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Home Challanger banks Digital Transformations: Understanding the Case for Change and the Reasons for Failure

Digital Transformations: Understanding the Case for Change and the Reasons for Failure

Digital transformation is a buzzword that has been around for years, but its importance has been highlighted even more during the pandemic. Despite the significant market growth, digital transformation programmes have a high failure rate.

According to data from Research and Markets, in 2020, the total enterprise spending on digital transformations was $469.8 billion, and this spend is projected to grow to over $1 trillion by 2025.

However, 70% of transformations fail to deliver successful outcomes. 

The Inaccuracy of Perceiving Technology as the Main Cause of Failure

Many people believe that digital transformations fail because of technology. However, the real reasons are much more complex.

The most significant factors that lead to a lack of success in transformation programmes revolve around people. These include:

Culture

The organisation does not have the culture that is suited to successful digital transformation.

  • Lack of a collaborative environment

The organisation may be heavily siloed, inhibiting cross-functional collaboration. There may also be a lack of systems/tools in place to encourage and enable individuals and teams to work together and share information freely.

  • Fear of failure

Fear of failure not only stifles innovation but slows the pace of change execution. Individuals/teams and functions overanalyse and spend significant time/effort getting bogged down with (often minor) details for fear of getting these things wrong and the inevitable consequences that follow.

  • The transformation is seen as an unwanted distraction from the core business

Individuals/teams and functions can perceive the transformation as “just another” new initiative, sometimes overplaying the impact to the core business of delivering the transformation.

Communication and collaboration problems

The style of communication across the organisation does not support free collaboration and information sharing.

  • The frequency of communication

The perceived wisdom that more communication is better is wrong and has resulted in many employees suffering from information overload.

  • The method and volume of communication

It is not uncommon for individuals to receive many hundreds of emails per day as well as instant messages and telephone/conference/video calls. This impacts directly on the delivery and performance of staff. Clear, unambiguous, and targeted communication is critical during any digital transformation.

However, care must be taken to ensure that employees involved in the transformation are not drowning in a deluge of information that is not directly related to the transformation itself.

Skill issues

If the organisation does not have the required skills or does not direct these skills correctly, then the strategy is unlikely to succeed.

  • Lack of the right (or the right mix) of skills

The organisation does not have the correct skills, or enough resources with these skills, to deliver effective digital change.

  • Roles, responsibilities, and objectives

Staff objectives may not be aligned with the strategic goals underpinning the transformation. Often, the different functions involved in the transformation are incentivised differently, leading to individuals and teams pulling in different directions.

  • Digital leaders are not on the top team

The successful execution of any digital transformation requires digital leaders (CDO/CIO/CTO/CXO) to drive the strategy forward. The cross-functional/cross-departmental nature of these transformations requires these leaders to be highly collaborative in their approach.

Organisational Factors to Consider

While the human factors are the most significant contributors to digital transformation failure, the following organisational elements also require consideration:

Failures in leadership

One school of thought is that every failed digital transformation is a failure in leadership. However, this is too simplistic a view to be useful.

  • Senior executive sponsorship

The transformation needs to be driven from the top and be seen to be driven from the top – the CEO or as close to the CEO as possible. The sponsoring executive must communicate to the entire organisation the reasons why the transformation initiative is of strategic importance to the organisation.

  • Strategy and direction are not clear and are not anchored in the businesses core values and competencies

It is important for staff to understand where they are heading and why this transformation will enhance the core business.

  • Professional/corporate ambiguity

Ambiguity suits a lot of executives as it allows them to change their mind/approach/delivery scope without losing face. There are some instances where a degree of ambiguity is expected (e.g., vision/mission statements), but if ambiguity exists within the transformation function (particularly with regards to the scope of the transformation), then this will lead to delay, mistrust, and in some instances, failure.

  • Complex and sometimes conflicting reporting lines

Accountability and delivery can be compromised by overly complex/conflicting reporting lines.

  • Strategy review cycles are too long and are not data driven

The perfect strategy no longer exists, and even if it did, by the time any strategy is executed on the ground the world has moved on. Having a mid- to long-term strategy is clearly still required. However, the frequency with which this strategy is reviewed must increase. Feedback cycles from transformation initiatives may also not exist or do not deliver clear enough metrics to allow strategic initiatives to pivot. Better quality and timeliness of information leads to better decision making.

  • The right mix of C-level leaders are not involved early enough

Digital transformation requires cross-function/cross-department collaboration driven by the CEO, CIO/CTO/CDO, CXO, CHRO and so on. Frequently, the technology functions have early input, but HR are either late to the table or in some instances not included at all.

Given that the most significant factors that lead to failure in transformation programmes revolve around people, any transformation initiative must have HR involvement at an early stage. The HR function will not only offer assistance with cultural transformation, but also in defining the workforce strategy and identifying skills gaps that will need to be filled to drive the transformation forward.

Scope

A clearly defined and limited scope of the transformation is critical for success. More bloat leads to more complexity, more cost, and more delay.

  • Scope is too broad

The scope may involve multiple functions/business units or the whole enterprise. 80% of respondents to a recent McKinsey survey said their recent change efforts either involved multiple functions/business units or the whole enterprise.

  • Scope is too deep

Transforming the whole organisation’s operating model significantly increases the complexity of the change. Targeted changes to the operating model will be necessary for success (e.g., removing silos) but care needs to be taken to ensure that wholesale operating model change is not in scope.

Final thoughts

The perception that digital transformations are principally about, or fail because of, technology is inaccurate. These are human changes, often conducted within the context of organisational structures that do not lend themselves to digital change.

The human – whether that be the end customer, suppliers, or the staff within your organisation – needs to be at the centre of the change strategy.

In short, we need a more human-centric approach to transformational change.

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