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October 10, 2023 - by Devico Team

Digital Transformation Challenges and How to Overcome Them

If you are reading this text, you have likely already begun to change some processes and tools in your business. Or, at the very least, you are seriously contemplating it. However, something is definitely holding you back. Most likely, you've encountered resistance from your staff. People find it challenging to adapt, and your task is to assist them on their path of development, both professionally and personally. Such is the journey of an entrepreneur in the modern world.

Alternatively, you might also be facing difficulties with legacy systems and infrastructure. And you are not alone in this: in a 2021 IBM poll, 60% of CIOs and CTOs stated that their IT modernization program is not yet prepared for the future. In that case, you need to find a technical solution that specifically fits your business.

Data security might also be a concern for you. Not without reason: according to Statista, in just 2022, there were a total of 5.5 billion malware attacks detected worldwide, with the Asia-Pacific region experiencing the highest number of these attacks.

And on a more common note, you may be experiencing a shortage of talented personnel, which significantly hampers digital transformation.

In this article, we elaborate on what's the biggest challenge for most businesses when going online and ways to overcome these challenges.

Identifying Key Digital Transformation Challenges

While today's business models are similar, the challenges are different for everyone. That's why you can bump into different problem formulations when exploring articles about business metamorphosis. We have identified the most common ones — chances are you or your partners have encountered them in your experience.

"The digital revolution is not about technology. It's about culture, it's about changing the way we work, and it's about enabling innovation." – Dr. David Bray, Executive Director, People-Centered Internet

Digital transformation isn't a mere buzzword; it's a strategic imperative that has reshaped industries, empowered businesses, and elevated customer experiences. According to a McKinsey study, companies that successfully undertake digital transformation initiatives are 1.8 times more likely to report revenue growth. Yet, the path to this digital utopia is paved with challenges, each demanding innovative solutions and unwavering commitment. Run through the challenges below — before you can eradicate the problems and move on, you have to actually know the problems.

Resistance to Change

It is a formidable barrier on the digital transformation journey. Employees may fear job displacement or feel overwhelmed by new technologies. In general, digital transformation implies the use of new approaches and tools. This requires a certain degree of neuroplasticity, the ability to create new neural connections and thus learn new skills and create habits. James Clear’s system of building habits helps to ease off the process, but the author also admits that it’s more difficult for adults to learn new things. By the way, McKinsey's research shows that 70% of transformations fail to achieve their intended goals, often due to resistance. To overcome this, organizations must foster a culture of change, provide comprehensive training, and engage employees in the transformation process.

Legacy Systems and Infrastructure

Legacy systems, like ancient anchors, can hinder progress. According to a Deloitte survey, 54% of organizations cite legacy systems as a primary barrier to digital transformation. Migration to modern technologies may be expensive and complex, but it's essential to unleash the full potential of digital transformation. The alternative is being left behind.

Data Security and Privacy Concerns

Data breaches and privacy scandals have amplified concerns about data security. A survey by PwC found that 91% of CEOs are worried about the security of their customer data. Organizations must invest in robust cybersecurity measures, comply with data protection regulations like GDPR, and build trust by being transparent about data usage. Because even techno giants and well-known companies are not 100% safe from hacker attacks. In July 2022, Samsung confirmed the theft of users' personal data. However, as corporate and government data breaches have increased, affecting the data of billions of people, institutional leaders and the general public have finally begun to recognize the urgency and importance of putting security first.

Lack of Digital Skills and Talent

Overcoming digital transformation challenges requires a skilled workforce. A report by Capgemini found that 54% of organizations face a lack of digital skills to drive transformation. To bridge this gap, invest in training and development programs, hire digitally-savvy talent, and cultivate a learning culture. Easier said than done, huh? Kind of. You've probably noticed that companies like Google are fishing for young talent at all sorts of hackathons and paid internship programs. Plus, tech giants develop their staff through corporate subscriptions to EdTech platforms and guest speakers. Educational efforts always pay off.

Customer-Centricity and Personalization

In the age of Amazon and Netflix, customers expect personalized experiences. If you're doing a newsletter, users expect to see not only their name in the opener but also a personalized offer and other details. Usually, this practice is used for VIP customers, but now it's time for granularity for the entire customer base. Unless, of course, you want to go out of the window. A study by Epsilon found that 80% of consumers are more likely to make a purchase when brands offer personalized experiences. Achieving this requires a deep understanding of customer journeys, data analytics, and agile strategies to meet evolving demands. Yeah, unfortunately, Google Analytics isn’t enough anymore.

