Why So Many Enterprises Fail at Digital Transformation

Digital transformation is more than digitization.

Digital Transformation combines the creativity of Design Thinking with the rigor of Lean Startup and the discipline of Agile. The methodology centers on three principles, which I call the 3 E’s of Lean Innovation:

Empathy—Understanding customers deeply;
Experiments—Running experiments to test our riskiest assumptions;
Evidence—Allowing data + insights to inform decision-making.

The process does not reward degree. Companies either revamp their people, products and services, like Microsoft under the leadership of Satya Nadella, or they become the Blockbuster of their particular industry.
According to a study from the SITO Institute, upwards of 84% of companies fall short of true transformation. That’s a staggering figure, I realize, but one that can be improved by addressing common (often easily rectified) organizational shortcomings.
Following is a list of these shortcomings, along with some brief explanations about why they occur. They are based on the critical work we’ve done with corporate innovation in the past five years, as chronicled in my New York Times bestseller The Lean Entrepreneur and in various articles and talks I’ve done.


Not Communicating a Winning Strategy and Vision
As is the case with many innovation initiatives, a lack of strategic alignment and failure of leadership to communicate their vision is often to blame when a transformation program derails. Leaders need to set their organizations up for success by agreeing upon a definition for the term “digital transformation” or “innovation” and what it means for their company.
In the case of Microsoft, it amounted to a successful, leadership-driven refocusing toward cloud services and the streaming possibilities of its Xbox division. In the case of Blockbuster, nothing less than a compete digitization of the core business would have sufficed.

Opposition to Change
Transformation doesn’t happen in a vacuum. It is often a fractious process, pitting the old against the new, the established against the prospective.
Leaders must openly evaluate whether digital technologies could potentially lead to bigger upside and better results, regardless of the work involved.

Massive Uncertainty, Massive Risk
Leaders built their careers executing on what they know to be true, but tend to do the same when faced with the unknown.
One way to combat this challenge is to use the process of Lean Innovation to alleviate some of the uncertainty and guide the strategy based on evidence, which, by our calculation, combines data with insights.

Company structure causes digital transformation programs to fail.

Lack of Internal Capabilities
Companies that have never produced a digital product lack the internal capabilities to build them. But enterprise organizations have been known to exhibit “not built here” syndrome, meaning, they don’t trust solutions that weren’t developed in-house.

This old-school mindset inhibits growth, especially if there are other, more cost-effective or quick solutions readily available. Successful companies look to acquisition, outsourcing, co-development, or a combination of these options. A balanced approach helps companies solve problems today while building internal capabilities for the long haul.
Leaders need to incentivize taking risks and manage performance based on progress toward lasting impact, not immediate return on investment. Without commitment to the long-term, teams won’t innovate beyond the next quarterly report.

Inability to Shift Culture and Employee Behavior
Humans have an innate desire to avoid the unknown—one of the reasons why digital transformation projects fail is that ultimately, employee behavior doesn’t change.

Culture comes out of structure.
If the business is structured in a hierarchical and siloed way, is it any wonder that companies are not customer-focused, can’t easily change plans based on new information, and are too slow?
When businesses were primarily working in “execution mode” during the Industrial Age, they repeated proven tasks in order to generate proven results. But today, when these same companies face customers with vast amounts of knowledge and the power to change products, purely execution mode is no longer the right way to work.
Large companies need to restructure in order to initiate a shift in how employees make decisions, how they interact, and how they work to understand customer needs. The bottom line is that for a company to have a successful transformation, everyone from leadership to the front lines must adopt the entrepreneurial spirit of learning, before executing.

When to Get Outside Help for Enterprise Digital Transformation
Based on the SITO Institute study referenced above, 16% of companies nailed their digital transformation initiative and have come out on the other side stronger, faster, and with noticeable positive results.
But for the other 84% of organizations that that are entrenched in established processes, or those who are in the beginning stage of their digital transformation journey, going it alone might not be the best course of action.

There are many benefits to having an independent third party help evaluate where they are in their journey and define a strategy for helping them to get where they want to be. An experienced outside source can use their prior knowledge in dealing with other organizations in similar situations and use this information to identify gaps in the current strategy and offer insight into how to patch the holes.
Working thoughtfully with partners, vendors, agencies, or firms can offer a new perspective and fresh set of eyes on a situation that may seem daunting to the people on the inside. Sometimes, finding the elusive light at the end of the tunnel may be everything needed for success.

How does your organization rank on digital transformation?

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