Why enterprise digital transformation efforts stall
Enterprises are likely to hit a roadblock after the initial stage of digital adoption, according to a recent survey by outsourcing consultancy and research firm Everest Group. In fact, 43 percent of organizations are going through what Everest has dubbed the “digital trough,” according to a survey of 120 business and IT leaders at North American companies that have embarked on significant digital adoption programs.
Most organizations experience a honeymoon period at the start of their digital journey. “Investments are flowing, everybody believes in this brave new world they are going to create together,” according to Chirajeet Sengupta, Everest Research vice president member of the IT services research team. “However, the second phase is when things change. Suddenly, everybody starts questioning the value of what they are doing. Investments tend to get constrained, organizational capabilities are stretched and tested, and traditional business processes and organizational behavior are challenged. This is the ‘digital trough’.”
Everest Group’s researchers talked further to some of the companies that were struggling to find out what was behind the phenomenon and uncovered a period of what Sengupta calls “intense realignment.”
The focus for most enterprises initially embarking on the digital journey is on enablement, according to Everest Group. For example, companies need appropriate storage and compute facilities in the cloud to be able to incorporate big data analytics or Internet of Things technologies into their business processes. They require new security capabilities to manage increased customer data. “At this stage, IT is still in the ‘business of IT’ and business is still in the ‘business of business’,” says Sengupta. “All these initiatives can be measured in terms of traditional IT metrics – unit costs, total cost of ownership, service level agreements. There is no misalignment. Nobody treads on anybody’s toes.”
But as organizations implement these new digital technologies, the challenges begin. Once an enterprise has rolled out an expensive digital project—a big data solution, for example, business leaders want to know what they’re getting for their money. However, “traditional IT metrics of cost-control do a singularly poor job of measuring digital ROI,” Sengupta says. “So everybody starts questioning technology teams.”
At the same time, in order for these systems to deliver business value, business processes and organizational behaviors need to change. Technology alone does not deliver transformation. “Your big data systems can churn out the most amazing insights, but your sales processes are either not designed to incorporate them or people don’t bother to read analytics reports,” says Sengupta. “Traditionally, businesses have been frustrated with their IT organizations because the technology was either not available, too expensive, or too risky. For the first time, there is arguably all the technology we could use and more, but businesses need to change their processes and behavior to be able to take advantage of [them].”
And that can land businesses in a digital ditch. And if they don’t overcome the issues that led them there, things will only get worse. “You can go down a spiral of sub-scale investments, sub-optimal returns, and enhanced doubt and scrutiny, until the whole ‘digital thing’ dies a stillborn death,” Sengupta warns. But there are steps IT can take to extricate the business from the digital trough—or avoid it altogether.
“The most important thing is to have a clear view of your strategic objectives,” says Sengupta. “Are you doing things for efficiency or are you doing things for growth” Having that clarity makes is easier to identify appropriate metrics for digital efforts.
In addition, digital transformation project teams must be cross-functional and accountable to a set of common outcomes. “Most organizations get the first part right, but in the end it is human nature to steer towards their own individual incentive structures,” Sengupta says. “Driving alignment is important at every level—from the strategic down to the individual.” IT must also collaborate with the business to create an end-to-end vision for any digital improvement, including the business process and organizational changes required for them to deliver business value.
Finally, IT must set realistic expectations for the business about the potential hurdles in digital transformation. “Some of these challenges are bound to come up,” says Sengupta. “It is important for everyone to anticipate them and be prepared instead of expecting things to change overnight.”