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On Time, On Target Business Transformation

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The Point: Analyzing high-risk transformations provides a number of practical lessons which increase the likelihood of the organization achieving its goals… But how can a leader ensure for on time, on target business transformation? Any business transformation worth doing starts with high-risk objectives. It’s hard enough to identify/set these high-risk objectives with companies, especially those that are habitually accustomed to a risk-averse approach of over-promising and under-delivering. However, the real work begins once the organization decides to transform the leadership’s goals into actions that everyone else plans as well as implements starting from bottom. So in this post, we’ll explore on time, on target business transformation… Enjoy!

On Time On Target Business Transformation

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Why On Time, On Target Business Transformation Matters?

Any business transformation worth doing starts with high-risk objectives. It’s hard enough to identify/set these high-risk objectives with companies, especially those that are habitually accustomed to a risk-averse approach of over-promising and under-delivering. However, the real work begins once the organization decides to transform the leadership’s goals into actions that everyone else plans as well as implements starting from bottom.

The task of keeping hundreds or thousands of initiatives in line is a huge job, and one that few organizations in the world can do effectively. Recent research confirms previous results that show only 30% of transformations are successful and reach the goals that they have set during the planning phase.

The odds are unacceptably high especially when stakes are extremely high. Therefore, we looked at the transformations of 18 organizations that were in difficult conditions. Some were confronting serious operational and financial issues with rapidly declining performance or liquidity issues other were just looking for a significant improvement the performance of their business.

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The Key to On Time, On Target Business Transformation

We focused on the lessons learned by these organizations in making their goals a reality. Our analysis was made possible by the Zeroing Agency’s analytics program, which generates precise reports that track the operational and financial effects of specific initiatives.

This analytics program’s data repository provided thorough analysis of aspects that contribute to the success of an initiative, ranging from the way impact targets were set, as well as the speed with which initiatives advanced through various stage reviews, as well as the structure and timelines of the programs these initiatives were a part of. Then, we complemented our findings by conducting in-depth interviews with executives from the organizations that were included in the data collection.

All of the companies were in the tech space (Hardware/Software agnostic). This allowed for greater consistency in the value tracking method and the data structure, allowing us to draw more precise comparisons. However, the companies varied in terms of size and impact of programs. The segments represented included consumer goods, construction, electric power, natural resources, mining (such as oil and gas), as well as fintech. The annual revenues varied between $2 Million and $2 Billion. Total transformation impact was between $1.5 Million and $1 Billion. We did not discover any connection with the scale of the firm and the effect the business transformation program.

Three Keys to On Time, On Target Business Transformation

The thorough examination of these materials provided us with three key insights that could serve as possible guiding principles in the design of a massive transformation program:

1 – Be Persistent. From the beginning companies should be aware that their efforts will yield a lot less than they believe. In addition, the majority of businesses in our study failed to meet their initial goals and required an additional cycle of back-to the well ideas generation. Additionally, they needed to be cautious about how they allocated the time for management, to ensure that smaller initiatives received their due. They accounted for around 50% of the value however, they were able to be lost in the whirlwind of focusing on the largest initiatives.

2 – Focus Matter. Organizations must resist the temptation of spreading their most efficient leaders too thinly. Three initiatives are the most common amount of work a leader had to handle all at once. By involving more members of the company as potential owners of initiatives lets each initiative get the help it requires without burdening just a handful of high performers. The importance of reporting must be considered too. A lot of initiatives with milestones could create unnecessary burdens. many programs attempt to record too many metrics, and typically less than 30 percent are being utilized.

3 – Plan, Implement and Adjust. Most initiatives were at a minimum, if not completely delayed in their implementation. However, organizations can cut down on delays by judiciously planning milestones, augmented by regular actions which initiative managers would be able to be able to report on between milestones.

Use the Pipeline

The transformations we looked at all used a similar pipeline method for tracking projects.

The gates to the pipeline start at zero, also known as “G0 – Ground Zero” with the gathering of the most ideas that are possible regardless of their the feasibility or size. The analysis begins at “L1 – Level One” after the ideas have been identified as being worthwhile to take on. At this point, the leaders of the initiative are able to confirm and improve their initial value propositions using information from other stakeholders as well as further analysis. After a strong business case has been developed and the initiative has been accepted (usually from the finance department?) and is then passed to “L2 – Level Two.” The senior leader who initiated the initiative is then able to define the necessary goals to implement the plan and creates a monthly plan of value creation that will be reflected on the bottom line at the “L3 – Level Three.” A lot of initiatives are at the L3 while they are being implemented but the initiative is not moving to “L4 – Level Four” until all the milestones necessary to realize value have been met. The finance department evaluates the initiative to determine if it is delivering value, usually at the amount that is set for L2, however that amount will usually be modified as the project progresses through the stages. Once the real value of the initiative is evident in the company’s cash flow and is reasonably likely to last, the initiative is then moved to the next stage, “L5 – Level Five.”

