Why Is Transformation So Hard?
In the past several years, nearly every established business has embarked on some kind of digital transformation (DX).
But in sector after sector, the large majority of these firms have failed to achieve the results they hoped for. Multiple global studies have found that 70 percent or more of digital transformations fail to achieve any sustained benefit.
This failure to transform is unsustainable.
Every year, digital technologies have a deeper impact on business in every industry. Shifts in media consumption, digital services delivery, remote work, and A.I.-managed systems are not slowing down. They are continuing and accelerating.
DX is already on the agenda for every board in every industry. We cannot afford to keep getting it wrong.
How DX Goes Wrong
Why is DX failing? What have so many companies done so wrong?
Let’s start by recognizing that digital transformation is hard. In many ways, it involves a kind of balancing act. DX cannot simply be an effort to “digitize” the legacy business—that is, to upgrade existing technology, cut costs, and improve the customer experience of your current offerings.
To stay relevant, survive, and grow in the digital economy, every business must be ready to digitize its core and grow beyond it, to maximize its current cash flow and invest for the future, to pursue both incremental innovations and more radical ones.
But you cannot rebuild your current business and build your next business with the same people, processes, and organizational structures. You cannot use the same approach to rebuild the past and to build the future.
DX and Complex Organizations
Transformation is particularly hard for complex organizations.
Complexity is driven by three primary factors: the number of employees, lines of business, and geographies of operation. As any of these factors increases, the complexity of managing the organization compounds dramatically.
Simply put, if you have an established business with just 300 employees and a single line of business operating in one geography, transformation will be much easier to achieve.
But if your business has 10,000 (or 100,000) employees, you operate multiples lines of business, and they straddle several geographies with differing regulations, then driving DX will be much, much harder.
Top Barriers to DX Success
The symptoms of this difficulty are everywhere.
Talk to leaders, and you will hear a litany of DX troubles: Our employees are afraid of change. New ventures always lose out to the core. Legal and compliance reject our most promising ideas. Our digital efforts aren’t moving the needle. We can’t keep up with digital-native competitors. Our legacy IT is inflexible. Our data is trapped in silos. Our workforce lacks the skills they need.
Sound familiar?
The list goes on, but these are all just symptoms of more fundamental problems in how DX is practiced.
In my own research and advisory work with a wide range of companies, I have found five root causes of failure in digital transformation.
They form the starting point for my new book, The Digital Transformation Roadmap (2023).
Let’s review each of these barriers to transformation and the problems that they bring.
1. No Shared VISION
One of the biggest barriers to effective DX is the lack of a shared vision.
In countless large companies, I have seen “digital” declared to be a priority, but when you talk to managers, it becomes clear that there is no shared understanding of the digital future of their industry, where their business aims to compete, or what gives them a right to win in that future. Instead, there is only a generic rallying cry to “become digital.”
The symptoms of this lack of shared vision are many.
Employees move slowly and show fear of change, lacking a clear sense of where the firm is going and how they might contribute. Investors balk at large financial investments in digital, as do executives responsible for profit and loss statements (P&Ls). The company’s digital initiatives are generic, following the moves of peers and reacting belatedly to market trends. And leaders rely on generic “digital maturity” metrics to guide their efforts because they have no clear business metrics to judge their DX progress.
2. No Growth PRIORITIES
The next major barrier to DX is a lack of clear priorities for growth.
The company may be focused only on “digitizing” its past business and not looking beyond it. Or leaders may lack the discipline to define a few strategic priorities to focus on—customer problems to solve or business opportunities to capture.
The symptoms of this lack of priorities are many.
Without a clear set of priorities, DX lacks strategic direction. Rather than focusing on business problems, DX is defined by technologies (AI, cloud computing, blockchain, etc.) and is easily hijacked by the latest shiny new thing. Without a growth focus, DX focuses only on cutting costs and optimizing the current business. Digital efforts are run by technology specialists as the rest of the organization continues its work unchanged. As a result, DX grows disconnected from business needs and loses support over time.
3. No Focus on EXPERIMENTATION
The third major barrier to DX is an emphasis on planning over experimentation.
Decision makers spend years developing their plans for DX. They demand laborious development of business cases before work begins on any new digital product or service. When work does begin, the focus is on meticulous planning and execution, following a stage-gate approach to carry each project through to a predefined solution. This approach stands in direct opposition to the model of rapid experimentation that guides digital-native businesses.
The symptoms of relying on planning over experimentation are painful.
Decision makers wait for benchmarks and best practices rather than validating new ideas directly with customers. Teams are assigned to build solutions rather than to solve problems. Projects have no flexibility to change direction, leading to costly failures and a culture of risk avoidance. Digital ventures move slowly, are beaten to the market, and struggle to make an impact on the business.
4. No Flexibility in GOVERNANCE
The fourth barrier to DX is the use of business-as-usual (BAU) processes and governance for all initiatives.
Traditional silos, reporting lines, and budgeting dominate, stifling efforts at growth. Companies lack processes for iterative funding or for allocating resources beyond the core. They are unable to stand up multifunctional teams to move fast on new opportunities. In short, they have no repeatable process for managing and scaling growth.
The symptoms of inflexible governance can be seen everywhere.
Executive sponsors must personally approve digital projects and grant waivers to company rules. Functional silos impede team collaboration and slow innovation. Resources are trapped in annual budgeting cycles, hampering efforts to scale innovation. With few projects approved, no one is willing to shut theirs down once it is started. Uncertain ventures are deemed too risky, and innovations outside the core are simply ignored.
5. No Change in CAPABILITIES
The final barrier to DX is a reliance on preexisting capabilities, including technology, talent, and culture.
Legacy technology remains in place, with only patches and cosmetic fixes to IT architecture, data assets, and the rules that govern both. Legacy talent remains undeveloped, with little investment in digital skills or in the workforce and leadership who were hired and trained for the needs of the past. Legacy culture remains unchanged, with mindsets and behaviors that are rooted in top-down, command-and control leadership.
The symptoms of stagnant capabilities are many.
IT systems are inflexible and reinforce the silos inside the organization. Managers lack the shared real-time data that they need to make decisions. Every digital project must go through a central IT division, causing bottlenecks. Digital innovation is outsourced to vendors because your own workforce lacks the skills for digital innovation. A top-down culture and mindset lead to cynicism and a wait-and-see attitude from disengaged employees.
How DX Goes Right…
If the above scenarios sound familiar and bleak, don’t be disheartened!
True, surveys show that 70 percent of DX efforts are failing. But we can learn a tremendous amount from the 30 percent that are succeeding!
Next week, we will take a look at the DX Roadmap, which draws from dozens of successful cases of digital transformation across B2C and B2B industries.
Reminder… if you order “The Digital Transformation Roadmap” today, you can register until September 5 for a special FREE masterclass online with me.
Details are at https://bit.ly/DXR-Masterclass.
