Why Your Investment in Digital Transformation Will Likely Fail, and How to Fix It

Discover what is the most overlooked factor by senior leaders leading a Digital Transformation, and how to succeed by harnessing the power of intrapreneurship with Studio Zao.

With technological advancement progressing at an exponential rate and business leaders scrambling so that they don’t get outcompeted, organisations are investing heavily in Digital Transformation (DX).

According to IDC, global direct digital transformation investments will top $6.8 trillion by 2023, with organisations continuing to build on their existing strategies and investments as they strive to become digital-at-scale enterprises of the future.

Whether it is embracing cloud computing, implementing artificial intelligence (AI) tools, optimising processes or even experimenting with new business models, research shows that more than 80% of global business leaders plan to accelerate their digital transformation processes in the near future, and 65% expect to increase the amount they’re investing—despite the economic downturn.

The main reason why organisations are increasing their investment in Digital Transformation is that it’s able to provide two kinds of advantages:

  1. A defensive benefit of drastically reducing cost and operational efficiency, increasing speed to market by shortening the time and manpower needed for internal processes
  2. An offensive benefit of massively freeing up internal talent from repetitive work, and having them focus on new revenue-generating initiatives for the organisation to grow, such as targeting new markets, launching new products or experimenting with new business models 

This is great news on paper, as it means that businesses are actively transforming in light of a changing environment. However, the results are not always positive as expected.

70% of Digital Transformations fail to achieve their objective

According to recent research from the global management consulting firm BCG, only 30% of transformations succeed in achieving their objectives. This essentially means that $4.7B is potentially going to be wasted in 2022 for unsuccessful digital transformation processes, putting senior leaders, team members and the profitability of their businesses at risk.

In fairness, Digital Transformation is not easy to get right. Delivering such fundamental change at scale in large organisations can be challenging, especially with short-term pressures or while operating in the current VUCA business environment.

The most common pitfalls we have observed focus around the assumption that by simply buying technology, being that cloud computing or AI tools, organisations will somehow transform by themselves.

However, even the best technology may go wasted unless organisations deploy the right processes, culture, or talent in place to take advantage of it. 

As the Harvard Business Review pointed out, a major reason for the lack of productivity improvements from new technologies is the common failure to invest in upskilling employees in the organisation’s workforce. The most critical part of a digital transformation investment is not “digital” but “transformation.” It’s the effort put into adapting the entire organisation to the dramatic changes that the world in its entirety has experienced during the last two decades that will eventually set a Digital Transformation process for success.

Why most Digital Transformations fail

While we acknowledge that each organisation is different, most Digital Transformation processes operate across four different dimensions:

  1. Technology: from blockchain to the Internet of Things, from data lakes to artificial intelligence, technology offers organisations great potential. Getting it right means understanding how any particular technology may contribute to the organisation’s success. At the same time, leaders need to deal with their organisations’ technical debt, the embedded legacy technologies that are being used at the moment.
  2. Data: digital processes have the side benefit of generating plenty of data across the entire business. However, it’s very likely that data will be unstructured and inconsistent, as they might be generated from digitalisation processes that have been implemented in a disconnected way. Getting the data part right involves understanding what types are required for which use case, and integrating everything together so that they are able to generate meaningful inputs for newly integrated processes.
  3. Process: digital transformation requires an end-to-end mindset to succeed. This essentially means rethinking the ways to meet customer needs, seamless connection of work activities, and the ability to manage across silos going forward. This might be difficult to reconcile with the existing organisation structure or traditional hierarchical thinking. However, transformation may be reduced to a series of incremental improvements if such an approach is not followed.
  4. People: leadership and team members across the entire organisation are included in this dimension, no one excluded. Digital transformation starts and ends with people. People will eventually use the technological tools implemented, will be part of the processes designed, and will contribute to generating the data being used.
    Moreover, if successful, Digital Transformation may free up the workforce from repetitive or mundane tasks, and empower them with insights to engage with clients and customers, to identify untapped opportunities, to devise innovative solutions and eventually implement them at scale, bringing the organisation to a whole new level in terms of competitive positioning, market share and profitability. The main issue we have observed is that senior leaders most of the time mainly focus on getting the technology, data and processes right.

