According to Forbes magazine, over 80% of companies fail at digitalisation. I was curious why this figure is so high, and what the underlying reasons are. By analysing articles found using Google search, I found that this high failure rate could be explained using 24 success criteria that I grouped into 6 themes. This article explains how you can avoid failure in your transformation programme by explaining why each success criteria is important, and what action you need to take. I conclude by leaving you with 6 key takeaways.
More Than 80% of Companies Fail at Digitalisation
Unfortunately, digitalisation initiatives do not have a strong track record of success. It has been estimated that 84% of companies have failed at digital transformation (source: Forbes). Another source estimates that 70% of digital transformation initiatives fail (source: McKinsey).
I investigated why the failure rate is so high, and present my findings here. I also explain what you need to do to avoid being in the 84% who fail.
24 Success Criteria Belonging to 6 Themes
The approach that I took was to find and analyse articles using Google search. I took the top 20 articles found by searching for “digital transformation failure” and the top 20 articles for “digital transformation success”. Across the 40 articles, I found 226 reasons why digital transformations failed or succeeded. I then distilled these down to 24 distinct success criteria, which I grouped into 6 themes.
Figure 1: Number of articles that refer to each success criteria
Theme 1: Strategy & Business Model
The strategy and business model theme was by far the largest across the articles that I reviewed, with just over a third of critical success factors belonging here, and 85% of articles referring to this theme.
Commit for the Long Term
There is no getting around the fact that your digital transformation will take time. One of the biggest challenges that you and your company will face is how to manage the expectations of investors, who may focus on short term returns rather than long term systematic change. To convince them, you need to build a strong business case for your transformation (see Vision and Strategy below). Other actions that you need to take are:
- Get an up front commitment for the long haul from your board
- Make sure that senior management understand that transformation is a continuous process, and not a one-and-done initiative
- Take steps to ensure the continuity of key staff
Another reason that transformations fail is because of the lack of understanding of what exactly digital is and what it means for you and your company. Questions to ask yourself include:
- Is there a consensus on what digital means within your organisation?
- Do you really appreciate the true scope of digital?
- Are you clear on the economics of digital? The rules of digital business models are very different from those of traditional models. Digital destroys economic rent, it drives a winner takes all economy, and rewards first movers
- In your planning, have you considered that in the digital economy, industries are replaced by ecosystems?
A data driven approach should be central to your transformation programme. The areas in which you should be utilising data are:
- Customer data – use data about your customers to create a product tailored for them and use ad-tech to reach them
- Project metrics – use data to understand the impact of each iteration, and use that data to adjust your plans for subsequent iterations
- Systems monitoring – monitor your IT performance in real-time. Companies that do so are 24% more likely to succeed in their transformation efforts
A pre-requisite for all of this is, of course, having high quality data, which means that your transformation programme should include an initiative to improve data quality.
Getting the balance between being too ambitious and not being ambitious enough is difficult. When you think about the scope of your programme, consider the following:
- Don’t try to fix everything – GE tried to do too much in their digital transformation, and ended up doing nothing well because their resources were spread too thinly
- On the other hand, if you only make incremental changes, the result will not be a digital transformation. Whilst those incremental changes may have value, particularly in the short term, they won’t be radical enough to address the disruption your industry faces. Digital programmes that were on track were found to be 30% more likely to be full scale transformation programmes
- Selecting the right timescale for your programme can be tricky. Too short, and you won’t achieve enough. Too long, and lack of momentum will become an issue. I recommend that you choose a 3-year timeframe unless you have a good reason not to, based on what McKinsey recommends
Focusing on Technology
One fundamental mistake that you need to avoid is focusing too much on technology. Whilst technology is important, people and process need to be included in your transformation programme too. Digital transformation cannot be left solely to the CIO to implement, it must be business led. On a related note, be careful not to implement technology based on hype rather than the business benefit.
