Even for digital-first industries like high-tech, media and telecom, only 26% saw success. Soumik Roy is a business and technology specialist. Why Digital Transformations Fail Focus on fixing pain points, not installing IT solutions. But despite good intentions and determined efforts to embed digital technologies in operations, E&C companies rank among some of the least digitized businesses. Years of research on transformations has shown that the success rate for these efforts is consistently low: less than 30 percent succeed. 95% of digital transformation projects fail to achieve their aims according to Bain’s survey highlighted above The … Bringing in exciting new technology is great, but it’s … 1 Not all digital… Misunderstanding what “Digital Transformation” means, coupled with poor internal alignment, is often why digital efforts fail. GE (Research and Markets) Digital transformation initiatives. Select topics and stay current with our latest insights, Decoding digital transformation in construction, Defining digital transformation in engineering and construction. Here’s how to remedy this very common dilemma. In digitally savvy industries (high tech, media, and telecom), the success rate is less than 26%. We know many E&C companies that cherry-pick digital use cases that apply to just one activity or trade. They aren’t alone. Here is a summary of some of their most important advice around this topic: Digital transformation … cookies, Research by the McKinsey Global Institute, Unlocking success in digital transformations, How the implementation of organizational change is evolving, bottom-line benefit from digital use cases. For example, there is little to gain from compressing the time taken to survey a site if excavators are not in place for employees to start earthworks as soon as the survey is complete. Limited R&D budgets prevent E&C businesses from spending as much on digital as companies in other sectors do. But if E&C companies put compelling incentives in place, then cross-cutting use cases can unlock significant value despite the industry’s fragmentation. One company achieved an enterprise-wide For established companies, the pressure to digitize business models and products has reached new intensity.McKinsey research shows that the best-performing decile of digitized incumbents earns as much as 80 percent of the digital revenues generated in their industries.Ascending to that elite group is far from easy. Digital Transformation may be a trending topic today, but the concept of digitizing business processes, products, and services was introduced way back in the early 90s and the 2000s. Digital transformation Insurance digital transformation myths vs. reality: McKinsey By Sanjay Kaniyar , Krish Krishnakanthan July 13, 2020, 1:01 p.m. EDT McKinsey reports that less than 30% of companies enjoy true digital transformation success, and only 16% realize improved performance and sustainable changes. ... today’s competitor may turn out to be a partner or “frenemy.” Failure to grasp this means that you will miss opportunities and underplay threats. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Research conducted by the think tank, combined with experience working with clients, leads the consultants to the conclusion that cross-functional operations transformations typically outperform their single-function counterparts by up to 40 percent. I only just stumbled across this 124 page report from McKinsey and, building on yesterday’s free research from Deloitte, this report is all about digital transformation and replacing core systems, my favourite subject.. Here’s the intro: Next-gen Technology transformation in Financial Services. Citing McKinsey again, an earlier survey that also looked at digital transformation found less than one-third of … 1 Culture shock, competing priorities, resistance to change and talent deficits — if you’ve encountered any of the following issues, you may want to re-evaluate your digital transformation. Digital Transformation articles by McKinsey is probably one of the most informative libraries on the internet, so we took the liberty to summarize everything important into one single blog. In a recent study, McKinsey found success rates of transformation efforts to be staggeringly low. “It’s too hard to really transform, so we’re just going to buy stuff,” is how McKinsey senior partner Peter Dahlstrom characterizes the mindset that gives rise to this most basic of the archetypes. The present working paper summarizes selected findings of the macro-economic simulations conducted as part of the study "Shaping the digital transformation in Europe", which assess the potential impact of disruptive digital technologies on the economy and society in the EU and its member states. A failed digital transformation doesn’t spell the ultimate end of a company, but it can be incredibly costly in lost money, resources, time and credibility. To counter the challenges described above, E&C companies must be thoughtful in the ways they approach their digital transformations. Transformation … More commonly, individual teams and business units will develop their own digital solutions, without coordinating with others. It is no wonder, then, that many E&C businesses end up with little to show for their technology investments. The majority of companies adopt a digital transformation strategy for digitalizing their existing business ecosystem for competing in the increasingly innovative and disruptive world. For example, a use case defined as “reduce losses from unrecoverable rework on steel-concrete connections by 10 percent by visualizing fabrication details with 3-D models” is easier to comprehend and act on than a use case defined as “provide access to 3-D models from all devices.”