Through the entire process the transformation office (TO)–typically led by the Chief Transformation Officer (See our previous article, “Should You Hire a Chief Transformation Officer (CTO)?”) — sets a frantic pace of weekly reviews in order to track the progress of initiatives against their objectives, track the results they have accumulated, and provide assistance when initiatives get into difficulties. The TO’s autonomy and its role in the collection of data allows it to influence the process, especially with intense problem-solving sessions as well as the challenging self-imposed limitations.

We looked at each organization’s experiences through various stages to determine where issues were most likely to occur and how companies dealt with the issues.

Where On Time, On Target Business Transformation Issues Eminate

The first step for any business that wants to change is to discover ways to add value. That includes fighting attrition, finding a productive source, and distributing focus to leadership with diligence.

Fighting Attrition Bias

The most important priority for both business and program executives in the on time, on target business transformation is to be able to reach the impact goal. However, any executive will realize that the initial impact estimates are speculative (crystal ball?) As they are pressured to meet goals for the program which are typically aggressive both in on time and on target, let alone overall value the owners of initiatives naturally tend to underestimate the value of their initiatives (Attrition Bias). But do they believe that? What is the amount that leaders will be required to cover the leakage of the impact throughout the duration in the transformation?

The analysis of the data shows that program managers can expect large attrition bias impact. In the first few stages between L1 and L2, the initial estimate of attrition bias impact drops in a range of around 45 percent. Between L2 and L3, the smaller attrition bias impact estimate decreases by 13 percent. There are further decreases from 28 percent to 28 percent when comparing L3 and the L4 while 9 percent drop between stage L4. The result is that the L1 attrition bias estimates typically drop around 70 percent when they get to L5. Companies will need to have a business transformation plan for the total value of more than three times that of the first goal in order to offset such attrition bias.

Find a Productive Source

The solution may be to come up with new ideas early during the process. At this point, there may not be enough time to reach out to all employees and gather their input. However, CTO’s can still organize broad, disciplined ideation sessions with the team’s frontline leaders and their representatives. In establishing rules that promote participation as well as openness to ideas of all kinds (even the ones that seem “unrealistic”) and creativity, businesses can gain valuable insight from those whose daily work provides them with a unique insight into potential opportunities to enhance the business.

In reality, all of these efforts may not be enough. In one case where an organization was attempting a business transformation initiative, there were just three weeks left prior to deadline when the organization announced publicly that there were teams that were well behind their goals–by hundreds of thousands of dollars and even by hundreds of millions of dollars. Both companies discovered that returning to their respective productive sources for ideas and looking to receive from their staff suggestions helped them improve performance. Each company met its goal and thus gave them a vital motivational boost that made further improvements possible after these lower level goals were reached.

To find these opportunities later in the business transformation process takes greater effort than initial cycle of idea generation. It also generally yields less total return. Our data analysis revealed that in the end of the second month, approximately two-thirds the value of an idea had been identified, which leaves less in the subsequent attempts. However, other areas of potential remain. One approach that many organizations took advantage of information received from the program management tool to determine the amount of impact each initiative was producing. Analyzing the root cause of the initiatives that were cancelled or delayed or did not meet expectations helped reveal important insights that helped to create new value.

Distribute Focus for Leadership

Through opening the idea submission process to a wider portion of the business, exercises to reach productive sources teach another important lesson — That the long-tail of smaller projects are crucial. At one tech firm, for instance an engineer thought of an idea to reduce the maintenance time of servers by more than 90 minutes. After being integrated into the regular maintenance schedule for the entire organization, this concept increased the number of server working hours each year and could be in the millions.

A few of the companies we looked at expanded the idea capture process to businesses and vendors partners too. Small initiatives can make a big difference. We classified initiatives into three categories. Think of the Stephen Covey exercise involving rocks/pebbles/sand and you understand the exercise we conducted. Note, our findings suggests that typically fifty percent of total value of the program typically is derived from the sand! So, focusing solely on the rocks — i.e., the supposed most important initiatives — is a dangerous focus for on time, on target business transformation. In addition, sand initiatives tend to be easier and faster to implement — Their small size means the least amount of approval from multiple organizational layers as well as less cohesiveness (They’re often supervised by the managers and frontline analysts and managers, who have an increased stake in the success of the transformation).