Vision & Strategy
Before embarking on your digital transformation programme, you must have a well-defined digital strategy. Your strategy should articulate:
- The opportunity and what problem it solves
- The expected commercial value
- What the common purpose across the organisation is
Digital Business & Operating Models
You will need to have a digital design for your business. The articles I reviewed explained the importance of looking for digital opportunities specific to your industry, and of building a new operating model for digital. In the context of digital, it is particularly important that you think about value creation and not just cost.
Involve Your IT Team
You must involve IT team in your transformation if you want to succeed. Don’t make the mistake of bringing in external consultants and ignoring your own IT team. Your IT department understands your current state, including your platforms, your data, and your business processes. Understanding these are at least as important as understanding digital technologies, and without that understanding you cannot build a solid plan. Businesses that included their IT infrastructure teams in their transformation programmes were 36% more likely to succeed.
The final thing to consider in the Strategy and Business Model theme is that you should be aware of what your competition is doing. Remember that the competition includes not only start-ups looking to disrupt your industry, but also traditional players that are digitalising.
Theme 2: Capability
The next theme that we will review is your digital capability. The capabilities of your company depend on your technology, your staff, your business processes, and your partner network.
Perhaps unsurprisingly, talent was one of the top 3 most frequently mentioned success criteria. With technology progressing at unprecedented speed, and both traditional and start-up companies looking for staff with digital skills, recruitment and retention can be a challenge. A few of the sources were very much in favour of vendors, but I advise you to develop your own capabilities where you can, as digital is neither temporary nor a bolt-on, but a fundamental part of your company. When filling gaps in your resourcing, consider the following:
- Hire specialist staff
- Create an ecosystem of partners and vendors
- Upskill your own workforce
- Don’t underestimate the human capital challenge involved in of scaling up from your pilot projects
To be successful, you must have the right digital leadership team. Your digital leaders need to be
- Visionary, and able to focus on long term goals
- Skilled in the human elements of transformation e.g. able to connect all the different stakeholders
Again, it is preferable that you develop digital leaders from within due to the fundamental nature of digital and the need to understand your current state.
Technology & Tools
Given the critical nature of technology to digital transformation, I was a little surprised to find that only 7 of the 40 articles talked about technology itself (I exclude the point above regarding too much focus on technology, which is an organisational issue, not a technical one). Possible reasons are a) the desire of these articles to appeal to a broader audience than tech departments b) issues with technology are down to deeper rooted non-technical issues such as skills, budgets or culture. Here are the actions that I suggest you take regarding technology:
- Make sure that you understand the technology required AND the talent required to work with that technology
- Give your day-to-day tools a digital upgrade. Think about creating tools that enable easy access to information and self-service
- Create re-usable components. A digital platform is not a single app. Consider Amazon, who were able to re-purpose their e-commerce platform to create Amazon Web Services
- Make sure that your core IT infrastructure is good enough to support your ambitions BUT be careful not to spend time over-engineering it that could be spent on the digital platforms
- When thinking about legacy technology:
- Consider partnering with a digital company to access cloud platforms and products instead of upgrading your own legacy technology
- Think about how you are going to bridge the gap between legacy IT and digital IT. Many companies are embracing hyper-converged infrastructures as a solution. A hyper-converged infrastructure differs from a traditional infrastructure because the underlying resources (storage, compute, networking etc) are virtualised
You will find it difficult to complete a digital transformation without external help. But you should use vendors to work alongside your in-house team, and be careful not to rely on them too much. One article that I reviewed even felt that there was a lack of vision from vendors.
A digital transformation involves using digital technology to transform the customer experience AND to optimise your own internal processes. Take the opportunity to upgrade your existing processes and procedures using digital technology.
Before you embark on your digital transformation journey, you must have a good understanding of your current state. You and your organisation also need to be honest with yourselves about your current capabilities.
Theme 3: Planning & Implementation
To succeed in the execution phase, one needs to follow good project management and agile principles, which are widely documented. However, whilst they are well known, they are not always followed.