. The reported failure rate of large-scale change programs has hovered around 70 per cent over many years, according to McKinsey. Applying these new techniques requires designers not only to learn technical skills but also to design in new ways. 22. And because the whole doesn’t change, the improvement in the parts themselves isn’t likely to last.”. © 2020 Tech Wire Asia | All Rights Reserved, McKinsey says digital transformation needs to be holistic, not piecemeal, Apple app store labels a win for data privacy culture, After Facebook, China cracks down on big tech under antitrust laws, Long live advertising? 95% of digital transformation projects fail to achieve their aims according to Bain’s survey highlighted above; The below example highlights one of the indicators of the failure. Common enterprise-wide use cases for E&C companies include the following: A company must pick the right time to start developing enterprise-wide use cases. Companies can also change contracts and incentives to share benefits and risks appropriately across the value chain. Concentrating on business processes must not stop after the first wave of use cases. At a typical decentralized E&C company, it is easy for business-unit leaders to focus on optimizing projects—while overlooking the enterprise-wide use cases that could unlock a whole new wave of value as the company standardizes its digital tools and platforms across its various business units and shares more data from projects. Our flagship business publication has been defining and informing the senior-management agenda since 1964. McKinsey experts estimate that 70% of Transformation Programs Fail - Make Your Program Succeed With Proven Strategies to Generate Momentum and Sustain Long Term Change. McKinsey Global Institute. Deliver. In a McKinsey survey, the success rate for digital transformation was found to be less than 30%. The second is overly ambitious project scopes. Outside individual major projects, few construction companies have fully digitized their operations. The first is poor communication between IT and the rest of the business. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. In a recent study, McKinsey found success rates of transformation efforts to be staggeringly low. E&C companies can increase the likelihood that digital technologies will make a positive difference by first identifying operational changes that will improve performance, then defining digital use cases that will enable those operational changes. Managers can capture the benefits of increased productivity in several ways: compressing on-site schedules, reducing noncritical resources, and even restricting overtime. Such a change requires that designers adopt a new mindset, using their experience to validate model results and to look for opportunities for standardization and repetition. We’ve created a bulletproof plan so that if the leadership team follows the recipe we’ve created, those defeating behaviors won’t creep into your transformation … That is a lot of wasted time, money and unmet … So the key point is – more than 70% large “change programs” fail. This can occur when productivity-boosting use cases create float during the execution phase and managers neglect to remove this float from the project baseline. For more on cross-industry challenges, see Jacques Bughin, Tanguy Catlin, Martin Hirt, and Paul Willmott, “Why digital strategies fail,” January 2018; “Unlocking success in digital transformations,” October 2018; “How the implementation of organizational change is evolving,” February 2018; and “Can IT rise to the digital challenge?,” October 2018. On average, digital offerings have leapfrogged seven years of progress in a matter of months. Learn more about cookies, Opens in new Yet 70% of digital transformation initiatives fail, according to McKinsey research. The digital transformation market is expected to grow at a CAGR (compound annual growth rate) of 23% from 2019 to $3.3 trillion by 2025. ~70% of digital transformation projects fail according to Mckinsey. Teams need not take a leap of faith when adjusting baselines. The site team used a mobile app to tag defects against specific elements in the BIM model and store them in a common data environment (CDE), a single repository for information about the project. He helps small and medium enterprise owners understand what's most important to their company's growth and success. 40% of all technology spending will go toward digital transformation, … Why 84% of Digital Transformations are Failing Everywhere I look these days, companies are showing off their digital transformations. De-risk. 1. Digital technologies have introduced profound changes to engineering design. our use of cookies, and For example, one contractor developed an app to allow supervisors to sign completion certificates digitally. The authors wish to thank Shankar Chandrasekaran and Garo Hovnanian for their contributions to this article. After spending five years and countless sums on trialing new software platforms and ways of working, the executive team at a large contractor was nearly ready to call an end to its digital-transformation program. Jan Koeleman is a partner in McKinsey’s Amsterdam office, Maria João Ribeirinho is a partner in the Lisbon and Madrid Explore how “learning failures” can help you reap maximum rewards from transformation projects. For IT leaders, the result of each initiative can either be a career maker…or a career breaker. Most transformations fail. In one