Why do digital transformations often fail?

Photo: @andreeas via Twenty20
Nov 07, 2019

Knowledge@Wharton staff

Presented here for discussion is a summary of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

The transition to digital is a $1.7 trillion industry, yet 70 percent of attempts end up failing, according to McKinsey & Co.

Tony Saldanha, president of Transformant, a consulting firm helping organizations through digital shifts, believes a lack of clear goals and a disciplined process to achieve them, contributes to the high failure rate. Confusing terminology is also an issue.

“The term ‘digital’ is fuzzy,” Mr. Saldanha, the former VP for IT and Global Business Services at P&G, told Knowledge@Wharton.

His new book, “Why Digital Transformations Fail: The Surprising Disciplines of How to Take Off and Stay Ahead,” outlines five levels of digital transformation. 

“Real digital transformation, to be precise, is the rewiring of an existing enterprise so that your physical product becomes smarter, your go-to-market models become more digital, and your internal operations become at least two times as efficient,” said Mr. Saldanha. “But it’s a journey of five stages, all the way from automating your typical accounting kind of stuff, which is stage one, through stage five, where not only have you changed your processes, people and other rewiring, but your organization culture becomes completely digital. Being extremely clear about what you’re aiming at and being very precise on which stage you are on that journey is the No. 1 issue that most companies face.”

In the latter stages, an organization transforms itself for the first time (stage four) and makes sure they’re able to sustain it (stage five). Said Mr. Saldanha, “This is when, like many of the successful companies in history, the organization looks to reinvent itself. And there needs to be the internal processes that reward that behavior and allow that risk-taking to happen.”

One of the biggest challenges is changing behaviors and motivations so that the organization acts with the agility and the urgency of a startup. Said Mr. Saldanha, “That’s a harder transition. And that’s really where a lot of the fears are among the boards and CEOs among the Fortune 100s that I consult with. How do I almost re-do my organization’s agility and digital skills to compete with the startups?”

DISCUSSION QUESTIONS: What do you see as the obvious and less obvious hurdles retailers or brands face when undergoing a digital transformation? Do you agree that one of the core challenges is rethinking organizational culture to act like a startup?

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"The biggest obstacle to digital transformation that I’ve seen over the years is the misguided idea that digital investments must offer short term incremental sales. "
"The answer is not in the tech — the answer is in your attitude as a business."
"These tests almost always succeed enough to justify deploying to other stores. Unfortunately, that’s when retailers realize they forgot to examine the basics..."

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17 Comments on "Why do digital transformations often fail?"

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Bethany Allee

One of the less obvious hurdles retailers and brands face when undergoing a digital transformation is technology fatigue. Given a sound business strategy, there is a higher propensity for employees to understand and embrace the change. The issue I have seen as many organizations get into their digital transformation is that additional elements are piecemeal-ed into the transformation as time goes along. This is compounded when you realize that many large-box and most small-footprint retailers don’t have onsite IT staff. Communication as to why the elements are introduced isn’t provided, and there’s no strategic rationale. This is when employees start to see the technology additions as a burden and they start to suffer from technology fatigue. One solution is to find a backbone platform that enables additional applications and services to be added into the master transformation plan. This is also when it makes sense to leverage managed services to eliminate the burden constant change places on the already full plate of retail employees.

Bob Amster

Startups have the luxury of not bringing any baggage to market. In today’s business world, they start at exactly where the technology is at the startup point. By contrast, mature businesses are used to business one way and it is difficult in many cases, to change the modus operandi. Embracing all the new digital approaches to procuring product, advertising, marketing, running store operations and caring for customers can be a culture shock, can be difficult practically, and there may not be the funding to accomplish it all. furthermore, trying to make many changes in the transformation at one time may be lethal.

Ken Cassar

The biggest obstacle to digital transformation that I’ve seen over the years is the misguided idea that digital investments must offer short term incremental sales. The reality is that, because consumers are demanding increasingly digital experiences, digital investments need to be looked at as defensive (protecting the franchise) as much as offense (incremental sales).

