Digital transformations are even more difficult to implement than traditional changes. But results from the most effective transformations point to five success factors.
As digital technologies dramatically reshape one industry after another, many companies are embarking on large-scale change efforts to reap the benefits of these trends or simply to keep pace with competitors. In a new McKinsey Global Survey on digital transformations, more than eight in ten respondents say their organizations have undertaken such efforts in the past five years.
Yet it turns out that these transformations are difficult to achieve. While our previous research has shown that less than one-third of organizational transformations succeed in improving business performance and sustaining those gains, the latest results show that the success rate for digital transformations is even lower.
The results from respondents reporting success point to 21 best practices, all of which make it more likely that a digital transformation will succeed. These characteristics fall into five categories: leadership, capacity building, empowering employees, upgrading tools, and communication. These categories suggest where and how companies can begin to improve their chances of successfully implementing the digital transformation of their business.
Conversions are strong, and digital transformations are even harder
Years of research on transformations have shown that the success rate of these efforts is consistently low: less than 30% succeed.
Findings from this year suggest that digital transformations are even more difficult. Only 16 percent of respondents say their organizations’ digital transformations have successfully improved performance and also equipped them to sustain the changes over the long term. Another 7 percent say performance has improved, but those improvements were not sustained.
Even digitally savvy industries such as high-tech, media, and telecommunications are struggling. Between certain industries, the accommodation rate does not surpass 26%But in more traditional industries such as oil and gas, automotive, infrastructure, and pharmaceuticals, digital transformations are even more challenging: success rates range from 4% to 11%.
Success rates also vary by company size. In organizations with fewer than 100 employees, respondents are 2.7 times more likely to report a successful digital transformation than respondents from organizations with more than 50,000 employees.
The Anatomy of Digital Transformations
Whether a change effort is successful or not, the results point to a few common features of today’s digital transformations. First, organizations tend to look inward when making such changes. The most commonly cited goal for digital transformations is digitizing the organization’s operating model, cited by 68 percent of respondents. Less than half said their goal was either to launch new products or services or to interact with external partners via digital channels. Digital transformations also tend to be broad in scope.
Eight in ten respondents say their most recent transformation effort involved either multiple functions or business units or the entire company. In addition, the adoption of technologies plays an important role in digital transformations. On average, respondents say their organizations are using four out of 11 technologies we asked about, with traditional web tools mentioned most often and used in the vast majority of these efforts.
At the same time, results from successful transformations show that these organizations use more technologies than others (Appendix 1). This may seem counterintuitive, as a broader suite of technologies could result in a more complex implementation of transformation initiatives and thus more opportunities to fail.
However, those organizations with successful transformations are more likely than others to use more sophisticated technologies, such as artificial intelligence, the Internet of Things, and advanced neural machine learning techniques.
Keys to success
The availability of these technologies is only part of the story. The survey results show exactly how companies should make the technology-based changes that set successful digital transformations apart.
Having the Right, Digitally Savvy Leaders in Place.
During a digital transformation, change happens at every level, especially when it comes to talent and skills. Nearly 70 percent of all respondents said their organization’s leadership team was changed during the transformation – most often by new leaders with digital expertise stepping into management.
It is the arrival of such a leader that is one of the keys to the success of the transformation. So too is the involvement of specific transformation roles – i.e. individual initiative and program leaders or transformation office managers dedicated full-time to the change effort.
Another key to success is management commitment. If people in key roles (both organizational leaders and people in transformation-specific roles) are more engaged in digital transformation than in previous change efforts, the transformation is more likely to be successful.
Other findings show that when companies achieve transformation success, they are more likely to have certain digitally savvy leaders. Less than a third of all respondents said their organization had hired a Chief Digital Officer (CDO) to support their transformation. But those companies that do are 1.6 times more likely to report a successful digital transformation than others.
At the same time, results from successful transformations show that these organizations use more technologies than others (Appendix 1). This may seem counterintuitive, as a broader suite of technologies could result in a more complex implementation of transformation initiatives and thus more opportunities to fail. However, those organizations with successful transformations are more likely than others to use more sophisticated technologies, such as artificial intelligence, the Internet of Things, and advanced neural machine learning techniques.
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- Building skills for the future workforce
The survey results confirm that developing talent and skills across the organization – a fundamental measure in traditional transformations – is one of the most important success factors in digital change efforts.
Of our 21 keys to success, three relate to digital skills in the workforce. The first is redefining people’s roles and responsibilities to align them with transformation goals, which can help clarify the roles and competencies an organization needs. Respondents are 1.5 times more likely to report a successful digital transformation if they implement these methods.
Two other key points relate to the inclusion of specific roles for integrators and technology innovation leaders to bridge the potential gap between the traditional and digital parts of the business. Individuals in these roles help to strengthen the internal competencies of colleagues.
Integrators are employees who translate and integrate new digital methods and processes into existing workflows. Integrators typically have business experience and also understand the technical aspects and business potential of digital technologies and are therefore well placed to bridge the gap between the traditional and digital parts of the business.
Technology innovation managers, on the other hand, have specialized technical skills and lead the company’s digital innovation efforts.
In addition to these three keys to success, we found that companies with successful transformation have better resources and more robust access to talent than other companies. Respondents are more than three times more likely to succeed with transformation if they say their organizations have invested the right amount in digital talent.
Success is also more likely when organizations expand workforce planning and talent development. For example, 27% of respondents report successful transformation if their organizations have set cross-functional or company-wide hiring goals based on specific skill needs – nearly twice as many as respondents whose organizations do not. Looking for digital transformation if you need a developer there are many app development companies in India which can help you in brigining new transformation in business.