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Why Do Digital Transformations Fail? Lessons from Real Examples

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Last updated on
July 15, 2024

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Why Do Digital Transformations Fail? Lessons from Real Examples

Introduction

Digital transformation promises to revolutionize businesses by integrating online technologies into all areas of operation, fundamentally changing how organizations operate and deliver value to customers. Yet, despite its potential, many digital transformation projects fail.

Digital transformation failure statistics

Statistics highlight the challenging nature of digital transformation. According to a study by McKinsey, 70% of digital transformations do not reach a successful conclusion. The most common factors leading to such outcomes are “insufficiently high aspirations, a lack of engagement within the organization, and insufficient investment in building capabilities across the organization to sustain the change.” The research indicates that even with substantial investment and strategic planning, digital transformation projects are fraught with risk. Understanding the reasons behind these failures can help organizations avoid common pitfalls and steer their projects toward success.

Meanwhile, many companies consider digital transformation imperative for their businesses to thrive. It’s not only about moving from offline to online. In 2024 and beyond, this process also means modernizing legacy apps to meet the requirements of modern consumers, who mainly operate in the digital realm. Many companies recognize that accumulating technical debt and dependencies within old systems can lead to complications in the long run. That’s why they invest in software modernization—to prepare for technological advancement and evolving customer needs.

Common reasons for digital transformation failure

Now let’s take a closer look at the reasons why digital transformations fail based on real-life examples. We draw conclusions and provide recommendations to avoid these mistakes.

Lack of clear vision and strategy

A digital transformation initiative without a clear vision and strategy is like a ship without a compass. Many organizations rush into digital transformation driven by a fear of being left behind rather than a well-thought-out plan. This lack of direction often leads to fragmented efforts and wasted resources.

Case study: General Electric (GE)

General Electric (GE) embarked on an ambitious digital transformation journey, aiming to become a top 10 software company by 2020. However, without a clear strategy and alignment across its diverse business units, GE's initiative felt rushed and not well thought through. The company invested heavily in its digital arm, GE Digital, but the lack of a coherent strategy led to significant financial losses and eventual scaling back.

Lesson: Establish a clear vision and strategy that align with your organization's goals. Additionally, ensure that all stakeholders are on the same page.

Underestimating the cultural shift

Digital transformation is not just about technology; it's also about changing the organizational culture. Resistance to change, lack of employee engagement, and failure to foster a digital-first mindset can derail transformation efforts.

Case study: Procter & Gamble

Procter & Gamble launched a massive but failed digital transformation initiative in 2012 to streamline its operations and enhance customer engagement. The project faced significant cultural resistance among the enormous workforce of over 100,000 people. Employees were accustomed to traditional ways of working, and the abrupt shift to new digital processes created friction. The company had to re-evaluate its approach and invest in change management to align its workforce with the new digital vision.

Lesson: Invest in change management and ensure that your organization's culture is prepared for the digital shift. Engage employees early and provide continuous support throughout the transformation process.

Insufficient expertise and resources

Digital transformation requires a blend of technical expertise and sufficient resources. Organizations often underestimate the complexity of integrating new technologies with legacy systems, leading to project delays and cost overruns.

Case study: BBC

The BBC's Digital Media Initiative (DMI) aimed to create a seamless digital workflow for content creation and archiving. However, the project faced significant technical challenges due to the complexity of integrating various systems and the lack of necessary expertise. Eventually, the initiative was abandoned after 10 years and spending £98 million, leading to significant financial and reputational damage.

Lesson: Ensure that your organization has the necessary technical expertise and resources before embarking on a digital transformation journey. Consider partnering with experienced external vendors to fill any skill gaps.

Poor project management and execution

Effective project management is critical to the success of digital transformation initiatives. Without proper planning, coordination, and execution, even the most well-intentioned projects can fail.

Case study: Levi Strauss

Levi Strauss attempted to implement a new enterprise resource planning (ERP) system to streamline its operations. However, ineffective project management, alongside technical errors and poorly executed legacy systems integration, led to significant disruptions in the company's supply chain, resulting in a 98% income drop. The lack of a phased implementation approach and inadequate testing were major contributors to the project's failure.

