Consulting in company transformation

Figure 22.3 Relationships between business performance and types of transformation

Early

Anticipatory reactive

Late reactive

Time

Source: J.P. Killing: “Managing change: The urgency factor”, in Perspectives for Managers (Lausanne, IMD), Vol. 29, No. 1, Feb. 1997.

Strategies

There are many different strategies for planning and implementing transformational efforts and it is impossible to recommend one single approach. We discuss here a number of strategic approaches, mostly successful, to cover the most typical cases and transformational conditions.

One of the first strategic components for any transformation is to create a sense of urgency. In your situation, how urgently is restructuring required? Are you on the brink of crisis? Already in crisis? Try to place your company where you think it belongs on the “crisis curve” (figure 22.3). Initially, at the left side of the diagram, the business is performing well, but over time performance gradually flattens out and then begins to decline at an increasing rate until the business ends up in crisis.

We can consider different possible transformational strategies depending on where your business is on the crisis curve. An anticipatory change situation is one in which the current business performance is good, and there is a common perception that it is likely to remain that way for some time. The consultant however sees something that indicates that performance may decline in the future if preventive action is not taken. A reactive change situation is attained when no action has been taken in an anticipatory situation. In this case, margins may be gradually shrinking, growth rates or market share declining, or perhaps key customers are becoming dissatisfied. It is not yet a crisis situation. Some managers would think that significant change is required, but not all. A crisis change situation indicates that managers failed to start managing change in the anticipatory and reactive situations, and the company has slid down the curve

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into crisis. At this point, the need for transformation will be apparent to both management and consultants, and creating urgency for change will not be a problem.

The real challenge in creating urgency comes when the company is in a reactive situation. Here, you have to start on a broad front, and you do not have much time to pursue a debate. You can disrupt routine, indicating that a new one has to be started. Killing a sacred cow, such as cutting research funds for a longstanding project that is not delivering, or selling a business that does not fit with future plans, could pave the way for other, less dramatic changes. Some specialists in transformation propose also firing a key resistor or transferring him or her to a less important post. You have to identify the people who will have the greatest impact on the success of the transformational process.5

Some consultants prefer to develop conditions and organizational sensitivity to changes rather than focusing on strategies. Gary Hamel suggests provoking the emergence of revolutionary management rules similar to those that helped Charles Schwab, GE Capital, and Royal Dutch Shell to become revolutionaries capable of reinventing themselves again and again.6 Some of them are outlined below.

Set unreasonable expectations. When you have objectives that are outlandish, it forces you to think very differently about your opportunities. A person with a 20 per cent target is going to do different things from someone with a 10 per cent target. Only non-linear innovation will drive long-term wealth creation.

Stretch your business definition. Get a few people together to start redefining your company in terms of what it knows and what it owns rather than what it does. Virgin spans industries as diverse as air travel, package holidays, music retailing, banking, and radio broadcasting. It will enter a business if it believes it can (a) challenge existing rules, (b) give customers a better deal, and

(c) be more entertaining and competitive.

Create a cause, not a business. Schwab migrated its business to the Web, knowing that the move would force it to slash prices by 60 per cent. In most companies there would be months, perhaps years, of savage debate before such a change, as happened in Merrill Lynch.

Listen to new voices. More often then not, companies are reinvented by outsiders free of the prejudices of veterans. Yet, in most companies strategy is the preserve of the old guard, the same people talking to the same people year after year. GE Capital put together a young team – all under 30 – and asked them to tell where the opportunities were. Without new voices the chance for revolution is nil.

Design an open market for ideas, capital and talent. What makes Silicon Valley a hothouse of business innovation is the existence of three tightly interconnected markets: a market for ideas, a market for capital, and a market for talent. Radical ideas are the only way to create wealth.

Lower the risks of experimentation. Virgin has an exit plan for any business it enters, in order to minimize potential damage. Most start-ups and

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new ventures fail and management has to accept that. A prudent investor prefers to invest in a portfolio than in any single project.

Act like a cell – divide and divide. Division and differentiation are the essence of growth. When companies stop dividing and differentiating innovation dies and growth slows. When Virgin Records showed the first signs of lethargy, the owner Richard Branson took the deputy managing director, deputy sales director, and deputy marketing director and made them the nucleus of a new company.

Pay your innovators well. A lot of companies talk about intrapreneurship and ask people to take risks, but if those people succeed they get nothing more than a small bonus, and if they fail they get fired. You cannot reward entrepreneurs as you reward stewards. You need spectacular rewards for people who make a non-linear change in the business. Microsoft has created a compensation scheme that gives the start-up team an outsized stake in the new venture’s success. It is not unusual for a young team member to end up with US$1 million in stock for helping to build a new business.

Summary view of the transformation process

The overall transformation process can be structured in stages as shown in box 22.1, based on the experience of many transformation projects. This box can be used as a checklist in designing tailor-made transformation processes for specific situations.

Box 22.1 Eight stages for transforming an organization

1.Establish a sense of urgency

●Examine markets and competitive realities.

●Identify and discuss crises, potential crises, and major opportunities.

●Mobilize commitment through joint diagnosis of problems and opportunities.

●Conduct a company-wide survey to assess organizational culture.

●Create a sense of urgency and reinforce the need for deep change.

2.Form a powerful guiding coalition

●Put together a group with enough power to lead the transformation.

●Get the group to work together like a team.

3.Develop a vision and strategy

●Assess the current situation and the desired future.

●Develop a shared vision, values and goals to direct the transformation effort.

●Develop strategies for achieving that vision.

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●Identify core competencies and capabilities that differentiate the company from its competitors.

●Foster consensus for the new vision and the competence to implement it.

4.Communicate the vision for transformation

●Use every vehicle possible to communicate the new vision and strategies.

●Demonstrate effective behaviour and role model of guiding coalition itself.

●Show clearly the objectives, their benefits and how they can be achieved.

5.Empower broad-based actions

●Remove obstacles and other factors adverse to transformation.

●Change systems, structures and work procedures that undermine the vision.

●Encourage risk taking and non-traditional ideas, activities and actions.

●Confront ineffective methods, devote a lot of attention to the actual work.

●Give people the opportunity to decide how to change their behaviour.

●Provide necessary assistance, coaching, feedback and training.

6.Generate short-term wins

●Break the broad concept into bite-size projects that provide a basis for experiment and learning.

●Fight organizational inertia, initiate actions that jolt the entire organization, send a signal that “business as usual” is over.

●Plan and implement visible performance improvements or “wins”.

●Recognize and reward people who made wins possible.

7.Consolidate gains and produce more change

●Use increased credibility to change systems, structures and policies that do not fit the transformation vision.

●Spread revitalization to all units without pushing it too much from the top.

●Hire, promote and train people who can implement the vision.

●Develop new skills for implementing the new strategy, re-skill people, hire outside talent only when it is really necessary.

●Reinvigorate the process with new projects, themes and change agents.

●Create better performance through customerand productivity-oriented behaviour, more and better leadership, and more effective management.

8.Institutionalize new approaches and behaviour

●Articulate the connections between new behaviour and company success.

●Provide means to ensure leadership development and succession.

●Move to an environment of continuous improvement.

●Institutionalize revitalization through formal policies, systems and structures.

●Monitor and adjust strategies in response to new problems and opportunities.

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