Why are companies failing at digital transformation?
This is one of the questions that many executives ask themselves every day when they see that the digital transformation projects initiated by their companies are not progressing at the pace they had hoped. Sometimes, the results produced are actually inferior to those obtained before embarking on the transformation. This causes immense feelings of frustration after the significant effort undertaken and the enthusiasm invested in the work. The question that arises is: why is this happening to us?
There are any number of reasons why this happens so much more frequently than we would wish. If we had to enumerate the reasons behind these disappointments, we would be sure to find these four causes among them:
- A lack of a sense of urgency within the organisation: when we talk about digital transformation, what we really mean is simply transformation. In the end, the digital or technological aspect is no more than a medium for that transformation. And, unfortunately, we only make a real effort to transform ourselves when we have a genuine sense of urgency, whether it stems from an unforeseen setback (for example, the arrival of an aggressive competitor who quickly drags down our results) or from a sustained period of poor results.
- Very often, the transformation process is seen internally as a phase or a regular routine (the traditional strategic plan), and not as something needed to overhaul the company in order to ensure its survival in a radically changing environment. If this is the case, it will be difficult to inspire in the company’s workforce that sense of urgency that often requires the best endeavour from each and every one of us.
- The presence of a sense of urgency within the organisation has a great deal to do with communication, and the need to generate a common vision of the challenges that face us. Currently, the corporate world has an increasing tendency to shut professionals away, both physically and culturally, in an internal bubble—which of course prevents them from seeing a true picture of the external reality in which their company operates and of the risks it could soon be facing.
Therefore, if a company really wants to transform itself, it needs to communicate clearly to everyone concerned the urgency for the change and the reasons behind it.
- Liderazgo poco adecuado: los procesos de transformación necesitan de un guía claro e inspirador que además de generar y comunicar una visión, sea capaz de embarcar a toda la plantilla en el proyecto. Cuando hablamos de liderazgo, tenemos que separar muy bien el liderazgo estratégico desde la cúpula de la organización, y el liderazgo operativo de la transformación.
Where the strategic leadership of the project is concerned, the key role belongs to the CEO or managing director who must lead the transformation. This is often difficult for people who have achieved success in other phases of the company’s life—and who assume that they need to change register and lead in a different way. We all know people who are great leaders in times of crisis (such as specialists in measures strongly focused on efficiency) but who are completely thwarted when the company enters a period of expansion. It is critical to have a leader who believes in the project, who communicates regularly and well, and who can create an environment where people can bring out the best in one another to make this great project a success.
From the operational leadership point of view, it is a slightly different matter. Many companies believe that, in order to transform their business, they need to bring in a different (and even a disruptive) person as an operational leader, often someone from a leading digital company or start-up. But in life, it is difficult to change something when you don’t even know it. Traditional and digital companies have totally different cultures, and therefore knowledge of the internal culture, of the organisation and of its people is vital in the transformation process.
Great importance should be attached to the ability of the person being brought in to fit into the company, and to whether that person has sufficient support and tolerance of the frustration which is very often required in companies with very rigid habits and practices. According to a digital transformation business report recently published in the Harvard Business Review, a high proportion of external managers brought into organisations to lead their transformation, fail in their task. On the other hand, the study showed that in almost 80% of cases where the transformation was led by an internal manager, the process was brought to a successful conclusion. One of the main reasons is that very often the transformation process does not have to be disruptive.
- A lack of knowledge of digital transformation: another very common trap that many managers fall into. Technology should never be an end in itself, but something that enables us more easily to achieve our aims of transforming the business. At the present time, technologies are not only evolving, but they are doing so in a way that profoundly affects both people and business models.
People are, when all is said and done, our customers, our employees, the society with which we interact, and the shareholders who invest in us. All are experiencing multiple changes, something which a company needs to understand in order to be able to adjust its own strategy.
There are changes, for example, in the customer experience, which is increasingly influenced by the obsessive customer-centric vision of digital leaders. This vision, together with their mastery of the technology, enables them to offer extremely high levels of satisfaction that are actually very difficult to achieve, and which customers end up demanding from all their suppliers.
Then there are changes in the experience of the employee—in the culture, organisation, leadership or talent of companies. The latter have to compete harder and harder to attract the best professionals, and particularly to secure their loyalty in an environment where young professionals are demanding different working conditions and challenges from those sought by previous generations.
- A lack of flexibility in business modelling: if anything characterises this age of digitalisation, it is that digital technology (led by the internet) has allowed a significant change in business models. This change is to a great extent due to technology’s proven ability to forge a direct connection between supply and demand.
Traditionally, companies competed mainly at a local level. Competitors had very similar business models. The main distinguishing factor between them was the extent of their financial capacity, which gave them access to greater advertising resources and technology, or enabled them to offer better pay… or else their operational or strategic excellence, which allowed them to be more efficient or to have better brand placement.
Currently, one of the biggest problems facing traditional companies is that they are in competition with companies whose business models are very different from those that prevailed in the past. In order to effect a transformation to digital business, it is often necessary to question the entire business model that has brought us success in the past, and this is not an easy thing to do—because human beings are creatures of habit, and they tend to cling particularly hard to the habits that have made them successful.
We are living through a time of change and a time of threats, but also a time of great opportunity. A time that demands bold leaders, communicators who are seeking models of business which are sustainable in the long term, leaders who understand that they are working with people (employees) and for people (customers) and who can use empathy to draw them into the project. An exciting challenge for intrepid leaders.
Vicente de Los Ríos. CEO de Líderes y Digitales es asesor de empresas, profesor y conferenciante en el ámbito de la Transformación Digital de los negocios, Liderazgo y Reinvención. Es Ingeniero de Telecomunicación por la UPM y Executive MBA por el IE Business School.