Why digital transformations fail?

In the class, we discussed the knowing-acting problem. Some companies know if they don’t do the digital transformation, they will be eliminated from the market. However, they didn’t take their actions. It made me think that there are companies:” knowing, acting, but failed.” I wonder why they failed, the keys to digital transformation, and what I can learn from their failures.

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GE

When I search digital transformation failure cases, GE comes out most. So let’s start with GE.In 2011, GE labeled itself as a digital industrial company. What is a digital industrial company?

GE’s digital transformation work started in 2013. GE launched an IoT platform, Predix, for the industrial internet, moving them to a data-driven company. They digitized its products and services and transformed the business model of industrial products. GE connected all of its machines, equipment, and processes by combining the informational technology with its traditional operating technologies. They managed the data from it and turn it into insights and then improve their business—the embedded sensors on everything from manufacturing equipment to airplane engines.
In 2015, They created a new business unit called GE Digital with a CEO, Bill Ruh. GE digital is to use the data to make GE a technological powerhouse. Despite investing billions of dollars in GE Digital and its thousands of employees, GE suffered significant losses. GE Digital quickly fell into a platform to report revenue to shareholders. And The CEO was soon forced to resign.

Why did GE’s digital transformation fail?
The size of GE
GE is too big to digest all the transformation at one time. Because of their massive business scale, GE needs to predict process billions and billions of terabytes of data. How to take extensive data and make it actionable data is a big challenge for GE.The company operates through too many segments,It takes time for GE to actually internalize the transformation in the different sectors. Digital transformation planning may need to start small. GE often try to take on the task of changing the entire business at once. Attempting to boil the sea, especially within such a large organization, is the secret of failure.
Wrong Goals
GE positioned its business as short-term revenue growth rather than long-term strategic goals. The GE was on the exact opposite path of the fast-growing digital transformation program.67% executives believe that the key objectives of digital business strategy in organization is to create better customer experience. From my perspective, focusing only on the new revenue is not sustainable.Customer experience, productivity and efficiency should be the long-term solution.
Technology Only
From what we learn from the class, digital transformation is not all about technology innovation but how to align with the culture, organization, and business model. It is a continuous process of changing the way to do business. The disruptive transformation is so destructive that existing organizations will kill them.Therefore, only applying emerging technology is not enough.After all, not everyone in armor suit is Iron Man.

The keys to digital transformation

According to a study by McKinsey, the main reasons why global organizations avoid stalls are as follows. 24% executives believe that strong alignment and commitment across organization is the reason they can undertake digital transformation continuously. A research in MITSloan called it “Digital congruence”.A conservative hierarchy having energetic entrepreneurs may not be able to use their motivation and energy. Similarly, an organization with a flat and flexible structure can still struggle if its culture is concerned about taking risks. But when culture, people, structure, and tasks are stimulated at the same time, businesses can move forward successfully and confidently.

After reading about the failed transformation of large companies, I wonder if digital transformation is for big companies alone. The profit scale of small enterprises is small, and the digital transformation is a process of continuous input. Considering the input-output ratio, small enterprises will not consider the digital transformation. Digital transformation is accompanied by the adjustment of organizational structure and business model. Are small businesses willing to take risks?Introducing new technology and new talent, and providing training, will greatly increase costs. In the face of small profits, whether the small enterprise can survive until get the return of the original investment of digital transformation. “Companies either transform or die in industrial revolutions,” former P&G executive Tony said. Are small businesses doomed in the digital age?What would you do if you are a CEO of a small or micro company?

I run a small business that provides pet grooming, boarding and retail services for community consumers. After a year in the business, I realized that the community consumers are limited and that I had to make changes to break the revenue ceiling.“There really isn’t a way to digitally groom your pet,” says Mike Goodwin, who has been CIO of PetSmart since 2014. Yes, totally agree. I can’t imagine how automated grooming is like for pet.Like most people, I chose to start e-commerce first. Online retail business allows us to acquire new customers and though marketing activities online we try to give pet parents reasons to come into our brick store. However, e-commerce platform brings the platform maintenance and customer online service problems, which means we need to recruit more people. Obviously our profits and money don’t allow us to do that.At the moment we spend a lot of time training our manager to be responsible for maintaining e-commerce platform. But clearly this is not a long-term solution. Even though e-commerce brings opportunities and profits, we also faces fierce competition. We are now suffering from the price war. Second, I bought a data analysis system.Using this data, we better understand customer’s preference and develop stock-buying, marketing and employee training programs.We change customer service process to get more data through talking and interacting with consumers. We call this process “digital paw formation”. After making these changes, I got stuck. Traditional and small businesses with limited capital, I feel every step is very hot feet.

PetSmart’s digital activities include a mobile-optimized website, two popular pet care apps, and build more mobile. Petco has partnered with DoorDash to bring a number of new digital products available nationwide, redesigned a newly website, an enhanced Petco app experience, new online tools for pet parents, and free same-day delivery. Both giants seem to be going the same digital transformation path. Do you think there are limitations to the data transformation of the pet industry and the traditional industry?

automated grooming for cows

I hope that I could get from class and peers about what to do for the next step.

