to the importance of topics. By doing so, they also reflect their general standpoint that could be considered during the analysis.

Table: Example of asking the importance of Topics in the context of digitalization

This feedback can be later used to weight the answers of each topic. For example, if respondents say that marketing has very low-importance, then it should affect the general digitalization score much less than the topics with high-importance.

Secondly, the score of importance can be used to compare the level of digitalization of specific topic with its importance. For example, if the topic is evaluated to be high importance but the level of digitalization is low, then this might be right place for additional investments.

If the respondents evaluate the topic to be high importance but the level of digitalization is low, then this might be right place for additional investments.

Data dimensions

The next step is to make sure that the questions about digitalization cover the following data dimensions:

Structuring the questions this way enables us to expand our understanding. Besides the general digitalization score across topics, we gain the ability to argue about the corresponding levels of data handling. For concrete example, let’s say that the level of marketing digitalization comes up to be 63%. This number, while being useful, makes a lot more sense if we were able to say that data collection in marketing is at 85%, data availability at 75%, data usage at 45% and data ownership at 55%.

So, we investigated the value of survey-based digitalization measurement (fast, low-cost and scales well) and discussed how to structure the questionnaire into topics and data dimensions. Next time, I’ll describe how to conduct the survey and turn the feedback into numbers.