Being a Digital Transformation, the first three factors are obviously important, but dimensions such as operating models, processes, and culture are in fact the determining factors for a successful transformation. The “People Factor” is what enables digitally transformed businesses to unleash the offensive benefits, eventually breaking the organisational inertia resulting from deeply rooted behaviours.

Remapping processes, structuring data and installing new technology — though often long and cumbersome — is often not the hardest part. The hardest part is governing the shift in mindset, culture, and talent that can eventually enable the organisation to remain competitive, relevant and profitable in the future. 

And we’re not just talking about onboarding and training for people to know how to use the new software tools rolled out. No.

We’re talking about these elements of people transformation, the growth-oriented elements of people transformation: their ability to now carry out creative development of revenue-generating growth propositions across the three innovation horizons.

How to succeed with the People Factor in Digital Transformations

Getting the People Factor right may be difficult and potentially counterintuitive. When it comes to setting up for success in a Digital Transformation process, Chief Technology Officers, Chief Information Officers, Data Scientists and Change Managers may be sitting around the table. In fact, “digital” commands tech, processes and data.

Having spent the last few years partnering with the worlds’ leading organisations, we have observed that leaders are often struggling with: 

  • Quantifying and measuring their people-oriented growth capability
  • Upskilling their market-facing teams with vital growth proposition development and validation skills
  • Creating environments and habits that enable them to succeed and to speed up and operate at pace

As a result, they are putting the success of digital transformation and the future shareholder value of the organisation at risk.

And to be clear, this isn’t a problem of workforce morale and employee satisfaction — this is a digital transformation risk problem because without getting the People Transformation right, digital transformation will fail.

While technology is about doing more with less, yet that combination is effective only when technology is paired with the right human skills, such as creative problem-solving, dealing with ambiguity, managing stakeholders, moving at pace and with a resilient growth mindset.

How to unlock the People Factor to drive higher Return On Innovation?

Check out our Intrapreneurship White Paper 2022 and explore how established organisations can recognise and unlock intrapreneurs to drive successful innovation across the three innovation horizons and achieve higher innovation ROI.

How Studio Zao could help

At Studio Zao we call this skillset “intrapreneurship”. It means applying the same entrepreneurial methods, techniques and skills startup founders use when launching new businesses, adapted to the way established organisations work.

Intrapreneurs are entrepreneurially talented or trained employees who help the organisation they work for to deal with ambiguity, becoming agents of transformation and growth.

We’re an innovation consultancy that specialises in helping organisations harness and unleash the People Factor behind digital transformation and innovation. We help forward-thinking organisations find their internal entrepreneurs, and we partner with them to launch impactful new propositions that move the needle, ensuring that their leaders and workforce are ready to operate in the digital exponential age.

De-risking innovation and not losing competitiveness requires properly valuing the fundamental innovation asset of your organisation: people — and then properly configuring your digital transformation and innovation strategy and activities to suit it. This essentially translates into:

  1. Gauging the entrepreneurial propensity of your people, innovation readiness of your teams and the innovation capability of your organisation
  2. Using this to configure the right way of doing innovation for your organisation, ensuring alignment between your growth and transformation strategy and any innovation initiative
  3. Ideating, validating and piloting innovations across the three horizons through a bespoke innovation programme co-designed with you. We apply Lean Startup, Design Thinking, Agile and Speculative Design principles, the same mindset and tools entrepreneurs use to deal with ambiguity and launch innovative propositions that move the needle.
  4. While doing it, your teams and leaders embrace a new way of working, and internal top talent becomes your innovation champions, ready to deliver future iterations of the same process, over and over.

Written by Davide Turi

Founding Partner of Studio Zao.
Connect with me on LinkedIn or schedule a chat here!

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