In a recent Harvard Business Review article, Thomas H. Davenport and George Westerman, researchers with the MIT Initiative on the Digital Economy, consider several recent cases in which high-profile companies like GE, Ford, and Procter & Gamble made massive investments in digital transformations that ultimately failed to achieve their goals. “What can we learn from these examples of digital dreams deferred?” they ask. “How did these smart, experienced leaders make decisions that don’t look so smart in hindsight?”
The issue, the authors posit, is fundamental to the adoption of transformative business technologies. Very similar high-profile change failures happened with the rise of e-commerce and big data, they note. There’s something about digitalization that leads businesses to slip up in specific ways:
Several key lessons emerge when heavy commitments to digital capability development meet basic financial performance problems. A clear one is that there are many factors, such as the economy or the desirability of your products, that can affect a company’s success as much or more than its digital capabilities. Therefore, no managers should view digital — or any other major technological innovation — as their sure salvation.
Second, digital is not just a thing that you can you can buy and plug into the organization. It is multi-faceted and diffuse, and doesn’t just involve technology. Digital transformation is an ongoing process of changing the way you do business. It requires foundational investments in skills, projects, infrastructure, and, often, in cleaning up IT systems. It requires mixing people, machines, and business processes, with all of the messiness that entails. It also requires continuous monitoring and intervention, from the top, to ensure that both digital leaders and non-digital leaders are making good decisions about their transformation efforts.
From our research at CEB, now Gartner, we know that enterprise change is hard. Most change efforts fail either partly or completely, and in today’s business environment, change is happening faster than ever before. The CEB Corporate Leadership Council’s ongoing research on Creating a Talent Strategy for the Digital Age also points to the unique challenges Davenport and Westerman identify with digital transformations.
From our conversations with members, we are finding that HR leaders know they need to respond to technological innovations in the digital business environment, but struggle to determine exactly what that means for their organization. With such a broad topic as digitalization, there is a natural tendency among leaders to look at what tech companies or other big firms are doing and try to apply those same strategies at their organizations. While creating a new digital business unit or appointing a Chief Digital Officer is not necessarily a bad idea, this alone will not enable an organization to create competitive advantage in the marketplace.
Davenport and Westerman’s observation that companies can’t just “buy and plug in” digital capabilities also aligns with what we are learning in our work. For example, one HR leader at a fairly traditional financial services firm told us they had tried hiring a group of data scientists to build their organization’s digital capabilities. This proved to be ineffective, however, when this new talent cohort was unable to mesh with the firm’s much more traditional culture. The member described the culture clash as akin to a body rejecting a transplanted organ.
That case illustrates the need for organizations to perform due diligence with regard to their readiness before attempting a digital transformation, especially if the strategy for that transformation is to import digital capabilities from elsewhere. Acquiring data scientists from Silicon Valley as a means to brute-force digital capabilities into the organization might have worked for a tech company, but it turned out to be a bad match for this firm. Solutions need to be context-dependent.
Companies might also need to expand their criteria for what constitutes a viable digital opportunity, instead of pigeonholing their search to selecting the right technology vendors and acquiring talent with qualifications in data science and programming, to the exclusion of other essential measures like raising the digital skills profile of the non-technical employees who will be required to work with new digital technologies. Yet another pitfall arises when organizations neglect to align their digital change initiatives to their operating strategy: Even if the organization selects the right solution, the change is likely to fail if the right conditions have not been set for it to succeed, such as engaging key stakeholders and ensuring that the initiative is adequately resourced to support its longevity.