Top 5 reasons for digital transformation failure

Digital transformation will remain at the forefront of companies’ efforts to adapt, remain competitive, and provide users with the best possible experience. Driven by the continuous growth in internet users and smart devices, constant technological developments, and all-over digitalization, the digital transformation market is expected to expand drastically.

And yet, digital transformation frequently remains out of reach for companies, even as they have committed large amounts of resources and efforts in the process. Transformation projects regularly face challenges that prove to be insurmountable and eventually lead to failure.

Transformation isn’t something businesses can avoid. At the same time, something is amiss in the way that many companies attempt to implement it. So what’s going wrong?

Here are some of the most common reasons why digital transformations fail and what companies can do to avoid that fate for their digital initiatives.

Why digital transformations are failing

Putting the finger on the exact cause of the failure of digital transformation isn’t easy. There are a lot of factors that are at play, and the specific dynamics of each company must be taken into account. However, from a broader point of view, particular themes and elements are frequently present when a company’s transformation stalls or falls apart entirely.

To begin with, there are several common reasons why digital transformation fails, depending on what goes wrong. These can broadly be classified in the following three ways:

• A company may fail at launching a new digital product or service and be forced to scrap the whole initiative and absorb the losses. This may be due to taking on too much and attempting to solve everything simultaneously, bad planning and execution, and more.
• Businesses fail their digital transformation due to not staking themselves more fully on their transformation efforts - i.e., not deeply investing the required time, effort, and resources. This leads to underperformance and low returns.
• Finally, digital transformation may also fail due to adopting digital capabilities or initiatives that, by now, are outdated or should have been adopted long ago. This regressive framing is based on a false or partial understanding of digital transformation.

Typically, digital transformation failures can be classified into three categories. However, we will look at the specific reasons for those outcomes below.

5 root causes of digital transformation failure

Among the many factors that can negatively impact your digital transformation efforts, some can cause more harm or difficulty to your digital business processes than others. Following are five of the main reasons why digital transformations fail.

1. Lack of talent and resistance to change

A genuine lack of talent exists in several vital areas during a digital transformation. From automation and AI to cybersecurity and the cloud - skilled professionals in these fields are in high demand. Not having the right people for the job or not managing to retain those who bring a lot of value and expertise in these fields can easily set your project back for months.

Alternatively, resistance to change may still exist even if talent is present. This can be rooted in your company culture and how well you deal with change on an organizational level. Culture is at the heart of change; if internal collaboration and communication are underdeveloped, how well your teams respond to change will be affected. Even if you have everything else, a rigid, unyielding organizational culture can significantly delay and hamper your transformation initiative.

2. Lack of set goals

Not all resistance to change is insufficient. Sometimes resistance may signal a reasonable response to changes with no clearly defined goal or purpose. Transformation becomes free-floating and diffuses without a clear intention behind the initiative, with specific outcomes to be achieved. This scatters efforts and confuses participants in the process. Moreover, it will frequently lead to underfunded projects or funds not being utilized well.

Unclear digital transformation goals are traced back to how digital transformation is framed. Often this expression is just another name for what(ever) the IT team does. By extension, change is communicated as simply implementing some new digital solution or running behind what the competition seems to be doing. A further reason for indistinct or confusing goals may be disagreements among top managers, making it difficult for everyone to focus and prioritize appropriately.

3. Failure to understand the importance of digital transformation

A narrowly defined scope or a lack of understanding of the importance of digital transformation often leads to dead ends or the need to restart the process. Before starting that journey, decision-makers need to understand the benefits of a digital transformation and why it is worth engaging in it.

Otherwise, there is a severe risk of missing the point and importance of digital transformation as a business problem. The result is that decision-makers may fall in love with digital products (also known as “falling into the tech trap”) and see them as complete solutions to the transformation challenge. Sooner or later, overreliance on products at the expense of holistic change ends up backfiring.

