Hiten Dhruv, CFA, Project Management Lead & Product Owner @ Singlife | 26 April 2022

The key to successful digital transformations isn’t just about the “digital” aspect — it is about successfully navigating through the analog or non-technical pitfalls.

Companies have been undergoing various forms of “digital transformations” ever since the Y2K challenge. Almost every firm— big or small, has its own version of a digital transformation program. These could either be in response to the competition and or to gain their own competitive advantage.

It is important to note that digital transformation is not a single project or initiative. Almost always, it is a long-term, enterprise-wide strategy; much like a marathon run planned around significant milestones.

However, research from various studies published by McKinsey, Forbes and BCG, among others; suggests that these programs suffer from a high rate of failure.

Repurposing the famous opening lines of Tolstoy’s Anna Karenina — “Successful digital transitions are all alike; every unsuccessful one is unsuccessful in its own way.” Stating the obvious — there are many potential causes of failure.

Managing transformations across large and small enterprises over more than 20 years has given me a ring-side view of what succeeds and what doesn’t. Among the various reasons for failure, though, are a handful of analog or non-technical pitfalls that can disproportionately impact the odds of success for a successful program.

These relate to limited digital skill sets or savvy of the senior leaders, under-investing in organizational change and people development and finally failing to translate the strategic goals to operational and functional targets for the firm’s digital transformation journey.

Not upskilling senior leadership to be “digitally savvy”

Many leaders mask their digital ignorance under the cloak of “I don’t want to get into the details” or “just give me the big picture / bottom line”. Thus, they end up taking a simplistic view of digital transformation — often treating it as an upgrade of the IT function and its services. This can setup the transformation efforts for failure from the outset as they are unable to craft a coherent vision or make false priority choices for already scarce capital and resources.

Hence, before anyone else, it is the company’s leadership who must gain a nuanced understanding of how digital technologies such as social, mobile, analytics, AI, can be leveraged for the company’s success.

This is, of course, easier said than done. Either through hubris or misguided notions of seeking simplified solutions, leadership generally consider “digital” as a bolt-on component to their decision-making processes.

The leadership team must demonstrate the willingness to be “coached and taught” about the relevant technical advances and ecosystems which are likely to impact the future for their business.

By far, the most effective and eye-opening exercise for everyone involved in digital initiatives — but especially senior leadership, is to personally use the company’s technology offerings. Nothing provides more clarity than experiencing the customer’s journey yourself to understand your company’s “digital moment of truth”.

Under-investing in organizational change and people development

Ifa digital transformation program doesn’t result in a structural organization change, then it is just a system upgrade exercise.

Digital transformation requires a cultural shift resulting in altering the status quo. Transforming to a digital enterprise requires specialized leaders and custodians. Examples of new leadership positions and functions spearheading this transition include a chief digital officer (CDO) and a full-fledged data analytics function.

Transformation programs which don’t take the opportunity to reorganize around a digital first operating structure risk going back to the old ways of working but with the higher overheads of a shiny new “digital white elephant”!

Many companies also lack the skill sets, experience or bandwidth internally to implement a digital transformation for the organization. Firms that do not seek advice from experienced partners tend to make common mistakes such as setting unrealistic goals and allocating inadequate resources.

Initially, they must seek to remedy this by partnering with external consultants to leverage their expertise. In parallel though, they must also invest in training existing teams and hiring new members equipped with the right digital transformation skill sets.

It’s like we bought a Ferrari to replace our bicycle — but we can’t use the Ferrari as we only know how to ride a bicycle, and no one trained us to drive a car!

A study by Stanford’s Erik Brynjolfsson and others concluded, “despite investing heavily in advanced technologies like artificial intelligence in more and more domains, productivity and profitable returns on investment are stagnant or declining. The biggest contributor to this paradox, is the failure to invest in skills — especially the lack of reskilling and upskilling existing employees.”

Failing To Translate Strategic Goals into Operational Targets

Leadership and the rest of the company can get disjointed in their vision of the outcome if they lack a common understanding of goals and targets of the digital transformation. Everyone across the firm who is involved in or impacted by the program, must have a common understanding, language and description of what success is supposed to look like. Is it improving end-user experience; or increasing market share through new revenue streams; or improving product quality; or increasing process efficiency? Or is it all of it?

The firm-wide strategic goals of the transformation must be channeled as appropriate operational targets to the individual functions such as Sales, Finance, IT, Operations and HR. The high-level, strategic organizational goals when supported by specific functional targets are critical in bypassing departmental siloes and building the digital DNA for the firm.

Digital transformation requires participation at all levels of the organization. It is critical to secure buy-in from the start, ensuring that key stakeholders understand what they can contribute to the initiative and recognize what their departments stand to gain.

Digital transformations work and can deliver significant, sustainable value for all stakeholders — organizations, employees and customers. However, even when it is done well, realizing the benefits of digital transformation is far from an easy experience.

Avoiding the negative impact of these pitfalls is easier said than done. However, firms need to consider the sum of the technical and non-technical parts of the transformation to be greater than those it precedes. As important as the technology is in itself, successful digital transformations require leadership, cross-functional synergy and redefining the organization’s culture to create the needed impact at the individual, functional and organizational levels.