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Avoiding Digital Transformation Failure

January 20, 2024

Avoiding Digital Transformation Failure

The accelerating pace of investments in digital transformation (estimated to reach 3.4 Trillion in 2026) is indicative of the value anticipated by harmonizing the cyber-physical ecosystem. Expectations range from more efficient processes and enhanced customer connections to improved products and services and the ability to create entirely new value streams. 

Yet, with such significant investments made, why is it that 70% or more of digital transformations fail to deliver on that promise?

While 89% of large companies globally have a digital and AI transformation underway, they have only captured 31% of the expected revenue lift and 25% of the expected cost savings from the effort.
—Lamarre, et al.i

It would seem that while there is widespread agreement regarding the benefits of “becoming digital,” there is much less clarity on those digital strategies and tactics that will secure successful outcomes. Where to start, how to proceed, and what it takes – in practice – appears to elude most organizations.

Everyone kinda sorta knows what to do. How to do it is another matter entirely. 

Digital Transformation Readiness

The digital transformation journey has three pivotal junctures: 1) modernization, 2) interconnection of functions, and 3) new value creation. We propose that success or failure is imprinted at the very outset of the transformation journey. 

While modernization is largely viewed as tech stack upgrades and process reengineering to improve information availability and to maximize insights from data, it is foundationally about transformation readiness: the readiness of the organization’s tooling, processes, and skillsets to enable business transformation.

Successful modernization is not just a tech thing. It is more than the instantiations of AI/ML, deploying a new app to attract more customers, jiggering the tech stack, or ramping up DevOps. Technology is enablement, not outcome. It is the future-readying of skillsets and the ideation of new mental models that will underwrite success. 

Experience has shown that a people-first digital strategy, with sustained focus on developing digital fluency and culture, will dramatically improve the likelihood that a digital transformation will be successful.

[ ] even the best technology will go to waste if you don't have the right processes, culture, or talent in place to take advantage of it…you will only transform when you have managed to change how people behave, and how things are done in your organization.
In short, the critical part of digital transformation is not ‘digital’ but ‘transformation.’
—Tomas Chamorroii

In short, organizational talent is the most crucial strand in the digital thread.

Change velocity constraints & opportunities 

As businesses race to remain competitive, the pressure will often lead to digital strategies that are far too aggressive in both scale and timeline: an all-too-common cause of failure.

And though time may be of the essence, every organization, team, and individual has their unique change velocity: the rate at which change can successfully occur. The reality is that any transformation can only go at the speed the stakeholders understand and accept. Exceeding that cadence all but guarantees suboptimal results. 

As McKinsey research notes, “building capabilities for the workforce of the future” and “empowering people to work in new ways” are two factors that improve the chances of successful transformation. Integrating a plan to future-ready leadership and employees within the transformational program is paramount. In other words, transformational strategy must accompany digital strategy.

Change of any kind, and the pace of that change, must be enabled through expectation setting, skills training, and guided behavioral shifts. To be effective training should be role-based and tied to specific outcomes that are relevant to the stakeholders.

Agile execution of digital strategies that deliver iterative working models – focused on individual interactions, user acceptance, and responsive to feedback – not only improves the technology and processes but increases the rate of adoption and necessary behavioral changes. An agile approach to digital strategy also serves to sustain stakeholder engagement and maintains buy-in (a significant predictor of success) through user demos that deliver against key performance indicators (KPIs) and objective and key results (OKRs). 

Conversely, attempts to speed the process by either forgoing modernization altogether or opting for an out-of-the-box “solution” with presupposed outcomes  will result in a poor return on investment. 

With pre-built “solutions” short shrift is given to discovery, challenge definition, gap analysis, change management, and little if any understanding of what needs to change in the organization’s processes and behaviors: 

  • Expectation setting is de minimis 
  • Future readiness of the workforce, minimal 
  • Priority challenges and goals, vague and ill-defined
  • Meaningful KPIs and OKRs are neither defined nor tracked, and
  • In-process testing and user acceptance, lacking

This is speed (directionless), poorly masquerading as velocity (direction- and outcome-aware). It is not transformation. It is brute-force implementation. 

Optimize Digital Strategy for Success 

A man can eat an elephant if need be – one bite at a time.

While the goal of transformation – interconnecting data flows ( “digital threads) across the organization and its customers – is a large-scale holistic pursuit, digital strategies (new technologies and processes) and transformational strategies (new skill sets, mental models, and behaviors) cannot successfully deploy at organization-wide scale.

Digital transformation is anything but a one-size-fits-all affair. This is just as true within the organization as it is across organizations. Each line of business and function will have unique requirements and market dynamics driving unique transformational goals. This can also be true at the individual processes level.

A holistic approach to digital transformation should be understood as taking into account people, process, and tooling, not the entirety of the organization across lines of business (LOBs) and functions.iii

Consider: organization-wide goals may include such things as improving customer satisfaction, speeding product development and time-to-market, reducing cost, and increasing revenue, among others. But what these goals mean, and what they entail for, say, marketing vs. DevOps, vs. customer service vs. operations, is quite different. Even though they may leverage some of the same data and components of the tech stack, the uses and needed outcomes are unique to each.

Consequently, attempting transformational change at an organizational scale is not feasible. It does not allow for the specificity or agility required at the technical level, and crucially, the behavioral changes and upskilling that needs to accommodate differing requirements across functions and roles.

K’ung Fu-Tse’s (aka Confucius) advice is as salient today as it was 2,500 years ago: Take it one bite at a time.

Rather than some large grandiose ‘solution’ destined to join the 70%, we focus on demonstrable targeted achievements which in turn enable the next transformational step that builds to the larger solution and the organization’s ‘desired state’ which is itself an ever-evolving target.
—Joe Crist, CEO, T42

The benefits of choosing a single process, function, or line of business to begin the transformational journey are profound. Greater clarity and specificity regarding where you want to go – and those transformational and digital strategies that will get you there – are eminently more achievable and provable. 

Each focused transformation is a “sandbox” of iterative testing, validation, and improvement that can be measured against OKRs. This enables the organization to move to the next process, function LOB, or phase, leveraging new proven processes, lessons learned, and with greater confidence. 

This is outcome-based digital transformation. Implementation is agile, and outcomes, quantifiable. 

i The Value of Digital Transformation
ii The Essential Components of Digital Transformation
iii While this ‘holistic’ view does not refer to the entirety of the organization, it does refer to all those impacted including employees, customers, suppliers, and other third parties across the supply chain who’s own processes and behaviors may require adoption to optimize the value of the transformation. It is holistic in contextual awareness and organizational purpose.