Digital Transformation Problems and Solutions
Digital Transformation Problems and Solutions is the third and final part in our digital transformation series. If you missed the other parts, you can find Digital Transformation Part One here.
Digital Transformation Problems and Solutions
Digital transformation can drive significant benefits for the organisation. 43% of digitally-mature businesses report profits well above their industry benchmark, with profits on average 17% higher for these businesses. As a result of these clear financial benefits, businesses in the US spent an average $11million in 2020 alone on digital transformation. But more than 70% of digital programmes fail to deliver significant improvements or value.
In our experience there are four fundamental and underlying forces which give rise to the high rates of failure:
The Skewed Incentive Problem
One of the digital transformation problems is that there is such a strong incentive to reach digital maturity. The rewards for companies who successfully leverage digital transformation are huge. Unfortunately this can skew the decision making matrix of some departments. The sole focus becomes achieving digital transformation, at any cost. This means the focus becomes the product, rather than the overall welfare of the business. Great products attract large userbases which can be monetised in the future through subscriptions, market intelligence, or advertising. Continuous product innovation can indicate potential for future revenue growth. This can push up the perceived value of the business, providing that the product enhancements add significant value for users. This is a highly effective strategy that many successful companies have used - Uber, Deliveroo and Gousto all focus on creating a better product which in turn drives up the value of the business. This keeps current investors happy and encourages more people to invest, driving up the value of the business even more. But this is a risky strategy: huge sums of money must be invested upfront in the hope of unlocking value several years down the line. As such, there is a fine line that executives must walk between securing the long-term future of their companies, and sustaining the company in the short-mid term.
The Customer Expectation Problem
The second key challenge lies in the liquid expectations that many customers have of digital experiences. Today’s user is surrounded by super-slick, one-touch, feature-rich user journeys. They expect it as standard. Standards are constantly rising, so companies must keep up: if they fall behind, they get left behind. For a digital product to succeed, it must meet or beat these high expectations. Even a Minimal Viable Product may not be that minimal. Customers are quick to drop a product if it doesn’t meet their needs and will rarely return.
The Basic Delivery Problem
This leads inexorably onto the third force: the Delivery Problem. High-end, innovative, feature-complete products are complex and time consuming to deliver but technologists are just not that good at delivering. The 2018 Standish CHAOS report found that just 29% of IT projects succeed, with 19% being complete failures and the rest failing to meet expectations. Delivering a successful tech project is tough. In large transformations there are a myriad of other factors which must deliver at the right point too. Contractual issues with vendors and partners, human issues as people join and leave the project, scheduling issues, disagreements between stakeholders over the objectives of the programme, and so on can all reduce the likelihood of success. Add to this the growing tech skills gap and you start to understand the extreme pressure that digital transformation projects face.
The Early Investment Problem
Finally, the Investment Problem arises because of the interplay between the Customer and Delivery Problems: customers demand feature rich products but the path to get there is fraught with hazard. The consequence of this is that large capital investments are typically made upfront to fund the build phase of delivery, but the return on that investment to the company is realised long after launch. Risk is therefore front-loaded while reward and failure are backloaded.
The Four Problems Equate to Big Risk
Taken together, these four problems equate to huge risk. In effect, executives are incentivised by the prospect of huge gains to overlook the significant risk of failure and invest huge sums to achieve future growth, or the achievement of an appreciation in share value. Since customers demand feature rich products from day one, the pressure is on to deliver big-bang. This leads to risk being backloaded and reduces the ability to fail fast and learn early. You can being to see the complexities within digital transformation problems and solutions.
Digital Transformation Problems and Solutions: a better way
Despite the difficulties with digital transformation, it remains an essential component for any business that wants to continue to thrive. The world is changing. Digital innovation is the new normal, it is no longer an option. Businesses must embrace digital innovation or be left behind. We only have to look at AirBnB, Starling bank, Bumble or Uber to see what can be achieved if digital transformation is embraced, and done correctly.