Focus Your Resources

In the face of time being critical, the executives in charge of transformations have to be particularly mindful of the allocation of the necessary time and resources at every level of the company. The fact is that every minute that a manager is occupied with business transformation tasks means that they aren’t producing results for the organization as a whole in their normal capacity. This time taken away from normal tasks can help create more impact in a long-term scenario, but few leaders recognize this “forest through the trees” vision.

Make it Easier for Business Owners

What’s a realistic effort that you can expect from an on time, on target business transformation initiative leader? To gauge the impact of different changes we identified “initiative owner” as “the the most senior individual who is actually responsible for day-to-day job.” On average, we discovered that initiative owners have at best three different initiatives per year. One leader said, “It’s a rare exception that an owner can successfully oversee more than 3 different initiatives. They need to be proficient in delegating tasks to other people and then monitoring their performance.”

Our consultations shows that around 80 percent of all impact is controlled by 20 percent of the initiative’s owners (Yes, the Pareto Optimal is alive and well!) This is because the ownership of high-value projects (such such as large contract negotiations) is within the hands of only a handful of extremely senior or high-potential people.

However, it comes with both expense and risk. A business transformation leader we interviewed stated that his company lost several executives because they couldn’t cope with the demands of managing so many numerous business transformation initiatives at the same time (What would you do?)

In contrast, smaller-value initiatives tend to be more limited in scope and are governed by the managers and analysts in the frontline who do not have the time or resources to take on an extensive set of initiatives. A larger number of individuals does not just relieve the managers of more prominent initiatives, but also aids in building momentum and creates buy-in for the whole program. These benefits usually surpass the negatives of having to manage the involvement of a large amount of participants.

Make Reporting Manageable

The complexity of a business transformation initiative can rapidly surface when it comes to reporting the initiatives’ progress. A good plan for execution of an initiative comprises all the steps needed to complete the project without revealing so detailed information that the goals become a distraction to the people who are responsible for the initiative, with little added value.

The opposite can lead to issues as well. For the one company, “high plan granularity came with a lot of resistance from the owners of initiatives who were irritated and concerned about the duration required to make changes or develop goals,” a business transformation leader shared with us. On the other hand, deadlines that were too dispersed in both effort/energy (and time) hindered the ability of program managers to spot at-risk or delayed deliverables until they were too late for efficient corrective actions. A leader pointed out that some of his company’s execution plans resulted in delay that could have been avoided because the milestones initiative leaders had failed to plan meetings with crucial stakeholders for approvals, compliance reviews or votes for proxy votes.

Our consultations revealed that an equal number of milestones is typically just the right amount of time to provide an early warning of potential issues. However, not too numerous that it impedes the process of implementation.

Make Metrics Relevant

The decision on what metrics to be tracked are generally made in the planning stage of the program, when the leaders determine what is within and out of their scope, and what kinds of expenditure are best targeted for savings (as you can imagine, the list can be pretty exhaustive). The majority of the time though, financial metrics are utilized in transformation programs due to their strategic value and the availability of necessary data — and their ease of monitoring performance against non-financial metrics.

However, even a simple set of metrics could become complex if layers of data are added. Finance departments might require the metrics reflect each accounting line item, leading to a “cutting and dicing” of the information into a variety of sub-metrics. Further variations, like separating between one-time and recurring impact — in addition to separating hard savings from cost-saving — increases the difficulty for business transformation leaders. This is before monitoring and analyzing non-financial indicators of head-count or redeployment of different personnel types.

The data we have collected shows there is a gap in the data where only 30 percent percent of all metrics that organizations claim to use are actually employed throughout the duration that the program. The remainder are an unintentional reason for confusion among the business transformation initiative’s owners trying to determine how to put the money saved from their projects elsewhere.

Therefore, organizations need to strike an appropriate balance between ensuring that the finance department is able to provide a sufficient amount of detail, while making it possible for business transformation initiative leaders to assign impact efficiently. One rule of thumb numerous organizations successfully applied was to remove any metric likely to account for lower that 0.1 percent of the total impact of the program and incorporate in other metrics.

Plan, Implement and Adjust

When the program is in place, the company must be able to respond swiftly and quickly to unexpected challenges. A careful planning process and well-structured review cycles allowed executives who were interviewed to take action when needed to ensure that initiatives and programs stay on the right track. Here are a few best practices when it comes to planning, implementation, and the required adjustments we see all too often (and all too often overlooked by business transformation leaders!):

Plan for Delays

As the value estimate for the initial phase of an initiative is likely to appear optimistic, so is the timeframe promised. Our consultations revealed that roughly 31 percent of initiatives see though to their execution-end date (the date when the stage L3 is over). More often than not, these dates are altered at least one time throughout their lifespan (Around 28 percent of them will have this happen no less than three times while 19 percent will experience it more than three times!)