9 comments

  1. abigailholler1 · ·

    Very cool that you run a small business!! I have a dog, and going through COVID without our regular grooming schedule was really tough, tons of appreciation for what you do! During COVID, we had to learn how to groom our pet from home, and it was difficult. While ‘digital’ dog grooming isn’t a risk to your business, have you tried any other forms of ‘groom your dog at home’ kits? During the quarantine, we were looking for ways to support our groomer, and we asked if they sold any ‘how to’ kits that we could use while they were closed. For example, we were looking to purchase shampoo, clippers, and a ‘how to trim your dogs fur between grooming’ guide, but it wasn’t something our groomer offered. It would have been helpful to know any simple fur trimming techniques, and of course what areas of our pet’s body an amateur groomer should avoid (like nail cutting!). While COVID is over, we see tons of people moving to different locations for extended periods of time, and I think many dog owners would find a kit like this very useful!

  2. Nice post. I disagree somewhat that GE pursued a technology-only strategy. They actually were pretty forward thinking in trying to drive an entrepreneurial mindset among employees. Ultimately, however, it was just too little, too late.

  3. Great post! Capital allocation is always one important factor preventing us from exploring different ideas and theories. I am facing similar problems that we are reluctant to invest tons of resources/labors/money into digital transformation as a traditional real-estate investment company because the future benefit has not been seen by the management team. Now I’m thinking we may need to take one step back and consider reviewing companies’ strategies and competitive advantages before moving to whether we should take digital transformation or not. I know you mentioned “price war” on the e-commerce platform. If your company is a market differentiator, probably you need to find a better “e-commerce” platform to better reflect the “differentiation” than the current ones. Another thinking would be using digital transformation, such as social network platforms, to empower your “differentiation” in the market by driving traffic to your store or enhancing your brand awareness in the community. If you are a “cost-saving” company, you may reduce your own cost as much as you can to reduce the price you are selling to your customers on the e-commerce platform. I believe digital transformation has a lot of ways, possibilities and potentials, finding the ones that aligned with the company’s strategy is extremely hard but valuable to the company.

  4. I worked at a subsidiary of GE for a few years so this post brought back a lot of memories! I agree with many of your points about why GE failed in their digital transformation. The company is so large that having a major transformation like they intended was difficult. You mentioned that you believe that digital transformation is only for the large companies but I would have to disagree. I think for some large companies it is actually more difficult because getting buy in across the board is hard to come by. Whereas with smaller companies it is easier to create a culture that is willing to take on the task of digital transformation.

  5. ritellryan · ·

    I am doubling up on what Alex said regarding how difficult it is for large companies to get buy-in on transformational initiatives. Obviously I haven’t done the research like you did, but I am surprised GE didn’t try to implement some of their ideas on a business unit first. For example, if we are changing a platform, we apply it to one department first and then roll it out. Deciding to make it a unit of a company like that is very challenging. I also find it surprising a company like GE was so short-term focused, especially for one BU. You would think they would be aware it wouldn’t be profitable in the short-term, but that the growth potential was there and that the other business units would be able to buoy it until it was stable (although they haven’t done that well either in recent history).

  6. lisahersh · ·

    Excellent insight and analysis, Chang! I agree with a lot of the points you made regarding GEs failed digital transformation, especially the focus on short-term revenue growth vs long-term company sustainability. You said that due to GE’s size, GE Digitals’ mission wasn’t feasible. Do you believe that having a digital/data-focused office situated within existing departments/subsidiaries would have been more successful? I think it may have helped with the culture change and scalability issues, but would be a much slower process. Given the heavy competition within most of GE’s LOBs, the speed at which they need to execute these strategic initiatives is imperative. What specific actions would you have recommended to turn GE’s digital failure into a digital success?

  7. williammooremba · ·

    One thing this post made me really think about is mandatory vs optional digital transformation. I suspect of GE’s aviation division digital transformation was a requirement not an option. For instance, most aircraft engines, at least the engines I am familiar with, use sophisticated electronic control systems with technology leading how they are made. GE would have been likely way behind in that application if they had not switched. However, for other aspects of GE, for instance home appliances, I do not know to what extent they needed to undergo digital transformation. I think part of the issue might have stemmed from what amount of GE’s business areas had to undergo digital transformation. As you mentioned, it might have served GE better to only focus on their business units where they could not remain competitive without digital transformation.

  8. alexcarey94 · ·

    Awesome that you run your own company! As you mentioned some things are not something you would think of being able to digitally transform completely yet I think there are small steps that can be taken to make life easier for customers. One thing that came to mind is in terms of my hair dresser- previously appointments & payments needed to be made over the phone. Now with the ability to go online and book an appointment using a virtual calendar, make payments and even pay tip online. I think that sometimes even though a whole industry may not transform small parts of the process will which will make life easier for employees & customers!

  9. courtneymba · ·

    Great post, Chang! So much great data here and plus insider insight from your perspective as a small business owner. I agree with Alex’s point about finding specific and strategic elements where an SMB can get strong ROI on digital transformation. Totally agree with appt setting and payments, and there are other cool tools you can get to learn fairly cheaply about your customers and their habits. For example, most payment companies have some kind of analytics so you can learn more about cardholder behavior and use that to increase ROI on marketing. We also use Google analytics and Facebook pixel tracking on all our sites, both are super cheap and help us learn faster. I always opt for an iterative approach where I can learn fast and learn cheap.

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