Companies ‘digital washing’ as most fail in their digital and AI transformation objectives

4 minute read
Some 70% of companies are failing at digital and artificial intelligence transformation. Is it any wonder when less than one in five has a culture that fully promotes innovation and just a third have a leadership team with a purposeful digital strategy? It’s time for a shift in mindsets

Digital transformation is failing

The rate of technology innovation is increasing but companies are failing to scale this technology effectively, according to research from Boston Consulting Group. While 94% of organisations want to achieve substantial and rapid impact via digital transformation, seven in 10 are failing on most of the digital objectives they have set.

Research with 2,800 business leaders across 13 leading global economies finds organisational issues are key to this failure. These include a lack of leadership with a purposeful digital strategy, with just 36% of companies having this, and the failure to develop a culture that fully promotes innovation (just 18% exhibit this).

“So many CEOs are turning to us and are asking: what does it take to change the odds? You don't want a digital transformation to ever fail but certainly you don't want it to stall. And in this time of turbulence there's just very little margin for error in pretty much any company. The margin for error is getting thinner and thinner,” says Christoph SchweizerCEO at BCG.

The research findings have prompted Sylvain Duranton, global leader of BCG’s new tech build and design unit  BCG X, to declare that companies are “digital washing”.

“You hear a lot of companies celebrating their success on their digital transformation but this is mostly just not true. And the reason why companies are celebrating is that four out of five of the largest companies in the world are technology companies and most companies want to become technology companies. But today they fail. So whatever they say, there is a lot of digital washing and a lot to do,” he says.

This failure has damaging consequences. BCG’s research finds that companies failing on digital transformation create three times less financial value than those who are more advanced in digital, enjoy much lower net promoter scores and have a much lower rate of innovation.

There is some good news, however. Even in today’s difficult economic climate and with recession already in some countries and likely in others, 60% of companies plan to increase their AI and digital tech investment in 2023 compared to 2022 and only 4% are planning to reduce that. But there are global differences here, with the UK ranked lowest of the 13 major economies surveyed with just 40% planning to invest more.

It’s all very well planning to invest but with so many transformations failing companies must change the way they invest. And the research finds that most firms are struggling with the same challenges when it comes to digital transformation.

  • Making the right choices among disruptive technologies – the top three cited being advanced AI, blockchain and Internet of Things (IoT)
  • Reaching scale fast with new digital solutions
  • Recruiting digital talent – the top three hardest tech roles to fill are experts in advanced tech, software engineers and data scientists
  • Prioritising investment and development
  • Managing the cost and uncertainty of return on investment

BCG has launched its nearly 3,000-person strong hybrid tech build and design unit BCG X to help companies enable tech innovation at scale and deliver on complex end-to-end digital. It says the key to unlocking  the opportunities of digital transformation and “flip the odds” is mindset and talent.

How to unlock digital transformation 

For a start, organisations need to move from foundation to moonshot solutions, says Duranton. 

“Many companies have been pushed by IT integrators to continuously invest and invest and invest in the foundations: large data architecture, deployment and modularisation of their ERPs and transaction systems and building systematic data governance systems, for instance. But while doing so they are not investing in building disruptive at-scale solutions for their workers or for their clients – and thus they fundamentally lack impact,” he explains.

What makes the difference to success, he adds, is the ability to scale one, two or three very critical game changing disruptive solutions for clients or employees.

“An easy acid test to see whether a digital transformation is on track or not is just to ask the c-suite, what are the two or three disruptive solutions you are building? Can you name them? Do you have a sense of what impact is expected from them? And in the 20% of c-suite where there is 80% consensus on these, the digital transformation is on a good track. In most instances, however, you don't get that 80% consensus.”

Of course, scaling is not easy. What generally happens is that organisations focus on the technology and on embedding it into the legacy systems. But these equate to just 10% and 20% of the impact respectively. It is in the other 70% that the key to unlocking digital transformation lies – and that is changing the organisation, decision processes and retraining teams.

“If you focus on the 10% and 20% you will not get the impact you want,” Schweizer tells The People Space. “The 70% is the processes, the organisation, the talent, the incentives, the culture – the operating reality in any function, be it sales and marketing or HR. And what you see is the techies take part in the 10% and 20% and then someone else should take care of the 70%. But this intersection doesn’t work. The interconnection between the tech and the day-to-day realities of the company is where failure happens and where there’s a huge need.”

Beyond this change of mindset is the dearth of digital talent. “Talent is fundamental for everything companies do and CEOs in most parts of the world are still wondering, where do I get the people from who are going to drive this business forward?” Schweizer says. “And we are seeing some reduction in workforce here and there, driven in part by the economic cycle and some of the short term revenue and growth momentum, but talent is still incredibly scarce.

“We are not going to reach a reality where there's abundance of talent and the CEOs say, ah, this is just a little HR problem. And even in companies where there's no reduction in workforce, there is still massive unmet demand in certain pockets and in certain job categories. So talent is totally up there as a challenge and I do think that will continue to be the case for a long time.”

A copy of the Mind the Tech Gap survey findings can be downloaded here

Published 7 December 2022
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