4 High-Profile Digital Transformation Failures (+Causes)
- July 7, 2022
A recent study by McKinsey shows that 70% of all digital transformation projects end in failure.
They either exceed budget, fail to meet their basic goals, drag on continually, or ace a combination of all these hitches before they’re cut short.
At a glance, you might assume it’s just poor planning and a culture of resistance to change that hinders digital transformation. But even some of the biggest, most visionary companies have witnessed embarrassing transformation failures that had several identical issues.
This article will dive into the key reasons why digital transformation projects fail, touching on several corporate examples, as well as how you can ensure success in your digital transformation efforts.
What Is Digital Transformation?
Digital transformation is the process of using digital technologies to transform existing traditional and non-digital business processes and services, or creating new ones, to meet with the evolving market and customer expectations, thus completely altering the way businesses are managed and operated, and how value is delivered to customers.
Why Do Digital Transformation Projects Fail?
Digital transformation initiatives may fail for any number of reasons, but the most common reasons for failure include the following:
1. Lack of transformation goals
One of the biggest reasons why digital transformation fails is because it never had a chance to do otherwise.
Many times, it’s imagined as a vanity project that’ll make a company look visionary, futuristic, and positive.
In other words, digital transformation initiatives are often solutions looking for a problem to solve and as a result, there are no clear goals set to guide them.
This leads to a situation where a company ships new tech for its sake but doesn’t have metrics for measuring success. The project drags on, goes over-budget, and eventually shutters when it’s subjected to scrutiny.
2. No change management strategy
A change management strategy helps you figure out how your day-to-day operations will run when you’re rolling out a new piece of technology.
Whether it’s a new CRM, ERP, or even another email provider you’re switching to, a change management strategy explains how operations are going to run until the migration is completed successfully.
3. Internal resistance to change
Recent studies show that 40-50% of salespeople don’t use their CRMs. Even when they do, 76% of sales leaders report that their teams never use the majority of the functionality offered due to internal resistance to change.
This is not a problem that’s unique to sales– it also applies in marketing, business development, design, etc.
Often, employees tend to think the systems they’ve honed on their own are more trustworthy than another piece of software. Likewise, they may not have the training required to use a new tool as efficiently and may opt to shelf it at least for the meantime.
4. Going through a transformation too fast
Many companies often set an accelerated timeline for a digital transformation project that’s shorter than what their implementation partners and advisors suggest.
As a result, they cut corners on some of the critical steps required to switch to different IT solutions because the leadership doesn’t understand the technical legwork needed to successfully migrate to a new platform.
5. Poor adoption of new technologies
A company might transition successfully to a new IT solution and then face a new challenge when few people in the organization use it as often as the leadership had intended.
Understandably, employees often shy away from new technologies when they’re not confident in the training they’ve received.
Likewise, there’s typically a buffer period during which employees are reluctant to try out new tools in favor of the older stick they’re familiar with. Organizations must create a strategy to drive digital adoption of new applications in order to find technology ROI.
6. Reacting to competitors instead of investigating your actual digitalization needs
Digital transformation should be an initiative designed to give a company better, faster, and more efficient tools to compete in the digital world.
But many times, it’s simply in reaction to a competitor or a giant in the industry announcing a big launch of a similar solution.
In the bid to play catchup, c suite executives draft a hasty plan to roll out their own solution without figuring out what it should do, how it should work, and the costs involved.
7. No shared vision
Different departments or levels in an organization may have different digital transformation goals. For instance:
- The engineering department might want to solve hard problems that’ll lead to promotions
- Marketing wants to drive up traffic, whether it converts to customers or not
- Sales focuses on closing deals and communicates infrequently with the rest of the organization
In such a situation where there’s no shared vision, it might be hard to get funding, feedback, or to commit departments to do their bit to make a digital transformation initiative successful.
8. No buy-in from leadership
A situation may arise where junior levels in an organization see the need for a new solution that works better than what they have.
As a result, they try to petition the leadership for a new solution. Many times they’re denied and even if the project is grudgingly approved, it doesn’t get the funding, support, and operational support required to make it successful across the entire organization.
Pro tip: if you’re not part of your company’s leadership team, getting buy-in from those above can either make or break your digital transformation ideas since that’s where the momentum will either come from or get turned off from.
9. Lack of understanding customer expectations and needs
All of your digital transformation projects should have one ultimate goal: to help you serve your customers better.
No matter how much better the design is, how quickly you roll it out, or how efficient your implementation partners were, a digital transformation effort is ultimately a failure if it does not help you add value to your customers.
4 Most Infamous Digital Transformation Failures
The biggest companies may be leaders in technology and innovation. But they also have a history of avoidable mistakes, especially when trying to use technology to empower their operations.
