Concerns that digitalization efforts may be poorly conceived, as well as worries over the pace of such efforts, topped business leaders’ concerns in Gartner’s latest Emerging Risks Monitor Report.
In Gartner’s third-quarter 2019 survey of 144 senior executives across industries and geographies, so-called “digitalization misconceptions” rose to become the most concerning emerging risk. It was identified as a top risk by 52% of survey respondents.
Just a hair behind at 51%, “lagging digitalization” remained in second position. Last quarter’s top emerging risk, “pace of change,” has now become an “established risk” after ranking on four previous emerging risk reports.
“While the threat of external macro risks such as the U.S.-China trade war are an increasing source of concern for executives, it’s notable that the top three risks in this quarter’s report are all centered around internal operations,” said Matt Shinkman, a vice president with Gartner’s risk and audit practice. “Business leaders are most concerned with their strategies around digital and having the resources in place to execute these plans.”
Top Five Risks by Overall Risk Score: 4Q18 – 3Q19
|1||Talent Shortage||Accelerating Privacy Regulation||Pace of Change||Digitalization Misconceptions|
|2||Accelerating Privacy Regulation||Pace of Change||Lagging Digitalization||Lagging Digitalization|
|3||Pace of Change||Talent Shortage||Talent Shortage||Strategic Assumptions|
|4||Lagging Digitalization||Lagging Digitalization||Digitalization Misconceptions||Data Localization|
|5||Digitalization Misconceptions||Digitalization Misconceptions||Data Localization||U.S.-China Trade Talks|
Source: Gartner (October 2019)
Executives from the IT and telecom sectors were clearly most concerned with digitalization misconceptions, with 75% of executives surveyed indicating it as a top risk. The banking and energy industries were most concerned with lagging digitalization, with nearly 7 in 10 executives indicating it as such.
In a separate recent report, Gartner distinguished VP analyst Neil Osmond addressed what might be a key driver of misconceived digitalization efforts.
“When most people think about digital transformation, they tend to emphasize technologies such as artificial intelligence, chatbots, or automation,” Osmond said. “But technology issues are usually the easier things to work through. Nontechnological aspects, if not addressed, can mask the depth of organizational transformation required and become serious inhibitors.”
True digital transformation, the report continued, “involves optimizing your current business (improved productivity and products, better customer experience) to get ‘digitally fit,’ and also transforming it (new business — products, services, or models). What’s your organization’s intent?”
Digital transformation must be focused on such business priorities as revenue growth, customer satisfaction, or operational efficiencies to be truly transformative, according to Gartner.
“Resist jumping straight to solving technology-related issues,” Osmond counseled. “If you do, your initiative will rapidly turn into a lengthy IT modernization project that doesn’t address key elements of your operating model, such as processes and ways of working.”
Adding to the unease over digitalization is simply the large percentage of organizations undergoing some form of digital business change. A large majority of strategists indicated that digitalizing operations was impacting four distinct areas of their business model: business capabilities, profit models, value propositions, and customer behavior.
While these changes are underway, uncertainty persists about a clear path from current to future business models. In yet another Gartner survey early this year, only 35% of corporate strategists said they felt confident about which investments and initiatives were needed to drive their future business model. And just 20% said they had clarity on how those changes would positively impact their organizations.
“Our data suggests that executives lack confidence in transformational business model changes, even as many are already underway,” said Shinkman. “To help mitigate the risks of digitalization missteps, organizations should take an incremental approach to business model transformation, with each step in the process building knowledge for future initiatives. Organizing business model transformation into discrete projects lessens the chance of major disruptions.”
Shinkman also noted that risk executives need to ensure they have a seat at the table during digital projects. Gartner research indicates that while two-thirds of risk executives said their organization currently has a digital transformation project underway, only 35% reported that enterprise risk management teams are playing a role in the project.