The Problem With Digital Transformation (Featuring Adidas Golf President, Jeff Lienhart)
According to the WSJ and Economic Times, 70% of digital transformation initiatives do not achieve intended results. This stat has become common knowledge among financial analysts, customer experience experts, and digital marketers alike.
The vast majority of DT is failing - why?
A study reported by the WSJ, consisting of CEOs and senior executive participants, found that digital transformation (DT) risk was the #1 concern in 2019, among other imperative topics like cyber threats and office culture.
On the estimated $1.2 trillion spent on DT in 2019, nearly $900 billion went to waste.
What’s more astonishing than the stat itself is the reason behind it.
So why are the vast majority of digital transformation initiatives and costly tech investments not reaching their goals? Is data becoming more expensive? Are enterprise giants like Microsoft or Facebook taking too aggressive of an investment approach in technology?
Are today’s organizations SO hungry for innovation that they’re pouring money into shiny new toys, chasing an ROI that doesn’t exist?
From a macro perspective, contrary to popular belief, data suggests that 70% of digital transformation initiatives fail for the exact opposite reason. In other words, DT doesn’t fail due to an overly aggressive offensive approach, DT fails because of defense.
Failing to align the goals of digital transformation investments and technology with the human behavior involved would be the short explanation.
(i.e. This new UX design or digital marketing strategy is a good idea in theory, but does it really help us generate better customer experiences? Or, this CRM system has cool new features, but is it really making customer service agents’ jobs more efficient?)
Behind the stats
The remainder of this article is the longer explanation.
Take a look at this quote from a CMO Today piece featuring a Deloitte analysis.
“In 2022, organizations are projected to spend nearly $2 trillion on digital transformation [generating more room for wasted DT investments], according to the International Data Corporation, spurred by a proliferation of new digital technologies and a fear of disruption by tech-enabled competitors.”
The last few words summarize why DT fails. The vast majority of digital transformation initiatives are born out of “a fear of disruption by tech-enabled competitors,” a defensive strategy to merely survive in a niche space, rather than gain competitive market share.
Put simply, such digital transformation investments are not necessarily translating into higher profits. Instead, many organizations in tech-enabled industries invest in DT to sustain market share rather than take an innovative or non-traditional approach (offense).
“One of the biggest challenges of any organization that I’ve been a part of… is the organization, overall, embracing the idea of digital transformation… The companies that are out there succeeding right now - they’re not reactionary. They’re more proactive.” – Jeff Lienhart, President of Adidas Golf recently told me.
According to a Harvard Business Review survey, when respondents were asked if digital transformation technologies are critical to maintaining profitability, surprisingly, only 68% agreed. (This was the lowest-rated response topic of any of the survey’s questions).
When you analyze responses from strictly the CEOs in this survey, one would think you get a substantially higher number.
Nope. The rating dips, indicating that a staggeringly low 50% of CEOs see digital transformation as an important favor in profitability, expressing a correlation between failed DT initiatives and a much needed paradigm shift for corporate decision makers.
“When it comes to digital transformation, most respondents reported investing a significantly higher percentage of their operational and IT budgets, while spending a relatively low proportion of the future R&D spending. On average, companies plan to invest a median of 30% of their operational/IT budget in digital transformation initiatives—and only 11% of their R&D budget in the same."
In other words, many organizations are losing money on DT because they are continuously investing in standard operational and traditional IT services for maintenance purposes (like new phones) – rather than R&D-driven products and educated business risks (like a new chatbot software, or geo-targetting technology), directly tied to increasing marketability and competitive revenue.
Digital transformation may involve implementing automation tools, cloud infrastructure, AI, consumer engagement software, and other advanced capabilities, but broad change means more than updating mundane operational practices or stingy product upgrades. Here’s an example from Jeff Lienhart, a firm believer in using digital transformation throughout each department as a profitable competitive advantage, not a sustainability tool.
The Adidas approach
When I interviewed Jeff, it was clear to me that he was a firm advocate in using innovative digital transformation (specifically in digital marketing) for consumer engagement - to eventually retain feedback and enhance product value for better customer experiences. Here’s what I mean:
“With a shift from more traditional mediums that were costly, like print and TV, and shift more into a digital space, it’s a cost effective use of our resources… And then [we] re-deploy funds to continue to invest in consumer experience.”
“There are a few primary bloggers in this space. We’re utilizing the likes of hypebeast and golfspy that will certainly help extend our message. Through geo-targeting we’re able to customize that interaction with a consumer.”
“We’re in the process of launching a brand new footwear style… We’re on the ground with experiential activations, included with assets like our tour-players. We’re getting that content and then the content [based on demographics and geo-targeting] will be used throughout the spring to bring life to the product and sentiment around that product. We find it much more cost effective than the old traditional tools that were utilized in the past… And then on the fly, [through real-time consumer data aggregation tools], you can customize that correspondence with your consumer to make sure you're hitting the right hot buttons [on a personalized basis]… so we’re able to take instant consumer feedback [on product-based content by consumers] and address it in a more timely manner.”
In order for digital transformation to complement a brand’s value, an organization needs to take non-traditional, calculated risks in an attempt to better serve the consumer - not neccessarily following standard market practices, hoping to stay afloat. When contemplating a new digital investment, keep this question at the heart of your decision: "how will this tool bring greater value to my customers or employees?"