In the ever-changing business and technology landscape, digital transformation has become a phenomenon that promises fundamental changes, increased efficiency, and increased competitiveness. Companies across all industries are rushing to adopt the digital revolution. However, digital transformation failure is not uncommon. There is a significant rate of businesses whose digital transformation efforts do not meet their intended goals.
In this article, we will delve into the intricacies of digital transformation failure, from understanding its classification and common reasons to exploring real-world examples. We will also provide insights into crafting a robust digital transformation game plan, offering a roadmap for you to navigate the complex terrain of digital change successfully.
Table of Contents
What is digital transformation failure?
Definition
Digital transformation failure refers to the unsuccessful or suboptimal outcomes of an organization’s efforts to adapt and leverage digital technologies, processes, and strategies to enhance its operations, competitiveness, and overall performance. It occurs when an organization’s digital transformation initiatives do not achieve their intended objectives or result in adverse consequences, often leading to a misalignment between the strategic vision and the actual outcomes.
Digital transformation failure is a complex and multifaceted challenge, often rooted in a combination of factors such as a lack of clear strategy, internal resistance to change, insufficient investments, inadequate skillsets, and a failure to prioritize the evolving needs and expectations of customers. Understanding the dimensions of digital transformation failure is crucial for organizations seeking to navigate the complexities of the digital landscape successfully, learn from past mistakes, and drive effective and sustainable transformations that keep them ahead in the modern business environment.
Classification of digital transformation failure
To better understand the reason for digital transformation failure, this phenomenon can be categorized into 3 following types:
Regression
Regression in digital transformation refers to a situation in which an organization’s efforts to modernize their operations result in a decline or regress to its previous stage. This happens when the digital capabilities or initiatives that the organization applies are, by now, outdated or should have been adopted long ago.
This regressive framing is the result of a lack of foresight or an insufficient understanding of the existing systems and processes. It may also involve unintended consequences of adopting new technologies, such as system bugs, data breaches, or a decline in overall productivity.
One common example of regression is when a company hastily migrates to a new software system but fails to ensure its compatibility with existing systems. This leads to the ineffectiveness of the new technology, causing disruptions in workflow.
Underperformance
Underperformance in digital transformation indicates that a project fails to meet its intended objectives or produce the anticipated results. This failure scenario occurs when businesses underestimate the complexity of the transformation process and, as a result, do not take their transformation efforts more seriously.
To illustrate, an underperforming digital transformation initiative could involve the adoption of new technologies without adequate training for employees or sufficient investment of time, effort, and resources from the business. This results in the underutilization of the tools and the failure to realize the anticipated gains in efficiency. Although businesses can still see some positive results in this case, it will not quickly generate a satisfactory return on investment.
Fail at new tech initiatives
This category of digital transformation failure occurs when organizations invest heavily in adopting new technologies or digital solutions but are unable to derive significant value from these investments. They may have to abandon the entire initiative and incur substantial losses.
Such failures often stem from a lack of alignment between technology adoption and the organization’s overarching goals. For instance, a company might invest in advanced analytics tools without clearly defining how these tools will improve decision-making or enhance customer experiences. Another potential reason is the poor planning and execution of the organization. The company might have been taking on too many tasks and attempting to solve everything simultaneously. This can easily lead to the failure in their overall digital transformation process.
What is the digital transformation failure rate?
As digital transformation is a complex and ongoing process, there is no one-size-fits-all digital transformation strategy. Despite the fact that a large number of businesses have embarked on their digital journey, surveys and studies have revealed that the digital transformation failure rate is proportional. Here are some significant statistics concerning this rate:
- According to Forbes, 84% of companies fail at digital transformation.
- A Harvey Nash/KPMG CIO Survey in 2017 points out that only 41% of companies have an enterprise-wide digital strategy, and only 18% of companies rate their use of digital technology as very effective.
- HBR recorded the rate of 70% of change initiatives taken up by business fail
- According to McKinsey’s report, 70% of digital transformations are unsuccessful, primarily because of resistance from teams
- 45% of leaders think that their company does not have the right technology for digital transformation adoption, as recorded by PWC.
Reasons for digital transformation failure
Lack of clear strategy and objectives
One of the most common pitfalls in digital transformation is the lack of a well-defined strategy and clear objectives. Organizations that fail often lack a cohesive plan outlining what they aim to achieve through digital transformation.
