Why almost 70% of the money enterprises spend on digital transformation goes to waste

Digital transformation is significantly changing businesses today. The phenomenon has been described as “the use of technology to radically improve performance or reach of enterprises,” according to a report by the Massachusetts Institute of Technology and Capgemini Consulting.

But despite companies’ best efforts, a large amount of what firms invest in digital transformation actually goes to waste.

An article by McKinsey reveals that 70% of such large-scale change programs don’t meet the organizer’s targets. And if enterprises globally invest US$2 trillion on digital transformation – which is research firm IDC’s prediction by 2022 – then roughly US$1.4 trillion will be spent in vain.

Given the trend’s proven value to businesses, it’s shocking to see the extent of these numbers. That’s why it’s important for enterprises to know the exact benefits, potential pitfalls, and ways to avoid setbacks.

Seamless business operations

As millennials advance to decision-making roles and Generation Z starts to move into the workforce, the way people work is changing. There’s a higher demand for intelligent workspaces, which are mobile, agile, and less physically constraining.

Managers, who are often given the discretion to grant remote working arrangements, may be conservative. But there is some method to the millennial madness: flexible hours can improve work-life balance, talent retention, and increase productivity, and hiring home-based employees results in lower costs.

With the growing adoption of digital workspaces comes an increasing demand for better communication systems than what traditional telephony infrastructures offer. Cloud communication technology makes it easier for corporations to integrate omni-channel capabilities at low cost, enabling seamless communication across all formats and eliminating silos.

Manoj Paradkar, Asia-Pacific director of advanced services at the cloud communications division of NTT / Photo credit: NTT

Additionally, people can connect to each other flawlessly and instantly through any device via the cloud, which helps employees work from anywhere at any time, share knowledge, and have real-time communications.

“Cloud communications allows embedding, which helps people connect with any device – from landlines, laptops, to mobile phones – in any geography just from their device,” says Manoj Paradkar, the Asia-Pacific director of advanced services at the cloud communications division of information and communications technology firm NTT.

All these benefits help organizations improve performances across all business functions, leading to better experiences for end users as well. By leveraging data – stored in the cloud for easy access – firms are able to simplify operational processes, segment and predict customer behavior, design curated experiences, and help users get consistent service from any channel.

Companies in various industries, notably ecommerce, insurance, and healthcare, are building huge data science and analytics teams to understand and drive customer lifestyles and behavior. This means that buyers get personalized recommendations or curated deals for clothes, financial products, or medical care.

Potential pitfalls

While businesses have made significant progress on this front, there have also been mistakes. For instance, the UK’s government-led public health service wasted nine years and £2.7 billion (US$3.4 billion) after it stopped a project aimed at creating a centralized database of patient records. Technical issues, conflicts with suppliers, lack of consultation with healthcare professionals, and weak leadership were cited as reasons for the move.

Top-performing consumer brands like Lego, Nike, Procter & Gamble, and Burberry have also spent millions and failed.

Moreover, the widespread collection of customer data has led to privacy concerns with devastating consequences. Case in point, the Facebook and Cambridge Analytica scandal caused the social media firm’s market value to fall by more than US$36 billion.

Data protection laws like the General Data Protection Regulation have been passed, but becoming compliant can cost companies up to US$7.8 billion. Nonetheless, it’s money well-spent if firms don’t want to face hefty fines down the line.

Managing risks

The risks associated with digital transformation entail careful study and change management on the corporations’ end.

Paradkar says that while a multitude of factors cause digital transformation initiatives to fail, the number one reason he has seen in his over two-decade career is a lack of organizational strategy.

Most enterprises sit on large legacy systems that require a significant amount of money to maintain. With new, cheaper, and more efficient tools coming in, “it’s natural for any organization to jump on the bandwagon and say, ‘I’ll take that,’” shares Paradkar. “But the majority of organizations struggle to see the mapping: what their business process is all about and how the tool fits in,” he adds.

For instance, some securities traders still rely on telephony systems called trading turrets in their daily work. If a new tool is introduced, those used to the traditional equipment will find it hard to adapt.

Photo credit: Volker Schlichting / 123RF

In another case, Paradkar cites a past experience, when a customer wasn’t able to complete a global project because it was rejected by its end users. As it turned out, the IT team failed to factor in local business needs, which was too complex to achieve in the provisioned system. The team also didn’t meet local compliance requirements when it was planning the new digital tool.

“Much of what I’ve seen is that the change process was underestimated,” explains Paradkar. According to him, firms lack foresight into what new tools can mean for them and fail to translate the change into business outcomes that impact customers.

To succeed, firms should neither view digital transformation as a panacea to organizational woes nor should they see digital tools as a plug-and-play option. It’s also important for executives to take the digital readiness of end users and the industry into account and, in simple terms, make wise and rational decisions.

One way to help organizations understand their business processes, challenges, and strategies is to hold an “envisioning workshop.”

An effective organizational change management workshop could help employees understand the new tool and pick it up faster, while helping leaders set a warm and engaging tone.

Not just about technology

Changes from digital transformation have led workers to tackle more strategic issues in a shorter time, brought enterprises closer to their customers, and helped leaders make more informed decisions.

It’s important to remember that at the center of the effort are human beings. On top of viewing digital transformation as just a matter of upgrading hardware and software, managing mindsets should be part of all enterprises’ considerations.

Currency converted from British pound to US dollar: US$1 = £0.80.

To learn more about NTT’s suite of cloud communications products and services, visit its website.