10 reasons digital transformations fail
Digital transformation is currently a hot topic among companies looking to stay competitive in their markets. Although widespread in almost all industries at every level, integrating technology into business processes comes with risks and challenges that cannot be ignored. If organizations don’t give them enough consideration, these risks can translate into major losses.
These challenges are so difficult to overcome that 70% of companies don’t get a positive return on investment after making a digital transformation.
There are a number of reasons why organizations are unable or only partially able to successfully integrate new technology. Here are 10 of the biggest ones:
1. Insufficient integration into existing business processes
The organizations who try to integrate technology simply to keep up with the competition often get stuck when it comes time to digitize their business processes. It’s important to realize that certain business models are not ready for this kind of transformation, or at least need extra preparation to be successful. Depending on their circumstances, some organizations need to integrate many kinds of technologies while others need to standardize their systems following multiple acquisitions. Planning for the transformation will vary with each organization’s context.
2. Wrong timing
Digital transformation can be highly disruptive for an organization. Organizations need to be able to model the risks and understand their business environment. A digital transformation will look different for a company with highly seasonal changes in consumer habits than it will for a company in a growth by acquisition phase.
3. Lack of resources
When investing in human and financial resources for a digital transformation, it’s important to take into account the risks that would come with failure. An unsuccessful implementation can easily cause the initial cost estimates to double or triple and disrupt an organization’s operations.
4. Moving too slowly
From another viewpoint, a digital transformation must also be planned over a reasonable timeline. Integrating various information processing systems into an organization too slowly can cause disruptive operational bottlenecks. The transformation might also fall by the wayside if it’s taking too long.
5. Skill gaps in the team responsible for the transformation
It’s important that you form an internal team that can manage the digital transformation and define objectives and monitor performance indicators. This team must have people with a good knowledge of the organization’s processes, who understand the technology they’re integrating as well as its impact on your future business model.
6. Resistance to change
One of the biggest obstacles to digital transformation is how resistant employees are to major changes in how they work and their daily routines. It’s important to understand how the changes will affect those involved and develop a transition plan for them so that the changes can be integrated deliberately.
7. Lack of executive leadership
An organization’s executives must all be on board with the digital transformation strategy and display leadership when integrating it. If executives are unable to align themselves with the objectives and changes brought on by the digital transformation, the process will suffer in the short and long term.
8. Misalignment between the digital transformation strategy and business strategy
Digital transformations also need to take into account any changes made to an organization’s business model and future processes. Poor alignment between the digital strategy and business strategy can hinder an organization’s operations and significantly diminish the transformation’s ability to optimize them.
9. Expecting a quick return on investment
When organizations expect returns on investment in the short term, the digital transformation plans don’t leave enough room to account for how many resources a project needs and how long they’re needed. Company transformations often fail when the company tries to stay within the constraints they initially set rather than adapting to changes that arise.
10. Inability to manage operational disruptions
Managing a digital transformation requires time and resources from all of an organization’s stakeholders. Employees must be aware of the projects related to the digital transformation to ensure operations continue to run smoothly. Poorly managing these disturbances could incur losses for the company and undermine the efforts involved in the transformation.
Learn from past failures.
Between 2017 and 2018, the cosmetics company Revlon wanted to change its ERP system to an SAP system in all its business units worldwide. After changing the system in North America all at once, it ran into operational problems, especially fulfilling client orders and paying suppliers.
There were a number of reasons implementing their IT system failed. The company was already in the process of growing by acquiring a number of big competitors, including Elizabeth Arden ($870 M). Moreover, the company’s employees and executives had not been properly prepared for the system’s abrupt rollout and were unable to see the risks involved in SAP system errors, further exacerbating problems with orders. The teams responsible for change management were also unable to reconcile the projects to implement the system with their responsibilities for existing operations.
The system changeover for Revlon was catastrophic. The company recorded nearly $300 million in losses during fiscal 2018 and experienced recurring problems in its operations management for years to come.
The company should have mitigated the risks of such a large-scale operation by first completing its new acquisitions, by making sure they understood the new IT system’s structure and impact on its business model, preparing their employees and communicating the risks associated with SAP implementation to them, and rolling out the ERP system incrementally.
In 2016, the car rental company Hertz hired an external consulting firm with the goal of validating and integrating its new digital strategy to modernize its online reservation and payment platform. Hertz made the firm responsible for managing the project to implement the new systems, selecting the software and establishing which processes in their business model would be transformed. Hertz did not supervise the project, which led to a number of problems in the delivery of the final platform, its compatibility with the different existing systems and delivery delays outside the established timeline.
After a succession of delays and millions of dollars in fees and losses, Hertz decided to terminate the firm and asked another company to complete the system implementation, adding significant costs.
Hertz trusted a company based on its reputation and did not have a selection process that took its particular needs and circumstances into account. They also left the management of the implementation project to the consulting firm’s discretion, and in doing so, lost control of its associated risks.
Hertz could have mitigated the risks involved in its technology implementation by defining a clear strategy for its needs, choosing a firm that was more competent to customize a technology implementation solution and creating an internal transformation team and steering committee to maintain control of the process.
Digital transformation success factors
Digital transformations are complex and multifaceted operations that can only be achieved when the company is willing to dedicate the required resources and make a responsible commitment to its implementation. It is crucial to ensure that the organization’s strategic needs are aligned with its need for a digital transformation, which involves a well-defined process and vision of the company’s future. This is what allows the company to choose the appropriate software to integrate. It’s equally important to have the implementation managed by professionals who know how to customize the software features. It’s also important to consider the risks involved in losing control of the project how it would affect the organization’s resources. It is therefore a good idea to create a project management team that can allocate the necessary resources and ensure the different steps run smoothly within the set timeline. Finally, it is also necessary to offset human risk by preparing the stakeholders for the impacts this type of transformation can create. You need to prepare human resources by training them on the new processes, communicating the developments and changes caused by the digital transformation and establishing their roles in the organization’s future.
You need to be able to rely on the right partner to ensure you understand and mitigate the risks involved in your digital transformation. Talsom offers services to align your technology strategy with your business strategy. We are specialized in managing digital transformation projects, which require careful attention and a highly professional approach. Our team of change management and human resources support professionals are equipped to help your organization develop properly during your technology implementation to ensure its success.