New Year’s resolution: give up digital transformations
Consultancies are the only companies benefiting from transformation projects
Corporate survival depends on the ability of firms to transform themselves. Nowhere is this more true than for traditional businesses that have experienced declining operating margins since the era of digital. Mentions of ‘digital transformation’ in earnings calls have been on a hockey stick curve since 2013 with reports from Innosight — stating that about half of S&P 500 companies will be replaced over the next ten years — adding fuel to the fire.
It’s no surprise then that the digital transformation market is expected to grow to USD 1,051.12 billion by 2026 with the big four consultancies — PwC, Deloitte, KPMG, and EY — delighted to have discovered a new cash cow, one that promises to reveal the hidden path to the holy land of digitalisation. However, with so much money being spent on digital ($1 trillion in 2018), why is it that we don’t have a long list of success stories?
The reality is that 70% of digital transformation programmes fail. In general, that is because there are multiple barriers to migrate to an entirely different business model. Most of which, organisations need to overcome themselves before even considering an investment. A company professing to reduce these six barriers for you is overpromising.
1. Unclear vision
You need to understand your customer’s lives, their business, and how they get stuff done. Han Gust, Head of Ventures at FoundersLane talks about identifying unmet needs to find areas primed for disruptive innovation in this article. Many companies have no vision for what they hope to achieve from their digital transformation, they know they need to do it, but they don’t know how to do it in a way that is strategically relevant to the core and one that has customer needs central to everything.
“In today’s era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility, that’s it. Because nothing else is sustainable, everything else you create, somebody else will replicate.” ~Jeff Bezos
2. Resistance to change
Our bodies’ inertia or resistance to change is important for maintaining a state of equilibrium known as homeostasis. Any type of change can go against the neural pathways that have become automatic to us. It is the employees of a company that will drive the organisational change, and if job roles shift or potentially disappear, resistance is inevitable. IT staff are often dragged into digital transformation programmes, as they are more comfortable with the technology currently in use. But, it is in their interest to maintain the status quo.
“Resistance to change is always the biggest obstacle.” ~Chris Pain, American filmmaker and environmental activist
3. Inherent inertia
The inherent inertia in large organisations was first identified by Harvard professors, Rebecca Henderson and Kim B. Clark who coined the term architectural innovation. They observed the fact that what matters is not whether an innovation is breakthrough or incremental. It only matters whether the company’s current structures can absorb the innovation and take it to scale. A breakthrough innovation that fits a company’s current structures is most likely to succeed.
4. Not a priority
The extent of the changes needed and the willingness of the company leadership to drive that change will ultimately determine the success of innovation. For many organisations, digital initiatives are set as low to medium priority, as naturally the core business is given precedence. And, a large part of whether it becomes a priority is if there is enough budget earmarked for it.
5. Shortage of skilled talent
There is a severe shortage of skilled staff in digital product development, systems architecture, prototyping, design and testing, and scaling. The key capabilities required to drive a digital transformation. Executives with these skills naturally end up in tech hubs away from industrial heartlands, where traditional businesses are often located. Tech entrepreneurs usually end up starting their own business, frustrated by the lack of autonomy and speed in large organisations.
6. Legacy systems
Big companies tend to have outdated legacy systems that power their daily operations. Systems are often disconnected. Interrupting one can lead to a major disruption, which nobody is willing to endure.
Break the habit
As a result, as a New Year’s resolution, we urge you to give up the digital transformation habit. Trying to rebuild a train, while it is on the tracks is obviously too risky. Companies have their core business to look after and often a digital investment is viewed as a second-tier project, one which is a necessity, but there is no passion to drive it forward.
Take the speedboat
However, what if instead of attempting to change the business they have, executives could build a new company with the same values, only reshaped for the future. And, they put this together, away from the organisational constraints of HQ.
Building a standalone digital unit is a way to bypass the bureaucracy and barriers of large firms. If the unit could operate in a safe haven away from the procedural challenges, technology constraints, and cultural resistance imposed by the original business, it could innovate without limitations.
The leadership team could provide the unit with the budget, autonomy, and protection to explore white space opportunities for disruptive business models, in a de-risked environment. They could be incentivised to build and scale new products using startup methodologies with entrepreneurs driving the team. The firm can set aside a budget for new ventures and once a viable business is developed they can retain strategic control or bring the venture in-house.
None of this is groundbreaking. Sky did it with Now TV, Nestle did it with Nespresso. All of which are independently successful companies. At FoundersLane we did it with Vattenfall and Solytic. It’s a lot easier to send speedboats out to test new markets with new products than it is to bring the ocean liner on the expedition. So, your new year’s resolution, this year, can be to go cold turkey on the digital transformations and take the speedboat to the holy land.
Please reach out to me if you are leading a digital change project at your company and want to find out what is possible.
