What are the biggest barriers to digital transformation that lead to 70% of all projects failing?
Everyone’s aware of how important it is. Nearly every household enterprise has undertaken some form of digital transformation.
So why is it then, that when General Electric, Ford, Lego, and Procter and Gamble poured a combined $1.3 trillion into digital transformation initiatives, 70% ($900 billion) was wasted on failed programs?
Companies with that depth and resource pool surely did their due diligence before starting…
The aim of this article is to help you avoid their mistakes. To highlight the biggest barriers to digital transformation and show how you can overcome them.
Table of Content
5 Biggest Barriers to Digital Transformation
- Customer Experience Gap
- Business Strategy
- ROI (Budget)
- Internal Culture
- Lack of Expertise
Customer Experience Gap
Digital transformation should really be titled “customer-led transformation”.
That’s because, at its core, digital transformation is about realigning a business with customer needs through digitization.
Let me explain.
When your business was first founded, it likely fulfilled all customer expectations and needs.
Which was great, for back when it was founded. However, times change quickly in the digital era and customer experience gaps will have opened.
“Customer experience gaps are the void between what customers want and what companies are actually delivering.”
Digital pioneers such as Amazon, Google, and Airbnb have completely changed the way customers interact with brands.
Amazon offers next-day delivery, Google lets you search a keyword in seconds, and Airbnb completely turned the hotel industry upside down.
They’ve raised the bar for every business out there.
Now, if you work in eCommerce, customers almost by default demand next-day delivery and at no extra cost 😅.
One of the biggest barriers to digital transformation is the failure to recognize that gaps are forming between what your business delivers and what customers expect.
How to fix it
The good news is that this can be easily remedied. Customers are pretty open to voicing their concerns about what they’d like to see from your business.
You just have to listen 😉.
Now, there are four key methods for measuring customer experience (CX) and uncovering these gaps:
- Net Promoter Score (NPS)
- Churn Rate
- Customer Satisfaction (CSAT)
- Customer Effort Score (CES)
If you’re interested in how each of these CX measurement tools works, I’ve gone into greater detail in the article linked above.
But for those already up to speed, here’s a quick overview.
To effectively measure customer experience you must first map out the entire customer journey (just like you would when lead nurturing) and discover when and where people interact with your brand.
Typically, there are three common stages that 95% of customers will pass through on their journey:
As you can see from the graphic above, customers interact differently with your brand at each stage of the journey.
Perhaps customers lacked information or brand presence during the pre-purchase phase? Maybe their experience using your eCommerce platform wasn’t great? Or does your loyalty program seriously lack compared to your competitors?
Using the CX measurement tools listed in the aforementioned article you’ll be able to identify these gaps and put a strategy in place to close them.
But remember, the customer always comes first.
Yes, it’s probably cliched now, but that doesn’t make it any less important – especially when undertaking a digital transformation project. All business exists to serve their customers’ needs.
Another one of the biggest barriers to digital transformation is understanding that change should be driven by strategy, not technology.
That is to say:
“Technology is a means to an end, not the end goal in itself.”
The issue is, many businesses get so hung up on individual tools and software packages that they lose sight of the bigger picture; the reasons why the technology was implemented in the first place.
I think the best way to understand this concept is by looking at a real-life example of a company that did (or is currently in the process of) delivering a strategy-first transformation project.
Digital Transformation at McDonald’s
One of the best examples that comes to mind is the fast-food giant, McDonald’s.
Arguably one of America’s most quintessential, traditional businesses, McDonald’s is no stranger to change.
When the founders realized profits largely came from hamburgers, they adapted their menu. When they realized they could reduce the order time, they streamlined the cooking process. When they understood the importance of branding, well, hello Golden Arches!
And so it goes on…(The Founder is a fascinating movie that covers this story, we included it in our entrepreneur movies list).
So it really is no surprise to see them leading digital change in the restaurant industry.
After the company saw a steady decline in sales and economic growth in 2014 they understood something needed to be done.
Rather than “making fast food, faster” the McDonald’s team wanted to build a strategy around reducing the customer experience gap by innovating the customer journey.
They did so by focusing on two key areas:
- CX: Improving in-store, drive-thru, and home delivery (ordering, payment, mobile).
- Customer engagement: Distribution, social media engagement, and mobile app usage.
The process started by asking questions internally:
In-store, how could they improve the ordering process? Was there a way customers could do so via their smartphones? What about a digital ordering service? Would this reduce queuing time at a til? Was there a way customers could customize their meal orders?
And what about drive-thrus? How could they close the customer gap here? What about ordering while driving? Is there a way to integrate that safely within the smart car ecosystem?
A McDonald’s digital ordering system
Once these ideas begin to take shape, that’s when you can reach out to customers and get them validated (hey there lean startup methodology 😅).
If it’s a green light, then it’s time to work out how you are going to deliver these experiences.
In McDonald’s case, digital technology such as interactive ordering units, AI drive-thrus, and smart mobile app experiences help them achieve their goals.
But, as you can see, the technology implemented to bridge these gaps is a result of McDonald’s long-term strategy – NOT the other way around.
Lack of Expertise
Many business leaders are ill-equipped to manage and deliver a successful digital transformation project, particularly in larger, more complex organizations.
This isn’t to slight them at all. The digital world has transformed rapidly over the past decade, increasingly so due to the Covid pandemic. It’s therefore understandable that legacy systems put in place need a major rework.
However, it’s the same business leaders taking their time to adjust who are often in charge of hiring and developing strategies to cater to the company’s future.
