Weighing the true cost of transformation

It’s a common refrain from IT directors that people are resistant to change, and reticent to switch to new management systems that can cause staff disruption. The response is to conduct training and coaching activities, and change management becomes the main cost of transformation, both in time and money.

“The CIO always faces the same problems when implementing a strategic project where there are never enough people, business skills are lacking, there isn’t an overall vision, and there’s resistance to change,” says FHP Group CIO Fabio Mattaboni. “In my experience, I’ve seen the same story repeat itself where just a few months into a digitalization project, fear sets in. And this is where the CIO, who has a distinctive ability to manage fears, stands out from those unable to take effective action.”

The expense of change

Recent data from the Assochange Observatory on Change Management in Italy, in association with Milan Polytechnic University, confirms that the primary driver for change management activities within companies is digital transformation, and among the key challenges of effectively managing digital innovation is the need to convince the workforce of a project’s value, and to gain active participation. 

“To achieve this goal, large companies are widely using corporate entrepreneurship initiatives to foster a culture of innovation and entrepreneurial spirit, such as training, networking with startups, and changing leadership styles,” says Alessandra Luksch, director of the Startup Thinking Observatory at Milan’s Polytechnic University. “Of the companies we surveyed in 2024, 71% are already adopting these initiatives. This can also lead to the emergence, development, or identification of so-called intrapreneurs, internal company members who demonstrate the ability to act with an entrepreneurial mindset typical of the startup world, and also act as a stimulus and point of reference for other colleagues.”

Another finding from the 2024 survey is the role gen AI has in change management within companies. In fact, 31% of large organizations recognize that AI helps counter internal resistance to change by fostering a greater propensity for innovation among employees.

“This data highlights how the spread and adoption of AI solutions, and gen AI in particular, is often a catalyst for people, which then leads organizations to define the most suitable and secure tools,” Luksch says.

Costs of the learning curve

A digitalization project requires changing products or technological solutions, but this is only the visible part of the transformation, says Igor Dimitri, IT customer engagement Manager at UPS Healthcare. The real costs lie in the time required to dedicate to the cultural transformation.

“Most costs aren’t IT costs, because digital transformation isn’t an IT project,” he says. “There’s the cost of cultural change in the people who will have to adopt the new technologies, and that’s where the greatest corporate effort is required.” 

Dimitri also highlights the learning curve costs. Initially, most people are naturally reluctant to change and inefficient with new technology. So it’s important for the company to stick to its strategic decision over the long term to achieve incremental efficiencies. 

“Cultural transformation is the most significant and costly part of digital transformation because it’s essential to bring the entire company on board,” Dimitri says. “You need to explain the reasons behind the project, share the vision for the future, and explain that the company doesn’t exist without its people. Technologies can be scary because we’re immersed in a culture of alarmism, but management’s role is to reassure people that the goal is to do better and that people are always central to any organization.”

Avoiding the hidden costs

According to Nabil Moussli, technology strategist at Accenture, almost all the hidden costs of transformation are tied to cultural change, like comprehensive training, for instance, and a few hours’ course or an intuitive interface isn’t enough. Employees must not just learn to use a new tool, but adopt new ways of thinking since training shouldn’t be a one-off, but an ongoing commitment, he says.

Without a structured approach to change, even the best technological tools fail as resistance manifests itself in subtle delays, passive defaults, or a silent return to old processes. Change, therefore, must be guided, communicated, and cultivated. Skipping this step is one of the costliest mistakes a company can make in terms of unrealized value.

Organizations must also cultivate a mindset that embraces experimentation, tolerates failure, and values ​​continuous learning. This has its own associated costs and often requires unlearning entrenched habits and stepping out of comfort zones.

There are other implicit costs to consider, too, like the stress of learning a new system and the impact on staff morale. If not managed with empathy, digital transformation can lead to burnout and confusion, so ongoing support through a hyper-assistance phase is needed, especially during the first weeks following a major implementation.

Then there’s the hidden cost of organizational restructuring and evolving roles. Digital tools often alter workflows and, consequently, responsibilities. Some roles may become obsolete while others may require entirely new skills. And this means rethinking organizational charts, team structures, and performance metrics.

The startup exception

For the vast majority of CIOs, the cost of digital transformation is primarily cultural, not technological. But the picture is inversed for startups. These companies have digitalization at their core and focus on digitally transforming other businesses rather than themselves, says Lorenzo Ye, CIO and head of tech at travel tech startup Takyon. “For us, the cost of digitalization is technological because we need to stay up-to-date on the latest developments,” he says. The risk is we won’t always be at the forefront and will quickly become obsolete.”

Indeed, tech debt can build up faster in startups than in traditional businesses, and has a more significant impact on business growth. “The accumulation of tech debt is a hidden risk and one of the biggest challenges for a startup,” Ye adds. “We’re quick to update our technology because the code we write must adapt to changes in our business. If we fail to keep our software components state-of-the-art, we risk widescale repercussions because we’re a technological platform that must constantly find the best way to communicate with existing sites.”

Conversely, startups that cater to customers that are traditional companies often observe that transformation is a long and complex journey. 

“Even if they have older technologies, these companies tend to remain stuck in the old system out of habit,” Ye says. “Digital transformation definitely requires a cultural shift.”