The Real Roadblocks to Digital Transformation—And How to Overcome Them

Digital transformation is arguably the biggest shift organizations will undergo in our lifetimes. Organizations around the world are expected to spend almost $4 trillion on digital transformation by 2027—yet on average, 87.5% will fail to meet their objectives. Every month, we meet with leaders who are frustrated by their organizations’ multiple failed attempts to adopt new technology and move at the speed of the market.

The good news is that, while digital transformation is inherently complex, failure and frustration are far from inevitable. Understanding why so many organizations struggle is the first step to successful transformation.

What Is Digital Transformation?

Digital transformation is a catch-all term for initiatives that introduce or upgrade technology to an organization, with the goal (or hope) that new tools will improve organizational performance. Some of the most common digital transformations include moving to the cloud, implementing better data and analysis tools, customer experience enhancements (e.g. chat bots), automating routine tasks, adopting AI, cybersecurity, digitizing, supply chain systems, and overall agile transformations.

It’s often initiated if the organization is showing signs of:  

• Inefficiency. Processes that should take weeks take months. Repetitive manual tasks eat up employees’ time, and delay much-needed strategic work. Outdated systems don’t keep up with new demands. 
• Falling behind. Whether due to increasing competition, emerging trends, or market shifts, the organization struggles to respond to change. And by the time teams have caught up, the competitive goalposts have moved again.
• Underutilized data. The organization is either overwhelmed by data and not sure how to make sense of it, or doesn’t have enough to make informed decisions. 
• Splintering. Technologies and teams fail to interface, duplicating work efforts and leading to missed opportunities. 
• Customer attrition. Customers are frustrated by the organization’s inability to serve their needs and take their business elsewhere.
• Burnout. Teams try to make up for limitations with individual heroics and over-exertion, but it’s not enough to compensate for failing systems.

When digital transformation is done right, it’s like a caterpillar turning into a butterfly, but when done wrong, all you have is a really fast caterpillar.

– George Westerman, Principal Research Scientist, MIT Sloan Initiative on Digital Economy

These issues don’t just create a challenging work environment, they have real economic impact: while 89% of large companies are undergoing some form of digital transformation, only “31% of the expected revenue lift and 25% of expected cost savings from the effort” have been captured. Meanwhile, organizations that successfully lead digital transformations: 

• Show average annual total shareholder returns of 8.1% vs. 4.9% for laggards
• Grow active customer bases at 0.5% and their retail revenues at 0.8% annually, while digital laggards have no growth in customers and a 1.4% decrease of retail revenues. 
• Increase operating expenses 1.3% per year, less than laggards’ 2.3%. 

Worried that your organization falls into the “laggard” category? Read on to find out what’s holding your teams back. 

Why Current Approaches to Digital Transformation Fail

As with most complex initiatives, there’s no one reason why digital transformation fails. But some of the most common reasons include:

• Tool-first, not strategy-first. There’s no clear vision for how technology will improve the customer experience or give the organization a competitive advantage. Instead, companies race to “keep up” or implement “best practices,” ironically resulting in companies and solutions that are indistinguishable from each other.  
• Silver bullet syndrome. Frustrated by myriad complaints, leaders hope this platform will fix all of the problems. The pressure to design the perfect solution means that teams spend years waiting for it to arrive, only to inevitably be disappointed when (or if) it ever does. 
• Dogma. Leaders are often convinced that their organizations must perfectly and completely implement a system. With agile specifically, they’re often concerned “we’re not doing it right!” which holds the organization back from seeking incremental improvements.  
• Tech debt. Short-term fixes may solve immediate problems, but the constant chase of new things without repairing what’s come before ultimately builds up fragility—and expense. A survey of CIOs found that “20 percent of their technical budget ostensibly dedicated to new products is diverted to resolving issues related to tech debt.”
• Neglecting process and people at the expense of platform. It’s much easier to upgrade a technology than it is to change how people work, but both are required to improve performance. 
• Splintered efforts. Individual departments or divisions lead their own transformations, with no sense of how they should connect or might even impede one another. This also creates overload when teams are suddenly impacted by multiple initiatives at once.  In fact, “in 2022, the average employee experienced 10 planned enterprise changes”—up from just two in 2016.
• Short-term thinking. Realistically, digital transformations require, at minimum, 18 months to complete—but whether due to lack of executive buy-in or competing objectives, these initiatives have a tendency to start, stop, restart, and reset multiple times, sapping momentum.