The effect of timing changes are lessened when they are done at the beginning of a business transformation initiative’s cycle, supported by solid reasoning and acceptance by the TO. However, our consultations revealed that despite the frequency of changes to due dates/times, the majority of initiatives fail to meet their scheduled L3 dates (the date on which it is believed that the plans have been accepted) over a period of a week and nearly half of them fail to meet the L4 deadline (the date on which the execution is completed) by well over one week. In general, initiatives begin L3 two weeks earlier than originally scheduled, and are completed around four weeks following the anticipated completion date.

What can companies do? The length of time initiatives will spend in the initial phase of implementation will be contingent on a variety of variables that include the overall flexibility of the business and the importance of the transformation plan, and the amount of approval needed to take an initiative from one stage into the following. However, helping the business transformation owners achieve their goals is the job of the TO who’s discipline is crucial to ensure that the initiative is running smoothly. The Chief Transformation Officer (CTO) who comes from outside the company can typically be better placed to challenge traditional norms and restrictions — which can hinder the progress of an initiative.

Commit to Weekly Actions

If delays are inevitable, the business transformation initiative’s owners can minimize the negative impact by making sure that each initiative is moving forward each week — No matter if there’s a milestone in the plan or not. By requesting brief updates regarding these activities in the course of regular meetings and offering assistance to owners, business transformation leaders can help them bring up any issues in advance to ensure that they are dealt with the minimum of effort expended.

SUMMARY

As a general rule it is recommended that leaders expect at least 80 percent of the business transformation programs’ initiatives to be reviewed by implementing specific actions every week. Although that might seem like a lot, we have observed that in just five minutes of planning each initiative could be enhanced or sped up each week.

For business transformations with high stakes, this demonstrates the need to balance high expectations against a practical knowledge of what people and companies can accomplish — The genesis of on time, on target business transformation. With a few key restrictions in mind, business transformation leaders can avoid many of the inevitable challenges that arise when trying to make dramatic improvements in a relatively small amount of time. By limiting the wasteful aspects of the business transformation process, it makes the company more likely to achieve (or even surpass) its objectives, and also create an underlying foundation that will allow it to continue improving after the process is completed.

Sam Palazzolo

Should You Hire a Chief Transformation Officer (CTO) – Eight Questions?

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The Point: At Tip of the Spear Ventures, and our Business Transformation consulting firm — The Zeroing Agency — We know that a highly skilled and experienced leader will significantly enhance the odds of an effective business transformation. This leader — the Chief Transformation Officer (CTO) — is the key to Business Transformation! But what if your organization doesn’t have a CTO? Through our experience with a variety of organizations that have taken this path and have seen CTOs who are devoted to driving the company forward, and held accountable to those responsible for the numerous (even thousand) of activities and projects that comprise the typical business transformation plan. Effective CTOs are able to inspire employees and serve as role models for the kind of behavior required to inspire and instill changes. So in this post we’ll look to answer the question, “Should you hire a Chief Transformation Officer (CTO)?” along with eight questions… Enjoy!

Should You Hire a Chief Transformation Officer

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A Chief Transformation Officer’s (CTO’s) Job Description

At the core of the CTO’s job is the capacity to achieve the proper equilibrium between carrots and sticks in achieving short-term improvements as well as long-term value and between ensuring that line managers take personal responsibility for change , and ensuring that they can deliver their results swiftly and with the appropriate level of expectations. This judgment is crucial when it comes to allocating the resources that are often at resources to address the diverse needs of a change.

CTOs must be impartial (certainly not tied to the decisions made in the past) They should have had experience in similar corporate environments that were turbulent during their previous careers, and receive the support of the CEO, the board and the upper management. Their mandate–responsibility for ensuring that the full bottom-line target gets delivered–must be clearly defined at the outset. They must be integrated fully in the team of executives (not isolated to separate units for transformation) and their pay is to be tied to their results, including a significant reward for exceeding the target. Ideally, they should act as an extension of the CEO or the board, and have the ability to hold highest-ranking managers accountable.

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The CTO – A Project Manager on Steroids?

The CTO is the top-level orchestrator of a complex system that includes a variety of distinct initiatives. The responsibility for making day-to-day decisions and implementing the initiatives is with the management, but the CTO’s role is to ensure the task is completed. This isn’t always easy.

