Updated: October 23, 2024- 18 min read
“Innovation is not just about spending money to buy new technologies. Innovation is really about how you drive new ways of thinking, which is how you're going to actually use these new technologies. ”
— Ryan Daly Gallardo, SVP, Consumer Products at Dow Jones, on The Product Podcast
According to a McKinsey study, 89% of large companies globally are currently undergoing Enterprise Digital Transformation. This praise-worthy number is sadly followed by the fact that only 31% have captured the revenue boost they were expecting.
And when it comes to cost savings? Just 25%.
That’s only one in three or four companies actually seeing the payoff. It’s not much, especially when you consider the money, expertise, and cultural resistance tied to digitization.
So, what’s the issue? It’s not that companies aren’t willing to transform – it’s that many don’t fully understand the real-world challenges that come with it. The result? Missed opportunities, frustrated stakeholders, and wasted resources.
Understanding these challenges with digital transformation upfront, and preparing for them, can pave the way for a successful change. In this piece, we’ll explore the most common digital transformation risks and challenges businesses face and how to overcome them, so you can move forward with purpose.
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Why Is Digital Transformation So Challenging?
Digital transformation isn’t just about adding new technology — it's about changing the way an entire organization operates. Sure, it’s essential to digitize, but what are the risks involved?
Take a company that's been doing ‘just fine’ with manual processes for decades. Their workflows are well-oiled, their teams are comfortable, and their legacy systems — although old — still get the job done. The way most employees see the situation is “We’re OK!”
The next moment you decide to digitize, suddenly, the comfortable rhythm of the company is disrupted. Chances are, your company is standing in a similar intersection.
Take an example of a large retail chain. They decided to implement a new digital inventory system, thinking it would be straightforward.
As soon as the process starts, they realize their employees are overwhelmed, not just by the new software but by the fear of making mistakes. Their decades-old data doesn't fit neatly into the new system, leading to integration issues. Managers begin to resist because it disrupts their ‘usual ways’, and customers start to complain about delays caused by disruptions.
What seemed like a promising upgrade morphs into a web of problems — technical challenges, resentful employees, and stakeholders demanding results.
The result? The entire project is slowed down, and costs spiral beyond the original estimate. This story plays out across industries, and the key takeaway is this: digital transformation is challenging because it's not just a tech upgrade—it's a fundamental shift in how a business runs, and that requires careful planning, strong leadership, and a mindset open to change.
Without understanding this broader picture, companies might underestimate the scale and complexity of what they're trying to achieve.
The Top 5 Challenges of Digital Transformation
Digital transformation sounds great on paper, but in reality, it's not as easy as flipping a switch. Many businesses run into some pretty common challenges that slow them down or derail their efforts altogether. Let’s take a look at the five biggest hurdles most companies face and how to get around them.
Lack of a Clear Strategy and Plan
Without a well-thought-out plan, digital transformation can feel like wandering in the dark. Businesses need a clear DX roadmap to avoid wasting time and resources.Cultural Resistance
People tend to resist change, and when it comes to digital transformation, that resistance can be fierce. A strong change management strategy is key to getting everyone on board.Legacy Systems Holding You Back
Outdated tech is often a big hurdle. Replacing or integrating these older systems with modern solutions can be complex, but it's crucial for success.Not Having a Professional Guidance
Often times businesses lack the expertise to tackle digital transformation challenges. Having a dedicated team of experts can ready them to get through the process with success.Lack of Skilled Talent
Digital tools are advancing fast, and not every team has the skills to keep up. Investing in training or bringing in new talent is essential
By recognizing these challenges early and tackling them head-on, businesses can set themselves up for a smoother transformation journey.
Tackling the 5 Digitalization Challenges
Now that we’ve covered the common challenges of digital transformation, it's time to focus on how to tackle them. In general, the key to success lies in being proactive — understanding the obstacles ahead and preparing the right strategies to overcome them.
Let’s explore practical solutions that will help you navigate each challenge and drive your digital transformation forward with purpose.
1. Create a Clear Strategy and Plan
A vague or overly ambitious plan is one of the main reasons digital transformation fails. Without a clear strategy, companies tend to dive headfirst into digital initiatives without understanding their long-term impact.
Here's how you can get practical and ensure your strategy stays solid and actionable.
Set measurable, realistic goals
“Whenever I set the goals, I focus on what each team can actually push forward, not in terms of features, but really in terms of business results, product results, and customer results.”
— Fabrice des Mazery, Former CPO at Tripadvisor, on The Product Podcast
Break down your digital transformation into smaller, measurable goals. Instead of aiming for a “complete digital overhaul” within a year (which is often unrealistic), identify objectives and key results (OKRs) tied to specific departments or processes.
