A whopping 73 percent of enterprises failed to provide any business value whatsoever from their digital transformation efforts, according to an Everest Group study last year. Furthermore, 78 percent failed to meet their business objectives. Put another way, only 22 percent achieved their desired business results. This is horrific. Why does this happen?
While there are many causes of failure or underdelivering expected value in digital transformation, one that can be avoided is digital transformation exhaustion – the fatigue that happens due to continuous change.
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3 reasons digital transformations fail
Let’s look at three factors that inevitably lead to exhaustion and the decisions your company needs to make to avoid it.
1. Lack of up-front commitment
The CEO stopped the initiative from continuing to Phase 2, where the exciting customer-facing elements were to be added.
Consider what happened at a global company undergoing digital transformation. The firm was successful in its Phase 1, in which it upgraded its legacy SAP software with the view that it would be the foundation of the ongoing transformation. However, the CEO stopped the broader initiative from continuing to Phase 2, where the exciting customer-facing elements were to be added. He could see the need and benefits of moving forward, but he felt the degree of disruption from so much enterprise-wide, cross-functional change was unacceptable and thus would encounter resistance.
This is a common failure point. Understanding and agreeing to the concept and vision for your transformation is not the same as committing to do what it takes to succeed. Company leaders can have a great meeting and talk about the need for change. But if they don’t commit to the massive change – what is necessary to achieve the vision and strategic intent – the initiative will fail.
How to avoid this digital transformation failure
Getting a deep enough commitment is like herding chickens. Leaders agree for different reasons and have conflicting visions of the end state. They commit to what they think the future will be, based on their own experiences, which vary greatly.
Managers and employees at every level must accept up front their personal ownership of the transformation’s success. This may involve establishing a hypothesis of improved positioning in the market. You may need to uncover competitor or analogous situations that support the case. Leaders need to build a collective vision that is deeply felt and understood, even though the specifics of how to achieve it may not be known up front.
This is easier said than done. Go slow at first. Building commitment takes time. If you start down the path of trying to enable the change before enough stakeholders understand where the project is going, why the change is necessary, and that the change is possible, you will run a very high risk of debilitating, passive-aggressive behavior.
2. Failing to take an iterative sprint approach
We have observed companies trying to move to a new business model using a waterfall planning process. They come up with a vision, build a business case for the vision, fund the business case, and then work on a detailed two-year or 18-month plan to implement it. This approach has a very high proportion of failures.
In an office supply firm, the company was under extreme market pressure to reimagine its business as it faced an existential threat from online competitors. As you might expect, the company rushed into transformation with the CEO and CIO believing that the obvious market threats would galvanize the firm around this transformation. The firm achieved IT modernization in Phase 1 and some modest, quick-hit productivity successes in Phase 2. Then came problems. They did not change their budgeting process mindset to focus on delivering the intended results.
They had not changed their budgeting process mindset to focus on delivering the intended results (rather than focusing on a business case). Moving faster would require incenting people to take on the risks. People weren’t sure the risk factor was acceptable and began talking about reverting to the old ways of operating. They had built a detailed waterfall plan before all the factors were known for a multiyear journey. Encountering enterprise fatigue in the face of widespread resistance, the CEO balked at continuing to Phase 3. Two years later, the company went into receivership.
How to avoid this digital transformation failure
Here’s how to remedy this very common dilemma. When planning the approach to the multiyear digital transformation journey, break the project into short-term projects and goals that can deliver measurable results aligned with the vision and strategic intent. We call these sprints or phases.
Use an iterative, agile approach similar to the Minimum Viable Product (MVP) approach and principles of venture capitalists and software start-ups. Despite many unknown factors up front, your company can control risk by funding the journey per sprints. You need to let the transformation journey unfold and evolve flexibly. Don’t build a detailed long-term plan without enough known factors.
[ Read our related article, Does your change management plan cut it in the digital age? ]
If you build in your learnings from each sprint, your company will get faster and faster at unlocking value. This will give your employees and leaders more energy, momentum, and support to keep going. Structuring the journey into smaller sprints makes the changes more manageable, helps maintain momentum, and avoids fatigue.
3. Taking a technology-first approach
Consider the company that undertook a major, complex, ERP implementation to build new capabilities and scale. It also undertook IT modernization and moved its data center to the cloud. It took longer than three years for this first part of journey, and it consumed too much capital and people resources, let alone time. It was costly and achieved little value. Digital exhaustion was rampant, and it caused a roadblock in decision making. Simple technology investments that should have taken only months to implement wound up taking years.
Another company halted its ERP rollout because of the cultural change that came with it; the cascading process and mindset changes proved too much to handle. It left the company with only a few plants upgraded and people resistant to future technology-enabled improvements.
A third example of this debilitating approach is a company that went through IT modernization successfully in Phase 1 and planned in Phase 2 to leverage its data (enabled by the new technologies) to create new value and market-leading capabilities. The executives did not understand that they would have to change their operating model and way of doing business to achieve the objectives in the strategic intent. Furthermore, the political culture and the continual rapid implementation of new technologies led to fatigue.
How to avoid this digital transformation failure
Don’t start a digital transformation with big, expensive legacy-replacement activities.
Starting a digital transformation by big, expensive legacy-replacement activities is starting from the wrong place. It will use up too much money and people resources, and it will distract from delivering the transformation benefits. Keep in mind that digital transformation necessitates change in business processes to support the technology. Policies, procedures and often talent resources will need to change. All this prolonged change in a technology-first approach will become a roadblock and drag progress backwards.
The better approach is to start with understanding how the business needs to change to deliver improved experiences to customers and employees and then focus on implementing technologies that will deliver a part of that value early on. Focus on a sprint for implementing a smaller technology-enabled project that quickly delivers measurable value to customers. Thereafter, take an iterative approach and move on to the next value-adding project.
Counteritutive thinking required
MORE ON DIGITAL TRANSFORMATION
- What is a digital platform?
- Meet the Chief Transformation Officer: 8 key tasks for this new role
- Digital transformation strategy: 7 key pieces
All three solutions to enterprise digital exhaustion outlined above may be counterintuitive in typical decision-making. But your digital transformation may depend on them. Get the buy-in you need up front, use sprints, and take a balanced approach to technology and business changes. These steps will set you up for success.
[ How can open source principles help with your transformation? Get the ebook: Digital transformation, the open source way. ]
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