8 reasons why digital transformations fail

Digital transformations can go off the rails in the best of times, but the past two years have wreaked additional havoc since employees began working remotely.

Timing being what it is, though, with organizations hyperfocused on digitization, it’s more important than ever to address issues and fix problematic projects. Organizations can’t afford to fail at digital transformations, given that “we have now entered the era of the digital business, where transformation must be part of enterprise DNA,’’ according to IDC’s 2023 FutureScape: Worldwide CIO Agenda 2023 Predictions.

IDC defines digital businesses as dynamic enterprises that should continuously evolve their operating models and the digital platforms underpinning their operations. “In this new world, IT isn’t an organization — it’s the very fabric of the enterprise,’’ the IDC report observes. “CIOs will have to find new ways to govern IT as the tentacles of digital technology extend ever deeper into the enterprise and its ecosystems.”

Here are eight reasons digital transformations continue to fail.

Transforming on the fly

When the pandemic hit in March 2020, “people looked at the challenges and came up with in-the-moment solutions” to address them, says Michael Spires, principal and technology transformation lead at Hackett Group.

This means they were not addressing underlying technology issues or how to get the work done, but instead adopting a “we’ve got a crisis and we responded” attitude, he says. Hackett’s research has found that while IT delivered on the ability to work remotely and CIOs raised their profiles in the organization, it was “at the cost of building on top of suboptimal platforms.”

This may have been the case if IT used older underlying technologies that were not integrated or because of organizational growth through acquisitions and IT did not migrate the disparate technologies to a common platform, Spires says.

IT changed how it responded to the business — in good ways, he added, “but with technology that hadn’t been rationalized or optimized. So platforms weren’t as stable.”

It’s one thing to throw resources at a problem to achieve results during a crisis, but that is not sustainable, Spires says. “You can do that for six to 18 months to get to where you have to be to meet market challenges that exist because of COVID, but it doesn’t build a long-term, transformed technology platform and it hasn’t necessarily changed the way you meet with stakeholders.”

As a result of these practices, many IT leaders find themselves only now taking on their pandemic technical debt.

Not having a clear vision

When organizations choose to do an industrialization type of transformation, which involves upgrading the tech backbone first, there are very few early rewards, says Stephanie Woerner, director of the MIT Sloan Center for Information Systems Research (CISR) and principal research scientist.

MIT Sloan CISR

An organization’s operational backbone will depend on the type of company it is, she explains. It could mean implementing an SAP system or a core banking platform.

“It’s kind of a difficult slog to get through, and if you don’t have a vision in mind and you can’t communicate that, it makes it hard for your people until you … hit some productivity gains,’’ Woerner says.

Additionally, companies often forget that a digital transformation is really doing two things at once: digitizing your backbone as well as automating and simplifying by ideally, reusing components or processes, says Woerner, who is also co-author of the recently released book Future Ready: The Four Pathways to Capturing Digital Value.

For instance, when onboarding a customer, companies should identify the best way to do that and then reuse that process again and again. They should also reuse data instead of trying to re-create it from scratch every time, she maintains.

“The issue there is senior executives fall into the trap of not putting some attention toward the customer’’ when they are putting in the operational backbone for a digital initiative, Woerner says. “I think what has happened in the last two years is that the need to also accommodate customer initiatives at the same time has been overlooked.”

CISR’s research has shown that when companies are transforming themselves now, “it’s not just about the operational backbone; it’s also simultaneously about delighting the customer.”

Baptist Health South Florida

Digital initiatives will fail when there is a “lack of a brutally clear vision and strategy,’’ says Tony Ambrozie, senior vice president and chief digital officer and information officer at Baptist Health South Florida.

But even with great vision, strategy, and support of the board, failures can occur without “clear and crisp goals and targets along the way so everybody understands whether the success is happening and the transformation is successful,’’ Ambrozie says.

Failures can also occur when there is no planning done ahead of time for a digital transformation. “Plans may be useless but planning is priceless,’’ he says. “There’s no replacement for rigorous execution” along with the allocation of dedicated resources.

Forgetting to take the customer along on the journey

A digital transformation may also fail if you haven’t figured out how to migrate your customers to your new way of doing business, Woerner says.

For example, “digital banks are very exciting but if you haven’t figured out how to get your customers to use this new bank, you’re stuck with two business units doing the same thing,’’ meaning one still has to conduct transactions in-person while the other has shifted to online banking.

“If you cannot move your customers from in-person to online banking because you haven’t figured out how to migrate them over and there’s a lot of resistance from customers … that’s a failure,” she says.

CISR has seen this happen especially with banks — they have great ideas about transforming themselves, “and then they realize, we forgot to take the customer,” Woerner says.

