Why Do Digital Transformation Projects Suffer such High Failure Rates?

Corporate innovation and growth have seen some depressing statistics lately. Many business leaders will be familiar with the fact that McKinsey's report on corporate transformation shows that the digital transformation failure rate is typically around 70% (source). More recently, research from BCG suggests that the number could be even higher (up to 85%) if one uses the measure of whether the project delivered on all the expected benefits. Here at Moravio, we deal with these challenges on an almost daily basis through our Digital Transformation Service, and the sad truth is that why companies fail at digital transformation is often due to factors completely unrelated to the code.

Research Insights and The Cultural Gap

At the very least, once you dig deeper into the top-level reasons why digital transformation efforts fail, the technical side of things is usually relatively simple. Consistently, McKinsey research has shown that the greatest barriers to successful transformations are cultural and related to people. Unfortunately, organizations tend to treat digital transformation as nothing more than installing new software, whereas in reality digital transformation is a complete paradigm shift in how the workforce works.

When executive leadership fails to get buy-in at the grassroots level, the new systems are ignored or circumvented. This is the primary reason why does digital transformation fail even with unlimited budgets.

Is Artificial Intelligence Helping or Hurting the Success Rate?

Artificial Intelligence (AI) has also added a somewhat unusual factor to the mix. It might seem reasonable to assume that more powerful tools would produce better results, but what ends up happening is the opposite if the base upon which the new technologies are built is weak. We are currently seeing a trend known as vibecoding wherein developers use AI to create massive amounts of code based on a vibe rather than a rigid architecture. 

While this works well for prototyping, it makes it extremely challenging to scale a project. Therefore, if you want to know whether vibecoding is merely a trend or a viable strategy, the answer is that it frequently generates a support nightmare that adds significantly to digital transformation failure statistics.

How to Stay Out of the Trap and Save Your Project

From our experience, the path to failure typically leaves behind a string of breadcrumbs long before the project formally dies. Therefore, to prevent yourself from being the next statistic, you should pay attention to early warning signs of slippage such as shifting requirements or low levels of user engagement. If you believe your initiative is losing steam, keep in mind that Project Rescue is more common than you may realize.

We highly suggest reviewing our Red Flags and Mitigation Strategies Guide to learn how to adjust course. Occasionally, the best action you can take is to bring in a specialized Project and Application Rescue Service to assess the extent of the damage and rebuild.

What to consider before making big changes

Individuals typically inquire about how many digital transformation projects fail, and the answer is dependent on your definition of success. If you define success as achieving all of your original strategic goals, then the failure rate is exceptionally high. The number-one reason digital transformation failures occur is the absence of clearly defined strategic objectives coupled with a company culture resistant to change. 

When a company digitizes a faulty manual process without correcting the process itself, they will generally only wind up with a quicker and more expensive way of doing something wrong.

An example of a failed digital transformation effort is a large corporation transitioning its entire operations to a complex new Enterprise Resource Planning (ERP) system, without providing training to the employees.

The Human Component and Shadow IT Risks

In general, the end result of a poorly managed shift is a Shadow IT scenario, whereby employees will again revert to using Microsoft Excel Spreadsheets because the new system is too cumbersome to utilize. The hardest component of digital transformation is likely the people aspect. Changing a technology stack takes months, while changing a corporate mindset takes years. In order to convince employees that the new AI driven workflow is intended to assist them, ongoing communication is required.