In today’s business world, digital has become mainstream. Digital transformation is one of the biggest trends of our generation, and huge amounts of resources are being poured into it annually. However, when we look below the surface, we’ll see that 70% of digital initiatives fail. Some may see suboptimal ROI on their digital investments as the budget keeps increasing but results are not visible. Some companies may spend a lot on big data and analytics without realizing that their legacy infrastructure is a barrier to success.
Overall, the rate of full digital adoption is fairly low. Based on our experience across key industries, there has only been a 5-10% rate of full adoption. For example, according to Celent (via The Financial Brand), only 11% of banking institutions are executing an omnichannel strategy, while 50% of banks are still only researching omnichannel capability. Personalization in many cases is also extremely limited. While RedPoint Global found that 63% of customers today expect personalization, BCG found that only 15% of enterprises are true personalization leaders. The rate of real-time data leverage is extremely low, with 1% of all data collected ever being analyzed and used, and only 16% of brands are very effective at delivering real-time interactions.
Why is there such a gap between the potential and the impact, and how can companies narrow that gap? The biggest problem is that most businesses today are playing catch-up when it comes to digital transformation. Instead, companies should learn from digital natives and play offense rather than defense. Full digital adopters are able to extract meaningful impact from their investment such as a 25% increase in productivity, twice improved customer retention rates and two to three times faster growth than their peers.
Why The Problems Persist
When it comes to digital transformation, most executives in large enterprises are simply not getting to the root of the problems. In my experience working with large legacy enterprises, I have seen four common root causes of failed digital initiatives.
• Data Infrastructure: The existing data infrastructure creates limitations when it comes to leveraging unstructured data to drive insights. Originally created to deal with structured data, this infrastructure wasn’t prepared for the explosion of big data. The pieces are hard to change once defined since the addition of new data dimensions requires expensive design and reprocessing effort. Moreover, legacy data infrastructure makes it very hard to get to a deeper level of granularity of insights. For example, when have you last seen a bank that is as precise at personalization as Amazon?
• IT Processes: Traditional IT deployment cycles as they’re set up in many legacy enterprises are not designed to support and drive the modern analytics “test, learn, adapt” paradigm. These processes should be based on experimentation. If something has to fail, it has to fail fast. You try something, measure results, fail, change things, try again. Instead, in a legacy enterprise, you have to first spend a lot of time doing the analysis and making sure you get it right the first time because if you fail, it may be fatal.
• Back-End Systems: In most legacy enterprises, these systems end up being a bottleneck. They simply aren’t designed to handle the probabilistic choice-based workflows to enable real-time responsiveness to customer signals. Have you tried opening a bank account online? It’s not possible precisely because, in most banks, their back-end systems are not able to support it and deliver real-time customer services online. As a result, businesses are unable to realize the true potential of tightly coupled systems and automation for real-time customer services and an end-to-end transformation.
• Legacy Business Processes: The basic mindset of these processes is all about control, risk management and being comprehensive. These processes were designed to get things right the first time without fail. As a result, businesses have built very complex processes to avoid failure, but as with anything very complex, it is hard for it to be fast in real time. The legacy mindset of the “Right First Time” process design makes it difficult to drive iterative experimentation-based improvements.
In other words, even if the technology works, business processes end up slowing things down.
Changing The Game
To make a lasting change, I believe legacy companies need to stop playing defense and start playing offense. They should take lessons from the digital native companies that have leapfrogged them by reimagining these dimensions.
The main idea is that digital initiatives themselves should be leading the strategy, not the other way around. This will allow businesses to drive speed to market, unlock ROI and — most importantly — change the game from defense to offense. We will dive deep into how enterprises can play offense in my next post.