The Point: I was fortunate a few years ago to sit through a Simon Sinek presentation on the power of “Why?” At the time, my daughters were young, and if you’ve ever had young ones around you know their favorite question is usually a barrage of “Why?” questions. At Tip of the Spear Ventures, we know that companies must be prepared to break away from their routine thoughts and behaviors. So “Why?” is it that when we discuss our Business Transformation consulting service, we sometimes receive the same barrage of “Why?” questions. Precisely “Why?” are there so many questions about why Business Transformation can be a competitive advantage that mostly all organizations can leverage for their benefit? In this post, we’ll explore the topic of the Business Transformation “Why?” for that competitive advantage (That’s “Why?”)… Enjoy!

Attend Webinars & Workshops – View our upcoming Webinars & Workshops

Why Business Transformation?

Imagine if you can with me… You are the head of a company that is a technology services provider. In the last decade the global technology boom has contributed to the growth of volumes and increased prices as well as influencing your company’s procedures, culture and vision. The majority of your top employees can’t remember a time in which the priorities of the business were different. One day, you realize that the party has ended.

In every industry, situations that were once thought to be unthinkable have become all too commonplace which is prompting CEOs and boards of struggling (or possibly drifting) organizations to embrace the term “Business Transformation.”

Business Transformation as Change Management

The term “Business Transformation” is possibly the most misunderstood term in the world of business. Most companies apply it in a loose manner, and too loosely, to any type of change, no matter how minor or routine. Organizational changes (otherwise called redesigns of the org) which are when companies redraw the roles of their employees and accountability. Strategic Business Transformations are characterized by a shift in the way business is conducted. This term Business Transformation is often utilized to describe a digital re-invention that involves companies fundamentally altering their wiring and, specifically how they reach market.

What we’re looking at here, and the things that businesses similar to the technology firm mentioned above is something completely different that is the “Why?” typically associated with Business Transformation. The “Why?” in Business Transformation as we define it is as an intensive, all-encompassing program to improve efficiency (For example, an increase in earnings of at least 25 percent) and improve the overall health of the organization. If such Business Transformations succeed they dramatically improve key business drivers that matter like top line growth rate, capital efficiency — as well as operational efficiency — cost efficiency, as well as customer satisfaction and sales excellence. Since these changes reinforce an internal commitment to an agreed-upon goal and strategy boost the possibility of renewal and help to develop better execution skills which allow companies to continue improving their performance in sustainable ways every year. These kinds of changes might involve taking advantage of new opportunities for digital innovation or an overhaul of the strategic plan. In essence they’re about making the most of what’s already in place.

The rate of failure for large-scale change plans has fluctuated between 70 and 70% for many years. In 2015, mindful of the unique difficulties and disappointments of numerous businesses that were that were undergoing changes, Tip of the Spear Ventures set up a unit that would be focused on these kinds of Business Transformation initiatives. In the past six years of operation, our Business Transformation Consulting Team has worked with more than 100 businesses, and has covered almost every industry and geography all over the world. These experiences — both successes and those that came up short — helped us create an array of practical ideas to increase the odds of Business Transformation success. When combined with the appropriate decisions making, the right Bsuiness Transformation can transform a subpar (or good) company into a top-quality one.

What is the Reason Business Transformation Failed?

Transformations, as we understand them consume a shockingly large portion of the leadership’s and an organization’s attention and time. They require a lot of effort to achieve the required amount of Business Transformation. These are the reasons for disappointment. The most fundamental lesson that we’ve learned over the past two decades is that the majority of companies do not possess the skills mindsets, mental sets, and constant determination required to successfully implement massive transformation.

The most fundamental lesson that we’ve learned over the past two decades is that the majority of companies do not possess the skills mindsets, mental sets, and constant determination required to successfully implement massive transformation.

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

In the whole economy, “creative destruction” is a common theme since 1942 when Joseph Schumpeter coined the term. For individual companies as well as their leadership, disruptions are frequent enough that CEOs and top-management teams are better managing businesses in stable conditions rather than in dynamic ones. Chances are that their education and experience primarily takes places in situations where extensive fast, deeply-rooted adjustments aren’t required. In many companies the relatively calm environment results in the “steady situation” of solid structures with regular budgeting, new goals, quarterly reviews and moderate reward systems. This leaves leaders unprepared and ill-equipped for the more rapid and more brutal task of the transformation. A long-term exposure to these efforts has revealed that many leaders struggle to shift gears and may be reluctant to be a leader instead of delegating when confronted with external challenges and successive quarters of sagging performance, or simply an opportunity to improve the level of their company.