4. Absence of a change management strategy

Going without a carefully devised change management strategy can be a severe risk if you undertake an in-depth digital transformation. Without a proper plan and explanation, day-to-day operations during and after the conversion will be a mystery to be solved daily. This can create significant pushback and resistance. What will operations look like the day after tomorrow is essential to planning change?

It can also help manage the transformation pace, giving teams enough time to adapt and avoiding any possible overwhelm or burnout that can occur in the process. Finally, a good strategy also focuses on transformation in terms of investments to prevent “digital exhaustion.” This refers to using up all resources at the implementation stage and for IT modernization but not leaving enough for the rest of the transformation.

5. Underestimating costs

Cost is usually the first thing on everyone’s mind regarding digital transformation. Being risk-averse, however, companies may seek the most cost-effective solutions to avoid too much damage should the initiative fail.

While there is nothing wrong with careful spending, underinvesting in transformation can have the long-term effect of being more expensive because of the lower business value it delivers. Suppose you are motivated by achieving short-term savings and cost reductions when launching a transformation initiative. In that case, you may want to reduce the scope to get the best value for your money.

How to avoid digital transformation failure?

Don’t be a deer in the headlights regarding your company’s digital transformation and difficulties. Taking proactive steps to resolve issues as they arise, or to prepare for them well in advance, can help you avert failure.

Essential steps to take include:

Clarify your business case and set priorities

Be precise and realistic about what you seek to achieve, what you expect, and how you intend to get there. Prioritize those initiatives that are aligned with these goals.

Don’t rush, and don’t fall for the tech trap

Making hurried decisions without the need or desire to perform well fast may result in poor integrations, lack of preparation and adoption, unrealistic expectations, and more. Also, don’t confuse digital technology with transformation - tech is only part of the puzzle.

Bet on collaboration

Anytime you can get your teams on board and win them over for the cause, you create a solid foundation for your transformation. Making people part of the change is an excellent way for them to own and care for it.

On top of these steps, some central aspects of a digital transformation increase the likelihood of its success.

Elements of a successful digital transformation

You can take active and specific steps to “not fail” and be truly successful in your digital transformation. These include the following:

• Create a digital transformation framework that will guide the transformation process. This includes performing or undergoing an in-depth assessment of your transformation needs, specifying areas needing transformation, planning a budget, creating a roadmap for change, and involving employees and partners.
• Define your digital transformation roadmap by planning all the substantial changes you intend to make, their purpose and outcome, how they will impact your business, how you will prepare for that, and the planned timeline for change. This roadmap will guide you through the digital transformation process whenever you are uncertain about how you are doing and where to go next.
• Nurture a digital transformation culture that will create and maintain the right conditions for successful change, represent the values you proclaim, and provide the necessary tools for employees to adapt.

Carefully planning, monitoring your progress, and adjusting course are key to succeeding with transformation. Including the above three elements in the process can help you reach the end of the digital transformation journey rather than abandon the search, as many have done before.

Learning from digital transformation failures

There’s plenty to be learned from others’ mistakes. Some notable digital transformation failures and their lessons include:

• In the early 2000s, Hewlett-Packard (HP) initiated a digital transformation to consolidate all IT systems under one ERP solution. A lack of proper synchronization between the old systems and the ERP led to nearly a quarter of all custom server orders being unfulfilled. The situation cost HP around $160 million in lost revenue and delayed orders.
• In 2016, Ford launched the Ford Smart Mobility project - an attempt at digitally-enabled cars and mobility services. Due to the business being developed at the side, as a separate entity instead of integrated with the rest of the company, the whole initiative eventually failed, leading to losses of about $300 million.

Transform digitally with the help of Resolute Software

Resolute Software has assisted companies from all over the globe in their digital modernization and transformation initiatives. From small, incremental changes to a company’s digital ecosystem to major digital overhauls, we can help you assess, plan, and execute change in a stable, integrated, and future-proof way.

Want to know more about how we can help? Contact us to learn more about how we can help you with your digital transformation!