This poses a significant barrier to digital transformation.
Also, the problem doesn’t just lay at the top of the batting order…
In Gartner’s Shifting Skills Survey of over 7,000 employees (junior to executive level), when asked to self-assess their proficiency in necessary digital skill sets:
- 70% said they still hadn’t mastered the required skills to do their job.
- 80% said they lack needed for both their current role and for the direction it’s evolving to.
So even once a “digital transformation champion” is brought in (as McDonald’s did when hiring Zaki Fasihuddin) it’s likely current employees lack the necessary expertise in the relevant technology to execute the new strategy.
Again, this is understandable. Most teams are hired for their expertise and leadership in industry-specific areas, not the handling of new technology.
For example, installing a new predictive maintenance project at a solar energy plant will need someone with knowledge of the system architecture.
However, they’ll also need to understand how the system communicates with different components like external temperature sensors, relay networks, cloud data storage, as well as the ability to analyze that information.
Find me that person and you get a gold star ⭐!
How to fix it
When McDonald’s pushed ahead with the founding of their digital transformation division, they grew from 3 to 130 employees within just 18 months.
As I mentioned previously, Zaki Fasihuddin was recruited to lead this project and establish a presence within Silicon Valley, making use of local expertise to create an internet company inside this company.
McDonald’s identified areas for improvement along the customer journey aided by digital technology
The McDonald’s leadership team recognized they needed to bridge the gap between the offline and online worlds, mandating Fasihuddin to “reimagine the restaurant experience of tomorrow,”.
Now, I’m not suggesting that you have to open up an office in Silicon Valley. Nor do you need to hire over 150+ new people…
But what we can learn from McDonald’s are two things:
- Firstly, the need for leadership to create a Digital Project Portfolio Management position (or small team) to oversee the changes throughout the organization.
- Secondly, the identification of requisite skills and establishing a pathway for staff to acquire them.
Another closely related barrier to digital transformation is internal culture.
We just touched upon the significant void between traditional, risk-averse corporate executives, and their digitally-savvy entrepreneurial counterparts and the problems this causes.
However, the real barrier is formed when this risk-averse mindset permeates throughout the rest of the organization.
Transformation isn’t so much about the technology implemented as it is the team’s ability to adjust to a completely new way of working.
And If there’s resistance at an executive level, imagine the challenges this poses to the rest of the workforce:
- Do we really need to change the way we work?
- This new method isn’t for me.
- I can’t use the technology.
- Where is all my data saved now?!
- Why can’t I access (X) files through this workflow anymore?
- I can’t get my head around this new layout.
- The old system was so much better…
Does this sound familiar? (It’s OK, we’ve all been here before 😉).
It should therefore come as little surprise that digital transformation projects often hinge on the organization’s internal culture.
How to Fix it
For transformation to take place the organization’s mindset must “transform”, too. Innovation needs to be rewarded and failure accepted as part of the growing process.
Unfortunately, many employees don’t take risks or express new ideas for fear of blowback from their managers. But if they are encouraged to be bolder and challenge what they see around them, you’ll find digital transformation projects are simply another step along a familiar learning curve.
Also, as business models and structures become increasingly complex, companies are creating more and more silos to manage this expansion.
However, while it might ease the strain on management, it effectively crushes innovation and employees’ ability to share knowledge and information.
Seeing as digital transformation doesn’t discriminate between one area of a business to another, teams must collaborate more than ever before.
So, a change in organizational structure is a must.
This is where taking a leaf out of the modern-day start-up book can help.
Startups are universally known for their agile decision making, get-to market attitude, and flat managerial structures.
Because of the uncertainty around digital transformation projects, changes are often made provisionally and decisions made quickly before their effects can be tested later on.
For this to be successful people from multiple departments need to be onboard and on the same page, meaning a flat organizational structure kept slightly separated from the rest of the business should be established.
Much like at a startup.
We can again look at McDonald’s for how it should be done.
When ApplePay launched, Fasihuddin created a 20-person strong team in the company (from the CEO to customer-facing restaurant staff). It took them just 90 days to implement their digital project, as opposed to the months it would have taken with a traditional hierarchical structure.
The final barrier to digital transformation is a lack of clear ROI (from the project) and consequent release of budget to support it.
Without clear data showing how the transformation process will increase profits, champions for change often face stiff resistance from company boards to free up funds.
Funds that are then dedicated to other areas of the business.
While the COVID-19 pandemic certainly has had an impact (a Twilio study found 79% of executives more willing to release funds) there’s still a “budget gap” for digital business initiatives that would drive company-wide change.
How to Fix it
Securing funds from the board is never easy – made almost impossible for a project without tangible ROI.
So demonstrate the project’s worth, you’ll need to identify and present measurable metrics.
This can only be achieved by first asking yourself
“What is the #1 outcome you expect from your digital transformation project?”
Try and work it down to a single objective:
- Faster customer service response times
- Boos efficiency of internal operations
- Reduce customer ordering time
- Free up employee’s time to focus on more important tasks
Once you’ve identified why and how this goal helps your business, you can then determine which metrics best measure its progress.
Overcoming the Biggest Barriers to Digital Transformation
Digital transformation doesn’t have to be the formidable undertaking it’s often made out to be.
By following the “how to fix it” section listed under each common barrier you’ll be able to link digital transformation to overall strategy, change workplace culture, and secure investment and resources to ensure the project’s success.
And remember, the benefits technology can have on improving internal operational processes and closing the customer experience gap far outweigh the costs!