December 11, 2019

Digital transformation: 10 sneaky money-wasters - The Enterprisers Project

Companies continue to pump money into their digital transformation efforts – to the tune of $1.18 billion this year, according to IDC’s Worldwide Semiannual Digital Transformation Spending Guide. But given some of the lackluster or temporary results thus far (a McKinsey survey found that just 16 percent of organizations’ digital transformation had successfully improved performance long-term), it’s clear that some of those investments have failed to deliver.

Left unchecked, such misplaced investments will cost organizations in both dollars and cents and their competitive positions.

If a leader thinks that ‘digital transformation’ is the same as automation or even disruptive automation, then you have time and money wasted.

“If a leader thinks that ‘digital transformation’ is the same as regular automation or even disruptive automation, then what you have is time and money wasted while their business model is slowly eroded,” says Tony Saldanha, former Procter & Gamble IT executive and author of "Why Digital Transformations Fail."

[ Culture change is the hardest part of digital transformation. Get the digital transformation eBook: Teaching an elephant to dance. ]

As IT leaders navigate the early years of their digital initiatives, a number of lessons have emerged. They are realizing that some seemingly sensible efforts simply don’t pay off as expected. We’ve gathered some of the most common money-wasting activities and approaches that may fail to further digital change. Consider them in the context of your organization’s approach and goals.

1. Misguided methodologies

Are you thinking IT project management or venture capital portfolio management?

IT project management along is poorly suited to digital change initiatives. Instead, organizations should supplement traditional PM with venture capital portfolio management and HR change management, says Saldanha, now president of digital transformation agency Transformant. IT project management can be used to ensure successful project delivery. However, portfolio management is necessary to identify and kill projects that aren’t delivering, and change management is required to change the way the organization behaves.

[ Read also: Why you’re managing digital transformation wrong: Think portfolios. ]

Too many organizations continue to underestimate the culture change needed and don’t build in communication, behavioral visioning at all levels, and other activities designed to work with the technology changes, says Ola Chowning, partner in digital strategy and solutions at ISG.

2. Lack of change management agility

Speaking of change management, if it isn’t ongoing and responsive, results will suffer. “Organizations often use digital transformation efforts as an opportunity to learn and build new agile disciplines and teams, but forget to be agile in the way they prepare their impacted stakeholders, such as business partners, IT team members, and other employees,” says Meredith Bilow, director in organizational change management at technology research and advisory firm ISG.

“Once an overarching framework of roles and the mission are established, the organizational-change-management planning and execution can be just as agile and iterative as the project allows them to be,” Bilow says, “proactively preparing for each level of change and readying its impacted stakeholders in short-duration waves.”

3. Public cloud surprise costs

“Digital transformations often involve enterprises shifting into a public cloud environment, especially as CIOs look to quickly reap the promised benefits of cost savings, flexibility, and scalability,” says Andy Sealock, a managing director management consultancy Pace Harmon. Many enterprises expect to realize significant savings as they migrate from costly on-premises data centers. However, not all do – it takes care and discipline.

Items to watch include storage and payment terms.

Among the issues that can quickly drive up public cloud costs include over-engineered instance types relative to compute workload needs, storage tiering misaligned with actual performance requirements, mismatched payment terms relative to usage requirements, and unregulated demand management, Sealock says. “This can upend the public cloud business case if the enterprise does not proactively implement a cloud governance framework to continually monitor and optimize the cloud environment for cost performance,” says Sealock.

4. Front-end focus without appreciation for big picture

In their eagerness to deliver new digital capabilities to customers or business users as fast as possible, many organizations funneled money into digital front-ends. “A focus on the digital front-end without much thought given to back-end capabilities or integration middleware won’t get you far,” says Vinod Kachroo, CIO of business process outsourcing provider SE2. “You will have a cool and engaging digital experience with no back-end capabilities.”

Meanwhile, the disrupters will be hard at work making real changes in process. For example, while the big hotel chains were rolling out self-check-in kiosks and other cool stuff that didn’t disrupt the industry, Saldanha says, AirBnB was disrupting the lodging paradigm.

5. Non-existent bot governance

Robotic process automation (RPA) has been a big hit for digital transformers, promising high returns on productivity on a relatively low level of initial investment. However, long-term governance is required to sustain those returns. After the bots are developed, tested, and deployed, the IT environment continues to change as applications are replaced, modified, upgraded, and patched.

“Any of these changes can ‘break’ the existing bots, rendering them useless over time and therefore lose the previous productivity gain,” Sealock explains. “This constitutes a real business loss, both in terms of productivity and the original investment in implementing the automation platform and developing the bots.” A proactive governance structure that anticipates changes is key, he adds.

What about other automation and cloud moves? Let’s explore:

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