MIT Sloan: Why so many business digital transformations fail
Digital transformation is probably the most talked about business topic these days but it’s the area where most organisations fail to achieve relevant results. More than 70% of enterprises fail to create any value from their digital transformation efforts and fail to meet their business objectives. So why is that?
It turns out that when it comes to digital transformation, companies focus only on the technology aspect of the journey, the new sophisticated software, machine learning, AI, big data, cloud, but fail to realise that the process of ‘transformation’ requires a much more comprehensive approach.
And it’s an approach I call the three pillars of Digital Transformation:
- Strategic transformation
- Operational transformation
- People and organisational transformation
When I consult companies embarking on a digital journey, I ask them in the first instance to carefully consider a few strategic questions:
- What existing problems will the new technology solve?
- How will our current business model be affected by technology?
- Will our value proposition have to adapt?
- How will our business activities, resources and partners be affected?
- What organisational capabilities are required to address these future challenges?
- How will our organisation engage with our current and future customers and stakeholders?
- How would current standard operating procedures have to change?
- What type of tech investments will we need to make?
- How has technology disrupted our industry and what threats does it pose to our existing systems?
- Are we aware of the complex nature of the journey ahead?
I find, in most cases, their answers are not particularly well articulated and while it is impossible to have crystal clarity on such a complex journey ahead, my advice would be for companies to really pay attention to these questions at this stage and to truly consider the implications of digital transformation on their current business model.
Digital transformation progress is not a straight line, but a journey of fast constant experimentation driven by trial and error, and developed in tight collaboration with the operational and cultural pillars.
The reality of a digital transformation journey is that most focus is given to this pillar: what technology to buy, how to use it, who will use it, for what purpose, etc. But in order to succeed and beat the failure odds, companies have to carefully consider these questions too:
- What existing processes and operations have to be reengineered to support the new technology applications?
- How will the new technology improve quality and efficiency of these functions?
- How will traditional work functions have to be redesigned with digital technologies in mind?
- Have we started to comprehend the implications (benefits, costs, and risks) of digital tools?
- Have we started to formulate and execute policies in response to the risks and opportunities presented by digital tools?
Here, companies must realise that digital technology cannot be just simply applied to existing processes, procedures, SOPs and policies. All of these areas have to be completely reengineered and reconsidered in order to complement the technology support.
My favourite saying is, ‘The job is easy, the people are not’ and I can extend this quote to ‘Digital transformation is easy, people transformation is not’. All the data shows that culture is the number one hurdle to digital transformation because digitalisation will affect the corporate culture, the organisational structure, the internal capabilities needed and the relationships between departments. Digital transformation requires extensive collaboration and in silos organisations, collaboration is not always an easy task.
At its heart, digital transformation is a people transformation and companies therefore must consider the following questions in the process:
- Do we have the right culture to adopt change?
- Do we have senior management and board alignment and support?
- Are we truly ready to embrace risk and tolerate failure? To embrace new ways of doing things? To accept speed over perfection in the setup stage?
- Are we aware and prepared to deal with the natural resistance to change that most people and organisations exhibit?
- Do we know how to encourage, measure and reward effort in this new environment?
- Are we ready we empower and trust our staff to work productively in this new environment?
- Are we aware of the type of capabilities we need to remain relevant and ahead in this digital future?
- Do we know how to build and constantly train internal capabilities to perform these tasks and stay abreast of the coming changes in the digital landscape?
Unfortunately, most leaders underestimate the importance of culture and the need for a change management strategy, and like MIT Sloan Professor Deborah Ancona says: “Overlooking cultural change is the biggest mistake in a digital transformation ... Without addressing culture, transformation will probably fail”.
IMD Professor Michael Wade, once said: “There isn’t a single ‘make or break’ step in a digital transformation! Success can only come through careful orchestration of organisational capabilities in the services of a clear transformation vision.”
Digital transformation at its core is not technology transformation, but rather a careful orchestration and balancing of the strategic, operational and cultural pillars.
But it's also important to note that conceiving, organising and executing a comprehensive digital transformation plan to address these organisational challenges will require significant mind share of the senior leadership team and substantial resources of the entire organisation.
Or in layman terms, digital transformation is not a side dish. Digital transformation is the table where all the dishes are served.
About Prof. Loredana Padurean
Prof. Loredana Padurean is the Associate Dean and Faculty Director for Action Learning, Innovation and Entrepreneurship at Asia School of Business established in collaboration with MIT Sloan in Kuala Lumpur, Malaysia“. Her work focuses on 3 areas: entrepreneurship, innovation and digital transformation and “smart and sharp” skills. Prof. Loredana teaches in the MIT Sloan Executive Education program, she is a public and TEDx speaker, an enthusiastic mediocre gardener, a lover of animals and vegan food.