What the board needs to know about business transformation

By Haydn Shaughnessy

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Transformation was already high on the board agenda prior to COVID 19 but its importance is growing as executive teams wrestle how the post-pandemic economy will shape up. Do you know enough about the mechanics of transformation to fully support the executive team as they engage with one of the more fraught episodes in anyone’s management career?

Change is likely to be dramatic through 2021/2022 and the signs are that COVD will shape the business agenda for the rest of the decade. The IMF, for example, already calculated that global lost productivity amounted to $28 trillion in the first wave of COVID alone. 

Early movers have already indicated they are making permanent changes to their operating models. These include Fujitsu’s new borderless office strategy (80,000 remote workers, going forward), Twitter’s ‘forever’ remote promise, and Simenas New Normal Working Model that promises remote work to staff who want it. 

These changes come on top of the shift to digital processes, the introduction of AI and Machine Learning (ML), agile ways to work, and other pressures to remodel the firm. Your team is under unprecedented pressure to innovate or change the way business is done, across a raft of technologies, techniques and emotions. So what are the key aspects of transformation that will help board members to ensure that leadership succeeds?

  1. Transformations have a habit of degrading employee empowerment and trust. One reason is they are often couched in terms of FTE reductions. But get over this hurdle and there is another trap waiting. The change plan implies that the organisation lacks the skills and aptitude for digital work. That leads to hiring consultants and contractors and creates a kind of income and commitment apartheid in the organisation. Encouraging leaders to sensitise themselves to the disempowerment risk inherent in transformation is a must.
  1. There are plenty of ways companies manifest their transformation – working with startups, more use of Software As A Service (Saas) platforms, creating new partnerships and converting to agile ways to work. A common error though is to manage all this using traditional project management tools. In truth many transformation programs consist of multiple smaller programs and you need to encourage leaders to use the appropriate governance structures for each, sometimes traditional (for example, traditional project management), and sometimes new (agile).
  1. Transformations tend to be additive – i.e. They add stuff in, more technology, more projects, more products. But success really lies in what you take out – old technologies, unprofitable product lines or those that are becoming less popular. By not weeding out the old, companies increase complexity and make success more difficult to attain. You can encourage the CEO to prune product and technology, as well as adding them in.
  1. When transformations are run through traditional mechanisms, most data on their progress end up in databases and therefore become difficult to see, except through well-filtered reports. Modern techniques make more use of visualisations and, often, these adorn the walls of the relevant departments, ensuring real transparency for everybody. Make sure the narrative of change is visualised, and ask to see it, regularly.
  1. A true Business Transformation or a change to overall business agility, Is a rare but necessary event. Though total transformation may be the initial purpose, the focus soon becomes the transition to digital processes and from there, executives become transfixed on agility in the IT department. Business teams have a much harder time embracing change. IT departments interact with the global IT culture all the time, which is very change focused.  Not so for people in strategy, sales, marketing etc. Watch out for this shrinkage of purpose and offer insights into how your teams can sustain change-momentum on the business side. 
  1. Companies need to give sufficient time and attention to their “operating model” or OM. Typically, talk of change focuses on business models (how we acquire revenue) rather than the OM (what infrastructure and services are needed to support that activity). Transformations rely on a target OM (or TOM) that consultants map out based on previous experience. Boards tend not to query its relevance or detail. The modern OM will be adaptive or generative (i.e. it can generate new ideas for direction) and less of the set, future management framework that consultants offer.
  1. Transformations fail to meet expectations for many reasons but one of the most overlooked is that planning techniques allow for a level of complexity that humans struggle with in practice. An agile approach, rather than a traditional approach, would place the emphasis on trial and error, learning and adaptation. It’s worth raising the point that the shift to agile should be done in an agile way, and across the entire business and not just IT.
  1. Transformative leaders are detailed and strategic – not one or the other. You will find leaders abdicating from this difficult combination of skills and focus. Apple recently revealed that all of its senior managers are expected to know the detail of jobs three layers down in the reporting hierarchy. It’s tough but necessary for your leaders to know the detail, so check that they have methods for keeping on top of it.
  1. Risk officers are focused on financial and solvency risks to the firm. However, they have a big role to play in anticipating risks posed by transformations. These include negative risks (the transformation goes wrong) and also proactive risk (opportunities are lost). They can play an important moderating role for CEOs who have sold the transformation and become too attached to it. And they can also be a source of advice and insight for board members.
  1. The majority of large scale transformation programs fail to satisfy their sponsors’ expectations and a lot of energy therefore goes into talking up the successes without grasping the opportunity to learn the wider lessons. This is a tricky one for boards. Do you highlight the failings? Often, information filters as very strong, so not even the CEO is aware that his teams are being blown off course. Nonetheless, it is important to find a way to wrestle fact from fiction. Ultimately, the company will benefit from tenacity on this one.

Bear these points in mind and you will have ten ways to end extra support to leaders. But be particularly aware of point 10. Information filters will always lead to a good luck story that may not be well grounded.

8 questions the board need to ask

  1. Have we done a thorough exploration of which products, services and technologies to take out before we add more complexity in?
  2. Are you managing your transformation through traditional tools or is it designed and governed in an agile way?
  3. Is our risk function monitoring the transformation? Many risk managers focus only on financial risk without keeping up to speed with the enterprise risks (reputation, failure, vendor relationships) posed by transformations that start to go wrong.
  4. How adaptive is our future operating model? Does it create a learning environment where management can make OM adaptations as necessary.
  5. Is there a plan to anticipate and manage the alienation of key staff, particularly in the legacy areas of our business where we rely on their goodwill to keep the lights on?
  6. What is the ratio of contingent workforce (e.g. contractors and consultants) working on the transformation to actual employees? Greater than 10% is a warning sign.
  7. When will the first examples of value be delivered? Greater than 6 weeks indicates a bloated transformation program.
  8. What mechanisms are we going to put in place for this to be a key learning experience for the senior team? Leaders have to show the way through their own continuous improvement and learning.

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