Why is Digital Transformation Still So Difficult Today?

Post written by Leslie Willcocks, Emeritus Professor of Work, Technology and Globalization at LSE’s Department of Management. 

Businesses today face a digital catch-22. Unless they succeed at digital transformation, they will become irrelevant. But digital transformation is costly, difficult and the required investment may be more urgently needed elsewhere in the short-term. 

Why is digital transformation still so difficult today? After all, it has been on many executive agendas for a decade or more. 

Many organizations digitize – convert something into a digital format usable by computers – or even digitalize and deploy digital data and technologies to improve business operations. For example, automating a procurement process, and using algorithms to make procurement decisions and analytics software to provide insight. But this only impacts procurement; it is not digital transformation, though many might think, or hope, it is. To succeed at digital transformation the whole of the business needs to be involved. It requires radical redesign, then deployment, of business models, activities, processes, and competencies to fully leverage the opportunities that digital technologies can offer. 

As I’ve found in research for my latest book, there are complex reasons why digital transformation can be so slow and the likelihood of failure is five times more than that of success. It reflects how “siloed” many organizations have become over the last 20 years. What I call the “eight siloed organization” points to the barriers to change inherited from older business models. The silos include processes, technology, data, culture, strategy, structures, skill sets, and managerial mindsets. With digital transformation, an organization with three or four such silos is seriously hamstrung from the start. 

But there is another side to this digital catch-22. My work on global digital management with John Hindle and Mary Lacity suggests that those organizations that succeed at digital transformation come from sectors and regions across the world and are not limited to the obvious hi-tech US and Chinese firms. What distinguishes those that succeed is that they invest early in digital talent. They build a technology platform – an integrated combination of digital capabilities. This gives them agility, speed, first-mover and other business opportunities. They can innovate when it comes to new digital products and business models, and they are able to establish new digital capabilities and businesses through acquisitions and mergers. 

Our evidence, consistent with other studies, shows that being slow to adopt digital technologies may reduce risk in the short term, in terms of cost, talent and time, but it builds growing business risk and diminished competitiveness in the long term. This trend will be repeated and magnified by the growing adoption of emerging technologies, such as automation and AI over the next five years. Put bluntly, the competitive advantage of “leader” firms could become irreversible. 

But will the pandemic and economic crisis resolve this digital catch-22? We have seen accelerated moves toward digitization and digitalization – primarily to survive in the short term, to establish resilience, and to maintain competitiveness. Some studies show that in 2020, the digitization of customer and supply chain interactions, and of internal operations, advanced by as much as three or four years. For some, the share of digital or digitally enabled products in corporate portfolios has advanced by seven years. But we have found that the motives behind these advances have been mixed, capabilities variable, and planning horizons mostly short term.  

Our evidence shows that the digital catch-22 has not gone away. Digital technologies are gaining a higher profile among executives who make the key decisions, but the difficulties and complexities of large-scale organizational change are not easily navigated. Many other pressing matters distract executive attention. The specter of fading competitiveness may not be sufficient motivation for many organizations. Clayton Christensen’s innovators’ dilemma – why should we innovate when we are still doing quite well? – could kick in once again. 

The question of management remains. When it comes to introducing information, communication and now digital technologies into organizations, three-quarters of the challenges come from managerial and organizational problems, not technological ones. For digital transformation, the major challenge is stark – how to manage large-scale, radical organizational change shaped by disruptive technologies. Our studies and others are compelling – failures come from unrealistic expectations, limited scope, poor governance and underestimating cultural barriers. For organizations already on the journey, only a whole organization approach will succeed. People are crucial, as is transformative leadership, a digital talent mindset and becoming an organization that attracts digital talent, as research by Jeanne Ross, Cynthia Beath and R. Ryan Nelson has shown. Pursue an evolutionary approach of gradual digitalization of parts of the business, producing digitized business operations and units that fit together over time and build towards creating a digital business. 

For organizations in catch-up mode, make your strategy process more dynamic. Lay out clear priorities, invest early and aggressively in talent, especially at senior executive level, and redefine how you measure success and empower people. Digital transformations are more likely to be effective when companies give people clear roles and responsibilities and put an “owner” in charge of each transformation initiative, as Jacques Bughin, Jonathan Deakin and Barbara O’Beirne have shown. 

Sadly, though, there is no technology – let alone a disparate set of technologies – that is a silver bullet. 

For nearly a decade most large organizations have espoused digital business strategies. But by 2021, if you exclude the “born digital” and the obvious hi-tech companies, few have become digital businesses. Yes, organizational change can take a very long time. However, organizations have neglected investment in resources, change processes and execution capabilities, without which a digital transformation strategy can mean very little. But let’s call out another crucial factor – a failure of imagination, of seeing how an apparent support activity – IT – can move to the core of the business, and become not just a strategic weapon, in terms of cost efficiency and differentiation, but a fundamental platform for operating.  

The 2020-21 crisis has accelerated the adoption of digital technologies and moves to digital business. Much work remains to be done if organizations are to enhance competitiveness, streamline operations, improve organizational resilience, and become competitive digital businesses. Many caterpillars are still waiting to become butterflies.