Why are companies still struggling with digital transformation?

"Finance teams have hesitated to embrace digital transformation due to the complexity and high costs of implementation projects. However, DOKKA has successfully streamlined the go-live process to just a few weeks, requiring minimal effort, risk, and cost from the finance team. This empowers our clients to overcome any hesitation and swiftly transition to digitized and automated AP processes." - Adoram Yarden , CEO of DOKKA

Why Are Companies Still Struggling With Digital Transformation?

It is a disruptive world out there, and technology is thriving. We have all witnessed how new tools like AI can speed up technological advancement, and everything is changing so fast that it is hard to keep pace with current trends. The gap between those who pursue digital transformation and those who are still hesitating to implement new solutions is just getting bigger by the day.

According to a recent study by Deloitte , 70% of digital transformation efforts fail. Many companies have been aiming to create a unified, data-driven ecosystem that connects business operations, vendors, customers, and employees, but despite significant investments of time and money, they are still struggling to achieve the desired results. The finance sector is no exception and continues to face challenges when it comes to digital transformation.

Digital Transformation Challenges

Finance companies find the digital transformation journey more challenging than anticipated. While the promise of increased efficiency, customer satisfaction, and profitability is enticing, the path to achieving these benefits is often full of obstacles. Here are the main reasons why the digital transformation struggle is real:

1) Unclear digital transformation strategy

It is not simply about adopting new technologies; digital transformation is a complex process that requires a clear and well-defined strategy to guide decisions and actions.

Without a clear strategy, companies may have a hard time identifying which technologies are most relevant to their business needs and how to implement them effectively. This lack of alignment can lead to uncoordinated efforts, wasted resources, and missed opportunities for improvement and innovation.

Additionally, an unclear strategy can contribute to resistance among employees who are unsure about the purpose or benefits of the changes being introduced. Without a clear understanding of what the organization is trying to achieve with digital transformation and how it will affect their roles, employees may be less likely to support and engage with the initiative.

2) Budget constraints

The initial investment in digital technologies can be substantial, including the cost of new software, hardware, and infrastructure needed to support digital initiatives. Once these new systems are in place, they require regular maintenance and periodic upgrades, thus adding to the ongoing operational expenses. 2023 Digital Transformation Report by Third Stage Consulting states that mid-sized companies with revenue under $1B realize a total cost of ownership of 3% to 5% of their annual revenue.

Budget constraints can make it difficult for companies to cover these costs, slowing down or even halting digital transformation efforts. To overcome this challenge, they need to carefully plan their transformation strategy, prioritizing investments that will deliver the most value and considering different funding options.

3) Regulatory compliance

The finance sector is heavily regulated, and navigating the complex regulatory landscape while implementing digital technologies can be challenging.

Regulatory requirements often evolve and change over time. Companies must stay up-to-date with these changes and ensure that their digital transformation aligns with the latest regulatory guidelines. This requires continuous monitoring, updating policies and procedures, and implementing changes to digital systems accordingly.

The challenge of regulatory compliance is particularly significant when integrating new technologies with existing legacy systems.

4) Legacy systems

For many companies, the legacy systems that they still operate on have been built over the years or even decades. These outdated systems often lack the flexibility and scalability needed to integrate with more advanced digital technologies. This makes the transition to digital more difficult, time-consuming, and costly.

Old legacy systems may be using outdated programming languages, have incompatible data formats, and lack modern interfaces, making it challenging to connect and share data with newer systems and technologies. Compatibility issues can cause significant operational disruptions where information is scattered across different systems, inhibiting real-time data analysis.

Technologies such as Application Programming Interfaces (APIs), are used to connect legacy systems to newer digital applications and services. APIs act as intermediaries, allowing data and functionalities to be securely and efficiently shared between systems. This technology enables companies to leverage the capabilities of their legacy systems while gradually introducing new digital solutions.

5) Cultural resistance

Digital transformation isn't just about technology and processes, it's also about people.

Introducing new digital initiatives requires a fundamental shift in the organization's culture, mindset, and work processes. Employees accustomed to traditional ways of working may resist new solutions, viewing them as disruptive rather than beneficial. This resistance can slow down the implementation process and reduce the effectiveness of digital transformation initiatives.

There are a number of reasons why employees may be resistant to adopting new technologies: the fear of job displacement, lack of understanding of the benefits, or comfort with existing routines. Resistance from management can also arise due to concerns about disruptions to existing processes or a reluctance to invest in unfamiliar technologies.

