Top 3 Digital Transformation Risks

Resolute Software
7 min readJan 25, 2024

Cloud infrastructures, data analytics, digital supply chains, e-commerce, Internet of Things, Artificial Intelligence, and machine learning — the business development opportunities presented by digital technologies are innumerable.

Digital transformation has become a significant goal for forward-looking organizations that want to reap the benefits of the latest technological innovations. With the help of novel technology, they can better cater to their customers’ needs and stay ahead of their competitors.

While the process is beneficial for most companies, some digital transformation risks are worth noting. Considering them and preparing strategies to counteract potential pitfalls will guarantee your organization’s successful digital journey.

In the sections below, you can get acquainted with the most common digital transformation risks — and the main ways to prevent them.

Risk areas for digital transformation efforts

Digital transformation risks can be encountered in several areas of an organization’s operations, but three main ones keep popping up as problematic.

Multi-cloud and hybrid cloud services

With the constant development of new technologies like AI, machine learning, IoT, cloud, and big data, threats are constantly evolving and becoming more complex. This increases the requirement for CISOs and security teams to manage digital transformation risks by augmenting and enhancing their IT and cyber risk management functions. A typical digital transformation risk these days is related to the use of multiple cloud and hybrid cloud infrastructures. They bring immense advantages to organizations, especially in terms of making them agile and flexible, but naturally, they carry some risks, too.

The typical pitfalls include:

  • Lack of sufficient risk detection
  • Inadequate security settings configuration
  • Insufficient capability for incident response
  • No visibility over virtual machines and cloud service activities
  • Different vendors’ settings

Supply chains and sales channels

Moving to digital supply chains and sales channels often produces highly positive business results. But digital transformation risks hide in this area, too.

One of the significant potential issues is the lack of a proper multichannel strategy. For example, having a single sales channel, albeit digital, can have detrimental results in case of disruptions and failures.

Another issue that can cause severe damage is the lack of a solid digital transformation strategy for the supply chain and sales channels. All partners, suppliers, and customers should be taken into consideration — and provided with flexible and understandable guidance during the digital shift. In case this is not done, it can lead to a loss of business opportunities and supply chain disruptions.

Internet of Things (IoT)

IoT holds great business potential, as it enables responsive connections between the internet and physical items and the effective monitoring of devices and their usage. At the same time, the new horizons it offers are linked to some risks too.

A significant threat that IoT devices are vulnerable to are denial-of-service attacks and data breaches. There have already been numerous examples of how connected devices create easy backdoors for cyber threats.

Additionally, IoT devices gather and produce immense volumes of data, and data is the gold of today. It often becomes the target of attacks, requiring cyber risk management functions to be put in place.

Three potential digital transformation risks to avoid

Digital transformation risks come in different shapes and forms, but here, we’ve outlined three major issues that many organizations stumble upon.

Lack of adequate digital transformation premises

Digital transformation strategies are essential because they set the basic expectations that a company has towards its digital transformation initiative. Without setting the right premises for the transformation endeavor, an organization can end up not utilizing the new technology properly.

Introducing new systems in itself is not the end goal — they should be embedded most effectively into the business processes.

Naturally, there should be proper training and adaptation so team members can employ the new tools. It’s also key to know from the start what the new tools can bring and the best way to put them to work.

To wrap it up, the premises that you should set include:

  • When is the right time to introduce new technology
  • Who is going to be in charge of it
  • How will you train your staff to use it
  • How are you going to track its performance and ROI
  • How are you going to address pitfalls in its usage
  • What are the realistic expectations you can have in terms of value-added

Poor skillset to support digital transformation efforts

While digital transformation relies heavily on technology, its impact will be as good as your team’s skillset.

That’s why employee preparation and training are essential, as is investing time and effort in organizational culture shift towards digital. New hires may also become necessary on the go. Your team should be equipped with knowledge and experience to be able to make the best of the new technology you’re introducing.

Innovation projects thus require not only paying for the new systems but also putting aside enough financial and time resources for education, hiring, and HR restructuring. Relying on the old IT team to implement everything often leads to subpar results.

