Despite massive investment and c-suite agenda prominence, digital transformation initiatives are sliding from trumpeted strategic imperative to the latest “over-budget, underwhelming IT project” status.
KPMG’s 2023 US Technology Survey revealed a majority of US businesses have not “increased performance or profitability from digital transformation investments” over the past two years. That’s hardly what boards envisioned, IT leaders pitched and CFOs can tolerate.
When executives ranked the challenges “most likely to slow transformation,” people problems topped the list. Respondents widely cited inadequate tech function leadership, poor cross-functional coordination, key talent gaps and stubborn work cultures. If companies can’t swiftly solve those age-old riddles, little may be left for modern technology to transform.
Open Secrets
So what’s really behind the tepid tech investment yield, workplace inertia and adrift digital strategy aspirations? KPMG’s survey results pinpoint the drivers:
- Executives remain entrenched in compliance mindsets. When asked about the “main triggers of digital transformation in your business,” regulatory obligations or security concerns finished first. Further, 66% of respondents indicated that “complex regulatory developments” made the business “less confident” in investing in new technology. Those eye-opening results strongly suggest that many senior leaders still do not distinguish IT modernization from the business re-invention potential inherent in digital transformation.
- Executives widely lack sufficient proactive and practical understanding of tomorrow’s tech. While 74% expressed high confidence about turning “risk into opportunity to grow using their existing tech stack,” 68% (down from an astounding 90% in 2022) still expressed a “lack of buy-in from senior leadership about emerging technology.”
- Corporate IT spending has tightened. Inflation, increased interest rates and delayed ROIs hamper cash flow and squeeze budgets. Nearly two-thirds (65%) of US respondents warned “in comparison to last year, they are expected to do more with less budget.” With looming economic uncertainty, unbridled cyber threats and questionable tech investment yields, short-term IT expenditures likely face continued serious headwinds.
- Well ahead of external factors, underpinning digital transformation failure is basic lack of workplace trust and agility. Tech scares people. Notably, 57% of respondents felt that “employee resistance influences their investment decisions with new technologies.” Nearly half (47%) said their tech function “lacks the governance and [cross-functional] coordination” to effectively support new initiatives. Over 40% remained concerned about significant workplace talent and skills deficits.
Clearly, far too many companies are severely misaligned with digital era expectations, dynamic risk and identifiable future-shaping opportunities.
Ride The Tiger
Tomorrow’s success depends on both developing people and deploying technology. In concert with closing talent gaps, here are three ways immediate, meaningful actions senior leaders can take to stabilize and reenergize digital transformation:
1. Connect tech investments to business strategy, customer experience, innovation and financial goals with great clarity.
Seek best practice examples – from any industry. For instance, Walmart CEO Doug McMillion emphasized on the retail giant’s FY 2024 Q2 earnings call, “As it relates to technology, our approach to new tools like generative AI is to focus on making shopping easier and more convenient for our customers and members and helping our associates enjoy more satisfying and productive work.”
He continued, “We’ll unlock value for shareholders through the combination of our physical automation work with our data and increasingly intelligent software. We have a sharp focus on ROI as we drive results and set our capital priorities. The financial framework we laid out…is evident in our results from the last two quarters.”
Such clear communication raises executive accountability, shatters antiquated thinking and energizes workplace focus.
2. Reinforce that digital transformation success is urgent and non-negotiable.
Atif Zaim, KPMG Advisory national managing principal and incoming US consulting practice leader, explained, “Companies that lack a sustainable digital transformation vision will eventually be exposed, either through poor customer experiences, lack of investor buy-in, low employee adoption, or wasted spending.”
Atif optimistically added, “We expect to see significant profitability and performance gains as many leading organizations enter into the later stages of digital transformations undertaken in recent years. It is critical that CEOs not take those gains for granted. To maintain a competitive advantage, they must maintain a clear transformation strategy especially now given the prominence of AI and the pace of technological advancements.” Such perspective must be widely embraced and shared. Otherwise, the peril of performance lags, cash drain and eventual irrelevance soar.
3. Make compliance a feature, not a bug.
Too often leadership agony over regulatory compliance minimums stifles innovation, tech investments and digital strategy. “Business leaders are better off integrating regulatory compliance requirements into their digital strategies,” Emily Frolick, KPMG Trusted Imperative leader, emphasized. “Organizations should aim to seamlessly embed new compliance requirements into their business processes, think how stakeholders will be impacted and ultimately build trust.”
Frolick noted that advanced analytics and AI “can be used to monitor transactions in real-time and identify items that need further examination, ensuring trust is not compromised.” She concluded that “this approach will better position organizations to build trust with regulators and other stakeholders and implement solutions that proactively manage important business risks, giving more latitude for product innovation and deepening customer relationships.”
People Power
Digital transformation is rapidly demarcating leaders and laggards. It’s talent, management and culture that drive that existential difference. Who’s candid and courageous enough to manage what matters most?
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