Executives who are embarking on a change management initiative may resemble professional commercial air pilots who are thrust in the cockpit of a fighter jet. They’re still piloting an aircraft, but they’ve been trained to prioritize stability, safety as well as efficiency. They lack the equipment and pattern recognition skills to react appropriately to the requirements of a combat aircraft. But, because they’re in the cockpit of an airplane and are not able to see the many threats and challenges the new scenario presents. A technology company executive who had to learn that lesson in the most painful way, revealed to us “I simply put my back into my work and started working more. While this has helped get us out of a tight spot in the past, more effort on its own did not suffice for us this time.”

The Odds are Tipped Toward Success

The most crucial beginning point for a Business Transformation (regardless if it’s a digital business transformation or change management initiative) and the most reliable indicator of success is a leader who understands that only a fresh strategy can dramatically enhance the performance of the business. However powerful the aspirations, convictions and ferocity of the CEO, our experience has shown that businesses must get five additional important aspects right for them to break through organizational inertia, get rid of the deeply ingrained steady-state mindset and establish a new longer-term upward momentum. They must (1) determine the business’s potential to the fullest, (2) establish the pace for the future with the creation of a Transformation Workplace (TW) which is empowered to take decisions, (3) strengthen the executive team by establishing the role of a Chief Transformation Officer (CTO) to (4) change the managerial and employee mental models that are holding the company back, and (5) create an entirely new mindset of execution across the company to ensure the transformation. This last point is in some ways the most difficult job of all.

1 – Stretch for Full Potential

In most companies, targets are derived through negotiations. Line managers and leaders go back and forth, they always push for more than they can, and the latter will expose all the reasons as to why the targets they propose typically are not achievable. Naturally, the same scenario is seen when it comes to Business Transformation initiatives, which can lead to compromises and small changes — rather than dramatic changes. When the managers of one firm located in an extremely competitive, highly asset-intensive industry were provided with solid external evidence of their ability to boost millions in revenues over the amount they had envisioned, the company’s CEO immediately dismissed the targets proposed. They believed that targets were their responsibility and, when not achieved these missed-targets provided a negative impact on themselves and their compensation. Their default response was “Let’s underpromise and maybe overdeliver.”

To combat this normalcy behavior, leaders must insist on a thorough analysis of the firm’s complete potential for value creation — specific targets for cost and revenue supported by solid facts. We’ve found it useful for the CEO and the top leadership team members to adopt the mindset as well as the independence/toolkit of an activist investor, or private equity acquirer. In order to achieve this it is necessary to break out of the mindset limitations that they have set for themselves and establish what is truly possible. It’s time to make a self-confident leap instead of taking a series of small steps that don’t go any further. According to our experience, goals of two to three times the company’s estimations of their initial future potential are usually achievable, not the exception.

2 – Modify the Cadence

Our experience has taught us that it’s crucial to set up a hub to manage the transformation and also to maintain an unpredictably different pace from the typical day-to-day routine. We refer to this hub as “the transformation workplace.”

What are the factors that make the TW work? One company that had a plan to increase EBITDA by over $25 Million created an unorthodox, but highly effective TW. To begin, the TW was situated in a circular space which was without chairs and had only a standing space. The wall that was in the room was referred to across the company in the business, as “the scorpion” as a tracker for the week which tracked progress towards the target. When the time came to end the process the scorpion had eaten its prey, as the company significantly over-performed its financial goal.

Every Tuesday, during each regular TW meeting, leaders of the work stream together with their groups reviewed their progress in completing the tasks they had taken on (the prior week) to finish and committed to measurable targets for the following week before their peers. They only used whiteboard notes written by hand — no death by PowerPoint presentations — and only had 15 minutes each to make their report-outs. Individual leaders within each work stream discussed their particular initiatives on a regular basis, and third or fourth-level managers would meet with the leaders at the top in order to boost the level of accountability and ownership. The divisional President was also a regular participant in these TW meetings when they went to the company which has since convinced him that this TW procedure was far more vital than anything else in transforming the culture of the business.

