In a recent McKinsey study, the authors stated that less than 30% of digital transformations have achieved success. Based on my experience in the past 8 years deploying advanced analytics / Machine Learning solutions to large “heavy industry” enterprises, I would attribute the success rate to less than 15%. Why are large enterprises failing so much with digital transformations?

In a March 2020 article by McKinsey titled “How to restart your stalled digital transformation”, the authors showed the primary reasons why momentum stalled in digital transformations. By grouping the individual categories into 3 macro reasons, we end up with:

• 67% were related to insufficient resources or lack of organizational alignment
• 28% were related to misaligned or ineffective transformation strategy
• 5% Disruption in market and/or business environment

This aligns with my experience. Enterprises are quick to invest in technology platforms or consulting partners who can jump start innovation pilots, but in the end, the lack of internal investments into their own people is the Achilles heel.

67% of stalled digital transformations are directly related to not having the right people, not having enough people, or not having the right organizational culture to bring digital innovation into the established company.

In my experience, enterprises are trying to purchase innovation success. That is simply not possible. Organizations with the muscle and ability to adapt and create new business ventures are the ones who will win. While at Predikto, we ran into too many organizations where the technical pilot or technical solution was a success, only to fall short at adoption due to the lack of investments into change management, organizational alignment, and the necessary resources in house to catch the football and run it down for a touchdown.

It was incredible how often a senior executive at a potential client would be baffled by the simple question: “Lets assume this entire Predictive Analytics Big Data project is completed tomorrow in a huge successful way, what are you going to do next?” Most executives were surprised and completely caught off guard. They did not know what to do next. They did not have the team, resources, processed, or infrastructure to take the solution and scale it to achieve the large scale values.

Over twenty years ago, Clayton Christensen suggested that the solution to the innovator’s dilemma was to pursue innovation outside of the firm’s existing business model. Despite the best intentions of executives, few companies have been able to break free from the innovator’s dilemma and the cycles of innovation theater that create only incremental change, at best.

So, if enterprises are failing at digital transformations because of people, and Christensen suggests that disruptive innovation can only be done outside of the enterprise, what can companies do to succeed?

Increasingly, the future success of the large enterprise may be determined by how they engage with startups. The degree to which an enterprise is able to transform will increasingly depend on its ability to effectively acquire startups, partner with them, invest in the right ones, and, perhaps especially, build them from scratch.

One approach that is starting to gain traction is the Venture Studio concept. Companies like High Alpha are in the business of creating startups with their enterprise customers/partners. Other consulting firms with strong Digital capabilities like McKinsey and BCG are doing the same with Build-Operate-Transfer (BOT) models. I think enterprises incubating new ventures outside the 4 walls with the help of “startup minded” founders/resources is the way to go. Time will tell. The enterprises who are able to crack the code and increase digital transformation effectiveness will outperform their peers.