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Why Digital Transformation Fails and How to Avoid it?

Team Kissflow

Updated on 9 Mar 2024 6 min read

The digital transformation market value is expected to reach an estimated $3.3 trillion [1] by 2025. Digital technology advances have taken the business world by storm, making workplace transformation critical to survival. Moreover, 81 percent[2] of company decision-makers realize that continuously improving their modernization efforts is crucial to success.

As technological progress continues, companies are prioritizing digital transformation for better profits, versatility, and business efficiency. Many organizations know the benefits of digital transformation, but they’re failing to realize significant growth in operational efficiency, revenue, and customer experience.

Research from the Everest group shows that only 22 percent[3] of enterprises succeed in their digital transformation initiatives. In fact, by 2019, just 27 percent of businesses realized sustained returns from their transformation efforts. These alarming statistics show the journey is fraught with problems, as businesses struggle to gain value from the process. Here’s why digital transformation fails and some examples of it. Let us also look at how enterprises can avoid it.

Why does digital transformation fail?

90 percent of IT leaders[4] believe if they don't complete their digital transformation initiatives in the next 1-5 years, it will negatively affect their company’s revenue. Organizations often expect their digital transformation efforts and journeys to be swift paths to success. But company leaders are facing multiple challenges hindering them from implementing digital transformation programs successfully. In fact, only 8 percent of global companies[5] have achieved their targeted business outcomes from digital technology investments. Digitization efforts appear doomed because of:

7 main reasons for Digital Transformation failure

Here are some of the key reasons & examples of why enterprises have increased their digital transformation failure rate 

1. Lack of clear goals

Without clearly defined digital transformation goals, you cannot connect your digital strategy to the business, which yields poor digital adoption. A Harvey Nash/KPMG CIO survey concluded that only 41 percent[6] of companies have an enterprise-wide digital strategy. Fuzzy digital definitions are a sure path to failure because they result in ineffective strategies not focused on cultural transformation, business scalability, flexibility, and interoperability.

In 2018, Haribo’s digital transformation failure example in SAP implementation meant the company couldn't track their raw materials and inventory, and they couldn't access inventory at shops in time. Rather than updating their goods management system and streamlining production, the implementation resulted in a 25 percent drop in sales.

2. Failure to adopt the right technologies

Even with digitally savvy industries like media, high-tech, and telecom, the digital transformation failure rate is quite high more than 73%. As per Mckinsey's insights, less than, 26 percent[7] are succeeding. Part of the problem is adopting the wrong tech. 45 percent[8] of leaders feel their company doesn’t have the right technology for digital transformation.

Washington Community College thought it had selected the right tech, only to later realize the company had filed for bankruptcy and was out of business before its digitization was complete. The college wasted time and money on an implementation that was delivering little value.

Once your goal is clear, identify the best technology to achieve it. But, beware of selecting tech simply because everyone else is using it. The right digital transformation technology should help your organization improve customer experience, and employee engagement, improve performance, or get a decent return on investment (ROI).

Learn more: How Automation supports Digital Transformation Initiatives?

3. Resistance to change

As per Mckinsey's recent survey, resistance from teams is the primary reason 70 percent[9] of digital transformations fail. Opposition to change is part of human nature–by default, humans fear what they don’t understand. Unless they’re slowly, and consistently educated, most employees will reject new tools, software, and processes, even if they will improve their lives.

4. Not Having the right data

Data is your company’s most valuable asset–it can improve your transformation success. 71 percent of digitally mature companies[10] believe they can use data to attract new talent. With a thorough digital transformation plan, you can identify the key data you need, the areas to improve, how you’ll collect the data, and the best solutions for your business.

45 percent of enterprise leaders[11] believe their complex data landscape is affecting their ability to obtain actionable insights. Many companies are failing because they collect data they’ll never use, are not collecting enough data to make informed decisions, or integrate data and analyze it accurately.

5. Not meeting customer's changing expectations

Nearly 50 percent of all companies implement digital transformation to improve customer experience and satisfaction. Customers support your business and keep it alive. Yet, for 84 percent of customers[13], digital experiences such as placing an order or paying a government bill are below expectations. Going digital requires establishing many digital touchpoints and building a practical customer engagement system that increases revenue.

