Why do digital transformation projects fail?

Before we dive in, by ‘digital transformation’, we mean the strategic integration of tech, processes, and cultural changes across an organisation to overhaul how it operates and delivers value to customers or stakeholders.

McKinsey, who live-and-breathe digital transformation in their role as consultants, define digital transformation as ‘the rewiring of an organisation, with the goal of creating value by continuously deploying tech at scale’.

It’s a particularly tricky challenge in larger, older organisations, because they tend to have more ‘digital baggage’ – older systems and processes that are likely to need updating.

We’ve identified several common causes:

• The project doesn’t have well-defined objectives
• Ineffective change management, which fails to overcome natural resistance to change
• Too many organisational silos, often because digital transformation is seen as an IT task rather than an organisation-wide cultural change
• There’s little or no leadership and stakeholder engagement, leading to projects losing momentum
• Overambitious expectations, leading to underestimation of costs and barriers to change
• Failure to align with the broader business strategy, meaning it’s seen as an isolated initiative that doesn’t support business goals

But these are all proximate causes, and don’t get to the underlying cause behind the high rate of failure.

Imagine a car company whose cars break down 70% of the time. Car owners are understandably furious, so the company commissions mechanics to find out what’s going on. If they came back and said it’s sometimes the gearbox, often the brakes, and occasionally the engine, that wouldn’t really explain what’s happening. There’s probably an overarching reason - you don’t need a mechanic, you need someone to investigate the processes of the company, the culture in the factory, and the original design of the car.

You can’t meaningfully address the failure of digital transformation projects by making a few specific tweaks. A 70% failure rate requires a major rethinking of the approach.

Digital transformation projects are treated as big, top-down, org-wide projects that can take place over years. They involve leaders, often far removed from the front-line requirements of digital teams or users, making decisions about new software and processes and imposing them on the organisation.

They lack the kind of rapid feedback loops that are only possible when you’re working directly on the problem.

Traditional approaches to digital transformation are a bit like First World War generals, back at the chateau, receiving limited information about what’s happening on the front lines. With this top-down model, the generals decide, and the people at the front just need to follow their orders.

Lacking situational awareness, the generals propose more of the same. Just another big push and this time we’ll break through. Just another attempt with the right change management strategy, and this time we’ll get everyone on board.

The problem wasn’t that they were stupid, the approach to decision making was destined to fail. The way to break out of this poor strategic decision making isn’t to put better, brighter people at the top of the pyramid. It’s to invert it.

Sticking with the military metaphor: special forces get far better results than First World War generals, and they do it by having a completely different approach to leadership: delegation and initiative. They’re given precise objectives, but people on the ground decide how to carry it out. They work in small teams, learning quickly and delegating decisions right to the person at the front.

Let’s think about some organisations that have successfully navigated digital transformation through an agile, user-focused approach:

• Microsoft’s transformation under Satya Nadella shows how a legacy tech giant can pivot successfully. Instead of enforcing a top-down cloud strategy, Microsoft let individual teams experiment with cloud solutions, leading to Azure’s organic growth and a shift to cloud-first services.
• ING Bank’s agile transformation took a bottom-up approach. Rather than dictating change from HQ, they formed small, cross-functional ‘squads’ to quickly prototype and test new digital banking features, resulting in a 30% faster time-to-market and improved customer satisfaction.
• The UK’s Government Digital Service (GDS) revolutionised public sector digital services by starting small and scaling successful initiatives. Instead of a massive overhaul, they began with high-impact services, tested with real users, and iterated based on feedback. This approach has been replicated by governments worldwide.

This bottom-up model for digital transformation projects applies many of the ideas from the ‘agile’ project management methodology. Agile digital transformation re-thinks how digital transformation projects should be run to delegate decision-making around digital systems to the people using the tools every day. It allows more rapid iteration and faster feedback loops, by focusing primarily on up-skilling and empowering the teams closest to users.

Digital transformation involves reworking processes and introducing new digital tools to deliver more value to users. Yet often, big top-down digital transformation projects lose sight of user needs and projects are frequently driven by the needs of the organisation.

Agile digital transformation empowers those closest to users to make decisions based on evidence of user needs, not assumptions about what users want.

Agile ways of working encourage ‘minimum viable products’ or MVPs, to be tested with users quickly to gain feedback. Applying this approach to digital transformation projects is extremely valuable, as it lets you learn rapidly from what works and what doesn’t, rather than only finding out if new systems fulfil your needs once the entire organisation has adopted it.

By conducting testing of new tools in smaller teams first, or only trying more lightweight or free tools before making a big decision on the systems to use, you can save resource by making better-informed decisions.

Innovation requires experimentation. If you know in advance something is going to work, it’s not an experiment. Failure must be accepted as an essential part of learning, but you must also learn to fail quickly. A digital transformation process that fails slowly takes years to learn lessons, whereas rapid cycles of testing and iteration means learning happens in weeks and months.

These agile approaches to digital transformation represent a fundamental shift in how organisations can tackle digital change - moving from top-down implementation to bottom-up enablement. This article has introduced some ideas as to how this approach can be applied, but these are just some introductory ideas to get you thinking.

Over the coming weeks and months, we’ll delve deeper into this alternative approach to digital transformation, exploring how it can avoid the pitfalls that cause so many digital transformation projects to fail.

For those wanting to put these ideas into practice, we will also be launching a comprehensive training course that will equip you with the skills and frameworks needed to lead agile digital transformation in your organisation, so watch this space.