Underlying all these issues is the inherent paradox of digital transformation: it is a technological challenge that has far-reaching impacts on the organization at large. In fact, it’s rarely one transformation but rather, multiple transformations. This has serious implications for everything from governance (is this CIO- or CTO-led, or must it come from the CEO?) and timeframe to how downstream employees manage the work. 

Despite these challenges, it is possible to lead successful digital transformations—but it requires a new approach.

Key Choices in the Digital Transformation Process

As your organization pursues digital transformation, there are four key choices to be made:

1. Implementation vs. orchestration. In an effort to move fast, organizations often staff their initiative with project managers and demand ambitious deadlines. But we’ve found this core implementation team requires “orchestrators” even more: folks with greater seniority and the experience to convene leaders from across the organization and settle debates about resourcing, prioritization, and order of operations. 
2. Models vs. outcomes. Organizations tend to chase new models—agile, product operations—but those can become traps if leaders feel pressured to follow the model as described. Frameworks and technology are ultimately just tools for getting to desired outcomes. There are no prizes for being the “most” agile or having the “best” data processing—just the value that they ultimately deliver to customers. So instead, we encourage organizations to focus foremost on the measurable outcomes they are hoping to produce by adopting a new technology, and then chase that outcome through successive experiments, not blindly copy the model itself.
3. Whole vs. separable. Digital transformations often require wholesale “operating model” changes; a rethink of the entire value chain and moving parts of the business. But that frequently results in transformation becoming so complicated, so interwoven, that organizations become paralyzed by indecision about which component to tackle first, or how to tackle them altogether in a way that is sane and doable. We believe that organizations can in fact take operating models apart and test components individually. Once teams show signs of progress, they can then begin experimenting with how they might come back together, and what should adjust in the coming together.
4. Communication vs. engagement. Transformation is often treated as an exercise in telling people new things to do, or communicating top-down to reset expectations and await further instruction. This typically leads to a lack of buy-in and mistrust. Instead, organizations should focus on overall engagement: eliciting ideas from staff, designing solutions alongside them, listening to their feedback, helping teams publicize their own wins, and more.

At its core, the teams leading the organization’s transformation efforts face a crucial crossroads: do they attempt the transformation using the organization’s existing norms and habits, or do they pioneer a new cultural model during the transformation itself? Realistically, the journey shapes the destination. Using norms that enforce silos, limit communication, compete internally, ensure that the transformation efforts fail just as they begin to gain momentum. 

All of which sounds reasonable (if a little daunting) in theory, but what does it look like in real life? We worked with one retailer who wanted to introduce new technology to the customer experience. They had embarked on an initial test with a technology vendor, but were having a hard time assessing the program’s impact. The technology should have resulted in dramatic cost and time savings, but the test was producing mixed results. Leaders invited NOBL to investigate further:

• We assessed the technology in action by shadowing employees to see how it was actually being used. We quickly realized that while the effort was focused on a single new piece of technology, it impacted multiple departments, hosts of stakeholders, and intersected with several other ongoing transformation programs—a lack of orchestration. This was creating conflicts with other organizational goals and even led to some departments actively obstructing the initiative.
• We then led a series of discussions between the executive team to align around their desired outcomes and reduce friction between groups through consistent engagement. This included clarifying organizational goals, defining roles, and determining the initial roadmap for transformation, as well as establishing a more comprehensive approach to change management.
• Finally, we oversaw the first six months of the program’s readjustment with the new implementation team, breaking down the transformation into manageable streams. Ultimately, the organization reinvested in their core products and made smarter decisions about its innovation investments, halting the decline in customer satisfaction scores.

Signs You’re Becoming a Digital Leader

Think of digital transformation less as a technology project to be finished than as a state of perpetual agility, always ready to evolve for whatever customers want next, and you’ll be pointed down the right path.

– Amit Zavery, VP and Head of Platform, Google Cloud

You’ll know your organization is truly transforming when you start to see:

• Greater ease of work. Teams waste less time on routine tasks, communication moves fluidly up, down, and across the organization, and the work that is accomplished is better aligned with strategy and desired outcomes. 
• Healthy disagreement based on data. Teams challenge each other over facts and paths forward, not dogmas or systems. And arguments are less acrimonious because everyone knows teams are working towards the same goals.
• Customer wins. Customers show increased ease with their experience and even excitement over reduced friction. (Or, if nothing else, complaints have decreased!)
• Talent retention. Employees experience less friction, leading to less burnout and turnover.
• Greater agility. Finally, teams now have the ability and willingness to adapt to the next wave of change, instead of outsourcing the work to consultants or get caught behind again.

Learn more about NOBL’s approach to digital transformation and how we can help your team better harness the power of new technology and ways of working.