McKinsey survey, just 16 percent of respondents said their organizations’ digital transformations had delivered sustainable performance improvements. Adjustments could also involve stopping work one or two hours early each day to constrain the schedule deliberately and show that higher productivity is possible. Most companies fail to achieve the aim of their digital transformations. Use minimal essential The social and economic upheaval of the last year has shown the value of digital transformation in business. Automation experts say there are three common reasons for this lamentable record. Dozens of attempts to streamline projects with digital solutions, such as 5D BIM, had failed to deliver. The McKinsey survey found that the COVID-19 pandemic has significantly accelerated the pace of adoption of digital transformation technologies, as well as other speeding up other business … We call these sprints or phases. Subscribed to {PRACTICE_NAME} email alerts. Digital transformation can mean different things to different stakeholders, so starting with a shared definition can help executives and managers to agree on a transformation’s goals. There is nothing more “core” than competency in this area. Most DTs don’t yield the benefits that leaders expect. This article focuses on the latter type of change. In more traditional industries, including pharmaceuticals and healthcare, success rates of digital transformation fall between 4-11%. Because the industry itself is undergoing a paradigm shift, businesses need to rethink the way they operate. In another example, an E&C company used advanced analytical techniques to analyze past tender data and identify ways of optimizing tender selection and pricing. Common challenges include unclear definitions of what digital means, an indistinct idea about what the transformation should accomplish, and poor integration of digital tools with business processes. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Flip the odds. According to a recent whitepaper from McKinsey’s operations practice, consultants suggest that leaders should consider going against conventional wisdom and bet on massive projects that cut across business units and functions and engage a substantial share of the workforce instead of focusing on one small project after another. Digital transformation (DX) encompasses how … Digital transformation projects are challenging initiatives being launched across almost every industry sector. Learn about This tech-first approach can lead to digital “organ rejection,” whereby a solution fails to deliver visible benefits, and the workforce, noticing this, does not adopt it. As the world becomes more digital and more volatile, survival itself becomes less certain. Connect projects to unlock impact across the enterprise. But the biggest failure factor is NOT what you think! ~70% of digital transformation projects fail according to Mckinsey. How to avoid this digital transformation failure. Leveraging technology and changing an organization’s mindset, … E&C companies should therefore devote special attention to activities that involve multiple disciplines and groups and design digital use cases that smooth the interactions among them. Digital Transformation Is About People. And construction work often takes place in remote, harsh environments that are not well suited to hardware and software developed for the office. David Foote from Foote Partners gets it exactly right: “Clearly the … Digital transformation (DX) encompasses how organizations employ technology to re-imagine and re-invent their processes and offerings to achieve a competitive advantage across the business. hereLearn more about cookies, Opens in new In this article, we offer a closer look at how E&C companies can realize benefits like these. Source: Shutterstock. Of course, use cases can be more difficult to implement when they involve numerous designers, subcontractors, and specialists. McKinsey says digital transformation needs to be holistic, not piecemeal. Yet we are also seeing an increasing number of E&C companies overcome these challenges to transform projects or even business divisions digitally. Leveraging technology and changing an organization’s mindset, workflows, and systems to delight customers and compete in the digital-first era is harder than it seems. To set a digital transformation on the right course a company must place it at the core of its agenda, and understand the magnitude of that undertaking. The ability to examine and optimize a product of generative design is arguably becoming as important as the ability to conceive an original design. 2. By digitizing and standardizing element data, the company gained an enterprise-wide view of element volumes, which allowed it to standardize specifications and aggregate purchase orders to obtain savings. Digital transformation needs to work for the entire organization. A McKinsey surveyof more than 3000 executives around the world found that only one transformation in three succeeds. For example, generative design tools, which automatically propose a range of design options in accordance with user-defined specifications, can radically reduce the time it takes to develop designs. The creation of use cases is an ongoing effort, and new opportunities for improvement often emerge once first-wave use cases are in place. Use cases defined in this way deliver greater benefits while building the understanding and conviction of the workforce, from the CEO to managers and frontline workers in various functional groups and decentralized business units. This unplanned rework increased labor costs and caused