Peter Fader

It’s pretty simple: because the tech and the tactics get way out in front of the strategic reasons/benefits that motivate them. Retailers (and any other firm) will not find success with any kind of “transformation” initiative until they are truly ready to be transformed — and have some sense of how the transformed version of the firm will operate.

Most retailers, at heart, want to run the business the good old way, with the hope that the digital stuff will help them keep chugging along. They’re not willing/able to adapt to the strategic demands of the new reality. (Self-serving plug: “The Customer Centricity Playbook”)

Figure out — and truly commit to — the right strategy, and the digital transformation aspects will make a lot more sense.

Dr. Stephen Needel

The implicit assumption in this is that a digital transformation must occur – I’m not sure that’s always necessary to the extent that the author suggests. You can have a successful enterprise without being totally digital and thinking like a startup. Indeed, given that most startups fail, there’s an advantage to not thinking that way and, in many businesses, not being agile or believing that always changing things is a good idea. Of course there are basic things that need to be digital, but the organization per se does not necessarily need to be this.

Brandon Rael

There are no magic buttons to flip an organization to a digital-first, data-driven, customer-focused model. Digital transformations are one of the more key initiatives that companies need to invest in. However, the 70 percent failure rate outlined by McKinsey speaks to how challenging it is to take these transformations on.

Legacy companies all want to act like a startup, take on these digital initiatives, drive personalization, act and move with increased agility and flexibility, but it’s simply a difficult operation to take on while keeping the ship afloat. There are no big-bang approaches for digital transformations to succeed. Rather, the most successful transformations are a long term journey, with iterative pilot approaches, where companies can measure and analyze the results for a smaller segment of the company without the risks inherent with a big bang strategy.

Digital transformations are truly a marathon and not a sprint simply due to all the organizational impacts and touchpoints.

David Naumann
David Naumann
Vice President, Retail Marketing, enVista
4 months 28 days ago

Legacy systems and cultures that aren’t accustomed to agile processes or mindsets are the biggest challenges to achieving successful digital transformations. Many retailers are saddled with legacy systems that were not designed for today’s digital, omnichannel world. And large companies can’t feasibly embark on a rip and replace strategy. It takes time to transform.

Start-ups are inherently agile and many have built their business around digital principles. Large companies have layers of management and bureaucratic processes that make agile processes difficult to execute. Changing the culture requires the leadership team to embrace agile and make it a top priority. Easier said than done…

Patricia Vekich Waldron

Transformation involves people, processes and technology. Unless you have the right recipe for first two, new technologies will invariably fail.

Mohamed Amer

The biggest hurdle is applying traditional ROI calculations to digital transformations. It’s like taking a formula with all the implicit assumptions about how things are supposed to work and applying it to this new destination and model of the world where the old rules no longer apply.

Digital transformations must start with a change in the executive mindset and avoid trying to force the company to simultaneously operate and excel in contradictory analog and digital worlds, yet with a common capital budgeting and incentive process. The difficulty of the journey cannot be overstated on the organizational and personal levels – it forces one to question and potentially step away from the very core of what made a company successful.

Scott Norris

Especially with founder-owner smaller companies, whatever success the firm had originally is tied into the stories of the founding and early years. Any divergence from “how things used to be” is very often perceived (rightly or wrongly) as a direct attack on the living memory and values of the owner and provokes fear in her heart.

Deming taught us to “drive out fear” and in today’s phrasing, to “get over ourselves” to face real facts and do what must be done. But until the founder-owners realize that failure and loss of respect and position is inevitable unless they commit to change, there is no chance of success. In which case today’s phrase is apt: “OK Boomer.”

Mohamed Amer

So well stated, Scott!