The reason for this is the way in which organizations define digital transformation. This term is used by many leaders to describe the activities of the IT team. As an example, change is described as merely implementing a new digital solution. As a result, no clear objectives have been established to guide the digital transformation process, as businesses adopt new technology for their own sake.
Without a digital transformation roadmap, it is difficult to measure progress and ensure alignment of digital strategy with a company’s larger objectives. A clear strategy and well-defined objectives are crucial to guide decision-making throughout the transformation process, helping teams stay focused and ensuring that the transformation stays on track.
Internal resistance to change
Internal resistance to change is a formidable barrier to digital transformation success. Oftentimes, employees feel the established processes are more trustworthy and comfortable to work with than any other piece of software. Hence, they may resist adopting new technologies and ways of working. This resistance can manifest in various forms, including reluctance to learn new skills, fear of job displacement, or simply a preference for the status quo.
The purpose of digital transformation initiatives is to transform an organization’s business practices. Therefore, this cannot be accomplished without the participation of all organization members. The resistance and an uncollaborative attitude of your employees can significantly delay and hamper your digital transformation effort.
Insufficient investment in technology
Digital transformation initiatives necessitate substantial investment in technology, and failing organizations frequently underestimate the required financial commitment.
Many businesses attempt to reduce digital transformation expenditures while still anticipating the impressive outcomes digital transformation promises to deliver. Cutting corners or choosing inexpensive products, quick fixes, or inexpensive consultants are suboptimal technological decisions.
These options are inexpensive initially, but they may lead to inefficiencies, security vulnerabilities, or scalability issues. Organizations are then charged with heavier customizations, technical debt, and maintenance costs, which require higher expenses down the line.
Inadequate skillsets and training
Organizations frequently require new skill sets and competencies as a result of digital transformation. Failure can occur when organizations fail to invest adequately in upskilling their workforce or recruiting talent with the required expertise.
Given that digital transformation is a process that requires the participation of the entire organization, employee expertise is a crucial success factor for digital transformation. Without a skilled and adaptable workforce, organizations may find it difficult to fully leverage the capabilities of new technologies and digital tools, which can easily lead to performance issues.
Overlooking customer-centricity
A successful digital transformation also requires a thorough understanding of the needs and preferences of customers. Organizations that fail to prioritize customer-centricity risk creating digital solutions or processes that do not resonate with their target audience.
For instance, neglecting to gather customer feedback, conduct market research, or adapt to changing customer behaviors, etc., all have the possibility of resulting in a misalignment between digital initiatives and customer expectations. In other cases, businesses may adopt inadequate technological frameworks that are not able to serve their customers in the most optimal way. This can lead to the risk of causing regression and the failure of their digital transformation plan.
Conflicting priorities
In many organizations, digital transformation initiatives may compete for resources and attention with other strategic priorities. This causes priority conflict.
The issue may be worsened in organizations that do not have clear goals and objectives for their digital transformation journey. When conflicting priorities are not adequately managed, the whole organization may lose their direction in implementing digital transformation initiatives, leading to failure. It’s crucial for organizations to align their various strategic initiatives and ensure that digital transformation remains a top priority with the necessary resources, leadership support, and attention.
Lack of operational agility
Digital transformation requires organizations to be agile and responsive to changing circumstances. Those that are rigid and inflexible in their processes and structures may struggle to adapt to evolving market conditions and technology advancements. Failure to embrace operational agility results in delays, missed opportunities, and an inability to pivot when needed.
Successful digital transformation embraces agility as a core principle. This is about being strategically flexible, the organization’s ability to effectively allocate resources, and a scalable vision for long-term growth. Having operational agility will enable organizations to adjust their strategies and operations in real-time to capitalize on emerging trends and technologies.
Digital transformation failure examples
Hershey’s
Heyshey’s is a US-based multinational company and one of the largest chocolate manufacturers in the world. This brand embarked on their digital transformation journey in 1996, aiming to modernize its patchwork of legacy IT systems. The primary solutions they applied for this transformation phase were SAP’s R/3 ERP, Oracle Seibel’s CRM, and Manugistics’ supply chain management system.
Hershey’s spent quite a bit of money on the implementation of their digital transformation initiatives. With a budget of $112 million, the initial implementation of these new systems was projected to span 48 months. However, to avoid the risk they might face in that time period, Hershey’s management accelerated the timeline, reducing it to 30 months, which was an unreasonably short period of time. Consequently, crucial testing phases were shortened, along with other problems to occur.
