Most people think that ERP, AI and digital transformations fail because they select the wrong ERP system or digital technology.
However, independent research consistently shows extremely high transformation failure rates of 80%+ regardless of the system chosen.
How can this be?
Well, contrary to popular opinion, choosing the wrong ERP system/technology or using a Project Manager who hasn’t implemented the same system before is not the cause of failure.
Having analysed and recovered many failing IT projects, digital transformations and business transformation programmes, I can tell you that most transformation programme failures are caused by unclear goals, poor leadership and over-reliance on the technology aspects of the transformation.
In other words, they fail because company leaders don’t understand and address the strategic, cultural and operational business changes that are required to implement their chosen system properly.
If I had £10 for every time a business leader has:
- implemented the same ERP system as the one they used in their previous company, assuming the same technology would deliver the same results in their new company; or
- insisted on recruiting an IT project manager or IT consultant who has recently implemented the same system for a different business, assuming it will guarantee or maximise the probability of a successful implementation for their own business; or
- relied on the software vendor alone to implement their new ERP system without supplementing their software expertise with external business transformation expertise;
then I would be a rich man by now!
As an independent management consultant who is often called upon to recover other people’s digital transformation disasters and failing business transformation programmes – who was formally trained as a graduate apprentice in business systems analysis and business systems implementation – I’ve been listening to and challenging this kind of naive and uneducated thinking for a long time now.
So, isn’t it time that we put the record straight?
To talk to us about your digital transformation, book time with me here
What follows below is a comprehensive and engaging analysis that reveals the real reasons why most digital transformation programmes fail and what you and your organisation can do differently to avoid becoming the next failure on a long and ever-growing list.
Why 80% of Digital Transformations Fail
A lot has changed since I first implemented a computer system and managed a digital transformation.
The systems that are around today, were not around when I started and many others have come and gone or been acquired by other system providers in between times.
New technologies like ERP itself, Local Area Networks, the Internet, cloud computing and many other digital and AI technologies have emerged and are continuing to emerge all the time.
But regardless of these technologies, the failure rate of digital transformations has stayed the same – at circa 80%.
What does that tell you?
The Technology Illusion
While most organisations focus their attention on the digital technology being implemented, it is impossible to transform a business with technology alone.
So, when business leaders treat digital transformation purely as an IT project, instead of the business reincarnation that it really is, they create a massive disconnect between technology systems and business outcomes.
This “technology-first” mindset is one of the most common reasons that transformations fail.
The result:
- New systems and digital/AI tools are implemented without clear business use cases;
- Employees don’t understand the purpose of the new technology;
- Business processes stay outdated and are now even more outdated;
- The expected Return On Investment (ROI) never materialises.
Lack of Strategic Alignment
Digital transformation requires alignment across strategy, leadership and execution.
When these three pillars are not synchronised, the programme becomes fragmented.
Common symptoms include:
- Conflicting priorities between business departments, sites, business units, etc.;
- Leadership teams not fully bought in to the chosen approach or solution;
- Implementation projects launched without a clear and stable business case;
- Individual project teams and ERP/IT providers working in silos.
Hence, organisations often fail because they don’t balance technology with business strategy or align their leadership team around a shared vision.
Culture: The Silent Killer
Culture is the biggest determinant of transformation success and the biggest reason for failure.
Even the best technology will fail if the organisation’s people resist change and don’t adopt it.
Many companies underestimate how deeply transformation affects people’s roles, behaviours and ways of working.
Key cultural blockers include:
- Fear of job loss, de-skilling or automation;
- Resistance to new methods and business process changes;
- Lack of digital skills and/or insufficient training (for both delivery team and users);
- Poor communication on “why we must change” from the leadership team.
Studies show that change resistance and leadership misalignment challenges are often the primary reason that digital transformations fail.
Legacy Systems and Over-Complexity
Large enterprises often struggle with rigid legacy systems that are difficult to integrate or modernise.
There are many occasions when I have discovered that the organisation:
- Has thrown away or lost the documentation for its current system; or
- Has bespoke legacy software written in a programming language that nobody can read or write programmes in any longer; or
- Uses IT hardware that is now obsolete and can’t be maintained or upgraded.
Issues like these lead to:
- Difficult (if not impossible) customisation and high costs;
- System integration failures;
- Slow implementation and maintenance problems;
- Systems that can’t scale and/or fail to meet business needs.
Circa 80% of enterprise software rollouts fail to meet expectations due to these issues.
