Why 70 Percent of Digital Transformations Fail

“Companies either transform or die in industrial revolutions,” writes former P&G executive Tony Saldanha in his recently published book Why Digital Transformations Fail.  “Digital transformation is our current generation’s attempt to transform in the face of the Fourth Industrial Revolution.  However, the sad truth is that 70 percent of all digital transformations still fail today… a shocking number, given the extremely high stakes,” he adds.

What accounts for such a high failure rate?  An inadequate strategy; competitive pressures; technology; talent; culture? While all these factors are important, “The surprising answer to why digital transformations fail is a lack of discipline in defining and executing the right steps for digital transformations to take off and stay ahead,” notes Saldanha, adding that “It is possible to apply the proven checklist methodology from the airline and medical fields to improve the 70 percent failure rate.”

In a 2015 article, Klaus Schwab, - founder and executive chairman of the World Economic Forum, - positioned the Fourth Industrial Revolution within the historical context of three previous industrial revolutions.  The First, - starting in the late 18th century, - was driven by new innovations like the steam engine and marked the evolution from an agrarian to an industrial economy.  The Second, - a century later, - was driven by steel, electricity, the internal combustion engine and mass production techniques.  The Third, - starting in the 1960s, - saw the advent of digital computers, IT, the Internet, and the automation of process in just about all industries.  The Fourth, - driven by increasingly pervasive and inexpensive digital technologies, - is now blurring the lines between the digital, physical, and biological worlds, leading to widespread economic and social disruption.

Saldanha defines digital transformation as “The migration of enterprises and societies from the Third to the Fourth Industrial Revolution era.  For companies, this means having digital technology become the backbone of new products and services, new ways of operation, and new business models.”

“Companies either transform or die in industrial revolutions,” writes former P&G executive Tony Saldanha in his recently published book Why Digital Transformations Fail.  “Digital transformation is our current generation’s attempt to transform in the face of the Fourth Industrial Revolution.  However, the sad truth is that 70 percent of all digital transformations still fail today… a shocking number, given the extremely high stakes,” he adds.

What accounts for such a high failure rate?  An inadequate strategy; competitive pressures; technology; talent; culture? While all these factors are important, “The surprising answer to why digital transformations fail is a lack of discipline in defining and executing the right steps for digital transformations to take off and stay ahead,” notes Saldanha, adding that “It is possible to apply the proven checklist methodology from the airline and medical fields to improve the 70 percent failure rate.”

In a 2015 article, Klaus Schwab, - founder and executive chairman of the World Economic Forum, - positioned the Fourth Industrial Revolution within the historical context of three previous industrial revolutions.  The First, - starting in the late 18th century, - was driven by new innovations like the steam engine and marked the evolution from an agrarian to an industrial economy.  The Second, - a century later, - was driven by steel, electricity, the internal combustion engine and mass production techniques.  The Third, - starting in the 1960s, - saw the advent of digital computers, IT, the Internet, and the automation of process in just about all industries.  The Fourth, - driven by increasingly pervasive and inexpensive digital technologies, - is now blurring the lines between the digital, physical, and biological worlds, leading to widespread economic and social disruption.

Saldanha defines digital transformation as “The migration of enterprises and societies from the Third to the Fourth Industrial Revolution era.  For companies, this means having digital technology become the backbone of new products and services, new ways of operation, and new business models.”

To drive home the point that a lack of discipline is the underlying cause of digital transformation failures, Saldanha observes that 99.999999% of aircraft takeoffs and landings are successful compared with only 30% of digital transformations.  Clearly, digital transformation efforts involve considerable more judgement than airplane takeoffs and landings.  “On the other hand,… A ton of hard work went in over the decades to structure what were judgment-based tasks into simpler routines.  Various technologies were applied to automate many of those tasks.  And what was not automated has been check-listed to deliver predictable execution.”

The book introduces The Five-Stage Digital Transformation Model, a rigorous step-by-step road map to help guide companies as they go through their transformation.  Following the airline industry analogy, each stage is accompanied by two specific disciplines to help address potential risks and improve the odds of success.  Let me summarize each of the five stages and their associated disciplines.

