Five Things Companies Need to Get Better at about Digital Transformation
According to reports shared by Harvard Business Review, McKinsey, EY and the like, up to 70-80% of digital transformational and innovation programs failed to deliver the intended benefits and outcomes. But if we are referring to true innovation, 10-20% success rate is actually quite high considering it took Thomas Edison 10,000 experiments to invest the world’s first light bulb. His success rate was 0.01%. Thomas was undeterred, when asked about his missteps, he once said, “I have not failed 10,000 times – I’ve successfully found 10,000 ways that will not work.”
Broadly speaking, there are four types of digital transformation: the most common type is process transformation. It’s the easiest and also the most straight-forward type because it has the least unknown. Digital transformation can also be related to business model, NetFlix used to be a DVD rental company focusing on mail-orders before it became a software-as-a-service (SaaS) company like how it is today, providing licensed videos on demand. There’s also business domain transformation which is the hardest out of the four. It’s an area for companies to discover blue-ocean and break-through their current red-ocean. Schneider Electric uses big data, industrial internet of things (IIoT) and AI to offer predictive maintenance intelligence to their customers to improve transparency and overall service reliability and asset life management. The last one is organizational / cultural transformation, it’s about putting people at the centre of all changes.
I was recently asked to cite the common reasons for digital transformation failures at a business forum with about a hundred Malaysian business owners. When I reflected my experience leading and working through others on different organizational changes who had varying degrees of success, I have observed five key areas which underpin the program’s destiny.
Asking the wrong questions
When you start from the wrong place, you will end up at the wrong place.
“How do I increase revenue?”
“How do I cross-sell and upsell my products and services?”
Customers don’t care about your revenue and they get frustrated when you bombard them with irrelevant information. Companies exist to solve customer’s pain-point. A better place to start is to reframe these questions and put yourself in their shoes. Why would anyone buy your product and pay you?
Not my job
Transformation is an evolving journey. To make it sustainable, you need top-down and bottom-up cadence within an organization. It requires everyone from top to bottom to be on the same wavelength, to speak the same language. There are different ways to introduce and structure digital function within an organization, and you can do that internally by centralizing or decentralizing and cascading the function and/or externally. That being said, companies who task the change responsibilities to a siloed team without collectively owning the change journey are seriously at their peril.
Destructive innovation culture
The quickest way to kill any type of creativity and innovation within a company, is by blaming and fault-finding. What companies need to focus on instead, is to create a culture whereby people want to challenge the status quo because it is the right thing to do, they feel psychologically safe to voice out and try something new. Not only should companies need to encourage failures, mistakes, we should celebrate it and reward people for trying. Failure is part of discovery and a way forward. Imagine Thomas Edison was reprimanded for his earlier experiments.
In a meeting held by Reed Hastings, CEO of Netflix, he expressed his concerns with his team that the success ratio was too high. The cancellation show ratio should be higher if they are taking risks coming up with new shows and new contents. James Quincey invited his managers to look past the stigma of the failed ‘New Coca-Cola’ campaign which has haunted the company for more than thirty-years. “If we don’t make mistakes, we are not trying hard enough”.
Lack of clarity and measurements
FOMO or fear-of-missing-out is a common phenomenon whenever companies do pulse-check with their competition. “Our competitors are rolling out a new CRM, ERP, a new loyalty program, let’s look into it and create our own”. Instead, I think companies should be thinking about why they want to change, their transformative purpose. Once they know the why, they can then think about the ecosystem, the hardwares and the softwares they need to support the change (the how) and what needs to be done. Never do it the other way around. It’s also important for organizations to track their impact scientifically and test their hypotheses. If I assume a better digital experience will lead to a more sticky customer cohort and spend more with us, how do I need to set up metrics to prove my hypothesis? More importantly, how can I prove my hypothesis with the least amount of time, money and resources spent to scale what I do?
Lack of representation for innovation, data, people and geopolitics at top leadership.
The fifth element which sometimes goes missing is related to transparency and alignment at the top leadership. Innovation, data, people and geopolitical risks should not just hide underneath IT, HR (or People and Culture) or Compliance. In this day and age, they are all interconnected and need to work with one another. As the number of connected devices grows, companies need to evolve and handle cybersecurity risks and train up their people. To transition our workforce to the post pandemic world, we need a more mobile and digital workforce. Companies like EY are transitioning their 300,000 workforce globally through offering badges, democratizing training and learning like offering free tech-MBA partnering up with online learning platform such as Udemy and Hult university.
The average lifespan of the companies listed on Standard and Poor 500’s used to be 61 years. Today, it is sitting at around 18 years. By 2027, 3 out of four companies from the list will likely disappear. I think we should stop looking at digital transformation as the antidote for disruption and focus on how to create a digital twin by using technologies to enable our once-analog company. Digital transformation is not one-off. It’s not one person’s job.
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