6) Lack of digital skills

The shortage of professionals with the necessary digital skills can impede the successful execution of the digital transformation. On top of that, the financial sector requires not only digital skills but also knowledge of finance-specific regulations, compliances, and practices, and this combination can be hard to find.

Upskilling existing staff or hiring new talent with the necessary digital proficiency can be a lengthy and expensive process. The high demand for digital talent in the finance sector has led to a competitive job market, making it difficult for companies to attract and retain the skilled professionals that they need.

7) Security concerns

As businesses become increasingly digital, they also become more vulnerable to cyber threats.

Financial data is sensitive information, and any breach could have severe consequences for both the company and its customers. The move to digital increases the potential attack surface for cybercriminals, making robust cybersecurity measures essential. That is why protecting sensitive data while undergoing digital transformation is a major concern for many companies.

The problem is that hackers and other malicious actors continually develop new techniques to breach security systems and steal sensitive financial information. Companies must stay ahead of the latest security threats, invest in advanced threat detection and prevention systems, and conduct regular security audits and assessments to identify vulnerabilities and mitigate risks.

8) Intense competition

Finally, there's the issue of keeping up with the rapid pace of technological advances. The digital landscape is constantly evolving, making it difficult for businesses to stay current and take full advantage of the latest innovations. Fintech startups leverage innovative technologies and agile business models to offer new and competitive digital financial products and services.

While intense competition and fast technological development drive innovation, they also increase the complexity and raise the stakes of digital transformation. Customer expectations regarding user experience (UX) are higher than ever. Customers expect seamless, intuitive interactions with their financial service providers across various digital platforms, which can be challenging to deliver consistently.

The Path To Overcome Digital Transformation Challenges

Navigating the complexities of digital transformation is a demanding task, especially in the fast-paced and highly regulated finance sector. However, CFOs with a clear vision, strategic planning, and the right set of tools, can overcome these challenges . From investing in talent development to enhancing cybersecurity measures, promoting a culture of change to ensuring regulatory compliance, each of the steps below offers its unique contribution to the successful implementation of digital transformation.

• Clear Digital Transformation Strategy: Having a well-defined strategy is the cornerstone of any successful digital transformation. This should include an assessment of current capabilities, identification of areas for improvement, and a roadmap for implementing new technologies. The strategy should also define clear objectives and key performance indicators (KPIs) to measure progress.
• Invest in Training and Development: To overcome the talent and skills gap, companies need to invest in training and development programs, which can involve setting up internal training sessions, facilitating online courses, or sponsoring employees to attend relevant workshops and conferences. Additionally, hiring new employees with the necessary digital skills can help to infuse fresh perspectives and accelerate digital initiatives.
• Enhance Security Measures: As the risk of cyber attacks grows, enhancing cybersecurity measures is crucial. Companies need to invest in advanced cybersecurity tools, implement secure practices like multi-factor authentication and encryption, conduct regular security audits, and keep all systems updated and patched. Employees should also be trained on how to identify and respond to potential security threats.
• Leverage Partnerships: Collaborating with technology providers, consultants, and other external partners can provide access to specialized expertise and resources. These partners can offer guidance on best practices, help to avoid common pitfalls and provide support throughout the digital transformation journey.
• Promote a Culture of Change: Digital transformation often requires significant cultural change. Leaders should communicate openly and regularly about the reasons for the change, the benefits it will bring, and the steps being taken to achieve it. Employees should be encouraged to participate in the transformation process and rewarded for their contributions.
• Use Customer-Centric Approach: Digital transformation should ultimately aim to enhance the customer experience. It's mandatory to understand the needs and preferences of customers, design digital solutions that meet these needs, and continuously seek feedback to make further improvements. A customer-centric approach can help to ensure that digital transformation efforts deliver real value to customers.
• Start Small: Rather than trying to transform everything at once, taking an iterative approach can be more effective. This means starting with small, manageable projects, learning from these experiences, and then gradually scaling up. An iterative approach allows for adjustments along the way, helping to manage costs and reduce risks.
• Keep Up With Regulatory Compliance: All digital initiatives must comply with relevant laws and regulations. This may involve working closely with legal experts or regulatory consultants, conducting regular compliance checks, and keeping up-to-date with any changes in the regulatory landscape.