With organisations forecast to spend trillions on digitally overhauling their business models over the next few years, getting it right first time is at the forefront of most executives’ minds. It’s widely observed, however, that most businesses that attempt digital transformations fail.
Global spending on digital transformation is forecast to reach $2.8tn (£2.15tn) in 2025, according to the International Data Corporation’s Worldwide Digital Transformation Spending guide. Yet, McKinsey research suggests that most attempts at digitally remodelling organisations fail. Why are business leaders failing to learn lessons?
One of the first reasons could be that all organisations had to accelerate, or in many cases begin, their digital transformation projects under a cloud of global panic as the world shifted to remote working in early 2020.
Any change programme attempted in a rush will inevitably face risks. And digital transformation projects have potentially even higher risks because of the dazzling array of new technologies available, the urgent commercial need to reconfigure post-pandemic and the changing expectations of staff and customers.
The myriad technologies now available to transform business processes and systems can bamboozle executives with their lofty promises of revolutionary change. A common mistake in change programmes is investing in technology for technology’s sake without understanding the alignment with the overall strategy. But experts agree that digital transformation is rarely about the technology, but rather about people and business models.
“People focus on the tools and not the business model that sits behind. It can become distracting. The bigger question is how to use a tool valuably, whether it will add value and whether customers will gain from it,” says Matt Spry, founder of consultancy Emergent.
Take a seemingly simple example of a planned outcome of a larger digital transformation that affects employees on a daily basis – such as hot-desking – where employees have no allotted desk. The fundamentals of the concept are clear – new tech unchains staff from sedentary working life and can cut office space costs. But evidence shows that unless leaders engage the staff it affects and understand people’s behaviours, hot-desking will fail – and repeatedly has done – as well as result in millions wasted.
“Senior leadership has to listen to and empathise with both vocal detractors and the insidious detractors. The insidious detractors are the most dangerous so the leadership team should be anticipating resistance because it will happen,” says Laurence Parkes, CEO of digital experience agency Rufus Leonard.
The reasons for failure are varied and multifaceted but abundantly clear, experts say. Typically, most digital change projects fail because of a weakly formulated vision and strategy, a lack of leadership experience, an absence of cross-collaboration, lacklustre communication, poor employee engagement and weak implementation, among others.
“The lack of engagement and adoption by employees and key stakeholders is arguably the single biggest reason for technology transformations failing,” says Nadim Ahmad, former CFO and founder of consultants Clyde Moray.
When the prospect of missing the goal arises, instead of ploughing on and fudging problems, management should pause the project and take stock.
“My starting point would be how accurate is my current assessment of where we are on the journey. Review existing status reports and governance meeting notes to highlight some of the failure points,” Ahmad says.
A review of timelines, budget, contingency funds, the original business case and its scope should all be carried out at this point, experts say. The potential for scope creep and budget constraints can topple the most well-made plans.
At this point, commissioning an external assessment may be an option to avoid internal politicking. But this could also raise the issue of whether management failed to appoint the right people at the start, and it’s often difficult to acknowledge previous mistakes, especially if failure is not an option.
“The other thing that I would look at to get back on track is to make sure the project reporting and frequency is accurate. Make sure that you’re continuously reporting and continuously intervene when you start to see problems are arising,” Ahmad says.
The project’s governance framework is also critical to correcting errors. If the steering committee isn’t made up of senior decision-makers that can help unblock some of the challenges that a delivery team tends to face, then project leaders may struggle to get back on track.
Others suggest, however, that nurturing a space to fail should be factored into any change programme.
Jenny Burns, CEO of innovation consultancy Fluxx, says: “A lot of organisations try to tackle the whole thing in one go and make commitments to investors about milestones on a quarterly basis. The best way is to test and iterate and then scale up. Quite often, we see businesses without the mindset to be able to make mistakes, learn from them, move on.”
A better starting point, Burns says, is to talk about a sequence of events, indicating how the budget will be drawn down at specific times to manage risk and investment based on evidence rather than assumptions.
“Not only are people not learning from their own mistakes within an organisation, but we’re yet to have the strength and confidence to learn from other people in the same industry, or even outside the industry,” she says.
Another option to correct the course of action is to revamp the communication strategy. Weekly email updates might not be the best communication channel nowadays when there are so many different forms of media available. “If staff and customers feel that change is forced upon them, they may struggle to embrace it,” Spry says.
Some good old-fashioned communications tools still work, though. Regular bi-weekly or weekly town hall meetings, for example, where the whole project team can field questions and answers, rather than just a single executive.
“Communication is essential. Finding moments to reflect on the progress that you’ve collectively made, praising those people that are fundamental at enabling change, and preparing people for the next wave of possibilities will also help get things back on track,” Parkes says.
Narrative shorts (mini-films) instead of multi-page documents can also help people digest and visualise the change. Alternative ways of storytelling will also showcase an organisation’s inclusive approach because not everyone absorbs information in the same way.
“The other pitfall we notice a lot is the lack of storytelling in businesses. The test-learn-iterate approach means you can talk about what you’ve learned as you go; what you’re aiming to succeed, what you’ve parked, or what you’re going to move forward with. Leaders often tell that story once and think that’s enough, whereas it needs to be repeated,” Burns says.
Change always takes longer than expected. Budget overruns are commonplace and people, generally, don’t like change. Unless business leaders begin to learn from others’ mistakes and provide space to fail, the next 10 years of digital transformation may prove a tumultuous and expensive decade. Acknowledging failure as part of a learning process is something we drill into our children to build resilience. Isn’t it time the grown-ups learnt this lesson, too? Small steps, done well, can lead to big changes.