INSIGHTS

5 Top Challenges to Digital Transformation in the Enterprise

Each year, I sit through dozens of hours of research sessions with consumers.

If there is one theme, I hear consistently it's that consumers expect the brands they engage with to provide a flawless digital experience in their interactions.  And though that’s a notion that is consistent across all age groups, it’s a theme we hear unanimously from millennials.  It only takes a quick look around various industries to see that the companies that are delivering a strong, digitally-centric value proposition make up a substantial portion of the growth.

Meanwhile, we’ve recently witnessed that many legacy brands are shrinking (i.e., The Limited) or going out of business entirely (i.e., Sports Authority). The bottom line is that companies born before the digital age must substantially transform in order to remain relevant. As Jack Welch said in the year 2000 “If the rate of change on the outside exceeds the rate of change on the inside, the end is near."  Many great brands today are in just this situation.

It takes five miles for an aircraft carrier to turn itself around 180 degrees. If you are on that aircraft carrier while it’s engaging in that ‘quick turn,' you better hold on to something solid because you’ll soon be tilting at a 30-degree angle.  Many large companies are not comfortable with making the difficult and rapid hard left required to align themselves with how the world has changed.

Being in the business of helping companies through their digital transformations, I have observed that many of the companies that struggle digitally do employ super-sharp and visionary executives who see what needs to be done. However, those executives face massive challenges when it comes to enacting the kinds of changes that are necessary in order to make that digital leap. Most of the work I do involves partnering with heroic innovators trying to change large enterprises from within. As a result, I have an insider’s perspective on the biggest challenges these companies face when taking on transformation projects and, in fact, spend most of my time working to try to overcome them.

Based on first-hand experience, here are the top five challenges to digital transformation. If you are facing any of these challenges, the list below may, if nothing else, give you comfort that you are not alone.

1. Organizational Resistance to Change

My rough guesstimate is that perhaps 10-15% of people in the world love change. They are excited by constantly having new challenges to tackle and new things to learn. But for the other 85-90%, change equals pain. It means uncertainty, a challenge to their role or identity, and, worst-case scenario, possibly the loss of a job and their family's security. After all, once you've got a good thing going, its natural not to want to see your applecart overturned. Digital transformation, by its very nature, upsets a lot of apple carts. 

The consequences of resistance to change manifest itself in a myriad of ways. Digital projects vital to a company's future success can have trouble getting funded, resourced, or marketed. These projects may be modified so as not to threaten retail or partner brands. They are held back by concerns about cannibalizing other revenue sources. They are asked to justify ROI to an unreasonable level of certainty. They are sent through endless legal reviews.

Kodak invented the digital camera, but it was the internal resistance to change that led the company to bury it because it threatened the company’s legacy film business. Imagine what Kodak could have been had it done what Bell Atlantic did when it realized how bleak the future of landlines looked — it became Verizon, which is now a dominant figure in the broadband, wireless and cable television industries. Did mobile phones decimate the landline business? Yep. But Bell Atlantic "protected" itself by accepting that change was on the horizon, and transformed by making the difficult decisions required to adapt to that change. 

The great architect and innovator Matt Taylor once said, “The future is rationale only in hindsight."  When Bell Atlantic was making those critical decisions that fundamentally transformed what it was as a company, the outcome was far from clear or free of risk.

2. Lack of a Clear Vision for a Digital Customer Journey

Companies that succeed in creating a digital customer value proposition don't get there by accident. They develop a clear vision of how they will meet their customers' digital needs, set objectives against that vision, and execute — often over the course of multiple years.  Often times, companies that are not succeeding simply haven't painted a clear picture of what they want — or need — to be when they digitally "grow up."   While clarifying this vision doesn’t get you there by itself, in fact its only one of many steps,  not having a vision is like going on a road trip without a destination.  It's always possible you could stumble into something great, but probably not.

Companies still in the dark need to do four things:

• First, take stock of your assets - your brand, your customers, your intellectual property, and the strengths and talents of your organization. 
• Second, study your market to understand your customers’ unmet needs and what your competitors are doing.
• Third, be on top of technology trends, which includes keeping apprised of relevant emerging technology and shifts in consumer behavior as it pertains to technology.
• Fourth, establish processes designed to generate portfolios of potential ideas for the future state of the customer journey. These processes should allow your company to create business hypotheses and vet and test them via customer research. In turn, new ideas can be aligned to the vision for how the customer of the future should interact with the brand, iterating along the way as more learnings come in.

3. Ineffective Gathering and Leveraging of Customer Data

The root of digital success is customer data. There's more to the tree than the root, to be sure, but whether it's Facebook, Amazon, Netflix or Uber, digital success stories have the effective gathering, storing and leveraging of customer data at the core.  Many organizations today have a myriad of siloed systems containing various scraps of data about customer interactions, but no clear way to pull them together. Others have petabytes of data centralized in an information warehouse that they may use for reporting. However, they haven't figured out what to do with all that data in a manner that provides value to the customer.

Fixing this in the most efficient way often requires starting fresh, to a degree. Determine what are the ten to fifteen key attributes of a customer that would allow us to serve and sell to them more effectively. Of course, these attributes are different depending on the sector that a company operates in, but once they have been identified, the key is to figure out how to most effectively gather and store that data in a centralized place that can be easily accessed via any touch point.

When you take a simplistic approach to creating value at the outset, you are then in a good position to start looking at more complex pockets of customer data and considering how some of that data might enable you to enhance the experience further and how to link it in.

4. Inflexible Technology Stack and Development Processes

Successful digital experiences are achieved through iteration. Successful digital properties almost always iterate to success via the "test and learn" approach — where new features are being regularly added, measured, adjusted and pruned, based on user feedback and usage data. However, it is impossible to take this approach if your development process involves quarterly release cycles.  Leveraging agile processes and technologies that support frequent, if not continuous, integration and product releases are critical behaviors that lead to effective digital results.

Additionally, part of the iteration process involves the need to adjust workflows, business rules, content presentation, and (potentially) leverage data in different ways than were originally envisioned when systems were built. Companies trying to build flexible and elegant digital experiences on top of out-dated technology stacks are tilting at windmills. You don’t necessarily have to discard the mainframe, but modern enterprises must make their data read/write accessible via robust and secure APIs, and provide access to their business logic in a way that’s independent of presentation layers. If your core systems were designed more than five years ago, they probably need major refactoring in order to support effective digital execution.

5. Married to Legacy Business Model

Lastly, real success in digital is rarely about providing the exact same products and services, just through a digital pipe. Netflix shifted from DVDs to streaming. Uber created the world's largest car service without buying any vehicles or hiring any drivers, and similarly, eBay and Alibaba created the world’s biggest retail channels without buying any inventory.

Companies that successfully "cross the chasm" to digital effectiveness often discover they need to provide for free what they used to charge for, sell as a subscription what used to be "a la carte," monetize via advertising things that used to be paid for in other ways, and re-think how they derive revenue from the value that they create. Those that do so flexibly can often find that the adoption of a digital strategy offers more scale, revenue and profit than the legacy approach, but it takes experimentation, an assumption of risk, and — to be blunt — some failure along the way. Whereas this approach is widely accepted among startups, it is one that the management and investors in mature companies generally fear. Yet, this is the gauntlet they must run in order to achieve digital success.