Where Most Companies Go Wrong In Digital Transformation
Many companies’ senior leaders and board of directors believe a company can buy digital technology, implement it and get the benefit of it in a few months. That’s an illusion. Because of the depth and breadth of change required to succeed, that belief is not realistic. The record of studies on digital transformation indicate a high failure rate, with a notable 2013 McKinsey study finding that 70% fail. That is a lot of wasted time, money and unmet expectations. In investigating why digital transformation often fail to meet expectations, I find several factors contribute to the failures. However, I believe the biggest problem is the mind-set. This is where most companies go wrong.
Executives’ mind-set must shift to approaching digital transformation as a journey. This is fundamental to success. Unlike transformation initiatives of the past, digital transformation is not an event that happens. It’s a journey with a road that never ends. It will continue – potentially indefinitely, but certainly for three to five years or longer.
What Causes Digital Journeys To Take So Many Years?
Technology is rarely the reason for failure. That’s not to say that better technology doesn’t make the journey easier and better tools aren’t preferable. But digital technologies are disruptive and cause companies to have to change the organization, talent model, policies, processes and procedures – basically, the entire service model or business model. Here’s how I characterize the difficulty of those changes:
- The interrelated nature of the changes cannot be completely foreseen at the beginning.
- It’s difficult to communicate the degree of change at the outset, so it becomes difficult to build support for it and fund it.
- After implementing the technology and learning how to use it, companies find they need to adjust the technology and then implement even more technology.
- As the technology is implemented, it necessitates collapsing the processes and organizations enabled by the technology.
- It involves changing the metrics that executives establish to drive company performance.
- It takes far longer to implement the changes than anyone wants to believe at the outset.
Obviously, these are not easy changes. And companies can’t do all these tasks at once. They must undertake these changes incrementally over a multi-year journey. This requires going through sprints and then evaluating how effective the changes are. Some may need to be undone or adjusted, and there will be learnings from each stage of the journey before moving to the next stage.
Example: Robotic Process Automation (RPA)
Let’s take RPA as an example. At first blush, it seems to be a very simple technology that is easy to use. Software vendors claim that almost anyone can configure a robot. I’ve tried and successfully configured a robot; and if I can do it, I would say that undoubtedly most people can. I’m a great test for the average person. It’s easy to demonstrate that it’s simple to apply RPA.
But it’s not simple. Very quickly, companies that seek to get benefit from RPA run into substantial change problems. They need to get the approval and alignment of many stakeholders, from IT to the business itself to the engineers and the Center of Excellence (COE) driving the initiative. Educating and getting approval and support from these stakeholders is a substantial effort. Communicating the need for alignment, commitment and support, resources and investment is difficult when the audience (business peers and board of directors) want to believe the change will be quick, easy and not require their constituencies to change.
Managing A Transformation Journey
As I said earlier, the mind-set of managing digital transformation as an event, rather than a multi-year journey, is where most companies go wrong. Success requires change in two key aspects: it must be budgeted and managed differently.
Companies need to change their budgeting mechanisms and forecasting mechanisms. The budgeting cycle continues to focus on annual allocations of capital where a company commits to a project and completes the project. This structure breaks down in the context of a journey.
Companies need to look the objectives of the journey and whether they are being met, rather than spending money how they said at the outset they would spend it.
I recommend changing to a mind-set and structure like a venture capital process. In this approach, leaders make capital available and sprints or projects that are completed draw down on that capital. Through the sprints, they monitor progress of the journey to keep it on track to achieve the business objective. This is different from a detailed plan or road map that lays out all the steps and includes a bottom-up analysis of money applied to go down the journey.
The technique of managing the journey, and monitoring progress toward achieving the objective, must also change for a multi-year journey. Companies often ask me whether it should be the CIO or another person who should take on the role of driving change in a digital transformation? The answer: It’s not one person. The journey has two separate paths, and each path needs a specific team driving the change on that aspect of the journey. I refer to them as the “journey team” and the “operational and capabilities teams.”
The journey team, comprised of senior executives, drives the vision and strategic intent and monitors progress toward that objective. This team also suggests the funding model, secures the necessary funding for the transformation journey initially and decides on an ongoing basis to invest more or less.
The operational and capabilities teams are comprised of capability experts in departments and business units. Their main purpose is managing to complete the objectives of a sprint. Basically, they drive initiatives that change the company’s capabilities.
I’ve blogged before about the characteristics of people best suited for journey teams and capabilities teams as well as the use of third-party experts on these teams.
Executives must remember to approach the sprints as part of the journey. Completing a sprint means readiness to start the next sprint, the next step of the journey. It’s not the end of the journey. I find it’s not unusual for companies to forget they must manage the sprints in a way that brings them together. The mind-set of managing digital transformation as a journey, rather than event, is crucial to success.