Why digital transformation failure in Vietnamese business?

Digital transformation is a tough journey for any business with a high failure rate lying between 60-80% - with no signs of foreseeable improvement.
July 11, 2020 | 06:56
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There are five causes of digital transformation failure in Vietnamese firms. Photo: onlinesalesguidetip

A study conducted by Harvard Business School in 2020 shows a fact that, 80% of CEOs confirmed their organizations would need to undergo considerable changes to digitally transform, including significant evolution of the organization’s business model over a three-year period in order to ensure success.

Just like many around the world, this is also no easy feat for businesses in Vietnam. A recent study of Vietnam-based businesses conducted by Dr. Nguyen Quang Trung from RMIT University Vietnam and Mr. Nguyen Tuan Hong Phuc from KPMG Vietnam identified five main factors of digital transformation failure in businesses.

The two leading experts discuss the common causes below.

1. Lack of leadership ability to drive innovation

Digital transformation is more than a single change; it’s an entire structural shift. This endeavor requires ‘transformational leaders’ that are capable of promoting innovation. These leaders need to show determination, inspiration, leadership by example, empowerment, and motivation.

Our research shows that many businesses ‘leave it all’ to their IT department to explore and make changes involving technology. The leaders of such businesses see digital transformation as part of the IT department’s responsibility. Meanwhile, many IT department heads think they can carry out transformation without much input from their leaders. This is one of the main reasons why the vast majority of digital transformation projects fail in business.

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Higher Education took the lead in leveraging the latest technologies. Photo: RMIT

2. Missing or weak dynamic capabilities in the organization

Dynamic capabilities are needed to integrate, build, and restructure the internal and external competencies of a business to support rapidly changing environments. The three main types of dynamic capabilities are sensing capabilities, seizing capabilities, and transforming capabilities.

Advances in technology have enabled many businesses to perform miracles and some of them – such as Apple, Amazon, Microsoft, and Alibaba - have quickly become the biggest companies in the stock market. Concurrently, many brands - like Sears, Kodak, Nokia, Yahoo, and Blockbuster - have lagged behind in the race, with some even facing bankruptcy. Successful businesses need to be strong across all three dynamic capabilities, while failing businesses often partly or completely lack such capabilities.

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Successful businesses need to be strong across all three dynamic capabilities. Photo: pwc

3. Lack of appropriate corporate culture as a foundation

Corporate culture plays a major role in promoting creativity and innovation in every business. This is considered a determining factor for the success of the digital transformation.

As with many major reforms or changes, there is often resistance from internal and external stakeholders which can increase the risks throughout the digital transformation process. This process greatly improves when companies create a corporate culture that encourages employees to take risks and accepts failure, so people can learn how to adapt quickly.

In many small Vietnamese businesses, building this kind of culture is not yet big on the leadership agenda. Our research also shows that because of limited resources, leaders are afraid of failure and even punish mistakes. In addition, it is very common for leaders to enact a culture of blame so employees are reluctant to step out of their comfort zones, making the implementation of the digital transformation strategy even more unstable and difficult.

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The relationship between businesses and tech companies needs collaboration and synergy, not just competition. Photo: The Asian Banker

4. Misconception about digital capabilities

The digital capabilities of a business comprise not only the ICT infrastructure but a combination of many competencies. These include technology infrastructure, data collection and management process, data analytics, the ability to offer solutions based on data analysis and technology, and security capabilities.

In our interviews with businesses, we found that many of them misunderstood or did not fully grasp what digital capabilities were. Those businesses only focused on the ICT infrastructure - so they invested in high-cost technology projects - but the solutions provided did not meet the expectations of their customers and employees due to the remaining capabilities being weak.

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There a still a number of a misconception about digital capacities. Photo: monjaco

5. Mistakes in the digital transformation strategy

Businesses often commit the following errors in their overall digital transformation strategy:

- Becoming overly technology-oriented and forgetting that the people - employees, shareholders, customers and suppliers - are the true owners of the transformation. Good corporate governance should be a priority, along with the above-mentioned factors.

- Becoming delusional about success by setting unrealistic goals against a short execution timeline. When the goals are not met or when the implementation encounters too many challenges, any next step or potential project will be affected.

- Becoming overly cautious and trying to be perfect in deployment. Nothing is absolute and being too cautious is as bad as being careless. When a business leader has a perfectionist mindset, the digital transformation process will often drag and eventually incur high costs.

- Lack of focus, preparation, and dedicated resources for digital transformation. This mistake is often due to a poor understanding of the nature of ‘transformation’. Depending on the area of activity and the size of each business, costs and resources can vary, but digital transformation often targets fundamental changes in operations, communications, and even the business model. Consequently, business leaders should gather the right resources and prioritize this undertaking.

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Mistakes in the digital transformation strategy. Photo: medium
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Tony Nguyen
RMIT Vietnam
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