Why Digital Transformations Are Failing at an Alarming Rate

Written By: Eric Kimberling
Date: June 21, 2023

Digital transformations are failing at an accelerated pace. In fact, the failure rate has reached epidemic proportions within the industry. It is important to understand why these failures are occurring more frequently over time and explore potential strategies for mitigating the associated risks. 

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One of our common service offerings is to assist clients in preventing initial failures and supporting companies that have struggled with their digital transformations to get back on track. We have observed significant growth in the latter part of our business, which focuses on helping companies recover from failed digital transformations. Another rapidly growing aspect of our business is our expert witness practice, indicating an increase in industry lawsuits requiring our services to testify on the reasons behind these failures.

I have devoted considerable time to contemplate why digital transformation failures are on the rise and are expected to continue in the future. Today, I aim to discuss the reasons behind this trend. It is crucial for you to comprehend not only the causes of project failures but also the necessary measures to avoid the common mistakes and pitfalls that organizations often encounter.

Forced Vendor Upgrades

Let's begin by discussing the reasons behind failures. For now, let's refer to this as the "failure bubble." Simply acknowledging that failures are happening at an accelerated pace does not provide us with useful information unless we delve into the factors contributing to these failures.

The first contributing factor I would like to address is forced vendor upgrades. This refers to situations where organizations, prompted by software vendors, are compelled to transition from legacy products to new systems. While these new systems may offer long-term benefits and a high return on investment (ROI), organizations undergoing digital transformations often find themselves trapped in failure because a software vendor has arbitrarily decided that it is time to abandon the old legacy system and adopt something new. The vendors hope that organizations will choose their new software version, which is more profitable for them. However, there is a fair or moderate chance that organizations may opt for another vendor. Regardless of the direction chosen or how the situation is navigated, the net effect remains the same: an artificial sense of urgency is created for organizations to change their technology, regardless of their readiness, budget, or available resources. This introduces a variable that undermines the potential success of many transformations.

To mitigate this risk, the most important step is to ensure that you upgrade and undergo your digital transformation according to your own timeline. You are not obliged to heed the software vendors or industry analysts who are incentivized by the vendors to convince you that now is the opportune moment. What truly matters is your understanding of the right timing, the desired form of digital transformation, and the appropriate tempo that aligns with your specific needs.

Immature Cloud Solutions

Another contributing factor to the accelerated pace of digital transformation failure is the presence of immature cloud solutions. It is crucial to highlight this point as it has significant implications. Not only are vendors pressuring companies to abandon their old legacy on-premise systems, but they are also promoting less mature cloud solutions as their flagship products. This is particularly true for legacy vendors who initially developed their solutions for on-premise use and have now transitioned their flagship products to cloud-based solutions.

It's important to note that this is not as relevant for legacy cloud providers such as Netsuite, Workday, Salesforce, and others. These vendors built their systems in the cloud from the outset, long before cloud systems became popular. However, the on-premise legacy vendors are now playing catch-up and are forcing all their systems into cloud solutions. The transition involves rewriting these systems, and it is reasonable to conclude, based on experience and logical reasoning, that decades of on-premise research and development cannot be replicated overnight as software vendors make the move to the cloud.

Therefore, when selecting software or defining your digital strategy, it is vital to thoroughly assess any cloud solution you intend to deploy. This evaluation serves not only to find the right fit and ideal solution for your organization but also to understand the associated risks. Every system you deploy, even the most mature cloud solutions, will inevitably have deficiencies and gaps that need to be addressed, introducing risk into your digital transformation. It is essential to identify and comprehend these gaps. The reality is that the relative immaturity of cloud solutions contributes significantly to the challenges observed in the digital transformation space.

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Limited Technical Skills

Another emerging challenge in the tech industry, closely linked to forced upgrades, contributes to the failure of digital transformations. Currently, there are software vendors who are successful in compelling many organizations to undergo digital transformations. While some of these transformations would have occurred naturally, with organizations already prepared for digitalization, many others are being prematurely pushed into this process without adequate readiness due to limited options. Regardless of the underlying reasons, the outcome is a constraint or bottleneck on qualified technical expertise.

A related challenge stems from the scarcity of technical skills available in the marketplace. When I mention limited skills, I mean that the supply is insufficient to meet the demand. This scarcity of tech skills also contributes to failures. Even prominent system integrators and technology providers are facing constraints in terms of available skills and resources. Many of them are resorting to desperate measures, scraping the bottom of the barrel to find any qualified or semi-qualified resources to staff projects created by the forced upgrades.

