Change of any sort is hard. That means digital transformation, involving lots of changes all rolled together — from business models to product mix to culture and technology and more — can be brutally difficult.
That’s why Bain’s research found a mere five percent of companies report their transformation efforts have fully delivered on expected value.
Writing in Harvard Business Review, Thomas Davenport and George Westerman cite numerous examples of transformations falling short, including notable companies such as P&G, Lego, and GE — although it is fair to ask whether these merit being called “failures,” or rather illustrate that digital transformation is a tough journey.
Either way, learning from the mistakes of others is always cheaper than making the same errors yourself. Here, experts share five common missteps and how to avoid them.
1. Starting with the technology
The in digital transformation can be a red herring. It seems obvious by now that a new technology application or platform is just a tool, and not the end goal of transformation, but some organizations are still leading with the wrong foot.
“The way to approach digital transformation is to look at the consumer touch points and reengineer systems around the consumer experience and the call center support experience,” advised Senthil Prabakaran, a strategy consultant and enterprise architect.
“While this means legacy systems cannot be 'lifted and shifted', it leads to a more flexible platform that is truly consumer focused,” he said.
Once you know what you’re trying to do and why, it will be easier to choose the tools and features you need. Understand that you will likely be changing your business model and processes and that requires business acumen more than technological wizardry.
“For example, manufacturers trying to do digital transformations are often left baffled with how to change their business model,” said Prabakaran. “The balancing act between current revenues with traditional channels, and new untested revenue streams with Digital and Direct to Consumer commerce, is quite a challenge.”
He used changes needed in backend systems as an illustration of how companies can get tangled up in the technological weeds.
“Backend systems are oriented towards B2B and batch processes. Shifting from B2B to B2C as part of their digital transformation requires a completely different perspective, changing core business processes that the organization has used to for decades,” said Pranakaran. But simply planning a back-end modernization isn't the place to begin.
“New business processes to support a true transformation have to be created/adopted, and systems of record need to align to the new business processes.”
Beware of measuring technological deployments and adoption rates because success in either of those metrics alone means little in the bigger scheme of things.
“Digital transformation blunders are often associated with platform or product failures. In truth however, more digital transformation initiatives fail as a result of poor organizational change management – meaning that technology was implemented successfully to meet the business objective,” said Akhilesh Tiwari, global head of enterprise application services at Tata Consultancy Services.
“The teams were either unable, unprepared, or unwilling to shift processes required to execute on a new process or system. Failure analysis will show that change did not happen from within and change management agents failed to deliver what is an essential first step in this journey.”
2. Taking on too much at once
Ambition is critical — small changes don’t amount to real transformation — but experts said that ambition must be paired with realistic expectations.
Taking on too much at once can create unnecessary havoc and revenue cuts while the company is trying to continue to perform during the transition. Confusion reigns from the outset and unfortunately ends in the entire effort being scrapped.I’ve seen clients take on too much and fail because their concept of ‘minimum’ was a bit too aggressive.“While much progress has been made with iterative planning, defined scope can simply end up being too large a goal. While scope can be broken down into iterations as well, the risk here is to only view success in light of the original vision,” explained Erik Gfesser, Principal Architect at SPR Consulting.
“One needs to think big with respect to digital transformation, but it also makes sense to take steps. I've seen clients take on too much and fail because their concept of ‘minimum’ was a bit too aggressive.”
2. Unrealistic budgeting of time and moneyOften it isn’t the actual costs that lead to a digital transformation fail. Rather, it’s poor planning that can cause costs elsewhere to rise, and cause allocated resources to be prematurely exhausted.
“Since the comprehensive digital transformation is associated with a substantial investment, important initiatives can be slowed down or stopped halfway due to budgeting issues. Preliminary budget planning and prioritizing is crucial to avoid this pitfall,” said Andriy Krupa, CEO of ELEKS, a provider of software engineering and consultancy services.
“Often, the root cause of unsuccessful transformation is the organization’s failure to design and build a solid foundation for it - a sustainable IT architecture. Ideally, it should be modular and holistic, and designed with the aim to maximize business/user value,” he said.
“In some cases, the organization’s inability to segment value pockets can affect the success of digital transformation. As a solution, they can invite experienced IT architecture designers to create a vendor-independent architecture centered around user value.”
Indeed, for many companies a traditional budget process based on annual plans and updates is itself a hinderance; read more in How Your Budget Blocks Digital Transformation (and What to Do About It).
4. IT isolation
In practice, if not in theory, too many organizations operate with the thought that digital transformation starts and ends with their CIO, Chief Digital Officer, or Chief Innovation Officer, but it is really a company-wide overhaul.
“Yes, a focused, empowered enterprise digital team may be a great way to prime the pump for a transformation agenda; however, long-term this can become a crutch or dependency to driving an innovation and digital-first mindset into every employee in an organization,” explained Kip Wetzel, principal and leader of the digital transformation and Design Thinking practice at management consulting firm Navigate.
“Digital is the new norm and resides with every employee at every level across an organization. Additionally, without a strong partnership between various functions of a business, IT can unintentionally make decisions or execute plans that do not address the key considerations for a digital transformation agenda,” he said.
5. Lack of focus
Some companies start with well-defined intentions, but fail to reach the end zone for lack of follow-through. And that's where a team or digital transformation 'office' - in spite of the risks noted above - can play a key role.
“Digital transformation has no chance to be successful if it is not done by a dedicated transformation team,” said Krupa.
Such a team exists to foster that broad approach and to help overcome resource bottlenecks in the business units, while working to make those units self-sufficient and digitally proficient.
And again, it’s not necessarily a technology team. “Of course, there is no need to do the software development and integration in-house. Most companies hire technology vendors to do the job and provide resources,” said Krupa.
“But inside the organization, the whole process has to be managed by a dedicated executive and team with the appropriate knowledge and decision-making authority,"
Avoiding Blunders with Smart QuestionsAsking the right questions up front helps guide transformation projects along the right path and avoid common potholes.
“Strategy should be the guiding principle for digital transformation,” said Holly Lyke-Ho-Gland, Principal Research Lead for Process and Performance Management (PPM) at the American Productivity & Quality Center (APQC), a member-based non-profit that conducts benchmarking and best practices research.
Lyke-Ho-Gland leads APQC’s process and performance management research group. She says four key questions can help organizations understand if it's a digital project or transformation.
1. What's the value to the customer? If the focus is on the steps of a process and efficiencies without establishing the customer value, it's not transformational.
2. Are we changing how we work? If it simply applies a new technology to how we've always done things, it's not transformative.
3. Who's involved? If its limited to a specific business silo (e.g., marketing or finance) rather than organization-wide, it's probably not transformative.
4. Why are we doing this? If the focus of the effort is solely on cost reduction rather than creating value, it's not transformative."
This clearly does not mean that tactical digital projects have no value or can’t be pursued. However, it’s crucial to understand how projects link to strategy, and apply the right amount of attention and resources to deliver that value.