Improving the Odds of Digital Transformation Success

Successful digital transformations are rare. But companies that get six factors right can improvethe odds of success from 30% to 80%!

  • Daft a clear integrated Strategy,
  • Commit to Top down leadership,
  • Put your best people in the right places,
  • Adopt an agile governance mindset,
  • Monitor and measure progress,
  • Rethink and modernise your tech stack.

With so much at stake to build digital capabilities that drive customer centricity and productivity, why do so many companies fail? And not just troubled companies—top performers, market leaders, and investor favorites, too. New research shows that over 50% of digital transformations fall short of their objectives, often with profound consequences.

Digital transformations are an imperative as today’s leading corporations need to build capabilities in order to harness the potential of disruptive technologies and integrate them into new processes, organisation models, and ways of working. This necessity has been accelerated by the pandemic.

Overwhelming evidence shows that successful digital transformations drive performance and competitive advantage and drive the company bottom line!

Digital leaders achieve earnings growth that is 1.8 times higher than digital laggards—and more than double the growth in total enterprise value. In the short term, digital technologies and ways of working offer productivity improvements and better customer experiences. In the medium term, digital opens up new growth opportunities and business model innovation. Successful transformations also set companies up for sustained success; they won’t have to digitally transform again as they master continuous innovation. Investors say that 50% of companies should invest more aggressively in digital capabilities and technology.

But there is a conundrum for management: digital transformations are difficult to execute. And with so much on the line, only 30% of transformations succeed in achieving their objectives. There are good reasons for this, too. Delivering such fundamental change at scale in large, complex organizations is challenging, especially with short-term pressures. Individual leaders must decide whether they want to jeopardize their careers against these odds or risk falling behind.

The technology is important, but the people dimension (organisation, operating model, processes, and culture) is usually the determining factor. Organisational inertia from deeply rooted behaviors is a big impediment.

Failure should not be an option, and yet it is the most common result. The consequences in terms of investments of money, organisational effort, and elapsed time are massive. Digital laggards fall behind in customer engagement, process efficiency, and innovation.

In contrast, companies that are successful in mastering digital technologies, establishing a digital mindset, and implementing digital ways of working can reach new heights of continuous improvement. Digital, paradoxically, is not a binary state, but one of ongoing innovation as new waves of disruptive technologies are released to the market. Consider, for example, artificial intelligence, blockchain, the Internet of Things, spatial computing, and, in time, quantum computing. Unsuccessful companies will find it extremely hard to leverage these advances, while digital organisations will be innovating faster and pulling further away from digital laggards—heading for that profitable future.

Digital transformations can define careers as well as companies. The fundamental question on the minds of all business leaders must be: “How can I ensure that my organisation is among the 30% of successful transformers?”

What Drives Success

Despite the differences in industries, starting points, and goals, management teams wrestle with a very similar group of questions at the start of a transformation:

  • Why are we doing this? Do we need to become more responsive to rapidly shifting customer needs? Does our productivity need a step change improvement? Is our ability to innovate lagging?
  • What should we do? The scope of digital transformations varies widely, from focusing on people (for example, agile at scale) to overhauling technology and infrastructure, replacing legacy IT platforms, and moving to the cloud. Many companies focus on specific business outcomes, such as personalization and digital marketing, end-to-end customer journeys, digital supply chains, and digital shared services.
  • How do we implement the transformation? There are many questions around leadership, governance, resourcing, focus, approach (such as using pilots, incubators, or lighthouses), and sequencing. How do we make sure that product, channels, and support functions work in unison with the technology function, and how do we get middle management on board?

Executives must make many important decisions before starting, and typically there are (legitimately) differing views around the leadership table. These can range from “Let’s manage this in the business units so we can integrate well” to “We need to do something across the entire organisation to change the mindset”; or from “Let’s do some pilots, and if they succeed, we can expand to other areas” to “We must commit the whole organisation to change.”

When trying to bring everyone along with the overall plan, it can be easy to compromise and lose focus on the transformational aspiration. Among all the decisions that must be made, the six critical success factors stand out.

The companies that get these six factors right improve their odds of success from 30% to 80%.