The final implementation was scheduled for July 1999, which coincided with one of Hershey’s busiest business periods. Even though the necessary inventory was available, systemic issues with the newly implemented ERP prevented the fulfillment of orders worth over $100 million. This catastrophe had enormous financial repercussions, resulting in a 19% decline in quarterly revenues and an 8% decline in the stock price of the company.
Hershey’s is a clear case of digital transformation failure that is caused by setting unrealistic goals and poor planning and implementation. This serves as a helpful reminder that we must carefully consider when we go live and how it will affect our daily operations in order to prevent operational disruptions.
Hewlett Packard (HP)
This multinational information technology company, Hewlett Packard (HP) is another well-known example of digital transformation failure. In 2003, HP aimed to streamline their IT systems into a single, unified ERP. They chose SAP as their solution.
The leadership anticipated a short three-week window to address any IT challenges following the migration. This forecast turned out to be grossly inaccurate. The absence of manual backup processes to bypass the ERP for shipping orders exacerbated this error.
In this case, HP’s cause of failure lay in their insufficient investment in change management. They failed to establish clear backup strategies, which led to the occurrence of unanticipated obstacles. HP spent $160 million on this ERP project to achieve a certain ROI. However, as a result of the failed implementation, they claimed the damages to be nearly five times that amount, which also came along with lost revenue and backlogged orders.
Molson Coors
Molson Coors is a renowned alcoholic beverage giant. As in the need to accelerate procurement, enhance accounting practices, and streamline supply chain operations, the company embarked on an ambitious ERP implementation venture in 2013 with an investment of roughly $100 million for the project.
Despite the huge investment, the project languished for three years without any significant advancement, which caused Molson Coors to face significant losses. Eventually, the company severed ties with the implementation partner and initiated legal proceedings against them.
Molson Coors’s digital transformation failure could be explained by the fact that the company had failed to choose the best-fit digital partner for their case. A more meticulous approach to defining their expectations and requirements, a more informed decision in selecting the best partner to fulfill their specific needs, and operating the project with a clear plan and direction are some strategic approaches Molson Coors should have taken to prevent the costly and time-consuming digital transformation process.
Revlon
Revlon is a US-based multinational consumer product company, specializing in cosmetics, skincare, perfume, and personal care products. They rolled out a new ERP system in 2018, which was a considerable failure in the digital transformation realm.
Revlon’s failure was caused by inadequate planning within the organization. This ruined the migration of the new ERP system, which then severely disrupted their production line and impeded their ability to promptly fulfill customer orders. This ill-prepared ERP rollout was not an isolated incident; it was implemented prematurely in 22 countries.
The negative ROI was presented in the form of lost sales, lost customer value, and lost customer service, causing catastrophic consequences in terms of finance. Due to a large number of unshipped orders, Revlon suffered a staggering $64 million loss. Operational disruptions along with an increase in capital costs and operating expenditures made Revlon unable to pay their vendors. This waned investor confidence, resulting in a 6.9% decline in the price of Revlon’s stock. Eventually, this crisis ended with a lawsuit filed by investors who suffered significant financial losses due to the company’s poor performance.
Ford
Ford is an automotive manufacturer that owns a well-known reputation worldwide. Along with the global transition to the 21st century, Ford did not fall behind the digital transformation trend. They embarked on this journey with an investment in a new segment called Ford Smart Mobility, aiming to build digitally-enabled cars with enhanced mobility.
Because the new segment was not integrated with the rest of Ford, problems arose. Not only was its headquarters situated at a considerable distance from the remainder of the organization, but it was also perceived as an independent entity devoid of any integration with other business units. As Ford invested enormous sums of money in its new venture, quality issues arose in other divisions of the organization. The stock price of Ford experienced a substantial decline, and the CEO of the company resigned a few years later. Ford’s large investment has failed to generate sufficient ROI.
This failure has established Ford as an exemplar of the criticality of enterprise-wide integration of digital transformation initiatives. Digital transformation is more of a pivot into a new business area than a true transformation in this case. To be successful, digital transformation must be incorporated into the organization.
General Electric (GE)
General Electric (GE) is the world’s leading energy company, focusing on providing equipment, solutions, and services across the energy value chain from generation to consumption. With the goal to become the top software company by the end of the decade, GE set their step on a digital journey in 2011. The investment in the IoT was the top priority of their digital transformation strategy, adding sensors to products and transforming its business models for industrial products. The next step took place in 2015, with the establishment of a new business unit called GE Digital, with the goal of turning GE into a technology powerhouse.
