Summary
Digital transformation is a transformative phenomenon that can go off the rails even during the best of times for even the biggest organizations. Contributing factors include an overabundance of investment in building capabilities which are not warranted, a culture of hero worship and an over-reliance on legacy systems and age-old processes across the organization. With that being said let’s take a gander at the reasons behind the failure of 2 tech giants namely HP and GE in their digital transformation efforts:
Hewlett Packard (HP):
1. Failure to break down project silos made it difficult for leadership teams to make extensive changes required to both existing processes and employee mindsets
2. Data integrity became compromised resulting in the company losing track of a ton of orders during the migration ordeal
3. Struggled to keep up with the influx of orders due to improper integration of new systems to existing processes resulting in the organization losing $400 million dollars’ worth of revenue.
General Electric (GE):
1. GE tried to do everything at once instead of empowering and tasking a small team of dedicated professionals with developing a sustainable solution that befits the organization
2. Failure to find a balance between the organization’s business needs and capabilities resulted in GE failing to make the impact that they desired
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70% of all digital transformation projects end in failure. This is because organizations either exceed their allotted budget, fail to properly define and meet end goals, or the company decides to cut their losses and abandon the project. In certain situations, it also comes down to improper planning or a ith that in mind, we’ll be looking at 2 other industry titans that experienced failure in their digital transformation initiatives:
Hewlett Packard (HP)
In the year 2004, HP set out on a mission to streamline their disparate ERP systems across its North American division into an integrated supply chain management system. But the company did not expect things to go awry as they had a history of successfully completing 34 projects that were similar in nature. However, the 35th project was marred with operational problems and project missteps which would prove costly. The digital transformation failure at Hewlett-Packard can be attributed to three primary causes:
- Project Silos: Before the company wide migration took place, every sector that came under the North American division of HP had its own ERP system. This made it difficult for leadership teams to bridge the gaps between departments. Ultimately this proved detrimental because extensive changes were required to both the existing processes as well as employee mindsets, both of which failed to take root.
- Data Integrity Compromised: Orders by the ton were becoming lost as HP moved from their old ERP software to the new SAP platform. Faced with angry customers and lost sales, HP was forced to temporarily direct orders through its channel partners and expedite orders through air-shipments. Despite these preventive measures, the backlog of orders totaled around $120 million.
- Failure to keep up with Increased Demand: At the time of the project, demand for HP products was at an all-time high. While normally this would have been good news for business, it was bad news for the new system that was improperly integrated. Naturally, the new SAP platform struggled to keep up with the influx of orders and resulted in the organization losing $400 million dollars’ worth of revenue.
To summarize if HP had established collaborative business processes before combining disparate systems into one central platform, this catastrophe could have been avoided. When planning your digital transformation project, it may seem natural to choose a shorter timeframe but rushed ventures absent collaborative practices often result in failure.
General Electric (GE)
The General Electric Company (GE) is one of the largest industrial conglomerates based in Britain that is involved in consumer and defense electronics, communications, and engineering. The organization makes a whopping $74 billion dollars a year in profits.
General Electric wanted to make its mark on the industrial internet and to bring this endeavor to fruition, they created GE digital in 2015. GE Digital aimed to not just centralize all of the company’s IT operations but also sought to become one of the top ten software companies by 2020.
Centralizing IT for a company the size of GE and building an entirely new class of software-hardware integration is an immense undertaking, one that requires massive engineering talent, huge amounts of input from thousands of people across dozens of time zones, and should take account of every business in GE.
Initially making GE Digital its own business unit definitely was a step in the right direction, but it also meant inheriting the roles and responsibilities of GE Software despite the fact that the unit’s objectives were strikingly different than the company’s expertise.
The hurried transitional effort from huge machinery to cloud-based software solutions was a recipe for disaster and backfired on the company, leaving GE in an economic quicksand. The quarterly P&L requirements were the primary focus of the digital transformation efforts and this effectively prevented GE digital to invest in long-term strategies and limiting themselves to pursuing short-term goals that failed to add exponential value to the overall business. This resulted in GE digital’s stock prices taking a plummet and falling as far as $11.60 a share in trading, breaking past its previous low of $11.94.
What went wrong:
- Despite having a clear vision, driving the digital transformation at a large scale meant trying to do everything at once instead of charging a small team with developing a sustainable yet scalable solution.
- Despite making heavy investments in tech and hiring the talent available in the market, the digital transformation initiative of GE Digital failed to succeed due to their inability to balance between their business needs and capabilities.
In the end, once it was clear GE digital did not perform as it was originally envisioned, parts of the business were sold off while the rest was wrapped up into GE power.
Embarking on the digital transformation journeys depends on an organization’s foresight to accurately assess their capabilities and meeting them using the power of technology. Small steps may be obsolete but on the other hand giant leaps may be overkill.
If you’re unsure about the next steps that need to be taken for your digital transformation initiatives, reach out to Adtech. At Adtech, you will find a team of seasoned technologists, expert developers, and thought leaders who can help your organization find great success in its digital transformation efforts.