Lesson: Adopt robust project management practices that follow a step-by-step plan with thorough testing and continuous monitoring. Regularly review project progress and make adjustments as needed.

Neglecting risk management

Digital transformation projects inherently involve risks. Failure to identify, assess, and mitigate them can lead to project failures.

Case study: The US Air Force

The US Air Force's Expeditionary Combat Support System (ECSS) was a multi-billion dollar project aimed at modernizing logistics operations. However, the project was canceled after failing to deliver any significant capabilities. One of the key reasons for its failure was the lack of a comprehensive risk management plan, leading to escalating costs and unaddressed technical challenges.

Lesson: Develop a comprehensive risk management plan that identifies potential risks, assesses their impact, and outlines mitigation strategies. Regularly update the plan as the project progresses.

Ignoring customer needs

Digital transformation should ultimately enhance customer experiences. However, projects often fail when organizations focus solely on internal processes and neglect customer demands.

Case study: Webvan

Webvan, an online grocery delivery service, invested heavily in automated warehouses and logistics systems built from scratch. However, the company failed to understand its customers' preferences (for example, via consumer testing) and was certain their services would be in high demand. This led to a mismatch between its offerings and market needs. Webvan eventually filed for bankruptcy, serving as a cautionary tale for tech-driven businesses.

Lesson: Keep the customer at the center of your digital transformation efforts. Conduct thorough market research and continuously gather customer feedback to ensure your initiatives meet their requirements.

<span class="colorbox1" fs-test-element="box1"><p>Check out how established brands like IKEA, Nike, Lego, Disney, Microsoft, and Audi succeeded at digital transformation.</p></span>

Outsourcing digital transformation to the right partner

To navigate the complexities of digital transformation, partnering with IT companies that have robust project management, are aware of potential risks, and match the culture of their clients is essential. This way, digital transformation project failures can be mitigated, and efforts toward legacy system modernization, new software solution development, or reaching new digital markets can be successful.

Aleksandra Gepert, our Head of Delivery at Brainhub, underlines the values that a trusted software development vendor should bring to the table:

  • Always addressing needs on iteration and strategic levels
  • Effectively managing changes in projects
  • Continuous delivery in terms of scope, time, and budget
  • Profound risk management
  • Transparent communication and regular feedback

With proven expertise in carrying out digital transformation projects, close collaboration with the client, and a track record of successful deliveries, such outsourcing agencies can handle even the most comprehensive tasks and exceed expectations.

<span class="colorbox1" fs-test-element="box1"><p>Find the right partner to outsource your digital transformation needs in this guide.</p></span>

Conclusion

Why digital transformations projects fail for some companies? It doesn’t necessarily mean that it’s not destined for them. Sometimes the lack of strategic planning, awareness of potential risks, and necessary resources corresponds with poor results. The examples mentioned in this article showcase that, in extreme cases, such efforts can lead to a company’s fall.

That’s why we recommend not only preparing for the project in detail but also working with an IT provider that knows how to manage digital transformation while minimizing disruptions. This will lead to ultimate success and help your business thrive.

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Authors

Olga Gierszal
github
IT Outsourcing Market Analyst & Software Engineering Editor

Software development enthusiast with 7 years of professional experience in the tech industry. Experienced in outsourcing market analysis, with a special focus on nearshoring. In the meantime, our expert in explaining tech, business, and digital topics in an accessible way. Writer and translator after hours.

Leszek Knoll
github
CEO (Chief Engineering Officer)

With over 12 years of professional experience in the tech industry. Technology passionate, geek, and the co-founder of Brainhub. Combines his tech expertise with business knowledge.

Olga Gierszal
github
IT Outsourcing Market Analyst & Software Engineering Editor

Software development enthusiast with 7 years of professional experience in the tech industry. Experienced in outsourcing market analysis, with a special focus on nearshoring. In the meantime, our expert in explaining tech, business, and digital topics in an accessible way. Writer and translator after hours.

Leszek Knoll
github
CEO (Chief Engineering Officer)

With over 12 years of professional experience in the tech industry. Technology passionate, geek, and the co-founder of Brainhub. Combines his tech expertise with business knowledge.

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