The Reasons Why Digital Transformation Projects Fail to Create Value

Digital transformation has accelerated since the second half of the 20th century and became transformative with the broader establishment of the internet in the mid-1990s. Over the last 25 years, technology not only drove the way we communicate but shaped commercial models, operating platforms and broader customer interactions.

The pandemic triggered another leap forward in which social distancing unexpectedly created the requirement for a virtual business environment. Digital transformation projects are today on top of the corporate development agenda. However, they often seem to fail or lack the targeted impact. So, what are the main reasons for their challenges to create long-lasting value for a business?

Value Creation and Digital Transformation

To start with, we need to outline a framework that defines the creation of value. Value creation is a management philosophy to drive an institution’s growth and performance agenda. It is defined by the concept of intrinsic value which measures the financial impact of specific strategic and operational initiatives.

Given the innovative and competitive forces at play, most digital transformation projects fall under this definition which leads to the fundamental question of how their success or failure can be measured. Before any quantitative financial measure or key performance indicator (KPI) can be defined, it needs to be made sure that the objectives of a digital project are well defined, understood and communicated among its key stakeholders and decision-makers.

Transformative Technologies

Several key emerging technologies have fundamentally transformed the way we are doing business today. Those technologies are the building blocks of the transformation agenda. They can be classified into three; each of them defines its own value-creation framework in the way they shape the future of the business.

Open architecture has substantially improved operational efficiency through automation and collaboration as the first value-creation pillar. Advanced software solutions such as application programme interfaces (API), cloud computing (CC) and interoperability drive today’s open architecture models. The open collaborative architecture allows incumbent organisations to specialise in their core competence and to embed best-in-class services to provide customers with a comprehensive experience through core platform offerings.

Artificial intelligence (AI) with its focus on big data and advanced analytics represents augmented decision making the second pillar. There are many and varied definitions of AI and the term is often interchangeably used with machine learning (ML). ML is a key field of study of AI that uses mathematical procedures, and algorithms, for the analysis, manipulation, pattern recognition and prediction of data.

This allows processing large data with mathematical accuracy and objectivity which leads to unbiased results, substantial efficiency gains and new insights. It allows the optimisation of decision analytics and leads to a more comprehensive, objective and accurate decision making such as the prediction of specific political, macroeconomic and/or corporate events. With robotic process automation (RPA), AI further allows the autonomous replication of repetitive tasks through intelligent behaviour. It allows an organisation to keep the value chain with its processes unchanged while automating it.

The third emerging technology is decentralised technologies such as distributed ledger technology (DLT), the parent technology behind blockchain. It facilitates identity management, value storage, and back-office operations such as the settlement of payments and securities transactions. DLT and blockchain digitise and renovate today’s financial and legal infrastructure. The technology has so far mainly been known for financial speculation through cryptocurrencies such as Bitcoin and Ether, and experimental forms of finance under the broad term of decentralised finance (DeFi).

DeFi utilises smart contracts on blockchains to perform financial services functions but without the traditional intermediary model. With Web3, there is now even a more ambitious vision of digital decentralization and tokenisation emerging. It envisages the next iteration of the world wide web across a variety of use cases such as data ownership, scalability, security and privacy.

Implementation Challenges

The three introduced transformative technologies with their respective value creation drive the digital change and growth agenda and are reshaping the commercial and operational landscape. The speed of this disruption has constantly accelerated and former disrupters are now getting disrupted.

Corporate organisations with decision-makers are in continuous demand and challenge to identify these technologies and adapt accordingly. Decision-makers need to establish a structured planning and implementation process to create and protect the value of their businesses. There are three major challenges that can be identified during this process.

To start with, decision-makers and transformation specialists need to have a clear view of how digital trends impact their business and its competitive positioning. The transformative impact has to be thoroughly understood and validated.

The digital trends need to be identified, monitored and analysed under the lens of an agreed value creation framework. Digital transformation projects often lack a clear articulation of their objectives, their commercial and operational impact and organisational fit. Without a well-articulated plan, an organisation is unable to innovate and respond to opportunities and challenges with a visible impact.

Secondly, the organisational implications need to be communicated, socialised and formally embedded in the overarching change and growth agenda. Most likely there will be conflicting views and interests across the organisation. Organisational silos and political interests are often slowing down adaptability. A resolution requires strong and steady leadership that is driven by the objectives and mission of the underlying projects. Often senior leaders in an organisation are removed from the digital trends and/or see them as an abstract component of their business. A diverse leadership team across demographics and various experiences mitigate this issue.

Finally, structured programme management with agreed governance need to drive the execution and implementation of the digital transformation projects. Value realisation starts with the definition of an agreed set of KPIs against which the project is managed. These KPIs are the value drivers and a function of the underlying technology and their organisational implications. A dedicated programme management office and steering committee need to set the milestone and timeline and managed the implementation accordingly.

The implementation plan is further specified by an operational blueprint. It operationalises the roadmap for the business with its products, and makes sure the overarching organisational objectives are reached. Without a clear execution framework, digital transformation projects fail to have their impact, and are unable to influence the growth trajectory of a business.

Guest Post by Dr Joerg Ruetschi

Dr Joerg Ruetschi is a value-creation, transformational technology and turnaround specialist, and author of the new book Transforming Financial Institutions (Wiley).