min read ·
January 20, 2023

The vicious cycle expensive digital transformations might put you in.

Partner, Head of Product and Innovation

Shashank Kapoor

Shashank drives valuable transformation in organisations across the stack, from strategy to execution and innovation. He does this by enabling a product led value based mindset.

Enterprise digital transformations can be a double-edged sword. On one hand, they can provide businesses with the ability to modernize their operations, increase efficiency, and improve their overall performance. However, on the other hand, these transformations can also lead to a painful cycle of rising costs with no returns.

Despite the fact that 84% of all digital transformation efforts fail, enterprises are expected to spend a whopping $2.3 trillion on digital transformations this year. Here, we look at some of the reasons for why digital transformations can put enterprise teams in this vicious cycle.

1. Significant upfront and ongoing investments

One of the main reasons digital transformations fail is that they demand significant upfront and ongoing investments in technology and infrastructure. These sizeable investments can put a strain on a company's budget and resources and compel businesses to make hard decisions. Average investments in digital transformations have compounded at a CAGR of 17.1% over the last few years.

When we break down why the investments tend to go over planned budgets two leading root causes emerge:

Team size

Building large IT assets and moving away from legacy systems is hard to get right and the involvement of large teams can further increase costs quickly. Contrary to popular belief and approach transformations projects require nimble execution. A small specialised team is like a speedboat, it can maneuver quickly and efficiently, while a large team is like a cruise ship, it has more resources and capabilities, but it takes longer to drive change and even longer when you’re working on a complex IT asset. Enterprises tend to underestimate the value of talent density and end up throwing bodies at problems that don’t really need as many resources to solve. This ends up compounding the problem rather than solving it, and this also results in the decoding leading root cause which is,

Poorly built assets

Poorly built assets are not only more expensive to build but even more expensive to run and maintain and cost more than the value they help add to the business. Enterprises fail to focus on quality coding practices and poorly written code is a sure shot way of blowing up IT budgets which can happen in 3 forms:

  • Bad coding practices can lead to an exponential increase in the time it takes to build new features due to lack of understanding of current code and also due to constant need of refactoring
  • When non performant code gets written it creates exponential cloud costs as demand scales.
  • Poorly written applications create big tech debts, these debts cause issues in production that are hard to diagnose and even harder to fix now that the asset is already live.

Enterprises adopt cutting-edge cloud technologies with the right intention and to build applications easier and faster but, doing so while sidelining fundamental engineering practices is a recipe for disaster.

2. Picking complex problems without planning well

Complex transformations when not broken down into smaller problems often require businesses to overhaul their existing systems and processes, which can be a daunting task. This alone can suck organisations into an expensive loop and lead to delays and disruptions, which has a negative impact on the business. Additionally, implementing new technologies can be challenging, and since it requires specialised skills and expertise it eventually leads to higher labour and training costs.

Enterprise teams also tend to underestimate the need for planning ahead and predicting shifts in consumer demands before they actually happen. Many studies have shown that a high percentage of digital transformations fail to achieve their intended goals, with estimates ranging from 70% to 95%, on average around 87.5%. These failures root in setting overly ambitious objectives and then poorly planning execution and ongoing measurement to actually meet them.

3. No guarantees

There is no guarantee that a digital transformation will be successful. Even with significant investments and effort, a transformation can fail to deliver the expected results. In some cases, the new systems and technologies may not function as intended, or they may not be used to their full potential. This can lead to a waste of resources and a lack of return on investment. Most importantly, transformations that don’t originate from a clear vision create assets that are completely out of sync with the organization and customer’s expectations. 

A case in point, is the failure of The National Program for IT (NPfIT) in the NHS (United Kingdom) where over £10 Billion in taxpayers were invested with virtually no value added.

4. Risk of becoming obsolete

Another potential issue is that digital transformations can quickly become outdated. The technology landscape is constantly changing, and what was once considered state-of-the-art can quickly become obsolete. This can lead to the need for additional investments and upgrades, which can add to the cost of the transformation.

According to several researchers, the average enterprise digital transformation takes at least 5 years, that is enough time for technology landscapes to shift completely, and by the time your organisation evolves into the next, better version of itself you’re too late.

Overall, while digital transformations can provide many benefits, they also come with significant risks and costs. The potential for rising costs and a lack of returns can create a vicious cycle that can be difficult for businesses to break. It is important for businesses to carefully consider the potential costs and benefits of a digital transformation, and to make sure that they have the resources and expertise to ensure its success.

Finally, these can’t be excuses for standing still, transformation is ‘change’ itself and a meticulously planned and well-executed transformation can do wonders for organisational longevity and deliver immense value to the end customer.

These anti-patterns or issues although daunting to think about and manage to have relatively simple solutions, in the next article in this series we will unpack how to avoid heading into this vicious loop and set up your digital transformation for success.

Fabric’s Transformation Labs is a focused assessment where practitioners can help diagnose stalled or slow transformations and then map out a plan to turbo charge them. Our consultants have done this for some of the largest enterprises all over the world, so if you’re looking for an expert outside opinion - we’d be happy to help.

Shashank’s LinkedIn Profile


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