4 Digital Transformation Risks – and Ways to Dodge Them

The “transformation” buzzword is everywhere these days, and there’s no doubt that far-reaching, systemic change can deliver impressive results, especially when powered by new digital platforms. But transformation enthusiasm should be tempered by an understanding of the potential downsides. A Deloitte report reminds us that “transformations are inherently risky,” and identifies four key risk areas. 

Although the report is geared toward CFOs, there are plenty of risk management tips here that will be of interest to tax leaders, including these four:

1. Wrong assumptions, models and transformation choices: While a fully accurate picture of the future is never, of course, available – and the coronavirus outbreak “serves as a reminder of how off-target assumptions can be” – companies should carefully examine the assumptions and market models underlying their transformation initiatives in order to mitigate risk. Still, if you think this will fix all of your issues, think again. Understand the drivers behind why you’re undergoing a transformation and why you’re doing it now.
2. Resource shortcomings: Several of the challenges here will be familiar to tax leaders – for example, the additional demands on staff, who may have “little or no excess capacity or time to take on another project.” Leaders may want to consider bringing in new hires with specialized skill sets, bearing in mind that “recruiting specialized, high-quality talent can take as long as a year and require a budget.” The report also examines resource challenges around data and systems, another risk well-known to tax departments. Legacy systems may not be able to supply timely and accurate data for decision-making, and cross-system integration may be lacking. As a result, “core data and IT infrastructure often must be improved before process and operational changes can be delivered, potentially leading to delays and additional costs.”
3. Leadership commitment and continuity risks: Transformations typically require multi-year efforts, but leadership roles, styles and personnel change over time. Deloitte recommends developing well-considered succession plans for transition leadership roles.
4. Third-party risks: Third-party vendor support introduces risks around inadequate performance and hold-ups. Companies can mitigate these exposures by determining ways to manage and monitor relationships, structure contracts and predefine remedies. Vendor management can be a valuable skill, and it’s important to partner with the right areas of your business (procurement, IT, etc.) when doing so.  

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.