Three ingredients for a successful digital transformation

Demystifying digital transformation: Why most digital transformation project fails?

Many organizations grapple with the concept of digital transformation and the path to successfully executing a digital transformation initiative. To delve in deeper, we recently had a conversation with Shashi J, Partner, Consulting, EY Consulting Vietnam Joint Stock Company. Shashi is a seasoned professional consulting numerous digital transformation projects in Vietnam.

Shashi shared that, for a successful digital transformation journey, firstly, businesses should look into the basics: technology, operations, business and people. While it’s very easy to say, executing it in the right order makes all the difference.

The four stages of digital transformation

While the term “digital transformation” is widely used, not all business leaders fully comprehend its meaning. Could you explain what digital transformation is, in a plain language?

Despite the ubiquity of the term ‘digital transformation’, its precise definition eludes many business leaders. To simplify, let’s use the evolution of a wristwatch as an example, guiding you through four stages: manual operations, digitization, digitalization, and digital transformation.

In the '70s and '80s, businesses primarily operated manually, which represents the first stage. The computer revolution that took place between the '80s and '90s led many businesses to transition to computerization, marking the second stage as digitization. The third stage, digitalization, refers to the process of converting analog data into a digital format, enabling the data to be processed by computers or other digital devices.

The fourth and most challenging stage is digital transformation. While some might argue that digitalization and digital transformation are synonymous, at EY, we consider them distinct facets of business.

Today, my watch captures my thoughts, heartbeats, and a variety of other data. It even nudges me to stand up and walk if I’ve been sedentary for too long. But how does this apply to business? Businesses can leverage technology to monitor the “pulse” of their various functions, including finance, production, sales, and customers. Technology becomes a tool for businesses to extract and analyze their data, yielding valuable insights. This information enables business owners to formulate actionable strategies, such as resource allocation, time optimization, or exploring a different customer segment, to achieve their business goals.

In another words, just like how a smart watch will display useful information for you to take an action, smart or digital systems should be able to do the same but at an enterprise scale. Thus, we believe digital transformation is achieved when a business organization can achieve an informed decision, take action on it and deliver tangible results in timely manner leveraging on digital technologies and assets.

In 2016, Forbes assessed the risk of failure in digital transformation to be 84%. Could you please explain more on that?

The assertion that 84% of digital transformation journeys fail is indeed a bold one. You can evaluate this statement for yourself. How often organizations or businesses in Vietnam announce their intention to embark on a digital journey via social media? The most common example of such an endeavor is the adoption of Enterprise Resource Planning (ERP), one of the first significant steps businesses in Vietnam take to enhance their operations – specifically in areas of procurement, supply chain, HR, and manufacturing. How often do businesses announce successful ERP implementation and satisfaction with results? Not often.

The recent EY survey echoed this sentiment. The EY-Parthenon 2022 Digital Investment Index (DII) survey[1] of C-level executives from large companies worldwide showed an increase in existing technology investments and the adoption of technologies such as chatbots, artificial intelligence (AI), machine learning, blockchain, and augmented reality. Many companies have been building data platforms through investments in the cloud and the Internet of Things (IoT). The number of companies that reported realizing the full benefits of investing in cloud, IoT, and AI increased by 54% in 2022, compared with 2020. But even with the right strategic intent for digital transformation and a well-communicated vision, why do some companies, even large ones from around the world, stumble at various implementation phases of the journey?

Recognizing these challenges helps us to provide the necessary support for clients to navigate these common pitfalls. EY has a proven track record of delivering digital engagements on time, within budget and scope. Our prestigious awards and client testimonials demonstrate our commitment to helping clients thrive in their digital transformation efforts.

In EY, we believe that a successful digital transformation requires an innovative culture and a clear vision from the top, which can then be translated into an actionable business strategy. Digital transformation is and should be a part of the company’s DNA. Instead of having digital as an add-on, successful companies infuse digital capabilities throughout the business and consider it as a journey, not a project.

Four ingredients for successful digital transformation projects

How would you advise a business organization to successfully carry out digital transformation journey?

Successful digital transformation hinges on four key ingredients: technology, operations, business and people. When organizations embark on the journey towards digital transformation, whether it’s through formulating a strategy or implementing some projects, the focus is heavily placed on technology. Perhaps it’s the term “digital” that naturally leads one to associate it with technology, where software vendors are more than willing to cater to your needs. Buying software could be as simple as buying a car.

Venturing from technology into the slightly trickier aspect – operations – which drives growth as well as optimize the operational efficiency through intelligent automation and process re-design. This brings us to an area where EY teams excel as independent consultants.

The third ingredient is business - a fully integrated business strategy that shows where digital enables and provides services for a better customer journey.

However, the bedrock of digital transformation would be the people. Human emotions, aspirations, insecurities, and relationships introduce layers of complexity to the transformation process. For example, an employee who has been with the company for 20 years may experience various emotions upon hearing about changes in systems and processes. Fear of becoming obsolete or feeling less important are common reactions. Garnering their support for the digital transformation becomes a colossal challenge.

At EY, we utilize a top-tier change-management strategy to smoothly navigate this emotional landscape. Importantly, this methodology is adaptable to specific cultural and regional differences. Our success lies in transitioning employees from their current state to their desired innovative mindset, taking into account individual corporate cultures and working styles.

Stereotypically, companies view digital transformation as installing advanced software, developing a mobile app, or enhancing their website. However, the transformation journey is more akin to a caterpillar changing into a butterfly rather than merely changing their colors.

Success in digital transformation requires a masterful blend of ingredients, much like baking the perfect cake. At EY, our role is to help clients achieve the best possible outcome, with innovative and forward-thinking strategies.

You mentioned that humans are game-changers and there’s resistance at some level or department which might be replaced by technologies. How would you recommend dealing with this issue?

The Transformation Leadership: Humans@Centre study conducted by EY teams and the University of Oxford’s Saïd Business School in 2021[2] found that the complex factors influencing a transformation’s success or failure are rooted in human emotional behavior. Therefore, the study suggested that organizations need to cultivate a culture of change and understand the interdependencies associated with the emotional behavior of the overall workforce and key senior stakeholders.

I concur with these solutions, based on my consulting experience, seamless digital transformations revolve around two critical points: mitigating shocks and addressing skill deficiencies. For instance, if we were to replace a core system in a year-long project, it is crucial to communicate this planned change to employees right from the outset. This approach eases uncertainty and allows employees time to understand the “why” behind the change. Gradually, we assist employees in transitioning from the existing way of working to the new system. By effectively managing these changes, we avoid chaos and foster success.

Another aspect of equal significance is addressing skill gaps. Organizations undertaking digital transformations need to have the appropriate skill sets. Moreover, a proactive plan to enhance the workforce’s capabilities is vital to withstand ongoing and future digital transformations.

Thank you!

Disclaimer: The views reflected in this article are the views of the interviewee and do not necessarily reflect the views of the global EY organization or its member firms.

This article was first published in Vietnam Investment Review on 20 May 2024