Why digital transformation efforts fail: top five reasons

This article was published prior to LiveArea's acquisition by and integration into global agency Merkle

Over the years, Barry Fiske, senior vice president of global experience and innovation at LiveArea, and Rashmi Sethi, group creative director and the leader of LiveArea’s India innovation lab, have helped drive digital transformation efforts for a range of clients. They’ve seen some clients succeed and watched others struggle and fail. The following is a discussion of the reasons behind those failures and guidance to help clients and agencies do their best to make transformation successful for businesses, for internal teams, and, most importantly – for customers.

BARRY: All right. So, Rashmi, here we are again. We’re going to talk about something we’ve both witnessed firsthand, which is digital transformation failure.

RASHMI: That’s right.

BARRY: I’m excited to be chatting about this because, well, we’ve both worked on a lot of clients. We've seen successes and we've seen failures. And boy are those failures awful. Everyone works so hard and then… nothing. The change just doesn’t stick, or even if it does, it never lives up to its full potential.

RASHMI: Exactly, so we’ve created this list. Our top reasons why digital transformations fail so companies can be on the lookout for these issues, avoid them and experience some well-deserved success.

BARRY: Rashmi, why don’t you kick us off.

RASHMI: Sure, so number one – taking a technology-first approach. This may not sound like a bad thing, but what happens when you pick technology as your starting point? You’re already at the solution phase. Even before you truly understand the problem you’re trying to solve. And that can lead to all kinds of trouble.

The right approach is to focus on the customer first, understand their problems and needs, and then think through how a more digitally powered company could support them better. Choosing a technology, that’s big money. And if you choose it first, you’re often stuck with a platform that just isn’t right for your real needs. Then you spend the rest of your transformation trying everything to make up for this first very expensive mistake.

BARRY: Totally agree. Ok, here’s another one – lack of senior engagement. Rashmi, how many times have we seen a situation where a mid-level team in a company gets excited about the business potential of digital. They spin up a project, issue a request for proposal, and start running. Maybe they’re able to fund a prototype. Maybe just some exploration. But without someone senior involved and participating from the outset, the prototypes and concepts just wither and die.

RASHMI: So many times. But it’s understandable. This stuff is exciting, and you want it to work.

BARRY: Right, but transformation is about more than any single idea. It’s about creating a movement and changing business as usual in a corporation. That is never going to happen unless senior leadership is involved and invested from day one. It’s the follow-through that is the highest hurdle in these kinds of projects. And that kind of vision really can only come from the top. What else do you have, Rashmi?

RASHMI: Well, you were talking about people who aren’t paying attention, the next issue is caused by people paying attention only too well. Our third biggest reason for digital transformation fails is fear. Fear about what’s going on. Fear of what all this change means for them. Fear that their job is going to change around them, and they won’t know how to do it anymore.

BARRY: What you’re talking about is the need for change management.

RASHMI: Exactly. In transformation projects like these, the change management track needs to be as rigorous as the actual technology systems integration and digital design work causing all this change. Again, so much of the challenge of transformation isn’t about technology. It’s about the people in the company who have to make the change happen, their fear, their understanding, and their buy-in.

BARRY: Speaking of people, that brings us to our next big reason for transformation failure – mismatched business incentives. Essentially this is a polite way of saying that often people in a company are rewarded for one kind of behavior that is in direct conflict with the behavior you’re trying to enable through digital transformation.

RASHMI: Give us an example, Barry.

BARRY: We see this in retail – when in-store sales associates are measured and rewarded for store sales and not for online sales. I spent an afternoon at a client’s store once and watched as an associate phoned store after store trying to find a product for a customer that was out-of-stock in his own store. He was trying to get it transferred from their store to his store so he could still sell it and get credit. Wildly time-consuming and pretty complicated. So why did he do it? Because if he just directed his customer to the store’s commerce website, he wouldn’t get credit for the sale. It’s nuts.

RASHMI: That’s why simplifying your business into one P&L and not dividing up the reward structure by channel is so critical to a successful transformation. In fact, it’s about more than just changing classic business incentives. Clients should be starting entirely new incentives to push new behavior. Like giving that sales associate extra credit for making a sale online.

BARRY: One hundred percent agree with that. The approach can’t be fragmented. What’s next on the list?

RASHMI: Number five – not taking an agile approach. Simply put, digital transformation is big. And you can’t plan and solve the entire challenge right in the beginning. You have to look at your entire business and consider it piece by piece. You have to follow a process that allows you to learn new things, improvise and adjust.

BARRY: Right, because if you don’t, you’ll waste months in planning and never really get rolling. Sometimes you have to just take a deep breath and begin.

RASHMI: Be brave but be willing to pivot. Like in any good agile approach.

BARRY: So, I have one more I want to throw on the table, Rashmi. Think of it as a bonus reason for failure.

RASHMI: Ok.

BARRY: One of the reasons I’ve seen clients fail at transformation is because of the arrogance of their agency. You know what I’m talking about. It’s when agencies or consultancies look at their clients with disbelief. And they wonder – how is it possible these people don’t understand the urgency to transform? Or they think it’s ridiculous that their process is taking so long. What I’m talking about is a lack of empathy in an agency for what a client is truly going through.

RASHMI: Right. These clients may be people who are worried about losing their jobs. Or worried about being exposed as someone who doesn’t understand new technologies as well as others. Or people worried about having to prioritize and choose between multiple essential priorities with a limited budget.

BARRY: When an agency isn’t an empathetic partner, that alone can stunt and help ruin a client’s transformation efforts. The bottom line for all this Rashmi… transformation is hard, right?

RASHMI: It is. And we need to have massive amounts of empathy for clients in the same way they need massive amounts of empathy for everyone in their organization and their customers. And that’s why we always talk about why we love service design. We love how service design helps with the mechanics of planning and road mapping. But also, how it helps with all the people-oriented things we talked about earlier.

BARRY: True. The empathy that building a service blueprint provides for a business unit and all the people in a client’s organization. The things they come to realize about the impact their decisions have on other teams in the company downstream. And the impact their actions have on the ultimate customer experience. It’s powerful.

RASHMI: So how do we end this thing, Barry?

BARRY: I think by going back to how we started it. By reminding folks to be on the lookout for the big mistakes that can derail a transformation. So, as tempting as it is, don’t let your budget process force you into a “technology-first” approach. Take a customer-first and problem-solving approach to your transformation. And make sure you’re involving the most senior leaders in your company in your transformation planning, right from the beginning.

RASHMI: And don’t underestimate the fear of change that will happen as you take a client through transformation. Make sure you’re working as hard on change management, and on properly aligning business incentives to your digital transformation – as you are working on the transformation itself.

BARRY: And to your point, Rashmi, follow an agile approach. There’s no way you’re going to know everything at the beginning of a transformation. Make sure you leave room for plans and projects to pivot. And agencies – remember to be an empathetic partner and to help your clients develop empathy themselves by practicing service design. That’s it. Seems simple enough.

RASHMI: Hardly.

BARRY: Look. Transforming a business into a digitally empowered service organization is hard work. But when you do it right, the results are incredible. Businesses are reborn, products have new and improved value and customers…

RASHMI: Customers become customers for life.