The Psychology Of Digital Transformation

In reality, about 70% of organizational transformation initiatives fail to meet expectations. Having advised companies across industries for over two decades, I've found that managing the human element is crucial for digital transformation success.

Kamales Lardi
Kamales Lardi

In the current global business landscape, technology adoption and application have become a necessity to stay competitive and continuously drive performance and growth. As reported by Gartner, 91% of companies across various industries are engaged in digital transformation, and 87% of senior business executives see digitalization as a strategic priority. The promise of optimization, cost savings and exponential growth offered by the application of emerging technology solutions continues to drive the allure of digital transformation for organizations.

In reality, according to McKinsey, roughly 70% of all organizational transformation initiatives fail or fall short of achieving the expected results. Digital transformation is an organization-wide change that leverages technology to create, deliver and capture value in the market, making it an enterprise-level transformation. For over two decades, I have advised companies across industries in developing and delivering digital transformation strategies. In my experience, the human element is a key factor that can either make or break digital transformation success.

Organizations often prioritize the implementation of technology solutions, falling short of effectively managing the people in the organization who adopt and use the technology. Neglect or oversight in this aspect quickly leads to diminished morale, dips in productivity and, ultimately, an organizational culture resistant to change. Here, paraphrasing Louis Gerstner, ex-CEO of IBM, in his book Who Says Elephants Can’t Dance? I would vividly describe implementing digital transformation without considering the human aspects as putting ice skates on an elephant—it can get dangerous!

Dangers Of Neglecting The Psychological Impact Of Organizational Change

Neglecting the human aspects in any organization-wide change or transformation can prove catastrophic. Digital transformation is an evolutionary journey that impacts existing structures and roles, operations and processes, customer interactions and values, and potentially shifting business models. When done right, digital transformation initiatives may also highlight gaps in skills and capabilities required to manage the evolving business environment. The resulting transformational change often triggers emotional reactions in the organization's members, including fear, anxiety and uncertainty. If not well managed, these human reactions could significantly lower the level of motivation and productivity in the workforce.

In my experience, people tend to have strong emotional reactions to any change initiative at the workplace, such as new technology implementation or process improvements. This emotional turmoil has been illustrated as the Change Curve Model (an adaptation of the well-known "five stages of grief" model created by Swiss-American psychiatrist Elisabeth Kübler-Ross). I frequently use a modern rendition of the change curve to illustrate the emotional rollercoaster employees and leadership teams may experience as digital transformation strategies are implemented.

The key to successful digital transformation execution is to be able to proactively lead and manage the internal stakeholders from the first stages, Denial and Resistance, through the more positive mindsets of Exploration and, eventually, Commitment (these terms have been adapted from Kübler-Ross's language to fit the business context). This is where employees have not only bought into the change but actually advocated for it.

Cognitive Biases' Impact On Digital Transformation

Although a technologist by profession, over the years, I have had to sharpen my understanding of human psychology, particularly in relation to how it impacts technology implementation and transformative change initiatives. I have, for example, observed how cognitive biases negatively impact critical decision-making in digital transformation initiatives.

Confirmation bias, a type of cognitive bias where information is interpreted in a way that feeds pre-existing beliefs, creeps in when transformation teams double down on selecting familiar yet outdated technology solutions.

The "bystander effect" is another common occurrence that impacts digital transformation progress, where individuals are less inclined to take responsibility or action in initiatives that require collaboration. This can quickly lead to "analysis paralysis" as teams engage in discussion without assuming ownership or decisive action, causing delays in progress.

Similarly, groupthink can drive internal teams to rally behind flawed actions out of a misplaced sense of consensus. Groupthink is a phenomenon where the desire for harmony within a group leads to irrational or dysfunctional decision-making. Over the years, I have observed groupthink's negative impact on digital transformation initiatives; for example, internal teams blindly adopting technology solutions based solely on the IT department’s recommendation without exploring broader, perhaps more suitable alternatives.

Building An Ecosystem For Digital Transformation Success

There are several effective strategies to manage the human side of digital transformation, as I have described in my book The Human Side Of Digital Business Transformation. But fundamentally, companies need to prioritize building an ecosystem that supports and embraces transformational change.

The first step is to articulate a clear purpose and set of shared values that people can rally behind. Organizations often focus on the business outcomes of digital transformation, metrics that make sense from a rational perspective. However, in order to truly motivate change and engage people towards action, it is important to trigger an emotional connection.

This involves stressing the "why" behind the transformation and detailing the specific actions required to achieve success—the "how." If this sounds familiar, it is because Simon Sinek described the concepts in his 2009 best-seller Start With Why. I have utilized this approach successfully time and again across various types of engagement, organizations, Start With Why and industries, which is a testament to putting people and purpose first.

Second, activate culture as the primary driver of digital transformation. There are many ways to do this, but one crucial aspect is ensuring that top leadership teams understand and support the importance of digital transformation. Their endorsement sets the tone for the entire organization.

Third, secure commitment to change by assessing the current culture and values, creating a shared vision, and developing a strategic transformation plan. Then, implement pilot initiatives aligned with the plan, measure progress, and refine activities as needed.

Final Thoughts

Digital transformation success relies on a holistic approach, being able to balance business objectives, technology implementation and human elements. Successfully managing the human side of digital transformation involves digging deeper into the psychological and emotional impacts of change.

This article was originally featured on Forbes.

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Kamales is a bold and strategic thinker in digital business transformation with over 21 years of deep cross-industry experience with the latest digital and technology solutions.