What were the causes of failure, and did they impede the rushed DX of many organizations during the COVID-19 pandemic?
Before the buzzword “digital transformation” (DX) became a household word the past few years, there had been decades of “enterprise resource planning (ERP) migrations”, “digitization” initiatives and “cloud adoption” exercises to modernize workplaces.
In those early days, not every ERP migration project was smooth and successful. Some famous brands had been unsuccessful in their automation and streamlining programs despite spending hundreds of millions of dollars.
Six well-known digitalization program failures come to mind:
- Revlon: In 2018, the firm implemented ERP on a large scale, but system hiccups on rollout led to late filing of its annual financial report. The failure resulted in operational and supply chain problems, heavy losses in retail sales, and even legal disputes. As the firm had just acquired Elizabeth Arden and was in the middle of merging administrative and strategic issues, many risks and potential problems of digitalization had not been factored in.
- Lessons learned: Organizational disruptions such as mergers and acquisition can impact DX strategies and outcomes. Also, analysts have blamed factors such as lack of effective control and contingency measures before rollout; lack of sufficient risk identification and mitigation management; and lack of executive vision and sufficient expert consultation.
- Procter & Gamble: The firm was already ahead of its competitors, but its ambitious DX plan offered gains that were outweighed by losses due to an unexpected economic downturn which favored smaller, nimbler and more frugal competitors. Simply put, the firm lost money, and the CEO at the time was asked to resign.
- Lessons learned: In retrospect, it was found that the firm had not taken into account the following: the returns on investment for the massive DX exercise; objectives that had been too broadly defined; what competitors were already doing in the economic environment at the time.
- The Hershey Company: This incident took place in 1996, but the mistakes that led to DX failure and losses of more than US$100m are still relevant today.
- Lessons learned: Analysts cited that the firm’s leaders had failed to recognize the scale of work involved in the transformation, and this inevitably led to shortcuts in planning, testing and rollout. The latter event was unfortunately set for a busy sales period, which exacerbated problems when the systems failed.
- Hewlett Packard: In 2004, one of the many corporate problems of the manufacturing giant was an unsuccessful US$160m ERP project that led to revenue losses of almost five times the investment. The firm had already undergone more than 30 previous DX programs without major hiccups, so this failure was a big blow.
- Lessons learned: It has been cited that insufficient resource planning and internal collaboration had led to problems in change management that impacted this particular DX exercise. Other failures included lack of contingency plans to mitigate DX and related business risks; and ineffective management of the transition from their old infrastructure to the new ERP platform.
- General Electric: This household name had great ambitions to become a tech powerhouse, pumping billions of dollars into a huge IoT platform. However its transformation to a digital, data-driven business failed in 2015.
- Lessons learned: In retrospect, the firm was so huge that the overly-ambitious attempt to transform everything at once, with only a vague vision of how to orchestrate and manage unanticipated challenges, was doomed to fail.
- The US Navy: Even with three renowned system integrators helping them, this government arm reported “no material improvements to the organization” after over a billion dollars of ERP investments since 1998. The top brass even had to cut the scope of digitalization (by excluding critical goals such as inventory management) to just the financial aspects. Overall, 90,000 employees had been negatively impacted by the exercise, without much to show for their commitment.
- Lessons learned: Some analysts have cited the US Navy’s history of poor IT integration (at the time) and common experience with cost overruns and delays. Additionally, others have cited the leadership’s inability to define requirements clearly; coordinate and manage the project coherently; attain buy-in from the implementation teams; and commission independent project evaluation processes.
But these failures were not amid a global pandemic!
The ongoing COVID-19 pandemic has been a game-changer in that its impact has necessitated digital workflows to allow fast pivoting and urgent resilience to keep the lights on.
However, even major global firms that were sufficiently ahead of their competitors in ERP automation and digital savviness experienced varying levels of success in pivoting digitally to cope with lockdowns, staff and operational problems.
Could the causes of DX failure in the pre-pandemic decades also play a part in derailing pandemic-era rushed DX efforts? According to the Harvard Business Review, high profile DX projects are still subject to failure because:
- As overwhelming economic and geopolitical uncertainties can impact any firm’s products or services negatively, digitalization is only one part of the necessary response to pivot, adapt and revamp for corporate survival.
- DX is not just about technology, but about whole-of-organization readiness to manage change, boost resilience, continually adopt the right customer experience mindset, and ensure that both digital leaders and non-digital leaders are making good decisions about transformation efforts.
- Digital solutions, however innovative and ground-breaking, need to be adopted and moderated only if they fit an organization’s specific strategies and overall vision in a targeted, measurable way. Otherwise, the gains from DX could be outweighed by heavy negative impacts elsewhere in the business.
Finally, the sexiness of implementing large-scale digital transformation for the sake of “me-too” visibility and branding is not always guaranteed to work out well. In fact, when a DX project is not producing results, CEOs can be tempted to pump even more money into the project—to achieve better numbers by brute force. Organizational leaders should therefore be cognizant of unwarranted attachments to digital when they should really be making clear-headed decisions to scale back and troubleshoot the causes of failure.