The five most common digital transformation risks we consistently see, and how to avoid them.
Embarking on a digital transformation effort is full of potential risks. According to McKinsey, 70% of digital transformation efforts fail.
And while there are dozens of reasons your transformation initiative might run into trouble, there are a couple of consistent traps we've encountered. As with most situations there's usually some pareto optimization opportunity. We believe avoiding the following 5 issues will address a big chunk of your risk as you start a digital transformation project inside your organization.
If you’ve seen the movie The Big Short you’ll recognize the following quote: “It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.”It’s a wonderful encapsulation of what led to the irrational exuberance leading to the 2008 financial crisis. It also illustrates something we see in large companies engaged in digital transformation.
For example, many large companies are in the throws of an end-to-end ERP upgrade to the cloud, or are planning to get started. The premise is that an ERP upgrade gets you the business results that increase profitability and improve operations.
But this is simply not true. We've consistently seen evidence of this. Big company implements large ERP provider. 36 months later they have difficulty identifying where the value is.
This isn't because implementing a cloud based ERP is a bad idea. It's a great one. But typically this gives you the capability to do new things with your data that can create opportunities for profitability and operational improvements. It doesn't accomplish it by itself.
Many companies now have Chief Digital Officers in place. Some have innovation teams, perhaps even an innovation fund. Even organizations lacking a formal innovation governance model have begun holding design sprints, hackathons and other innovation-focused activities.
These are great things to have. But often what's missing is the skill set necessary for bringing the ideas that are surfaced into full scale operations.Unless you’re a team that’s experienced at bringing a wide variety of emerging technology to market from concept to successful user adoption, your teams will struggle. Many large companies have learned this lesson the hard way.
Many of these initiatives are expected to be implemented by the existing IT and development infrastructure. But the workflow for these types of engagements is typically much different.
With innovation projects, you're ideally engaging in rapid, iterative testing. You're delivering incremental value in the form of minimum viable products, testing or piloting them with internal or external stakeholders, and rapidly improving them as you deploy to progressively larger sets of users.
There's also often the issue of technology stacks. While the end product will need to integrate with internal systems, you're often better served early by using technology stacks that favor speed and ease of deployment over enterprise systems.
Even organizations like SAP have realized this, providing the ability to "bring your own language" (BYOL) into build packs that work seamlessly with the larger enterprise architecture.
But adopting those languages and knowing how to leverage them is often met with (understandable) internal resistance. And so teams attempt to execute on lean startup principles with legacy or enterprise tools that make such speed and agility difficult.
“Data is a team sport.”
“There’s no I in team.”
“If you want to go fast go alone. If you want to go far, go together.”
All of these maxims get at the same idea. If you’re going to innovate, do it as a team.
This doesn't necessarily mean mean staff up and build internal skill sets, although in many cases that might make sense. But in many cases, it pays tremendous dividends to bring in outside team members to either execute or provide perspective.
Teams with start up experience know the fastest path to market is often cobbling together existing third party solutions. They focus on staying close the user, delivering value, and accept that code or platform debt is part of the trade. They fully expect to replace and refactor work later. That's a perspective internal teams often lack.
Likewise, people with startup backgrounds (and to a lesser degree agencies) often have pattern recognition that internal teams are missing. Part of why Manifold is able to provide value at a product strategy level is our experience building startups ourselves. That perspective is incredibly helpful when trying to make product decisions like:
Even if your internal team does the heavy lifting, bringing in an external team to provide guidance and feedback can be incredibly helpful.
A common approach we have leveraged is to co-create solutions, in the beginning leaning heavily on the external team for execution while the internal team learns the ropes, and over time transitioning more responsibility to the internal team as they develop the necessary skills and perspectives.
Along the same lines, a common gap is the higher level strategic perspective. While internal teams have deep domain expertise, they also often suffer from being too close to the problem, or lack the pattern recognition that comes from seeing a variety of different industries and organizations.
Again startups provide a great model. Most venture backed startups have a board of directors, as well as third party advisors. These are indispensable resources who can identify and help avoid potential obstacles, bring novel solutions from other industries, and make business-transforming introductions. They also can provide coaching to navigate the slog of iteration.
Creating a similar board of advisors, either at an individual initiative level or at the portfolio level, can often mean the difference between success and failure.
According to Harvard Business Review, a common pitfall is lacking a clear hypothesis around value creation.
This mistake often leads to funding projects that were executed on well but still had no value associated with the win. Allocating resources, driving team energy and engagement, and crossing the finish line without tangible value creation to point to can often be the kiss of death for innovation teams and the leaders within them.
Successful innovation initiatives often take time. And there's a definite need for patience and sufficient air cover at the executive level to give fledgling ideas room to iterate and find value. But that doesn't mean you need to start an engagement with no clue how you'll extract value out of the other end if successful.
Modeling out potential options for growth and value creation, understanding the potential addressable market, having a hypothesis for "exit" (even if that exit is simply bringing the initiative in-house) are all great strategies to leverage to de-risk this pitfall and ensure that successful initiatives represent legitimate wins for the organization.
As you put your digital transformation agenda in place, it can be helpful to outline all of the potential risks you can see and develop mitigation strategies for each. Conduct a "pre-mortem" - try to anticipate what could go wrong, and make sure you have the right systems, processes, and partners in place to execute on your digital transformation initiatives brilliantly.