For leaders at the top, attention deficit is their constant adversary (Think of it as a Leadership Attention Deficit Disorder – LADD). The majority of them prefer to discuss potential customers’ needs, M&A potentials, new strategic options. This is why there is a temptation for top management to delegate the responsibility to a steering committee, or an old-fashioned program management office responsible for providing regular project management reports. If top management’s attention gets diverted elsewhere, the line managers will follow suit in deciding their personal priorities of where to focus their efforts/energy.

With all the distractions available to most leaders, the majority of projects are capable of moving too slow. Parkinson’s law says that work is expanded to take up the available time and business executives have no excuse If they are given a month in which to finish a task that takes an effort of one week They will typically begin working on it one week prior to the date. When it comes to successful transformations, a week is a week which is why the transformation workplace is constantly asking “How do you move faster?” and “What do you require to make changes happen?” This shortened time period expectation is among the primary aspects of transformations that have been successful.

Working with senior executives across the entire organization In collaboration with senior leaders across the entire business, the TW must possess the discipline, grit, determination, and energy to push forward five to eight main work streams. They are subdivided into possibly hundreds (even the lower tens of thousands) of distinct initiatives, each of which has the specific name of its owner as well as an in-depth, cost-effective bottom-up strategy. Most importantly is the fact that the TO should always push for decisions, so that the business is aware of any slowing faction whenever the progress is identified as too slow.

3 – Bring forward the CTO

Managing a complicated corporate-wide Business Transformation requires a permanent, executive-level job (See my previous article titled, “Should You Hire a Chief Transformation Officer – CTO?”). This position should be held by a person with the power to propel the company to its maximum potential and also the expertise — as well as the experience and the personality of a veteran fighter pilot!

A Chief Transformation Officer’s task is to ask questions or push, praise or prod — and other ways — to irritate the company that has to think and behave differently. A CEO introduced a new CTO to his senior team by saying “Sam’s task is to make me and you feel uncomfortable. If we’re not feeling comfortable and uncomfortable, then he’s not performing the job he’s supposed to do.” Of course that’s not true. The CTO isn’t supposed to take over the duties of the CEO. He (on contrary) should be at the forefront constantly promoting the notion of this being a Business Transformation.

Many of the program managers in traditional departments are able to manage processes, but they are not able or willing to challenge the CEO and the top management team. The best CTO could originate within the organization for this reason — or maybe they shouldn’t? One of the most common errors we see companies make at the beginning is selecting the CTO exclusively from the internal pool of candidates. The CTO must be active and respected, not afraid of conflict, and ready to challenge the established corporate norms. These traits are difficult to come across among those who are worried with protecting their legacy, seeking their next position or trying to tamper with long-standing internal tensions in the political realm.

So exactly how should a CTO perform? Think about what transpired at a firm that launched a large-scale Business Transformation program that we worked with. The new CTO was frustrated as the executives focused their attention on specific technical issues instead of the increasing cost and the slipping of successfully producing at established schedule. While they had no experience in the program’s technical aspect, they outlined the facts and warned personnel on the operation team that they could be fired and the entire project would be shut down unless things were back on track in thirty days. The conversation then changed to reallocation of resources, and the operation team formulated and executed a fresh approach. Within two weeks the project was back in the right direction. Without the CTO’s impartial viewpoint — and honesty — this would not have been possible.

4 – Remove Barriers & Create Incentives

Many businesses fail to reach their full potential not due to structural weaknesses, but due to a mix of inadequate leadership, insufficient culture/skills and misaligned incentive systems. In normal or even good times, when companies can manage to get by with their sluggish pace the path of least resistance, these obstacles could be a manageable obstacle. However, the transformation will be successful only if these obstacles are dealt with in a timely and explicit manner. Commonly, the mindsets that cause problems are based on placing the “local entity” above that of the “enterprise” in general or being too proud to seek help and blaming external forces “because it’s not our responsibility.”

Another technology firm was unable to function because its employees were “waiting to hear” instead of taking action. Based on their past, it was clear that they had no input in action to be taken, since they’d never been asked before. However, should they do the proposed Business Transformation processes and make mistakes, the results could make for news headlines. Their bureaucratic culture was the root cause of the paralysis. In order to make progress the company needed be able to confront this very real anxiety.

Tip of the Spear Ventures’ Influence Model is a tested tool to change these mental attitudes based on the importance of telling a compelling story about change and role-modeling by the top team members as well as creating reinforcement mechanisms and equipping employees with the abilities to adapt to changes. Although all four steps are essential to the process of transformation, the company must consider the narrative of change and reinforce methods (particularly incentives) from the beginning.