The CTO is the persona of the change and sets the tone, encourages excitement, and challenges the conventional wisdom. Similar to a drill sergeant in the military who insists on daily push-ups as well as 10 mile runs The CTO has the goal of ensure that the organization is fit in order to maintain the efforts over the long term.

Excellent CTOs are those who believe in nothing without the benefit of facts and an independent analysis. They aren’t just business leaders and problem solvers They also have an emotional quotient that is high and excellent interpersonal abilities. The most effective transformations we’ve seen result from CTOs in generating enthusiasm and leveraging the capabilities of a wide range of abilities. They recognize and reward the best performers.

The book “Outliers,” author Malcolm Gladwell famously promoted the idea (since challenged by other authors) that it requires around 10,000 hours of work to master the area. Being a competent CTO definitely requires this kind of instruction. In this regard it is essential that CTOs are able to draw on a broad cross-functional background (as as opposed to being an expert in a particular field) and have experienced many different circumstances and issues in their professional career. With this knowledge, they be able to tell how to encourage and praise and when to work tough.

The Biggest Threat to Chief Transformation Officer (CTO) Success

We’ve witnessed CTOs fail when their authority is compromised. Here are two instances of what could fail.

  1. Poor Governance. Issues arise whenever the CTO is treated as an employee on the corporate staff. This is often the case when businesses set up the traditional office of program management. The CTO’s authority and capacity to influence the process is derived from his or her CEO. The CEO clearly lends the CTO authority as well as support to the process of transformation. Anything that violates this implicit agreement undermines the CTO. For example, when the board or the CEO are able to hold the CTO accountable, but do not give them the ability to influence the decisions of business transformation. The CTO should be able invite senior executives (including even the CEO) for attendance at meetings and, in turn, the CEO should provide regular and consistent messages of their confidence and support in the business transformation initiative.
  2. A Negative Environment. If employees and managers do not recognize the urgency of making changes, the CTO’s task will be a continuous struggle. The CTO must make a conscious effort to change these negative attitudes and behaviors, instilling within the workplace a preference towards actions. A mindset such as “that’s the method we’ve always used in this organization” are extremely destructive particularly when they are shared by the top managers and must be resisted with vigor. The time wasted in useless debate and bureaucracy indicates that the company isn’t fully supportive of the methodology and tools of the business transformation shift in which case the message of the CTO isn’t being heard now or ever.

Eight Questions for the Chief Transformation Officer

The success of a change initiative is dependent on the CTO being able to solve a vast array of business and organizational problems. Here are eight (8) important questions CTOs must consider:

  1. Have I got the complete backing of the CEO as well as the Board of Directors?
  2. Have I gotten involved with the vested interests of my current employer and killed any/all/most sacred cows?
  3. Have I created a pattern like a clock that changes the rate of metabolism in the company?
  4. Have I gotten to know the frontline team members and have I created a sense of their struggles and views?
  5. Do I have the ability to coach the CEO and top management team in successfully changing the way they manage the change?
  6. Have I got a clear perspective on where the true value is within the organization, and when/where we can’t allow ourselves to make compromises?
  7. Have I purposely made a few squabbles with the top line leaders and persuaded them to make changes successfully?
  8. Do I know the dominant mindset/culture and the areas it should change?

SUMMARY

In this post we’ve looked to answer the question, “Should you hire a Chief Transformation Officer (CTO)?” along with eight questions. This leader, the Chief Transformation Officer (CTO) is the key to Business Transformation! A highly skilled and experienced leader that significantly enhance the odds of an effective business transformation. Through our experience with a variety of organizations that have taken this path and have seen CTOs who are devoted to driving the company forward, and held accountable to those responsible for the numerous (even thousand) of activities and projects that comprise the typical business transformation plan. Effective CTOs are able to inspire employees and serve as role models for the kind of behavior required to inspire and instill changes.

Sam Palazzolo

Sustaining Business Transformation Momentum – 5 Tips!

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The Point: Congratulations on your Business Transformation initiative! You’ve gotten yourself/your organization as a leader to the point where you are taking the steps towards changing how you conduct business — No small feat in and of itself. However, beginning the business transformation initiative is just that — the beginning. What follows will be the architecture of the strategy that falls in alignment with organizational goals, the implementation, and ultimately the monitoring of progress. This post is all about those final stages for business transformation success where you want to sustain momentum. Herein we’ll provide 5 tips to sustaining business transformation momentum… Enjoy!