For example, if you’re digitizing customer support, you might aim for a 20% reduction in response time within six months. This gives you both a focus area and a timeframe to evaluate success. The ‘tech advancements’ that you need come naturally as a means to an end — a way to reach the specified key results.
Conduct a digital maturity assessment
Before creating your plan, perform a digital maturity assessment or use one of the digital transformation frameworks to evaluate your current state.
This should cover areas like technology, data capabilities, employee skills, and digital culture. Understand where your organization currently stands and identify the gaps that need to be addressed.
Tools like Gartner’s Digital Maturity Model or Deloitte’s Enterprise Digital Maturity Assessment can help pinpoint where to focus. This way, you avoid a one-size-fits-all approach and customize the transformation roadmap to your organization’s specific needs.
Prioritize initiatives that align with business objectives.
Not all digital projects should be treated equally. It’s crucial to prioritize initiatives based on their alignment with your company’s broader business objectives.
For example, if your focus is improving product experience, you should prioritize projects that digitize touchpoints like customer service, mobile apps, or sales channels. A clear strategy ties each digital initiative to an overarching business goal. It ensures that you don’t end up investing in tools or technologies that don't drive meaningful results.
Establish a governance structure.
To avoid confusion, establish clear governance early on. This means designating a digital transformation leader (such as a Chief Product Officer) who is responsible for coordinating efforts across departments. It’s best if this person is used to handling cross-functional collaboration.
Create a cross-functional team that includes key stakeholders from IT, operations, finance, and human resources to ensure all aspects of the business are considered. Regular check-ins and Agile reporting structures help keep the project on track and aligned with evolving business needs.
Build flexibility into the plan.
No strategy should be set in stone, especially when technology and market conditions change rapidly. Build flexibility into your plan by scheduling regular reviews and updates. Implement Agile Methodologies or other product management frameworks where possible. This will make way for rapid iteration and adjustments as you gather feedback and measure performance.
For example, instead of setting a rigid five-year plan, structure it as a living document that gets revisited and updated every quarter.
Invest in the right tools to track progress.
Using the right tools to track and visualize progress is crucial for staying on course. Digital adoption platforms (DAPs) can help onboard teams and ensure they’re using new technologies effectively.
Meanwhile, product management tools such as Asana or Monday.com allow you to break down initiatives into tasks and assign clear ownership. These state-of-art tools make it easier to monitor progress and address bottlenecks.
2. Mitigate Cultural Resistance
Cultural resistance is often the silent roadblock that derails digital transformation. This phenomenon sometimes referred to as “change fatigue,” occurs when employees are overwhelmed by constant changes without seeing immediate benefits. To overcome this, you need more than just technology; you need a culture that supports innovation and adaptability.
Start with clear communication and transparency
One of the main reasons employees resist digital transformation is uncertainty. They don’t know what the change means for their roles, and fear of the unknown can lead to resistance. To mitigate this, be as transparent as possible from the beginning.
Share the why behind the transformation. Explain how it aligns with the company’s goals and, more importantly, how it will benefit both the organization and employees.
Use clear, consistent messaging across all levels of the company. Don’t forget to give employees a space to voice concerns and ask questions. This makes them feel included and reduces feelings of isolation or uncertainty.
Lead with a change champion and empower influencers
Change doesn’t happen in a vacuum. Appoint a change champion—someone senior in the organization who believes in the transformation and is vocal about it.
This person will set the tone, address concerns, and keep the momentum going.
But don’t stop there. Identify influencers within different departments and empower them to champion the change within their teams. These people act as informal leaders who can communicate on a peer-to-peer level.
Address the “what’s in it for me” factor
Employees are more likely to embrace change if they see personal benefits. Will the new technology make their work easier or more efficient? Will it help them develop new skills that are in demand?
Tailor your messaging to focus on the positive outcomes for individuals, not just the company.
For example, if your transformation involves automating repetitive tasks, highlight how employees will be able to spend more time on strategic work. In this context, it’s important to back up promises with tangible actions, like offering training and upskilling opportunities.
Provide ongoing training and support.
A major source of resistance comes from employees feeling unequipped to deal with new technologies. Overcoming the learning curve barrier is crucial.
You need to provide continuous training — both in technical skills and soft skills like adaptability and problem-solving.
Avoid one-off training sessions that leave employees scrambling afterward. Instead, offer a mix of in-person workshops, online product certifications, and even on-the-job learning opportunities where they can gradually apply new tools in a low-pressure environment.
