4 Key Challenges of Digital Transformation and What to Do about Them

Digital transformation is taking hold in some form across almost every industry imaginable. Research cited in an article published on online journal Digital Nation projects the digital transformation market will reach $2.4 trillion by 2027. Companies that are ahead of the technological curve gain an edge over competitors who lag behind. Yet, managing organisational change is notoriously difficult, and digital transformation change can be difficult than most. What are some of the key challenges and how best can they be overcome?

Why are businesses experiencing a digital transformation?

Of course, innovations drive success across many industries, and frequently determine consumer behaviour. In research conducted by marketing firm Salesforce, more than half of consumers said it is absolutely critical or very important for companies they purchase from to be innovative. 

In another report, they found specifically that 73% of customers prefer to do business with brands that personalise their shopping experience. Personalised services are being made more and more possible with the advent of chatbots, AI and predictive cloud computing. And these are only a few of the ways how digital transformation is driving customer experience.  

Such technologies don’t only benefit customers, however. In another recent Indeed/LEAD article, research was cited that found that 73% of recruitment managers expected AI to increase the speed of recruitment, while 53% expect it to raise overall productivity. 

Clearly, the benefits of digital transformation for business are wide-ranging. It’s no surprise that many management teams are looking to technology to help boost their performance. 

4 key challenges of digital transformation

But embarking on such a process is complex and difficult. A study from global consultancy McKinsey & Company shows that 70% of transformation efforts end up unsuccessful. The Australian Financial Review adds that 'one in three does nothing at all to address the initial corporate goals'. So, what are the 4 key challenges of digital transformation, and how can businesses overcome them? 

1. Strategy

Like all large-scale business initiatives, the key to success is strategic planning. In all the excitement at the potential that new technology can bring, business leaders can find themselves requesting its implementation without adequately preparing their organisation. Technology should assist workers to do their jobs more efficiently and effectively, not simply force them to arbitrarily change the way they work. The absence of a strategic plan can also lead to poor integration with legacy systems, harming productivity and even potentially risking company security. Those planning a digital transformation must set clear goals and timelines, in consultation with trusted IT providers. 

2. Structure

Companies naturally evolve organisational structures that work to fulfil departmental objectives. In such a structure, departments inform stakeholders of necessary information on a regular basis. However, most data is retained within individual departments, rather than shared across them. 

By contrast, an Oxford Economics survey conducted in 2020 of over 3,000 executives across 10 of the largest global industries found that business transformation works best when ‘Every part of an organisation, including its external partners and customers, is agile and interconnected. Executives need to ensure that high-quality information is flowing across their entire business ecosystem, allowing all participants to interact in ways that advance the goals of the organisation’.

This helps facilitate continuous improvement, which is crucial for the iterative nature of a successful digital transformation. From the executives down, organisations require workflows that are in alignment with the customer journey. Such workflows move a team’s focus from their own projects to particular company products, necessitating the creation of new KPIs. They should also incorporate short feedback loops so that issues can be identified quickly, making teams more nimble. By making teams more autonomous and flexible, processes can be continuously improved - ensuring that the digital transformation doesn’t run aground. 

3. Culture

Another report out of McKinsey shows that some of the greatest hurdles to overcome when implementing digital transformation are cultural and behavioural. As with any major change process, digital transformation will lead to modifications in business structures and processes. In companies with well-established organisational cultures and workflows, these attempts at change can be met with resistance. Such resistance can arise from long-term employees wedded to old ways, managers sceptical of change, and corporate politics.

In order to overcome these cultural barriers, a workforce transition plan should be included as part of the digital transformation process. One step to take as part of such a plan is to properly communicate the strategy to employees - including objectives, timelines, and benefits of the change. It’s also important to analyse skill gaps within the organisation so that employees can be upskilled to better fit into the future organisational structure. 

Digital transformation is a long process and cannot be properly implemented without the cooperation of employees. This cooperation can be gained through effective communication.

4. Infrastructure and expertise

Even before completing a full digital transformation, many companies will already utilise IT systems. When undergoing a full modernisation, these legacy systems can, in fact, hinder progress. This is because old systems deeply embedded in ongoing operations and interwoven with each other can be difficult to replace without disrupting the business. As well, employees may not necessarily have the expertise or experience to smoothly switch from old systems to new ones. 

To ensure the transition from legacy systems to their updated counterparts is seamless, businesses can adopt what is known as a ‘bimodal IT approach’. The first ‘mode’ retains existing systems and technologies, while the second ‘mode’ introduces the new alongside the old. Initially, the first mode continues to run mission-critical business operations while the second mode takes on new and supporting applications. 

This gives the business the space to test new technology and train staff in its use without risking the unexpected failure of a mission-critical operation. As performance data comes in, decisions can be made about the incremental transfer of operations from mode one to mode two.  

Conclusion

Instituting a digital transformation is a significant undertaking. There is a whole range of challenges and risks that must be overcome in order to succeed. The process is long, and the work continues even after the new systems are in place. New workflows and procedures will need to be iterated on and repeatedly refined in order to address unforeseen issues and adapt to changing market conditions. But, if executed well, digital transformation can powerfully enhance a business's potential and open the door to new opportunities.