Adrian Weidmann

Transformation is defined as a change – change is inevitably disruptive and as such requires people and processes to be willing and committed to the challenges introduced by disruption. People don’t like change — whether shoppers or employees, we are more comfortable with the status quo. Digital transformation, when done correctly, is disruptive across many disciplines. Most transformations fail because they cannot, or will not, overcome the status quo. The catalyst for change simply isn’t strong enough. I’ve worked with retailers that will decide to kill a successful in-store merchandising campaign because it required “too much” change to the stores’ Standard Operating Procedures!

Cate Trotter

As I said in my presentation today, “all the technology in the world won’t save you if your heart’s not in the right place.” You have to want to change particularly when it comes to becoming a more customer centric business. The attitude comes first to drive the change and then the application of the tech is what brings it to life. It’s the only way for a business to properly embrace digital transformation.

There are lots of benefits, but it’s not necessarily easy, so retailers really have to commit to doing the right thing. The answer is not in the tech — the answer is in your attitude as a business. Because if you get that right you start to see that looking at yourself as a retailer is not necessarily the most useful description and that you’re actually in the business of user experience, which can be enhanced through digital.

Shep Hyken

Is it the digital transformation that failed? Or, did the company’s execution fail? Often technology is good, but when used the wrong way, it fails. I’ve seen companies become enamored with digital technology to the point that they lose balance between a human connection with a customer and a digital connection.

An investment into digital must have ROI. And, that comes in the form of increased sales, new sales and customer retention. Even Amazon is moving from 100% digital to a customer experience that includes human-to-human interaction (in Amazon stores, Whole Foods, etc.). Walmart and Target have both traditional and digital platforms, as does many other brands. The secret is in the balance, and that is different from brand to brand.

Ricardo Belmar
As they say, “culture eats strategy for breakfast, every time” so yes, organizational culture and structure is a significant obstacle to successful digital transformation. But it’s not the only one. One of the more frequent obstacles I run into with retailers is that the attraction of those new shiny technologies that vendors claim will drive digital transformation in the store is so strong, they forget to take care of the basics. Most of these new technologies are built on top of older tech that delivers the foundation needed to support that new digital experience every retailer wants to launch. If the core infrastructure can’t support it, there’s no chance the new technology will succeed. Often times retailers experiment at a concept store or designated “test store.” The problem is, these tests almost always succeed enough to justify deploying to other stores. Unfortunately, that’s when retailers realize they forgot to examine the basics like store networks, Wi-Fi, operational processes, associate training, back-end servers, cloud connectivity, and the list goes on. Of course, these aren’t as high-profile… Read more »
Suzanne Crettol

The most obvious hurdle for retailers and brands is that the majority of sales still come from B&M. However, we know that digital dramatically influences in-store sales especially when you narrow your focus to specific categories like electronics or luxury.

As a headhunter in the digital space, I’m in the unique position of hearing the struggle from both sides of the spectrum (B&M vs. digital). When I began recruiting there were few true digital leaders as eCommerce was so new. Today there are far more people with digital expertise, but many lack B&M experience resulting in knowledge barriers that hinder acceptance and can lend itself to a dismissive culture. The larger the company the worse this tends to be.

One can argue that senior leadership is out of touch (have heard this a lot) and those with only digital experience are not thinking about the big picture. Gaining perspective and experience will lend itself to less friction.

Suresh Chaganti

New companies have the advantage of starting with the state of the art and no baggage. When they become old, it would be as hard for them, or at least for most of them. Amazon embodies the spirit of Day 1, which means they internalize and behave the upstart mentality and forever accepting change.

That ability to accept and embrace change is what separates leaders from laggards. Companies that embrace change decide faster, execute faster and transform faster. That DNA miraculously rubs off their customers too, making it all a virtuous cycle.

"The biggest obstacle to digital transformation that I’ve seen over the years is the misguided idea that digital investments must offer short term incremental sales. "
"The answer is not in the tech — the answer is in your attitude as a business."
"These tests almost always succeed enough to justify deploying to other stores. Unfortunately, that’s when retailers realize they forgot to examine the basics..."

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