Just as you would typically conduct a lot of training for your employees, you almost have to provide organizational training for your customers as well. This can be done in the form of communications, she says.

The primary purpose of a digital transformation is to serve the customer better, and then the organization and its employees, agrees Ambrozie.

The culture shock challenge

Similarly, while digital transformations typically have architecture and technology solutions challenges, culture change is the No. 1 challenge, says Raju Seetharaman, senior vice president of IT and transformation at Legal & General America’s insurance division.

Legal & General America

“Stakeholders are used to the way they’re working and there is change resistance and you have to manage that change,’’ Seetharaman says. “It’s about bringing them on a journey” and figuring out how to manage change.

He advises giving employees an early release of the product being transformed. If it’s a big platform change, give them a minimum viable product or a demo so they can provide feedback and feel like they’re part of the journey, he says. IT should also deliver quick improvements if stakeholders don’t like something. Otherwise, the product may be destined to fail.

Woerner agrees, saying that in her research, most failures have occurred when CIOs and other leaders do not get everyone on board and deal with the culture change digital brings by conducting training programs.

“Most of those efforts will not be very successful because to change a culture you have to change your habits — and that’s changing the ways people work,’’ she says. “So we suggest people really work on those new ways of working like making sure [employees are] very good at agile and bringing data into the process” instead of creating hypotheses.

Lack of long-term commitment

Not having enough funding and business acumen are other sure-fire ways a digital initiative can fail, says Franzuha Byrd, CIO at MorganFranklin Consulting.

MorganFranklin Consulting

“Technology leaders are great at implementing technology but ask them to articulate the value of a digital transformation project in financial terms, and most fall short,’’ Byrd says. “I often encounter unrealistic expectations. Expecting a technology leader to achieve a high degree of alignment with desired business outcomes if they don’t have a strong business background is impractical.”

It’s important for these initiatives to have dedicated, multi-year budgets and commitments to sustain them through the good years — and the bad, says Ambrozie.

“Organizations, and especially the CFO, must have a clear understanding of the returns on investment — how will they be manifested and when,” so there is no expectation the ROI will be immediate, he says. “Otherwise, there’s a risk of judging the beginning as a failure instead of the start of a long-term success.”

Not thinking tactically about tools

As organizations think about the tools they need to drive digital adoption and tech implementations, many haven’t taken a step back to first consider what the organization needs, says Spires. One part of a tech organization might latch onto a tool and decide it needs to be used elsewhere but that leads to a lack of meaningful coordination for adopting a common toolset, he says. 

“Then you have fractured expertise on multiple tools,’’ Spires says. “Decisions are made in haste and in the moment” without thinking about what the transformation effort needs.

This leads to “not thinking big picture, but tactically, and in crisis and in the moment,’’ he says. “We’re still seeing a lot of silos and … [IT is] not managing that holistically. That leads to a proliferation of tools and a lack of common tools.”

Given the IT staffing shortage right now, the more tools that are added, the more you will “only replicate the problem instead of addressing it via the right tool,’’ Spires says.

Lack of leadership support

The Bonadio Group

Most technology initiatives fail without the support of the C-suite, and digital transformation is no different, especially given the far-reaching impact it will have on all employees, says John Roman, CIO of The Bonadio Group, a national accounting and financial services firm. “If the C-suite isn’t vocal in their support, no one will be.”

Unless you have “the unwavering support of the board, CEO, and senior executives,” that is a recipe for failure, concurs Ambrozie. “A [chief digital officer] will spearhead these efforts, but behind those individuals, there must be that support of the board,’’ he stresses.

Business units don’t understand their role

IT’s mission is to change the underlying technology but the business often doesn’t understand what’s required of them, Spires notes. “You need business leadership to say, ‘I own the outcomes and tech owns the delivery of that.’ Expertise is often lacking on both sides.”

When the business side doesn’t articulate its role, the tech team feels obligated to step in, he says, but often it is “not appropriately knowledgeable of what the business wants in a way to take on that role.” When that happens, the tech team is making decisions on behalf of a business unit, which is not properly engaged. “I see this a lot,’’ Spires says.

There can also be a failure on IT’s part to communicate the “whys” and benefits of the transformation, says Roman.

“Sometimes, IT doesn’t effectively communicate the benefits and the ‘what’s in it for me’ to employees,’’ he says. “When there is a lack of effective, consistent communication, digital transformation efforts often fail or do not garner the adoption IT hopes.”

You have to collaborate within the entire organization to ensure everyone is moving toward digitization, adds Seetharaman. “A rising tide lifts all the boats, and that’s been a key lesson learned in the past two years.”