May 31, 2023
In the digital world,
most digital transformations are failing to reach their desired outcomes
Are your digital transformation projects stuck in neutral?
In a 2022 McKinsey Global Survey of 2,190 companies in pursuit of transforming their businesses, two thirds said they were “just treading water, taking no decisive action, and consequently achieving little or no success.”
These results reinforced an earlier McKinsey study in 2018 that documented companies spent more than $1.3 trillion on digital transformations, 70% of which failed to reach their desired outcomes, which means over $900 million went to waste.
A recent Gartner study of corporate boards found that 89% said that digital is embedded in all business growth strategies, but only 35% are on track to achieve digital transformation goals.
While there are myriad excuses for the lack of results, I think the core issue is the inability to find the right balance between funding a company’s existing businesses while still being able to invest in a new business that will scale to material new revenues and profits. My brother, Geoffrey Moore, calls this “the crisis of prioritization.”
The Crisis of Prioritization: What is your company willing to give up in order to become a digital enterprise?
For well-established companies to invest in next generation businesses, they have to identify resources and budgets that they are willing to divert from current businesses to fund new digital businesses. This means there needs to be a framework and process to enable senior leadership teams to discuss and prioritize what the company should be willing to give up to get better. The ultimate goal is to prioritize long term growth over short term earnings results.
Part of the discipline of this approach is to understand that you can only have one top priority. Unfortunately, too many companies will list multiple top priorities and argue why each should be number 1. This is a recipe for failure.
Here are some core questions you can use to start your senior leadership discussions:
- How long can the company’s current business model deliver its desired business growth goals and financial results?
- How sustainable are the company’s revenues, margins, and profits?
- How vulnerable is the company’s business model to being digitally disrupted?
- How quickly could the company respond to this digital disruption?
- How well can the company leverage digital technology for increased competitive advantage?
- How robust is the company’s digital technology pipeline?
- How open is the company’s culture to changing the way it does business?
- How capable is the company at competing as a digital enterprise?
In the work I have been doing with my clients, I have utilized our Business Maturity Lifecycle assessment framework. This approach has allowed me to help senior leadership teams assess the performance (revenues, margins, and profits) of their different lines of business over the past 3 years to see where they fall on the business maturity lifecycle shown on the slide below:
If the individual business line is growing at 15%-30% then it is in category B; if it is growing at 5%-10% then it is in category C; and, if it is flat or declining then it is in category D. The results of this business maturity assessment will enable companies to identify businesses to exit, as well as prioritize existing or new businesses that are prime digital transformation candidates.
Zone To Win: How to make digital transformation a core organizational competency
My brother, Geoffrey Moore’s book, Zone To Win, provides a framework, vocabulary, and three playbooks to enable companies to meet or exceed their desired digital transformation goals and outcomes. Early adopters like Salesforce, Microsoft, Equinix, Splunk, and VMware have seen firsthand how this approach can lead to game-changing results.
The three playbooks below are each designed with a specific purpose and process:
- Stay the Course: Your current operating plan will meet or exceed your annual performance goals. As such, there is no current need for a transformation initiative to be launched.
- Zone Offense: You have a new product, service, or business that can scale to 10% or greater of your current revenues. This requires selecting one and only one digital transformation initiative and making it the number 1 priority for the company.
- Zone Defense: One or more parts of your current business are under existential threat from disruptive digital technology. This requires moving the business from the performance zone to the transformation zone and making its operating model transformation the number 1 priority for the company.
Salesforce Use Case:
Marc Benioff and his senior leadership team at Salesforce have successfully deployed the Zone Offense playbook repeatedly to launch and scale major new businesses as shown on the slide below:
In each case, a new business was not launched until the prior new business had scaled to 10% or greater of the company’s overall revenues.
Microsoft Use Case:
When Satya Nadella took over as CEO of Microsoft in 2014, he realized that all three of their core businesses (ERP, Windows, and Office) were under existential threat from Amazon, Apple, Google, and Facebook. He and his senior leadership team utilized the Zone To Win framework to pivot the company’s business model from on-premise-on-desktop to cloud-first-mobile-first.
In 2015, when he moved the Office/Azure cloud business from the performance zone to the transformation zone it was doing $5 billion in revenue and was a minor competitive factor to AWS. He set a three-year revenue goal of $20 billion and beat it by 9 months. Microsoft also beat AWS in total revenue in 2017, $26.7 billion to $24.3 billion.
In working with different companies over the past several years to help them successfully deploy our Zone To Win playbooks, I have seen a series of critical success factors in any digital transformation:
- You need to gain cross-enterprise alignment and support for a digital-first business growth strategy and implementation plan. The competitive landscape is changing so fast that anything less than an all-in approach will likely fail.
- You need to create a culture of continuous learning and experimentation and be willing to fail fast and learn fast.
- You need to excel at segmenting and prioritizing competing options using the 4 Zones framework.
- You need to be able to leverage data and analytics to identify and create entirely new customer services and experiences.
- You need to be able to construct and orchestrate business partner networks and ecosystems that leverage the competitive benefits of assets you don’t own and directly control.
- You need to have the resolve to sacrifice short term revenue and earnings in order to create sustainable long term competitive advantage.
The unprecedented assault of multiple waves of digital technology disruption have enabled companies of any size to penetrate some portion of well-established companies’ value chains. As the data above documents, the majority of companies’ digital transformations initiatives are failing to reach their desired outcomes.
Over the past 8 years, I have had the opportunity to work with a number of C-Suite leadership teams to help them utilize the Zone To Win framework, toolset, and vocabulary to reach their digital transformation goals and desired outcomes. If you are a leader who has the vision, resolve, and commitment to achieve a successful digital transformation, I’d welcome the opportunity to help you achieve that goal.
As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me on linkedin. And, if this content could be useful to someone you know please share it here: