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Tip of the Spear Ventures

Venture Capital | Business Transformation Consulting

sam palazzolo

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

The Business Transformation “Why?”

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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!

The Business Transformation "Why?" Tip of the Spear Ventures

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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.”

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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

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