“74 percent of cloud-related transformations fail to capture expected savings or business value,” say McKinsey consultants Matthias Kässer, Wolf Richter, Gundbert Scherf, and Christoph Schrey.
Similarly, almost half of all respondents experienced cloud technology as more, or much more, complex than they initially expected, while 40 percent overran their cloud budgets, some to a significant degree, they note.
Those results would not be unfamiliar to anyone who follows success rates of information technology initiatives, where the rule of thumb is that 70 percent of projects fail in some way.
Of the $1.3 trillion that was spent on digital transformation--using digital technologies to create new or modify existing business processes--in 2018, it is estimated that $900 billion went to waste, say Ed Lam, Li & Fung CFO, Kirk Girard is former Director of Planning and Development in Santa Clara County and Vernon Irvin Lumen Technologies president of Government, Education, and Mid & Small Business.
That should not come as a surprise, as historically, most big information technology projects fail. BCG research suggests that 70 percent of digital transformations fall short of their objectives.
From 2003 to 2012, only 6.4 percent of federal IT projects with $10 million or more in labor costs were successful, according to a study by Standish, noted by Brookings.
IT project success rates range between 28 percent and 30 percent, Standish also notes. The World Bank has estimated that large-scale information and communication projects (each worth over U.S. $6 million) fail or partially fail at a rate of 71 percent.
McKinsey says that big IT projects also often run over budget. Roughly half of all large IT projects—defined as those with initial price tags exceeding $15 million—run over budget. On average, large IT projects run 45 percent over budget and seven percent over time, while delivering 56 percent less value than predicted, McKinsey says.
Beyond IT, virtually all efforts at organizational change arguably also fail. The rule of thumb is that 70 percent of organizational change programs fail, in part or completely.
There is a reason for that experience. Assume you propose some change that requires just two approvals to proceed, with the odds of approval at 50 percent for each step. The odds of getting “yes” decisions in a two-step process are about 25 percent (.5x.5=.25).
In other words, if only two approvals are required to make any change, and the odds of success are 50-50 for each stage, the odds of success are one in four.
The odds of success get longer for any change process that actually requires multiple approvals.
Assume there are five sets of approvals. Assume your odds of success are high--about 66 percent--at each stage. In that case, your odds of success are about one in eight for any change that requires five key approvals (.66x.66x.66x.66x.66=82/243).
In a more realistic scenario where odds of approval at any key chokepoint are 50 percent, and there are 15 such approval gates, the odds of success are about 0.0000305.
So it is not digital transformation specifically which tends to fail. Most big IT projects fail.
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