Case Of The Month December 2013: Success And Failure In Transformation

business transformation dataIn developing the BTM methodology, we carried out 13 case studies of different types of business transformation in large European corporations. Of these 30% were successful, 40% partly so and 30% were unsuccessful. Each case was assessed against the BTM methodology disciplines to understand why they were more or less successful. Many of the failures were due to lack of alignment with the business strategy, lack of clarity of the expected benefits and inadequate risk assessment. In implementation, the IT and process changes were often performed more successfully than the organizational changes, resulting in some benefits being delivered, even in some of the less successful cases. But this rarely was enough to enable the transformation to achieve its strategic objectives and the majority of the benefits. Overall the organizations whose approach to managing transformations included attention to the majority of the BTM component disciplines were more successful than those that did not.

This article reports the results of an analysis of 13 business transformation case studies. Some were successful, some failed and the rest were partly successful. It shows how the BTM2 disciplines influence the outcomes and explains why some are more successful than the others.

To remain competitive in increasingly global markets, many businesses need to transform either what they do or how they do it or both. Economic turbulence and uncertainty can also make the need to change more urgent but, at the same time, make it more difficult to accomplish successfully. Given these challenges, it is not surprising that studies show that only about 30% of transformation programs are completely successful, while 30% fail completely. Our study of 13 business transformation cases of different types in large European corporations is consistent with this pattern of success and failure:

  • 4 of the transformations were very successful achieving all the main objectives
  • 5 were partially successful as some expected benefits were achieved, but not all
  • 4 were unsuccessful, achieving none of the transformation objectives, or they were not completed

Most incurred substantial costs. Every business transformation is different but not unique and lessons can be learned from the experiences of others. Because these cases showed the same pattern of transformation success and failure as other studies, they were valuable in developing and testing the BTM methodology.

The cases were developed through interviews with those involved in the transformation and reviews of relevant documentation. They were carried out, analyzed and written up by teams consisting of experienced academics, consultants and senior company managers. Some have already been published in the BTA “360° – the Business Transformation Journal” and others will be in future. Each case was analyzed in terms of how extensively and how well the BTM component disciplines were performed. The results were compared to identify significant aspects which appeared to affect the level of success achieved. Analyzing these transformations of varying degrees of success shows that those organizations whose approach to managing transformations paid attention to the majority of the BTM disciplines were more successful than those that did not.

The case studies were in the following industries: automotive, pharmaceuticals, construction (see case study in issue 1 of this journal, page 38), food, oil (issue 2, page 46) and chemicals, financial services (issue 1, page 52), telecommunications (issue 2, page 54) and IT. The cases included transformations to develop new products and services as well as restructuring and reorganizing core business functions and introducing global processes and systems. All involved changes in organization structures and individuals’ roles, responsibilities and behaviors, including, in a few cases, large scale staff relocations and redeployments. All the cases included new and significant investments in IT to enable the business changes, but, in all except one of the cases, IT benefits were not the main rationale for the transformations.

The BTM methodology disciplines

As would be expected, the successful cases were largely green with some amber and even a few The direction and enablement disciplines (source: BTA)red. In the unsuccessful cases, the boxes were mostly red and amber, but there were also always a few that were green!

Findings for each of the eight methodology disciplines are now discussed, starting with the three direction disciplines, before considering findings regarding the enablement disciplines and the ‘Meta Management’ aspects.

1) Strategy Management

A transformation needs to be driven by a clear strategic rationale – a rationale which should be easy for every employee to understand, otherwise there will be little motivation to change. All the successful ones had imperatives to transform the business, not just one function. It was also clear that in all the unsuccessful cases the need for transformation was relatively low; either there was no pressing strategic need or it was not seen as a business priority at a senior level.

In three of the four successful transformations the need for change was endorsed at executive level and then time and effort was spent to gain the buy-in of the rest of the organization and develop the ability to undertake the changes. In most of those that were partially successful, the readiness to transform appeared to be ‘high’, as well as the strategic need. They were not entirely successful mainly due to over ambition, or even over enthusiasm; too many ‘positive’ assumptions were made with little assessment of the potential risks.

Fig. 2: Example pattern for a partially successful case (source: SAP) (see also journal issue 1, page 25)

 

Having a clear vision of the intended future business and organizational models and then allowing compromises and trade-offs in the detail of how they are implemented, is most likely to achieve stakeholder commitment. However, in some cases, when the drivers demand urgent action, a top down, mandated approach to implementation can also work, but it tends to achieve stakeholder acceptance rather than positive commitment. Most transformations involve at least two distinct phases – to create a new capability and then to deploy it. In most of the cases the capability was created, but not (yet) always exploited; hence the benefits achieved were often less than those originally envisaged. Creating a new capability can be done separately from business as usual, but deploying it usually competes with other operational priorities.

