Advisory Note

Why High-Profile Digital Transformation Initiatives Fail: How to do better

A growing number of organizations are adapting their products, processes and strategies to capitalize on the benefits of digital technology, but some high-profile Digital Transformation (DX) initiatives have failed despite heavy investments. This Advisory Note looks at some of the main reasons DX initiatives fail and provides recommendations for avoiding these common pitfalls to ensure DX initiatives are sustainable and deliver long-term strategic benefits as well as short-term operational efficiencies.

Warwick Ashford

wa@kuppingercole.com

1 Executive Summary

Organizations of just about every size in every sector around the world are at various stages in Digital Transformation projects because of the widely held belief that failure to embrace digital technology will inevitably result in the loss of market share. The fear is that market share would be lost to long-standing companies that successfully manage their DX or to new market entrants that are typically digitally enabled from inception.

While the benefits of DX are clear, achieving those benefits is challenging and should not be underestimated. Without adopting the correct approach, finding the right mix of skills, and careful preparation and planning, organizations could find themselves among those that have invested heavily in high-profile DX initiatives, but failed to achieve the desired outcomes or return on investment.

The opportunity of DX lies in the fact that digital technology can now be applied to almost every aspect of business to enable greater speed and efficiency, but that is also the source of many of the most significant challenges because business leaders typically struggle to understand which opportunities to pursue and prioritize for their particular organization.

DX, therefore, means different things to different organizations. For some it may mean huge investments in new technologies and even acquiring digital technology startups, while for others it will mean strategic application of select digital technologies in key areas of the business.

However, it is important to note that improving the short and long-term capability of the business to enable growth and increase profit should be a common goal, and managing the inevitable changes that DX of any kind will bring, is a common challenge that must be addressed through the development of a comprehensive change management program.

Increasing profits should be the main aim of DX initiatives

Increasing profitability should be the overarching aim of any DX initiative and therefore focusing on customers’ needs should be a key point of focus because that will inform the business on how best to apply digital technologies and adapt their processes and workforce.

While this may involve a radical overhaul of existing IT systems, a more incremental approach is probably more advisable. Instead of a “big bang” approach, organizations should develop a detailed step-by-step transition, starting with new front-end applications aimed at improving the customer experience. This approach will enable quick wins for customers and the business to demonstrate the value of the wider DX initiative and win time to replace legacy systems gradually and without risk.

A phased approach also allows time for business leaders to refine their understanding of the opportunities that DX presents, time for business to get the right mix of talent, and time for employees to adapt to a new way of working. This enables the workforce to gain the necessary skills, experience and confidence necessary to meet future challenges and ensure long term success and sustainability of the DX initiative.

While companies around the world are investing billions in DX initiatives for a wide range of objectives driven by the promise of greater capabilities at lower costs, only around 20% of these are successful. General Electric (GE), Lego, Nike, Procter & Gamble, Burberry, Ford, Hertz and the BBC are among big brand organizations that invested heavily in developing digital products and infrastructures, only to run into significant performance challenges and fail to deliver the expected return on investment.

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