Investment in digital really does enrich our lives: safer, better taxi rides; comparison platforms which put consumers in the driving seat; apps which enable us to better manage our health. These four structural issues significantly impede rates of success and so an answer to these contradictions is an economic imperative. The question, in other words, is “how” not “if”.
Digital Transformation Problems and Solutions: Agile Methodology
Fortunately, there is a better way. The key to success lies in a truly agile approach to delivery. The term “Agile” is now arguably amongst those technology terms that has lost all meaning from overuse. However, far from being a vacuous buzzword, Agile methodologies are rooted in deep wisdom gained from more than 30 years of software engineering research and experience.
Its roots lie in the “lightweight methodologies” of the 1990s – a reaction against traditional waterfall methodologies which placed emphasis on analysis, design and documentation. In contrast to this, lightweight methodologies argued that – since analysis and design documents are never complete, accurate or up-to-date – the time invested in these activities would be better spent collaborating closely with users to get the job done.
It wasn’t until 2000 that Agile was given life by the leading lights of the software engineering world who gathered at a Utah ski resort. These gurus were frustrated with the high failure rates of large-scale tech programmes and lack of real value delivered. They met to agree a set of principles that would pave the way to greater success rates. That set of principles was branded the Agile Manifesto.
To many, the word “Agile” conjures up images of engineers set loose without visions, designs or plans. But that is not the intention of the approach. There is genuine wisdom in the principles, rooted in thirty plus years of research and practice. This wisdom has now been recognised by regulatory bodies (such as the FCA) as key to successful delivery of change. The critical point is that agile delivery actively aims to manage risk but does so in a way that acknowledges, rather than attempting to remove, the fundamental fact that software engineering is highly unpredictable. It does so by building short feedback loops between the customer and the engineer through rapid delivery of working code, by delivering the most important requirements first, and through customer-led course correction where things need to change.
These key principles provide direct answers to at least three of the four structural issues of digital innovation. Agile tackles the Customer Problem by putting the customer at the centre of delivery and constraining the feedback loop to short cycles (“a sprint” in one agile approach). That rapid feedback and close engagement with the customers is essential to engineers who get early confirmation (or otherwise) that they are building something the customer loves and allows them to course correct much earlier if needs be.
Digital Transformation Problems and Solutions: why can't engineers engineer?
On the Delivery Problem, much focus has been given in the software engineering literature as to why civil engineers can build a bridge, but software engineers can’t deliver software. The essential answer is two-fold. Firstly, while civil engineers deal in structures subject to known and quantifiable physical laws, software engineers deal in ambiguous domains (financial today, logistical tomorrow, for instance) whose rules are largely manmade, subject to debate among stakeholders, and constantly changing.
Secondly, numerous studies in the software engineering literature have shown that cognitive limitations imply the brain is ill-equipped for large-scale top-down design. The Agile mantra of delivering in small, focussed increments is realistic and pragmatic. It recognises that by working on bitesize, manageable chunks the engineers get to do one thing at a time and do it well, rather than trying to solve the whole problem upfront. And this works. Despite its overall gloomy picture, the 2018 Standish report found that Agile projects have a 60% higher success rate than large-scale programmes.
The Agile approach also provides sponsors with options to mitigate the Investment Problem, since the stakeholder can now make informed decisions at the end of each increment. Because each increment should deliver “working software”, the customer has something tangible they can feed back on. The delivery team can also take a view on what the next priority would be. As such, the stakeholder now has meaningful insights into whether delivery is going well, whether the customer is satisfied, and what the expected benefit of further investment would be. Accordingly, risk is spread more evenly throughout the roadmap of the product with value release and benefit realisation much earlier in the lifecycle.
When it comes to digital transformation problems and solutions, there are no panaceas but with a skilled, experienced and grounded team addressing the underlying challenges inherent in digital transformation programmes, the principles of Agile significantly improve the chances of success while controlling risk along the way.
At Volanto we are digital transformation experts. With decades of experience, we understand how to use technology to unleash potential. More importantly, we know how to do it successfully. Contact us now to arrange a free consultation.
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