Why Do Digital Transformation Initiatives Fail?
<p style="text-align: justify;">In 2015, GE decided to invest billions of dollars to form a separate unit named GE Digital. This venture was launched to centralize the digital initiatives of the company and to achieve its vision of becoming one of the top ten software companies by 2020. Due to the creation of this unit, the IT development needs of other prominent GE business units like GE Aviation, GE Power, and others, were deprioritized and these units were no longer in a position to directly address their respective digital needs.</p><p style="text-align: justify;">Consequently, this initiative backfired. There was an absence of a clear vision and misalignment between company goals and its digital innovation appetite.</p><p style="text-align: justify;">This is not a one-off case. Digital transformation initiatives seldom see the light of day, even if they are backed by high budget approvals, support of board members along an army of highly trained consultants and technical experts.</p><p style="text-align: justify;">In fact, years of research on digital transformations have shown that less than 30% of digital transformation projects are successful. And, less than 8% of organizations are able to achieve their desired outcomes from investments in digital technology, as discovered by a research study carried out by Bain & Co.</p><p style="text-align: justify;">So, why do digital transformation initiatives fail?</p><p style="text-align: justify;">There is a multitude of internal and external factors that have the potential to stifle the efforts of big corporations to innovate. The most difficult factors to tackle are the ones that are intrinsic to a company such as redundant organizational structures, outdated business models, improper change management, and talent gap. These are deeply rooted in the company’s culture and generally remain unaddressed due to the management’s desire to maintain the current state of affairs in the organization.</p><p style="text-align: justify;">Any approach that is devised by organizations to implement a successful digital transformation initiative will not yield the desired outcome unless it accounts for the emotional effect that it will have on the employees.</p><p style="text-align: justify;">For this, it is crucial to first acknowledge and then eradicate the fears of employees regarding changes caused by the initiative. There can be fears related to upskilling, reskilling, job loss, financial uncertainty, and panic. If these are not addressed properly then fear in itself can become the biggest roadblock to the initiative.</p><p style="text-align: justify;">Some of the other factors are described below: </p><p style="text-align: justify;"><strong>Legacy organizational structure</strong><br />Legacy corporations center the reporting structure around a specific executive or department. This creates barriers for speedy implementations. It has been observed that a fungible organizational structure based on servant-leadership and a flat hierarchy supports innovation and increases levels of cost-effectiveness. Such a structure encourages innovation and doesn't penalize failed experiments, of course, within the defined limits.</p><p style="text-align: justify;"><strong>Lack of innovation in business model</strong><br />Companies fail at business model innovation because they're too fixated on their current business models and do not devote considerable time and resources to design new ones. The innovation efforts of most companies are focused on the development and launch of new products or efficiencies into current models.</p><p style="text-align: justify;"><strong>Suboptimal change management</strong><br />Change Management consists of dealing with the transition and transformation of the technologies, processes, or goals of a company, in a structured manner. It is important to build a proper channel of communication between employees and the change management committee so that there is a high level of awareness. Communication also reduces the lack of buy-in and breaks change-resistant ideas.</p><p style="text-align: justify;"> <img style="display: block; margin-left: auto; margin-right: auto;" src="https://kradminasset.s3.ap-south-1.amazonaws.com/ExpertViews/Braj+panda.PNG" alt="" width="629" height="337" /></p><p style="text-align: justify; padding-left: 160px;">Fig: McKinsey 7S Framework for effective change management</p><p style="text-align: justify;">McKinsey’s 7S framework, developed in the 1970s, is a popular change management framework, among many. The seven change elements in the model are divided into two buckets - the hard elements i.e. strategy, structure and systems and the soft elements i.e. shared values, style, staff and skills.</p><p style="text-align: justify;">The model illustrates that all the key areas of an organization are interconnected, and if there is a change in one area then it will set off a chain reaction in the rest of the organization. Hence, proper care needs to be undertaken while developing change management practices otherwise it will lead to the failure of digital transformation initiatives.</p><p style="text-align: justify;"><strong>Wide talent gap</strong> <br />Failing to hire appropriate talent to drive transformation initiatives is another factor why digital transformation failures happen. Companies do not emphasize on bringing in the right people i.e. the ones having the necessary digital understanding as well as experience in implementing digital transformations in enterprises. And that's especially true for non-digital companies.</p><p style="text-align: justify;">There is no silver bullet that can prevent the failure of enterprise digital transformations. The only prudent approach for leaders is to strike a balance between company goals and their digital innovation appetite. Along with this, these initiatives also need diligent implementation and deep strategizing.</p><p style="text-align: justify;">There are companies like Target and Starbucks that have been able to successfully turn around their operations with the help of timely digital interventions. So, success isn’t impossible. Stay tuned fonext article where we uncover the differentiating strategies adopted by them…</p><p>Authors,</p><p>Braj Panda- Digital Leader, Enterprise Architect</p><p>Himansshi Singhal- Consultant Specialist</p><p> </p>