70% of digital transformation projects expected to fail

The rise of the digital economy has created both opportunities and threats, giving rise to one of the industry’s most popular buzzwords; digital transformation.

Jamie Davies

February 7, 2017

6 Min Read
70% of digital transformation projects expected to fail

The rise of the digital economy has created both opportunities and threats, giving rise to one of the industry’s most popular buzzwords; digital transformation.

Telecommunications has traditionally been one of those sectors which has been deemed safe, after all, when will communications become redundant? This idea and perception of safety fuelled confidence in the operators, but a wave of internet ready organizations have threatened this cosy lifestyle. Adapt to the digital era or die is the overwhelming message operators are hearing on a day-to-day basis, but how good are they at changing their ways?

According to Jennifer Kyriakakis, VP of Marketing at Matrixx Software, the transition is not exactly going to plan. Kyriakakis has a slightly more pessimistic view on the industry, predicting that as many as 70% of digital transformation projects will end in failure.

“We’re seeing big mistakes being made and two approaches seem to have emerged, neither of which seem to provide the results which the operators are looking for,” said Kyriakakis.

“Firstly, you see these large scale, wholesale IT digital transformation projects which are 2-4 years long and cost hundreds of millions of dollars. In a lot of these examples, executives are taking the old school business model and trying to adapt it to the new world. They are trying to redesign business processes, but they aren’t taking a different approach to how they implement IT systems, nor how they stage the roll-out those or measure ROI.

“Some of these projects are already beginning to falter, and some are looking like very expensive mistakes.”

This is hardly something which will surprise the industry. Executives who found success in the 90s and 00s, prior to the disruption of the OTTs and digital-native competitors, are trying to use their experience to address the challenge. Experience is critical in tackling any problem, but only if experience says to adapt. If experience says an idea worked 10 years ago, therefore we can solve today’s business problems, there could be a major issue.

“The other approach is to leave the IT system intact and focus on the customer engagement layer instead,” said Kyriakakis. “The big idea on the market at the moment is that digital transformation starts from your customer’s perspective working back in.

“I can solve all my problems by putting on new engagement layers and new mobile applications on top of existing infrastructure, to create a better customer experience. But that doesn’t work.

“People try to redesign their digital channels on their own, just putting them on top their existing infrastructure and the results have been horrendous. We’ve seen applications slow down to 16 second response time, which is worse than it was before. If you lose customers after two or three seconds, this end product is a disaster.”

The second approach is considered purely cosmetic. By creating a new front-end, and trying to meet new experience demands of the digitally-aware customer, without addressing the underlying infrastructure the end product can be worse than the starting point.

The main challenge here is that many executives are trying to solve one problem at a time without considering the complicated relationships between every aspect of the business. In the analogue world, silos may have been manageable, but this simply isn’t the case in the digital. The complicated relationships between each business unit demands a digital transformation project has a much wider scope.

For many executives, the price to play is becoming too expensive. This is perhaps a throw-back to the security felt by the operators prior to the digital disruption, but a sluggish start has caused a huge number of problems.

“This is still the old school way of thinking,” said Kyriakakis. “If an IT transformation is done correctly it doesn’t have to cost a huge amount anymore. With the technologies which are available, for instance cloud-ready or the packaged software offerings, there can be a more cost effective alternative.

“Some operators are looking to create new brands, so instead of having to create massive IT transformation projects which impacts every customer at once, they are minimizing the risk. Using a new brand, implementing digitally-ready technology and digitally-orientated technologies, these companies can find out what works on a smaller scale. Once they find the right formula, customers can be migrated through to the new brand, which will eventually become the core business.”

For this approach to work there has to be a change in mentality in the telco industry. Old-school thinking teaches us failure is bad. Take a slow approach and definitely do not fail. Companies like Google or Salesforce are prepared to fail because they have learned something. Fail, but fail fast and move onto the next project. Continue failing until you find the right answer, and then we’ll go big on this idea.

This idea can be transferred through to digital transformation projects, but executives have to be prepared to fail. Many say they are, but realistically this is PR rhetoric. Say the right things and keep the investors away from the management team’s throats for another quarter. Many operators will get to the much-admired digital business model eventually, but when they get there, and how far behind they are will entirely depend on their approach to digital transformation.

While most will be critical of the operators, this is because they are the ones who grab the headlines; the vendors themselves need to undertake the same transformation projects. SAP is one of those organizations which had a good look at itself, and seems to have turned the corner after a pretty positive quarterly earnings call. But it is one of the few.

“The large traditional vendors in the telco market have really fallen,” said Kyriakakis. “Some are coming too late to the game, they didn’t spend enough five years ago in the right technology and products to be able to provide digital transformation paths for their clients. Now it’s showing up all over the place.

“It does provide a great opportunity for companies like Salesforce, companies that haven’t traditionally dominated the telco space, but this is the software they have specialised in since the beginning. The traditional vendors might have been caught off guard, but the cloud-native companies have a great opportunity.”

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