Tip of the Spear Ventures Sustaining Business Transformation Momentum

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Sustaining Business Transformation Momentum

It may seem obvious that sustaining business transformation is important, and the actions necessary to do so are simple. They are not. This is because companies are often too focused on short-term gains and neglect the long-term imperative. They overlook the difficulties of breaking old habits and creating a healthy, new approach that can be implemented in thousands of daily actions instead of being referred to by a checklist. To maintain business transformation momentum, you will need to develop new skills, be disciplined, and have strong relationships with your organization.

To sustain a transformation, you must embed a “business transformation engine” — A repeatable process that fundamentally alters performance rhythms and decision-making in the company. It’s not about making strategic decisions, but rather about implementing daily initiatives that will change the way the organization works.

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There are five tips business transformation can be built, according to us:

1. See the World from a Different Perspective

It is exhausting to challenge everything, but companies that are open to change never settle for the status quo. They are open to new facts and not content with the status quo. They are vigilant against accepting easily accepted targets.

2. Think Like an Investor (Especially if You are a Private Equity Firm)

Although this mindset isn’t always popular within organizations, it is something that every leader should adopt. Passive employees can kill change in a company, as we all know. Successful employees are constantly challenging their colleagues and not content on just getting along. They don’t settle for a slow pace of decision-making either. They are always looking for new sources of value and how they can contribute to the organization.

3. Assure Ownership is On the Line

Management and outside advisors will have a tendency to set targets during a transformation program. This is what happened with a technology firm client. This should be avoided. Companies with large central teams who have centrally imposed initiatives embedded in budgets without manager buy-in are at greatest risk of falling back to their old ways.

4. Always Work Hard

Companies can easily allow their pace to slow down once they have achieved their initial improvement targets. It is easier to delegate. Senior executives who are unable to focus on high-level targets and don’t get lost in the details, perhaps under the pretext of not wanting to micromanage, should be notified.

5. Address the Underlying Mindsets

In our experience, motivated employees are more productive than those who live in a command-and-control culture. Managers must not only challenge, but instill meaning. Managers must be able to recognize the value of extra effort. They should not assume that employees understand why the company must operate differently in the future.

SUMMARY

These five tips brought into your monthly operational meetings, annual budget discussions, daily management routines should continue to be a part of executives who sustain a business transformation. Leaders that do realize that success in business transformation is not about the scoreboard or whether the organization can deliver $100m, $500m, or both. It’s about whether the process of business transformation has been repeated and replicated in a way that drives better results for the organization long after it is finished.

Sam Palazzolo

Setting Business Transformation Targets

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The Point: The establishment of goals is an important step in any business transformation initiative. If done well, this setting of business transformation targets exercise sets the tone for the entire program and fundamentally alters the way people think. It also allows leaders to reach for the impossible. We have learned four important lessons from our two-decade experience working with companies in business transformation (change) initiatives. During the target-setting phase of the transformation, companies should keep these four principles in mind. So, in this post we’ll explore setting business transformation targets… Enjoy!

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Principle #1 – You’re Going to Need More Money

Recently, we compared the actual savings made by the 15 companies that we have worked with to the initial numbers they projected. It was quite instructive. The average company delivered 2.7x more than what their senior executives expected when they started the transformations. One industrial company achieved a result that was 4.7x greater than its original target of $50 million.

This business was not unusual. Many managers are slaves to their past and more inclined to return to old routines than to explore the possibilities of doing things differently.

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Principle #2 – Thinking Incrementally can be Counterproductive

We recommend that companies start with the theoretically possible number and adjust this number downward when there is clear evidence that certain actions may not be realistic. Arguments for a lower number should be supported with facts and the person arguing for it must bear the burden of proof. They must ask the question, “Why can’t this be done?”

For example, senior leaders in a technology company initially opposed plans to reduce the travel time between the corporate headquarters and a regional office. However, frontline workers suggested that a sub-regional office be built in the region to further reduce transit time from work by twenty percent. This was a win-win situation for both the company and its workers. The company is now considering how they can take things a step further with work from home (WFH) suggestions received.

Principle #3 – Get an Independent Parties Opinion

Intending leaders will find it difficult to move beyond incremental thinking. Intending leaders find it difficult to move beyond incremental thinking. Third parties and an internal team that isn’t burdened by the “how things are done around here” mentality will be able to offer a true perspective. We suggest adopting the mindset of an investor or private equity firm and looking at every area of the business with objective analysis of competitors and benchmarks. Companies must move beyond “groupthink.” They need to be bold and break away from the kind of consensus that suggests a 5 to 7 percent improvement, but not more. It is important to establish a goal without giving exact details about how it will be achieved.