Hidden Costs and Budget Overruns
Failed digital transformations are expensive.
Enterprises collectively lose hundreds of £billions annually due to poor planning, misalignment and failed implementations.
When organisations underestimate the cost of change including training, integration, process redesign, change management, etc. they quickly run into budget overruns that stall or derail the programme.
Unclear Success Metrics
You can’t succeed if you don’t know what success looks like.
Many organisations launch digital and transformation initiatives without defining measurable outcomes and Key Performance Indicators (KPIs) that are realistic and achievable for their own business.
This causes:
- Misalignment of expectations between business leaders, system users and technology providers;
- Difficulty proving Return On Investment (ROI);
- Transformation programmes and implementation projects that drift without direction.
Without clear and agreed KPIs to define what success looks like, delivery teams struggle to prioritise and business leaders struggle to justify continued investment.
The Human Factor: Skills Gaps
Digital transformation often requires new skills such as data literacy, agile delivery, automation, cloud engineering and more.
When organisations fail to invest in upskilling their team, fail to recruit some new people or fail to partner with proven interim transformation expertise for these capabilities; then it should not come as a surprise when their transformation efforts get into difficulties and ultimately fail.
To talk to us about your digital transformation, book time with me here
So… How Do You Beat the 80% Failure Rate?
- Start With Strategy, Not Technology
Define the business outcomes first.
Technology should serve the strategy, not the other way around.
- Align Leadership Early
Business leaders must unite around a shared vision and business case with clear priorities and a realistic transformation roadmap.
Write this down and focus on it throughout your transformation journey.
Remind yourselves of it regularly e.g. during your review meetings and use it as a guiding light.
- Invest in Culture and Change Management
Transformation is a people change programme not just a technical IT implementation project.
Training in the new business processes as well as the new technology is non-negotiable.
Communication of “why we need to change” and engagement of everyone involved is also critical.
- Modernise Processes Before Modernising Technology
Digitising broken legacy processes will only make them fail faster.
Also, re-work of digital transformation activities after you are forced into changing your business processes later in the programme becomes unnecessary.
So, make sure you “play all the right notes in the right order” unlike the famous Eric Morecambe sketch with “Andrew Preview” where Andre Previn accused Eric of playing all the wrong notes and Eric’s response was to grab Andre by the collar and reply that he was “playing all the right notes, but not necessarily in the right order.” Watch it here: https://www.bbc.co.uk/news/av/entertainment-arts-47409017
- Measure What Matters
Define success metrics and KPIs that deliver realistic and achievable business outcomes as well as enabling you to manage your change programme properly.
I would therefore expect to see metrics and measures related to enhanced customer experience, improved business efficiency, revenue growth and/or risk reduction.
If all you have is a go-live implementation date for the new IT system then you are making the fundamental mistake of managing an IT project, not a business change.
- Build Digital (and other) Skills Across the Organisation
Ensure you upskill your workforce, recruit strategically and partner effectively to fill your capability gaps.
For new systems or digital technologies like Artificial Intelligence (AI), recruiting these skills will be necessary but insufficient on their own.
When you view it as a business transformation, you will start to recognise the need for other skills changes too.
New systems and technologies have the habit of creating new capability gaps that you never had before and new skills will therefore be required to close those.
Final Thoughts
Digital transformation isn’t failing because the technology doesn’t work.
It is failing because organisations underestimate the complexity of change and do it wrong!
But with the right strategy, leadership alignment, cultural readiness and focus on the right things in the right order, your organisation can be part of the 20% that succeed and thrive.
To talk to us about your digital transformation, book time with me here
See also: Artificial Intelligence (AI) How Manufacturers Are Revolutionising Their Aftermarket Business
How To Get Professional Digital Transformation Support For Your Business
Finding the right support to help deliver your digital transformation successfully is not easy, even when you know that you need some help.
And getting it wrong can be very costly in a multiple of ways!
We have deep expertise and a proven track record of defining, managing, implementing and recovering other people’s digital and business transformations and for companies in a variety of business sectors including automotive, aerospace, defence, electronics, industrial, marine, domestic appliances, logistics, and public sector services too.
So if you’d like some help with your transformation programme, we would be happy to share some of our case studies and how you might achieve something similar with your business.
Here’s a few examples:
Defence Manufacturer – Contractor Logistics Support (CLS) Improvement
Consumer Appliance Manufacturer – Transformation Programme Review
What’s been your experience with business transformations?
Leave us a comment below…
