Biggest Digital Transformation Obstacles [Risk Mitigation for Digital Transformation]

Summary

Eric Kimberling, CEO of Third Stage Consulting, outlines the top risks organizations face during digital transformation and practical ways to mitigate them. He highlights five major threats: underestimated total cost of ownership, operational disruption that can far exceed implementation costs, declining employee morale and attrition, dilution of unique competitive advantages, and failure to realize return on investment. Kimberling stresses realistic cost expectations, strong project governance, organizational change management, careful decisions about customization versus standard software, and clear benefits measurement. He points listeners to additional resources (YouTube videos and a digital transformation report) for deeper guidance.

Takeaways

• 😀 The digital transformation journey is fraught with risks, and many of these risks are often underestimated until it's too late to mitigate them.
• 😀 One of the most common risks is the total cost of ownership, which includes not only software procurement but also implementation, infrastructure upgrades, and data migration.
• 😀 Many organizations exceed their initial budgets for digital transformation, making it essential to set realistic expectations from the start and have strong project governance in place.
• 😀 Operational disruption is a significant risk in digital transformation, as it can severely impact business operations, customer satisfaction, and employee morale. This can cost organizations much more than the actual implementation cost.
• 😀 Over 50% of organizations experience material operational disruption during digital transformations, with the cost impact ranging from 50% to 300% of the original project estimate.
• 😀 Addressing operational disruption requires strong project governance, best practices for technology deployment, and attention to organizational change and business process improvement.
• 😀 Employee morale and attrition can be overlooked during digital transformations, but poor execution or a chaotic transformation can lead to stress, lower morale, and higher turnover.
• 😀 Digital transformations can dilute a company's competitive advantage if not managed carefully. Balancing the need to adopt new technology with preserving what makes your organization unique is a key challenge.
• 😀 When facing the trade-off between changing business processes to fit software, customizing software, or using third-party systems, organizations need to carefully assess the risks of each approach.
• 😀 ROI (Return on Investment) is a critical risk, as many organizations fail to clearly define or realize their expected benefits from digital transformations. Defining and tracking measurable benefits is essential for success.
• 😀 To mitigate these risks and ensure a successful transformation, organizations should focus on defining clear metrics for success and use resources like independent software reviews and best practices to guide their efforts.

Q & A

What is one of the biggest risks organizations face in digital transformation projects?

One of the biggest risks is managing the total cost of ownership, which includes software procurement, licenses, implementation costs, infrastructure upgrades, and data migration. Organizations often exceed their initial budget due to underestimating these costs.

How can organizations mitigate the risk of exceeding their budget in digital transformations?

Organizations can mitigate this risk by having realistic expectations of the total cost upfront and establishing strong project governance to tightly manage resources and avoid scope creep.

What is the second major risk associated with digital transformation projects?

The second major risk is operational disruption. This risk involves the potential inability to ship products, place customer orders, or close books, which can have a significant financial impact on the organization.

How can organizations minimize the risk of operational disruption during a digital transformation?

Organizations can minimize this risk by following best practices for technology deployment, addressing non-technology components such as organizational change, and ensuring strong project governance.

What is often an overlooked consequence of a digital transformation project?

A commonly overlooked consequence is the negative impact on employee morale and potential attrition. When the transformation process becomes chaotic or stressful, employees may feel unsupported, leading to decreased morale or even higher turnover.

Why is organizational change management crucial during digital transformation?

Organizational change management is essential because it helps ensure that the transformation is handled smoothly, addressing risks like employee morale and attrition while also helping the organization realize the benefits of the transformation.

How can digital transformation dilute a company's competitive advantage?

When adopting new technologies, organizations may have to change their business processes to fit the software. This could dilute unique competitive advantages, especially if the software is not customizable to the specific needs of the business.

What should organizations do to preserve their competitive advantages during a digital transformation?

Organizations should carefully consider their competitive advantages and explore ways to preserve them during transformation, whether through customization of software, integrating third-party systems, or adjusting business processes.

What is the biggest risk related to ROI (return on investment) in digital transformation?

The biggest risk is the lack of benefits realization. Organizations may fail to define clear ROI metrics or fail to achieve those benefits after the transformation, leading to unmet expectations and wasted investment.

How can organizations ensure they realize the benefits of their digital transformation?

Organizations can ensure they realize the benefits by clearly defining ROI metrics before the transformation and actively managing the project to achieve those outcomes. Using best practices for project management and benefits realization can also help maximize the ROI.