In this digital transformation failure case study, there is a clear mistake of misalignment between DX and business goals. In 2009 Walmart created Walmart Marketplace to compete with Amazon through third-party sellers. But the initiative failed because of overly restrictive seller vetting and a failure to create sufficient distance between the company’s core business and the new business model.

6. Lack of expertise

A digital transformation cannot happen without people. But if they lack experience or skills, they'll make mistakes that could ultimately undermine your entire transformation strategy. 53 percent[14] of TalentNeuron survey respondents mentioned an inability to identify needed skills as the leading hindrance to digital workforce transformation.

Inexperience causes basic mistakes including incorrect, unrealistic goals, unclear strategy, inadequate resources, and little, if any, risk management. Many of these can affect your overall transformation, causing your digitization strategy to fail.

National Grid, the US utility company, spent over a billion dollars on its SAP implementation, which later becomes their digital transformation failure example. Even after launching, the company used $100 million to support the implementation. Once they went live, the company spent another $100 million to support and stabilize the system. Additionally, it hired two system integrators; Wipro and later Ernst & Young, to support the implementation.

7. Insufficient knowledge about Digital Transformation at CXO Level

87 percent[15] of senior organization leaders feel digitalization is a priority, and 28 percent of CIOs[16] most often own or sponsor digital transformation initiatives. But to drive transformation, these leaders must be conversant in technology and understand the company’s digital transformation vision. Knowledge about digital change can significantly influence engagement or withdrawal from the company's transformation initiatives.

Integrations become a major threat in most enterprises. Let us look at another digital transformation failure case study The United States Navy has spent over a billion dollars on its ERP implementation since 1998. They hired three well-known system integrators to help: IBM, Lloyd, and Electronic Data Systems (EDS). The Navy reduced the project’s scope to exclude the entire supply chain and financials. The project affected 90,000 employees who were stuck trying to manage a new system that didn't deliver much value to the organization.

Expert's take on how to avoid Digital Transformation roadblocks

Articulate your digital goals clearly. Identify what digital transformation means to you, your transformation goals, and what needs transformation. Clear goals will provide direction on how to achieve impressive results and provide consistent messaging across teams. Determine whether your digital transformation will address several goals simultaneously, or you’ll have to stagger it.

Tie your goals back to larger objectives. Adapt goals to your specific needs, and integrate them with existing systems. Use the tech to make information more accessible across the organization and modify your standard operating procedures to include new technology

Get your people on-board. Projects are only as successful as the people who work on them, thus your employees are key for a successful digital transformation. Communicate the vision and goals across the organization with patience and transparency. Reinvent the way your team works, make employees feel more involved, and encourage them to have a positive attitude towards the company changes.

Also Read: Why employee should be at the center of your Digital Transformation project?

Work on improving your processes. The right data will help you understand your target audience's needs, personalize customer experiences, improve business processes, and gain a competitive edge. You require a robust pipeline to streamline data collection, storage, optimization analysis, and transformation. From this, you’ll gain valuable insights to simplify business processes, and boost efficiency.

Build a customer-centric culture. Create a culture that provides real value and emphasizes digitization’s positive impact. Clearly understand your customers’ changing needs, and expectations, and get feedback about pre-existing company products and services. Use those insights to determine which features to eliminate, meet their needs, and transform their experience.

Bridge the skill gap. Train employees on new integrated technologies or hire experienced digital transformation talent. Empowering employees boosts their morale, increases job satisfaction, and builds a skilled workforce. But experienced external partners are objective, have the right skills, prioritize initiatives with the most impact, and will avoid delays or failures to ensure successful digital transformation.

Manage change. Adequate digital transformation knowledge helps leaders understand the changes necessary, how to make them, the challenges they’re likely to face, and the impact transformation will have. Knowledgeable leaders are clear on project expectations: they provide specific and actionable guidance before, during, and after the transformation which can help change employee mindsets resulting in successful transformations.

Take the first steps towards a smarter digital transformation journey that turns challenges into opportunities and makes the most of your resources.

Your Digital Transformation doesn't have to fail

The benefits of digital transformation are undeniable–your organization cannot afford to miss out on them. But there are always risks and challenges before you can achieve true change. A well-informed, strategic digital transformation approach can help you mitigate them.

Low-code no-code platform enables digital transformation to take a proactive approach that takes full advantage of a versatile platform that supports your goals and accelerates your digital transformation objectives.