Why digital transformation fails

By Martin Ray

Why digital transformation fails

As the rapidly accelerating digitalisation of virtually all aspects of society proceeds, most companies have initiated a digital change project of some sort or another. Yet, research shows that only about one in five industrial companies achieves results from these initiatives that exceed their expectations. Why is that, and what can you do to succeed?

An unprecedented magnitude of change

The pace and scale of changes currently occurring in most industries are unparalleled. Never before has the very fabric of the business environment been in such a flux. The driving force behind this transfiguration of how we buy and sell goods and services is the rapidly accelerating onlinification and digitalisation of virtually all aspects of society.

This change impacts all businesses in all industries and dramatically alters the ability to scale businesses while simultaneously lowering marginal costs and compressing prices. Meanwhile, incumbents face increasing competition from disruptive newcomers and new business models from old adversaries alike.

Consequently, the fundamental business dynamics are shifting from competing on cost and efficiency to competing on the ability to deliver a particular product or service that aligns with the digital era (remember the last time you rented a DVD, used a travel agent, or bought an MP3 player?).

Adapt or die

The consequence of this development is that just defending market share is no longer an option. Most incumbents’ business models are under threat, and failure to act swiftly will most likely render slow moving companies obsolete and replaced by more agile and digitally attuned competitors.

To complicate things further, most companies have to change their core way of doing business while at the same time inventing new business models and fighting off new competitive threats. And they have to do it fast.

How to succeed with digital transformation?

Unsurprisingly, most companies have attempted some form of digital transformation or adaptation at this point. However, most have found that the return on digital investment has failed to materialise. According to a recent Accenture survey; 'only 22% of industrial companies achieved a return on their digital investment that exceeded their expectations'. What should you do to make sure you succeed with digital transformation within your organisation?

Avoid these traps

There are four main areas that many companies fail to tackle when attempting digital change projects.

  1. Unclear vision, objectives and commitment– Too often, there is a severe lack of understanding or disagreement among top managers about the goals and long-term vision of a digitalisation project. Few have a holistic view of what onlinification and digitalisation mean for the company and themselves. Usually, this results in ambiguous definitions that make it difficult to connect a digital strategy to the day-to-day business. Without exception, this will limit the commitment, not only from top management but also throughout the organisation, which slows down progress or ultimately makes the entire project fail.
    The remedy: make sure that a unified top management team has a captivating vision, clear objectives, and commitment to change before attempting a digital change project.
  1. Disjointed infrastructure, digital platforms and tools – Until now, the vast majority of companies have had an incoherent IT infrastructure, where a bunch of overlapping digital platforms and software from different technical ecosystems fail to connect. As a result, it is usually impossible for most companies to create a full, coherent picture of customer experience throughout the different parts of the organisation. The reason for this is quite simple - historically, few IT-systems were envisioned and built with this in mind. Instead, most have been built piecemeal over many years, where you add new parts to the system as the need arises i.e. the infrastructure was developed to fit the organisational need rather than the other way around.
    The consequence, for most companies, is that they end up spending the majority of time and resources on trying to bridge and integrate these different systems and tools.
    The remedy: decide what is more important to your business success; a custom fit infrastructure or time-to-market? If the latter is true, don't waste precious time on pointless integrations when you could be focusing on creating relevant content and functionality for your target groups to generate tangible results for your business. Dare to look from the outside and chose one platform that works and minimises the need for technical integrations.
  2. Mis-aligned processes, organisational structure and skills– It is quite common that companies lunge into digital change projects with little to no regard for changing work processes, team setup, or developing skillsets. Often the result is that at least a part of the organisation resorts to fighting the change rather than supporting it. It's essential to recognise that onlinification and digitalisation usually mean that there is a skills gap in most organisations; new competencies are needed, existing staff need to be re-trained and coached, and the de facto ways of working needs to change.
    The remedy: redesign the organisation to fit the decided solution before you commit to the investment. The chances are that if you don't address the shortfalls in skillsets and overall company culture, before investing in a digital transformation project, you will end up putting 'digital lipstick' on your legacy systems with little tangible results to show for it.
  3. Organisational inertia, mindset and lack of perseverance– Most organisations are inherently resistant to change - this is what is commonly known as 'organisational inertia'. At the same time, most organisations are impatient when it comes to showing quick results for new initiatives. This combination of apathy and impatience can be lethal to any change project. Implementing real change typically takes time and requires persistence and commitment. If parts of the organisation are opposing the transformation, while management at the same time is demanding proof of quick results, there is an increased probability that the project will fail, or be cancelled, before having the possibility to succeed.
    The remedy: make sure that it is crystal clear for everyone in the organisation that the project is prioritised, sanctioned and mandated by top management. Set aside time for impacted employees to be on-boarded, educated, and coached in how they need to change their way of working. Recognise that if you ask someone to do something new, there is usually a learning curve and you need to remove some of the tasks they currently do.

Download the PDF below to learn more about the main obstacles to digital transformation and how to overcome them.

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Want to know more? Through our digitalisation guide: what, why, when and how to use it you'll find much more to read!

Martin Ray
Chief Analyst & Digital Strategist 2011-2022.
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