According to Statista, by 2026, global digital transformation spending is forecasted to reach 3.4 trillion U.S. dollars. However, while “everyone claims they are doing it”, research from McKinsey shows that despite (many) well-intended efforts, a whopping 70% of all digital transformations fail.

Despite the huge amount of money and effort put into digital transformations across the business landscape, there is an undeniable fact that even though the amount of cash flown into digital initiatives has increased every year, the results can be unsteady. 

What are the most common pitfalls that cause digital transformations to fail and how can you best avoid them?

Why Digital Transformations Fail: First and foremost, it isn’t always technologies fault. 

The mindset that digital transformation is all about technology is the reason for the pitfalls of many companies, as this thought reflects some of the greatest misunderstandings of business owners everywhere: they failed to differentiate the two terms “Digitalization” and “Digital transformation”. 

“Digitalization” is the use of digital technologies to open up new opportunities, while “Digital transformation” goes beyond digitalization by creating change within strategies. David L Rogers, a professor at the Columbia Business School, and the author of the Digital Transformation Playbook, has claimed that “Digital transformation is NOT a problem of technology. It’s about strategy, leadership and a new way of thinking”. DX is a much larger field and many would think that digitalization is a crucial part of the digital transformation, but that’s it. DX includes all different edges of the business, from understanding customer touchpoints, growth strategies, mobile apps, process digitalization to new business models, etc.

This “just technology” mindset shifts the ownership of a digital transformation to be the sole responsibility of digital teams, IT specialists, and more. Which is a clear red flag for any organization.

A noticeable example of this is the digital journey of General Electric. At first, GE started with big ambition by creating a new business unit called GE Digital to leverage data and turn GE into a technology powerhouse. Billions of dollars had been poured into GE Digital and yet, GE Digital quickly became stuck because it had to prove its efficiency to the company’s shareholders and had to focus more on short-term goals and earnings than long-term innovative goals and returns. Red flags were ignored, and effective cross-company communication dwindled and a clear plan of action was neglected.

While aiming big, the company was simply too large to transform all at once, and technology was seen as the be-all of their success. 

Long story short, fitting technology into the overall process won’t guarantee meeting business needs, just because digital technologies provide possibilities for efficiency gains. If people lack the right mindset to change, communicate and if the current organizational practices are flawed, a digital transformation will simply magnify those flaws. 

This leads us to…

Why Digital Transformations Fail: Unclear Goals and Silos. 

Another big problem with DX is, most often, silos are created leading to confused and mismanaged outcomes. What is success supposed to look like? When change-makers and leaders aren’t looking in the same direction, their digital transformation journey is more likely to fail.

Transformation is like a water flow, flowing up and down the business chain of command – which means not only do all  C-levels need to be on the same page, their staff at the frontlines of action need to be brought in too.  Not having a clear vision means companies often end up with an underfunded and misunderstood concept of what such transformation efforts entail. 

While many C-levels lack the necessary technological insight to understand what needs to be done and how it would impact their bottom line, CEOs really need to get behind the strategy and overall impact of any digital transformation. CEO support for digital initiatives is critical for securing an adequate digital transformation budget.

Why Digital Transformations Fail: Underestimating the Costs. 

The digital transformation journey isn’t a cheap one,  which is the number one thing most business owners note when they start and end their journey. While it is true that companies invest in digital transformation to increase revenue and reduce cost, the fact is that a large number of them are approaching DX with much smaller budgets than are needed. 

The cheapest products, cheapest routes, and fastest time-to-market while still expecting the grand results seem ideal and tempting, but in reality, that somehow can be a good recipe for disaster. Don’t get us wrong – there’s nothing wrong with open-source solutions, cost-effective consultants, and efficient delivery models. However, in our technological world, the saying “what’s expensive is cheap” is true in most scenarios. Why? At the end of the day, spending less on something will cost you much more than others. What an organization saves by going with cheaper products and consultants, will often make them pay with heavier customizations, technical debt, and maintenance costs. The cost of effective digital transformation rarely fluctuates — what varies is where and when you spend it.

Why Digital Transformations Fail: Right Place, Wrong People. 

Great vision and ideas are just one side of the equation – you need a diverse pool of talent to materialize your ambition. Failing to hire appropriate talent and failure to encourage diversification is another factor in why digital transformation failures happen.

One mistake many companies, especially non-digital ones, are making is planning to transform their company with all of the same people and executive team.

The most effective problem-solving comes when collaboration and diversity are combined with vision.

Are you looking for an agency that understands your market, your business, and your customers? Talk to eCommerce and digital transformation experts at SmartOSC to materialize your success now.

Why Digital Transformations Fail: Utilizing Outdated or Unsuitable Tech Stacks. 

When implementing digital transformation projects, focusing solely on enabling technology can lead to failure. Your organization’s tech stack should foster unification between sales and marketing teams, driving results with all the tools, services, and analytics needed to execute larger organizational strategies. Without it, digital transformation efforts will fall flat.

For example, if your company is looking at enabling a video-first communication environment, solely focusing on Zoom or WebEx will distract them from considering the compliance implications of the new software. The most likely outcome is that the project will get held up.

In the said example, what that company should do is look at the full stack of technology to see if they are going to share information in a new way. If they need to build new security and compliance infrastructure in place or involve those other constituencies. 

Educate everyone in the business about this, and empower people to be involved with the immersion of new technologies. 

Why Digital Transformations Fail: Adopting a fail-fast-then-what attitude

“Fail Fast” is a philosophy that values extensive testing and incremental development to determine whether an idea has value. An important goal of the philosophy is to cut losses when testing reveals something isn’t working and quickly try something else, a concept known as pivoting. A company that embraces the fail-fast philosophy develops its product or service incrementally, continually testing customer satisfaction to make sure the product or service meets customer needs before investing more time and money.

But while that’s a method most lean startups use, its modification of fail-fast-then-what can be the opposite dead-end leading to failure.

When failing, instead of trying to go bigger and better the next time. Try to reflect, look back and understand the “why” of the failure and use that to inform your next steps. 

Wrap-up: If the failure rate is so high, is digital transformation worth it?

DX is definitely worth it, says a Harvard Business School study published by Professors Marco Iansiti and Karim Lakhani. 

The two authors have studied large companies and enterprises (>$3.4b) in the Consumer Packaged Goods, Financial Services, Manufacturing, and Retail Industries and concluded that the use of digital capabilities and the advantage afforded by them is more than uneven. There is a noticeable “Digital Divide” emerging between the top 25% of digitally mature companies (Digital Leaders) in each industry and the bottom 25% (Digital Laggards).

Being the trusted eCommerce vendor to many large global enterprises, SmartOSC is now building the success of many digital transformation journeys. Along with analyzing how digital transformation fails, we also perform a similar analysis of the successes.

Surprisingly enough, in both cases, there are several commonalities:

  • Successful companies focus on the customer
  • Successful companies have adopted a culture of Innovation from the top-down and bottom-up
  • Successful companies have a clear and well-thought-out and communicated strategy and vision
  • Successful companies make data-driven decisions  and empower and educate their employees to do the same

Does your digital transformation take into account these risks and critical success factors? SmartOSC’d love to hear from you. Check out Digital Transformation Solutions and contact us for more industrial insights

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