Leverage change management models
Frameworks like Kotter’s 8-Step Change Model or Prosci’s ADKAR Model (Awareness, Desire, Knowledge, Ability, Reinforcement) can be powerful tools to guide the cultural shift.
These frameworks help you create structured plans that focus on building awareness of the need for change. They can foster the desire among employees to participate and provide the knowledge and tools necessary for successful adoption.
Celebrate small wins to build momentum
Instead of waiting for the entire transformation to finish before celebrating success, recognize and celebrate small victories along the way.
This could be a successful rollout of a new tool in one department or achieving a specific performance milestone.
Celebrating these wins boosts morale and reinforces the idea that the transformation is making positive progress. It also builds momentum, encouraging more employees to get on board with the change.
Address legacy mindsets head-on
Organizations with a strong legacy mindset — where people cling to old processes because “that’s how we’ve always done it” — need targeted interventions.
Host workshops or discussions where teams can openly talk about what’s working, what’s outdated, and how they can work better with new systems. Engage in “reverse mentoring” where younger, more tech-savvy employees mentor older employees on new digital tools. This not only helps bridge the skills gap but also shifts the culture toward a more collaborative and open mindset.
3. Deal With Legacy Systems the Right Way
These systems—whether it’s outdated software, hardware, or data processes—are deeply embedded in your organization’s workflows. They make it difficult (and expensive) to replace them.
However, holding on to them too long can result in technical debt, missed opportunities, and reduced agility. The trick is knowing when to adapt and when to let go. Here’s how to do it the right way.
Conduct a Comprehensive System Audit
Before making any decisions, it’s crucial to audit your existing systems. This isn’t just about identifying which systems are outdated, but about determining how critical they are to your operations and whether they can be integrated with newer technologies.
Legacy systems often fall into two categories: those that still work well but need a modernization boost, and those that are inefficient, costly, and holding the business back.
Consider using tools like system lifecycle management (SLM) software to assess each system’s technical health, business value, and risk.
Classify Systems: Retire, Replace, or Modernize
Once you’ve audited your systems, classify them into three categories: retire, replace, or modernize.
Systems that are outdated and offer little flexibility or adaptability should be retired. Others may be replaceable with more modern solutions that better integrate with your desired AI toolstack.
Some legacy systems, however, may be critical to your operations — these can be modernized or integrated with newer technologies through APIs or cloud solutions.
Handle Technical Debt with a Long-term Vision
Legacy systems accumulate technical debt — the hidden cost of maintaining outdated or inefficient technologies. Every time you add a quick fix or patch to these systems, the debt grows.
One of the key strategies for addressing this is to adopt a long-term vision and think about the total cost of ownership (TCO) over time.
Replacing a system might seem expensive upfront, but when you factor in the long-term savings in maintenance, efficiency gains, and scalability, the ROI becomes clearer. In fact, a study by Deloitte found that companies spend a majority of their IT budgets maintaining legacy systems. Cutting this technical debt frees up resources for innovation.
Use Phased Integration to Minimize Disruption
Instead of a “rip-and-replace” approach, consider phased integration. This method allows you to integrate new technologies gradually, minimizing disruption while ensuring data continuity.
Start by identifying key business processes that will benefit most from digital tools. From there, build outward. For example, you can use middleware to bridge legacy systems with new software, ensuring that both can work together during the transition.
Consider Cloud-Based Solutions for Flexibility
One way to modernize legacy systems without replacing them is by migrating certain components to the cloud. Cloud computing offers flexibility, scalability, and cost-efficiency that on-premise systems lack.
You don’t have to move everything at once. Teams adopt a hybrid cloud approach where certain workloads and data are moved to the cloud while keeping others on legacy systems. This gives teams the best of both worlds: the ability to scale and modernize without abandoning critical processes that still rely on older infrastructure.
4. Employ The Right Digital Transformation Partners
Many successful transformations happen with the help of external partners who specialize in guiding businesses through these challenges. Whether you’re working with consultants, managed service providers, or specialized digital transformation firms, finding the right partner can make all the difference.
Here’s how to do it smartly.
Identify Your Needs First: Determine whether you need help with strategy, technology implementation, or both. Clearly defining your needs ensures you choose a partner with the right skill set for your transformation goals.
Choose a Partner With Industry Experience: Find a partner who understands your industry’s specific challenges and nuances. Industry-specific experience ensures your digital strategy aligns with sector trends and best practices.
Evaluate Track Record: Look for case studies and metrics that show the partner’s success in similar projects. A proven track record demonstrates their ability to deliver tangible results, not just promises.
Prioritize Trust: As per NetGroup, consulting is a “digitally-charged version of Wild West.” There are no rules on who can offer these services, hence the trust issues, schemes, and gimmicks. Your partner should work closely with your teams, transferring knowledge and ensuring you’re not left dependent on them long-term. Collaboration and trust foster smoother adoption across departments.
