Digital transformation programs are everywhere. But how many will succeed? Sector after sector, firms have woken up to the potential (and threat) posed by digital. Many have reacted decisively, investing to upgrade channels, automate manual processes or build new digitally enhanced products and services. But firms are finding that digital transformation is difficult. Across all types of transformation, McKinsey research suggests that only about 25% of transformations rate as a true success. Anecdotally, success rates for digital transformations are lower, despite huge focus from boards and executive teams. What is going on? Simply, digital transformation is difficult. Here are 10 reasons why. Not every problem will surface in every situation, but it only takes a few of these factors to turn an exciting digital vision into a painful execution slog. In subsequent posts I will explore how firms are addressing some of these challenges.
1. It’s easier to wait than start
Invest ahead of the curve and shareholders punish you for wasting precious cash. Invest too late and you may miss the boat entirely (e.g., Kodak) or end up paying royally for risky catch-up acquisitions (e.g., Time Warner). Technologies (e.g. driverless cars) that look like science fiction one moment become old news the next. Investing at the right time really matters. For some executives, it’s easier to kick the can a little further down the road.
2. The goalposts keep moving
The environment in which firms operate is changing at an extraordinary rate. When customer expectations are rapidly rising and competitors (old and new) are innovating, its hard to decide exactly what your digital transformation should target. Even if you are clear about what you want to achieve, there is a high chance you’ll have to reset specific objectives along the way. In the worst case, internal decision processes move slower that the external context, leading to constant re-planning.
3. You end up answering some really tough questions
Digital transformations sometimes require organisations to ask some tough questions of themselves. Simple questions about ‘what’ the business does (e.g., ‘what services should we provide at what price’) are quickly followed by more challenging ‘how’ questions (e.g. ‘how can we reduce our time to market from years to days’). In some cases, this leads to a more fundamental set of ‘why’ questions (e.g. ‘why are we in this business’?). A mission statement may need to change from ‘making great value products’ to ‘managing the data that helps our customer drive value from products’. These questions take time and effort to answer, and may precipitate a full blown identity crisis.
4. You have aliens in the C-suite
Whilst new recruits are increasingly drawn from the ranks of digital natives who have a deep understand of digital technology and it’s potential to change businesses, the c-suite is often populated by ‘digital aliens’ who do not. Most executives rely on a personal playbook and intuition founded on years of experience, some of which is no longer fit for purpose.
5. No one really owns it
Digital touches every function. The early action may focus on sales & marketing and IT, but delivering digital’s full potential require every function to play. No only do they need to play, they need to play together in a joined up way, which requires a lot of complex coordination. Understandably, few business leaders are stepping forward to pick up the digital brief. CEOs don’t have the bandwidth to drive execution at this level. Chief digital officers rarely are given the mandate to drive such fundamental business change. So it’s hard to find an owner for digital transformation.
6. The business case doesn’t add up
The harsh reality of digitisation is that, in the long run, it drives value to the customer not to the enterprise. When music digitised, Apple captured a huge share of the new market, but the total value of the industry halved, for example. In some sectors, digital investment is needed simply to protect existing revenues, rather than to add to the top line. Under the investing logic of most companies, defensive moves have no value, so its hard to make a persuasive case to invest.
7. Neither top down nor bottom up approaches work
To move rapidly and harness the entrepreneurial energy of the front line, many firms choose to de-centralise digital transformation programs. But strong top-down direction is essential to ensure that resources are focused on the highest potential initiatives and that point-solutions join up to create a coherent customer experience or supply chain. Too little direction risks target confusion, too much stifles innovation. Getting the balance right is challenging.
8. You have too many of the wrong people
Another harsh reality is that, for most firms, you need a lot fewer people to run the business after digitisation than before. Yet at the same time, you need to hire many new people with digital capabilities (e.g. UX design, data science) that just don’t exist inside the organisation. This leads to the uncomfortable situation of having to ramp-up hiring whilst downsizing (retraining can work but typically takes too long), and in turn creates many internal tensions. Sometimes colleagues who know that they don’t have a role in the end-game will actively block progress to keep their jobs as long as possible.
9. The risks are unfamiliar
New technologies bring new risks. Cyber-risk, is currently causing sleepless nights in boardrooms around the world. But there’s more. IT outage, reputation risks from social media, compliance risk due to new channels, and a host of other nasty possibilities that need to be managed. Many firms don’t yet have the tools in place to manage these risks well.
10. Transformation takes longer than the time available
Average CEO tenure sits at 3-4 years. Corporate strategy cycles typically take a 3-5 year view. Analysts expect results much faster. Whichever time-frame you pick, it’s too short for digital transformation. Digitising a large incumbent is often a decade-long task. Ask any large retailer or media firm. This creates lots of opportunities for the program to move under different sponsorship and be stopped or re-thought.