Why digital transformations fail and how talent underinvestment plays a role - SystemsAccountants

Estimated reading time: 6 minutes Why digital transformations fail and how talent underinvestment plays a role

It’s a common misconception that enterprise and digital transformations must be focused on changing technology stacks and operational systems. Research shows that a key reason why so many transformations fail is because companies haven’t put in place the talent and the corporate culture to manage and sustain such large-scale reorganisations.

Companies are eager to digitalise their operations. However, the transformation success rate has been poor. According to a survey by professional services company McKinsey, 70% of firms that embark on such a programme fail in the task.

Many reasons could explain this. An organisation might overestimate what is possible given the investment and time constraints. They might not involve much-needed expertise at the planning stage, fail to set realistic goals, or implement a new technology then stop, without future proofing their systems and culture. Either way, somewhere in the blame game, the choice of technology or operational structures are often singled out as culprits, when actually the real error is human.

What comes out strongly from investigations into these failed projects is that the downfall has been predominantly caused by a lack of investment in the people, and the corporate culture that will plan, execute and drive the transformation.

The benefits of transformation

The appeal of digitalisation is powerful. Increased productivity, reduced costs, and substantial efficiency gains through workflow automation, as well as better decision making informed by data analysis, are chief among reasons companies decided to embark on such projects.

The core intention is that digitalisation contributes to the bottom line. KPMG’s 2022 global technology survey found that it does – 99% of executives said they had generated returns from digital investments.

The argument for transofrmation has become so convincing that it has become an ongoing part of enterprises’ operations, with systems constantly updated to meet new and constantly evolving challenges, such as cyber threats. They must also be responsive to regular updates to the cloud-based systems themselves.

So, given transformation has become so integral to success for modern finance departments and the organisations they serve, what can be done about the concerning statistic that says 70% of them fail? To answer that, we need to understand the obstacles to success.

Why do transformations fail?

With so much riding on a successful switch to data-led operations, the high failure rate is alarming, but unsurprising, according to research. There are many reasons finance transformation can fail, but the problem is rarely the technology.

Lack of investment in talent

“The biggest challenge businesses face in their adoption of digital technologies is lack of capable talent,” KPMG wrote in its most recent tech report, a fact that was cited by 44% of companies it surveyed. The key reason, the report argues, is that tech-led operations require workers that possess industry-specific as well as digital skills, a combination that is hard to find, even for leading companies.

A survey conducted by researchers at MIT Sloane found a “vast majority” of respondents wanted to work for digitally enabled organisations. As a result, a contingent team of transformation specialists may be necessary at first, but once systems are functioning to their potential, this should have a knock-on effect on the quality of talent the company is able to hire. In this way, transformation can kick-start a virtuous circle that can carry the organisation into the future.

To dive deeper on how to assemble an expert team and have the right people in place at every stage of the transformation journey, read The Digital Finance Transformation Talent Guide.

Failing to set a vision

While a lack of the right experience and skillets is a crucial reason transformation efforts fail, there are other aspects that come into play. Even if leaders create a team capable of transformation, that team must have a clear picture of the end goal in order to be successful. The vision also needs to be shared by the wider organisation, as no function exists in isolation. Other stakeholders, for example IT and the board, will need to be presented with a easily-communicable, compelling objective that’s aligned with business goals. Without one, the team tasked with transformation will struggle to pull in the same direction, and they are likely to encounter resistance to change.

Failing to build a coalition

Change is challenging, and there are winners and losers when new digital systems are implemented. A coalition that believes in the need for transformation can help generate urgency when it’s needed. It can also be crucial to overcoming resistance from employees who feel empowered by previous systems and ways of working. These people can present a major challenge to transformation, and

Failing to secure early wins

While ambition for what transformation can achieve are often sky-high and strategy-first, scepticism within the organisation cannot be ignored, particularly from budget holders. To demonstrate ROI and generate much-needed momentum, transformation leaders should look for quick, early wins. It’s also important to remember that the scale of change doesn’t have to be seismic. A more pragmatic, piecemeal approach is often the right one. Initial, smaller-scale changes can function as proof of concept.

What can be done to anticipate the pitfalls?

There are many ways that organisations can mitigate these challenges, and it isn’t always about spending more.

For a start, many failed transformations share a common weakness of leadership. Many suffer from organisational inertia caused by deeply rooted behaviours – an inability to break out of established patterns and drive change. That’s often characterised by a lack of understanding of, and engagement with, the project from the C-suite.

Transitions work well when the process is managed with agility. That’s best achieved when managed from the top, with leaders placed in strategic decision-making positions so that setbacks can be resolved speedily and new ideas can be seriously explored.

They should also address resistance to digital change, which for many employees can appear threatening. Communication of the eventual benefits of the project and facilitating the open expression of concern about it would be a good start to getting stakeholders’ wider buy-in, including from the C-suite.

Getting the right people from within an organisation onboard can be as simple a process as offering the right career-advancing incentives. And if money does need to be invested, then a huge number of out-sourced training courses that offer recognised certification are available, many in association with reputable universities. Alternatively, skills can be contracted from third-party transition specialists

A clear plan

Digital transitions are bearing fruit for those organisations that manage to execute them successfully. But to get there, many moving parts need to fall into place within the organisation, and the one that most commonly fails is the people part.

Solving it requires a clear and detailed assessment of available resources before even planning the transition. It doesn’t even need additional investment; a well-defined set of targets, an engaged leadership team and a realisation that change needs to come from within the entire organisation, will help drive success.