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Why do Digital Transformations fail?

There are many articles recently looking at why Digital Transformation projects are failing. A recent survey by Accenture among 1350 global executives, which collectively invested over 100 billions USD on scaling digital innovations, shows that 78% of companies struggle to see results. This confirmed the 2017 survey results from Bain that showed that only 5% of digital transformation projects were successful.

we learned that few companies win, most struggle and some are left with complete disappointment. This rings true especially as companies shift from improving the efficiency of their operations to generating new value for customers. 

Accenture, Retink, Reinvent, Realize

But what are the reason for this? I’ve tried to compile a list here based on some of the most known articles on the topic.

A collection of challenges

The first two challenged have been identified in the above-mentioned Accenture research by Mike Sutcliff, Raghav Narsalay and Aarohi Sen and published on HBR.

  1. Unspoken disagreement among top managers about goals: if senior managers’ don’t agree on the priorities, or on how to measure success, it is difficult for the organisation to achieve results.
  2. A divide between the digital capabilities supporting the pilot and the capabilities available to support scaling it: this issue is frequently reported, and is often linked to the fact that it is easy to fund a pilot in an organisation with ad-hoc money. But it becomes more challenging to fund and support its overall adoption, especially when this requires the adoption of new methodologies (for example agile), a new organisation, new measures of success etc.

Professor Michael R. Wade at the IMD Global Center for Digital Business Transformation has identified five ways organisations fail in digital Transformation:

  1. You focus on disruptors rather than disruption: way too often, companies focus on the companies that initiate a disruption (think of Napster, Airbnb, Uber) rather on the disruption itself.
  2. You build a digital strategy, separated from the rest. Digital should be a key component of your strategy, not a separate one.
  3. You pay too much attention to digital disruption: too many leaders focus their attention on digitally heavy industries, forgetting that, for example, one of the most disrupted sectors in recent years has been transportation and logistic.
  4. You focus on digitising silos: taking something analogue today and making it “digital” is not a sound strategy. It would help if you rethought your organisation to be able to scale up Transformation.
  5. You pursue agility without knowing what it means: agility is probably the single most abused term in the current business. The word is abused, and many organisational setups are agile only in words.

According to Peter Bendor-Samuel, CEO of consulting company Everest Group, there are three Exhausting Reasons:

  1.  Lack of up-front commitment: with company leaders failing to sustain the scale of change that is necessary to support true TransformationTransformation. 
  2. Failing to take an iterative sprint approach: many companies try to develop digital projects with a waterfall approach… which does not work.
  3. Taking a technology-first approach: too many companies start their journey replacing their large legacy ERP solutions. This drives a level of “technical exhaustion soon” and often does not show positive impacts on the consumer side until a later stage.

McKinsey has identified five pitfalls in a 2018 article by Jacques Bughin, Tanguy Catlin, Martin Hirt, and Paul Willmott

  1. Fuzzy definitions: lacking a clear and shared definition of what is digital, companies struggle to connect digitally to their business strategies.
  2. Misunderstanding the economics of digital: many leaders still think that traditional economic principles apply to all aspects of digital. The truth is that digital usually is creating more value for customers than for firms, and this often delivers scary surprises to executives not ready to understand the novelty.
  3. Overlooking ecosystems: digital means that strategies identified only within one company or industry, independently from its size, are going to fail. All success stories are about delivering “platforms” and building networks of relationships. But few companies are adopting this approach. 
  4. Over indexing on the ‘usual suspects’: too many companies concentrate mainly on digital natives, trying to trail their journeys. But there are several success stories of traditional incumbents that have been successful in. Digitising parts of their business, and that is taking off fast. 
  5. Missing the duality of digital: many companies venture in totally new digital business endeavours, forgetting their core business. Digital should be applied in both directions, and transforming the core brings many benefits quickly.
Fig.1: Companies need to calibrate their response to the extent and speed of disruption (source: McKinsey).

Thomas H. Davenport and George Westerman have also analysed why many investments in digital do not pay off in a 2018 HBR article, where they examined what led companies that seemed successful in being early investors in digital, but where not able to sustain their efforts over time.

Amid the excitement and uncertainty of a new technological era, it can be very difficult to distinguish between investments you need to make ahead of the market and investments that must be in sync with market readiness. 

Thomas H. Davenport and George Westerman, Why So Many High-Profile Digital Transformations Fail

Here the elements they identified:

  1. Many factors influence companies’ success. Seeing digital as the sole salvation is not an answer, especially when the issues are around brand awareness or product desirability.
  2. “Digital is not just a thing that you can you can buy and plug into the organisation”. It requires a thorough understanding of the impacts on the organisation, as Digital transformation alters the way itself you do business.
  3. You need to calibrate your investment to the readiness of your customers, which links to the concept of avoiding a technology-first approach, but rather starting with the design of their customer in mind.
  4. New business model can be dangerous. Although sexy, moving fully in entirely new business models dominated by digital is not easy. There is no single success case of traditional companies creating from scratch a new business model. So be careful.

Understanding, Strategy, Culture, Alignment

Summing up all contributions, it’s easy to identify fours groups of reasons why organisations fail in their digital TransformationTransformation:

  1. There’s not enough understanding of what Digital is. The definition varies among executives and managers, with technology literacy often limited. With this premise, it is difficult to start a Transformation journey, and just delegating this to a CDO or CIO does not work.
  2. Digital strategy is disconnected from the rest. This is often a consequence of the first issue and, as we have seen, can take different forms. 
  3. People and Culture are not included in Transformation. But we know that this doesn’t seem right and will not lead to lasting results. 
  4. Organisational Alignment is where the most significant problems hindering success come from. Some organisation might come up with a shared definition of Digital; they might make Digital a core component of the business strategy, a focused change management plan takes into consideration people and Culture. But if you forget to sync in your budgeting process, align your policies, integrate your shared practices, you will stumble continually on small missteps hindering results.

Plus, whoever sees Digital transformation as just a project limited in time, will have a problem, as we’ve seen already.

And you? Have you seen other issues in how companies address their Digital transformation projects?

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This entry was posted in: Customer Experience

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I am an experienced and innovative HR professional dedicated in improving the way organizations achieve results through their people. Over the years I have worked on many projects in different HR domains, gaining a deep understanding of all key HR processes, from Talent Management to Recruiting, from Organizational Design to Leadership Development, from HR Transformation to HR & Payroll Systems implementation at International level. Working with Fashion Brands, leading retailer as well as, through consulting, international brands in industries like Banking, Manufacturing, Professional Services at both Headquarter and local level. Last but not least I consider myself an eclectic and creative personality, with many interests ranging from technology to arts and poetry.

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