The Hidden Costs of Speed: How to Strategize Your Digital Transformation

It seems more and more business executives we encounter are hyper-stressed about AI and the new world of digital transformation. Businesses often feel pressure to adopt new technologies quickly, especially as they see competitors making strides in digital spaces. Terms like artificial intelligence (AI) and digital transformation get thrown around a lot, but many people might need help understanding what they mean or why they matter. For businesses, misunderstanding these concepts can lead to costly mistakes, particularly when they rush to adopt them without proper planning. This article will break down these terms and explore the risks of moving too quickly in the digital age. At Orpical Technology Solutions , we move at a pace that ensures clients receive more than they expect, which can be a challenge because they often do not know what to expect. We believe that relieving stress and removing the fear of the unknown are required deliverables. First, we need to have a baseline of definitions.

What Is Digital Transformation?

Digital transformation, a process that leverages technology to enhance business operations and customer service, offers numerous benefits. From transitioning from paper records to digital files to utilizing cloud services and new software, it's about modernizing a company's business to become more efficient and effective. This transformation can lead to improved customer experiences, reduced operational costs, and increased competitiveness in the market.

For example, many banks are undergoing digital transformation by offering online banking and mobile apps, allowing customers to manage their accounts from anywhere. This shift helps banks serve clients better, reduce the costs of physical branches, and stay competitive with new fintech companies.

What Is Artificial Intelligence (AI)?

Artificial intelligence (AI) refers to computer systems that can perform tasks that typically require human intelligence, such as recognizing speech, making decisions, or even driving cars. AI can be as simple as chatbots answering customer questions online or as complex as algorithms that predict stock market trends. It's designed to help businesses automate routine tasks and analyze large amounts of data to make smarter decisions.

For instance, e-commerce companies like Amazon use AI to recommend products based on what you’ve bought or browsed before. This personalization is possible because AI algorithms analyze vast amounts of data to predict what you might want to buy next, improving the shopping experience and increasing sales.

The Rush to Digital Transformation

Many businesses feel pressured to adopt these technologies quickly, fearing that they must avoid falling behind competitors if they don't. We warn all clients, especially prospective clients, that rushing into digital transformation can lead to significant challenges. Often, companies don't realize how much work is involved. It's not just about buying new software or moving files online; it requires a significant change in how a company operates.

For example, when a business changes systems, it may need to retrain employees, reorganize data storage, and adjust how different departments share information. If these changes are rushed, the company might encounter data breaches or system failures, making it harder to serve customers smoothly.

Real-World Pitfalls: The Hershey Example

Hershey's attempt to implement a new enterprise resource planning (ERP) system in 1999 is a famous example of what can go wrong with rushed digital transformation. ERP systems help companies manage key business functions like inventory, orders, and accounting in one integrated platform. Hershey tried to launch this new system just before the busy Halloween season, but the integration didn't go as planned. The company struggled to fulfill $100 million worth of orders, leading to a 19% drop in quarterly revenue【1】. This failure highlights why careful planning and timing are crucial when making big technological changes.

The Financial Risks of Rushing AI

Integrating AI into a business is a complex process that requires careful consideration. Many companies invest in AI, hoping it will automate processes and reduce costs. However, a study by Gartner found that nearly one-third of AI projects are abandoned before they are fully implemented. This often happens because companies underestimate the costs of developing, customizing, and deploying AI models. It's crucial to approach AI adoption with caution and a clear strategy to avoid potential financial risks.

For example, developing a custom AI solution to analyze customer data might cost millions. Without a clear strategy, companies might invest heavily but fail to see a return on their investment if the AI doesn’t perform as expected. This is especially common when businesses jump into AI without understanding how it will fit into their overall strategy or without having the right data and infrastructure to support it【3】.

Why Financial Planning Is Key

Digital transformation and AI adoption are not just IT projects; they are strategic investments that need to align with a company's long-term financial goals. Financial planning becomes even more crucial with global spending on digital transformation expected to almost double from $1.9 trillion in 2022 to around $4 trillion by 2027. Companies must ensure these projects deliver measurable returns, and this is where financial planning plays a key role, providing a sense of security and control over the investment.

Historically, Chief Information Officers (CIOs) led digital projects, but Chief Financial Officers (CFOs) are becoming more involved to ensure that the financial side of these investments is sound. For example, a CFO might help decide whether building a custom AI tool in-house or buying a pre-built solution from a vendor makes more economic sense. This approach allows companies to avoid overspending and ensures that the investment aligns with broader business objectives【5】.

The Human Factor: Skills and Training

A common challenge in digital transformation is the skills gap within a company. New technologies like AI require specialized knowledge, and many businesses find that their staff isn’t prepared for the shift. This lack of skills can slow down projects and lead to additional costs for hiring external consultants or trainers. According to a PwC study, 80% of financial firms believe that a shortage of skilled employees hinders their ability to innovate【6】.

Employees may feel overwhelmed or frustrated by the new technology without proper training, which can lower morale and lead to turnover. Companies that rush digital transformation without considering the impact on their workforce may struggle to keep their teams engaged.

Planning and Risk Management: Steps for Success

Companies should take a more deliberate approach to digital transformation to avoid these pitfalls. This starts with validating the company's needs and ensuring the proposed solutions align with those needs. For example, documenting current business processes can help identify areas where digital tools can make the most impact.

Additionally, companies need a strong focus on risk management, especially data security. Businesses adopting cloud computing and AI face more significant cyberattack risks. A report by the International Monetary Fund (IMF) suggests that cyberattacks could cost banks up to $100 billion annually【7】. Investing in cybersecurity measures and training employees to follow best practices is essential for protecting sensitive data during the transition.

Aligning Digital Transformation with Sustainability

Many businesses are also using digital transformation as an opportunity to support their environmental, social, and governance (ESG) goals. For example, a company might use AI to optimize energy consumption in its factories, reducing its carbon footprint. According to Nasdaq, over 62% of companies using their Metrio ESG software achieved a full return on investment within three years【8】. This approach helps the environment and aligns with consumer expectations for sustainability.

Summary:

1. Understand Key Concepts: Learn what digital transformation and AI mean and why they’re essential for modern businesses.

2. Risks of Rushing: Discover how moving too quickly with these technologies can lead to costly failures, as real-world examples show.

3. Importance of Strategy: Understand why aligning digital investments with long-term goals is crucial for success.

4. Skills and Training: See how the skills gap can impact digital transformation efforts and the importance of preparing your workforce.

5. Focus on Sustainability: Explore how digital tools can support environmental goals and create long-term value.

Final Thoughts

Digital transformation offers companies a way to improve their operations and remain competitive, but it’s a journey that requires careful planning. Understanding the complexities of technologies like AI and aligning them with strategic goals can help businesses avoid the pitfalls of rushing into change. With the right approach, companies can leverage digital transformation to achieve sustainable growth in an evolving market.

If you want to learn how we at Orpical approach digital transformation, contact us for an assessment and learn how to “buy back your time.”

References

1. "Hershey's ERP Failure Case Study," CIO Magazine.

2. "AI Projects and Their Risks," Gartner Research.

3. "Hidden Costs of AI Deployments," KPMG Report.

4. "Worldwide Digital Transformation Spending Forecast," IDC, 2023.

5. "The Evolving Role of CFOs in Tech," Harvard Business Review.

6. "Skill Shortages in the Digital Age," PwC's Annual Survey, 2023.

7. "Cyber Risks and Financial Losses," International Monetary Fund Report.

8. "Nasdaq Metrio ROI Statistics," Nasdaq ESG Solutions.

Learn more at Orpical Technology Solutions.