Digital Transformation: What It Is (And What It Isn’t)

The £65 Million Wake-Up Call

I’ll never forget the moment the boardroom fell silent. I’d just asked a FTSE 100 CFO how their £65 million SAP S/4HANA implementation would fundamentally change their business model. After what felt like an eternity, the CFO cleared his throat and said, “Well, it’ll modernise our processes. Hopefully…”

That wasn’t transformation. That was modernisation dressed up in expensive consultancy speak.

This scene plays out in boardrooms across the world every day. Executives spend millions on what they believe is transformation, only to realise they’ve bought digital theatre – impressive technology implementations that deliver marginal improvements whilst the business model remains unchanged.

Here’s the uncomfortable truth: 87.5% of digital transformations fail to deliver their promised outcomes. Yet we’re on track to spend $4 trillion globally on these initiatives by 2027. After decades governing $250m+ programme budgets and leading transformation teams of over 250 people, I’ve reached a stark conclusion: most of what we call digital transformation isn’t transformation at all.

Why This Matters to Your Bottom Line

The numbers tell a sobering story:

• Organisations typically capture only 31% of expected revenue from transformation programmes
• They achieve just 25% of anticipated cost savings
• The average ERP project costs 189% more than budgeted and takes 3x longer to complete
• 75% of ERP implementations fail to meet their objectives entirely

Meanwhile, consulting firms and technology vendors continue profiting from the confusion they’ve helped create – deliberately blurring the lines between buying technology and transforming a business.

As one frustrated CIO told me recently: “We spent £4 million on AI transformation, but we’re still using AI tools to do the same work slightly faster. Where’s the transformation?”

What Digital Transformation Actually Means

Before diving into what transformation isn’t, let’s establish what it actually is.

Digital transformation is the fundamental rewiring of how an organisation operates, interacts with customers, and creates value, enabled by technology but driven by business model innovation.

Notice what’s missing from that definition? Technology comes second. Business change comes first.

The Consulting Firms Actually Agree

Even boutique and major consultancies admit transformation isn’t about technology:

• McKinsey calls it “the fundamental rewiring of how an organisation operates“
• BCG talks about creating “bionic” companies that combine human and digital capabilities at scale
• Bain emphasises merging “the best of both digital and physical worlds” to create new value
• Accenture frames it as building capability for “continual adaptation”

Not one of these definitions leads with technology. They all focus on fundamental business change.

Real Transformation in Action

Remember Netflix? They didn’t just digitise DVD rentals. They evolved from posting DVDs to streaming content to producing original programming to using AI to shape cultural conversations. Each step represented a complete reinvention of their business model, not just a technology upgrade.

Walmart transformed from a traditional retailer into America’s second-largest e-commerce player by completely rethinking how physical stores, digital channels, and supply chains work together. They didn’t just add a website – they reimagined what retail could be.

Ford shifted from manufacturing vehicles to providing mobility services.

DBS Bank evolved from traditional banking to becoming “digital to the core.” These weren’t IT projects; they were business model revolutions.

More recently, Domino’s Pizza transformed from a pizza company into a technology company that happens to sell pizza. They rebuilt their entire operation around digital ordering, AI-powered logistics, and customer data – fundamentally changing how they create and capture value.

Tesla didn’t just make electric cars; they created an entirely new automotive ecosystem combining manufacturing, software, energy storage, and autonomous driving capabilities.

My Simple Transformation Test

When working with executives, I use this litmus test: Can you explain how this initiative fundamentally changes how you create or capture value?

If the answer involves efficiency gains, cost savings, or process improvements, you’re planning an IT project. If it involves new revenue streams, improved customer relationships, or novel competitive advantages, you might be planning transformation.

What Digital Transformation Is Not

The Digital Theatre Problem

Here’s where brutal honesty becomes essential. Most of what companies call digital transformation is nothing of the sort.

Digital theatre is my term for organisations going through the motions of transformation without fundamental change. It’s technology implementation wearing an expensive suit.

Your SAP S/4HANA migration? Not transformation – that’s system modernisation.

Moving servers to the cloud? Not transformation – that’s infrastructure upgrade.

Implementing a new CRM? Not transformation – that’s process automation.

These initiatives can be valuable stepping stones, but they’re not transformation themselves.

The ERP Deception: A £2.5 Trillion Lie

Enterprise Resource Planning (ERP) implementations represent the peak of transformation mythology.

Despite SAP’s aggressive push and the looming 2027 deadline for ECC support, only 57% of customers will complete S/4HANA migrations on time. The resource requirements alone should give us pause – organisations need 75% additional resources compared to current levels.

But here’s the real kicker: 75% of ERP projects fail to meet their objectives. Those that do succeed often fall short of expectations, with 41% failing to achieve even half their expected benefits.

As one programme director at a major manufacturer told me: “We spent two years and £35 million implementing S/4HANA. Our processes are more standardised, our data is cleaner, but we’re still essentially the same business. The board expected transformation; we delivered optimisation.”

The AI Hype Cycle

Every vendor promises AI will “revolutionise” workflows, but the pattern remains the same: promise transformation, deliver optimisation.

90% of companies are already using AI or planning to use it shortly. Model owners and SaaS vendors paint pictures of transformed enterprises – SAP’s Joule influencing 80% of tasks, Microsoft’s Copilot creating the “AI-powered workplace.”

The reality? Companies see 30% increases in user satisfaction and 25% productivity boosts – good operational improvements, but not transformation.

Most enterprise AI involves predictive analytics, chatbots, and process automation. These improve efficiency but don’t fundamentally change how businesses create value.

True AI transformation would mean creating entirely new business models: AI-as-a-Service offerings, products that couldn’t exist without AI, or competitive advantages that redefine market dynamics.

