The overlooked reason digital transformations fail
Cloud-based technologies are often sold on the premise of delivering ‘out of the box’ processes that can improve organisational performance. However, research shows that over 70% of digital transformation efforts fail to meet their objectives or deliver any long-lasting enterprise value (BCG, 2022). The reason so many digital transformations fail? Not having a clear strategy or plan; a lack of leadership buy-in and poor change management (Mckinsey, 2019).
We believe there’s another important, yet often overlooked, reason digital transformations fail. A lack of focus on operating model and business process design, which is needed to integrate and adopt out of the box workflows that come with most cloud-based technologies (e.g., a new ERP).
The context – digital transformations continue to fail
For the uninitiated, digital transformation is the process of integrating new technologies to improve the way an organisation operates and/or delivers its products and services. The benefits of digital transformation can include an improved customer experience, better operational performance, data-driven insights, and enhanced productivity.
Not surprisingly, many organisations find these benefits attractive and in 2021, Australian organisations were expected to spend a whopping A$95b on enterprise technology (Gartner, 2020), with over 80% of corporations expected to embark on some form of digital transformation (BCG, 2021).
But even with all this investment and accelerated adoption of technology due to COVID-19, research shows that over 70% of digital transformation efforts fail to meet their objectives and/or deliver any long-lasting enterprise value (BCG, 2022). That’s about ~A$66b down the drain in one year alone. How is this possible? Why does this happen?
Out of the box does not mean ‘plug and play’
Cloud-based technologies are often sold on the premise of delivering out of the box processes that improve organisational performance. The pitch goes that ‘our solution comes with in-built workflows that are based on best-practice in x, y or z function – and it comes as standard/out of the box’.
While in some cases this may be true, what organisations often fail to realise is that out of the box does not mean these workflows are plug and play when it comes to the business embracing the new solution.
In most cases, organisations’ current business processes are far from best-practise, let alone consistent and/or documented across the organisation. To shift a business from where they are today to adopting out of the box workflows is an almighty change – one that requires both a dedicated process design effort and investment in change management.
The need for organisations to align on their target operating model and business processes to support the adoption of cloud technologies is even more profound than when comparing them to the implementation of on-premise solutions. On premise solutions, which reside locally with an organisation’s server, are typically more flexible and enable an organisation to customise the solution to better suit the needs of their business. While this can be costly and come with a whole raft of other issues, including system maintenance and support, it does provide more options for an organisation that is less willing, or able, to change the way they operate to suit the needs of a specific system.
Less focus on the digital, more focus on business – start with what you do and how you do it before you buy it
While it may seem counterintuitive for a ‘digital’ led transformation initiative, more often than not, too much focus is placed on the technology at the expense of the people who will actually use it – the business.
While it’s not as fun as playing with new systems and tools, we encourage our clients to take a big step back when considering transformation and get clear on their vision for the future and what the transformation will deliver. This vision will usually involve improving the way they operate and getting clear on what this actually looks like can provide great value in shaping the transformation effort.
Our approach, and recommended starting point, is to work with our clients to define their target operating model before considering what system they do (or don’t) need to bring it to life. The target operating model defines ‘what’ an organisation does and ‘how’ they do it. It provides a blueprint for how the organisation and processes should be designed to enable the delivery of products and services in line with their vision (see figure 1).
Figure 1 Operating Model Core Concepts
Without the operating model there are no clear parameters in place for how the organisation and how processes should be configured to operationalise the strategy and make it work. In effect, organisations and program teams can be put in a position where they are flying blind and end up making design decisions that may or may not be aligned with what their organisation is working to achieve.
Connect the dots to enable your digital transformation
In a perfect world, organisations’ operating models, business processes and enabling technologies should all be in perfect alignment (see figure 2).
System-based workflows enable processes to be delivered more efficiently and (well-designed) business processes support the delivery of the operating model which, as a result, increases the organisations effectiveness in the way they deliver their value chain and core purpose.
When an organisation is clear on their operating model and underlying business architecture this provides a canvas to understand what you do, how you do it and identify opportunities for improvement.
Many of these opportunities will inevitably relate to implementing new technology to streamline and/or automate the execution of business processes.
Unsurprisingly, some systems will do this better than others, and the better the insight an organisation has on what they need to do to improve the performance of their business, the better positioned they will be to make informed decisions about what technology will best suit their needs.
While selecting the right technology goes some way to supporting a digital transformation effort, an operating model-led approach to transformation provides even more value when it comes to change management.
Use the operating model and business process design to engage your stakeholders
Many digital transformation programs fail to consider the needs of their audience when it comes to their implementation journey. In our experience, and particularly when it comes to end-users, it is far more difficult for stakeholders to understand a new system than it is for them to understand what is changing to their current ways of working.
Having a clear understanding of your operating model, business processes and how the technology ‘fits-in’, positions an organisation to better engage with their people, from their point of view. Key changes can be distilled to distinct audience groups and roles, which lets the change team design and deliver change and engagement activities that better meet the needs of the audience and supports change adoption.
Our approach is to work with our clients to develop ‘user journeys’ that explain the end-to-end process from the perspective of a specific group of impacted stakeholders (see figure 3).
User journeys bring together changes to the operating model, business process, and technology in a simple and easy-to-understand tool that helps people understand what they need to do differently, and how that relates to what they do today.
We have found sharing these materials as part of key program activities, like user acceptance testing (UAT), to be particularly effective at building business readiness over the course of the program (as opposed to waiting for critical milestones such as cutover and go-live). This approach lessens the shock for users when the new system eventually does go-live, provides for a smooth transition and is more likely to increase the chances of the changes being adopted.
Conclusion
Digital transformation is tough and even to this day, over 70% of attempts fail.
In our experience one of the most common, yet overlooked, reasons digital transformations fail is not planning how to effectively integrate new technology into an organisations operating model.
By taking the time to design the future operating model and consider how the technology will help (or hinder) the vision for what the transformation will deliver, an operating model-led approach to transformation is far more likely to set you up for success, provide a better change experience and avoid your organisation becoming part of that 70%.
Find out more about our operating model and organisation design work here.
TYSON CORRIGAN, DIRECTOR