Why Do 70% of Digital Transformations Fail?
Why?
If your team, department or company is about to embark on an Digital Transformation OR has already embarked on one and it's progress is stalling, then in either case it's highly likely you have failed or will fail to consider Organisational Readiness for execution. In 2021 Forbes reported 70% of digital transformations fail, defined as not achieving transformation objectives. If you can't or don't achieve a high state of pre-transformation Organisational Readiness it's not just likely you will join the 70%, it's inevitable.
What?
Given that Digital Transformation is nothing more complicated than applying technology and best practice to what you do and how you do it, in such a way that your value proposition to your people, profits and the planet are transformed, we need to better understand why this is measurably so difficult to implement successfully. To do so we will cover the key skills senior leadership lack, overall organisational competence & willingness to participate, and the resulting organisational state that ensures success remains elusive.
How?
We will deconstruct a real-world digital transformation in a large enterprise, which was one part of a larger organisational transformation I supported. With the help of academic behavioural models we will answer 3 key questions:
What are the key leadership failings when implementing a transformation? Revealing a significant leadership skills deficit.
What is the measurable rate of population buy-in? Revealing the true number of those for vs against.
What is the resulting Organisational State of Readiness? Revealing the scale of actual human fallout.
Leadership Failings
I created this model based on the work of Tim Knoster, Dr of Education and Professor of Exceptionality Programs at Bloomsberg University of Pennsylvania. His research in developmental learning unveiled the correlation between the components of strategy and human fallout, which ultimately determines the level of success or failure in any endeavour. My version is an adaptation of the original for use in a business context by any individual, team or organisation in pursuit of a specific outcome. This can be anything from delivering a career defining presentation to leading an organisational transformation in a large enterprise. In the context of this article we will mainly focus on the column: Capabilities & Skills.
Source: Based on Lippitt 1987, Knoster 1991 & Kenny Wallace 2021
As you can see each level of strategy correlates with some form of human fallout when a level is missing or populated incorrectly.
Confusion: People pulling in different directions, circuitous conversations & head scratching.
Sabotage: Deliberately or unintentionally undermining your own or each others efforts.
Resistance: Covert or overt opposition to suggested or required courses of action.
Anxiety: Unable to figure out how to manage a particular person, problem or task.
False Starts: Frequently jumping from task to task, unsure of priorities, completing some, if any.
Frustration: Inability to move anything forward regardless of how much effort is employed.
Leaders are responsible for creating the organisational vision, setting a mission, and so on, populating all six levels. Everyone else simply takes their cues from it, demonstrating that culture is created at the top and cascades down. These six levels essentially combine to form the blueprint of your culture, i.e. your ways of working, from an individual to an entire organisation.
In terms of transformation strategy, in my experience, the two key factors leadership typically fail to consider when attempting to execute are:
Organisational Willingness; Determine and communicate effectively the vision, roles and incentives required for people to want to participate in the new world.
Organisational Competence: The awareness, assessment, development & testing of skills required for everyone to participate in the new world, which includes their leadership competence to guide people to the new world.
In other words: Leadership fail to assess their Organisational Readiness, which brings us neatly to our example: A number of years ago I supported the CFO of a large enterprise with a Finance Transformation. The CFO had the vision of Finance becoming a strategic partner in key business decisions instead of the historical back-office-support-function stereotype. Rather than simply allocating and controlling budgets Finance would act as strategic advisory service for their stakeholders, making recommendations on spend based on data trends. For example the Chief Marketing Officer leverages market data; Demographics, language, visuals, consumer platforms, events, seasonal variation and so on to find patterns that suggest where, when and how their budget is best spent in pursuit of customer acquisition.
The CFO can use their finance data to identify trends for the Chief Marketing Officer to demonstrate which campaigns were actually successful, those that weren’t and offer recommendations to better inform future campaigns and bridge the gap between assumption and actual. This also applies to Sales, Supply Chain, Manufacturing, Research & Development, HR and any other department you can think of. This communal feedback loop of digital data creates a virtuous organisation-wide circle that, over time, leads to superior evidence based decision making, greater efficiency and greater yields relative to budget.
