Beating the odds

Beating the odds: A readiness check for successful IT transformation

Executive summary

As all CIOs know, the statistics on the success rates for major IT transformations are daunting. Although outcomes have improved over the years, only about a third of major transformations meet all their project goals on time and within budget. The rest either struggle or fail outright. Why? Companies downplay the complexity of such programs and the extent of the organizational and cultural changes required, which leads them to underestimate the investment required, in both time and money. The story of a large publishing company whose failure to prepare adequately led to a loss of more than US$50 million highlights how not to set forth on a large-scale IT transformation. IT departments should never embark on major projects until they are absolutely sure that each of the requirements needed for the projects to reach their business and technology goals are in place. The 10 key requirements for any project can be set up as an operational checklist, beginning with a clearly stated vision of the future state of the company’s technology and how it will provide business value, as well as the IT–business relationships governing the project. Others include a detailed understanding of the project’s scope, a road map, an implementation methodology, an investment and risk management plan, and a change management effort.

This checklist cannot guarantee success, but it will give you the confidence to begin your project knowing that you are as well prepared as you can be.

Don’t jump the gun

Programs that struggle or fail typically cost two to five times as much as originally estimated.

IT organizations have engaged in transformation projects for decades now. Twenty years ago, these projects took the form of implementing massive ERP systems. Then came CRM, and then mobility and social media. Now the call is to digitize everything from the customer experience to internal operations.

Yet no matter the nature and size of the transformation, the success rate of these efforts — even projects that entail only the most mundane changes to a company’s IT infrastructure — has been much lower than IT and other executives had hoped for. According to the Standish Group, about 45 percent struggled to meet their goals in 2012, and another 20 percent failed outright (see Exhibit 1). And the stakes are high. Programs that struggle or fail typically cost two to five times as much as originally estimated.

Exhibit 1: The success rate of major IT projects has improved, but failure remains common

The success rate of major IT projects has improved, but failure remains common

Why the poor results? Transforming large IT departments is hard, even under the best of circumstances. Our experience indicates that transformation efforts are typically hampered by overly optimistic views of the company’s ability to tackle the complexity. The optimism often leads companies to underestimate the amount of organizational and cultural change that will be required. It also leads companies to overestimate their power to control the project’s scope and the amount of money, time, and executive attention that will be needed to support it. In short, businesses are often unprepared to begin executing their transformation plan. Yet again and again, they forge ahead, with decidedly mixed results. (See “How not to prepare.”)

How not to prepare

For companies that fail to be fully ready to begin a major transformation, the consequences can be dire. Case in point: A large publishing company, conceding that the products and services offered to its customers were outmoded and that it was spending way too much money on its inefficient technology and processes, embarked on a radical transformation of virtually every aspect of how it conducted business. It didn’t end well. The reason: sheer lack of preparation, on every front.

The company had a pretty clear sense that its future lay in offering a greater, more customer-friendly range of digital products and services, but that it needed to tighten up its operations and use the money saved to invest in its digital future. But its business units couldn’t clearly articulate that vision — in part because the company never bothered to develop a detailed business case for the proposed benefits or how exactly IT could help them get there. So IT and the business ended up devising parallel but independent transformation road maps. As a result, the two groups duplicated a great deal of work, including separate user experience and user interface efforts, and then independently updated their organizational structures in the middle of the transformation.

The lack of alignment on vision, organization, and project governance processes led to any number of other problems. Company leaders understood the scope of the project, but the details regarding technology requirements and functionality remained vague. There was no comprehensive implementation road map or a plan for funding the ongoing expenses on a regular basis, and the responsibility for actually executing the project was diffused across several groups, none of which were fully accountable for results. Moreover, no one completely understood the risks entailed in the project, or how to compensate for them.

The cost, timing, and quality of the program soon began to go south. The company, it turned out, didn’t realize from the beginning that it didn’t have the in-house talent and skills to carry the program to completion — or a plan to find the right people. Its vendors weren’t much help: Poor vendor and partner management efforts meant the company didn’t know what skills its many vendors had, or even whether they were performing as promised. Expenses rose dramatically, as work had to be redone and more competent vendors brought in at higher-than-expected cost.

Meanwhile, because of the lack of comprehensive initial planning, no one realized that the company’s entire IT infrastructure needed to be swapped out in the middle of the transformation, completely disrupting the program’s schedule and further escalating its cost.

Given the many problems, it wasn’t long before the morale of the business and IT staffs involved began to deteriorate. Communications between the two groups, and with the many vendors involved, effectively broke down, exacerbating the problems caused by the initial lack of alignment. Turnover increased, even among the program’s leaders — and the very desire to complete the project waned. Ultimately, to no one’s surprise, the project was killed, with a dead loss of US$55 million and three years wasted.

Walk, don’t run

If IT departments, and the organizations they support, are to improve their chances of success, they need to conduct a reality check up front that assesses their readiness to move forward. Such an assessment will ensure that the proper requirements — plans, competencies, skills, and project disciplines — are in place even before the transformation journey begins. Our checklist of 10 key requirements for undertaking an IT transformation is based on experience with hundreds of clients that have executed such projects successfully (see Exhibit 2).

Exhibit 2: The IT transformation checklist

The IT transformation checklist

A better outcome

Companies that fail to plan out their transformation programs fully are all too likely to face cost overruns, wasted time, and possibly complete failure. No matter how extensive a program, a workable plan needs to include not just how to implement the new technologies, but how to fund the program, who to hire to carry it out, how the company should operate after it’s done, and the cultural traits that will best support the post-implementation organization. Only then will the IT department’s transformation efforts be fully in step with the company’s business goals.