Integration and Interoperability

The proliferation of digital tools often results in a disjointed technology landscape. Harvard Business Review specialists found that 70% of IT professionals consider integration and interoperability as top digital transformation challenges. Adopting robust integration strategies and technologies like APIs can streamline operations and data flow.

The Department of Planning & Development in Santa Clara County was reconfiguring ways they were working to elevate efficiency and make customer experience more pleasurable. Originally, consultants who weren’t a part of the organization suggested changes to the let-approval process based on their work with other jurisdictions that preferred a decentralized approach. Yet, after dealing with residents, customer-facing staff recognized that a standardized process probably would work better. Consequently, when the team redesigned the workflow, they made significant modifications to the recommended tools, techniques, diagrams, and critical components of the core software. As a result, permit processing time decreased by 33%. Chances are, new technologies fall flat in improving corporate effectiveness not due to inherent technological matters but rather because the staff doesn’t have enough knowledge.

In this light, the case of the Ukrainian plasma collection company Biopharma is also interesting. Monobank CEO Oleg Gorokhovsky spent one day as Biopharma's CEO; his task was to identify bottlenecks and help eliminate them. In case you are not aware, before donating blood plasma, you have to fill out a massive questionnaire. It takes up to 40 minutes. Long and boring, isn't it? So with the light hand of Gorokhovsky, Biopharma implemented an electronic queue through an app, reducing the registration time to 7 minutes! The flow of donors was increased, and CSAT (customer satisfaction score) simply doubled.

Tactics to Overcome Digital Transformation Challenges

As organizations venture into their digital transformation journeys, they must navigate a landscape fraught with challenges. Fortunately, a strategic approach fortified with well-established strategies can pave the way for success.

Creating a Forward-Thinking Foresight and Precise Path

The basis of any successful transformation is a clear picture of the future result. In other words, you should expect not amorph processes or situations but a rather concrete state of your business in the future. Aligning metamorphosis goals with overarching business objectives ensures that every initiative contributes to the organization's success. To beef up organizational performance with new tools, supervisors and managers often have specific instruments or digital assets in mind, like an AI or ML strategy. Yet, it is important to remember that technology transformation should come along with a more all-around business system. At Li & Fung, C-suite developed a 3-year strategy focusing on speed, innovation, and digitalization to serve a marketplace equalling mobile apps to physical stores in terms of importance.

The organization set up specific goals before selecting digital tools. Let’s be precise. They adopted virtual design technology to decrease design-to-sample time by 50%. They also assisted suppliers in implementing real-time data tracking management systems to enhance production efficiency and designed Total Sourcing, a digital platform that consolidates data from customers and vendors.

The finance department followed a comparable strategy, decreasing month-end closing time by over 30% and increasing working capital efficiency by $200M. There is no single technology that can provide "speed" or "innovation" — the optimal combination of tools for each organization will vary based on their specific goals.

And according to a Boston Consulting Group, companies with a well-defined digital strategy are 2.5 times more likely to achieve their goals.

Leadership and Stakeholder Buy-In

Leadership support is paramount. Securing buy-in from top management and key decision-makers not only provides the necessary resources but also sets the tone for the entire organization.

To make informed decisions, C-suite executives often rely on a combination of data analysis, expert opinions, and their own experience and intuition. It is essential for them to have a deep understanding of the organization's goals, challenges, and competitive landscape.

In addition to decision-making, C-suite executives play a critical role in communicating proposed changes to all employees. They should explain why the changes are happening and address any concerns employees may have. Effective communication can help ensure everyone is aligned and working towards the same goals. C-suite executives should also encourage and accept regular feedback from employees at all levels of the organization. This feedback can help identify potential issues early on and ensure that decisions are made with a full understanding of the impact on all stakeholders.

Change Management and Communication

Overcoming resistance to change requires a proactive approach to change management and communication. Involving employees in the transformation process and fostering a culture of adaptability can mitigate apprehension. A McKinsey report highlights that effective communication can make employees eight times more likely to embrace change. It may sound trite, but you can glean knowledge of effective communication from Larry King's “How to Talk to Anyone, Anytime, Anywhere.” Also, Cialdini's "The Psychology of Persuasion" is a must-read for organizational leaders.

