We’ve learned some basics about the digital transformation process and how you can benefit from it from Part 1. Now we’ll think about its key aspects, areas, trends, and why digital transformation sometimes ends in failure.
Key aspects of digital transformation
According to McKinsey’s survey, we can pinpoint key elements of digital transformation:
- Clear change story established by management
- Digital tools implementation for more accessible information
- Digital self-serve technology for employees and business partners
- Senior management press for urgency in digital transformation
- Collaboration between units is ensured by people in key roles
- Standard procedures modified to include new technologies
- Senior leadership encourages employees to experiment
- People in key roles encourage to challenge their old work habits
- More involvement from key roles in developing new initiatives
- Senior management assures collaboration between units on transformation initiatives
As the author of the survey states, in case these key factors are taken into account, the company is three times more likely to report successful digital transformation:
Our research points to a set of factors that might improve the chances of a transformation succeeding… These factors fall into five categories:
- having the right, digital-savvy leaders in place
- building capabilities for the workforce of the future
- empowering people to work in new ways
- giving day-to-day tools a digital upgrade
- frequently communicating via traditional and digital methods
We can also highlight the importance of transparency and proper communication channels. Digital transformation can be properly implemented only in situations where every interested party has equal access to information and tools they can use to communicate and learn.
Digital transformation areas
Every big company that adopted digital transformation lays out accents in different areas. Microsoft, for example, focuses on empowering employees, engaging customers, optimizing operations, and improving its services and products. EY, one of the biggest consulting firms in the world, also recognizes four main areas. These are streamlined onboarding to keep the customer, improved insights as a necessity, enhanced client experience, and, similarly to Microsoft, innovative products and services.
Harvard’s business Review Article takes a step back and distinguishes four big, key areas: technology, data, process, and organizational change capability. These areas are not silos but cogs – they must properly work together if we want to benefit from the whole digital transformation process.
Technology is the engine of digital transformation, data is the fuel, the process is the guidance system, and organizational change capability is the landing gear. You need them all, and they must function well together.
Why do digital transformation projects fail?
According to Boston Consulting Group’s research from 2020, 70% of digital transformations fall short of their objectives, often with profound consequences. That doesn’t discourage the companies from it. In the same article, we read that more than 80% of companies plan to accelerate their companies digital transformations. Why? Because the risk is worth it and can almost double your earnings.
If you’re looking fondly on digital transformation (or your company is already in the mid-process), then you must watch out for those threats:
- Lack of commitment from every interested party.
- Resistance to change.
- Applying new methods to an old, broken system, with no deeper change.
- Overly optimistic attitude to the transformation benefits.
- Not calculating risks.
- Digitization (converting to digital form) instead of digitalization.
- Lack or poor quality of communication.
- No transformation roadmap.
- No end-user experience goals.
- Agile transformation with no Agile Coach.
- Relying on scattered, incomplete, or obsolete data.
- Lack of cross-team coordination.
- No properly trained or experienced employees on board.
- No patience for small hiccups.
- Prioritizing short-term goals over the long-term change of the company’s culture.
Digital transformation failures
The company started its attempts to become a “digital industrial” company in 2011. GE started adding sensors and investing heavily into their own Internet of Things platform. In 2015 the GE Digital unit was established to turn the company into a technology powerhouse. The changes also included internal processes. While being praised by the press, GE was hemorrhaging money, as it tried to change everything, everywhere. The stockholders weren’t impressed by GE’s attempt to transform its business, and stock value was going down and down. A few years after the beginning of the digital transformation, the CEO of GE stepped down.
A few years ago, this well-known company decided to spend $400 million to upgrade its Enterprise resource planning (ERP) systems. Turns out it wasn’t successful – Nike had to take a loss of around $100 million. As Third Stage Consulting describes, the company’s stock price dropped by around 20%. Also, Nike had to invest another five years and another $400 million to get the project on track and successful, meaning the whole system upgrade was worth almost $1 billion.
The candy business isn’t just sugar, spice, and everything nice. Especially when your company owns a huge portion of the market. In 2018, Haribo implemented a new SAP system. The process was so flawed it caused major supply chain issues. It was impossible to track inventory and raw materials. Also, inventory access was unavailable. The process resulted in Haribo’s stock prices going down 25%. Global Digital Assurance points out that Haribo failed to evaluate business processes in due time to ensure they were aligned with the new software. The company understated the risk of SAP going live and failed to ensure this implementation met Haribo’s objectives and goals.
Digital transformation trends
- Hybrid and remote work – for many industries, there’s no going back to 100% full offices. Managers must learn which tools and approaches use for distributed teams.
- Blockchain – often connected with cryptocurrencies, many believe blockchain will change the way we use the internet. For now, there has been no successful implementation outside the finances, but businesses are still looking for a way to use this technology.
- Digital banking – you can get a loan without the need to go to the bank. Financial apps are becoming more and more powerful, and this trend will continue to rise.
- VR/AR – the technology that was supposed to boom in the mid-2010s is still struggling to mark its presence. This decade, it’s a sink or swim situation for this market.
- New Social Media apps – in 2015, no one could predict the cultural and financial phenomenon of TikTok. A few years later, it’s obvious that everyone interested in digital transformation must be aware of how younger generations consume their media content to predict the next big thing.
- AI and Machine Learning – AI-powered solutions are practically in every business. The necessity to invest in artificial intelligence will steadily grow in the upcoming years.
- Cybersecurity – with growing threats of cyberterrorism and hacker attacks, the need for an impenetrable network is bigger than ever before. It’s an arms race between companies and hackers, so every company must be up-to-date with new threats and solutions.
- Automation – more and more is done by bots and AI. From the self-checkout to software that lets you automate more tedious tasks (like BigPicture), so you can focus more on the creative part of your job.
- Green energy and decarbonization – climate change has become the biggest challenge for both governments and companies. With the rise in energy prices, this trend will only accelerate. Solar panels, fewer events, sustainable materials – there are many ways to tackle this issue.
- 5G – The promise of this network is near nonexistent latency. It’s not about better video calls. Telemedicine, agriculture, transportation – the new type of network will influence every critical aspect of the economy.
Digital transformation is a complex topic. It’s not about throwing money to upgrade and modify the systems. It’s about slower systemic change that involves every branch of the company. We’ve seen the potential threats and trends of digital transformation, and in the next part, we’ll learn about digital transformation’s disruptions, myths, and realities. Stay tuned.