Why digital transformations are lagging
- 21 May, 2018 20:00
Ask CIOs how their digital transformations are faring and they'll proudly speak about successful cloud migrations, empowered workforces and analytics that get them closer to their customers. But new data suggests that Big Bang business transformations are lagging or even nonexistent.
Fifty-six percent of 1,559 business and IT decision makers surveyed by Forrester Research say their digital transformation is underway, while 22 percent are considering a transformation or are not transforming at all. But 21 percent of those polled consider their digital transformation complete, which suggests that CIOs are confused about what it means to drive holistic change. Enterprises will never be transformed, and will instead always be transforming, Forrester analyst Ted Schadler tells CIO.com.
Business transformation will never be complete because no industry is future-proof. Digital disruption is a constant threat because of the velocity of technology change. Emerging technologies such as artificial intelligence, machine learning and blockchain are driving significant automation and breaking down barriers to entry.
"Embracing digital technology and business models is the only path forward in a world where customers are empowered and disruptors rapidly exploit the friction and flaws in your market," Schadler says in his report, "The Sorry State of Digital Transformation in 2018."
Enterprises shortchange critical functions
Schadler says some of the biggest indicators of how digital transformations are lagging lay in the statistics for specific functional areas that are core to an enterprise. For example, only 34 percent of financial services firms and insurers are bothering to transform marketing, with only 31 percent of those firms refreshing sales. Additionally, only 45 percent of respondents in these sectors are revamping customer service, which Schadler says is too few given consumers’ mass adoption of smartphones and other mobile, connected devices.
The numbers don’t fare much better for retail, the mother of all customer-centric industries, with respondents overhauling marketing, sales and customer service to the tune of 43 percent, 46 percent and 54 percent, respectively. Manufacturing, traditionally viewed a laggard when it comes to transforming IT, is the worst offender. Only 32 percent, 32 percent and 33 percent of manufacturing organizations are retooling marketing, sales and customer service, respectively.
Another alarm bell is that too few CIOs are embracing bleeding-edge technologies, says Schadler. Only 29 percent of respondents are investing in internet of things, with just 17 percent investing in AI. Blockchain (11 percent) and augmented reality (10 percent), too, remain woefully underrepresented given their potential. "Software, the cloud, and emerging technology will become business assets, not just technology enablers of your digital business," Schadler says. "It’s time to invest more heavily in each of them."
The data raises serious questions regarding why organizations are so slow to embrace emerging tech and why so many CIOs are neglecting transformations of sales, marketing and customer care.
Misalignment on metrics is a big reason, according to Schadler. For instance, while one part of the organization may be “golden” on releasing the products, the other is weak on generating sales leads. Other companies are simply too slow in responding rapidly to customer needs.
Schadler recommends companies figure out how to quantify lifetime or at least annual customer value and satisfaction, and instantiate metrics in which every unit of an enterprise can see the impact of their role in the value chain. Measuring end-to-end process of onboarding customers is essential. "It's not rocket science — you just need willpower and the communication alignment," Schadler says.
Of course, the biggest reason for digital transformation failure remains the inability to drive culture change, as CIO.com has reported. Sometimes there is a willful ignorance from the top that culture change is needed. For example, only 37 percent of 460 CEOs polled said a significant or deep culture change is needed by 2020, according to the 2018 Gartner CEO survey.
But even organizations that recognize the need for culture change fail to do so because they don’t properly manage the significant shifts digital requires. As George Westerman and Thomas Davenport wrote in Harvard Business Review earlier this year, General Electric, Ford and Procter & Gamble each spent millions to develop digital products, infrastructures, and brand accompaniments, but faced significant performance challenges.
Digital transformation: The new "fail state"
Jay Goldman, co-founder of digital workplace consultancy Sensei Labs, says transformations miss the mark because too many organizations are chasing shiny new objects. He says that most organizations buy “innovations by the pound,” because their CEO read that AR or AI is the next hot thing. “Tomorrow’s technology is not going to solve today’s problems by mandate,” Goldman tells CIO.com.
Another trap that CIOs fall into is creating separate innovation labs to experiment on new technologies. Siloed from the rest of the business, the resulting products rarely make it out of the lab and fail to drive value. Goldman says this is because the existing organizational culture has built up so many “antibodies” that are resistant to such change. Ultimately, such solutions languish as their managers run out of financial runway to scale them. “The reality is that you’ve created a separate business, but they haven’t changed the culture of the core business,” Goldman says.
It’s common for companies to create KPIs that measure digital success, but Goldman says they should focus on something a little contrarian: failure rates. The logic is that if organizations aren’t failing enough they’re not working quickly enough to figure out what works and what doesn’t. “They need to say that if more than 30 percent of experiments are successful, they’re not setting the bar high enough,” Goldman says. But this is easier said than done because CIOs, CMOs and other executives are trained to view KPIs through the lens of success. Once again, the inability to change rears its ugly head.
“Keeping pace in a digitized world requires a far more fundamental reassessment of how organizations think and behave and using technology that enables the company’s DNA to transform,” Goldman says.