5 Reasons Why Digital Transformation Fails
Businesses that wish to stay relevant and continue to deliver value successfully need to stay in a continuous process of improvement. In the information age, digital transformation has become the holy grail to achieve success. Change is difficult though and getting it right is no small feat. According to Forbes, a whopping 84% of all digital transformations fail. If done wrong, a company can hit roadblocks and even go out of business given that it is a costly process.
To understand what could go wrong in this process, we cover 5 key reasons uncovered by research on why digital transformation fails:
Unclear Definition of Digital
Ignoring Client Needs
Underestimating The Impact Of Digital Transformation
Ignoring People And Culture
Misalignment Between Vision And Digital Strategy
1. Unclear Definition of `Digital`
The term `Digital Transformation` is relatively new for most traditional businesses. In preparing their companies for a digital future, top management often fails to realize the true meaning behind this term and what it means for their business. Some executives might be tempted to believe that digital transformation is merely about changing the function of their IT departments or updating their websites. But that is not the case. To fully benefit from digital technologies a good grasp of the general potential of technology for value creation must be understood before specific applications can be focused on implementing solutions for company needs.
To highlight one important potential application, data-driven decision making and solutions have become an increasingly important cornerstone of any digital transformation strategy. In today's world, fast and widely available internet and magnitudes of improvement in processing power have allowed creating devices allowing for higher complexity tasks to be completed by computers. The data generated by such usage can be leveraged to power analytics and direct the development and delivery of value. Some companies are using this data to build connected devices while others are developing autonomous systems to solve the problems of mobility. Some companies might even find new venues to explore thanks to the insights obtained from this data. Data-driven decision making has become ubiquitous and has consistently proven vital for continuous value creation.
A failure to understand how to create better value from digital transformation paired with, a lack of awareness about the challenges of digital transformation can lead to mismanagement of limited time and resources. It is thus crucial that these aspects be addressed as early as possible with a comprehensive plan and goal.
2. Ignoring the Customer Needs
When devising a digital strategy, companies must not forget their customers. After all, it is customers who drive profits and keep the company running. It is essential to realize that experience matters for a customer. Accordingly, the digital strategy should keep customer adoption and experience at the center of its attention. A digital move that makes the experience worse for the customers is bound to fail because 84% of the customers say the experience provided by a company is as important as its products and services.
Asking questions like what value will be delivered to customers after adopting a digital change is important. Tools like customer surveys, analytics, and pilot launches can help in finding out what the customers really want. Incorporating this information into your digital strategy can lead to a higher chance of success. According to the 2019 Kony Digital Experience Survey, only 19% of customers noticed an improvement in the digital experiences provided by their utilities, banking, retail, or healthcare providers. All this data points to one fact - if a digital transformation strategy does not cater to the requirements of the customers, then it is heading towards failure.
3. Underestimating the Impact of Digital Transformation
To prepare for a digital change, understanding the impact and implications of the change is the key to success. Defined and realistic goals must be set and there cannot be an automatic expectation that any change will immediately drive up profit. Just as with any other business transformation, it is important to remember that digital change might be disruptive for many companies. Managing that change and expectations is as important as the change itself.
The digital transformation efforts of General Electric (GE) are a prime example of this. In 2011, GE started a new digital transformation initiative with the goal to convert GE to a technological hub. They even created a new business unit, GE Digital in 2015 for this purpose. However, even after spending billions of dollars into GE Digital, they failed to achieve their goal of turning GE into a technological giant. Part of the reason stems from the decisions of activist investors who failed to foresee the long term impact of the digital transformation and instead prioritized short-term returns. This pressure by investors resulted in Jeff Immelt, the CEO and leading person behind the digital efforts of GE at that time to leave the company. Another significant factor originated from the fact that GE Digital was trying to assume many roles at once. It was providing software services to GE’s other business units as well as working as a consulting firm for the external companies. In many ways, the role of GE Digital was very different than the core expertise of the company.
4. Ignoring People and Culture
While building a digital ecosystem, a company must not forget its people. Training them to adopt the new digital processes is an important part of the transformation. Investing in enhancing the skills of existing staff and hiring new talent to make better use of technology supports digital change. Identifying key roles for people who enable the change across the company is necessary. An additional step that many companies never consider is the implementation of digital transformation-related metrics in employee evaluation to help drive digital transformation. Imagine if an employee's bonus relied on his ability to utilise a digital system efficiently, that would change the way employees react to digital transformation.
According to McKinsey & Co., companies need integrators and technology-innovation managers in order to implement a successful digital transformation. The role of integrators is to diminish the gap between traditional and digital parts of the company while technology-innovation managers lead efforts on developing technical capabilities to create digital innovations. They need to successfully translate the existing processes to digital ones. Otherwise, digital investments are of no good. Research has found that 43% of businesses find hurdles in digital transformation due to a lack of digital skills. This is a huge figure and highlights the significance of a digitally sound workforce.
5. Misalignment between Vision and Digital Strategy
Digital transformation refers to customer-centric business transformation that requires cross-cutting organizational change as well as the implementation of digital technologies in order to deliver higher value. In other words, the simple act of taking a manual process and making it a digital one does not inherently result in digital transformation. Digital transformation must complement the core business of a company to better achieve its goals and strongly adhere to its vision.
The above is a lesson Ford has learned it the hard way. In 2014, Ford announced plans to transform itself into a smart mobility business and `change the way the world moves`. It created a new business unit that went by the name Ford Smart Mobility and it promised to create advanced mobility products. This approach was flawed in the sense that this new business segment was separate from the core business operations of Ford. It created a dilemma where the core business was lacking digitalization while an offshoot was focused on digitalization. It failed miserably resulting in the stock price of Ford falling by more than 40% and the CEO of Ford stepping down in 2017.
Blake Morgan, a customer experience futurist, explains that this failure happened because Ford’s digital transformation efforts were not integrated with the rest of the business. This meant that Ford Smart Mobility was unable to leverage on existing capabilities and competitive advantages. Perhaps a better strategy may have been to integrate it and at a smaller scale thus allowing this business unit to pilot test innovations and provide a template for the widescale digital transformation of the business.
Digital technology is attractive and shiny but not all that glitters is gold. Businesses are still in the process of learning the dos and don’ts of adapting to the wonder of the information age. Executives are often in a rush to take down their competition by going digital. But there is no one-size-fits-all formula for success here and rushing to market may prove more detrimental than beneficial. Depending on the context, business history and industry, the path to a successful digital transformation varies for different companies. Analyzing the market to make clear the vision and making calculated decisions translating to steady progress towards a digital future is what companies need to manage. With a better informed digital transformation process, goals and management it will significantly improve the value creation of digital transformation efforts and ensure long term success.