By Jelle Visser
Digital transformation has entered the glossary of business buzzwords as one of the latest phenomena to digitize business. There are many ways to talk about the specifics of digital transformation, but perhaps the best definition is how organizations are applying technology to increase their value for customers. Explained another way, digital transformation is how companies use technologies, methodologies, and personnel to improve the customer experience and create new revenue channels. There are many moving parts to any digital transformation initiative, which means there also are many opportunities for failure.
The pandemic has proven to be a powerful catalyst for digital transformation. For example, the online shopping phenomenon was well established by March 2020 at the start of the COVID-19 pandemic. With mandatory lockdowns to contain the contagion, online retail skyrocketed. According to McKinsey, online grocery sales jumped from 4% in 2019 to 10-15% in 2020 and nearly 20% in some urban areas. The pandemic has accelerated the shift toward a digital-first marketplace for B2C and B2B sales, which is fueling the need for better digital processes.
Balancing Transformation and Innovation
Almost every organization is scrambling to increase digitization and improve customers’ online shopping experience. However, with new opportunities from digital transformation come new challenges. There are common digital transformation trends, such as cloud migration, enabling more customer freedom with digitalization, outsourcing infrastructure to third parties, and more. At the same time, companies become competitive by breaking away from the well-trodden path to digital transformation with more effective go-to-market strategies, product innovation, and better customer experience.
Successful digital transformation requires striking a balance between adopting proven transformation strategies and identifying opportunities for innovation. You need a holistic view to temper transformation projects, innovations, and goals. Applying a holistic perspective makes it easier to identify opportunities and avoid these four most common causes of a failed digital transformation strategies:
1) Failure to establish goals and metrics – Any digital transformation strategy must be considered in light of long-term business objectives. Too often, senior managers see digital transformation as a one-time event, so it becomes an end in itself. Digital transformation is ongoing and needs to be adjusted to meet changing business needs.
Establish KPIs and metrics for success. Think of returns in terms of how digitization contributes to the business and customer value. Results should lead to improved productivity, efficiency, and customer satisfaction.
Be sure to share those KPIs and metrics. Strategic goals only succeed if those goals are shared with the people responsible for delivering results. Too often, people are the forgotten element in digital transformation execution.
2) Poor leadership and lack of organization – The success of any major transformation initiative starts at the top. C-level managers need to understand what they are trying to accomplish and how technology will help them get there. The company culture must be structured to embrace new digital solutions. It’s not just “an IT thing” but a key enabler for every aspect of the business.
The mindset of established companies differs from start-ups, where technology is the foundation for the business model. As a result, there may be a lack of commitment from management, resulting in scaled-down projects and shrinking objectives. Commitment is essential, or execution may become unmanageable.
Again, people need to be part of the solution. The new status quo gives way to transformation and innovation, and the employees must be enlisted as the agents of change. There may still be gaps in expertise so you may need to recruit new tech-savvy talent.
3) Lack of technology readiness – Part of any digital transformation project is upgrading or replacing legacy systems. You may need new technology such as new web applications, new hardware, new connectivity, greater interoperability, and more security.
Older companies probably don’t have an infrastructure that lends itself to technology upgrades. If the company’s technology ecosystem hasn’t been designed to accommodate growth, then the infrastructure will stand in the way of digital transformation success.
It’s too difficult to build a digital business on outdated infrastructure. Cloud-first IT solutions address the problem. The cloud provides a ready-made ecosystem that is extensible and scalable with the connectivity, interoperability, and security you need moving forward.
4) Miscalculating costs – For any digital transformation project to succeed, you need to consider objectives, technology, and people, but budget affects everything. You need a clear business case with calculated ROI to justify the costs.
Organizations often overestimate the return on digital transformation. They may not have a clear vision or haven’t adequately defined KPIs, but it’s not unusual to dramatically underestimate the time, resources, and dollars needed for ongoing transformation. That’s why many projects are paused or abandoned. The failure usually isn’t poor execution but rather a failure to correctly calculate costs.
The budget needs to account for all areas affected by digital transformation and should help the organization prioritize, direct, and control initiatives to meet the defined objectives.
Start with a Strong Foundation
Based on my experience, no single element or step leads to the success or failure of a digital transformation initiative. Failure usually stems from issues at the organizational level. Having well-defined goals, metrics, technology, and resources is essential as a foundation for success.
All digital transformation initiatives need a baseline for guidance, planning, and aligning goals. Success also requires a centralized solution to track and manage digital transformation initiatives. Working in operational silos contributes to failure. A holistic view makes it easier to streamline projects, allocate resources, assess risk, and prioritize activities so you can avoid the pitfalls and increase the chances for success.
Jeele is the Chief Commercial Officer for ValueBlue