Gird Yourself for Digital Transformation Failures in 2024
February 14, 2024 Alex Woodie
Spring is still more than a month away in the Northern Hemisphere, but change is already in the air when it comes to enterprise IT departments in 2024, who are under the gun to accelerate digital transformation initiatives, particularly those involving artificial intelligence and the cloud. Rosy predictions of business bliss typically accompany the start of these projects, but the reality is most of them are likely to go off the rails and end in IT failures.
That’s the informed opinion of Eric Kimberling, the CEO of Third Stage Consulting and a grizzled veteran of ERP implementations and digital transformation projects. Where much of the IT world zigs in support of the latest tech fad, Kimberling tends to zag in opposition to change for the sake of change, especially when it impacts existing ERP systems that run the business.
Kimberling isn’t a died-in-the-wool midrange supporter, but you wouldn’t know it from listening to him speak or reading what he writes. IBM i shops tend to be conservative in their adoption of new tech, and so is Kimberling, who has made a career out of doing the hard work of assessing the real risks of business disruption and failure when replacing tried-and-true legacy applications with something new, and developing plans and processes to optimize the odds of success.
In his latest report, “2024 Digital Enterprise Operations Report: Future of Digital Transformation,” Kimberling brings his usual pragmatism to the big IT trends of the year, which in this case are AI adoption in the enterprise and continued migration of ERP systems to the cloud.
Consumer awareness of AI has spiked, thanks to popular generative AI offerings like ChatGPT and DALL*E, Kimberling writes. In 2024, we’ll see ERP vendors and other enterprise software companies begin to work AI into their offerings, he says.
“As we anticipate the developments of 2024 and beyond, we foresee significant advancements in integrating and utilizing AI within enterprise structures,” Kimberling writes. “This pertains not only to how enterprises themselves harness technology but also to how ERP vendors and other enterprise technology providers integrate AI into their offerings.”
AI is still quite new in the enterprise IT context, so Kimberling didn’t have a whole lot to say about the patterns of failure that accompany enterprise AI implementations (but you can bet he’s keeping his eyes open to see how they’ll do). But there’s still plenty of potential pain and suffering on tap in the broader ERP market, Kimberling is already locked into helping customers avoid that.
There are sure to be successful ERP migrations and digital transformation projects this year. It’s also certain that many of these efforts will fail, according to Kimberling. In fact, the fraction of big IT project failures increasing in 2024, he says.
“While there are advancements and introductions of intriguing technologies in the marketplace, implementing these technologies often faces challenges, leading to an increasing rate of failures,” Kimberling writes.
Some of the pain and suffering that companies will experience this year will be traced to the ERP giants, who are forcing customers to abandon on-premise applications and move to ERP systems running in the cloud. Kimberling calls out the big ones, including Microsoft, Oracle, and SAP in his report, but many smaller ERP vendors are also encouraging – and in some cases mandating – that their customers move off on-prem systems and into their cloud.
These ERP vendors aren’t doing customers any favors by forcing them to abandon on-prem systems and move into the cloud, Kimberling says.
“Many organizations, whether prepared or not, find themselves thrust into the process of digital transformation due to this vendor-driven change,” he writes. “Consequently, organizations that are unprepared or don’t genuinely require a transformation end up facing greater challenges and potential failures.”
It would be one thing if ERP vendors were forcing their customers to move to cloud applications that were clearly superior and offered greater functionality and value than the on-prem applications customers have successfully run, in some case, for decades. Unfortunately, that’s not the case, as many of the cloud ERP systems that vendors are pushing are functionally immature and lack critical functionality that businesses rely on.
“Although these cloud solutions can offer unique capabilities not present in on-premise solutions, they sometimes miss out on essential processes developed over the years for on-premise systems,” Kimberling writes. “These legacy vendors must fully transition their functionalities and capabilities to the cloud before disparities between previous and upcoming technologies will persist.”
Labor shortages caused in part by the artificially created demand in ERP-cloud migrations and digital transformation projects will also impact companies in a negative manner, Kimberling says.
“There’s a deficit of consultants familiar with specific technologies, primarily because numerous transformations coincide,” he writes. “This rush resembles the surge witnessed during the transition to Y2K, where the demand outpaced the available resources and consultants to handle the projects. Based on these factors, the proportion of digital transformation failures will continue upward.”
There are five common causes for ERP implementation and digital transformation failures, according to Kimberling. They include:
- Unrealistic Expectations: overestimating the good that new software can do and underestimating the difficulty in getting it all running smoothly.
- Poor Implementation Planning: moving too quickly from the evaluation and planning stage directly into implementation stage.
- A Lack of Executive Vision and Alignment: replacing outdated technology for its own sake instead of focusing on customers and employee impacts.
- Poor Organizational Change Management: shepherding big changes through requires connecting the dots between people, technology, and business processes.
- No Clear Definition of Success: You can’t get there if you don’t know where you’re going.
Studies show that 70 percent to 80 percent of ERP implementations or digital transformations are failures, according to Kimberling, who cited recent high-profile software failures at Hershey’s, Nike, MillerCoors, and the U.S. Navy.
“Remarkably, this statistic has remained relatively unchanged throughout the 25 years I have been helping clients with their ERP implementations,” he says.
Unfortunately, if his prediction of increased failures is accurate, we could be entering a year in which only 10 percent of ERP implementations or digital transformations are successful. As the twin sirens of the cloud and AI call in 2024, it’s worth keeping Kimberling’s warnings in mind.
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