Most Digital Transformation Projects Will Fail

Most digital transformation projects are going to fail, based on historical rates of success of all manner of information technology initiatives. 

“Most of the leaders we surveyed (companies representing 17 countries and 13 industries) reported poor returns on their digital investments,” say Accenture executives Mike Sutcliff,

 Raghav Narsalay and Aarohi Sen. 

“A whopping 73 percent of enterprises failed to provide any business value whatsoever from their digital transformation efforts, according to an Everest Group study last year,” says Peter Bendor-Samuel is CEO of Everest Group, a management consulting and research firm. “Furthermore, 78 percent failed to meet their business objectives.”

The rationale for digital transformation is that it is supposed to create favorable business outcomes, including higher revenue, higher profits, higher growth, lower costs, higher new customer acquisition rates and lower churn rates. 

In fact, it might be more realistic to argue that the primary purpose of digital transformation efforts is to increase the volume of revenues earned by any enterprise selling digital rather than physical products; selling products without using physical channels; or altering physical products in some way to emphasize other digitally-enabled value. 

Non-quantifiable goals might include higher engagement with potential and existing customers; better customer service; higher customer satisfaction or doing all of that at lower cost. 

But digital transformation normally involves the application of technology to business processes. And history suggests at least 70 percent of projects applying technology in such a way fail. We might therefore expect 70 percent or so of all digital transformation efforts to fail, in the sense of not reaching the intended goals. 

The typical thinking is that business processes and culture must change if digital transformation efforts are to succeed. So, in an important way, digital transformation is not about technology.  

One might argue that digital transformation is something new. It is not. Firms and consumers have been increasing their use of digital machines, applications and systems since the early 1980s. So we have not been at this for 40 years. 

And the historical record on the impact of those investments is perhaps modest. Over recent decades, the ICT productivity contribution to total productivity growth has been perhaps minimal. 

From 1973 to 1990, productivity growth was less than one percent, economy-wide. In the 1990s the total economy productivity was a bit greater than one percent. In the decade of the 2000 to 2010 period,  we got higher productivity growth in the area of 1.5 percent.

Even if one attributes all the productivity boosts solely to information and communications technology, we might characterize the returns as important, but not stellar. The long run average of total productivity growth between 1870 and 2010 is 1.6 percent to 1.8 percent. 

Between 1995 and 2000, the productivity impact of applying information and communications technology had some impact on gross domestic product growth. According to OECD figures, ICT investments accounted for 0.3- 0.9 percentage points of growth in GDP per capita between 1995 and 2000 with the United States, Australia and Finland being close to the upper and Japan, Germany, France and Italy to the lower level, according to Pál Gaspar, ICEG European Center, Budapest University of Economics. 

source: Congressional Budget Office 

Some might attribute regional differences in productivity impact simply as the result of the volume of investment: more investment equals more productivity increase. Others might argue the results are more complicated, and are the result of changes in organizational processes to maximize the value of technology, and not simply the application of technology to existing processes. 

Others might point to differences in regulatory regimes which can create obstacles to, or support technology adoption. The level of taxation, depreciation schedules and other fiscal and accounting policies can support or depress appetite for investment. 

Market scale and management cultures also can retard or support the commercially-positive use of new technology. Yet others might point to the role of government policies supporting the adoption of new technology. 

The bottom line is that digital transformation projects are information technology projects, and most such projects fail to meet their objectives.