Digital transformations are even more difficult than traditional change efforts to pull off. But the results from the most effective transformations point to five factors for success.

As digital technologies dramatically reshape industry after industry, many companies are pursuing large-scale change efforts to capture the benefits of these trends or simply to keep up with competitors. In a new McKinsey Global Survey on digital transformations, more than eight in ten respondents say their organizations have undertaken such efforts in the past five years.1 Yet success in these transformations is proving to be elusive. While our Mckinsey research has found that fewer than one-third of organisational transformations succeed at improving a company’s performance and sustaining those gains, the latest results find that the success rate of digital transformations is even lower.

The results from respondents who do report success point to 21 best practices, all of which make a digital transformation more likely to succeed. These characteristics fall into five categories: leadership, capability building, empowering workers, upgrading tools, and communication. These categories suggest where and how companies can start to improve their chances of successfully making digital changes to their business.

 

Transformations are hard, and digital ones are harder

Years of research on transformations has shown that the success rate for these efforts is consistently low: less than 30 percent succeed. This year’s results suggest that digital transformations are even more difficult. Only 16 percent of respondents say their organizations’ digital transformations have successfully improved performance and also equipped them to sustain changes in the long term. An additional 7 percent say that performance improved but that those improvements were not sustained.

Even digitally savvy industries, such as high tech, media, and telecom, are struggling. Among these industries, the success rate does not exceed 26 percent. But in more traditional industries, such as oil and gas, automotive, infrastructure, and pharmaceuticals, digital transformations are even more challenging: success rates fall between 4 and 11 percent.

Success rates also vary by company size. At organizations with fewer than 100 employees, respondents are 2.7 times more likely to report a successful digital transformation than are those from organizations with more than 50,000 employees.

 

The anatomy of digital transformations

Whether a change effort has succeeded or not, the results point to a few shared traits of today’s digital transformations. For one, organizations tend to look inward when making such changes. The most commonly cited objective for digital transformations is digitizing the organization’s operating model, cited by 68 percent of respondents. Less than half say their objective was either launching new products or services or interacting with external partners through digital channels. Digital transformations also tend to be wide in scope. Eight in ten respondents say their recent change efforts involved either multiple functions or business units or the whole enterprise. Additionally, the adoption of technologies plays an important role across digital transformations. On average, respondents say their organizations are using four of 11 technologies we asked about, with traditional web tools cited most often and used in the vast majority of these efforts.

At the same time, the results from successful transformations show that these organizations deploy more technologies than others do (Exhibit 1). This might seem counterintuitive, given that a broader suite of technologies could result in more complex execution of transformation initiatives and, therefore, more opportunities to fail. But the organizations with successful transformations are likelier than others to use more sophisticated technologies, such as artificial intelligence, the Internet of Things, and advanced neural machine-learning techniques.

Our research points to a set of factors that might improve the chances of a transformation succeeding. These factors fall into five categories:

  • having the right, digital-savvy leaders in place
  • building capabilities for the workforce of the future
  • empowering people to work in new ways
  • giving day-to-day tools a digital upgrade
  • communicating frequently via traditional and digital methods

Having the right, digital-savvy leaders in place

Change takes place at all levels during a digital transformation, especially when it comes to talent and capabilities. Nearly 70 percent of all respondents say their organizations’ top teams changed during the transformation—most commonly when new leaders familiar with digital technologies joined the management team.

Indeed, adding such a leader is one of the keys to transformation success. So is the engagement of transformation-specific roles—namely, leaders of individual initiatives and leaders of the program-management or transformation office who are dedicated full time to the change effort. Another key to success is leadership commitment. When people in key roles (both the senior leaders of the organization and those in transformation-specific roles) are more involved in a digital transformation than they were in past change efforts, a transformation’s success is more likely.

Other results indicate that when companies achieve transformation success, they are more likely to have certain digital-savvy leaders in place. Less than one-third of all respondents say their organizations have engaged a chief digital officer (CDO) to support their transformations. But those that do are 1.6 times more likely than others to report a successful digital transformation.

Looking ahead

While respondents say that many digital transformations fall short in improving performance and equipping companies to sustain changes, lessons can be learned from those who report success. The survey results suggest steps companies can take to increase their chances of success during a transformation:

  • Reimagine your workplace. The results show that success requires both digital-savvy leaders and a workforce with the capabilities to make a digital transformation’s changes happen, which other McKinsey research also confirms.5 The workforce implications of digitization, automation, and other technological trends are significant, and companies will need to invest in and hire for radically different skills and capabilities. Whether or not an organization has already begun a digital transformation, it is important for all companies to think critically about the ways in which digitization could affect their businesses, in the near and longer term, and the skills they will need to keep up. One critical step is for organizations to develop clear workforce strategies to help determine the digital skills and capabilities that they currently have—and will need—to meet their future goals.
  • Upgrade the organization’s “hard wiring.” As digital requires new ways of working as well as changes to the organization’s overall culture, employees must be empowered to work differently and keep up with the faster pace of business. The implementation of digital tools and upgrading of processes, along with the development of a nimbler operating model—that is, the hard wiring of the organization—will support these changes. Of course, leaders have important roles to play, too, by letting go of old practices (command-and-control supervision, for example). Since not all leaders will have the experience to support or enact such changes, dedicated leadership-development programs could help leaders and employees alike to make the necessary shifts in mind-sets and behaviors.
  • Change the ways you communicate. Good communication has always been a key success factor in traditional change efforts, and it is just as important in a digital transformation. In a digital context, companies must get more creative in the channels they are using to enable the new, quicker ways of working and the speedier mind-set and behavior changes that a digital transformation requires. One change is to move away from traditional channels that support only one-way communication (company-wide emails, for example) and toward more interactive platforms (such as internal social media) that enable open dialogues across the organization. Another key to better communication is developing more concise—and even tailored—messages for people in the organization, rather than lengthier communications.

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Source from Amazon Web Services & Mckinsey Paris

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