Digital transformation initiatives too often leave out a key stakeholder: employees

Digital transformation is a disruptor that is leaving no industry unturned. Nearly eight out of 10 companies are in the process of digital transformation, according to AppDirect’s 2018 Digital Economy Report. But, the vast majority of those same companies implementing digital transformation initiatives—nine out of ten—are facing significant obstacles to success.

While modern technologies are drastically changing the way all organizations approach traditional issues, certain industries face arguably greater obstacles in their digital transformation processes. Health and financial services, for example, provide an interesting framework for understanding the impact of digital transformation on an industry as a whole, such as the urgency for established companies to evolve digitally and the critical role of employees in any digital transformation process.

“We are seeing more and more organizations, especially from traditionally risk-averse industries like healthcare and financial services, assessing, implementing or overhauling digital transformation initiatives,” says Sanja Licina, PhD, Leader of Future of Organization studio at Globant. “But there is often a gap between knowing you have to do something and knowing the best way to achieve it.”

Companies in industries with unique compliance challenges, from banks to insurers, have been operating in an environment where innovation is often associated with risk. But there is a potentially bigger risk if companies fail to innovate. Legacy financial institutions, for example, are looking at a 20% to 60% decline in profits by 2025 if they fail to evolve digitally, according to a McKinsey report.

But don’t be fooled by labels like traditional or established; not all the players in these sectors are innovation adverse. In fact, health and financial services were named the top two hottest industries for startups in 2018. They hold the No.1 and No.2 spots on the Inc. 5000 list of the fastest-growing private companies in the U.S. in 2018: 380 health-related businesses with $36.3 billion in revenue, and 236 financial services companies with $15.1 billion in revenue. Read between the lines: agile, digital natives are moving in and racking up astronomical growth in sectors dominated by older, established companies that have a greater challenge evolving.

Digital transformation: Leadership’s top concern for 2019

In a recent survey of 825 board members and executives across a variety of industries around the world, digital transformation was cited as their top concern for 2019. It made a dramatic jump from tenth place in 2018 to this year’s top spot (see figure below).

According to McKinsey, 70% of the $1.3 trillion spent on digital transformation initiatives in 2018 went to waste because they failed to meet their target objectives. That’s $900 billion down the drain.

“The value for organizations comes with how people adopt technology, not how people adapt to technology,” says Licina.

A recent study, The Digital Transformation Race Has Begun conducted by Forrester Consulting, which evaluated the state of digital transformation across six key industries—retail, banking, healthcare, insurance, telco, and media, found that “While digital transformation is seen as important and deserving investment, transformation maturity is currently low across all industries”.

Transforming failure into success

Why are so many digital transformation initiatives failing to deliver expected results? Part of the answer to that $ 900-billion question lies in the technology itself. Mainly, integration challenges are slowing or hindering digital transformation within organizations and inefficient IT operating models are slowing the pace of change.

But, digital transformation is not just about technology. A critical question companies need to answer is: What are the business values the organization is striving to achieve through digital transformation?

For example, key benefits of digital transformation typically sought out in two of the biggest industries in the U.S., healthcare and financial services (each represent just over 7% of GDP), include:

• Improved cost and time-efficiency

• More engagement with customers (i.e., patients in the case of health care)

• Flexibility to respond to future customer needs quickly

• Room and tools for innovation

• Easy regulatory compliance

While these are all important goals, the problem is not what is on the list, but rather what is missing from it. Or, better said, WHO is missing: their employees. They may hold the answer as to why so many well-intentioned digital transformation initiatives are failing to meet their targets in more conservative and highly regulated industries.

More often than not, digital transformation strategies have largely focused on optimizing the customer experience. The issue is that their customer-centric strategies ignore one of the golden rules for 2019: employee experience drives customer experience.

Customer-centric digital transformation without employee engagement can have a serious side effect: high employee turnover. Not surprisingly, according to a recent survey, organizations in traditional industries are struggling with crippling employee turnover rates.

And, turnover isn’t the only problem. The average employee’s tenure is 4.6 years, according to the U.S. Bureau of Labor Statistics, employees in these industries stay considerably less than that; for example, according to one report, only 11 out of 100 employees last longer than 36 months in the insurance industry.

As these industries assess how to tackle high employee turnover rates and increasingly shorter tenures, their leadership teams find themselves facing a surmounting challenge: they need their employees to be more creative, innovative and agile but their existing structures are built around stability and predictability.

How employees can drive the success of digital transformation initiatives

As we saw in the data, there is a huge opportunity to improve the effectiveness of digital transformation initiatives. And since employees are the ones who are generally left out of the equation, it’s easy to see that involving them more effectively can have a tremendous impact. But how do you do that?

There are a few key strategies that can help effectively bring employees to the center of the digital transformation.

Employees may sense a lot of changes, but they may not understand what the organization is trying to achieve, or they may have only a partial grasp of the vision for the transformation. In a time of great change, there is no such thing as too much communication. Communication should not be limited to formal channels such as email or company town halls; more informal channels are important too.

Employee-centric communication platforms can ensure information reaches employees in a way that gets them to pay attention to it. Once your employees are “in the know,” you can help them spread the word. If employees have a space to showcase, through stories and photos, their involvement with different initiatives, the transparency and accessibility of the information will grow organically through the organization.

Once employees have a better understanding and exposure to the vision, if they are invested in the company and want to stay long-term, they will want to know how they can play a part in the change. This is where recognizing employees for behaviors linked to specific organizational values or principles can make a huge impact, as it will add more clarity about how they can make an impact, while at the same time feeling more appreciated for their work.

This importance is amplified during a time of change, where many will be questioning their place in the organization. Much like communicating the vision in a transparent manner is important, recognizing employees in a public way when they are aligned with the values and principles is hugely beneficial. This not only helps the person who is recognized feel valued but also gives their peers examples of what they could be doing that is aligned with where the organization wants to go.

As transparency and employee interactions grow, a stronger social tissue in the organization is generated, driving change in such a way that employees can influence more peers, creating stronger change agents that can help even the largest organizations more effectively go through a transformation.

Having the right, employee-centric technology as a part of the digital transformation not only creates a space for these kinds of positive experiences but also brings to light invaluable data to help with these initiatives. For example, seeing how much employees are participating in organizational changes can show the level of commitment and identify if there is an opportunity to communicate better to a certain segment in the organization.

At Globant, they experienced firsthand the tremendous impact that employee-focused technology can have on reinforcing the organizational tissue. For example, over the course of six months, 95% of employees who created a strong social bond at the organization (were both recognized for their work and recognized their colleagues for great work) were still employed at Globant. In contrast, only 62% of those who did not exchange recognition with others were still with the company.

Identifying those individuals with the highest level of participation can help identify emerging leaders, and help select individuals who can share the news and lead by example, influencing the highest number of their peers. You can also better understand the connection between different groups, identifying areas that may be isolated and would benefit from more guidance in the transition.

Employee-centric digital transformation

Technology offers opportunities that go beyond the most obvious benefits of digital transformation. Taking advantage of technology is—and will continue to be—a competitive advantage for companies, regardless of the industry it belongs to. By ensuring that digital transformation is employee-centric, businesses can greatly improve the likelihood of their digital transformation initiatives succeeding.