What comes to your mind when you think of digital transformation? Most people think of a successful technology transition, seamless business operations, zero to minimal hiccups, and happy stakeholders. What they generally underestimate are the challenges and pitfalls that come with it. Despite adopting cutting-edge technology, digital transformation can have setbacks. Some of the best-known business consultancies like McKinsey, BCG, KPMG, and Bain & Company concur that the risk of failure in digital transformation falls somewhere between 70 percent and 95 percent.
Digital transformation aims to bring value-enhancing technology to an enterprise through innovation, invention, customer experience, and efficiency. Such comprehensive change within an organization can only be somewhat seamless. Every organization experiences challenges and risks depending on industry, geography, size, and business offering. These challenges must be anticipated and addressed in advance.
Common pitfalls of digital transformation
We often hear digital transformation success stories like Netflix’s transition from DVD distribution to online streaming, Starbucks’ implementation of mobile ordering and online loyalty programs, or Domino’s adoption of AI and GPS tracking. What most case studies need to show are the roadblocks underneath a seemingly perfect digital transformation journey. Here are some of the significant challenges:
Lack of clear vision and strategy: Digital transformation requires a clear and shared understanding of the initiative’s goals, objectives, and roadmap. Without that, digital transformation can become chaotic and costly, leading to stakeholders’ confusion, frustration, and resistance. To avoid this, you must define digital transformation for your organization, list the specific outcomes and benefits you want to achieve, and identify how you will measure and communicate your progress and success. You must also align your digital transformation vision and strategy with your overall business strategy and ensure that the top management and the board support them.
Culture clash and resistance to change: Digital transformation requires a shift in the mindset and behavior of the people involved, both internally and externally. It includes adopting new technologies, tools, methods, and practices that require new or enhanced skills and capabilities from the workforce. However, many people may resist or fear the change due to lack awareness, trust, or motivation. Business leaders must foster a continuous learning and innovation culture that encourages employees to embrace and adapt to the change. They must engage and communicate with their customers, partners, and suppliers to understand their needs and expectations and obtain feedback.
Inadequate skills and resources: Successful digital transformation requires the proper skills, capabilities, and technologies to execute and sustain the initiative. However, many organizations face a skills gap that hinders their ability to leverage the full potential of digital transformation. Organizations must assess their current and future skills and capabilities, identify the gaps and mismatches, and develop a comprehensive learning and development plan covering technical and soft skills. They must also invest in the right technologies for business needs and goals.
Poor governance and alignment: Digital transformation requires strong leadership, governance, and coordination across different functions, departments, and stakeholders. Digital transformation can be complex and multifaceted, involving multiple projects, teams, vendors, and systems. With a proper governance structure and alignment mechanism, digital transformation can lead to duplication of efforts, consistency of standards, misalignment of priorities, and conflicts of interests. Business leaders must establish a clear governance framework that defines each stakeholder’s roles, responsibilities, authorities, and accountabilities. They must ensure that all the digital transformation initiatives are aligned with the company’s vision, strategy, and objectives.
Unrealistic expectations and measurement: Digital transformation requires a realistic and balanced assessment of the costs, benefits, risks, and outcomes of the initiative. Digital transformation can be ambitious and exciting, but it can also be challenging and uncertain. Digital transformation can lead to disappointment, frustration, or failure without a realistic expectation and measurement system. Business leaders must set SMART (specific, measurable, achievable, relevant, time-bound) goals for the company’s digital transformation initiatives. They must also evaluate employee performance using relevant metrics and indicators that reflect the company’s value proposition.
A famous case study in digital transformation failure is Hewlett Packard. The company reportedly spent USD 160 million on its ERP project and had 5x losses. It needed help managing the transition from its legacy system to the new SAP platform. Insufficient resource planning and lack of collaboration across departments only made problems worse. Its failure to project future demand and have contingency plans to mitigate risks also added to the problem. However, this can be the case for some businesses.
Overcoming the pitfalls
While the potential risks of digital transformation may be many, it is not impossible to counter them. With a proper vision and careful planning, your digital transformation journey can be successful.
Communicating and engaging with the people involved: Digital transformation requires a clear and consistent communication and engagement strategy to inform, educate, motivate, and empower the people involved. Communication and engagement are essential to creating a shared vision and strategy, fostering a culture of change and innovation, addressing the stakeholders’ concerns and expectations, and seeking feedback and input. Companies must use various channels and methods, such as newsletters, webinars, workshops, surveys, and social media. They also must tailor their messages and tone to suit their audience and purpose.
Leveraging the existing strengths and assets: Digital transformation requires recognizing and using the business’s strengths, assets, and opportunities. Digital transformation does not mean starting from scratch or discarding everything that works well. Instead, it means building on what is already there and enhancing it with digital technologies. Business leaders must thoroughly assess the current situation, identify their core competencies and competitive advantages, and determine how to use them to support the company’s digital transformation goals.
Adopting an agile and iterative approach: Digital transformation requires a flexible and adaptive approach allowing experimentation, learning, feedback, and improvement. Digital transformation is not a one-time project but a continuous process that evolves with the changing market conditions and customer needs. Business leaders must break down their digital transformation initiatives into smaller and manageable chunks, test and validate their assumptions and hypotheses, measure and evaluate the results, and adjust as needed. They must also embrace failure as a learning opportunity and not view it as a setback.
Partnering with external experts and service providers: Digital transformation requires collaboration and integration with external experts and service providers who can offer specialized skills, resources, and technologies. Digital transformation can be complex and multifaceted, involving multiple domains and disciplines that may not be available within your organization. Businesses must identify their gaps and needs, research and select the best-fit partners to complement their capabilities and goals, establish clear roles and responsibilities, and ensure effective communication and coordination.
Defining and tracking the key performance indicators: Digital transformation requires a clear and relevant definition and measurement of the key performance indicators that reflect the progress and impact of the initiative. Digital transformation can be costly and risky, so businesses must monitor and evaluate the performance using data-driven metrics that align with the business’s vision, strategy, and objectives. Companies must also collect and analyze data using appropriate tools and methods like dashboards, reports, and analytics platforms.
Businesses must learn about potential risks and formulate a resilient strategy before beginning their digital transformation journey. Companies must understand that the process requires thorough planning, careful execution, and regular evaluation. Communicating and engaging with the people involved is essential, leveraging the existing strengths and assets, adopting an agile and iterative approach, partnering with external experts and providers, and defining and tracking the key performance indicators. Digital transformation is a competitive advantage and a necessity for businesses that want to survive and thrive. Successful digital transformation can be a game changer but can become an ordeal without a proper vision and strategy. While the potential risks linked to digital transformation may be many, it is possible to counter them. A company’s digital transformation journey can be successful with a proper vision and careful planning.
