How to Fix Organizational Dysfunctions in Digital Transformation

Written By: Eric Kimberling
Date: December 7, 2021

When digital transformations fail, people oftentimes think it's the fault of the software or the system integrator, or some other technical component. However, oftentimes, it's internal organizational dysfunctions that undermine and ultimately doom a digital transformation, and here’s why.

To preface, one of the key things we find when working with our clients throughout the world is that internal dynamics and dysfunctions are extremely powerful. They can destabilize any project at any time. Cultural components can single-handedly create a failure. Many organizations don't understand how these internal dynamics and broken company DNA can influence the success of a digital transformation.

Here are five common organizational dysfunctions that we most commonly see when working with organizations in their digital transformations. These are the five things you want to make sure that you address and mitigate as a key risk in your digital transformation.

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1. Executive Buy-In and Support

One of the most powerful forces that can doom any digital transformation is a lack of executive buy-in and support. This is one of the most common things we see, especially in our project recoveries and expert witness engagements as we are working with projects that have already failed. Oftentimes we can trace back a lot of those challenges back to the fact that we didn't have adequate executive buy-in and support.

Executives think that by approving a project, signing the checks to pay for a project, and getting a weekly or a monthly status update on the project, constitutes executive buy-in and support. Personally, I do not think it does. However, executive buy-in and support go well beyond just approving the project, quick updates, and paying the bills.

There are important questions to consider here:

  • What is our future operating model going to look like?
  • What is our organization going to look like?
  • What are roles and responsibilities going to look like?
  • Are we going to restructure our business as part of this transformation?
  • How does this overall transformation support our overarching goals, objectives, and strategies as an organization?

What executive buy-in and support ultimately mean is the ability and engagement to make key decisions around what they want to be as an organization when they grow up Alignment is needed around these core strategies is critical for a project to have a fighting chance.

These are decisions that only executives can or should make and that is what constitutes buy-in and support.
Now, obviously, you want your executives to approve the project and communicate to the organization what this project means and how they can contribute to the overall success of the project. We want to make sure that executives are providing the resources to the project to ensure that it can be successful. Those are all important as well, but oftentimes, the failures of executive buy-in and support trace back to a more fundamental lack of decision-making.

In the end, it's very important that executives don't view this as an opportunity just to delegate the entire project to a project team. There are certain key decisions that should rest solely on that executive team and that's one of the key dysfunctions that any organizations need to mitigate as part of its digital transformation.

2. Lack of Alignment

Lack of alignment is another common issue within organizations going through a digital transformation. Typically, this misalignment isn’t a product of the project, but misaligned becomes exposed and it undermines the ability to be effective in the digital transformation.

When we have misalignment, we certainly have headwinds. If a company has different goals and objectives or lacks a common direction, it's nearly impossible for that digital transformation to succeed in that environment. That friction and tension are going to slow down your project more than just about anything else in a transformation.

One of the most influential tactics to ensure success is to have that executive alignment. Throughout the organization, all stakeholders should be aware of project objectives, how execution planning, and how it ties back to overall company strategy.

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3. Unhealthy Dependency on Vendors

When organizations go through digital transformations, they typically are the first to admit that they're not experts in digital transformation. It's not what they do for a living, they have other things they're good at, but digital transformation is typically not of those things. Most organizations don't have a lot of experience with transformations either.

This lack of knowledge and experience inevitably leads to an unhealthy dependency on outside vendors, such as software providers, system integrators, third party consultants, and anyone else supporting the overall project.

You want to leverage that outside experience. I'm not suggesting that you don't, but you want to avoid inequity between your internal resources and vendors supporting the project. In addition, that unhealthy dependency oftentimes leads to nefarious behaviors such as consultants overbilling on projects and lack of transparency.
Companies must not overly depend on those resources in order to avoid being steamrolled by those outside parties. This is a common dysfunction that we see evolve throughout transformations. That is why one of the key things you can do is educate yourself before you get started.

You are not going to become an expert overnight on digital transformation, but there's a lot you can do to arm yourself with information. Read up on best practices, start to understand successful strategies, and look for technology-agnostic advice and thought leadership from organizations such as Third Stage. Those are just some examples of ways that you can educate yourself so that you can become more of an equal partner with your vendors rather than someone who has an unhealthy dependency on those partners.

4. Understanding Magnitude of Change

Organizations tend to underestimate the magnitude of the change that they're about to go through. This is especially true for organizations that are upgrading from a legacy product to another product from the same vendor.

For example, if you're moving from SAP ECC to S/4HANA, or if you're moving from Oracle E-Business Suite to Oracle Fusion or Oracle Cloud, those are just two examples of situations where organizations feel like it's a relatively incremental improvement, we're simply upgrading the technology. It's not that big of a deal.

To be honest with you, it is that big of a deal, especially in today's day and age where most new flagship products from the leading vendors are complete rewrites of older technologies that are meant to now be delivered in the cloud. These are completely new products and not incremental changes.

An even more common or extreme example of underestimating the magnitude of change is that organization that's using an old legacy based AS/400 or mainframe system, which was developed in-house 20 or 30 years ago, everyone recognizes that the technology's outdated, but it is what they are used to. This is a huge shift.

It is important that you detach yourself from the old systems because you do not want to get caught up in the old technology. It does not translate well, it runs slower, that’s not something you want to run into during a digital transformation. You want to look for something that's modern, such as cloud systems which have all the newest capabilities.

There's a perceived notion that that organization is not going to have that much trouble adjusting to the new technology because they're ready for it. Well, the reality is that it's just a massive change to go from an old legacy system to a current cloud modern system. Most organizations underestimate the magnitude of that quantum leap, the impact it has to their operations and organization as a whole.

All those things are going to be affected by the transformation. It's important to recognize that the magnitude of change you're going through is probably greater than you think, and this is one of the common dysfunctions we see is that organizations underestimate the level of change that they're about to experience.

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5. Unrealistic Expectations

Finally, but certainly not least importantly, organizations have unrealistic expectations for what the transformation required.

Businesses often underestimate,

  • The project timeline
  • The budget
  • The change management inputs and efforts
  • The impact on IT department, frontlines staff, customers, etc.

Ultimately, the effect it will have on their overall infrastructure. Therefore, they don't have a plan with adequate time, resources, and budgets to address those and other challenges.

Now, one of the key reasons for this dysfunction is one of the reasons I mentioned before, which is that organizations generally don't know better. They don't have a lot of experience with digital transformations.
They will defer to their vendors and believe them when they present an aggressive timeline, expanded budget, or an unrealistic timeline. We also must keep in mind that software vendors and sales reps from our outside vendors are typically trying to sell us services and they're incentivized quite frankly to underestimate the level of time, cost, and risk associated with acquiring their technology and services.

Going forward, we all need to take these things with a grain of salt and sanitize the proposals that we get from outside vendors and create something that's realistic for us. That's probably the best way that we can mitigate and neutralize that dysfunction. In addition to having a realistic understanding of what our project timeline and cost is going to be, we want to have a realistic project plan and change management strategy.

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These are just five of the common dysfunctions that we see in organizations. This is something that should be mitigated as part of your organizational change strategy and your overall digital strategy.

To help you further unpack this whole concept, I encourage you to download the 2021 Digital Transformation Report and The Guide to Change Management which provide you with the best practices on how to it address some of the organizational nuances and dynamics of digital transformation from a people perspective.

I hope you found this information useful. If you have any questions regarding more about how to fix internal organizational dysfunctions, please don’t hesitate to reach out to me directly. I am happy to be an informal sounding board as you move through your digital transformation journey.

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Author:
Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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