How Smart CEOs Avoid Common Digital Transformation Traps
Picture this: Your CIO comes into your office and says: “Boss, here’s the current status of our digital transformation plan.”
You brace yourself for the onslaught of jargon as the CIO continues:
“We’re behind on our Kubernetes containers implementation, so no microservices yet, and our primary applications are still monolithic. Our CI/CD pipeline and QA automation work hasn’t even started; it will be years before our ML or AI projects can begin because our data cleansing work isn’t effective. And please don’t ask about IoT, blockchain, or the status of the serverless plan for our cloud journey.”
At this point, you ask the CIO to stop speaking. Someone must be pulling a practical joke. Are they even speaking English?
This is where many of today’s CEOs find themselves when it comes to digital transformation: confused, lost, overwhelmed. But that doesn’t change the fact that digital transformation is an imperative for any business that wants to win the future. Let’s look at what exactly digital transformation is and how smart CEOs can help their organizations avoid common pitfalls around it.
What Is Digital Transformation?
Simply put, digital transformation is the process of using technology to create new—or modify existing—business processes, services and/or customer and employee experiences to meet changing business and market requirements.
There is tremendous pressure across all industries to improve and simplify customer and employee experiences, and technology is one of the most promising vehicles for those changes. In particular, companies are redefining and reimagining their customer journey—all the cool kids are doing it. At the same time, more companies are looking to technology to increase operational efficiency as well.
The pandemic accelerated digital transformation considerably, largely because these factors—customer/employee experience and operational efficiency—can decide a company’s fate in times of economic difficulty. Digital transformation isn’t just about being cool—it’s about gaining competitive advantage through smart, strategic deployment of technology. Global spending on digital transformation will top $2.4 trillion in 2024, up from $1.3 trillion in 2020.
The financial industry is a good example of digital transformation. It’s much more than the shift to mobile banking. Consumers now use cash airdrops and make cardless payments through services like Apple Pay on phones or watches. Some have moved completely to so-called “bankless banking,” using upstart fintech services rather than traditional banking institutions.
In retail, too, businesses are fighting to meet customer expectations due to the massive push toward e-commerce and the ease of doing business online. Even Walmart has undergone a transformation to keep up with Amazon and other grocery stores by turning to things like online ordering and delivery services.
Digital transformation is affecting these and every other industry, including the biggest and smallest players alike. Unfortunately, when a company embarks on a digital transformation project, it usually fails.
Most Digital Transformation Projects Fail. Why?
A study by Dallas-based consulting firm Everest Group found that a full 73 percent of digital transformation efforts fail to realize any business value whatsoever.[1] Similar studies from Boston Consulting Group and others arrive at failure rates in that ballpark.
For something as important as digitally upgrading an organization, why do so many of these initiatives fail? Let’s break down the top three reasons into a more granular view.
Reason 1: Misalignment of market needs and transformation focus
- No alignment around the problem to be solved and the desired business impact
- No clear map of the customer (and/or employee) journey
Reason 2: Poor project management
- No detailed plan with milestones (all-or-nothing approach); instead, trying to “boil the ocean” and solve all company issues at one time
- No measures of success / desired outcomes
Reason 3: A culture that does not embrace change
- Lack of commitment of C-suite and lack of associated budget
- Not enough technology expertise to tie technology projects to business outcomes
Avoiding the Pitfalls
Now, how can you, through your leadership as CEO, help your organization digitally transform without becoming part of the 73 percent who fail? Here are seven considerations.
1. Don’t start with a buzzword. Many people go astray by starting a project stating they want to deploy machine learning or artificial intelligence or some other trendy term before they have an idea of what business problem they are trying to solve. Technology is just a tool, and you don’t want to choose a hammer when a screwdriver is needed.
Ask yourself this question: Where does the company need to improve to get ahead of the competition, drive more revenue, and increase profits? For example, the goal might be to decrease customer churn by 10 percent, increase cross-sell of a product by 5 percent, or reduce inventory carrying costs by 20 percent. The goal should be stated in terms of dollar impact to the business, allowing you to set an ROI goal for each component of the digital transformation project. If you are going to be successful, you must have specific business objectives, a detailed plan, success metrics, and the right expertise or partners for each individual initiative.
2. Start with a detailed map of the customer journey. If you have not already mapped out your customer journey, start there and you will find a target-rich environment for inspiration for digital transformation ideas. As you identify transformation ideas, determine the tie to the key company objectives. You want to ensure a significant improvement in the end-to-end customer experience that translates to significant business reward with high return on investment.
3. Once it is known that the company is investing in digital transformation, everyone will rush to get a project on the list. Resist the urge to try to do everything at once. Instead, let market demands lead the way. To begin the planning process, it is important to remember that digital transformation is not an IT-only project—it is a transformation of the entire business for the better, so diversity of thought, inclusion of key stakeholders, and engaged, ongoing support and advocacy of the C-suite is non-negotiable. Diversity matters when assembling the transformation team. The stakeholder team should include business and technical people, people new to the company and tenured people. Cross-functional teams must have representatives from all parts of the workflow that you are improving, and if the area has customer touchpoints, add a customer survey or focus group into the mix.
Change is not comfortable. It’s our responsibility as CEOs to inspire the change we want to see so people embrace it.
4. Once you have a detailed roadmap, it is time to review the key performance indicators (KPIs) and project outcomes. Put simply: What does success look like and how will you know when you’ve achieved your objectives? The metrics for success should be published weekly. Metrics will depend upon the specific project, but you are looking for metrics that will alert you quickly to whether the project is off track.
5. Peter Drucker once said that culture eats strategy for lunch. That is never truer than in a transformation project. By definition, a digital transformation project requires large-scale organizational change and adoption of new technology, and it could alter long-established norms and workflows in the company. It is highly recommended to do Agile mindset training across the company, and once you have a definition of what success looks like, you must be ready to be agile! Be prepared to change direction based upon what you learn from stakeholders along the way. A culture that embraces change, collaborates, and conducts regularly scheduled retrospectives will great increase the organization’s odds of success.
6. The CEO needs to be the Chief Digital Transformation Officer. Transforming the business—and championing the necessary culture, process, systems, and people changes—begins with the CEO. Change is not comfortable. It’s our responsibility as CEOs to inspire the change we want to see so people embrace it. And to further increase the odds of success, the support and advocacy of the entire exec team is needed. The C-suite must be front and center in communicating how these changes will benefit both customers and employees and make the company more valuable. Leaders should focus on answering the “Why,” which will help with internal adoption. This way, digital transformation becomes one of the company’s primary goals that must be achieved for the company’s vision to be realized. Regular updates should come from the top.
Finally, the executive team must put the required budget behind the chosen priorities. Many projects fail due to underinvestment. Cutting corners and trying to save money and piece together the lowest-cost technology solution or the lowest-cost team almost never works. If you want big returns, you must invest in quality solutions and resources to get the work done.
7. Be realistic about the skills and expertise of your team. As you build your transformation roadmap, identifying the skills needed for implementation, then make a plan for education and upskilling as part of the overall project. Investment in people is a key component of a successful transformation project. Digital upgrades require human knowledge and skill—don’t assume your team can just learn everything on the fly.
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Transformation means changing the business for the better, future-proofing your company to be able to sail into whatever headwinds the world throws your direction. Be bold, yet practical, and resolute. Remember the saying “Rome wasn’t built in a day.” Nor will you transform your business in a day. The key is to have a grand plan and to take it one step at a time in priority order.
[1] Peter Bendor-Samuel, “Why Digital Transformations Fail: 3 Exhausting Reasons,” The Enterprisers Project, August 27, 2019.