However, even though Finance had completed their Digital Transformation the CFO and their leadership team hit a glass ceiling. Everyone went back to work and attempted to do their jobs exactly as they had in old world, i.e. They attempted to use the new technology to replicate the output they used to produce, which it was not designed for. Leadership had failed to communicate that peoples roles, from a technical perspective, had fundamentally changed and the new technology was designed to produce different output that would result in new collaborative decision making behaviours across the entire organisation.
This change for the affected population was such a big pivot that human fallout manifested as; Confusion around what they were individually supposed to achieve, a vague sense of roles & responsibilities, mis-matched work vs outcome incentives, anxiety around delivering their objectives, complaints the technology wasn’t working and difficult to use, and frustration around not having the right tools for the job. The above model correlated this unravelling with having a fundamentally poor transformation strategy. No-one in senior leadership, even at my continued urging, had considered assessing Organisational Readiness, which would have mitigated much of the predictable fallout. Senior leadership's original assumption had been: It will be obvious to everyone what they all need to do when they start using the new systems. So how did their assumption affect population buy-in?
Population Buy-in
The model below is a bell curve created by Professor Everett Rogers who discovered the rate of adoption of new technologies in any given population, which he called the Law of Diffusion of Innovation. In the context of this article it predicts what you will witness in terms of how a Digital Transformation will be received by your organisation, or any transformation for that matter:
Law of Diffusion of Innovation - Everett Rogers 1962
Innovators: Come up with the idea and present a vision based on future possibilities.
Early Adopters: Lacked the idea, but quick to seize opportunities based on future possibilities.
Early Majority: Get onboard once the benefits have been reliably tested and proven.
Late Majority: Not really interested in the new thing, get onboard to avoid being left behind.
Laggards: Grudgingly participate, opposed to change, likely resistant, probable saboteurs.
This model gives us a snapshot of how change averse any given population is. So, this doesn’t just apply to Digital Transformation, it applies to any organisational transformation. The effects are compounded when your transformation strategy is incomplete, which based on our previous model it most likely is. Reality check: Almost everyone is not ok with, or prepared for, the change. In fact, only 16% of your population will have, at best, a conceptual understanding of new world, never mind be Individually Ready for it in practical terms.
To continue with our example from above: After hitting the glass ceiling I was commissioned to lead a project, which included external benchmarking by speaking to senior leaders in other large enterprises: BT, EE, HMP, Shell, etc, to investigate and understand why the glass ceiling had occurred. I already knew the answer, however we still needed to build a credible evidence based case for the board.
Without going in to too much detail part of the problem was due to a universal lack understanding around internal business partnering, i.e. Sharing interpreted data and trends between partnering teams and departments in a meaningful way to achieve mutually beneficial outcomes. The phrase Business Partnering was used so frequently it was widely assumed everyone knew what business partnering was and how to do it, which they clearly didn’t. Three key skills were identified for effective business partnering:
Technical Knowledge: Our numbers are…
Strategic Thinking: The trends imply…
Influencing Stakeholders: For you this means…
These three key skills correlate with our first model under Technical, Commercial and People skills.
Everyone had a notional understanding that a Digital Transformation was good thing as it would improve individual and collective decision making at all levels, however the leadership assumption that everyone would know what to do when the time came was based on this vague understanding.
In practice, in our example, organisational technical knowledge was broadly ok, as that had always been part of daily life and what recruitment focussed on, however the Digital Transformation revealed a distinct deficit in Strategic Thinking and Influencing skills across the entire organisation. These two particular skills were essential for participation in new world, which no-one had considered in terms of preparation for new world. High quality data becomes irrelevant when no-one has the skill to meaningfully interpret, share and act on it. Had an Organisational Readiness Assessment been carried out prior to execution this skills gap would likely have been caught. The irony being these omissions also demonstrated a lack of Strategic Thinking.
Considering the transformation was only expected to take from 3 to 6 months, this voyage of discovery beyond the glass ceiling added at least 12 to 18 months to the transformation process and the outcomes still fell dramatically short of original expectation. The cost in salary time alone to untangle the ball of wool will have been staggering, never mind the cost of lost productivity. So what was the impact on the overall organisational state as a result of all these compounding errors?
