Why Digital Transformation Projects Fail: 7 Pitfalls to Avoid

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

Charles Darwin said this about the evolution of the human race, but it still holds true in the modern digital world. We’re struggling to come to terms with the “new normal” necessitated by the COVID-19 pandemic. The rules of the game are changing. Those who are quick to learn the new rules and adapt to them will eventually win. The pace of business is so rapid and dynamic that it demands instant decision-making.

This rate of change in businesses in 2020 is higher in the post-pandemic era than ever before. Homes are becoming offices. More and more companies are choosing the digital path to stay afloat in this competitive market. While the urgent need to transform digitally is apparent, more leaders are struggling to find the pathway to such transformation. Those who fail to respond quickly to the need for digitization are likely to lose substantially.

What is Digital Transformation?

Digital transformation is the integration of digital technology into a business to create new business processes or improve pre-existing ones. It fundamentally changes the way a company operates or delivers values to the customers. Simply put, digital transformation is the reimagining of businesses in the digital age.

Transformation does not always have to be disruptive. Sometimes all it needs is tweaking traditional approaches to marketing, sales, and customer experience for increased process efficiency. Digital transformation provides an efficient way to utilize technologies by incorporating aspects of the business that help bring direct value and optimizing operations across the board. When implemented successfully, digitization delivers useful business insights from the operational data. It adds value to every customer interaction and can lead to transformative changes that profit the company as well as the customers. 

Netflix is an example of how a company can transform itself and achieve exponential growth

Netflix started as a DVD rental company with a mail-order. A decade later, they responded to changes in the market and changed their business model to offer a digital content streaming service – and the rest is history. Netflix adapted to changing market scenarios and embraced transformation successfully.

However, digital transformation is not as easy as the Netflix example makes it seem. Not all companies that start on transformative journeys achieve the results they were seeking.

Accenture surveyed 1,350 global senior executives in companies from key industrial sectors. Between 2016 and 2018, these industrial companies had spent more than $100 billion on scaling digital innovations to drive new experiences and efficiencies. Despite that, 78% of them struggled to reach the expected earnings. Only 22% achieved a return on their digital investments that exceeded expectations. The survey highlighted a need for understanding digital transformation in the corporate world.

Why do Digital Transformation Projects Fail?

Digital transformation is a complex process; transformative efforts fail due to multiple reasons. Let’s take a look at some of the reasons why digital transformation projects fail to realize the expected ROI on digital investments. 

1. Lack of Agreement and Commitment

Company leaders must understand and agree to the vision for the digital transformation of the company. Lack of agreement causes friction and delay in the smooth implementation of the plan. Everyone should be clear of the priorities and the measures to be taken while executing the plan.

Another equally important aspect of the process is commitment. A common observation is that if the teams are not committed to the strategies decided initially, the initial phases of implementation go as expected. But with time, leaders start expecting other results. If you introduce a new feature or functionality mid-way when a plan is already in the implementation phase, it creates resistance. It may also create a diversion in the initial plan, which may lead to unexpected results.

2. Unclear Digital Transformation Goals and Digital Capabilities

Even before the initiation of the digital transformation process, it is imperative to know and understand the business goals, the implementation process, and strategies required to achieve the goals. The employees must also be aware of the business goals and understand the processes involved, including information regarding all the aspects, such as automation, marketing, customer experience, etc.

Companies with less experience tend to over-estimate or under-estimate their digital capabilities. Over-estimation causes delays, exhaustion of resources, etc. Under-estimation ensures the work is completed on time but may involve excessive resources. 

3. Not being Iterative and Agile

When companies and businesses try to move to a different business model, they usually use a process popularly termed as the waterfall planning process. They develop a vision and create a business case as per that vision. They raise funds and convert their goals into reality by implementing it in a few years – maybe 1.5 to 2 years. Although this approach is widely accepted, it poses a lot of chances of failure.

The initial phases of implementation go smoothly, but later the waterfall plan starts to fail if the assumptions made no longer hold. A better approach is to break the goal into multiple short-term goals aligned with the final goal and can be measured. For example, going to the market with a Minimum Viable Product (MVP) is a better strategy than building a  “perfect” version of the product, only to find you’re too late and the dynamics of the market have changed while you were building that perfect version.

4. Reaching a Point of Digital Exhaustion

Digital exhaustion is a challenging issue that acts as a roadblock in the process of decision making. Companies that go through significant technology changes to scale or develop new capabilities must undergo very complex IT implementations. They may move their data center to the cloud, complete IT modernization, ERP implementation, etc. In such implementations, companies utilize vast amounts of resources in IT implementations: time, capital, and human resources reach an exhaustion point. They end up using all the resources in the implementation stages – which was only one part of the transformative plan. Technology investments that end up taking years – by which time, the management, as well as the team, are too exhausted to complete the rest of the transformative agenda. 

5. Lack of Expertise

Sometimes digitalization strategies fail because of a lack of expertise. Teams who lack digital transformation experience or that do not seek advice from experienced partners tend to make mistakes. Common mistakes from a lack of experience include considering the wrong factors while planning, setting non-realistic goals, absence of a clear strategy, inadequate resources, and little consideration of risk management. These mistakes can have a severe impact on the overall transformation and may lead to failure in cases.

Many small businesses lack experience in digital transformation. Ideally, they must seek advice from external digital transformation partners who are experts in the field. Experienced partners tend to accurately prioritize those initiatives that are likely to have the most impact. They can bring in objectivity and help companies avoid delays or failures.

6. Not Understanding Customer Needs

Without a clear vision, digitalization means nothing. Digital transformation can help businesses achieve their goals only if done correctly and with a clear understanding of their customers’ changing needs and expectations. Getting feedback from the customers about the pre-existing solutions helps companies understand which features of their product or service are not worth retaining. Negative feedback is the most helpful when it comes to businesses that want to adapt rapidly to customers’ demands – because it tells them what not to do.

Asking customers what future changes they want from the service or product offered by the company is important. Insights from customer experience are necessary for any business to stay alive.

7. Not Taking into Account the Organizational Culture

Formulating and implementing a plan is just the first part of digital transformation. Employees and internal teams must understand the new technologies, solutions, and methodologies implemented. Otherwise, it becomes difficult for companies to enforce new rules and norms. It is not feasible to recruit new staff whenever the companies go through some changes. It is advisable to utilize human resources already available in the organization.

Employees must have a positive attitude to the changes the company is going through. All the teams should understand their work and contribution to the transformed workflow. They should be able to see the benefit of the change. Companies often give incentives to promote staff for innovation. Transparency about the changes in the company structure makes employees feel more involved. It also encourages them to provide feedback that can be further helpful for the company’s transformation. If needed, train employees to help them adapt to the changes.

Conclusion

Companies need to transform digitally to serve their customers better. The key to a successful business is the best utilization of available resources by understanding customers’ exact needs and expectations and meeting them.

Treehouse Technology Group (TTG) offers digital transformation solutions based on a trusted foundation of experience and expertise that lowers risk and empowers business to accelerate their time to value. Make us your trusted digital transformation partner in your journey. Contact us for a free consultation today.

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