Principle #4 – Opportunities Exist Where You Least Expected Them

Too often, companies limit their goal setting to the search for savings. Companies often overlook opportunities to increase productivity, implement pricing initiatives, improve sales force effectiveness, reduce working capital (in response to excessive stock buildup), or address customer dissatisfaction. Companies that are most ambitious tend to use all of the available levers. Setting aspirational targets shows the business that you are open to new ideas and ways of doing things.

SUMMARY

In this post we’ve explored the topic of setting business transformation targets. Again, the establishment of goals is an important step in any business transformation initiative. If done well, setting business transformation targets set the tone for the entire program and fundamentally alters the way people think. It also allows leaders to reach for the impossible. We have learned four important lessons from our two-decade experience working with companies in business transformation (change) initiatives. During the target-setting phase of the transformation, companies should keep these four principles in mind.

Sam Palazzolo

The ‘How?’ of Business Transformation

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The Point: In many industries, business transformation or change management programs often fail. We know that business transformation is not for the weak of heart. We’ve seen change leadership in a company not be united and/or committed before, during, and especially after transformations. So are there portions of the business that leaders need to pay attention to? Seriously, not only the specific initiatives but also the changes that leaders are making as to how the business actually works? In this post we’ll explore the ‘how?’ of business transformation in search of a performance infrastructure that is essential for a successful transformation. Once discovered, it will allow you to achieve rapid, dramatic and long-lasting business improvement. Creating an “infrastructure of performance” can help ensure success… Enjoy!

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The Case for Business Transformation – Why?

Today’s business environment is full of disruptive forces. Even in less volatile industries, disruptive forces abound. These disruptions include technological innovation, regulatory changes and pressure from activist investors. Many technology companies — both software and hardware — are undertaking such business transformations. Sometimes they do so in response to external pressure, but other times it is to stay ahead. These companies, regardless of their motivations, are trying to introduce new ways of working for large numbers of employees with the aim of achieving a step-change in business results.

The sad reality is, however, that the majority of these organizations are not able to change. Business transformations more than often fail. Research has shown that 70% of large-scale, complex change management programs fail to achieve their goals. Common pitfalls are a lack or inadequate management support, low employee engagement, poor cross-functional collaboration and a lack in accountability. A major change in mindsets and behavior is required to sustain a business transformation’s success. This is something that very few leaders are able to do.

As practitioners in Business Transformation, The Zeroing Agency — a Tip of the Spear Venture — focuses on supporting such turnarounds and transformations. When it comes to Business transformation, we’ve seen it across all industries, and we know that the hardest part of improving performance isn’t deciding what to do but rather — how to do it. This article will discuss an important component of the ‘how‘ of business transformation: the creation of an “infrastructure for performance” which is made up of people, processes and tools that allow successful execution and sustainable results.

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Performance Improvement Requires a Holistic Approach

Companies in financial trouble tend to be more focused on cost reduction and immediate solutions. Many consumer-focused businesses are able to offer stable and healthy product categories. These companies don’t see transformation as a struggle for survival. It’s about reaching the full potential of the company (going from good-to-great) or responding to external challenges or opportunities, such as learning new ways to win or moving away from a historical money-maker.

We have found that no matter what the circumstance, true transformation occurs when the leadership team accepts the idea that there is a holistic approach to changing the way the business operates. This includes addressing all factors that add value to the organization, such as top line and bottom line. This is not an easy task. Ordinary transformation approaches often produce suboptimal results.

To achieve extraordinary results, we believe a comprehensive, highly disciplined methodology–encompassing both the “what” and the “how”–is needed (exhibit). The “what” refers to the smooth flow of specific ideas and initiatives throughout three phases: planning, independent diligence, and implementation. For the experienced executive, these phases will be familiar. We find that executives are more focused on the individual initiatives than how the company must change. This is a problem that many leaders feel. They express concern about sustainability and execution risk, and know that initiatives won’t stick unless they fundamentally change the way the business operates. How can an organization transform its operating model? The “how” is broken down into two parts: performance infrastructure and change management. Many organizations find change management challenging. We will discuss this in detail in a future article. This article will focus on the performance infrastructure. It is essential for effective alignment, communication and coordination at executive level during a transformation.

Making Change Happen at Speed

Performance infrastructure is made up of people, processes, and tools that all work together to deliver superior execution and value. It is the heart of a transformation effort, and plays an important role in its success.

The People: A Governance Structure Lead by a Chief Revenue Officer?

To oversee the execution of each “workstream” (or area of activity), ensure decisions are made quickly, and keep the transformation on course, companies must create a governance structure–specifically, a transformation office (TO) comprising a few respected executives supported by analysts from the finance and HR functions. The Chief Revenue Officer (CRO) should lead the TO and be part of the company’s executive committee. The CEO should be regularly updated by the TO on progress, and highlight issues and possible solutions.

