Digital transformation: 4 mistakes that ruin ROI

Companies on the road to change want to deliver as much value as possible from digital transformation projects. These common missteps steal value
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The promise of digital transformation is that it enables enterprises to create new value. That value generally takes one of two different paths:

  • Projects that apply digital technologies to reduce costs, increase speed, or increase quality within an organization’s current operating model
  • Programs that leverage digital technologies to change the company’s operating model to improve the customer, employee, or partner experience and thus change the company’s competitive positioning.

That second path can be a complex, multi-year journey of extensive, painful organizational change and unexpected challenges. Unfortunately, many enterprises’ digital transformation initiatives fail, or at best, underdeliver the promised value. Let’s look at four common mistakes companies make.

[ Read also: Digital transformation ROI: How to check a project's payoff. ]

Mistake #1: A short-term mindset

Executives often think their companies will realize benefits just a few months after implementing and learning to use digital technologies. The truth is, technologies alone create no value. They enable a company to change how it operates; but if the only thing that changes is the technology, the company won’t achieve substantial benefits.

Executives must alter their mindset to approach digital transformation as a journey. This is fundamental to success. Unlike transformation initiatives of the past, digital transformation is not an event that happens – rather, it’s a journey of change that will occur over three to five years or even longer.

I recommend a mindset like a software venture-capital process: Break the transformation journey into a series of small sprints. Managing the transformation as though it’s an event rather than a journey is a high-risk practice that leads to failure. Managing it through short sprints is an agile approach that helps to de-risk the journey. If it becomes evident that the process or technology design or path to the desired outcome is not working during a sprint, the company can more easily change course and make necessary changes before going forward.

Mistake #2: The wrong plan

A second mistake is developing a detailed plan and a one- or two-year roadmap for the digital transformation journey at the outset. Historically, this approach has worked for transformation projects that aimed to achieve incremental value. But in a multiyear digital journey that changes the operating model, it is impossible to use this type of plan successfully because the details of the journey are not knowable at the beginning.

In the plan for a sprint approach, leaders make capital available, and sprints or projects that are completed draw down on that capital.

By using an agile, sprint-based approach, the company can evaluate how effective the changes are before moving on to the next sprint. The company may need to adjust or even reverse some changes based on the learnings from a prior sprint. In addition, the company will need to rethink and adjust some corporate policies and processes to allow the desired outcome, but these changes won’t be completely known up front. The journey-with-sprints approach ensures flexibility and necessary resources on the journey and enables doing what is necessary to achieve the desired outcome.

A typical detailed plan or roadmap that lays out all the steps up front includes a bottom-up analysis of money applied to the journey. In the sprint approach, leaders instead make capital available, and sprints or projects that are completed draw down on that capital.

The sprint plan approach also helps minimize the impression of disruption during the journey. A plan for each sprint, with realistic goals that the company can accomplish in a short timeframe (perhaps three months), will build momentum from the success in each sprint.

[ How much speed is enough? Read Digital transformation reality check: 10 trends. ]

Mistake #3: The wrong metrics

The third mistake many companies make is measuring their performance using typical metrics. Instead, companies need to design metrics that measure their progress during the digital journey.

Metrics in a typical change initiative focus on project completion on time and on/under budget. Digital transformation metrics need to (a) monitor the progress toward the outcome and (b) measure the magnitude of impact on the business.

To design the metrics, first define the benefit goal. Then determine what the company must do to progress and accomplish that goal. This becomes the basis for a set of transformation metrics.

Metrics that track progress toward goals is critically important to addressing employee resistance to change and winning support, as they can clearly see the progress toward the goal of delivering new value to customers and users.

[ Read our related story: Digital transformation: Are you using outdated IT metrics? ]

Mistake #4: Inadequate change management

Finally, many companies do not understand that digital transformation means the outcome is data-driven rather than process-driven. As companies leverage digital technologies, they collapse their business processes into data. But serious issues arise when organizations look at their business through the lens of data instead of business processes. Employees and managers are accustomed to doing their jobs in certain process-oriented ways that are not based on the new data an organization may gather.

Change management methods must manage how people use data and make decisions that arise from issues discovered in the data – issues that existed in previous business processes. Change management must focus on changing the culture to rethink processes and policies while not blaming people involved in business processes where data identifies issues. Unless executives manage data-centric change well, they will face resistance to change. That leads to underdelivering the promised value. 

[ Read also: Does your change management plan cut it in the digital age? ]

The bottom line: Unless an enterprise recognizes at the outset that digital transformation is a fundamental organizational change issue rather than a technology issue, and manages the journey from that perspective, it will fail to deliver the anticipated value from investing in transformation.

[ 7 new rules of the road for IT leaders: Get our infographic and learn from CIOs succeeding with digital transformation. ]

Peter Bendor-Samuel is CEO of Everest Group, a management consulting and research firm with headquarters in Dallas and offices around the globe.