A Behavioral Guide to Digital Transformation

This article is written by our partner Francesco Chevallard.

Technological innovation forces companies to keep changing and innovating to stay relevant in the modern economic environment. Digital transformation projects are implemented to carry out the necessary changes to an organization, but can easily fail and result in employees’ disengagement, inefficient adoption of IT systems, loss of reputation, lower offering quality, and more.

In this article we’ll explore the main reasons why digital transformation projects fail and how behavioral sciences can help companies counter these issues and implement successful organizational changes.

Introduction

Would you have guessed, 10 years ago, what tools and software would be most important for your company? And would you be able to guess which are going to be the most important 10 years from now? If you’re like most of us, the answer is probably “no”. The pace of technological innovation is so fast that it’s very difficult to predict what is going to be vital a few years from now. Technologies like blockchain, machine learning, artificial intelligence are having an impact different from what was commonly expected and it’s hard to assess technologies’ long-term effects on our specific industry when they are still in their infancy.

Successful organizations need to constantly change and adapt to ensure their relevance in the economic system. Digital transformation projects are key to this, enabling companies to structure their processes and services around new technologies. The term itself can be applied to a variety of different initiatives: for instance, the digitalization of an internal existing process, which simplifies and speeds up the work of employees; the adoption of a new, omnichannel approach to customer service, which allows to engage with customers in a more meaningful way; the sale of a new digital service, previously only offered in physical stores.

The goal is always the same: making the organization more adapt to the digital world. A successful digital transformation project fosters innovation and keeps the company in the forefront of the industry, allowing it to pursue its long-term vision.

Why digital transformation projects fail

In real life, however, many digital transformation projects end up being very expensive failures. 

Why does this happen? The main reason is that they usually get started when organizations realize they have been left behind on some key innovation in their industry: a different work method, a new product, a new technology. Digital transformation projects are then launched with a sense of urgency and time constraint that makes it more difficult to plan and execute them properly. 

Then there is a second issue: these initiatives often do not take into account the way human beings behave and make decisions and they try to force change onto them. If you add up all other possible causes of failure (wrong timing, poor strategy, inefficient design, etc.), it’s easy to see how things can go wrong. 

An unsuccessful digital transformation is not only a waste of money and time – both valuable resources themselves; it can also entail reputational damages and trigger disengagement and resentment among employees. We must bear in mind that a digital transformation project is not only about technological innovation but also about changing employees’ working habits and/or the way customers interact with the organization. And transforming people’s behaviors is a very difficult task.

In my experience, I have seen many initiatives fail because they didn’t take into account people’s habits and expectations: for example, a company implementing a new and very efficient tool for tracking interactions with customers… which proved too complicated to use and was simply ignored by the employees; another company digitizing a sales process with such an unstable platform that employees often reverted to complete sales manually before forcing the system and inserting the data. 

These failed projects cost money, annoyed customers and angered employees, without noticeable benefits for the organization. Would it have been possible to implement them differently? Let’s take a look at how behavioral science could help.

The most common biases that lead projects to failure

In its essence, behavioral science studies how human beings make decisions and what drives their behaviors. Drawing from it can help organizations formulate better plans and be more flexible during the implementation phase. Key to this is understanding how people think and which mental shortcuts (the so-called “biases”) affect our behaviors in our everyday life. Here are a few of the most important ones:

• Anchoring, our tendency to be influenced by a particular reference point or ‘anchor’ (even randomly chosen)
• Authority, our tendency to be more influenced by the opinion of an authority figure, unrelated to their actual knowledge of a topic
• Confirmation, the habit to only accept or interpret information in a way that is consistent with our existing beliefs
• Sunk cost fallacy, the problem of counting in costs already incurred (and that can’t be recovered) when evaluating whether to continue a project or initiative
• Planning fallacy (underestimate timing), the tendency to underestimate the amount of time, costs, and risks of future actions while overestimating their benefits 
• Bandwagon effect / herd mentality, our habit to make decisions based on what others do, to avoid feeling isolated or left out

Let’s take a look at how they play out in real-life scenarios. The authority bias is probably the most common to encounter: we tend to rely heavily on the opinions of those who hold higher positions, even when we know (or have been explicitly told!) that they are not experts on a specific field. In a digital transformation project, it’s quite usual to see a company decide what they need to do based on the intuition of the executive in charge, instead of on data and collective discussions. This bias is closely correlated with the bandwagon effect, which causes employees to fall in line behind an idea they wouldn’t normally agree with, under peer pressure.  

Let’s say that your company has managed to avoid that and has come up with a solid plan, after a frank and open discussion with all team members; is that enough? Not really, because you might still fall prey to other biases. This takes many forms, of which confirmation bias and anchoring might be the most common and best studied biases in Behavioral Science.