Along with board engagement, project management was the most commonly mentioned factor for digital transformation success. Do not underestimate the importance of a thorough plan. Even if you are using an agile methodology, that does not preclude the creation of a digital roadmap. Your project management approach must have the following:
- Change management – with such a high degree of change, a common, structured approach to executing those changes is essential
- Goals – your plan must have clear goals so that staff can work together effectively
- Priorities – your goals must be properly prioritised to ensure that the velocity of transformation is sufficient and that your teams are focused. You should schedule quick returns and impactful changes early on in the project
- Governance – your governance model should utilise KPIs, and have the right level of seniority on committees to ensure that effective decisions can be made
- Well defined roles and responsibilities
The benefits of agile are a) agile is built on the assumption that you are trying to hit a moving target b) the project team receive frequent feedback, allowing them to make adjustments during the project. In addition to agility as it applies to projects, it is also a desirable characteristic of an entire organisation. This is what you need to do regarding agility:
- Take an iterative approach to project delivery, and avoid over-planning (see article on common scrum problems here)
- Leverage micro-revolutions and lighthouse projects. These are small, quick, well-defined projects that deliver measurable outcomes
- Remember the duality of digital i.e. digital organisations must be adaptable and change ready in addition to having streamlined business processes. Take steps to make your organisation agile (see Culture)
- Use pilot projects to manage risks and facilitate understanding
It goes without saying that your digital transformation must comply with regulations.
Theme 4: Alignment
Whilst the alignment theme contains only 3 factors, those factors together are mentioned 43 times, demonstrating its criticality to success.
This was the most mentioned single success factor (along with project management). That demonstrates how critical buy-in of the CEO and the board is to a successful transformation. To ensure that your transformation programme does not fail, you should ensure that:
- Support is not passive, the CEO and board must be actively involved
- The board commit both time and money to the digitalisation effort
- You have a digital transformation champion within the C-suite. 83% of transformations that are on-track are led by the CEO, CIO/CTO or CDO. The C-suite members most often taking the lead are CMO (34%), CEO (27%), CIO/CTO (19%)
- The board members agree on the goals of transformation
With such a wide-ranging change effort, communication is of course important. My suggestions are:
- Align your staff around your digital vision and the change story
- Tailor your messages for employees to make them applicable in the context of the tools and processes they work with today
- Work on improving communication between the high- and low-level employees
- Use digital channels both internally and externally to share information
- Use multiple channels and formats to target different groups
As you might expect, you need to have the right organisational structure to succeed. In particular, you need to be careful to avoid silos. This is what you need to do:
- Don’t create a separate organisation for digital transformation; whilst you may make good progress early on, the changes either won’t be transformative enough or you will face huge issues integrating across the wider organisation
- Focus on creating alignment across the entire organisation, and avoid creating silos. This can be done by carefully constructing incentives and goals to be complementary
- Establish cross-functional debriefs
- Have strategies to deal with the inevitable conflict between new and old
Theme 5: Culture
Cultural change is widely recognised as being central to transformation, but also regarded as one of the biggest challenges. Cultural change needs to start at the top, with senior managers leading by example. Incentives need to be modified to encourage change, and expectations around the expected behaviours need to be clearly laid out. Things to consider are:
- Resistance to change and fixed mindsets are the biggest enemy of transformation
- Employee empowerment is a key cultural change that must be made. Without it, your organisation cannot be agile enough to be digital
- Another vital cultural change is embracing innovation. This means being prepared to experiment, and learning from and accepting failure instead of penalising employees for taking risks
Theme 6: Customer Focus
Our final theme and success factor is customer focus. There was consensus amongst the 8 articles that the digital business design must consider what the benefit is for the customer, and how digitalisation improves their experience.
The key takeaways are that for your digital transformation to succeed, you must:
- Have a solid digital strategy before starting
- Think about how you will build your digital capabilities
- Have a strong project management framework in place and have an iterative delivery plan
- Engage your entire organisation and have involvement from the board
- Have a plan to change the culture
- Make sure your strategy has the customer at its centre