4 reasons digital transformation projects fail – and how to avoid them

Digital transformation – the use of data, tech, algorithms, machine learning and more to develop new models of work and serve stakeholders – can enable companies to achieve growth via previously untapped potential. According to Mordor Intelligence, digital transformation was valued at $263 billion in the manufacturing market alone in 2020. By 2026, it’s projected to reach $767 billion. 

Despite the seemingly limitless rewards, organizations remain wary of digital transformation. Almost three-quarters (70%) of digital transformations fall short of their objectives, often with profound consequences, according to Boston Consulting Group, who suggest that delivering fundamental change at scale in large, complex organizations is challenging.

Digital transformation failure can come at a high cost, both figuratively and literally. A failed digital transformation can negatively impact employee engagement, attraction and retention. It will also likely carry a significant financial cost as product timelines are shifted and delayed, all of which will impact the company’s bottom line, and, inevitably, its stock price. 

So why do workplace digital transformation efforts fail? Harvard Business School Professor Tsedal Neeley and PricewaterhouseCoopers workforce strategy partner Julia Lamm identify four crucial factors. 

Workplace culture that is averse to change 

“The vast majority of digital transformations fail with people,” Neeley tells ZDNet.

The biggest obstacle to digital transformation is company culture. Too often, digital transformation initiatives are launched, only to be ignored and circumvented by employees resistant to change. Effective digital transformation must be intertwined with the organization’s vision. 

First and foremost, companies must realize that digital transformation is deeper-rooted than introducing new skills. 

Neeley advocates a complete change in mindset among employees, achieved by ensuring access to rigorous educational resources. A change in workplace culture can be achieved in three steps: determine what your change will be, command a bold conversion, and institute a set of processes and structures that help people implement the new change.

Essentially, says Neely, “Assume that the entire company must achieve a baseline level of technological skill in order to achieve a company-wide digital mindset and effectively move in a new direction, together.” 

Lamm adds: “An effective strategy can be to cease use of your prior, outdated system – this will force employees to adopt the new digital mindset. Additionally, harness your company culture to customize and drive digital transformation – adopting the digital mindset should be framed as an exciting opportunity.”

Indeed, companies that apply the concept of continuous learning to all their employees – Atos and Spotify, for example – have successfully integrated large swathes of their workforce into the digital transformation process. 

Low digital fluency among leadership

A company cannot achieve a digital mindset if its leader lacks one. So, the impetus is on company leaders to achieve digital fluency before kickstarting transformative processes. Company leaders must first understand that digital transformation is not incremental change – it is radical change that involves overhauling existing systems, structures and routines. A process as extensive and all-encompassing as digital transformation requires heavy leadership investment. 

A deep understanding of industry statistics and data is paramount to this. Lamm, therefore, advises company executives to take steps to ensure that a data professional – whether that be a business analytics expert or a strategic data scientist – is in a position of leadership.

This shift will address another digital transformation blocker – a gap in perception between executives and employees. Often, the sophistication of a company’s digital tools is lacking; employees move from savvy personal devices to clunky corporate tools, which significantly impacts employee experiences. By educating themselves on the reality of tech at work, leaders will be able to bridge this gap, and effectively scale and tailor their company’s resources to a digital future. 

Inefficient data analysis

Often, failed digital transformation is blamed on a lack of market research, leading to an inability to keep pace with competitors. However, Neeley points out that most companies do not lack data. The majority fall prey to an abundance of data that has not been cleaned or collected in a usable form. 

Companies must make intentional decisions regarding data collection for concrete purposes. Neeley advocates shifting data gathering practices, from indiscriminately collecting data that inevitably overwhelms efforts at analysis to calculated assembly designed to answer a thoughtfully formulated hypothesis.

Additionally, Lamm emphasizes the importance of using the right data architecture and analytical tools, as well as implementing responsible data-use policies. In order to set up an effective data analytics model, she advises: “Invest in data governance processes, effective analysis systems, data architecture and the employment of people with the right skillset to effectively utilize cleaned data.” 

The impact of the right data infrastructure has already been well acknowledged among companies undertaking digital transformation efforts. Bredin Research and Pure Storage’s 2022 study of 500 IT decision makers engaging in digital transformation found that a whopping 84% are making new investments in IT systems and software.

Lack of customer incorporation

Many companies consistently seek customer feedback. However, in order to successfully achieve digital transformation, companies need to engage in dual transformation, which Neeley defines as designing new products while simultaneously transforming customers to be able recipients of the digital fruits of the company’s labor. 

The most effective approach to dual transformation incorporates customers by allowing them to co-design, co-create and co-produce digital products, transforming users alongside a company. This will also allow companies to know and understand their customers at a deeper level, which is extremely important – after all, a 2021 study by Flexera, a computer software company, found that 37% of IT initiatives by companies worldwide are focused on improving customer experience. 

Lamm adds: “Invest in human-centered design. Constantly bringing customers all the way through the deliberation process and seeking real time feedback will ensure that new, digitally transformed products will be received by ready, educated consumers.”