Confirmation bias leads the team to interpret all new information received as a proof of their initial theory: the sales of our lead product are declining? It’s because we need to change the customer experience in the product selection phase, as we have already planned; the sales of our lead product are going up? Well, that’s proof that we can earn even better by adjusting the customer experience! This is a very dangerous tendency that leads companies to implement useless or even harmful changes, not driven by data and only motivated by an internal belief. 

Anchoring works more subtly. Once you or your team have settled on the specific features of the project, especially if they take a numerical form (e.g., “we need to offer exactly 5 alternatives per each product the customer selects”), it becomes very difficult to radically move away from it. It doesn’t matter if the number was chosen randomly, our unconscious will steer us towards it nonetheless, making it extremely complicated to ignore it.

The last two biases mentioned before relate more to the implementation phase. The planning fallacy is probably the most common, something we go through on a daily basis when we plan our personal or work life. We all have experience of carefully planned projects taking twice or three times the time and resources expected. This happens because we tend to ignore the worst-case scenarios and sometimes can’t simply foresee a possible negative event (the famous “unknown unknowns” popularized by Donald Rumsfeld 20 years ago): think of sudden market crashes; unexpected meteorological events; or, more simply, key employees quitting all at the same time, for unrelated reasons.

The sunk cost fallacy is a direct effect of the previous biases: once a digital transformation project finds itself in shallow waters, with costs rising, data pointing to it being misdirected, no completion date in sight, …, sometimes the best choice is to just abandon the project and move on. This frees up resources and saves further company money to be thrown away. Unfortunately, it’s very difficult to make such a decision: the more we humans invest in something, the more we feel emotionally attached to it and the more we try to convince ourselves that we can make it work (if you’re thinking of how this applies to relationships… well, you’re not wrong!). And so, we dig ourselves deeper and deeper in costly failures, without pulling the plug when we still can.

Does all of this sound depressing? No need to despair, since Behavioral Science can help you overcome or mitigate many of the effects of these biases. Let’s see how.

A Behavioral Science-inspired digital transformation project

Behavioral Science can help you create a more effective digital transformation project, by addressing these biases and help your team cope with them. 

Starting with planning, here are a few simple methods to improve it: 

• Collect as much data as possible, before talking solutions; this should avoid the risk of “forcing” a solution on the data
• Ask every member in the team to think of solutions and establish a safe discussion space, where all ideas can be brought without prejudice; if you’re the team leader, be mindful of pushing your thoughts too strongly before everybody else has had the time to express themselves. This should make the team less prone to blindly accept the first ideas proposed
• Divide the team in groups; when a group will propose a solution, another should try to find potential flaws and help improve the plan. This can also be done anonymously (to a degree), to reduce confrontational feelings 
• Ask people to take responsibility, in the form of voting or clearly explaining why they support a specific solution

There are many project management tools and techniques that can help you apply the methods above: brainstorming meetings, nominal group techniques, weighted scoring, etc. The important thing is to be focused on why your team is choosing this technique and what bias it’s trying to address. 

The planning fallacy is more complex, as it usually reveals itself too late in the project, during the implementation phase. It is still possible to mitigate it by clearly identifying risks, creating worst-case scenarios, adopting contingency plans and analyzing past projects, to check the difference between initial planning and actual implementation time (take a look at this video for a concrete example). Bringing in external parties to look at your plan from an unbiased ‘outsider’ point of view is another excellent way to counter this. 

If everything fails, and you find yourself deep in a project going nowhere, with rising costs and no clear end in sight, it’s easy to fall into the sunk cost fallacy, thinking that a project that cost so much cannot simply be abandoned. The difficult part here is to stop looking at the past; forget what has happened and only focus on what’s next: is the project still going to bring benefits? Is there a credible timeline? Would we invest in this project now if we had not invested anything yet?

It’s helpful in these cases to have an external party assess all of this – or assign a member of the team to do that from the beginning. It is very difficult for “insiders” to let go of the emotional involvement with the project and taking a step back is never easy. 

Will all of the above ensure a successful project? Well, let’s not forget we are all humans and we can still make mistakes. But being aware of the way we think and make decisions is the first, necessary step to implement a sound and well-planned initiative.

Guest Post by Francesco Chevallard.

Francesco is part of our trusted network of experts and can strengthen our client projects, especially those regarding the people side of digital transformation change initiatives. Read more articles on our blog or watch 100+ videos on our Youtube channel!

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Since 2018, we have trained thousands of professionals and worked with over 100 management, HR, growth, and innovation teams of organizations such as Johnson & Johnson, KPMG, Deloitte, Novo Nordisk, ABN AMRO, and the Dutch government. We are also frequent speakers at universities and conferences.

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