The Human Factor: The “Frozen Middle” Challenge

The “frozen middle” refers to middle managers who defend functional silos, protect established power bases, and resist changes that threaten their relevance. This layer kills transformation regardless of technology sophistication.

Research shows a stark disconnect: whilst senior executives remain optimistic about employee engagement, middle managers report significantly lower commitment during transformations.

As one transformation consultant described it: “You’re buying a Ferrari for someone who’s never learned to drive.”

The Sobering Statistics

• Only one in four organisations has a clear transformation roadmap
• 54% of employees feel unprepared for technological changes
• Even successful transformations see a 25% increase in negative emotions among staff
• 85% of digital transformations fail due to people-related issues, not technical problems

One executive shared this insight: “We spent £30 million on world-class technology, but our middle managers saw it as a threat to their expertise, and potentially employment. Six months later, adoption rates were still below 40%. The technology worked perfectly; the organisation didn’t.”

What Actually Works: The Five Pillars of Successful Transformation

Despite widespread failure, genuine digital transformation is possible. The difference lies in approach.

1. Start with Business Outcomes, Not Technology

Define what transformation means for your business model, competitive position, and customer value proposition. If you can’t articulate fundamental business change, stop calling it transformation.

Action: Before any technology discussion, complete this sentence: “This initiative will transform our business by enabling us to _.” If you can’t fill that blank with new value creation methods, you’re not planning transformation. It’s the IT upgrade project emerging round the corner.

2. Invest Properly in Organisational Change

Companies achieving real transformation spend 15-20% of their total budget on change management, skills development, and cultural transformation. Those treating it as an afterthought join the 87.5% failure rate.

Action: Allocate minimum 15% of your transformation budget specifically to people and culture initiatives. This isn’t optional; it’s essential.

3. Address the Frozen Middle Directly

Without middle management buy-in, transformation dies. This means involving them early, addressing concerns explicitly, and often restructuring incentives.

Action: Create transformation champions within middle management. Give them ownership of specific outcomes and align their incentives with transformation success.

4. Adopt Proven Execution Frameworks

Organisations implementing OKRs (Objectives and Key Results) see notable improvements – companies with well-implemented OKRs achieve nearly 60% faster revenue growth and report clear gains in employee engagement.

Action: Implement OKRs specifically for transformation outcomes. Traditional project management tracks deliverables; transformation requires tracking business impact.

5. Plan for Realistic Timelines

Genuine transformation takes 3-5 years, not 12-18 months. Productivity gains often require 18-24 months to materialise. Market expansion and business model innovation take even longer.

Action: Set 3-5 year transformation horizons. Vendors promising “transformational results in 12 months” are selling fiction.

Questions Every Executive Must Ask

When vendors and consultancies pitch transformation solutions, ask these uncomfortable questions:

For Transformation Credibility

• “What percentage of your similar clients achieved their stated transformation objectives?” Not “successful implementations” – actual business transformation.
• “How do you distinguish between transformation and technology implementation?” If they can’t articulate the difference clearly, they’re selling the latter.

For Business Impact

• “What specific business model changes will this enable?” Efficiency gains don’t count. What fundamental changes to how we create or capture value?
• “Can you provide case studies where this approach created new revenue streams or competitive advantages?”

For Execution Reality

• “How much should we budget for organisational change management?” If it’s less than 15% of total budget, they’re setting you up for failure.
• “What happens when middle management resists?” If they don’t have a detailed plan for this inevitable challenge, they haven’t done real transformations.
• “Can you provide references from failed transformations and lessons learned?” Everyone has failures. What matters is whether they’ve learned from them.

The Future of Digital Transformation: 2025 and Beyond

Looking ahead, digital transformation is set to become even more complex, and more critical, for organisations that want to thrive. The next wave won’t be defined by who can deploy the latest technology quickest; it will be marked by who can use technology to continually reshape their business model and deliver measurable outcomes for customers and shareholders.

Here’s what I see coming:

• AI-Driven Business Models

Artificial Intelligence (AI) will do more than automate tasks; it will power entirely new revenue streams. Expect to see leading organisations inventing products and services that are only possible because of real-time data, predictive analytics, and machine learning. Those who treat AI as a bolt-on efficiency gain will be left behind.

• Continuous Adaptation as a Core Capability

The environment is too volatile for one-off ‘big bang’ transformations. The most successful leaders are building internal capability for ongoing change: rethinking talent, operating models, and decision rights so that their organisations can pivot continually as markets, regulations, and technologies evolve.

• Human-Centric Transformation

The real differentiator won’t be the technology stack; it will be your people. The relentless focus must be on upskilling workforces and invigorating cultures to embrace adaptation, experimentation, and cross-functional ways of working. Organisations that invest in organisational change—embedding change agents, targeted learning, and strong two-way communication—will outpace those that focus solely on IT.

• Closer Alignment of Technology and Strategy

Technology teams must operate at the heart of business strategy – not as an enabler, but as a co-creator of growth. The executive agenda will increasingly demand fluency between technology opportunity and board-level value levers.

• Radical Transparency and Accountability

With increasing scrutiny on digital investments, boards will insist on clear success metrics tied to business outcomes, not technical milestones. Data-driven reporting and a direct line between spend and value realisation will become the norm.

To sum up: Digital transformation is no longer a project, a wave, or a single ‘moment.’ It is a continuous discipline, and the winners will be those who embed strategic agility, align business and technology as one, and invest in people at every layer of the organisation.

Before you commit another dollar to that next ‘transformation’ programme, ask yourself: Will it fundamentally change how you create or capture value – or is it just another line item in your IT budget? The choice will shape your future.