Risk management as a success factor in digital transformations

Digital transformations involve changes in technology, business models and organisational practices. They are often complex and require speed due to changing market conditions and technological advances. Digital transformations therefore often bring new risks in addition to new opportunities. These need to be carefully managed. In this blog, Geert Eggens explains how a balanced risk approach can be applied as a success factor in digital transformations, balanced with the innovations or competitive advantages being pursued.

Digitale transformaties brengen veranderingen met zich mee in technologie, bedrijfsmodellen en organisatiepraktijken. Ze zijn vaak complex en vereisen snelheid vanwege veranderende marktomstandigheden en technologische vooruitgang. Digitale transformaties brengen naast nieuwe mogelijkheden dus vaak ook nieuwe risico’s met zich mee. Deze moeten zorgvuldig worden gemanaged. In dit blog licht Geert Eggens toe hoe een evenwichtige risico benadering als succesfactor kan worden toegepast bij digitale transformaties, in balans met de innovaties of concurrentievoordelen die worden nagestreefd.

Negative perceptions of risk management

There are often negative perceptions about risk management: talking about risk is seen as time-consuming, slowing down the required speed and limiting innovations. This is because risk management is often focused on compliance rather than value creation. There is also a perception that risk management involves (too) much documentation, assessments and procedures, making it less flexible and quick to respond to changes.   

If risks are not made clear from the start and are not communicated openly, this indeed leads to the misunderstandings and resistance mentioned. And then ultimately to failure of the digital transformation. On the other hand, a (too) cautious risk approach limits an organisation from, for instance, deploying new, disruptive, technologies and creating new opportunities with them. 

Digital transformations offer opportunities for innovation and new possibilities

y thinking carefully about these opportunities and risks in advance, which risks the organisation is willing to take and which it is not, risk management actually helps, as an 'enabler', to be agile and respond quickly to new opportunities and challenges. In doing so, organisations are encouraged to explore innovations, experiment with new technologies and more efficient processes to deliver better services and products. Decision-making is also accelerated, allowing for a more flexible response to change and new opportunities. 

  Successful digital transformation requires continuous adaptation and evolution with a risk management approach integrated into digital transformation processes. 

Risks? Success factors!

- Involvement of management and other stakeholders: ensure that management recognises the value of risk management and also promotes risk awareness in a digital transformation. Where management is actively involved in setting the objectives of a digital transformation, it should also be actively involved in identifying risks, prioritising them and allocating resources for countermeasures. In addition, principals, programme managers, product owners, scrum teams and risk managers, should also be involved in identifying and assessing risks. As a result, risks are identified and addressed early, and opportunities can be monetised.   

- Integration with business strategy: integrate risk management with the wider business strategy. Here, it is important to understand the strategic goals of digital transformation and identify which risks can threaten these goals and which opportunities can be exploited.   

- Communication and transparency: communicate not only the successes and the dots on the horizon but also the associated risks. Communicating about risks transparently, openly and in a balanced way promotes shared understanding and support. This enables the organisation and teams to jointly address risks early and make appropriate decisions. In addition, employees are encouraged to report risks and opportunities and provide their input in doing so.   

- Agile mindset and culture: integrate risk management into the digital transformation process. Agile working focuses on flexibility, interactive development and rapid adaptation to changing circumstances and obstacles ('impediments'). Successfully integrating risk management requires applying these agile values, where risks are integral to the process and teams proactively respond to new risks. Make sure this is in cadence with the iterative approach.   

- Treat risks as backlog items: treat risks as backlog items in the agile programme management process. So identify and prioritise risks in the 'product backlog'. Then they will be incorporated directly into the spint planning as part of the regular iterative development process. In this way, risk management becomes a natural, recurring and practical part of the agile process.   

- Risk monitoring and adaptation: agile programmes are constantly evolving. In the process, risks must also be evaluated and managed. Regular risk evaluations and updating of risk assessments ensures that they remain current and appropriate control measures are taken.   

- Learning and improving: regular retrospectives are also important for risk management and its application in digital transformation. What works well and what can be improved in terms of risk management? What pitfalls did we avoid? What opportunities were not taken advantage of? Learning can further strengthen risk management in digital transformations.   

Existing best practices such as AgilePGM and MSP (Agile programme management and (Managing Successful Programs) offer a framework and structure to successfully manage the complexity of digital transformations. In doing so, Agile programme management offers an iterative approach with frequent feedback loops, allowing risks to be quickly identified and addressed. MSP provides a structured risk management framework to address risks at programme and strategic levels. Combining these components creates a robust and a flexible risk management process. 

Podcast Successful Transformation

Also listen to the VKA podcast series on success and failure factors in digital transformation (Dutch): Podcast Succesvol Transformeren