Your Digital Transformation project can Fail!

Digital transformation is a certainty in today’s world, with global market spending for digital transformation technology and services projected to reach $3.1 trillion by 2030 (Markets and Markets). However, 70% of these projects fail (McKinsey) to meet their objectives.

Reasons for Failure

1.     Lack of Change Management Strategy:

Digital transformation projects often fail due to the absence of a change management strategy. A structured process that helps people understand and embrace business changes, a change management strategy increases the likelihood of meeting digital transformation goals by six times (McKinsey).

A well-documented example of digital transformation failing due to a lack of change management is Sears Holdings Corporation.

Sears, the once-dominant retailer, attempted a major digital transformation in the early 2000s to compete with online giants like Amazon. They invested heavily in technology and online infrastructure. However, they failed to adequately address the human side of the equation.

Here's how the lack of change management played out:

• Employee Resistance: Sears didn't effectively communicate the vision for the digital transformation or how it would impact employees. This led to confusion, fear, and resistance from the workforce.

• Training Gaps: Employees weren't adequately trained on the new technologies and processes. This made it difficult for them to adapt and resulted in frustration and inefficiency.

• Leadership Disconnect: Senior leadership wasn't fully committed to the digital transformation. This mixed messaging further confused employees and undermined the initiative.

The result? The digital transformation efforts floundered. Legacy systems remained in place, and employees lacked the skills and motivation to embrace the new ways of working. Sears eventually filed for bankruptcy in 2018.

This case highlights the importance of change management in any digital transformation project. By effectively managing the human aspects of change, organizations can increase their chances of success.

2.     Misconception of Digital Transformation as an IT Task:

Digital transformation is not merely an IT task. This misconception is a significant reason for project failures. Organizations often focus solely on the IT department, leading to hasty and costly investments in disparate technologies that complicate and increase the cost of the digital transformation process.

A notable example of a company that failed in its digital transformation efforts is General Electric (GE). In 2011, GE started a major effort to assert itself in the digital software space by building a huge IoT platform, adding sensors to products, and transforming its business models for industrial products. It took the next step in 2015, when it created a new business unit called GE Digital. The goal was to leverage data to turn GE into a technology powerhouse.

However, despite pouring billions of dollars into GE Digital and its thousands of employees, the company’s stock price continued to drop and other products suffered. GE Digital quickly became stuck in the pattern of having to report earnings to shareholders and was focused more on short-term goals and earnings than long-term innovative goals and returns.

The failure of GE’s digital transformation can be attributed to several factors, including a lack of clarity on the true definition of digital transformation, a lack of buy-in from GE management, a lack of phased development (instead, GE tried to do it all at once), and a lack of quantifiable KPIs to evaluate success or lack thereof over the course of the digital transformation initiative. This example illustrates that digital transformation is not just an IT task, but a company-wide effort that requires clear goals, strategic planning, and the involvement of all stakeholders.

3.     Rapid Implementation:

Digital transformation is a gradual process. However, stakeholders, leaders, and customers often expect quick results to justify the investment. This expectation can lead to the implementation of too many changes at once, resulting in failure.

A well-documented example of a digital transformation failing due to rapid implementation is Hershey's attempt to roll out a new Enterprise Resource Planning (ERP) system in 2016. In their rush to implement the new system, they made several crucial mistakes:

• Poor Timing: The rollout coincided with the busy Halloween season, leading to glitches during a critical sales period.

• Trying to Do Too Much at Once: Instead of a phased approach, they attempted to implement the entire system simultaneously, overwhelming staff.

• Inadequate Training: The tight timeline left no room for comprehensive employee training, leading to confusion and a drop in efficiency.

These factors combined caused significant disruptions to Hershey's operations, ultimately leading to delivery delays and a decline in sales.

Avoid failure by doing this instead!

To avoid these pitfalls, organizations should approach digital transformation holistically. For instance, if an organization needs to digitalize the HR department, it should consider the four Ps of digital transformation: People, Portfolio, Process, and Platform. This approach involves creating a cross-functional team, understanding how the project fits into the software solution portfolio, considering the impact on user experiences and other areas of the organization, and exploring technology options.

Conclusion

Digital transformation is a complex process that requires careful planning and execution. Understanding the common reasons for failure and implementing strategies to address them can significantly increase the chances of success.