Brian Jackson - stock.adobe.com

Risk and reward: How to succeed in digital transformation

Most organisations are seeking to step up their digital transformation efforts, but history has shown that such efforts can be doomed to failure if they take the wrong approach

The coronavirus pandemic has accelerated the move to digital transformation (DX) as organisations responded to the need for staff to work from home, but as wider DX projects move into a higher gear, organisations should look to past failures to avoid making the same mistakes.

While the benefits of DX are clear in terms of ensuring businesses remain agile, relevant and competitive against both digitally enabled new market entrants and long-standing companies that have completed their digital transformation, achieving those benefits is challenging and should not be underestimated.

Without adopting the correct approach, finding the right mix of skills and careful preparation and planning, organisations could find themselves among those that have invested heavily in high-profile DX initiatives but failed to achieve the desired outcomes or return on investment.

The opportunity of DX lies in the fact that digital technology can now be applied to almost every aspect of business to enable greater speed and efficiency, but business leaders typically struggle to understand which opportunities to pursue and prioritise.

DX means different things to different organisations. For some it may mean huge investments in new technologies, while for others it will mean strategic application of select digital technologies in key areas of the business.

However, it is important to note that improving the short and long-term capability of the business to enable growth and increase profit should be a common goal, and that managing the inevitable changes that DX of any kind will bring, is a common challenge that must be addressed through the development of a comprehensive change management program.

Increasing profitability should be the overarching aim of any DX initiative, and therefore focusing on customers’ needs should be a key point of focus, because that will inform the business on how best to apply digital technologies and adapt their processes and workforce.

Step-by-step transition should be preferred over “big bang” approach

While this may involve a radical overhaul of existing IT systems, a more incremental approach is probably more advisable. Instead of a “big bang” approach, organisations should develop a detailed step-by-step transition, starting with new front-end applications aimed at improving the customer experience. This approach will enable quick wins for customers and the business to demonstrate the value of the wider DX initiative and win time to replace legacy systems gradually and without risk.

A phased approach also allows time for business leaders to refine their understanding of the opportunities that DX presents, time for business to get the right mix of talent, and time for employees to adapt to a new way of working. This enables the workforce to gain the necessary skills, experience, and confidence to meet future challenges and ensure the success of the DX initiative.

10 key categories of failure in DX initiatives

While companies around the world are investing billions in DX initiatives driven by the promise of greater capabilities at lower costs, only around 20% of these are successful. General Electric (GE), Lego, Nike, Procter & Gamble, Burberry, Ford, Hertz, and the BBC are among big brand organisations that invested heavily in developing digital products and infrastructures, only to run into significant performance challenges and fail to deliver the expected return on investment.

An analysis of failed DX initiatives reveals that the reasons for failure fall into roughly ten broad categories, and that the overall failure of a DX initiative is more likely to be a combination of failures rather than failure in any single area.

Market forces cannot be ignored during DX

An over-reliance on DX alone to deliver commercial success, together with a failure to give due consideration to the many market forces that can affect a company’s success that are not addressed by DX, is a common trend among companies with failed DX initiatives. If not addressed by DX, key market forces such as a change in price thresholds may require equal, and potentially even greater, attention than DX-related projects.

In many cases, companies have become distracted by DX, leading to a failure to maintain focus on other aspects of the business and a failure to invest where the need is greatest.

Understanding the true nature of DX is essential

Company leaders commonly fail to understand what new technologies can do and what their impact on markets, products/services, and distribution channels is. They fail to understand the market demands and how DX should and should not be applied to meet those demands.

Company leaders tend to implement digital technologies to save time and operational cost, and avoid disruption, rather than to transform and grow the business by enabling new business models, products and services.

Every DX initiative should focus on business outcomes

Companies often focus on particular technologies/tools rather than market opportunities and desired business outcomes. As a result, they fail to set clear goals, to link DX to business strategy and value/profit, and to measure progress so that they can take corrective actions where necessary.

DX requires continuous monitoring and adjustment because it is more than technology; it also about new processes that change the way the business operates and involves people, machines, and business processes.