2) Value Management

In the unsuccessful transformations the objectives and business cases were often vague, based on a ‘benefits vision’ rather than evidence based benefits and an understanding of how to realize them. This made it difficult for some stakeholders to believe the transformation was worthwhile and commit the required time and resources.

There was also often confusion between ‘changes’ and ‘benefits’: for example introducing
common global processes is a change, not a benefit, although it may create the potential for benefits, such as reducing costs or higher service levels. Too often business benefits were overestimated, while the risks and the problems in making the changes were underestimated – perhaps deliberately, otherwise it would be difficult to get funds and resources?

3) Risk Management

Risk management was often glossed over, but given the high failure rate it makes obvious sense to identify and anticipate what could go wrong, before it happens! As a result many risks only became apparent during implementation, leading to increased costs, delays, scope reductions and even abandonment. This reluctance to explore the risks earlier may have been influenced by executive instigation of the transformation, which can discourage negative feedback, making it inadvisable, even career limiting, to point out the potential risks!

To maximize the probability of delivering the intended benefits, the transformation should be planned in short deliverable stages, if possible. This also reduces vulnerability to changing business conditions and makes it easier to adjust the transformation to retain strategic alignment.
In essence, the outcome of the transformation could be predicted from the predominant ‘color’ in the assessment of the directional disciplines. How clearly and comprehensively the transformation strategy, value and risks have been understood and communicated provides a strong indication of likely success. Had the organizations undertaken this analysis early in the transformation, some failures and the significant resulting waste of money and resources could have been avoided.

Having considered how the direction disciplines affect the level of success of a transformation, our attention turns to the enablement disciplines and how well they were performed in the cases.

4) Process Management

The IT and process changes are usually performed more successfully than organizational changes, resulting in some benefits being delivered, even in some of the less successful cases. But this was not enough to enable the transformation to achieve its objectives and the majority of the benefits. In some of the cases IT or process methodologies dominated the overall transformation approach, making the implementation of other changes more difficult. In two of the unsuccessful cases the IT function tried to satisfy all the expressed user needs, which increased the scope and consequently the costs considerably outweighed the benefits.

5) Program and Project Management

Transformations cannot be fully planned in advance and have to adapt to both changing business conditions and program achievements. This is not necessarily a comfortable position for senior management and requires an empowered governance group to oversee and, as necessary, adapt the program. Effective management of the change content and benefits delivery is more important than the efficiency of the process. In some unsuccessful cases the organization relied heavily on the knowledge and capabilities of a third party supplier throughout, which changed aspects of the transformation towards what the supplier could do, rather than what was required. The transformation manager should have expert knowledge in the area that is being changed and also how to manage change in the organization. A key skill is being able to reconcile the differing views of the change and resource implications between senior managers and operational line management. The priority early in the program should be to gain agreement between senior and line management as to what changes the transformation involves, before ‘negotiating’ for the funds and resources required. In some of the less successful cases the ‘contract’ between the program team and senior management was agreed before the views of line managers had been taken into account.

6) IT Management

The transformations whose main benefits were seen as IT cost reduction or rationalization or were led by IT were not successful. Some business transformations become ‘IT replacement projects’, as the first phase is about replacing old technology and systems and IT methodologies and approaches are used with little business involvement. It then usually proves very difficult to regain business interest when the IT part is completed. IT is often in a weak position in the context of a business transformation due to a lack of real business knowledge, but with a perception that they know how it works, but they only know how the IT systems work. These notions created conflict in some of the transformations. When IT ‘won’ the argument the transformation was unsuccessful, but when it was ‘business- led’, any potential conflict was more easily resolved.

