How to avoid failure while attempting digital transformation for your company

Around 84 percent of digital transformation attempts have been known to fail. From GE to P&G and Burberry to Ford and Lego, these failed attempts have claimed executive scalps and destroyed shareholder value. The cost of such failures is more often than not the scarcest resource of all - ie., time. Especially in the case of enterprises that have their back to the wall and are fending off a horde of disruptors.

Such failures reflect the fundamental truth that digital transformation (in the context of tech modifying business and/or operating models) is intrinsically hard. However, teams that set out on their transformation journeys with an awareness of preemptable problems alongside mitigation plans tend to fare better than teams who treat digital transformation as a large and complex IT programme.

Our advice to leadership teams on this digital transformation path is to factor in the following dynamics into their digital transformation plan:

1. Fragmented mental models

Successful enterprises by definition are highly competent at executing their traditional operating model. Executives share a common understanding of different levers that drive or constrain key business outcomes. This is alongside an appreciation of the relative priority of the levers as well. When new information is generated i.e. competition launches a new product or the market sees a new entrant, business stakeholders process that information on the basis of their shared understanding.

Digital transformation can rarely depend on such harmony, to the extent that the trigger for the former is technological disruption. The understanding of said disruption and the awareness of its underlying threat drivers are unevenly distributed across the organisation. Key stakeholders’ decisions that can secure collective buy-ins across the organisation are less forthcoming. This leads to organisational inertia and politicking, causing the digital transformation journey to stagnate.

Our recommendation is for leadership teams to recognise and solve for internal strategic alignment as a fundamental success factor.

ALSO READ

Digital transformation: decoding the jargon

2. Power naiveté

Disruptive threats typically manifest as revenue stagnation, market share loss, or margin erosion. These drag financial performance down, leading to a search for new revenue streams. This can result in either repairing the setback and restoring the business to former market glory.

Typically a recipe for failure, this approach mistakes the symptoms for the disease. Geoffrey Moore, venture capitalist and author of ‘Crossing the Chasm,’ makes the distinction that financial performance is an outcome while power is the actual underlying driver. To paraphrase Moore, power fuels performance and financial performance is a lagging indicator of power.

Power means the control of levers that regulate value flow and the capture of profit across an industry ecosystem. Disruptive competition is disruptive precisely because it 'commoditises' or supersedes the incumbent power levers in an industry.

When an enterprise faces a performance loss, it is important to audit the traditional power levers' health. What should follow is a digital strategy that restores or substitutes the affected power levers.

It is also critical to focus digital transformation away from cosmetic interventions. They should be redirected towards high impact bets that have a game changing influence.

3. Altitude sickness

Boundary setting and portfolio prioritisation have always been notoriously hard problems to deal with. Some of the tougher questions that need responses are, 'How wide should the transformation portfolio be?' and 'What should the order and grain of prioritised initiatives be?' Getting these answers right will have a critical impact on business outcomes.

As a rule of thumb, most transformation initiatives have a runway of about three years. If there is no alteration in the trajectory by then, the odds are that the gradual build-up of internal and external (shareholder) dissent will force a leadership change and directional reset.

If leadership teams' executions get too blue sky, they run the risk of also burning through that three-year runway. This could impede the higher strategic vision. Conversely, if the leadership teams start with lower level changes, there is a risk of losing sight of the strategic transformation agenda. Not only would they exhaust the three-year runway, but businesses would also end up running disparate IT transformation initiatives.

As expected, getting the right balance is tricky but achievable. Distilling from our work with clients, we have identified that successful modern digital businesses approach transformation through five different levers -

• Engineering Culture and Delivery Mindset
• Experience Design and Product Capability
• Intelligence-Driven Decision Making
• Frictionless Operating Model
• Platform Strategy

We call this the ‘Modern Digital Business’ framework. The framework is based on the ground reality that not every lever is equally relevant to every business. The Digital Fluency Model offers a framework that considers and optimises across the five levers. It helps construct a truly balanced portfolio with the right depth and breadth, in the context of very specific/customised business imperatives.

(Edited by Evelyn Ratnakumar)