Step 1 – An Engaging Change Story. A majority of companies don’t realize how important it is to communicate what’s the “why” of the transformation too often they think that a simple email from the chief executive or slides from the corporate office can be enough to ensure that the organization is engaged. However, it’s not enough just to simply say “we haven’t made our budget” or “we have to become stronger in our competition.” Engaging with managers and employees has to be supported by an agenda, a purpose and an imperative appeal to actions that can resonate with each individual. This type of individualization is what drives employees.

Step 2 – Leaders Model. For one business we worked with, a person not known for their public speaking skills was present at the launch of the transformation program and spoke about being raised as a child of a small business owner, enduring the effects of a worsening market, and watching his parents struggle and put off their retirement. Their goal was to improve the company’s performance based on an obligation to the people who came before him, and an ambition to be a reliable small business owner’s partner. All the other employees rallied around his tale more than the financial arguments of the CEO.

Step 3 – Incentive programs. Incentives are especially significant in influencing behavior. According to our experience, traditional incentive plans with many variables and weightings – say six to ten goals that average weights of between 10 and 15 percent are too complex. When undertaking the case of Business Transformation, the incentive program should not exceed three goals and an exorbitant payout for over-performing; the time of transformation in the end is expected to be among the most demanding and difficult of all professional careers. The typical arguments — such like “our incentives program has already been in place” or “our employees don’t need any special rewards to do the best” — shouldn’t stop leaders from considering this crucial incentive reinforcement tool.

Step 4 – Non-Monetary. The non-monetary rewards of Business Transformation are equally important. One CEO set a goal every week of handwriting a note to each person who was part of the Business Transformation initiative. The cost was minimal, yet it resulted in a maximum effect on the morale of employees. In another firm one employee went over the line to carry out an extremely challenging task. The CEO learned of this and decided to gather a group of employees — which included the employee’s wife and two children — to celebrate an unexpected Business Transformation success story to be celebrated. After a short time, the news of the party had been shared across the entire company (Yes, it went viral!)

5 – The End of the Road

Business Transformations tend to degrade instead of being able to clearly fail. Managers and employees put an enormous initial effort, while corporate results rise at times dramatically; and the people involved are congratulated and celebrate their victory. But, gradually the company falls back to their old habits. Have you ever heard from leaders who share that “We have gone through three changes over the past eight years — and every time — we’re back to the place we began 18 months later?”

The real test of the success of a Business Transformation then, is what happens after the TW is disbanded and the life returns to its regular pace. The most important thing is that the leaders seek to preserve the lessons learned from this transformation as it progresses and instills into the company the same process in order to provide superior results after the formal end. This usually means using, for instance, the TW meeting frequency and robust manner towards the annual financial reviews and budget cycles for the year or even daily performance meetings — the fundamental routines of business. It’s not a good idea to begin this process at the conclusion of the plan. Incorporating the processes and strategies for the transformation into everyday tasks should be done earlier in order so that the speed of performance doesn’t slow down even after the transformation has been completed.

Businesses that generate this kind of momentum stand out so much that we’ve begun to see the interlocking processes, abilities and attitude required to accomplish it as an individual source of competitive advantage — Value proposition. This is what we refer to as “an execution engine.” Businesses with a well-functioning execution engine are able to take on everything from an impartial perspective. They act as investors. All employees are treated as if it was their own. They make sure that accountability stays within the company and not with the central team or with external advisors. Their focus on execution stays unwavering even as their results improve and they continue to search for innovative ways to inspire their staff to strive for greater potential. Contrarily, those who are doomed to fail often fall back to high-level objectives that are assigned to the line with no concentration on execution or using the creativity and ideas of their employees. They usually lose the brilliant employees responsible for the initial accomplishments to headhunters or other positions within the organization prior to the process becoming established. To avoid this, leaders must ensure they keep the passion, dedication and focus of these staff members until execution has been fully incorporated.

Summary

Our process of Business Transformations isn’t unique or complicated. It’s not a strategy only for the “strongest” individuals and businesses. We know from our experiences at Tip of the Spear Ventures that Business Transformation is only effective for those who are the most committed. Our main conclusion is that to realize the desired Business Transformation, companies must set higher goals, develop new skills, as well as challenge their existing mindsets towards fully committing to the Business Transformation execution. This can result in remarkable and lasting outcomes!

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures