Only 27% of companies are able to generate positive returns on their digital transformation investments. This poses the question: What exactly do they do differently than the rest?

How are these businesses delivering on their digital transformation objectives at a time when all others failed? Well, let’s find out.

We take a closer look at the potential pitfalls waiting for those on their digital transformation journey and determine how to sidestep them for the best chance of success.

Falling at the first hurdle: The failure to define “digital transformation” properly.

Too many CEOs think digital transformation means nothing more than adopting the latest technology to automate time-honored, manual processes. Yes, technology lies at the core of every digital transformation. But, to be part of The 27%, companies need to adopt a broader, more ambitious vision of where digital transformation will take them.

Truly successful digital transformation creates economic moats by weaving technology into strategy. Sure, streamlining operations through automation of pre-existing manual processes is probably a good thing. But, in today's rapidly evolving technological landscape, companies' long-term survival hinges on their ability to devise defensible business models on the back of technology.

Taking too narrow a view, both internally and externally.

For digital transformation to be considered a success, all core business functions must be integrated and improved under a joint mission. Companies tend to focus too narrowly on individual functions at the expense of others, attempting to revamp poorly performing departments or double-down on those generating the most revenue. Such a blinkered perspective only serves to reinforce siloes, hampering growth, and demoralizing employees. To cement a cross-functional approach, all function leaders must be included early in digital transformation design and implementation.

Companies take a narrow view, too, by zeroing in on their specific industry when, often, the real game-changing digital transformation opportunities lie elsewhere. Technology enables companies to transition across markets, co-opting whole new customer segments: think of Lego's forays into the film and video game industries, and VW's all-electric car sharing offering in Berlin they’ve called "WeShare".

Poor leadership stemming from an out-of-depth CEO.

Lack of buy-in from senior management is a primary cause of digital transformation failure. But why the reluctance? Some old-school CEOs lack awareness of the digital transformation imperative. Others think that automation and the adoption of new digital technologies pose an existential threat to their "tried-and-tested" strategies (they do.) And others fail to convey their vision to senior-level leaders, triggering an unspoken disconnect in expectations.

"Digital transformation is as much a leadership issue as it is a strategy, technology, culture, and talent issue," says Rajan Kohli. Grassroots change is all well and good, but successful digital transformations cascade down. Senior management should embody the fundamental values of digital culture: customer-centricity, a collaborative mindset, and risk tolerance.

The light at the end of the tunnel has dimmed, and change fatigue is setting in.

Digital transformation isn't a one-and-done - it's an ongoing, multi-year journey. And on multi-year journeys, people get exhausted. It's little wonder some employees give up hope when they’re repeatedly asked to change working practices, adapt to new technologies, adopt new titles, and take on extra responsibilities, all without a sniff of additional remuneration.

Overcoming change fatigue starts with increased transparency. Employees need to know a) why change is happening, b) what the plan is for enacting it, and c) what success ultimately looks like. Breaking digital transformation down into short-term projects with achievable goals helps maintain momentum while small wins (even if semi-engineered) help build morale.

Waiting too long and falling behind.

A decade ago, digital transformation felt like a luxury. While organizations with high-risk appetites and cash to burn experimented with things like digital experience platforms, other, more cautious companies waited in the wings, letting the first movers pay for their experiments and learning from their mistakes. A wait-and-see strategy was a perfectly viable, and some might argue a prudent option. But that was a decade ago.

"The single biggest predictor of digital transformation success is the promptness of their start," says Martin Reeves, managing director of BCG's Henderson Institute. Today, it's clear that first movers and fast followers can develop a significant learning advantage that digital transformation laggards might never catch up with.

First movers have time to test, learn, and test again. They can refine the use of technologies within their organizations and embed them across functions and business models. They recognize what talent is required to maximize their digital advantage and recruit the best and brightest, early. They even make a name for themselves as forward-thinking visionaries (and who wouldn’t want that?)

Struggling to fill the skills gap.

Data analytics, DevOps, data security, change management, machine learning, AI - where do the knowledge gaps lie in your organization? Perhaps you have the expertise to pilot a successful digital initiative, but do you have what it takes to scale it? Companies hoping to fill their digital skills gaps frequently find that high-calibre candidates are thin on the ground. Most are gobbled up by the big tech giants, offering salaries that only they can afford.

The sooner companies can identify skills gaps, the faster they can hire. But perhaps even more critical is the retention of existing employees central to digital initiatives already underway. Senior-level leaders, in particular, are loathed to inherit a transformation from an outgoing employee. They want to make their mark and would sooner scrap existing projects and start again, at a high cost to the hiring company.

Internal pushback is an inevitable response to any significant change.

As human beings, we fear uncertainty and loss of control. We hate having things sprung on us and mistrust anything that feels "different." When it comes to digital transformation, these instincts trigger internal pushback that risks derailing even the best-laid strategies.

When faced with new digitized processes, employees often feel like they're being asked to do more work when, in reality, their productivity is enhanced. They worry that they lack the necessary skills required to adapt, so cling on to outdated working practices that feel safe and familiar.

The key to overcoming pushback is to get buy-in as early as possible. Senior leaders have to promote transparency and maintain a close line of communication with employees at all levels, listening to their hopes and fears, and keeping them abreast of progress against milestones.

Digital training is essential for making existing employees feel supported and valued. The ultimate aim is to develop a company-wide digital culture that will serve the company well in the ongoing process that is digital transformation.