Common Digital Transformation Errors

Every company has to digitally transform, from the small restaurant to the largest multinational. However many digital transformations do not convert a company into the “next-Google”. Here are common reasons why this is.

IT-driven transformation

IT, Data or digital transformation teams are staffed by technical experts, data scientists, UX designers, scrum masters,... but finance and business experts are missing. A business where there is a big divide between the business/finance profit centres on one side and IT as a cost centre on the other side, is unlikely going to be extremely successful. A digital transformation is not equal to scrum teams, sprints, delivery pipelines, DevSecOps, epics, user stories,... These capabilities are necessary but by themselves they will automate existing paper processes and not rethink the business.

Business automation not transformation

Many digital transformation projects are about “moving from the data centre to the cloud”, transforming paper processes into digital processes, automating manual processes via robot automation,... Often AI is used but instead of applying AI to transform the business, it is used instead to automate the current business processes. AI is used to improve handwritten recognition of customer paperwork, instead of rethinking why customers still need paperwork in the first place.

Lack of Technology Expertise

IT departments who were managing an Oracle database, an SAP ERP system or god-forbid a Cobol Mainframe inside their own data centre are asked to digitally transform the business. They have no experience with DevSecOps, Serverless, … let alone smart contracts and deep learning. Not every person in IT is ready to become a digital transformation guru. Training is needed but often also a personnel change.

The biggest lack of technology skills are often however seen in the business teams. They never “had to know about IT”. Often digital teams come with great suggestions around digital transformations to be held back by a business manager who is afraid of “losing power”. Office power is calculated in the number of direct reports. So if a new AI chat bot can substitute a 1,000 call centre agents, then the head of call centres will become a “smiling assassin”, who will talk great about the AI chat bot but will do everything possible to make the project fail. Business executives who look after intermediaries will stop any direct to client digital transformation because they will lose power. Actuaries, risk managers, financial controllers,... will not trust AI to be capable of automating business and risk decisions because it means their current job is at risk. Top management can be experts in the business but at the same time can lack digital skills. They will not like to admit this publicly and as such will also become smiling assassins.

You cannot outsource digital transformation?

Sometimes, frustrated business leaders try to take a digital shortcut. They outsource “problematic business and IT processes” in the hope that the outsourcer can digitally transform them. Guess what happens if you tell an existing department that the faster the outsourcer understands their job, the faster they will be out of a job.?

Outsourcers are normally focusing on business automation, not transformation. They have a contract that has the current business processes ingrained in their costing model, e.g. reduce call centre costs with 30%, not get rid of the call centre.

Digital launch success but no scaling

Often digital and innovation teams are able to launch a truly mind blowing innovation in record time. Everybody is happy. The results are amazing. However afterwards the new technology is stuck inside its initial use case and does not grow further.

This is the number one reason why innovation in the core of a company tends to be unsuccessful. What happens in this case is that some innovation was launched without some influential people understanding the impact it would have. At launch they realise that this new innovation will reduce their future power and all of a sudden lots of enterprise barriers stop the innovation from scaling any further.

Applying old rules and processes to digital processes

Teams who combine the best of technology and business experts in order to launch great digital business transformation will sooner than later run into the existing old rules and processes. Risk management, procurement, HR and other company processes are counter productive in the digital era. Launching a new feature every day on hardware which is managed by others and getting business decisions being taken by AI and not by humans, runs against any existing change management process, IT security process, procurement process, hiring decision, business risk management rules,… Often digital transformation dies of a thousand paper cuts.

Lack of a digital vision

What is the digital vision? A bank with many branches will become what in the future? A car insurer who understands robot taxis are an existential threat will transform how? Unless management understands that a digitally transformed world can make the core business irrelevant and has an answer to where the digital transformation will lead, a digital transformation will fail.

Not understanding economies of scale and network effect

The lack of a digital vision is often the result of management not understanding digital economies of scale and network effect. If your transformation team can make a digital solution which transforms the industry then keeping it to yourself might be bad for business. The cloud, mobile apps, smart contracts, AI,… allow one digital solution to be scaled to the complete industry. So if you are an airline and your digital booking system brings a 30% efficiency then most business managers will not want to share this with competitors. Savvy digital transformers will see a business opportunity to scale this solution into an industry wide platform. If your platform can get all the data from all flights in the industry then it soon has most data in the industry. More data means better AI decisions which result in more efficiencies and sales. An IT cost of running the platform can be converted into a profit of selling licences to all competitors. Too few digital transformations result in the launch of independent ventures which operate at arms length of the mothership and convert previous costs into profits. If partners are able to integrate new solutions into a common platform, you get a positive network effect. The industry leading platform can have connectors, adaptors, plugins,… into thousands of enterprise systems. Whereas number two has tens of them. Automatically the industry will choose the market leader. If your digital transformation is constrained towards offering service to your business only than profits, economies of scale and network effect will never come. A fast follower can easily disrupt you in this case.

Lack of long term predictions

Telecom operators already understood in the mid noughties that SMS and call revenues could be disrupted by Skype and similar. They did nothing even after WhatsApp a decade later transformed the market and left them out of it. Today telecom operators are totally dependent on declining data subscriptions and have few other revenue sources.?

Car manufacturers knew Tesla was building a robot taxi network in 2016. Even today, most are still struggling to launch electric vehicles and Ford just threw in the towel on creating its own self-driving AI.?

Tony Seba is predicting energy prices to go towards zero in less than a decade due to solar, wind and batteries becoming exponentially cheaper and better. Few energy companies and oil producing countries have an answer for a new reality where many will produce cheap electricity and fuel stations are no longer needed.?

Any digital strategy needs to take into account how the future will be because the worst thing to do is to digitally transform a fuel station, consumer car insurance, … if in the next five years the industry is made irrelevant by a disruptive innovation. Wardley maps are a great tool to understand the technology future.

Conclusion

Digital transformation is no longer a nice to have. After COVID even senior citizens are now demanding mobile apps and digital processes. At the same time too few CEOs are defining a digital strategy. Elon Musk told the industry in 2016 how his robot taxis will disrupt them. Very few have taken any notice until now. Valuable time has been lost and for most it will be too late. In 2018 when Tesla needed to win time to scale up model 3 production, Musk was involved in a lot of Twitter drama. Perhaps one of the world richest persons is not stupid but is again creating digital drama to distract the attention of what he is really doing. A great magician is known to distract his observers away from where the “magic is happening”.

Internal digital transformation is often digital automation which mostly focuses on using AI to accelerate old paper processes and not to rethink the industry. Even if digital innovation is launched, smiling assassins kill any potential of scaling. Hardly any company sees digital as a way to substitute large IT costs by new digital profits but most of them should. Either companies successfully digitally transform in 2023 or they might not make it past the cost of living crisis. If you need help, always happy to engage…