Digital transformation - what does it take to succeed
Digital transformation is very difficult to manage, and although companies promise to commit to a strong digital agenda, not many have succeeded at switching into a more digital-first business. In fact, according to a new study by McKinsey, roughly around 70 percent of transformations fail. Are you surprised? Not? right.
Failing scenarios are all too common in the engineering and construction (E&C) sector, which is one of the world’s least digitized industry. Few engineering and construction companies have captured the full benefit of digital technology, which is a shame, as research shows that digital transformation can result in productivity gains of 14 to 15 percent and cost reductions of 4 to 6 percent.
But why is failure common in construction?
The typical construction project involves a multitude of independent subcontractors and suppliers, which have little incentive to embrace new methods and digital tools during the brief period when they are on the project . Projects also vary greatly, so E&C companies often struggle to develop tools and methods they can apply repeatedly and gain synergy across activities. Limited R&D budgets prevent E&C businesses from spending as much on digital solutions as companies in other sectors do. And construction work often takes place in remote, harsh environments that are not well suited to hardware and software developed for the office. It is no wonder, then, that many E&C businesses end up with little to show for their technology investments.
What should your company pay attention to?
According to McKinsey Senior Partner, Harry Robinson, the root causes of most failures are straight forward. Robinson, who has reverse engineered failures to create a strategy for success, is certain about that lack of leadership, inadequate skills, and poor change management are to blame for all botched digital transformation projects in most organizations.
Robinson explains: “Often the CEO doesn’t set a sufficiently high aspiration. During the early stages of the transformation, he or she doesn’t build conviction within the team about the importance of this change or craft a change narrative that convinces people they need to make the transformation happen”. Robinson also finds that many organizations aspire to complete great digital transformation projects without the right skills: “They don’t have the capabilities to drive their transformation, or the key capabilities sit with people who have other day jobs, and they don’t get freed up to be able to work on the transformation”. And in terms of change management, he says: “Companies often miss all sorts of procedural elements that make a transformation thrive. They don’t put the right change-management infrastructure in place”
How do you succeed at digital transformation?
Even though, the conclusion from the previous mentioned study by McKinsey is an “eye opener”, companies should not be discouraged. We are seeing an increasing number of E&C companies that has overcome these challenges to transform projects or even business models digitally. To gain success a lot more than implementing the technology is necessary.
To help your company on the right path, McKinsey Senior Partners have highlighted 5 essential conditions that must be met before an organization embarks on the digital transformation journey.
1. “Devoted CEO”
The first step is to have a CEO who is completely committed to the transformation and has it as a top priority. The CEO must be willing to devote a high level of engagement, attention, and focus to the project. Without a dedicated CEO, it is nearly impossible to continue the digitalization process.
2. “Harness the full potential”
As said previously, it is very important for a company to fully invest in digital transformation for it to be successful. Particularly, the CEO must have a desire to shoot for an aspiration that’s above and beyond anything. The advice from the McKinsey partners is to distinguish between “wanting” and “working” - wanting something isn’t enough. You’ve also got to be willing to work for it.
3. “Allocation of resources”
The third step is the willingness to commit the organization to go digital by allocating the best possible resources available and provide all the support from the larger leadership team. Even though the CEO plays a vital role – managers, employees, and so forth also need to “pick up weight” because it is a collective effort.
4. “Follow the transformation recipe”
The fourth condition is a willingness to follow the transformation “recipe” which is closely linked to the other three conditions. The McKinsey partner, Walden explains this further: “This process doesn’t just involve setting targets and pursuing a series of initiatives or projects. It’s all about following a recipe to identify a company’s potential and then build bottom-up plans and granular initiatives to deliver that potential. It also requires that you engage the entire organization to execute and deliver on those plans. In addition, the recipe requires that you think about organizational health, including improving attitudes and capabilities in your organization to sustain the transformation”.
5. “Learn from others”
Finally, the last condition that the McKinsey partners direct their attention to is to learn from other companies that have (successfully) transformed themselves. CEOs or organizations that are considering a transformation need to find external help and inspiration. This is a smart way for a company to avoid pitfalls that may have not come to their attention or gain new insights on different aspects.
In all, the message is loud and clear. Digital transformations must be driven by CEOs, with the right resources, for it to be a success. If not, your company may risk joining the 70 percent of corporate transformations that fail.