Digital Transformation failures and what you can learn from them.
In the digital age, organisations that are unable to achieve a successful transformation are losing profitability just as badly as those that continue to ignore the digital imperative. The fact is, the majority of companies that do attempt a transformation get it wrong. Looking at case studies of those that fail can be a good way of figuring out the secrets to success.
Most companies now recognise the importance of adopting digital technology, and most are in the process of doing so. However, far fewer truly understand how and why it’s important, and how to implement digital tech to their best advantage. When companies fail at digital transformation, it’s often because they’re not approaching it from the right perspective. Digital transformation is about adopting new technology in order to better serve consumers—so the best way to approach it is from a customer-focused perspective. Sometimes, failure stems from the fact that the company doesn’t use the right tools, or attempts the transformation without a clear understanding of what technology should drive and facilitate the transformation. And sometimes, it’s a simple lack of planning that’s the culprit.
The Co-op Bank’s Failure to Manage Change
One standout example is that of the Co-op Bank and its £300 million IT failure. In 2007 the company struck a deal to overhaul its IT systems, but by 2011 the project had to be put on hold due after encountering a number of serious problems. The bank was in 2013 forced to cancel the project entirely—the £300 million investment had to be written off, and the company was already suffering from a massive shortfall in capital.
Where they went wrong
In 2013 the Co-op Bank announced its plan to launch an independent review into the events that contributed to its £1.5 billion capital shortfall. Chaired by Sir Christopher Kelly, the review identified the root causes of the shortfall, including the 2009 merger with the Britannia Building Society and Project Unity, as well as the failed IT systems project.
In its review of the events The Kelly report cites a number of contributory factors, including frequent changes in IT project leadership, and the risky nature of the decision to entirely replace rather than simply upgrade its banking platform. In addition, the report cites disengagement of senior management as a serious problem—always a major point in any digital transformation due to the importance of a company culture that accepts and facilitates the changes.
The lessons here are simple. First, leadership consistency is hugely important in any project, but when the project is of such an immense magnitude, frequent leadership changes are a recipe for disaster. Combined with the resistance of upper-level management to engage with the project, it’s no wonder that the systems overhaul languished for a full two years before finally being cancelled.
Kuoni Cuts Its Losses
Kuoni was founded in 1906 to focus on providing affordable and accessible travel opportunities, and for decades did just that, with great success. Despite its early adoption of computerised reservation systems in the 1980s, however, the company ultimately failed at digital transformation in the new millennium. In the end, Kuoni failed to recognise the dramatic and permanent changes developing in the travel market, and realized far too late that travel was going digital. And yet when the company finally did come to understand the digital shift, resistance to change that came from within the company itself ensured that when Kuoni went digital, it was too little too late. Ultimately, the company sold its tour operating activities in 2015 after a long period of decline.
Despite its problems, Kuoni remains as a successful and award-winning luxury tour operator—after cutting its losses to focus on what it does best.
Where they went wrong
Kuoni’s major issue is the same as that of countless other companies that failed to recognise the significance of disruptive technologies and business models: it believed it could continue to thrive by relying on its established business model—that its customers would continue to choose face-to-face interactions rather than book travel via digital methods. They also failed to understand that the refusal to go digital meant they weren’t able to deliver a competitive level of value.
Finally, the company’s inability to understand the value of digital transformation meant that when it did begin to make an attempt at transformation, resistance from within the company was strong enough that it thwarted any real chance at success.
Kuoni’s story proves the importance of understanding your customers. If the company had understood what its customers wanted, it may have made the effort to go digital sooner, and with more enthusiasm, and with more commitment from its own employees.
How to avoid digital transformation failure – 4 lessons learnt
The senior team need to commit to the project. If they’re not involved, or not engaged, it’s less likely to work.
The same project leader throughout the project. If there are likely to be changes, a senior team should be formed from the start as there’s less impact when one leaves.
Monitor and react to disruption
Disruptive marketing is all around us and this is likely to continue. Ensure your systems are geared up towards monitoring, identifying and reacting to disruption in the market.
Customers often adapt disruptive technologies as the provide elements that traditional business lacks. Speak to customers on a regular basis, to ensure that you’re not missing quick wins and early opportunities, to make a difference and retain customers