delays. Nike launched a new business unit called Nike … When they did send feedback, it was anecdotal, unstructured, and difficult to act on. In effecting such changes, engineering and construction executives must recognize that digital transformation is about more than adopting tech solutions. That is a lot of wasted time, money and unmet expectations. Digital transformation failure taught brand importance of planning Sportswear giant Nike is now a leader in digital business, but the retailer faced digital transformation failure. Our flagship business publication has been … The supplier monitored defect reports in the CDE, then ran root-cause analyses with its factory team to diagnose and reduce defects. When we assessed construction companies that successfully implemented digital technologies and ways of working, we found that, despite differing conditions, their transformations had five practices in common, from which other E&C companies embarking on similar transformations may learn: For a digital transformation to be successful, executives and managers must start with a clear definition of how digital will create value for the business (see sidebar, “Defining digital transformation in engineering and construction”). When planning the approach to the multiyear digital transformation journey, break the project into short-term projects and goals that can deliver measurable results aligned with the vision and strategic intent. Research by the McKinsey Global Institute indicates that digital transformation can result in productivity gains of 14 to 15 percent and cost reductions of 4 to 6 percent. Plenty of cash is flowing into digital initiatives at large, industrial companies. Digital transformation is an ongoing process of changing the way you do business. To realize the full bottom-line benefit from digital use cases, managers must adjust baselines to eliminate unproductive time and generate value. consolidating cost and schedule data from multiple projects and business units to increase the accuracy of bids for future tenders, thereby increasing the margin, gaining an enterprise-wide view of resources to optimize resource loading and respond quickly when project demands change, creating central repositories for designs at the element, package, and project levels so those designs can be repurposed on future projects. Nike launched a new business unit called Nike Digital Sport in 2010 to take the lead on digital initiatives and create new technological capabilities across the company. These failed transformations show common missteps, but the companies behind them prove that failure isn’t the end of the road and that successful digital transformation is possible. It is not for the fainthearted, but CEOs are heading in the right direction if they grasp the fundamental importance of heavyweight management commitment, are willing to make significant investments, and set clear, ambitious targets. McKinsey found out in a survey of more than 1700 C-suite execs that the average digital transformation stands a 45% likelihood of … But these factors don’t explain entirely why digital transformation in the E&C industry is so hard. Last year companies poured $1.3 trillion into digital transformation initiatives, 70% of which — or $900 billion — was wasted on failed programs at companies like GE, Ford and P&G. This approach requires close collaboration among the organizations working on the project as well as clear communication about the project plan, especially with new workers who are accustomed to a slower pace of execution. Surveys show that digital transformation projects have a high failure rate — and although leaders continue to pursue the agenda in order to retain market share, maybe there is a better way? NOBODY said digital transformation will be easy. 2 We use cookies essential for this site to function well. In fact, according to KPMG’s Global Transformation Study, over 90% of polled companies have completed a transformation in the last two years. Digital Transformation: McKinsey’s Take. During the transformation, they must spend as much time, if not more, on operational change as they spend on technology. Projects vary greatly, so E&C companies often struggle to develop tools and methods they can apply repeatedly. As a direct result of that effort, the company improved its project margins by 3 to 5 percent. ... McKinsey Quarterly Why digital transformation … We'll email you when new articles are published on this topic. This way of working will create capacity for designers to focus on more intellectually challenging problems, such as reviewing and refining generative designs, for which engineering brainpower is irreplaceable. Please use UP and DOWN arrow keys to review autocomplete results. obtain savings. Digital transformation failure taught brand importance of planning Sportswear giant Nike is now a leader in digital business, but the retailer faced digital transformation failure. Digital transformation: The difference between success and failure. With more people contributing to the project and invested in its success, the chances of failure significantly reduce as well. Digital upends old models. McKinsey Quarterly. One E&C company embraced the potential of enterprise-wide use cases by standardizing the specifications for its insulation panels. Previously, the company had sourced similar products from different suppliers. The think tank believes that organizations must assess their own transformation competency and environmental complexity before making a decision. Defects persisted, so workers needed either to fix defective products or to wait for replacements. People