CEOs must pay attention to new developments and be aware of the human urge to resist change.
Since ERP first began to be used in the business world (it came from the military sphere where was used to order food supplies) in the late 50’s, many companies have employed the use of software to reinvent their businesses. As with any challenge, however, there are risks.
The Italian racing driver, Mario Andretti, once said: “If everything seems under control, you’re not going fast enough.” While Andretti’s guidance might seem unnerving at first, it is also appropriate for leaders navigating the digital world. No race—or transformation—is risk-free, of course, but having the courage to make decisions that push the limits of the organization is essential.
McKinsey listed the 10 pitfalls that derail digital transformations in business and what CEOs can do to overcome them:
1. Excessive caution
Recent McKinsey research reveals that companies that perform best follow bold and disruptive strategies. They make big bets on new technologies and business models, champion a test-and-learn culture where every failure is an opportunity to improve, and launch transformative programs that often change their whole business model.
2. Era of the unknown
The best companies start by identifying where value is created and destroyed, and they don’t just confine their analysis to their own sector and competitors. This external analysis should be matched with a deep and comprehensive internal assessment. That starts with a thorough evaluation of a company’s assets—brands, capital, data, customers, products, people—and capability gaps. The best companies then also develop an objective picture of their digital quotient, the elements of their business that add the most value, and the structural disadvantages they face.
3. Lack of focus
Many companies have adopted a “let a hundred flowers bloom” philosophy that encourages broad experimentation. Such an approach generates excitement and learning, but it can also be self-defeating if it is not carefully managed. Running too many competing initiatives dissipates management focus and starves promising ideas of the resources they need for a successful scale-up.
4. Running out of money
Some digital transformations run into difficulties because costs skyrocket while savings or revenue growth take longer than expected. Leading companies start by targeting quick wins to unlock value so that the effort funds itself, often within the first three months. In fact, this approach can be so effective that the most successful companies generate more savings or revenues than are needed to fund a transformation.
5. Lack of talent
Most companies embarking on digital transformations underestimate how long it takes to build capabilities. They know they need digital talent, but not what kind or how much. A digital transformation at a large company can require as many as 150 full-time employees in the first year. Hiring a chief digital officer is a good start but is not enough by itself.
6. Lack of discipline
Agility and speed are second nature to a digital organization, but energy can turn to chaos if it isn’t channeled purposefully. Leaders need to be systematic about identifying and capturing business value, which begins with creating a transparent environment and the use of metrics to track the progress of digital initiatives.
7. Failure to learn
A surefire way to sink a transformation is to stop learning. Successful companies reward experimentation because learning from mistakes helps a company get it right the next time, which in turn fosters more creativity. A review of teams at Google found that when employees felt they could take risks without being shamed or criticized for failure, they performed better.
8. Change fatigue
Companies can often summon the resources and energy to pull off a few experiments with new approaches. But sustaining the momentum of change against the gravitational pull of the traditions of the organization is a challenge of a different order. No transformation is immune to change fatigue, but certain steps can help stave it off.
9. Going it alone
If the old world was about keeping things proprietary and closed off, the new world is about engaging with an ecosystem of partners and vendors. This approach can help accelerate access to markets, talent, capabilities, and technologies. Agile businesses build digital capacity swiftly by using existing resources, such as open-source software, that can be customized to meet their needs. Working thoughtfully with vendors or partners to access new capabilities can jumpstart this activity, and help businesses get smart quickly about how to “do digital.”
10. Going too slowly
One way to gain speed is to automate time-consuming processes and tasks. For instance, adopting “test-driven development”—writing automated tests for code before writing the code itself—can greatly accelerate this process. One international hotel company consolidated its sales and catering systems by moving to a single version-control repository, integrating code twice a day, and insisting that developers write automated tests for new changes in their code. As a result, the company reduced its time to market by 25 percent.