Technology continues to evolve at a rapid pace. Companies that can quickly leverage new technologies create value sooner, which is typically realized in the form of increased growth, profitability, and customer satisfaction.
The race to adopt these new innovative technologies has resulted in many companies initiating digital transformation initiatives. Despite the growing number of digital transformations, a recent Global McKinsey Survey found that 86% of respondents failed to achieve their expected business outcomes.
There are many reasons why digital transformations fail to achieve their expected business outcomes. Our experience has revealed four common challenges that plague failed initiatives.
Challenge #1: Business and IT misalignment
Digital transformations must be grounded in business strategy. Digital initiatives that aren’t driven by business strategy are at risk of creating little or no value. Conversely, business strategies that require establishing or maturing digital capabilities cannot succeed without IT alignment.
Most digital transformations have organizational impacts – new business functions are created, or it modifies business processes performed by one or more business functions. Digital transformations also require direction from business stakeholders to ensure that new and modified business capabilities align to end-user expectations. A telltale sign of a misalignment is when technology changes force unexpected operating model changes – it becomes “the tail wagging the dog”.
This can be mitigated by ensuring that technology departments establish an IT strategy and that the IT strategy aligns to business strategy. Taking this a step further, all digital transformation initiatives should align to IT strategy, and hence, should be traceable to business strategy. Lastly, all digital transformations should have explicit measurable business outcomes, which should be based on specific business use cases elicited from business users.
Challenge #2: Enormous scope with poorly understood outcomes
Another common pitfall is for organizations to be overly aspirational and try to “boil the ocean”. These digital transformations tend to have far-fetched expectations and far-reaching implications across multiple business teams within the organization; business outcomes tend to be vague; teams are unsure of the ask; and it fails to produce desired results.
It is okay for business transformations to be large. However, they need to be structured so that visions are broken down into smaller, more manageable components with well-defined outcomes that are effectively communicated across teams. Teams also need to understand the larger vision so that they are aware of how their efforts contribute to the desired business outcome, and how it relates to other workstreams or projects.
At Shoreline, when planning digital transformations, we strive to develop pragmatic roadmaps that deliver incremental value through implementation, but also allows adjustments to be made along the way. Our roadmaps decompose large visions into smaller initiatives with clear business outcomes. Our top-down approach ensures that all initiatives relate back to business strategy, and that all initiatives are tied to the business capabilities that need to be introduced or transformed. This traceability allows us to create smaller and more focused workstreams. Upwards traceability has the added benefit of showing how changes to current state capabilities contribute to an expected business outcome, which can be shared with project teams.
Challenge #3: Designing inside-the-box solutions
Teams that are constrained by current capabilities – e.g., how processes currently operate and what skills teams currently have – will have difficulty achieving the expected results for a digital transformation. To create innovative solutions, teams must be unconstrained in their thinking, and “think outside the box”.
Thinking within the current boundaries of the organization tends to produce “more of the same” and digital transformation teams will be challenged to produce value from the start. Senior leaders need to promote a culture of continuous change that challenges the boundaries of current thinking and promotes and rewards teams that do this successfully.
Two common approaches can be combined to overcome this challenge– the use of diverse teams and Design Thinking. Using gender and cultural diversity is a well-known approach for garnering different perspectives and spurring innovation within teams. Combining diversity with Design Thinking — a problem-solving methodology built on a “think out of the box” approach that challenges human biases and behavioral norms — can produce significant benefits.
Challenge #4: Agility and empowerment imbalance
Two factors greatly influence the pace at which digital transformation teams design and implement innovative solutions: the agility of the organization’s decision-making process, and the degree to which teams are empowered.
A rigid, hierarchical decision-making process slows the speed of digital transformation execution. Organizations that are overly bureaucratic are plagued with a slow decision-making process. Teams in these organizations are typically unempowered and have access to a limited toolset for designing and implementing solutions.
At the other end of the spectrum where there is no governance, digital transformations are executed much faster. However, having no oversight of technology architectures and implementation activities can lead to critical issues that are difficult to remediate (e.g., security issues, technology sprawl, rampant technology debt, etc.).
Our approach uses a principle-based model that helps organizations implement operating models that are fit-for-purpose and helps find the right balance between agility and control. We are strong advocates in employing agile processes and empowering end-users, but also understand the need to align to business and technology strategy, and risk and regulatory controls
Jonathan Deakin, Laura LaBerge, Barbara O’Beirne. “Five moves to make during a digital transformation,” McKinsey & Company, 2019. https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/five-moves-to-make-during-a-digital-transformation.
For more information on Design Thinking, refer to the Harvard Business Review article by Jeanne Liedtka, “Why Design Thinking Works” (2018). https://hbr.org/2018/09/why-design-thinking-works.