Sequential Hurdles Explain Low Rates of Transformation Success

A common rule of thumb is that about 70 percent of information technology projects fail to meet their objectives. Historically, most big information technology projects fail in some major way, failing to produce expected cost savings or revenue enhancements or even expected process improvements. 

Some would argue the digital transformation failure rate is the same. “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. 

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. 

BCG research, for example, 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.

Some industries arguably do better than others, especially consumer-facing businesses and industries. The success of e-commerce is one likely reason why that occurs. Compared to changing a whole business model, shifting sales partly to online mechanisms is relatively risk free.

Another common rule of thumb is that about the same percentage of digital transformation efforts also fail. Many reasons are cited. 

• Company Culture is not aligned

• CxOs do not really support it

• Silos

• Knowledge gaps about cause and effect

• Indecision or tepid initiatives

• Technology novelty not harnessed to business processes

• Expectations not in line with reality

• Not iterating fast enough

• Human capital mismatch

• Lack of continuity and consistency

• Unclear vision

• Business and IT execs do not agree on objectives

• Organizational inertia

• Lack of employee buy in

• Governance not aligned

Those concerns typically are found in every industry and firm that attempts DX, as this example from the banking industry suggests. 

 

source: Banking Circle 

There is a simple way of illustrating why innovation is so hard. If you have ever spent time and effort trying to create something new in the communications business, you know it rarely is easy, simple or uncomplicated to do so, and the larger the organization you work for, the harder it seems to be. That is because all organizational change involves power and politics, and changes will be resisted.  

There is a reason 70 percent of organizational change programs fail, in part or completely. 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). 

source: John Troller 

The odds 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 (.66x.66x.66x.66x.66=82/243). 

The more hurdles (approvals) required for a change to happen, the less likely the change will happen. Even when the odds of approval at any stage are 66 percent, the necessity of just five approvals will lead to seven of eight change efforts failing. 

source: BCG