Agile Implementation Approach

The digital landscape is dynamic, and flexibility is key. An agile implementation approach allows organizations to adapt and iterate as they progress. The Agile methodology, as noted by the Agile Alliance, emphasizes customer collaboration, responding to change, and delivering working solutions. Boa Vista, a Brazilian provider of financial solutions, launched a digital transformation project in 2019. The project's purpose was to speed up delivery while cultivating the ability to react quickly to changing customer requirements. The main issues were long delivery cycles and a lack of clear visualization. The agile methodology helped them in dividing work into value-stream-oriented departments and product-oriented teams. As a result, the new team structure increased visibility across teams and departments, minimizing wait times and bottlenecks associated with transferring a project through various departments.

But it’s not all sunshine and carefree. Usually, companies hire an agile coach from outside the organization. Coaches define your agile transformation roadmap by using a specific, previously used set of practices that they believe are optimal for you. Or, instead of a handbook, someone from the organization inspired by the ING case study or a Spotify video can utilize it as a roadmap for transformation. This is one of the primary reasons agile transitions fail. Understanding your company’s peculiarities is paramount.

Partnering with Technology Experts

But collaborations with outside experts also can boost your journey. You should understand that all advice is only tools that can work or not. Just test them. Collaborating with technology experts, including specialized vendors and consultants, can help cope with the challenges of digital transformation. These partners bring expertise, experience, and insights into the ever-evolving digital realm. According to a Deloitte survey, 45% of companies rely on external partners to support their digital transformation efforts.

For instance, Biopharma’s case that mentioned above. This is a great example where an outside expert has made a difference and benefited someone else's company by deep diving into the task and crystallizing their expertise. By the way, Gorokhovsky has done it for free within his YouTube project “CEO for a Day.”

Data Governance and Cybersecurity

Protecting sensitive information is non-negotiable. Robust data governance and cybersecurity measures ensure data integrity and compliance. A Ponemon Institute report reveals that the average cost of a data breach is $4.45 million (with a 15% increase over the past 3 years), making data security a critical aspect of digital transformation. But let’s put off water under the bridge and look at the freshest examples. Daily Mail reports that Russia-linked hackers made an attempt to steal the UK’s Ministry of Defence data. Or Prospect Medical Holdings’ 16 hospitals that were attacked by ransomware in several states at the beginning of August 2023. This makes data security a critical aspect of technology transformation.

Training and Upskilling Programs

Any metamorphosis demands a skilled workforce. Investing in training and upskilling programs equips employees with the digital capabilities needed for success. A survey by LinkedIn found that a major number of senior leaders believe soft skills are more important than hard skills, emphasizing the need for well-rounded training. Adding executives who are well-versed in digital processes and who are totally committed to transformation is another critical step toward success. Additionally, personnel must be trained and recruited to use new tools and prepare for new technology.

But there is a caveat. It's important for leaders to acknowledge their employees' fear of being replaced during business changes. When employees feel that their jobs are at risk, they may resist your improvements, even if it's subconscious. If the digital transformation doesn't turn out to be successful, management may eventually give up on the effort, which could save their jobs (at least that's what they think). Therefore, it's crucial for leaders to recognize these fears and emphasize that the digital transformation process is an opportunity for employees to enhance their skills and prepare for the future job market.

Customer-Centric Design

Prioritizing customer needs and feedback is foundational. What's the biggest challenge for most businesses when going online, it’s probably self-centered perception. Designing transformation initiatives with a customer-centric approach ensures digital solutions resonate with end-users. Before launching any changes, investigate feedback platforms of your industry: Clutch, Trustpilot, etc.

To Sum It Up

It’s your choice how to perceive digital transformation challenges. You can see them as obstacles, but it’d be better to find points of growth in them.

Resistance, legacy systems, security concerns, skills gaps — these challenges are real. Yet, they are conquerable when met with determination and strategy.

The key to success lies in proactive planning and adaptability. As Bruce Lee said, be water. To be serious, as the digital landscape evolves, organizations must evolve with it. And all this demands innovation. Embrace technology transformation not as a choice but as a means to sustainable growth and success.

If you’re ready to hit the ground running on your digital transformation journey, book a call with Devico's experts to turn your vision into reality.

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