create and sustain change. McKinsey is a thought leader when it comes to digital transformation. This process-centered approach helps focus each use case on a real business need while suppressing the impulse to chase technology trends. After the app was developed, the team defined a new use case to push safety briefings and alerts through the app so supervisors could disseminate them to teams. In more traditional industries, including pharmaceuticals and healthcare, success rates of digital transformation … Further, McKinsey believes that cross-functional transformations can reduce enterprise risk, enhance resiliency across the board, and help keep up with the rapid changes brought about by competitors and the market. Why? This summary is provided as part of our Dialogue on Digital Transformation series.. It’s important, however, to remember that although bigger projects are championed, implementation depends on an organizations’ own capabilities. This might involve observing site works and tracking downtime before and after implementing a use case. Those that do stand to realize a significant productivity payoff. They should closely monitor the effects of each use case while it’s being tested on a pilot project to understand how much they can adjust baselines without jeopardizing subsequent projects. tab. Historically, site workers hadn’t sent feedback to a supplier on all defects in the elements that the supplier was making. Unleash their potential. The difficulties are understandable. “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.” In our 2016 survey, the rate of success was 20 percent; in 2014, 26 percent; a… Financial Services technology is currently in the midst of a profound transformation… The success of a transformation will depend greatly on how well a company institutes the new ways of working that technologies enable. They should also start to adopt digital ways of working, shifting from a traditional, linear design process to a more agile approach that consists of faster iteration in short test-and-refine loops. While McKinsey, Accenture and Cap Gemini can sometimes help, … Implement digital use cases that promote collaboration. For E&C companies that have struggled to do more than experiment with tech solutions, the time to redouble their efforts is now. Whatever the findings are from these efforts, project managers should document them so future projects can replicate effective methods of adjusting baselines. 73% of business transformations fail. E&C companies with internal design functions should equip themselves with new technical skills—for example, by hiring developers to build standard libraries of design elements and automate certain parts of the design process. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Digital transformation should not be handed off to consultants. Our experience shows that adopting the five practices described in this article improves the odds that a digital transformation will yield tangible benefits. Such use cases are also easier to replicate on multiple projects and to introduce to new workers. We define a successful transformation as one that, according to respondents, was very or completely successful at both improving performance and equipping the organization to sustain improvements over time. On the other hand, where organizations face geographical or technical complexity or see an intensive need to develop capabilities, an iterative approach may be followed using short sprints lasting two-weeks each and a simultaneous thematic deep-dive that lasts up to 12 weeks. Portfolio Transformation. Scenarios such as this remain all too common in the engineering and construction (E&C) sector, which is one of the world’s least digitized. A good process-centered use case should specify three things: a process change, the required enablers (data and technology tools, capabilities, changes in mandates and responsibilities, legal and contractual requirements, and others), and the expected benefit. Most digital strategies don’t reflect how digital is changing economic fundamentals, industry dynamics, or what it means to compete. Adjust project baselines to capture value. Digital transformation: Is a little failure okay? But developing narrowly targeted use cases usually means that E&C companies miss out on a valuable opportunity: stemming the large efficiency losses that can occur because information isn’t transmitted effectively during handoffs between trades and functions. NOBODY said digital transformation will be easy. The record of studies on digital transformation indicate a high failure rate, with a notable 2013 McKinsey study finding that 70% fail. Similarly, digital tools can help accelerate construction by reducing defects and thereby reducing rework. As technology leaders, we have a tremendous challenge before us. Misunderstanding what “Digital Transformation” means, coupled with poor internal alignment, is often why digital efforts fail. McKinsey outlines four digital transformation archetypes (the labels are CFO’s): 1. Yet, according to McKinsey, more than 70% of digital transformation projects fail. These are McKinsey & Company’s ‘Four Ds’ of digital transformation outlined in a new report.. For those companies that didn’t fail outright, only 16% saw improvements in their performance and ability to sustain change over the long haul. The creation of use cases is an ongoing effort, and new opportunities for improvement often emerge once first-wave use cases are in place. Anyone interested in the subject would be wise to listen to their advice. 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