Stage 1 - Foundation.  This stage provides the digital foundation necessary for future transformation.  The firm needs to upgrade its technology to the latest digital platforms, actively automate internal processes, - e.g. selling, manufacturing, finance, - and digitalize its operations.   Key stage 1 disciplines:

• Committed ownership of the strategy at the highest levels.  The CEO, senior executives and board members must visibly support and nurture the emerging digital strategy.
• Iterative execution to avoid major implementation failures.  A digital strategy requires an iterative, agile execution methodology to reduce the risk of failures, especially in its early stages.
  

Stage 2 - Siloed innovation.  In this stage, individual functions or businesses start to embrace disruptive technologies to create new products, processes or business models.  These efforts are siloed, with no company-wide transformation strategy.  Key stage 2 disciplines:

• Empowerment of tranformation leaders.  Transformation leaders must have the freedom to articulate ambitious goals, take risks and learn by doing.
• Identification of digital leverage options.  All potential digital leverage possibilities should be examined, including new disruptive business models, products, processes, and operations.    

Stage 3 - Partially synchronized transformation.  Enterprise leaders have recognized the power of digital technologies and defined a digital future state.  The enterprise now has a mix of old and new products, processes and business models.  However, there’s no overall digital infrastructure or innovation culture that’s sustainable enough to develop strong roots across the organization.  Key stage 3 disciplines:

• Change management model for effectively transforming the core organization.  Focus on managing the required organizational and cultural changes, which are generally the hardest part of any disruptive transformation.
• Systemic transformation selection.  Generate a number of potential alternatives, then select a few company-wide systemic transformations.

Stage 4 - Fully synchronized transformation.  An overall digital infrastructure, new business model and/or innovation culture has fully taken root across the organization.  While the firm is already delivering industry-leading customer results, innovative digital products, and best-in-class operational efficiency, the transformation is one major change away from being disrupted.  “The only way to survive continuous disruption threats is to make digital capabilities and an agile innovative culture an ongoing integral part of the enterprise.”  Key stage 4 disciplines:

• Reboot digital technical capabilities both in the IT function and across the whole enterprise.  Create a strategy and concrete plan to address people re-skilling for the digital era.
• Stay current with the rapidly evolving technology landscape.  Leverage leading-edge research, startups, and open ecosystems to stay up-to-date on potentially disruptive innovations.

Stage 5 - Living DNA.  The final roadmap step is where the transformation becomes sustainable.  The firm has now become a disciplined innovator and industry leader.  “Digital operation is your DNA.  You are the ultimate ever-evolving market leader.  You operate fully digitally.  Your workforce is digitally savvy.  You provide hugely personalized creative value to customers.  You have the most innovative business model.  And your transformation is fully synchronized and ongoing.  You maintain ongoing industry trend leadership with disciplined innovation.  You’re a step beyond being a market leader; you’re a disciplined market leader constantly leveraging digital.”  Key stage 5 disciplines:

• Agile culture to support the constant evolution of the business and organization.  Three specific behaviors are necessary to create such an agile culture: a relentless focus on marketplace innovation, a spirit of continuous evolution, and a shared common purpose;
• Address potential digital disruption risks on an ongoing basis.  Sense risks to the enterprise routinely and react to them in a disciplined manner. 
  

Throughout the book, Tony Saldanha reminds us that  “The reason why digital transformations fail is that they take more discipline than one might expect…  The technology is here.  The change models exist.  The conviction and mindset to thrive in this era will belong to individual leaders, as has always been the case throughout history.”

Comments

[Eri]

"99.999999% of aircraft takeoffs and landings are successful compared with only 30% of digital transformations". Those digits are true eye-openers, aren't they? I mean, every second one of us prays to god for a safe flight, but I've never heard someone saying "Oh my god, hopefully, we're able to digitalize our business." We're afraid of the safe, but underestimate the dangerous way.