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 experts from RMIT University’s Management Department and KPMG Vietnam, identified five common causes of digital transformation failure in businesses.
The two leading experts, Dr Nguyen Quang Trung and Mr Nguyen Tuan Hong Phuc 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 endeavour 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.
2. Missing or weak dynamic capabilities in the organisation
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.
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 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.
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.
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 prioritise this undertaking.
About the experts
Prior to his position as RMIT University’s Department of Management Head, Dr Nguyen Quang Trung worked at FPT Corporation and Open University, HCMC. Dr Trung has a PhD degree in Management from Monash University, a Master of Arts in Economics of Development, and a Bachelor’s degree in Foreign Trade. His research interests encompass public management, international business, and development economics.
Mr Nguyen Tuan Hong Phuc is Partner of Customer & Operations, Digital Consulting at KPMG Vietnam. He has over 16 years of hands-on management consulting experience. Mr Phuc specialises in digital strategy, digital transformation, business transformation, operating model designs, and all aspects of operations transformation. Prior to KPMG Vietnam, he worked for several Big 4 companies and management consulting firms in Vietnam and the Netherlands. In recent years, he has spearheaded multiple successful large transformation programs for SMEs, leading F&B companies, leading financial services companies and many more.
