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Whydigitaltransformationsfail

Jan 9, 2023

8 min. read

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CIOs and other technical business leaders understand the importance of digital transformation. From streamlining workflows and lowering costs, to enhancing the customer experience and maintaining a competitive edge, implementing the right digital tools and processes plays an essential role in long-term enterprise growth.

However, did you know that 70% of digital transformation projects fail?

Many companies—including some of the most well-known brands in the world—have made plans to update their legacy systems with modern technology, only to have those plans fall apart. In this article, we’ll explore several infamous real-life examples of failed digital transformations, as well as the most common explanations for why these strategies sink before they swim.

Let’s dive in.

3 digital transformation failures to learn from

A poor digital transformation strategy sucks time, money, and resources right out of your business, without delivering a solid ROI—a truth that the following companies know all too well. To avoid making the same mistakes, familiarize yourself with these infamous digital transformation failures:

General Electric (GE)

GE, the multinational supplier of home appliances, took on a massive digital transformation project in 2011 called GE Digital. The goal was to build an IoT platform, add sensors to products, and leverage data to support new industrial appliances—essentially reshaping GE’s business model.

Unfortunately, the enterprise tried to do too much all at once. Rather than assigning a small outsourced team of experts to lead the transformation, thousands of GE employees were involved. To make matters worse, GE Digital was pressured to report quarterly Profit & Loss statements to shareholders, which caused them to focus the majority of their efforts on short-term revenue growth as opposed to long-term objectives.

All of this is toxic to a digital transformation strategy. For GE Digital to have been a success, it needed to employ a small team—unified by a single long-term vision—that could modernize each area of the business strategically over time, rather than attempting a swift top-to-bottom transformation.

Several years and billions of dollars later, GE Digital was deemed a failure and the CEO was forced to step down.

Haribo

In 2018, Haribo’s failed ERP implementation resulted in a 25% drop in sales —not to mention a shortage of everyone’s favorite gummy bears. Like many mature companies looking to digitize, Haribo implemented SAP with a vision of scaling internationally, reducing operational costs, centralizing data, eliminating manual and time-consuming tasks, and improving communication and collaboration across departments.

However, the SAP implementation caused immediate supply chain issues for the business. Inventory and raw materials couldn’t be tracked and supermarket deliveries kept getting delayed, resulting in historically low sales. So what happened?

The failure of this digital transformation can be attributed to a lack of planning. Haribo’s regional branches were operating on processes established in the 1980s—and these systems proved incompatible with SAP software. Employees didn’t have the necessary training or support to utilize the new ERP system as intended. Plus, the system had not been properly tested, so many of the supply chain issues were discovered post implementation.

Haribo could have avoided a huge loss in revenue by defining ERP objectives more clearly in the beginning, then putting more energy toward training employees, testing software, and planning for operational disruptions leading up to the launch.

Procter & Gamble

In 2012, Procter & Gamble was on top of the consumer health industry. Looking to maintain its competitive advantage by digitizing the company, P&G made several critical errors.

First, the project’s objectives were defined too broadly. Like GE, P&L invested massive amounts of time, money, and energy into an across-the-board digital transformation, without fully considering its ROI. In hindsight, they should have planned and executed smaller, more strategically focused projects for different products and processes.

Second, P&G launched its digital transformation initiative during a time of economic uncertainty. The market was changing fast, and digital efforts were prioritized over more important business developments. Again, if the project was broken up into smaller initiatives, this may not have caused so much damage.

Third, P&G was not paying enough attention to its competitors. While the company was focusing on arbitrary digitizations, its competitors were taking back market share by investing in product development, sales, marketing, customer support, and so on.

Moral of the story: Don’t digitally transform just for the sake of digitally transforming. Establish initiatives that target specific outcomes and ROIs, based on market conditions, customer expectations, and long-term business objectives.

5 reasons why digital transformations fail

There are many lessons to be learned from the brands discussed above, so let’s narrow them down. In most scenarios, these are the main issues that lead to a failed digital transformation:

Broadly defined objectives

As we saw with both GE and P&L, a large digital transformation strategy without clearly defined goals and KPIs will end up doing more harm than good.

Your company’s transformation should be broken up into smaller, more manageable digitization efforts—targeting specific areas of the business, whether it be sales, marketing, customer service, onboarding, supply chain, or compliance. These efforts should be owned by a single team, where everyone understands the desired outcomes, skills are effectively allocated, and best practices are followed every step of the way.

Another common mistake to point out here is “shiny toy syndrome,” where companies purchase super advanced and expensive tools, without clearly outlining the case for their implementation. If you’re looking to adopt a new ERP system, for instance, don’t just implement the one with the most features and functionalities. Define your short- and long-term business objectives in great detail, do research, receive insights from ERP experts, and go from there.

Miscommunication with non-technical personnel

If you want the CEO and other key decision makers to promote digital transformation initiatives, you have to communicate in a language they will understand. Most executives don’t understand tech, and most humans fear what they don’t understand.

If your digital transformation team doesn’t articulate their ROI clearly enough, the natural response from non-technical executives, directors, and managers may be to reject any new tools or processes. Constant communication and transparency is paramount to ensure that new systems are not only accepted, but embraced.

Mismanagement of Agile teams

Stakeholders often make the mistake of promoting engineers to lead their business’ digital transformation efforts. If it’s a highly technical project, then it should be led by someone with a highly technical background, right? Not exactly.

In addition to experienced coders, developers, and analysts, every Agile team needs a project manager with expertise in organization, time management, critical thinking, and problem solving. These soft skills become very important when it comes to delegating responsibilities, meeting tight deadlines, reporting progress to the C-level suite, collaborating with third-party vendors, and keeping everyone focused on the big picture.

Lack of training

Before rolling out new systems, tools, and workflows, employees should go through a thorough onboarding process that addresses all questions and concerns—before it’s too late.

Without proper training, employees will reject new software or use it incorrectly, resulting in wasted resources and even more serious problems down the road. This was one of the key mistakes that contributed to Haribo’s digital transformation disaster.

Poor prioritization & delayed development

When executing a digital transformation project, there are third-party applications to integrate, custom solutions to build, tests to conduct, staff to train, and so on. The key here is to determine which tasks are most important and plan accordingly.

Without proper prioritization in the planning stage, you may end up missing revenue opportunities and wasting time and money on delayed development. Naturally, solutions that affect profitability will be at the top of the list, with a clear timeline for the design, development, testing, and implementation of a minimum viable product (MVP).

The digital transformation team should also communicate delay cost calculations directly to executives, so that new workloads get approved swiftly without too much back and forth.

Accelerate and optimize your business’ digital transformation

An intelligent digital transformation strategy produces streamlined workflows, superior customer experiences, and higher business scalability. While many of today’s businesses set out to achieve this, an alarming amount end up wasting significant time, money, and resources in the process. Don’t let your business fall into that category. Instead, team up with experts that know how to deliver the highest ROI possible.

With Codal as your digital transformation partner, you can leverage cutting-edge technologies that equip your company for long-term success in the ever-evolving business landscape. Our award-winning team has the technical knowledge, experience, and resources to pull off even the most complex of digital transformation projects.

Codal specializes in legacy modernization, enterprise integrations, API development, custom middleware, workflow automation, microservices architecture, data analytics, and more.

Based on the goals and requirements of your business, we create a detailed roadmap to success, then execute that roadmap with a data-driven, Agile approach—prioritizing communication and transparency every step of the way.

Topic

Strategy

Product engineering

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