There can be few organisations embarking on a business transformation that aren’t painfully aware that most will fail to meet their objectives.
The International Data Corporation has forecast that $2.8tn (£2.3tn) will be spent on digital transformations worldwide in 2025 – more than double the amount invested in 2020 – which indicates that well over $1tn is likely to be wasted on such processes this year.
Waiting until the end of the project with fingers crossed clearly isn’t a viable strategy for success. So how can a company spot the early signals that a transformation may be starting to go awry soon enough to correct matters?
“It goes on my worry list when an organisation says that a transformation is easily achievable. That probably points to the fact that it hasn’t been ambitious enough and isn’t pushing hard enough,” argues Karen Thomas-Bland, founder and director of the Seven Transformation consultancy.
In such situations, the project may be perfectly successful on its own terms but fail to make any meaningful difference to the business, falling short of a transformation.
One early sign that this may end up being the case, she says, is if the process is not being led from the top of the organisation.
“Right away, I want to know who the sponsor is. If it’s not the CEO, I worry how much a priority the organisation is making it, because a real transformation touches every part of the business, from people to processes to technology,” Thomas-Bland says. “So, if the project is CFO-sponsored or HR-sponsored, it probably won’t be all-encompassing enough.”
Even worse, says Jaco Vermeulen, chief technology officer at consultancy BML Digital, is when a project has no single leader and simply comprises a collection of independent projects, usually involving tech implementations.
“The clincher is that weeks – possibly even months – will pass before leaders of the various teams meet each other to discuss the strategic programme and the metrics they each report on, based solely on the progress of implementation rather than the changes realised,” he says.
Research by Fujitsu has found a lack of leadership to be one of the four biggest problems at the planning stage of a transformation, along with a shortage of sufficiently skilled staff, a lack of funds and an undefined return on investment. Other studies have placed even more importance on leadership. For instance, two-thirds of respondents to a GlobalData survey covering the pharma sector cited it as the most important prerequisite for a successful digital transformation.
Vermeulen reports that, in cases where there’s no single leader, it’s not unusual for him to see other activities in the business that are working counter to the transformation.
“The early warning signs here will be poor internal communications and a lack of clearly defined outcomes for the transformation. This leaves it wide open for competing initiatives,” he says. “The clincher will be occasions where the programme is put on hold for something else to be handled first.”
Another early red flag, says Mike Potter, chief strategy officer at digital consultancy Tecknuovo, is an excessive focus on technology rather than the outcomes expected from its implementation.
As an example, he cites the implementation of a new organ-donation system, in Wales, on which he worked while serving as a director with NHS Blood and Transplant. When ministers pushed for iPads to be supplied to GPs as part of the programme, he was forced to explain to them that this would not represent good value for money.
“Gartner conducted a study that concluded that a project named after the technology it’s implementing is twice as likely than average to fail,” he says. “If people are buying in technology as a product to solve their business problems, they are probably missing some of the foundational steps – involving processes and people – that should be completed before they get to that part.”
Indeed, it’s widely agreed that one of the most significant early signs that a transformation is doomed is a lack of support from employees. Research conducted last year by the Everest Group found that just over two-thirds of firms that had attempted a digital transformation had failed to achieve their desired outcomes. Of these, 58% blamed internal resistance to change as a major cause.
And, although there are change management practices that can help to counter such resistance by helping employees to cope with upheaval, these often aren’t applied until the transformation is well under way. By that time, the rot may well have set in already.
Unfortunately, resistance in the workforce isn’t always easy to spot in its early stages. People often appear perfectly supportive – or at least acquiescent – in meetings, but rather less so when talking informally with their colleagues in private. Managers may therefore need to stay alert, warns Giorgia Prestento, a behavioural scientist and independent consultant specialising in change management.
“The first signs that staff aren’t on board can be summarised as noise – the chatter by the coffee machine, the whispers in the corridors or on the online chat groups,” she says. “The best way to learn about the mood of an organisation is to hang around the common areas of an office and observe people’s interactions and body language. In a virtual environment, this is more challenging, but signs of disengagement would be people staying off camera during group video calls or a lack of questions.”
Research by McKinsey indicates that two-way, face-to-face communication is key to keeping people on board. In a survey of organisations whose transformations were successful, 65% of respondents cited line managers’ briefings as crucial in improving engagement.
Thomas-Bland notes that it’s particularly important for companies to strike the right tone with their communications from the very start. This was something that one client she worked with failed to do. The firm focused on the financial advantages of the transformation rather than what it might mean for employees.
“Really good launch communications talk about purpose. They would answer questions such as what the transformation would mean for front-line workers and why would it get them out of bed in the morning,” she says. “To really get people to buy into it and make that extraordinary effort you need from them, communications have to be emotional as well as rational.”
According to McKinsey, getting the earliest stages of a transformation right can make a big difference. Its research indicates that 22% of the value lost by the average failed transformation occurs at the target-setting stage and 23% occurs at the planning stage. That’s nearly half gone before any changes have got under way.
And, unfortunately, the widely quoted Gartner statistic that two-thirds of transformations fail still seems to hold true, with McKinsey coming up with much the same proportion.
Potter says: “Someone once asked me: ‘How is it that, if we get better at this all the time, we never seem to reduce the number of programmes that fail?’ I don’t know whether that’s true, but I would argue that we tend to take up more complex challenges as we become more competent. It’s not necessarily a bad thing.”