7) Organizational Change Management

These cases suggest that organizations should manage business transformations as orchestrated, continuous, incremental sets of changes – co-evolving and coexisting with business as usual priorities. The successful transformations usually addressed the organizational, people and capability aspects first, then the process and IT components. The less successful tried to do the reverse. Understanding and addressing stakeholder issues and having a strategy for accommodating or dealing with them as early as possible in the transformation is vital. The longer the time available to transform, the more the stakeholder views can and should be included in how the transformation is conducted. The methodologies used should enable all the main stakeholders to directly contribute their knowledge and plan their involvement, instead of relying on experts to interpret the stakeholders’ ‘needs’. Stakeholder engagement is a critical success factor in almost every transformation, and early alignment or reconciliation of multi-stakeholder interests is very important in order to avoid, for example, dominance by a minority of stakeholders or destructive negotiations between dissenting groups. The ‘transition curve’ (see figure 3), describing how people and organizations experience major change should be respected. A comprehensive and sustained approach is needed to minimize the period that people spend in the ‘valley of tears’, which is characterized by uncertainty and even disillusionment. Figure 4 shows that different groups reach this point at different times in the transformation. Senior management interests may have moved on, just when many line managers and staff are under stress, usually due to change and business as usual pressures colliding.

Fig. 3: The transformation experience curve (source: SAP)

 

Fig. 4: Employees experience the effects of the transformation at different times (source: SAP)

 

8) Competence and Training Management

Assessing existing competences as part of the ’Readiness’ is important in order to determine the strategy, because what can be achieved is a function of two factors: first, the amount of work required to make the changes and second, the knowledge and skills that can be made available at the required times. If some essential competences skills are limited is needed early in the transformation. In the successful transformations people were informed and educated about what the intended future business should look like. This helped them apply their existing knowledge to determining how the vision could be achieved, but it also exposed where knowledge was inadequate. Where suppliers are providing essential competences, those also need to be appraised and managed – in case they have over-estimated their capabilities. Organizational and individual experience cannot always be transferred from transformation programs in other organizations. In addition to the eight direction and enablement disciplines discussed so far, ‘Meta Management’ considers themes which influence the performance of any type of organizational transformation. From the case studies a number of lessons about leadership, communication, culture and values can be learned.

Leadership

The successful transformations had ‘CEO’ sponsorship and a C level executive leading the transformation. Involvement should be real and visible or other executives will not see it as important. The evidence from these cases suggests that continuous personal involvement in the governance of the transformation is what is needed, but it is not always easy for a busy executive to sustain this over the extended period of most transformations. But the cases also show that the early transfer of ‘ownership’ to a coalition of business managers, who will actually deliver the changes and benefits, is the best way to develop the capability to change. One key decision that needs to be taken is the mode of ‘change agency’ to be adopted. Either an ‘expert task force’ or devolving change responsibilities to operational managers can work, but a lack of role clarity is likely to cause fragmentation and even disintegration of the initiative.

Communication

A common lesson from many of the cases – even the successful ones – is that no amount of communication is ever enough! Informing everyone in the organization why change is necessary and about the consequences of not changing usually needs regular repetition. Equally important is being open about what the changes are going to mean, even if they will be unpopular with some stakeholders. Evasiveness builds distrust or suggests ignorance, both of which reduce credibility and hence commitment.

The communication must explain what is going on and what the intentions are, and it must be conveyed in the ‘language’ of the different stakeholder groups. Delivering it at the appropriate times when it is relevant to the working context of the recipients is also critical if it is to be effective. Also communication is a twoway process; this is sometimes forgotten – and in some of the less successful cases little attention was paid to questions, concerns or feedback which the transformation team (wrongly) felt to be distracting or unimportant.

Culture and values

All the transformations included significant changes in organizational roles, responsibilities, and behaviors, and in many cases the changes were counter to the prevailing culture. The successful transformations recognized this was either desired or inevitable and addressed the organizational issues first to create a new context within which to bring about further changes.

In some cases the transformation also demanded a change in the organization’s values: for example, loss of autonomy and reduced discretion for local investment, consolidation to achieve corporate control of resources or standardization to achieve corporate rather local business advantages. Inevitably these changes created tensions and exposed cultural and value differences across the business units and functions, which had to be either reconciled or over-ridden to succeed with the transformation. In the less successful transformations these tensions were not addressed and existing power structures prevented or subverted the changes.

The structure and mode adopted to bring about the transformation should normally reflect the organization’s overall management style. The ‘task force’ approach, which exercises the use of power, worked well in a situation when the need to transform was urgent, the objectives were very clear and the means of achieving them were known. In the opposite situations, a more devolved approach enabled at least one successful organization to increase the scope and ambition of the transformation, through knowledge sharing across the organization and individual managers learning from experience as the program evolved.

As the transformation proceeds, it may be necessary to change modes and in turn the governance of the program. In particular the creation of a new capability can be carried out by a task force largely separated from day to day operations. However, deploying the new capability usually competes with other business as usual pressures, which can cause unexpected problems, delays or even unsuccessful deployment.