Digital transformation: 5 ways organizations fail
After years of work on digital transformation, executives face a grim reality: Just 5 percent of digital transformations achieve or exceed expectations, according to Bain research. What are they doing wrong? Based on our research, organizations fail on five fundamental factors:
Almost two decades ago, the music industry threw its considerable weight at upstart music service Napster, and succeeded in shutting it down. It subsequently went back to the good-old-days of selling CDs for 20 Euros a pop, when buyers really only wanted 1 or 2 songs from the album. We all know what happened next: Apple appeared from outside the industry to capture the lion’s share of the value.
What the music industry had failed to understand was that Napster had unleashed a key disruption – the disaggregation of songs from albums. By focusing on the disruptor (Napster), the industry incumbents took their eyes off the disruption (content disaggregation).
This mistake is being repeated today. Netflix didn’t kill Blockbuster – late fees and limited selection did. Uber didn’t kill taxis – inconvenient access and bad service did. Airbnb isn’t killing hotels – high costs and impersonal experiences are. You need to take the time to fully understand the disruptions occurring in your industry, and not get too hung up on the disruptors.
On the surface, there isn’t anything wrong with building a digital strategy. In reality, it can be extremely dangerous for two reasons. First, a digital strategy typically places too much attention on ‘digital’ as the objective, so that the main beneficiaries become consultants and technology vendors. Digital strategies often divert attention away from more important goals, such as reduced costs, higher revenues, increased customer satisfaction, and other measures of performance.
Second, pursuing a digital strategy means that you have two strategies – one digital and one organizational. At best this is confusing, at worst, it is value destroying. Separate strategies inevitably lead to overlap and conflict.
A much better approach would be to consider how digital tools and technologies can support a single organizational strategy, or better still, help existing strategy adapt to changing conditions.
Yes, digital disruption exists, but it is not the only form of disruption out there. Plenty of disruption continues to come from traditional sources, like political, economic, and social shifts. This year, the DBT Center at IMD launched a project to take a data-driven approach to measuring disruption across industries. We examined a number of industry indicators, including change in profit, revenue, and share price, industry concentration ratios, and venture capital funding. Our objective was to see what the data could tell us about disruption.
What we found was surprising. Yes, there was disruption in digitally heavy industries, like telecommunications, media, retail, and financial services. Yet, the industry that had seen the most disruption over the past seven years was, wait for it, the energy industry, followed by technology products and services, and then transportation and logistics.
From a management standpoint, it doesn’t matter what form the disruption comes in. The impact is similar. So, while leaders still need to keep a keen eye on digital disruption, this does not mean they can overlook more traditional forms of disruption.
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