I haven’t set foot inside a grocery store since the start of the pandemic. And even though I am now vaccinated, I don’t really see that changing. The reason is simple: buying groceries online is much more convenient for busy professionals like my wife and me. Why go through the hassle when good apps offer seamless and frictionless shopping experiences?
The human, economic and social impact of the pandemic will be felt for generations. For the digital world, it changed the game. Being isolated and socially distant drove most consumers to interact with businesses virtually. Within a very short span of time, it became necessary for all products and services to be digitally accessible. B2B, healthcare, higher education, financial services and public sector organizations were expected to provide — seemingly overnight — the same seamless digital journeys their B2C counterparts had in place. Those digital experiences are here to stay.
5 Causes of Digital Transformation Failure
In spite of all of that investment, an estimated $3.3 trillion by 2025, many digital transformation initiatives will fail — up to 84% according to Forbes. While measuring failure varies from organization to organization, according to an Everest Group study, 73% of companies failed at providing any business value from their digital transformation process. That is trillions wasted with no return. So why do digital transformation initiatives fail?
Granted, many reasons negatively affect digital transformation, yet 20 years of experience in the space have shown me the top five factors are rooted in cost, understanding the business problem, company culture, establishing the proper success measures and bad leadership decisions.
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Cost is the first topic on everyone’s mind when discussing digital transformation initiatives. After all, companies invest in digital transformation to increase revenue and reduce cost, right? Unfortunately, when it comes to investment, companies often approach digital transformation with much smaller budgets than are needed. Time and again I've seen companies find creative ways to reduce digital transformation budgets while still expecting the grand results digital transformation promises to deliver. They buy the cheapest products, hire the cheapest consultants, choose the cheapest route but expect maximum business value.
While there's nothing wrong with open-source solutions, cost-effective consultants and efficient delivery models, they usually come with big caveats that go ignored. I live by the motto "what’s expensive is cheap" because at the end of the day, spending less will always catch up with you. What an organization saves by going with cheaper products and consultants, they often pay for 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.
Related Article: Digital Transformation: Why Now?
Understanding the Business Problem
Spending more doesn’t mean spending most. Every space has good products and bad products and yes, good products usually cost more. However, choosing the right good product is often a tricky decision. Most executives look at the shiny object and dazzling demo of a known brand and think it will cure all of their ills. They fall in love with products, write the checks and force them on their teams to use.
What goes missing here is truly understanding the business problem you are trying to solve before purchasing any product. The adage “understanding the problem is half of the solution” couldn’t be more relevant than here. Otherwise, the sword of Damocles will hang over your entire initiative. While this seems intuitive enough, it's still a rarity in the digital transformation space.
A company’s culture is probably one of the most impactful factors to the success of digital transformation initiatives. Investing the right amount into the right solutions with these initiatives isn't enough. You need the right culture to adopt and nurture digital transformation. Most digital transformation initiatives aim to “transform” the way an organization does business. That can’t be done without the buy-in of everyone in the organization. I have seen dozens of examples where companies invest millions of dollars on amazing solutions only for teams to ignore and circumvent them. In fact, ensuring the company culture is right for digital transformation is so profound, it could help minimize any negative effect from all other failure factors.
Related Article: Digital Transformation Efforts Stall Without Cultural Change
Most digital transformation initiatives start with the goal of staying within budget and delivering on time but not enough focus on business value. The point of digital transformation is to transform the organization wherever there is a digital touchpoint. Such a lofty goal should be rooted in success measures based on the impact of the transformation, not the transformation process itself.
So instead of focusing on time-to-market, we need to focus on the organization's repeated time-to-market following and due to the transformation. And instead of focusing on staying within project budget, we need to focus on progressively increasing ROI of future projects as a result of the initiative. Too many initiatives fail because they weren’t granted a few more dollars or a couple more sprints to do it right. That is exactly the result of when the project team targets the wrong north star.
When leadership sets unrealistic timelines and expectations from day one, it has an outsized impact. Too often I've seen those initiatives tagged with crippling goals, short budgets and aggressive timelines. Leadership also decide who will lead the charge in these digital initiatives — including internal employees and external consultants. Leaders fail to choose the right internal people when they allow internal politics to play a bigger role than merit in their decision process. For external consultants and agencies, I highly recommend a competitive approach where the work must be “won” by an agency and not grandfathered in through relationships. Ensuring a fair competition should include pilots and POCs to prove an agency’s capabilities and vision.
Related Article: 4 Personal Leadership Techniques to Drive Digital Transformation
Bonus: Value Can and Should Be Incremental
This bonus factor has an indirect but significant impact on digital transformation initiatives. Some organizations still rely on big bang methodologies to achieve success. When they inevitably miss their target budget and timelines, that value might never see daylight. Digital transformation initiatives should practice what they intend to solve, gradual and continuous improvement with progressively decreasing budgets and time-to-market. One common trap here is getting stuck in analysis paralysis, where progress stops while you try to define the best outcome. Another common trap is letting the “great get in the way of the good,” as there is nothing wrong with incremental value.
These five (and one bonus) factors are by no means comprehensive, but they are some of the most common reasons why digital transformation initiatives go wrong. Avoiding these pitfalls isn’t easy, but maybe — just maybe — recognizing them can make your digital transformation journey a bit easier.