Three Essential Elements to Prevent a Digital Transformation Disaster

Digital transformations are not simple undertakings. They are complex and risky. When done wrong, digital transformations can be extremely costly, both in terms of money and time. It is not uncommon to hear of even the biggest of companies, working with the most reputed of integrators, fail in their digital transformation efforts. In fact, 73% of digital transformation efforts fail, despite immense investments from the companies.

For those of us looking to integrate digital transformation technologies into our own businesses, there’s a lot we can learn from digital transformation failures. The recurrent pitfalls that organizations often fall into can be quite illuminating and, more importantly, are completely avoidable!

One of the most common digital transformation efforts that companies undertake is the incorporation of a new and faster ERP system into their operations.

ERP stands for Enterprise Resource Planning. They are software systems that use the latest technology—including artificial intelligence and machine learning—to aid the operations of your business, including processes in finance, supply chain, procurement, manufacturing and so on.

The implementation however, as indicated to earlier, can be very troublesome. Revlon, among the most well known and high profile consumer brands in the world, still failed despite investing a substantial amount of money into their ERP implementation.

When Revlon ultimately announced the news of failure in their financial filings, the stock price took a dive and the company even got sued by its own shareholders.

Here’s an excerpt from the filings:

“During February 2018, the Company launched the new ERP system in the U.S., which caused its Oxford, N.C. manufacturing facility to experience service level disruptions that have impacted the Company’s ability to manufacture certain quantities of finished goods and fulfill shipments to several large retail customers in the U.S. The Company cannot provide assurances that it will remedy the ERP systems issues in time to fully recover these sales and/or that the ERP implementation will not continue to disrupt the Company’s operations and its ability to fulfill customer orders”.

Seemingly, after Revlon went live with their new ERP system at the Oxford manufacturing plant, they were unable to ship products, lost customer orders and lost connection to their supply chain. This brought most operations at the plant to its knees and it wasn’t able to manufacture or distribute products anymore. Riddled with these problems, they had to expedite shipments as customers were unhappy and complaining about late orders, further incurring high fees and charges.

Immediately after the announcement, the stock price fell a staggering 6.9% in just 24 hours. Eventually, the increase in capital costs, increase in expenditure, inability to pay their vendors, loss of sales, loss of customer value and lost customers services as well as the man hours spent by executives all led to the company’s net loss exceeding a whopping $70 million in the fourth quarter of 2018.

Revlon is not the only company to face digital transformation failures. In fact, as indicated earlier, it’s a frequent occurrence. Nike reportedly spent $400 million on their digital transformation efforts. The effort failed, and the company reported a loss of around $100 million and the stock price fell by 20%. The company had to invest another five years and a further $400 million to turn things around.

HP, Hershey’s, and Haribo have all reported losses and acute problems after digital transformation initiatives. National Grid and the United States Navy both spent an eye watering billion dollars on their ERP implementation, with the latter project still incomplete.

 

• How to Prevent a Debacle?

What are the reasons behind these failures? Why do so many digital transformations end in frustration?

All industries are liable to failure. digital transformation technologies , aerospace, consumer products, automotives and more all have a history of failure in digital transformation., All of these businesses repeat a few common mistakes and, if you have your eyes open and your mind nimble, you may avoid them in your own efforts.

 

• 1. Implementations risks are poorly understood

 

There are substantial risks associated with incorporating digital technologies into your company. You are essentially changing the way you’re operating your entire business, aiming to increase speed and efficiency.

A careful risk analysis should be conducted before these efforts are undertaken. As much as possible, you should attempt to mitigate these risks. If Revlon had been aware of the dangers associated with their project, they could have prevented such setbacks. Understanding the potential points of failure and devising contingency plans for them is extremely important, especially in today’s fast moving world and high customer expectations.

 

• 2.Choosing an Ill equipped system integrator

 

It’s imperative to ensure you’re working with the right partner during your digital transformation efforts; just because your system integrator is respected or well known doesn’t insulate you from failure.

In addition to a failure on the operational front, choosing the wrong system integrator can be financially expensive. Companies and their partners often deteriorate into ugly scrimmages full of lawsuits and finger pointing. Such was the case even with well known companies such as Miller Coors and Waste Management.

 

• 3.Cutting corners

 

It’s also not uncommon to find companies skimping on the digital transformation process. They are risky projects with substantial investments of both time and money. Yet companies may under invest in things like organizational change management, or try to unreasonably compress the timeline or tighten the budget. Oftentimes, these decisions simply come back to haunt them. When the rubber meets the road and operations go into full swing, digital technologies fail, and companies find themselves spending more and more money to correct the damage than they would have spent to get it right the first time.