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Digital transformation strategy needs realistic expectations

A digital transformation can improve business operations, but companies need to strike a balance between business goals and technology investments to achieve success.

As more companies seek digital transformation, the strategy they pursue often means the difference between success and failure.

Eric Kimberling, founder and CEO of Third Stage Consulting Group, an independent enterprise computing industry firm in Lone Tree, Colo., has consulted with many companies on their digital transformation strategy and practices, and knows what separates the winners from the losers. He's found that strong leadership and sound strategy are vital for success, but lack of project definition and the allure of dazzling new technology can imperil projects.

Kimberling spoke at Digital Stratosphere 2022, a virtual conference sponsored by Third Stage Consulting Group.

Eric KimberlingEric Kimberling

While the term digital transformation remains amorphous, Kimberling defined it broadly as the combined use of technology, business processes and organizational changes that drive changes in an organization. The pursuit can take various forms, such as crafting a strategic initiative to help a company compete better; resolving built-up technical debt by upgrading outdated systems; taking advantage of R&D research investment in newer technologies; or realizing the limitations of existing systems because of changing circumstances such as COVID-19.

A digital transformation strategy is analogous to a rocket ship launch, with three distinct stages, he said.

In the first stage, companies perform tasks like selecting the software and choosing potential partners as well as planning and beginning the project. In the second stage, some features of the system or technologies are rolled out and the project achieves partial benefits realization; it's also where projects can be checked for budget and time overruns. In the third stage, implementation is completed, and the ROI is more fully realized.

Expectations must be realistic

By getting to the third stage, Kimberling said, organizations can enter a "digital utopia," where they have the processes, organizational structure and infrastructure in place to take advantage of groundbreaking technologies such as AI and IIoT to transform the business.

But, he warned, many organizations fail to reach this stage. One of the biggest reasons for failure is having unrealistic expectations and underestimating the amount of effort, time, resources and money a digital transformation project will take.

"You want to be pragmatic and realistic about where you can realistically leverage technology to help your organization in the next two to three years rather than the next five to 10 years," he said.

Vendors are providing new technology in their products with newfangled features and functionality, but there's often a chasm between the new capabilities and the organizations' capacity to use them productively, he said.

"Technology certainly is a tool and an enabler to solve the business problems, but it's only one piece of the overall puzzle," he said. "You also have to improve your processes, you have to change your culture, change your people, your organizational design."

Why some succeed, while others fail

Organizations that make it to the third stage of digital transformation share common traits and strengths, just as organizations that fail, according to Kimberling.

In general, a successful transformation has realistic goals and strong management, while an unsuccessful digital transformation strategy suffers from an overly ambitious scope and overly optimistic expectations of costs and time needed to complete the project.

In the presentation, Kimberling detailed some of the characteristics of successful and failed digital transformations.

Expectations and goals. Organizations need to set realistic, achievable goals. When they embark on a digital transformation, companies can focus on the outcome -- such as replacing an ERP that's no longer adequate or won't be supported by the vendor after a certain date. But this can create false expectations that the digital transformation will be easy and the new system will solve all the organization's problems.

Organizations focused on the end goal can underestimate how much time, money and effort it takes to plan and structure the project, Kimberling said.

"That unrealistic expectation is a very real, common dynamic that actually leads to a lot of failures," he said.

Leadership. Successful digital transformations require experienced leaders in key positions. Ideally, they've led initiatives like these before. A key factor for successful leadership is a healthy skepticism about the claims from vendor salespeople, who are not obligated to disclose the risks and challenges of the technologies. Having a decision-maker who can ask the right questions and determine possible roadblocks or pitfalls of deploying the technology is useful, he said.

"[Vendors] aren't incentivized to sell you the bad side, and any technology you deploy is going to have a bad side," Kimberling explained. "There's no perfect technology and there's always a risk that needs to be managed."

Balance. For any digital transformation strategy, companies need to balance technology investment with business priorities. Organizations that lead with technology investments may not achieve the expected business value and, instead, cause operational disruptions that hinder a business and can be difficult to overcome. In some cases, particularly those involving SMBs, companies have gone out of business because of problems caused by failed ERP implementation projects.

"Those are extreme situations, but the more moderate failures and challenges are more common and are what most organizations have to worry about," Kimberling said.

Change management. Managing the human component of a transformation journey is equally as important as managing the technology side. Leaders of successful transformations recognize that change can be difficult for employees even if on the surface they welcome and are ready for the new technologies.

"Successful leaders know that even though people [may say they are on board], there are going to be underlying fundamental resistances to change because of the magnitude that organizations are changing," Kimberling explained.

Project focus. Any digital transformation has a lot of moving parts, but most organizations get myopically focused on selecting and rolling out enterprise applications, neglecting other vital parts like change management and redesigning business processes. The goal of a digital transformation should be to implement new enterprise technologies in a way that fundamentally changes the business.

"[You want to avoid] just putting in a transactional back-office system, but rather get something that actually gives better insights and visibility into the operations," Kimberling said. "You also have to have the project quality assurance running from start to finish, centered around project governance, controls, resources and risk mitigation."

Jim O'Donnell is a TechTarget news writer who covers ERP and other enterprise applications for SearchSAP and SearchERP.

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