Why Digital Transformations Cause Business Disruptions...And How to Minimize Those Disruptions

Written By: Eric Kimberling
Date: May 5, 2023

When organizations begin a digital transformation, it often results in a significant shock to the system. This transformation can be highly disruptive, causing chaos and turmoil within the organization. In this article, we aim to understand the reasons behind this shock to the system that many digital transformations experience.

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The industry commonly cites that more than 80% of digital transformations fail. This failure is not due to technology or a lack of potential benefits but rather the significant operational and organizational disruptions that occur, which cause projects to derail. This disruptive shock to the system is negative and can be overlooked in discussions about digital disruption, which often focuses on positive changes to business models.

In this article, we will explore the reasons for these negative disruptions and, more importantly, explain how to mitigate their risks.

Magnitude of Change

Before delving into why disruption happens in an organization, it's important to comprehend the magnitude of change that the organization is about to experience. To demonstrate this, I'll present two scenarios. Let's call them Company A and Company B. Company A is upgrading their current systems. They have a legacy system that's about 10 years old and they will stick with the same software provider, but upgrade the solution. This is an incremental change, although it's a bit misleading because most changes are bigger than expected. On the other hand, Company B is using an old system that they built themselves and have been using for 30 years. Only one person in the organization knows how to support the system. They are planning to go from this current state to a bigger improvement by adopting a fully multi-tenant SAS cloud system, which is a modern ERP solution. This is a massive change. These two scenarios are vastly different. Company A's future state is not that far off from their current state, whereas Company B is undergoing a significant overhaul.

As a result, we can infer a few things. Firstly, Company B will require more time, effort, and cost to reach their desired future state. Secondly, Company B is more prone to risk. Although both companies will experience risk and resource commitments, it will be significantly greater for Company B due to the profile of the change they're going through. For instance, Company B is more likely to experience operational disruptions, such as trouble shipping products at the time of go-live or running payroll after they go live on new technology.

To mitigate these risks, we must first comprehend these scenarios fully. In the later part of the video, we will discuss what we can do to minimize these risks.

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Speed of Tech Vs Speed of People and Processes

During digital transformations, there is often a lot of disruption due to the mismatch in the speed of change between the technology front and the operational and organizational front. For example, Company A may be able to deploy their future state technology in 18 months, while Company B may need three years for technical implementation. However, the time it takes for people and processes to catch up to the technology may be longer than expected, which can result in a longer duration for the overall transformation.

While on paper it may seem like the transformation will take a certain amount of time, in reality, it may take much longer due to the critical path of people and processes. This can be a significant problem since many organizations base their budgets and careers on the timeline they initially planned. When they realize that it will take longer than expected, they may end up cutting essential parts of the project, such as change management and training, or even entire modules, which can lead to further disruption and diminish the project's business value. Therefore, it is crucial to have a realistic plan from the outset.

Cultural and Operational Impact

Let's discuss the cultural and operational impacts that can cause disruptions during digital transformations. To better understand this, let's consider a hypothetical example of a global Fortune 500 company. Suppose Company B wants to standardize business processes, roles, and responsibilities, consolidate functions, and move to a shared service model. These changes are significant and disruptive, and they take time to work through. As I mentioned earlier, technology advances faster than organizational and operational changes. Therefore, we need to assess what we are trying to achieve. If we are like Company A and not making significant changes to our organization, we may finish closer to 18 months. However, if we are improving our business processes and rethinking roles and responsibilities, it may take longer than expected. This is because technology is far ahead of most organizations' starting points, creating a gap that is greater than what most realize.

Impact on Digital Strategy

When it comes to digital transformations, we must consider the cultural and operational impacts that can affect the duration of the transformation. If an organization aims to standardize its business processes, consolidate functions, and switch to a shared service model, it will require significant changes that will be disruptive and time-consuming. Even though the technology may advance more quickly, the organization must work through these challenges.

When we receive quotes from vendors estimating the duration of a transformation, we need to keep in mind that they are probably focusing on the technical implementation and not the people and process aspects of the change. To mitigate the risk of delays, we need to take a few steps.

Firstly, we should take the vendor's plans with a grain of salt and recognize that they are likely overly optimistic and do not consider the people and process aspects of the change. Secondly, we should augment the vendor's plans with other work streams related to change management, process improvement, architecture, integration, data migration, program management, governance, and other components that are typically not included in the duration estimates.

Lastly, we need third-party support that can help us through the journey. This support must address the people and process side of the change, and not just the technical work stream. Third-party support from independent, objective, technology-agnostic providers like Third Stage Consulting is an excellent option to consider.

In summary, it's essential to be aware of the challenges that digital transformations pose and to take steps to mitigate risks. By taking plans with a grain of salt, defining a complete plan, and seeking third-party support, organizations can prepare for the disruptions that come with digital transformations.

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These are the decision points that organizations must go through to determine the best fit for their needs. If you are looking to strategize an upcoming transformation or are looking at selecting an ERP system, we would love to give you some insights. Please contact me for more information eric.kimberling@thirdstage-consulting.com

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

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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.

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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