You might wonder, “Is a CRO in charge of business transformation really necessary — or appropriate?” The CEO should lead the transformation. We are unambiguous in our answer. The CEO should be the leader of the company. A full-time, experienced CRO should oversee the transformation. Why?

A CRO with extensive experience in leading sales in companies experiencing business transformation is the ideal candidate. The CRO should have a vision of what is possible. This includes a view of the company’s performance and current capabilities, as well as a realistic plan to encourage different groups to work together.

This is a demanding job, especially in comparison with the already monumental duties assigned typically to a CRO. However, the CRO must radiate confidence and gravitas from the beginning. This will ensure that the organization is motivated and inspired, no matter what the circumstances. The CRO should not be a stern, egotistical dictator. Instead, they must have the ability to see and judge how people are doing so that they can reach their full potential. The CRO should also be able to take deep dives into complicated issues important to the company.

The CRO should extend the CEO’s reach and have the authority and mandate to manage all levers and influence decisions regarding personnel, investments and operations. The CRO can be an important part of “getting people on the bus,” making key decisions regarding the addition or removal of managers.

Many companies lack the ability to find someone with these qualifications, let alone one who can step in and fill the position. Therefore, the CRO often comes from the outside. Although company leaders might be concerned about the outsider, the ability of an outsider to see the business and make decisions without being restricted by internal politics is one of the most important success factors for a CRO.

The Process: An Unstoppable Cadence of Delivery

Ineffective business transformation is possible if it takes too long. A weekly schedule of transformation meetings is essential to creating a performance infrastructure. Most turnarounds are managed by a project management office that meets once a week to discuss all workstreams. We recommend a 60-to-90-minute weekly meeting for each workstream. In addition to a weekly TO meeting of two hours, we recommend a cadence for weekly transformation meetings. This cadence works because it is relentless and aggressive. It enforces “closed loop” accountability, accelerates implementation, and prevents “pocket vetoes,” other delay tactics, and slippage.

Meetings, and in particular the question-and answer exchanges between CRO and line leaders, are essential for holding people accountable. This is not a consensus-driven approach. The CRO should be open to confrontation when managers fail to meet their promises. Meetings should be transparent and honest. This allows the organization to assess its current situation and identify the best solutions. Transparency is essential to help everyone understand the company’s priorities and decision-making process.

These weekly meetings provide a platform for discussing and debating difficult tradeoffs between revenue generation and cost reduction, as well as for refining individual plans for each initiative. The TO is able to quickly make cross-functional decisions and help prioritize and evaluate competing priorities. The weekly meetings are a valuable tool for developing new talent, and identifying individuals who can be the most beneficial to an initiative. The weekly meetings were used by the TO to identify highly-motivated and high-performing individuals to help develop and build the mobile app.

Although the weekly cadence is an important building block in the transformation process, it’s not sufficient on its own. To instill an execution-focused mindset into daily decision-making, monthly value analysis to quantify the bottom-line impact and an annual “refresh”, which plugs into budget cycles to rekindle idea generation and foster continuous improvement, it should be supplemented with daily performance management.

The Tools: Transparent Reporting and Accurate Tracking Systems

The tools and systems that are used to monitor business transformation performance make up the third component of the performance infrastructure. These might include organizational-health assessments, benchmarks, value-capture models, and visual management and planning aids. Advanced initiative-tracking tools, such as those that can be sorted according to owner, department, delivery status and other criteria, allow users to quickly see the progress of all initiatives. These tools should be easy to use, allowing users to identify delays and trends, track impact, and create rich, yet simple reports. These tools should be accessible to all involved in the transformation.

Our experience shows that the best tools for leaders to monitor the impact of initiatives have the greatest success rate in business transformations. Too many executives simply launch initiatives and hope that the money will eventually show up in their company’s bank accounts. Initiative owners can use sophisticated tracking tools to tie each initiative’s impact to a profit and loss line item. Executives can use this level of detail to make sure that each initiative has a positive impact on business results — It also builds in additional layers of accountability towards achieving the ultimate business transformation goals.

SUMMARY

Business Transformation is not for the weak of heart. Before embarking on a change management program, change leadership in a company must be united and committed. Once they have achieved this, they need to pay attention to not only the specific initiatives but also the changes that they are making to how the business actually works. A performance infrastructure is essential for a successful transformation. It will allow you to achieve rapid, dramatic and long-lasting business improvement.

Sam Palazzolo