How digital transformation failures can happen to any enterprise
For enterprises, digital transformation is the perfect example of a double-edged sword. On the one hand, it holds forth promises of increased efficiency, cost reduction, and often a decisive edge on the competition. But the dangers posed by large-scale disruption to internal systems and processes are all too real.
Studies by McKinsey and Forbes indicate that the failure rate in digital transformation programmes ranges anywhere between 70% to 84%. As these trends imply, the last three decades have thrown up numerous instances of catastrophic failures in digital transformation by enterprises.
But as the famous American educator and pragmatist philosopher John Dewey once said – “Failure is instructive.” And there’s quite a lot we can learn from past failures in digital transformation. Here are some of the more illuminating examples:
Ford – the dangers of going in blind
With the rise of ride-sharing, electric vehicles (Tesla) and the promise of self-driving cars, old-fashioned auto-makers like Ford face a difficult and uncertain future. To counter this, the Michigan-based company created Smart Mobility, a new segment that focused on developing cars with digital components and features.
Smart Mobility was designed to act more like a tech startup and less like a traditional car manufacturing subsidiary of Ford. But this approach has so far yielded only losses to the tune of $400 million or more.
A lot of that has to do with the stark situation companies like Ford and GM find themselves in – they are auto manufacturers who are being forced to look elsewhere to make profits, beyond selling cars.
The main issue here with initiatives like Smart Mobility, these enterprises are in an experimental mode – they are looking for potential ideas that might work. It is a huge gamble, even for a global brand like Ford. So far, it has cost a CEO his position at the company, along with a 30% crash in stock prices.
But given the dire situation Ford finds itself in regarding their future, they are sticking with Smart Mobility. The company has invested in at least 55 different tech subsidiaries involving innovative ideas like robot-taxis, ride-hailing and more.
For now, they have the profits from their traditional car sales to fuel this investment. But if they don’t create concrete profit models soon, things will certainly take a turn for the worse.
Trustee Savings Bank – the importance of patience & caution
Banking is one sector that is being transformed in the last decade or so with the rise of internet banking, e-commerce, and online payments. The Edinburgh-based Trustee Savings Bank (TSB) wanted to modernise its online banking system after its exit from the Lloyds banking group in 2014.
They were still renting an online banking platform from their erstwhile partners. A decision was made to migrate their five million customer accounts and data to a new platform developed by TSB’s new owners – the Sabadell Banking group from Spain.
The migration process involved transferring over 1.3 billion customer records. Despite the magnitude of the task involved, the bank did not do adequate testing or opt for a more careful incremental upgrade.
Instead, they tried to upgrade the entire system at one go, resulting in a virtual meltdown of their internet banking for weeks and months in 2018. The final cost of the debacle – around $425 million, not to mention the loss of over 80,000 customers. There are even fears that the Sabadell Group might be considering a sale of the bank.
National Grid Company – the importance of choosing the right partner
National Grid, an electricity and gas supplier along the eastern seaboard, is one of the largest power companies owned by investors in the US. In 2010, they chose Wipro as a technology partner to upgrade from legacy accounting and management systems to SAP software.
Wipro had been given the contract after a reshuffle that saw the initial partner Deloitte replaced by Ernst & Young, with Wipro given the role of the system integrator. From the outset, the project faced delays and overruns.
At the end of three years, National Grid had two options – delay the implementation and face losses of over $50 million, or stick to the deadline and face the consequences. They opted for the latter, at a time when Hurricane Sandy had already knocked out large swathes of their distribution network.
The results were disastrous – employee payments went haywire, thousands of vendor invoices ended up in backlogs, and the company’s cash flow was strangulated. The losses went far above and beyond what they would have lost if National Grid had delayed the implementation, reaching a staggering $900 million.
The company went to court against Wipro and won $75 million as settlement, a pittance compared to the scale of loss. While Wipro’s role in the fiasco was quite clear (they had underestimated the scale of the project) National Grid was also culpable for throwing caution to the wind.
Woolworths – the importance of company insiders
The Australian retailer is somewhat of a national institution Down Under, with branches in every nook and corner of the country. The company had been using a legacy data accounting system for over 30 years when they finally decided to go digital.
In yet another case of SAP implementation gone wrong, Woolworth’s internal data management system went into shutdown mode for close to one and a half years! It is the cause of this disaster that earns this example a place in our list.
The company took over six years to finish the upgrades to SAP. During that time, key senior staff who had all the inside knowledge about the legacy systems left the firm. This resulted in a critical disconnect between the old and the new – there was nobody who could tell the technology partners exactly what the company needed.
It cost Woolworths an estimated $200 million to smooth out the rough edges in the end. A very costly oversight indeed.
When implemented successfully, digital transformation can be a game-changer for the company involved. And given the frenetic pace at which technology is evolving, enterprises are often left with no choice – it is no longer a question of “if” but “when.”
And recent figures indicate that enterprises across the world have woken up to this new reality. An estimated $1.3 trillion is being invested annually (2018 figures) into transformative technologies like big data and cloud computing by enterprises across the world.
At least two-thirds of that amount will end up in failed projects and deployments. But for the 30% who do succeed, it will guarantee survival and continued success in their respective fields. When the stakes are this high, even those odds are worth taking.