Only 30% of Digital Transformations Succeed - Make Yours One of Them
The statistic that at least 70% of digital transformation programs fail to achieve their intended goals is discouraging to say the least (Boston Consulting Group, Forbes). I began to wonder why companies are not trying to do more to deliver successful digital transformations.
To understand what makes for a successful transformation it helps to understand why they fail in the first place. We, as HR practitioners, are then better positioned to understand where our organizations are most vulnerable and what we can do about it. The first step is to understand what digital transformation actually is, what success looks like and what the high failure rates actually mean.
What do we mean by digital transformation? It is so much more than implementing software - it’s about people, process, culture and new ways of working. I like the definition provided by Soumyasanto Sen in his 2020 book Digital HR Strategy. Digital transformation is “…having digital technology become the backbone of new products and services, new ways of operation, and new business models”.
What do we mean by digital transformation success? In 2022 the Boston Consulting Group did a study of digital transformation programs to better qualify and quantify success and failure (BCG, 2022). First, they established three criterion for digital transformation success:
Were the program targets met (and value created)?
Was the expected value delivered on time?
Was sustainable change achieved (as per leader aspirations)?
Using this scale of success, they then evaluated 895 digital transformation programs and arrived at the following results:
30% achieved success - the target values were met or exceeded and sustainable change was created
44% failed moderately - some value was created but targets were not met, and limited long-term change was realized
26% failed significantly – less than 50% of targets were met and no long-term sustainable change was realized
This research is important as it helps us as HR practitioners better understand and appreciate the real threat of transformation failure. If we are not resolutely focused on why we are transforming the business in the first place, what needs to be delivered and by when, we are literally setting ourselves up for failure.
Now that we have clarified what digital transformation is and what success and failure look like, let’s examine why failure happens in the first place so we can address it more proactively.
How I went about understanding why digital transformations fail.
I have been leading digital transformation programs and projects for 24 years. Whether I was an implementation consultant, a project manager, or a portfolio manager I have always been helping organizations navigate the challenges of digital transformations. I decided it was time to look at the research to see if there were some clear patterns that explained why some transformations succeeded while others did not. I read several books and articles written by many leading thinkers in this space. I began documenting the themes and mapping them across my sources (see References at the end of this post). In the end I was able to amass what I would call a mini meta analysis and found there are 12 common reasons (risk factors) why organizations fail to achieve their expected results (see Figure 1). The risk factors are stack-ranked based on the number of times they were cited in the literature (the coloured numbers shown in the figure below).
Figure 1. 12 Stack-ranked Reasons (Risk Factors) Why Digital Transformations Fail
12 Risk Factors
12 factors that impede digital transformation success (in order of citation frequency):
Talent Gaps – no formal resource planning , inadequate internal skills and expertise
Program Strategy - no defined digital transformation vision, strategy, multi-year program roadmap or value realization plan
Change Management - insufficient planning and execution of change management strategies, poor communications about program goals/benefits/progress, failure to provide necessary end-user training
Technology Strategy – no defined technology strategy or roadmap, outdated technology and infrastructure, unable to keep pace with the technology changes impacting HR
Leadership & Governance – not having: digital-savvy leaders to make key digital investment decisions, support from CEO to mid-mgmt., clear governance model for strategy/process/data decisions
Legacy Culture – not supporting a shift in mindset from the old ways of working (siloed, risk averse, centralized decisions) to the new (nimble, empowered teams, digital/growth mindset)
Design Methods – prioritizing a technology ‘lift and shift’ over employee needs and experience, focus on providing a high touch vs. smart touch HR service model, ignoring legal and regulatory considerations
PMO Capability – immature project management office, no consistent way to deliver digital programs that focus on business value and user experience, misaligned implementation approaches (e.g., hybrid, agile)
Underfunding - failing to develop a compelling business case to drive the right level of investment for digital transformation success
Target Operating Model (TOM) – Inadequate consideration for transformation impacts to the legacy operating model - how people, process and tech components will work together differently post launch
Vendor Management – unclear vendor mgmt. strategy, too little involvement (vendor distrust) or too much involvement (deference), inadequate consideration for how best to integrate partners and contingents
Data Management – poor data quality, security and governance
These are clearly points of risk along the digital transformation journey, however, I prefer to think of these as gaps organizational capability. By framing the risk factors as gaps in capability we are in a better position to address the gaps. In other words, what digital transformation capabilities do we have, and which do we need to develop?
Anyone of these factors can derail a program if left unaddressed. When several risk factors are present, not only is there a greater chance of failure, but the compounding effects can increase threats to your program exponentially. It’s no wonder digital transformations are difficult. The good news is, when we’re aware of the risk factors, we can do something about them. In fact, we can even think of these risk factors as gaps in organizational capability. If we go a step further and map these gaps against the typical digital delivery teams, we can be more targeted in how and where to begin mitigating the risks. In general there are five program or project teams:
Digital Delivery Office - the team responsible for sponsoring the transformation, prioritizing the work, funding the effort and assigning resources
Project Management Team - the team responsible for planning and executing the associated projects
Change Management Team - the team responsible for engaging stakeholders and end-users and preparing them for the realities of the new target operating model (TOM)
Product or Functional Team - the team responsible for creating business value by delivering products (solutions and services) that enhance employees’ experiences
Platform or Technical Team - the team responsible for providing technical capabilities to products and the enterprise
The following chart (Figure 2) identifies the risk factors, the type of risk (see color coding legend at bottom), and the project team where the risks are likely to occur.
Figure 2. Where Digital Transformations Breakdown - by Project Team
Now it’s time for some self-analysis. Review the 12 Risk Factors above and consider what your organization’s strengths and gaps are. Is there clear alignment on which teams are accountable and responsible? What can you and your digital team do to address the risks/gaps?
If you are interested in better understanding your organization’s readiness for digital transformation success try our free assessment.
-Kevin Copithorne
References:
Digital HR Strategy, Soumyasanto Sen, Kogan Page, 2020
Why Digital Transformations Fail, Tony Saldanha, Berrett-Koehler, 2019
Reasons why digital transformations fail - downloaded November 10, 2023 (OpenAI - Feb, 7 2024):