Most Digital Transformations Fall Short. Will Yours?

Transformation means a complete change or metamorphosis, like a caterpillar turning into a butterfly – or, in a business context, like your organization or business model evolving into something categorically different. Of course, businesses have been transforming since the beginning of time – imagine how the wheel must have transformed the taxi industry – but digital transformation has become a board-level, executive committee agenda topic only in the past decade or so.

Why do digital transformations garner the attention of an organization’s top management? Because they are time-consuming and expensive, require hard strategic choices and – perhaps most significantly – they are prone to failure: A now-infamous 2019 Everest Group study found that only 22% of digital transformation initiatives achieved their business objectives, and 73% failed to produce any tangible business value. Odds like those rightly cause managers trepidation.

As a company that leads digital transformations, VShift has developed an array of strategies to maximize the odds of success and, more important, mitigate the inherent risks. To understand our approach, let’s first take a closer look at digital transformation and how it is currently understood and measured in most organizations.

Digital transformation entails using digital technologies and internet-based capabilities to create new, or substantially modify existing, business processes, customer experiences and corporate culture in order to address critical business imperatives and changing market dynamics. Digital transformation can often add up to a complete reimagination or reinvention of how the business operates and serves its customers.

Given the potential sweep of a digital transformation initiative, there are many ways it can go off the rails. In our experience, these are the most common risks that need to mitigated:

• Organizational misalignment Success requires a cross-functional decision-making body with clear role definition. Without that structure, there is the risk of having many talented people working in silos and exhausting resources without ever getting onto the same page. Establishing a working governance structure will minimize confusion and bring near-term wins.

• Binary or static orientation Digital transformation is a process, a journey whose roadmap will evolve even as the change is in progress. It’s not like flipping a switch from a binary “as is” to an anticipated future state. Literal-minded leaders, who tend to demand that the future state be highly specified, inevitably limit transformation to only what they can understand today. Leaders capable of more abstract thinking embrace a fuzzier, more directional view of the future state.

• Lack of business executive sponsorship Successful transformations typically begin as grassroots innovation movements. The way they become drivers of true business change is by having the right business leader – ideally, someone working directly with clients, sales staff and the external market – formally recognized as advocate and sponsor. Without such a sponsor, success will be limited at best.

• Unclear relevance to the mission Many businesses embark on digital transformations by creating an innovation incubator, the aim of which is to rapidly develop new products and services. Incubating new ideas is straightforward. More challenging is connecting those emerging products and services to the company’s core mission and getting rank-and-file team members to enthusiastically adopt new, incubated solutions – especially if they cannot easily understand how these support the bigger picture. Disconnected innovations typically turn out to be a bad bet.

• Myopic view of talent and culture Culture (i.e., the values and behaviors the company promotes) is often cited as the top reason why a transformation did not take hold. Executives may have an overly optimistic view of their employees’ ability to break through and innovate. Success requires a sober understanding of culture, skills gaps and behavioral norms.

• Incorrect metrics and incentives Many organizations fail to update their key performance indicators and related metrics to reflect the objectives of their transformation. If the goals and metrics are operational in nature rather than focused on innovation, then failure is a near certainty. To succeed, teams need to know they will be rewarded for executing projects and working in transformative new ways – ways that might not be immediately reflected in conventional data.

Measuring progress is critical – and not as obvious as one might think. We encourage clients to look at a range of attributes that contribute to a digitally-savvy company.

Culture change and talent goals Digital requires new skill sets and a different approach. Organizations need to measure cultural change, and reward employees for digital thinking and behaviors, as well as for acquiring or enhancing necessary skills and filling gaps.

Innovation project KPIs We recommend clients take a portfolio approach to digital transformation, i.e., track their enterprise-wide initiatives and shift prioritization (and funding) to innovation projects that move the enterprise along the digital transformation curve.

Visible scorecard sharing Keeping a running tally of progress across your digital initiatives is important. Even more important: making sure everyone can see that tally. It needs to be transparent and widely distributed so your entire organization knows what is succeeding and who is moving the ball forward – a little friendly competition can do wonders to inspire achievement.

Metrics evolution Understanding that digital transformation is a forever process and not an end state at which da company arrives, companies should plan for updating metrics as culture and initiatives mature. Using data such as digital analytics measurement, attribution, CRM-based analysis, agile project metrics and campaign effectiveness, companies can derive new ways to measure progress against well-understood business goals. Over time, the scorecard becomes useful for understanding where the transformation is successful and where more work is needed.

Change is never easy, and transformation is change on steroids. By planning correctly and measuring appropriately, any company can achieve transformational change and deliver meaningful outcomes to customers, partners and the organization itself.