Here are four of the most infamous digital transformation failures and how they could have been avoided:
1. Hershey
Hershey is an American multinational brand that makes world-famous chocolate cookies, cakes, milkshakes, and beverages.
Back in 1996, Hershey needed a more powerful ERP system to replace their patchwork of legacy IT systems.
The company chose SAP’s R/3 ERP, Oracle Seibel’s CRM, and a new supply chain management solution by Manugistics. All in, it was expected to cost $112 million to rollout the new systems.
The transition to new systems was slated to last 48 months but Hershey’s leadership reduced the timeline for the rollout to just 30 months in order to avoid Y2K.
To hit that shorter timeline, the implementation team had to cut down on testing and ship as quickly as possible. More importantly, the final switch was slated for July 1999, which coincided with Hershey’s busiest seasons. That was the last straw.
When problems arose with the new ERP, things went sour. Over $100 million worth of orders were left unfulfilled despite Hershey having the inventory. That bungle shrunk quarterly revenues by 19% and the company’s stock dropped 8%.
Why did it fail?
- The transformation was rushed and there wasn’t enough testing to figure out how much better the new systems could perform.
- By all indications, Hershey didn’t have clear goals in mind for the transition — it seemed more like digital transformation for its own sake, which is really just a solution searching for a problem.
Hershey’s leadership failed to factor in how much work was required and as a result, didn’t give it the required attention.
2. Hewlett Packard
HP is the world’s 2nd largest PC vendor; think laptops, printers, notebooks, and desktop computers. The HP logo has been an iconic place marker on the back of hundreds of millions of laptops, desktops, scanners, and computer peripherals for the past few decades.
But that growth didn’t come without a few hitches along the way. Back in 2003, HP wanted to consolidate its IT systems to run on one ERP. The plan was to migrate to SAP and executives in charge of the transition figured it’d take roughly three weeks to fix any IT issues that might arise from the switch. What happened was significantly worse.
Since HP’s new ERP wasn’t configured to sync with their old systems, as much as 20% of customer orders for servers were left unfulfilled and shipments began to pile up. The entire situation worsened because the company didn’t have manual workarounds in place to ship orders outside their ERP systems.
The company didn’t make the required investment into change management by asking questions like:
- What happens if our migration exceeds our target timeframe?
- What do we use in the interim?
- How do we communicate any lapses that may arise with customers before they happen?
- How can we manage our supply chain outside our ERP if issues arise?
The right questions were not asked or answered well enough and at the end of the day, the entire project cost HP an estimated $160 million, both in lost revenue and in delayed orders.
3. Miller Coors
In 2013, alcoholic beverage company MillerCoors spent nearly $100 million on an ERP implementation that was supposed to speed up procurement and accounting while simplifying the company’s supply chain ops.
The project dragged on for three years without an end in sight until the company terminated its engagement with its implementation partner and filed a lawsuit against them.
What could they have done better?
First, MC’s leadership should have invested in research to discover exactly what they wanted out of an ERP and the options that’d meet their needs instead of just publishing a request for proposal.
Secondly, it appears MC made a mistake in their choice of an implementation partner and should have gone with one that had more experience shipping ERP solutions for beverage businesses.
Thirdly, it’s important to have in-house assistance, no matter the degree. A company of MC’s size should have hired better advisers to oversee the project from within, guide their implementation partners, and report back to MC’s leadership at the first signs of stress.
4. Revlon
Revlon rolled out a new ERP system in February 2018. As it happened, the migration wasn’t planned thoroughly and it affected the company’s ability to keep production running and ship orders to customers quickly enough — an issue noted after Revlon had rolled out their new ERP to their operations in 22 countries.
When the dust settled, Revlon lost over $64 million in unshipped orders, suffered a 6.9% drop in its stock price, and got sued by its investors for financial damages suffered as a result of the financial underperformance.
What can be learned from this?
- Test CRMs, ERPs, and IT arrays before deploying them
- Create robust backup solutions that can fill in if challenges arise
- Design a change management strategy you will rely on while switching to new tools and solutions
Rolling out a new piece of software is just half the work done.
You need to engage the human factor and train your end-users within your organization to make the most of your new tech product – otherwise, it’ll end up as yet another piece of shelfware that no one uses.
Whatfix helps companies speed up adoption with guided onboarding designed to teach users on a case-by-case basis. Our platform offers contextual assistance with documents, walkthrough videos, and guides that your employees can access right inside the applications they work with.
Learn how Whatfix helps small businesses and enterprises win the digital transformation game with guided onboarding tailored to your employees’ needs.
Request a demo to see how Whatfix empowers organizations to improve end-user adoption and provide on-demand customer support
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