Recently, the Harvard Business Review examined more than 1,300 businesses that reported investing more than $100 billion in digital reinvention over a two-year period. Through this analysis, HBR came to a startling conclusion: most digital transformations fail.
Why? Two reasons:
That’s a lot of money to throw at something without getting results. In fact, the failure rate for digital transformation is often quoted at 84%.
When companies jump right into transformation, they don’t account for the legacy business and its applications. This oversight can lead to significant technical debt over time. Without optimizing first, businesses will likely never achieve complete transformation.
Digital optimization and digital transformation are inherently entwined. Optimization is the journey to transformation.
Throughout their lifetimes, businesses are constantly honing, modernizing and evolving their existing hardware, software and cloud services. Also, as companies progress through their digital journey, they adopt new technologies and expand into new areas.
Frankly, most companies are stuck right now. They haven’t embraced the optimization that’s necessary to lead to true transformation. It’s not for a lack of trying. It’s just that they have yet to invest in the way that’s needed to make it happen.
For years, companies typically approached their IT investments from an 80/20/0 model. This model is loosely based on the 80-20 Rule or the Pareto Principle, which states that 80% of consequences (outputs) come from 20% of the causes (inputs).
Businesses that followed the 80/20/0 model spent 80% of their IT budget on maintaining their infrastructure and 20% adding to it. None of their budget went towards digital innovation. These organizations simply added to their technical debt, when they should have optimized their investments instead.
Today, IT budgets are even worse. Digital businesses are spending along the lines of 90/10/0 — so they’re falling further behind and accumulating more debt. This creates an even more urgent need to shift IT investments.
In order to scale, companies today should be investing 60/30/10, with 60% spend on maintenance, 30% spend on growth strategies and 10% on innovation. Leading-edge companies and industry disruptors like Amazon, on the other hand, align investments on a 50/30/20 scale.
Transformation often attracts a larger budget but doesn’t pay off until the project is complete. Digital optimization, on the other hand, provides benefits along the way and helps you scale, so you can find the spend. Without achieving some level of scale, it makes it harder and hard to shift investment.
The best technology works for the people who use it. For example, employees readily have access to the information they need, and it works seamlessly across the entire ecosystem.
Unfortunately, though, we know most businesses don’t currently have that level of seamless integration in their systems.
It’s become a significant issue for large and established companies. While newer entrants can skip over legacy systems and processes, established companies are often stuck spending a significant amount of their budget just keeping things running. That’s why so many newer companies are disrupting entire industries.
A 2018 Innosight report found that the tenure of companies on the S&P 500 narrowed from 33 years to 24 years between 1964 and 2016. That tenure is projected to shrink to just 12 years by 2027 as digital companies continue to replace traditional companies.
In a separate report, McKinsey estimated that, not only will S&P 500 tenure shrink significantly by 2027, but 75% of the currently quoted companies will also disappear entirely.
Fortunately, digital optimization can help enterprises stay ahead.
If you’re experiencing the following warning signs, it’s time for you to take a fresh look at your digital business strategy.
Inefficiency is a time and productivity killer. When legacy systems have fragmented processes, simple steps take longer than they should. By consolidating core business tasks, you can often reduce the steps it takes to get the job done. This lets employees focus on serving customers rather than fighting with technology.
If your employees are complaining about your systems, your hardware, your software or cloud services, it’s a sure sign there’s a disconnect somewhere along the way that optimization can solve. The same goes if you’re struggling to attract new talent or retain your current staff due to outdated tools and technology.
As your business evolves, your infrastructure should be able to evolve along with it.
The more applications you have, the more integrations, training and support you need. Therefore, the more you spend on maintaining your infrastructure and adding to your organization’s technical debt.
If you’re seeing an increase in IT maintenance and support spending, you’re likely not optimizing your systems.
We all learned during the COVID-19 pandemic and the rapid shift to work from home just how difficult it could be to make the adjustment. Few companies were easily able to give remote workers complete access to every tool they needed to do the job. This results in BYOD, Shadow IT and significantly increased security breaches.
If you’re not 100% capable of supporting a remote or distributed workforce now, it’s a serious warning sign that optimization is required.
Digital optimization isn’t just about technology. There needs to be a consistent and strategic shift in corporate culture to be competitive and grow. Businesses must constantly optimize to stay relevant. This evolution is often held back by legacy infrastructure that hinders a company’s ability to put customers first.
Leadership teams need to be on the same page when it comes to optimization to drive the process forward. This requires the alignment of key stakeholders throughout the organization focused on the same overarching business goals.
Nearly 40% of enterprise software licenses are not being used. That’s a lot of money sitting around tied up. Most applications are also underutilized. In other words, employees don’t use the full extent of the feature sets that might make their jobs easier.
Doing a software, services and utilization audit can be revealing.
If you’re seeing any of these warning signs, or feel your pathway to transformation is blocked, it’s time to partner with DMI.
At DMI, we craft enterprise-grade service and solutions to simplify and scale your business. We optimize what you’re doing now and help you create a more intelligent pathway to digital transformation.
Don’t become one of the 62% of companies that get stalled in the digital transformation process. Let us help you optimize your revenue generation, operations, workforce productivity, and asset utilization to drive sustainable growth.
Contact DMI today to get started on your journey.