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Guide | October 18, 2021

Why Digital Transformations Fail: Top 6 Reasons

Professor Dan Aerily once said, “Big data is like teenage sex: Everyone talks about it, nobody really knows how to do it, everyone thinks everyone else is doing it, so everyone claims they are doing it”. The “teenage sex” varies a lot at different phases in our lives, as well as the business’. In a post-Covid world, the “teenage sex” is also true for the bigger picture: digital transformation (DX). 

According to Statista, in 2022, spending on digital transformation is projected to reach 1.78 trillion U.S. dollars. Between 2020 and 2023, direct digital transformation investments are forecast to amount to almost 7 trillion U.S. dollars. However, while “everyone claims they are doing it”, not many people know how to do it: According to a McKinsey study, a whopping 70% of all digital transformations fail. 

Despite the huge amount of money and effort put into digitalizing the business landscape, there is an undeniable fact that even though the amount of cash flown into digital initiatives has increased every year, the result has amounted to not so much.

Why is everyone so hyped about DX? What are the most common reasons causing digital transformation failure? In this article, we take a look at the digital transformation landscape and see the top 6 reasons why digital transformation failed. 

Why Digital Transformations Fail: First and foremost, it’s not a problem about technology 

digital transformation is about mindset, not technology

Fitting technology into the overall process won't guarantee business needs, just because digital technologies provide possibilities for efficiency gains and customer intimacy.

The mindset that digital transformation is all about technology is the reason for the pitfall of many companies, as this thought reflects some of the greatest misunderstandings of business owners everywhere: they failed to differentiate the two terms “Digitalization” and “Digital transformation”.

“Digitalization” is applying technology to the recent business while “Digital transformation” is doing things in new and digital ways. David L Rogers, a professor at the Columbia Business School, the author of the Digital Transformation Playbook, has claimed that “Digital transformation is NOT a problem of technology. It’s about strategy, leadership and a new way of thinking”. DX is a much larger field and you should think of digitalization as a crucial part of the digital transformation, but that’s it. DX includes all different edges of the business, from understanding customer touchpoints, growth strategies, mobile apps, process digitalization to new business models, etc.

A noticeable example of this is the digital journey of GE. At first, GE started with big ambition by creating a new business unit called GE Digital to leverage data to turn GE into a technology powerhouse. Billions of dollars have been poured into GE Digital and yet, GE Digital quickly became stuck because it had to prove the efficiency to the company’s shareholders and had to focus more on short-term goals and earnings than long-term innovative goals and returns. It is of no surprise that the department soon became a failure.

The reason for this failure is that GE tried to do too much without a real strategic focus in any area. While aiming big, the company was simply too large to transform all at once, not to mention the lack of a true vision of what it was trying to achieve. 

Long story short, fitting technology into the overall process won't guarantee business needs, just because digital technologies provide possibilities for efficiency gains and customer intimacy. If people lack the right mindset to change and the current organizational practices are flawed, DX will simply magnify those flaws.

Digital transformation projects and initiatives can be broken down into 4 categories - Have your known about them? Check out HERE

Why Digital Transformations Fail: Unclear goals among C-levels

Why Digital Transformations Fail: Unclear goals among C-levels

Digital transformation is a water flow: it must flow from the top to the bottom. If anything arises, prevent the top employees from looking in the same direction, high chances are your DX journey are doomed.

Another big problem with DX is, everyone tends to be confused about the outcome: What success is supposed to look like? That reflects a massive pain point: When top managers aren’t looking in the same direction, their digital transformation journey is more likely to fail.

Transformation is like a water flow, starting at the top of the chain - which means all C-levels must be on the same pages. Not having a clear vision also means companies often end up with an underfunded and misunderstood concept of what such transformation efforts entail. More than often, an opaque goal is there to prevent C-levels from looking in the same direction without any alignments in execution and thus, have a higher chance to lead to failure. 

While many C-levels lack the necessary technological insight to understand what needs to be done and how it would impact their bottom line, CEOs really need to get behind the transformation. CEO support for digital initiatives is also critical for securing an adequate digital transformation budget.

Why Digital Transformations Fail: Underestimating the costs

The journey to digital transformations is messy and costly, which is the number one thing most business owners note when they start considering joining the race. While it is true that companies invest in digital transformation to increase revenue and reduce cost, the fact is that a large number of them are approaching DX with much smaller budgets than are needed.

