What Businesses Are Forgetting in their Digital Transformation Strategy.

According to recent statistics from McKinsey, a staggering 70% of digital transformations fail. Despite these shocking odds, organizations worldwide embark on the formidable journey of digitalizing their entire business processes. The journey is often marked by a sense of bewilderment, confusion, emotional exhaustion, and significant financial investments.

What are businesses overlooking in their pursuit of digital transformation?

1.?????? They focus on upgrading their digital infrastructure rather than on value creation for customers.

In the digital circus, the end should be solving a business problem. Brace yourselves for a revelation: the purpose of business is to serve customers and, oh yeah, create and deliver value. Shocking, right? Yet, many leaders miss the memo, blinded by the allure of flashy tech.

In every industry, digital technologies have had a profound effect on how organizations both create and deliver value to their customers. It is no longer about organizational positioning, functional efficiencies, organizational processes, or structures. It is about creating information-enriched customer solutions delivered as technologically seamless, personalized experiences.

Don’t get me wrong: a digital facelift, i.e., achieving operational excellence using the advances offered by digital technologies, is needed for all organizations. However, “doing digital” is hardly enough. The starting point of a digital transformation should be “being digital” – continuous search, innovation, and experimentation to ensure that employees can deliver a new customer experience. These are two connected but fundamentally different processes. Doing digital is about doing things better, introducing changes in how we currently deliver business value, a kind of technological makeover or face-lifting. Being digital is about fundamentally transforming how we create business value.

2. They approach digital transformation as an IT upgrade project, rather than a cultural change

Consultants often highlight that the success of strategic transformations hinges on various factors, including industry dynamics, organization size, market conditions, and specific transformation goals. My experience working with companies over time reveals a significant trend: companies that view strategic digital transformation as a cultural change tend to achieve greater success compared to those approaching it as a digitalization challenge.

Consider the case of A.P. Moller-Maersk, a Danish multinational specialising in shipping and logistics. Despite a long history of global success, the family-owned conglomerate faced its lowest results ever in 2015—financially, operationally, and organizationally. In response, a new CEO and senior management team launched an ambitious strategy in 2016, aiming to transform this asset-heavy giant into a digital powerhouse in its core business.

Recognizing that the ambitious business strategy required fundamentally different organizational capabilities, they appointed a new Chief Human Resources Officer (CHRO). This CHRO strategically framed the transformation as a cultural change, involving the redefinition of leadership and the revitalization of the performance management system. This cultural shift aimed at departing from the traditional organizational culture without compromising its core values—a challenging and sometimes painful process.

This cultural change proved instrumental in enabling digital transformation by creating essential alignment between a digital core, renewed organizational capabilities, and a people strategy designed to deliver on those capabilities. In essence, the success of Maersk’s strategic digital transformation lay not just in the embrace of technology but in the profound cultural shift that accompanied it.

3. They apply “pipeline logic” and last-century models in managing change.

Pipeline logic has been dominating strategy discussions for many decades. Essentially, most strategy and change models from the last century focus on creating value by controlling a linear sequence of activities—think of it as the classic value-chain model. You start with inputs at one end, go through a series of steps, and end up with an output that's worth more: the finished product. This linear approach has a clear beginning and end (that's why consultants often use the Everest analogy with base camps and milestones). There's also a clear sequence—the well-known "unfreeze, change, refreeze, and live happily ever after" dogma in change management.

This pipeline logic encourages leaders to optimize an internal chain linking inputs and outputs. It works well in stable and predictable situations with standardized jobs and clear structures. However, due to the fast pace of change, volatility, and unpredictability in the business environment, relying solely on this approach to manage change processes for successful digital transformation can lead to failure.

It's time for organizations to shift their thinking—it's not just about having a digital strategy; it's about embracing what we call "ecosystem governance." Think of it as a way to keep your organization's value proposition fresh and perhaps expanding, thanks to ongoing innovative activity aimed at creating information-enriched customer solutions. Consider Hempel Marine's digital transformation, which centres around addressing the sustainability challenges faced by their customers. They are no longer in the business of selling paint. Their commercial teams have shifted to becoming the foremost decarbonization specialists in the marine industry—a sector known for substantial contributions to CO2 emissions.

And one more thing: it's no longer just about your organization. Your goal is to maximize the total value of a growing ecosystem in a circular, iterative, feedback-driven process. Sometimes that might involve supporting one type of consumer to attract another. Often, it requires rethinking how you do business with all your suppliers and customers. But, without a doubt, it calls for a new kind of leadership— ecosystem leadership, a strategic effort and investment game to influence, control, and guide other (potential) players, all to establish and maintain a robust ecosystem.

So, here it is: 'What do businesses overlook in their digital transformation strategy?' They neglect the customers, disregard the culture, and rely on outdated models to steer their change efforts.

Forthcoming in IT Pro