A main cause of digital transformation failure is poor process performance and a lack of understanding of the causalities and relationships between processes within the value chain. By identifying the factors of process or value chain success, businesses can ensure digital transformation success.

Although the term “digital transformation” has lost some of its cachet over the years, the practice of digitizing business activities and processes is alive and well. According to IDC, global investment in digitalization and digitization will reach $2.8 trillion in 2025, up from $1.8 trillion in 2022.

The problem is, the percent of digital transformation initiatives that fail has also remained high over the years—87.5% on average, according to some observers. For many risk-averse organizations and mission-critical enterprises, this is highly discouraging news.

The reason for many of these failures, surprisingly, is not the digital transformation itself. Instead, the culprit is often something that existed even before the transformation was begun: the poor performance of the business’s critical processes and its inability to manage the performance of those processes or the wider value chain.

The fact is, if core business processes are ‘broken’ (i.e., they are error-prone, inefficient, time-consuming, non-compliant or high-risk), then the products or services they produce will likely be broken as well.

Worse, the issues related to poor process performance can multiply as a result of the digital transformation effort. When this happens, stakeholders face the choice of protecting the business-as-usual to gain short-term business continuity or continuing with the transformation investment to gain even greater benefits in the longer term.

Unfortunately, businesses often go with the short-term option, which ends up slowing down or even halting the transformation initiative. Often, it’s the digital effort that gets blamed when, in actuality, the real offender is a lack of rigor around foundational, core business processes.

To maximize their chances of digital transformation success, then, businesses need to better understand and address the root causes of their poor process performance, as well as understand and monetize the causalities within their value chains.

Getting to the root causes

Based on our experience with many large digital transformations, most companies find it very difficult to identify and understand the real root causes of their broken processes—and thus are unable to fix them, either through process improvement or automation. It takes specialized capabilities to identify the real root causes, as well as understand the causalities and relationships that drive good process performance and value creation from the company’s wider value chain.

Typically, organizations pursuing digital transformation have processes that aren’t meeting defined operational—and thus also financial—KPIs. The transformation puts additional stress on those KPIs, and the organization has no ability to understand what happened to negatively impact the transformation effort.

When it comes to relationships and causalities within the company-wide value chain, consider the example of a company working to digitize its asset maintenance processes. The company gets busy collecting asset data via sensors and cameras, analyzing data patterns, building digital twins, etc. to improve average time-to-fix or asset uptime. And, higher asset uptime ultimately means higher throughput or longer production times and, thus, potentially higher revenue.

But in actuality, it’s not that simple—the changes in the maintenance strategy ultimately impact many other enterprise areas and considerations that need to allow for this additional capacity.

For instance:

• Are the sales and marketing teams ready to fill these new productivity windows?
  
  
• How will higher uptime impact the production material handling supply chain and stock levels?
  
  
• How does asset uptime correlate with the extra resource capacity needed to accommodate the new productivity levels?

This is just a partial list of maintenance process causalities and relationships. Further, every single business process will have its own list of such causalities directly related to the improvement of an operational KPI and resulting improvement of a financial KPI. In our experience, these causalities and KPIs are not sufficiently visible or explicit, and this widespread lack of knowledge about what drives business value up or down or across the wider value chain causes unnecessary delays in generating required ROI from digital investments.

Broken value chains

A big reason for this knowledge gap is the preponderance of siloed operating models. Not only does each part of the value chain often chase different and often contradictory or incorrect KPIs, but these KPIs are also frequently not aligned toward maximizing the benefits of the value chain for the company’s customers and stakeholders.

The overall impact of the poor process performance includes:

• Lower than expected ROI from investments in new tech and data
  
  
• Slower than expected results of digital transformation
  
  
• Difficulty recognizing the expected impact of the digital transformation effort on the company’s operational KPIs

In the worst cases, the digital transformation is slowed down or stopped altogether, damaging the organization in the long term, especially if it ceases to believe in its ability to pursue a larger transformation effort. This is particularly harmful when such a transformation is desperately needed to avoid business failure or bankruptcy.

Toward a bigger and faster digital transformation impact

By focusing on improving their key business processes—and building their operational excellence capabilities—businesses are more likely to experience the positive effects of digital transformation and improve their likelihood of success. They can do this by applying approaches like Lean management, continuous improvement, value stream management and/or Six Sigma.

Here are five things companies should consider when looking to be “transformation ready” and transformation successful.

• Define a strategy for process/operational excellence and align it with the company’s strategy, objectives and transformation roadmap. The key goal should be to boost process management maturity, continuously learn and improve, and focus on innovation, even in times of turbulence. We call this “business process resilience.”
  
  
• Select and/or adjust your process management methodology so that it aligns with your needs. Consider leveraging proven methodologies, such as Lean or Six Sigma, that your organization is familiar with or has used before. Review historical efforts in which the company has deployed a process excellence methodology and use the lessons learned from that experience in selecting the methodology and deployment approach. Be careful not to confuse already established language and terminology by introducing a completely new approach.
  
  
• Define and establish an organization and operating model (including governance) for the process excellence function and conditions of its success. Establish strong sponsorship at the top of the organizational hierarchy, with clear goals and KPIs. The model should accommodate key players and their motivations to succeed. This governance should adjust over time but has to remain in the organization.
  
  
• Develop a company-wide roadmap for (re)deployment of process excellence. Thoroughly explore the capabilities and skills needed—and at which level of the organization—to successfully deploy, steer and execute the deployment plans and embed the way of working into the company’s DNA. Methodology mastery at all levels, including the board, is a must for success. Ensure your hiring team requires this skill or experience for any new hire, as this will speed your deployment effort.
  
  
• Execute and evaluate the roadmap. Select the team, with an eye toward choosing people with some affinity for this topic from their previous experience, as well as managers who have previously applied a process improvement methodology such as Lean. Doing so will make it easier to make progress. Define small steps and apply a fail-fast/learn-fast model, adjusting your plans based on broad feedback loops. 

Figure 1

Taking control of transformation success

Digital transformation is still going strong, with solid growth in the expected investments and resulting value to the global economy. Ultimately, businesses have complete control over maximizing their chance of success. By injecting renewed energy into process excellence, businesses can greatly impact the value and speed of their digital transformation effort.

With more in-depth knowledge of which buttons to push to improve their operational KPIs and translate that into financial performance, businesses will realize faster and greater value from all the new technologies, software, platforms and intelligent machines they implement.

In the end, the investment in process capabilities will pale in comparison to the money spent on new technologies—but will prove equally important in determining transformation success.

To learn more, visit the Internet of Things (IoT) Solutions section of our website or contact us.

This article was written by Martin Havelka, Consulting Director in Cognizant’s IoT, Industry 4.0 Strategy & Transformation practice.