The cheapest products, cheapest routes and fastest time-to-market while still expecting the grand results seem ideal and tempting, but in reality, that somehow can be a good recipe for disaster. Don’t get us wrong - there's nothing wrong with open-source solutions, cost-effective consultants and efficient delivery models. However, in our technological world, the saying “what’s expensive is cheap" is true in most scenarios. Why? At the end of the day, spending less on something will cost you much more on others. What an organization saves by going with cheaper products and consultants, will often make them pay with heavier customizations, technical debt and maintenance costs. The cost of effective digital transformation rarely fluctuates — what varies is where and when you spend it.

Why Digital Transformations Fail: Hiring the wrong people 

A great vision and ideas are just one side of the equation - you need the best IT Talents to materialize your ambition. Failing to hire appropriate talent to drive transformation initiatives is another factor why digital transformation failures happen.

One mistake many companies, especially non-digital ones, are making is planning to transform their company with all the same people and executive team.

However, finding people with the right skills for your digital transformation journey can be a challenge. This has become such a big problem that even the pandemic-induced unemployment rate hasn't loosened up the talent market. There's still a dearth of talent in high-demand fields like artificial intelligence and cybersecurity.

Are you looking for an agency that understands your market, your business, and your customers? Talk to eCommerce and digital transformation experts at SmartOSC to materialize your success now.

Why Digital Transformations Fail: Utilizing outdated or not a suitable tech stack

When implementing digital transformation projects, focusing solely on the enabling technology can lead to failure. Your organization’s tech stack should foster unification between sales and marketing teams, driving results with all the tools, services and analytics needed to execute larger organizational strategies. Without it, digital transformation efforts will fall flat.

For example, if your company is looking at enabling a video-first communication environment, solely focusing on Zoom or WebEx will distract them from considering the compliance implications of the new software. The most likely outcome is that the project will get held up.

In the said example, what that company should do is look at the full stack of technology to see if they are going to share information in a new way. If they need to build new security and compliance infrastructure in place or involve those other constituencies.

Explore 4 technologies and how they help the digital transformation of an enterprise HERE

Why Digital Transformations Fail: Adopting a fail-fast-then-what attitude

Fail fast is a philosophy that values extensive testing and incremental development to determine whether an idea has value. An important goal of the philosophy is to cut losses when testing reveals something isn’t working and quickly try something else, a concept known as pivoting. A company that embraces the fail-fast philosophy develops its product or service incrementally, continually testing customer satisfaction to make sure the product or service meets customer needs before investing more time and money.

But while that’s a method most lean startups use, its modification of fail-fast-then-what can be the opposite dead-end leading to failure.

The problem with this fail-fast attitude is, first, you accept failure and, second, don't require any of your actions to be really thought through. Companies are advised to avoid this by doubling down on their initiatives if they fail the first time and focus on doing it "bigger and better".

Wrap up: If the failure rate is so high, is Digital transformation worth it?

Getting back to the “teenage sex” we mention in the first paragraph, the question is: Is it worth it?

We don’t know about other “teenage sex” going in and out of your business, but this DX is definitely worth it, says a Harvard Business School study published by Professors Marco Iansiti and Karim Lakhani. 

The two authors have studied large companies and enterprises (>$3.4b) in the Consumer Packaged Goods, Financial Services, Manufacturing and Retail Industries and concluded that the use of digital capabilities and the advantage afforded by them is more than uneven. There is a noticeable “Digital Divide” emerging between the top 25% digitally mature companies (Digital Leaders) in each industry and the bottom 25% (Digital Laggards).

why digital transformation so attractive even though the rate for failure are high
The chart shows a gross margin difference of 18% between the haves and the have-nots. (Source)

Being the trusted eCommerce vendor to many large global enterprises, SmartOSC is now building the success of many digital transformation journeys. Along with analyzing how digital transformation fails, we also perform a similar analysis for the successes. Surprisingly enough, in both cases, there are several commonalities:

  • Successful companies focus on the customer.
  • Successful companies have adopted a culture of Innovation from top-employee downwards
  • Successful companies have a clear and well-thought strategy and vision
  • Successful companies view digital technology in a bird view
  • Successful companies make data-driven decisions  

Does your digital transformation take into account these risks and critical success factors? SmartOSC’d love to hear from you. Check out other Digital Transformation articles and subscribe for more industrial insights. 

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