Organisational Readiness
The model below is based on a matrix created by Professor of Psychology, Mihaly Csikszentmihalyi who was first to formally investigate the traits associated with high performance, which he collectively called Flow. I have modified it for a business context to correlate organisational states with culture by looking at the relationship between Challenge, defined as: Degree of difficulty to be overcome, and Support, defined as: Available resources. To determine the culture you predominantly operate in you will witness one or more of the following:
Source: Based on Massimini, Csíkszentmihályi & Carli 1987 and Kenny Wallace 2019
These four cultures correlate with specific behaviours that can be measured in any individual, team or organisation:
Anxiety: Missed deadlines, avoidance of interaction, likely negatively impacting employee sickness absence.
Apathy: Absence of enthusiasm or presence of indifference, likely negatively impacting employee retention.
Comfort: Lack of activity and accountability, likely negatively impacting employee productivity.
Flow: Pro-active, self-directed, emphasis on personal responsibility, likely positively impacting all of the above.
Obviously the goal is to be in the Flow quadrant as often as possible. However, we have already discovered from the previous models that anxiety directly correlates with a lack of knowledge and skill, i.e. demonstrable incompetence. This being something an Organisational Readiness Assessment will capture and allow you to address, particularly for those in key transformation implementation roles.
If you don't catch these leadership blind spots its more than likely you and your organisation will spend the majority of the attempted transformation firmly planted in the anxiety quadrant, which will manifest as inevitable costly delays, stall your project or fail all together. These behaviours are evidence of your pre-transformation Organisational State of Readiness.
In the context of our example we can deduce that 84% of the population were likely experiencing uncertainty driven anxiety due to the absence of skills required to understand, participate and lead and in new world. This includes those responsible for leading aspects of the change.
Conclusion
So what?
Leadership typically overlook the need to assess Organisational Willingness; Determine and communicate effectively the vision, roles and incentives required for enough people to want to participate in the new world. And, Organisational Competence: The assessment, development & testing of skills required for enough people to participate in the new world to increase the likelihood of success. Both these factors include leadership competence to guide people to the new world. In summary they fail to assess their Organisational State of Readiness.
Strategic Thinking and Influencing Stakeholders are the two key skills identified as typically universally underdeveloped or absent for successful execution of a Digital Transformation, or any transformation for that matter. The absence of these two skills is also the reason Senior Leadership had no awareness of the need to assess their Organisational State of Readiness for the transformation, a text book example of the Dunning Kruger Effect.
Only 16% of your population will have, at best, a conceptual understanding of the proposed transformation with the other 84% in a state of uncertainty driven anxiety around what this change means for them in terms of their role, their roles purpose and how to fulfil it. In this knowledge vacuum they can actively sabotage and resist any effort to remove the ways of working they are familiar with.
Now what?
It doesn’t matter how great your idea's are around implementing a Digital Transformation or it's perceived benefits if you haven’t assessed your Organisational Readiness. Your efforts to generate the change, no matter how much it’s needed, will most likely fail with no benefits realised.
Implementing systems to generate high quality data become irrelevant when no-one has the skill to meaningfully interpret, share and act on it, in fact it will most likely be perceived as a disruption that most people don't want and will cause far more problems than it solves.
Now that you have numbers to demonstrate how receptive your population will be to your transformation, you will have to figure out how to identify, engage and develop enough key people in your organisation that can tip the higher likelihood of failure in favour of the lower likelihood of success.
What next?
Now that you have a better understanding of why 70% of Digital Transformations fail in terms of leadership blind-spots, population buy-in and organisational readiness:
Are you, your team, department or overall organisation about to embarked on, or already embarked on a Digital Transformation? If so, from a leadership perspective, what considerations are you now aware of that you hadn't previously thought of?
Given the demonstrable need to ensure Strategic Thinking and Influencing skills are on point for your transformation endeavour; What steps will you, your team, middle and senior leaders take to establish this as fact?
With the mathematical inevitability the impact your Digital Transformation will have on your people, organisation wide, and it's likelihood of failure; What will you do to mitigate the risks associated with those you are responsible for leading through the transformation?
Take your learning one step further and complete my Case Study Review. Capture your learning from this case study and commit to changes you deem relevant for your situation. A copy of your completed review will be emailed to you instantly.
For more insight on why Strategic Thinking and Influencing skills are typically under-developed or absent in leadership please do read: Why Did One Finance Transformation Fail Four Times?.
If you are in the process of preparing to execute an Organisational Transformation, similar to this case study, and have concerns then do consider working with me to either assess your Organisational Readiness or address issues that have come to your attention as result of this case study.