The failure of GE’s digital transformation can be attributed to the company’s attempt to accomplish an excessive amount of work without a strategic focus in any area. Simply put, the organization was too large to undergo a complete transformation at once, especially in the absence of a clear objective. Therefore, after 6 years of implementation, GE was challenged with unmet objectives and considerable technical problems with their digital initiatives.
As a result, the company’s stock price continued to decline and other products suffered despite the investment of billions of dollars in GE Digital and its thousands of employees. They eventually retreated from their digital ambitions in 2018 with a loss of $22 billion. GE then decided to announce the separation of their digital assets into an independent entity.
Digital transformation optimal game plan
Learning from the above digital transformation examples, we come up with some guidance for you to enhance your performance in your digital transformation journey.
A clear roadmap
A clear and well-defined roadmap is essential to the success of any digital transformation effort. This road map outlines the organization’s digital transformation journey in detail, including specific objectives, milestones, and timelines.
A digital transformation roadmap is a strategic guide that aligns the entire organization with a shared vision. A comprehensive roadmap should address not only the what and why, but also the how of the transformation. It outlines the steps, technologies, and processes involved in achieving the desired results, providing a blueprint for execution and aiding in the reduction of ambiguity when implementing digital transformation initiatives.
Build a change-ready culture
Successful digital transformation not only requires change in the organization process but also a shift in culture. A culture that promotes the continuous changes of digital transformation can only be formed by letting go of old habits and embracing innovation, adaptation, as well as continuous learning.
The management team should be pioneers, thus encouraging subordinates to embrace new technologies, explore novel ideas, and take calculated risks. A change-ready culture fosters resilience in the face of challenges and empowers teams to adapt swiftly to evolving circumstances, ultimately enhancing the chances of success in the digital transformation journey.
Allocating sufficient resources
Digital transformation is not an event but a long journey that requires substantial resources, from financial investments, and talent acquisition, to time commitment. Underestimation of these resource requirements enhances the risk of encountering roadblocks and delays.
As you develop a clear plan for your digital transformation journey, allocate a sufficient budget, skilled personnel, and technology infrastructure to best support the success and effectiveness of each step and phase. Adequate resourcing ensures that the organization has the tools and capabilities needed to execute the plan effectively, minimizing the risk of running into resource constraints or overuse of efforts during the process.
Involve all necessary buy-in
It’s imperative to secure buy-in and commitment from all relevant stakeholders to ensure the smooth implementation of digital transformation initiatives. This includes not only leadership and IT teams but also front-line employees, who are often at the forefront of operational changes. Consistent communication is the key. Try to maintain close engagement with stakeholders at all levels. As a result, you’ll be able to identify potential concerns, address resistance, and create a collaborative atmosphere where everyone understands their role in the transformation journey.
Keeping the customer at the center
A customer-centric approach is essential in today’s digital landscape, particularly as the industry becomes more crowded and hundreds of businesses vie for market share.
To drive digital transformation decisions, organizations must continuously evaluate and comprehend their customers’ needs and preferences. Utilizing digital tools to solicit customer feedback and conduct comprehensive market research in order to inform the development of digital solutions and the improvement of customer experiences.
By placing the customer at the center of your transformation strategy, you can develop products and services that resonate with your target market, resulting in increased customer satisfaction and loyalty.
Choose the right system integrator
Choosing the appropriate system integrator or technology partner is a crucial step in the digital transformation process. A digital transformation agency with a history of successful transformations can provide invaluable insight and direction.
There are hundreds of available technology partners; therefore, you should conduct extensive research and weigh your options carefully prior to making a choice. Consider the candidate’s industry experience, technical expertise, project management skills, and ability to align with your goals and values. A strong partnership contributes significantly to the transformation’s success by ensuring efficient implementation and minimizing risks.
Wrapping up
In the relentless pursuit of digital transformation, it is crucial to recognize that not every path leads to success. The failure rate of these endeavors is a stark reminder of the difficulties associated with technological progress. However, failure is one of the best learning opportunities. In this article, we’ve uncovered key facets that shed light on this phenomenon in an effort to provide you with valuable insights on how to avoid digital transformation failure, so that you can thrive in this digital world.
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