The concept of business transformation / digital transformation has become the holy grail for promising organizations a path to success and growth. This can be an intriguing promise to senior leaders given that PWC’s 26th Annual Global CEO Survey in 2023 stated that 40% of Global CEO’s think their business won’t be economically viable in 10 years.
The harsh reality, however, is that a significant number of transformations end up falling short of expectations. While 92% of executives say their business model needs to change due to digitization (McKinsey Survey, 2023) and 80% of companies plan to take on transformation efforts (BCG, 2020), an astonishing 70% of transformations fail to meet their objectives (BCG, 2020).
So why is something so popular and pricey failing at such large rates? There can be many underlying reasons, but below I share my Top 10 to look out for and mitigate against.
1. Lack of Stakeholder Goal Alignment, Commitment & Sponsorship
Leadership plays a pivotal role in the success or failure of any transformation. When leaders lack the commitment to navigate change, fail to communicate effectively to the masses why the change is needed, the implications for not changing, or do not provide the necessary support to remove roadblocks when needed, the entire transformation process can crumble. Establishing strong governance and alignment structures ensures that the transformation stays on course and is successful.
2. Wrong Team, Lack of Skills; Don’t know what “right” looks like
Often companies requiring the most change have been doing the same thing for years and have focused on maintaining the status quo vs. innovating for tomorrow. It can often be that folks have been with the company for a long time and have never seen how best-in-class organizations tackle problems, so it is hard for them to know “what right looks like”.
In order to succeed at transformation, the reality is that you have to keep the lights on at the same time as you are building the new experience, and it is very difficult for one team to do both well. The skill sets for sustainment activities are also not the same as those which drive innovation and evolution. Organizations must carefully allocate resources and consider partnerships or external support when needed to fill in skill set gaps.
3. Underestimating Changes to Ops Model
Everyone is aligned around change when they assess it at the 50K-foot view. At that level, stakeholders might still be assuming that everyone else around them will change but their own department will continue as it always has. That is wishful thinking.
It is important to understand change at a more granular level and to acknowledge that it is the rare department that won’t have to change its day-to-day operations at all in order to support transformation. Gaining this understanding early minimizes the risk of teams communicating and working at cross-purposes which is inefficient and detrimental to achieving the larger goal.
4. Neglecting people aspect… culture change, underestimating employee resistance
Human nature tends to resist change, and organizations are no exception. Employees may feel threatened by the uncertainty that comes with transformation, leading to resistance at various levels. A successful transformation requires a proactive approach to addressing this resistance through effective communication, change management strategies, and fostering a culture of adaptability.
Organizational culture, if not bought-in to the transformation goals, can act as a formidable barrier. Successful transformations require a cultural shift that promotes innovation, collaboration, and adaptability. It is imperative that all levels of the organization understand the “what’s in it for me” which often revolves around solving lingering day-to-day problems for employees and customers. Ignoring or underestimating the importance of cultural buy-in can undermine even the most well-conceived transformation strategies.
5. Expecting immediate results / focusing too much on the now
Transformations involve multiple stakeholders with diverse expectations. Failing to manage these expectations can result in misalignment and frustration. Effective communication, transparency, and collaboration are crucial in ensuring that all stakeholders are on the same page, reducing the likelihood of setbacks and dissatisfaction.
Rome wasn’t built in a day, and significant organizational change takes time. Early on in the effort, much of the work is often “electrical and plumbing” which isn’t sexy or even seen. This means that stakeholders can fail to see progress because it is more behind the curtain, but still a critical foundational element. Establishing proper expectations, explaining why the plumbing is important and why A has to happen before B is critical for stakeholders to understand the progression of work, even when the value isn’t obvious initially.
6. Treating it as an IT project, led by IT alone; must understand business & customer needs
Digital transformation can, wrongly, sometimes be viewed as “just an IT effort” focused on only the act of incorporating digital technologies into the existing ecosystem. Any transformation, done right, is always business-led and customer-focused and incorporates not just system changes but ways of working and experience changes as well.
7. Implementing new tech into broken systems/ outdated tech stack
Addressing technical debt, which is the implied cost incurred when businesses do not fix problems that will affect them in the future, is crucial during transformations. This is when the decisions of the past to kick that can down the road year after year come home to roost. The accrual of that technical debt has caused existing problems to get worse over time and the longer your organization has allowed technical debt to build up, the more costly it will be to rectify. But rectify, you must.
It is imperative that as part of your transformation you take the time to clean the house. At the beginning, this likely means making sure that your corporate plumbing and electrical, so to speak, is clean and up to code. If you have bad or incomplete data for instance, you have to fix that problem before you start exposing it to customers or driving automation off of it.
8. Overestimating Benefits; Underestimating Costs
Transformation initiatives often require substantial resources, including financial investments, technology upgrades, and skilled personnel. Inadequate resource allocation can severely hinder progress and lead to project delays or outright failure. Organizations must prioritize and allocate budget and resources wisely to support the transformation journey.
Budget also plays a critical role. Transformations are neither quick nor inexpensive. Allocating proper budget for multiple years to resource systems and teams is crucial for success.
Both of these elements must be carefully planned before work begins.
9. Lack of a coordinated plan across functions
One of the primary culprits behind failed transformations is the absence of a clear vision and strategy. Many organizations embark on transformation journeys without a thorough understanding of where they want to go and how to get there. Without a well-defined roadmap, initiatives become disjointed, leading to confusion among employees and stakeholders. It is critical that a cross-functional plan exists to drive change, ensure success and build to a new end state vision.
10. Failure to measure outcomes / output; lack of agile mindset
Knowing where the transformation should end and what the end result experience should be is critical to successfully measuring the program. Whether it is contact reduction, increased sales, reduced errors, or faster delivery times, whatever the value-added result, you need to have the end in mind as your work through the multiple years of transformation.
One point that leaders can struggle to understand, especially as timelines and budgets tighten, is that rarely does a single element in your plan achieve the end goal or can alone improve any single KPI. Rather it requires an amalgamation of the whole to substantially improve the experience. The ability to maintain an agile mindset and being open to reprioritize, if needed, to accomplish wins along the way is critical in accumulating a holistic experience improvement.
As you see, the failure of transformations can’t be attributed to any one single factor. Strategic missteps, cultural misalignment, the wrong resources, all can play a part in de-railing or slowing progress.
It is important for organizations to approach transformations with a clear vision, effective leadership, and a commitment to addressing the human aspect of change. By learning from past failures, leveraging best practices, and fostering a culture of continuous improvement, organizations can increase their chances of achieving successful and sustainable transformations in the ever-evolving business landscape.