Look for Agility: Digital transformation is fluid. Choose a partner who can adapt to evolving needs and technologies without locking you into rigid solutions. Agility ensures flexibility as your transformation progresses.
Ensure Change Management Expertise: A good partner won’t just implement technology—they’ll help manage cultural shifts and resistance within your organization. This includes employee training and support to ease the transition.
Focus on Security and Compliance: Make sure your partner prioritizes data security and compliance with regulations like GDPR. They should help integrate robust cybersecurity protocols into your transformation efforts.
Build Long-Term Relationships: Digital transformation is ongoing. Look for partners who are committed to building a long-term relationship, and providing continuous support and updates as your business evolves.
5. Upskilling Talent
One of the biggest hurdles in digital transformation is the skills gap. Many organizations find their existing workforce isn’t equipped with the digital skills needed to navigate new technologies, from automation tools to AI-driven platforms. To stay competitive, businesses need to actively upskill their talent and bring in more tech-savvy employees.
Start with a Skills Gap Analysis
Begin by assessing the current skill level of your employees compared to what’s needed for the digital tools you’re implementing.
Tools like competency frameworks can help identify where the gaps lie. Once you’ve pinpointed these gaps, you can design targeted upskilling programs that align with both individual and organizational needs.
Invest in Continuous Learning Programs
Establish ongoing training programs that include workshops, online courses, and certifications.
Platforms like Product School offer a wealth of certifications if you’re going in the direction of Product-led Growth or Agile transformation. Udemy for Business, Coursera, or even LinkedIn Learning can also aid in this mission.
Encourage employees to participate in these programs by offering incentives, such as career development opportunities or even internal certifications tied to promotions.
Leverage Cross-functional Training
Cross-functional enterprise training can break down departmental silos and ensure a holistic understanding of digital processes.
For example, training HR teams on product analytics or introducing your engineering department to Cost of Delay ensures that employees across the board are on the same page. This approach is also referred to as fostering T-shaped skills—where employees have broad general knowledge across many areas and deep expertise in one.
Create a Culture of Learning and Innovation
Build a culture where learning is encouraged and rewarded. Leadership plays a big role here—managers and executives should model continuous learning by participating in training programs themselves.
Additionally, establishing a mentorship program, where tech-savvy employees coach those who are less familiar with digital tools, can reinforce a culture of knowledge sharing and collaboration.
Hire and Integrate Tech-savvy Employees
While upskilling your current workforce is important, it’s often necessary to bring in outside talent. Hiring digitally proficient employees helps inject new ideas and skills into your organization.
However, it’s essential to integrate these new hires effectively. Tech-savvy employees should work alongside existing teams, providing guidance while also learning from the institutional knowledge of long-term employees. This balance helps bridge the gap between traditional processes and modern technologies.
Use Learning Management Systems (LMS) for Structured Development
Implementing a Learning Management System (LMS) tools like 360Learning or Talent LMS can streamline upskilling efforts.
An LMS allows you to structure training paths, track employee progress, and customize learning programs based on individual needs. Many LMS platforms also support microlearning, breaking complex concepts into digestible chunks, making it easier to balance learning with their daily responsibilities.
Focus on Leadership Development
Offer leadership-specific training that focuses on managing digital change, soft skills, using data-driven decision-making, and leading Agile teams. This helps bridge the gap between technical experts and leadership, ensuring that decisions made at the top align with the company’s digital goals.
Align Upskilling with Career Progression
Employees are more likely to engage in upskilling when they see clear career benefits. Align digital skill development with career advancement opportunities, such as promotions or leadership roles.
This not only motivates employees to learn but ensures that your company is building a leadership pipeline equipped to handle challenges.
It’s One of These Digital Transformation Pitfalls that Get You
Avoiding the digital transformation risks and challenges isn’t about reinventing the wheel. It’s about recognizing the very real, well-documented challenges and having the foresight to tackle them head-on.
The companies that fail are often the ones that underestimate these obstacles or rely on outdated approaches.
As we’ve seen, legacy systems, skill gaps, cultural resistance, and a lack of clear strategy aren’t unique problems—they're universal hurdles that all businesses face. What sets successful companies apart is their ability to recognize these issues and implement educated, proactive solutions.
Don’t let your business become another gloomy statistic. Embrace the challenges, plan strategically, and invest in upskilling and the right partnerships. Digital transformation isn’t easy, but it’s also not impossible. The key is preparation. Recognize the risks, and more importantly, be ready to act.
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Updated: October 23, 2024