Leadership alignment is key to success

Failure to reach agreement internally on which strategies and objectives to pursue is common among organisations with failed DX initiatives. This makes it difficult to prioritise projects and activities and measure progress.

Similarly, companies also tend to fail to integrate business and IT teams working on DX initiatives to ensure effective communication and alignment between them. As a result, they fail to adapt business processes, culture and governance structures to support the changes required by DX.

Stakeholder support helps drive DX

After leadership alignment, it is important to get support of all the stakeholders, internally and externally. DX efforts could be frustrated or undermined by employees if the benefits are unclear or if the planned changes appear to threaten job security.

It is equally important to get the support of external stakeholders such as partners and customers because failure to consult all stakeholders to understand the issues and take their views into account when planning DX initiatives is likely to result in resistance to the planned changes.

Regular reviews help keep DX on track

Companies commonly fail to implement systems to record DX investments, progress, and results. As a result, the need to adjust for problems and changes in delivery or risk could go unnoticed until it is too late.

Regular reporting on progress helps to flag problems and delays in the delivery process and allow change managers to assess future actions properly.

DX initiatives depend on the availability of required skills

Most companies often lack the skills sets or workforce composition necessary to support and sustain digital transformation initiatives, and do not develop and implement effective workforce development programs with enough lead time.

This is exacerbated by the fact that companies typically struggle to find, train, and retain the right talent to keep up with technological change and maintain or scale up DX after the pilot phase. Identify skills gaps, bring in external support, and start upskilling staff from the start.

Effective governance ensures an integrated view of risk

Failure to implement an effective governance structure will inevitably lead to failure of any DX initiative because there will be no way of assessing progress or keeping the project on track.

Only when corporate governance bodies are given a clear view of the status of the DX project will it be obvious that any required mitigation is not in place, and that additional assurance activities are required.

DX security and architectural requirements should not be overlooked

Companies commonly fail to understand the security risks of new technologies in their pursuit of DX to cut costs, improve efficiencies and enable new revenue streams.

Failure to identify and mitigate security and privacy risk at the outset are likely to result in delays and even failure of the DX initiative. Similarly, companies tend to fail to ensure adequate technology architecture to support collaborative innovation and manage complex integrations of services with products.

Understand the risks of new technologies and include steps to mitigate those risks as part of the DX implementation plan. Ensure IT architecture can support collaborative innovation and management of complex integrations of services before starting a DX program.

Finding the right mix of skills and experience is essential

The importance of having the right skills and ensuring there is a skills development program to transfer skills has already been mentioned, but another related factor that many failed DX initiatives have in common is a failure to build an integrated workforce with the right mix of skills and experience ranging from digital natives to long-serving members of staff.

Several high-profile failed DX initiatives have shown that it is a mistake to set up separate units, sometimes called “digital factories” that isolate people with digital skills form those who know the business well.

Putting digital natives and experienced employees together is far more likely to result in appropriate, valuable and effective innovation, while at the same time achieving the necessary digital skills transfer.

Conclusion

Although the risks of a failed DX are many, following a well-designed process for implementing change can help mitigate these risks.

Key success factors include a focus on customer needs, being profit-led, implementing incremental change, iteratively revising strategy, using experience as a guide and prioritising access management.

An analysis of successful DX initiatives reveals that these companies are clear about the value they want to achieve at the outset, they understand the importance of collaboration, and they recognise how the planned DX will affect their organisation and take steps to mitigate that.

Read more about digital transformation

Successful DX initiatives are typically customer-focused, profit-led and incremental, involving smaller scale projects and extensive testing based on internal and external feedback before rolling out changes on a larger scale, rather than adopting a “big bang” approach.

Each round of innovation is based on experience from the previous round, as well as feedback from all stakeholders to enable quick and frequent wins that provide measurable progress that is sustainable in the longer term, backed by an effective workforce development plan.

Successful DX initiatives also tend not to involve radical change. They are more likely to focus on gradually transforming the core business to achieve greater speed and efficiencies in the short term and enabling new products, services, and business models.

The bottom line is that successful DX requires full commitment from the organisation to reinvent itself with new skills to gain competitive advantage.

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