This highlights the importance of having a clear understanding of the technical skills available to you or the skills that you lack. It is crucial to ensure that your overall digital strategy plan and roadmap align with the reality of your available skill set. By acknowledging and addressing this challenge, you can better navigate the digital transformation landscape.

Companies Are Running Lean

Another dynamic that contributes to failure is the prevalence of organizations running with limited resources, adopting lean operations. In other words, they lack a pool of readily available personnel to support internal digital transformations. Lean operations have always posed a challenge, but it has become an even greater problem in the current landscape. This is particularly true due to the aftermath of the pandemic, where many organizations downsized and prioritized optimizing their business models with lean operations in mind. The 2020s have further highlighted this challenge.

When you combine the scarcity of internal employees, limited technical skills from external software vendors, immature cloud solutions, and widespread forced upgrades, it creates a perfect storm for digital transformation failures. This situation sheds light on why numerous transformations are struggling at present. While we may not be able to change an organization's lean nature or its limited capacity to support digital transformations, we can exert control over the pace at which we proceed.

Similar to what I mentioned earlier, if you are dealing with lean operations or facing a shortage of external technical support, the same holds true for internal skills. If there is a lack of internal resources, it is vital to ensure that your digital strategy, plan, roadmap, timeline, and budget reflect this reality. For instance, in an ideal scenario, you might be able to implement your digital transformation within 18 months. However, considering these dynamics, it might be necessary to extend the timeline to 24 or 30 months due to insufficient internal and external resources available to support the project. While we may not be able to immediately change these circumstances, we can adapt our approach to digital transformations within the context of these challenges.

The Advent of Agile Methodologies

Another dimension contributing to failure, which may resonate with many, is the adoption of agile methodologies. Agile is currently in high demand, with most major software vendors and system integrators employing either fully agile or partially agile implementation methodologies.

In the context of agile methodologies, what we are observing is that the intended flexibility of agile is, in fact, generating chaos, unpredictability, and a lack of structure within digital transformations. Digital transformations inherently require a certain level of structure, including project governance, controls, and stage gates. Agile methodologies advocate for adaptability, responsiveness, and quick deployment of technology while seeking feedback and making necessary changes. While this approach can be beneficial in certain cases, taking agile too far can lead to failures. By failures, we mean exceeding budgets, surpassing timelines, failing to deliver expected business value, and encountering operational disruptions during the go-live phase. These metrics indicate potential project failures if they are not met.

The key here is to ensure that you choose the appropriate implementation methodology and, if agile concepts are integrated, strike a balance between agile's flexibility and preserving the necessary structure and discipline to achieve a successful digital transformation.

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Change Fatigue

The final driver of digital transformation failure that I will address is change fatigue. Organizations and individuals within them have been through a lot in the past three years, especially since the onset of the COVID-19 pandemic. They have had to redefine their work processes, adapt to remote work arrangements, and cope with disruptions in supply chains. Jobs have become more demanding, and many individuals have lost their jobs during and after the pandemic. Meanwhile, organizations are simultaneously attempting large-scale digital transformations with new technologies, limited skills, and agile methodologies. All of these factors contribute to people feeling tired and less enthusiastic about change in general.

The fatigue and weariness experienced by organizations and their employees results in reduced support for digital transformations. To ensure the success of these transformations, it is crucial to address change fatigue rather than allowing it to lead to failure. There are various actions that can be taken, although some may be easier said than done. For example, reprioritizing projects may be necessary when multiple change initiatives are underway alongside a digital transformation. This could involve deprioritizing other projects or postponing the digital transformation itself.

Addressing staffing issues is another consideration. Additional staff may be needed to support the project and avoid overburdening a smaller group of individuals working on the digital transformation, which can further contribute to change fatigue. Implementing a tighter, more predictable, and structured implementation methodology can also help mitigate the chaos often associated with agile methodologies, which can contribute to change fatigue.

It is essential to recognize, understand, and mitigate the fatigue experienced by employees and organizations in general. This recognition of change fatigue is vital in navigating the challenges faced by organizations today. I hope this explanation has shed light on why digital transformation failures are occurring at an increased rate and provided ideas for addressing the human-based change management problems and challenges that organizations currently encounter.

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I would enjoy brainstorming ideas with you if you are looking to strategize an upcoming transformation or are looking at selecting an ERP system, so please feel free to contact me at eric.kimberling@thirdstage-consulting.com. I am happy to be a sounding board as you continue your digital transformation journey.

Be sure to download the newly released 2023 Digital Transformation Report to garner additional industry insight and project best practices.

Eric Kimberling

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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.

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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