Missing expert guidance

A significant risk of digital transformation that often gets overlooked is the lack of expert support. Businesses may feel confident to start the process alone but may encounter various unexpected issues that could have been prevented if proper guidance had been in place from the start.

Often, leaders believe their teams have the necessary skills and experience. However, employees who have yet to pass through the transformation process would have a difficult time having a complete overview of situations.

Even though relying on external expert guidance means more costs initially, the investment pays off. It can save organizations massive amounts of time and finances because the efforts they’re putting into digital transformation will go in the right direction.

Risk management techniques for successful digital transformation

In addition to avoiding the main risk areas, organizations can adapt specific risk management techniques to guarantee the success of their digital transformation initiatives. Here are some tried-and-true ways to manage risk in the process of digital transformation.

Agile risk identification and control

Old risk management techniques have become obsolete with the rapid advancement of digital technology. They are not appropriate for modern-day identification and proper risk controls.

The key to successfully managing digital transformation risks is agility. This is the only way to prevent detrimental cyber attacks, data leaks and breaches, and operational failures. Adhering to a proactive approach is also essential since the cyber risk landscape is amazingly dynamic.

Innovative identification of risks

Besides agility and proactivity, the ways in which your organization identifies risks should be revamped.
Back in the day, before massive digitalization, focus groups, surveys, and interviews were standard methods for risk management. But today, they’re simply too slow and outdated.

Luckily, though, digital tools also offer innovative ways of identifying risks. With the help of data sensors, analytics, and digital media channels, your company can keep track of the latest threats and create quick and viable solutions on the go.

Risk areas recognition

Pinpointing the specific risk areas of your organization is an invaluable technique for risk management. It takes into consideration not only the general threats out there but delves deeper into your business processes to identify weak spots vulnerable to internal and external threats. This helps you get as prepared as you can for the transformation process.

A non-exhaustive list of significant risk areas you can check out within your organization to spot the specifics and improve risk ownership includes technology failures, cyber threats, data breaches, technology resilience, and third-party risks. Within each of these areas, you may discover different vulnerabilities that affect the specific way your organization operates.

Work with a trusted partner for your digital transformation journey

Ready to start your innovation initiatives but want to avoid the risks of digital transformation?

Resolute Software’s team is highly experienced in enabling businesses on their digital transformation journey. We are specialists in the field and have successfully worked with companies from various industries, making us your partner of choice.

Backed by our first-hand knowledge and experience, you’d be better equipped to face the challenges of digital transformation — — and avoid the banal pitfalls that several organizations have fallen into. In the long run, our partnership will help you save costs and achieve the results you’ve set for your transformation efforts.

To get started, just get in touch to learn more about how Resolute Software can further your digital transformation initiatives.

FAQs

What are the potential risks of digital transformation?

The potential risks of digital transformation lie in several areas. Three main ones include multi-cloud and hybrid cloud solutions, the Internet of Things, and digital supply chains and sales channels.

Three specific digital transformation risks include setting unrealistic digital transformation goals and expectations, not having a well-trained and prepared team to execute the strategy, and lacking the right support along the way.

Risk area identification for organizations should consider technology failures, cyber risks, data breaches, technology resilience, and third-party risks, among others.

What is the negative impact of digital transformation?

Overall, digital transformation has a positive effect on business development and operations.
Digital transformation risks, however, hide in numerous areas. They often relate to security, privacy, and disruption of services.
Nevertheless, if they are accounted for and necessary steps are taken to prevent them, these risks may never become an issue for organizations.

What are the 4 key challenges of digital transformation?

There is a long list of challenges that can prevent the successful transformation of your business. Knowing them is thus imperative. The four most notable key challenges of digital transformation are slow and heavy legacy systems, unprepared organizational culture, lack of financial and human resources, and security risks.

What are the risks of digital technology?

The risks of digital technology differ depending on an organization’s specifics. However, some main areas affecting companies from different industries include cybersecurity, workforce, compliance, cloud, automation, and privacy.

Originally published at https://www.resolutesoftware.com on January 25, 2024.

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Resolute Software

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