- October 22, 2019
- Posted by: Ramkumar
- Category: Strategy
Factors behind Successful Business Transformation
Companies that are able to achieve high success rates in their business transformation initiatives often create KPIs that are measurable which is then tracked to quantify the benefits achieved. The famous management guru Peter Drucker once observed that “What gets measured gets managed”. Companies that do not have any measurement metrics or use the metrics superficially risks being mismanaged.Such companies often lag behind in their transformation goals.
Companies often use the term transformation very loosely.They use this term even when they do minor or isolated initiatives. These isolated initiatives cannot be categorized as a Transformation.Transformation is an intense well managed and an organization wide program to enhance performance and to boost organizational health.Such an intense program needs to be measured to track the results.
Companies which have undertaken a successful transformation over a period exhibit common characteristics which led to increase in Total returns to Shareholders.These characteristics are described below.
Business Transformation 1 – Adopt a Big Bang Approach
- Successful companies typically favor an all in enterprise wide transformation.They do not favor a piece meal approach where transformation are constrained to individual business units and functions.
- When the scope of the transformation is extended to the entire organization, then it increases the chance of creating value generating opportunities across functions.Hence companies who have undergone successful transformation have been able to design transformative processes to integrate multiple functions from supply chain, manufacturing and sales units to harvest benefits.
- Successful transformations achieved improvements in topline as well as bottom line.This clears the hypothesis that Transformations are only about Cost cutting.Cost cutting measures like reducing General and Administrative expenses including headcount reductions only constitute a very small percentage of overall transformation targets.
- Another interesting pattern observed is that successful transformations mobilized a substantial chunk of their workforce towards Transformation initiatives.By mobilizing an higher chunk of workforce, companies can pursue initiatives at a granular level across workstreams which can collectively generate great results.It will be interesting to believe that high transformation value come from smaller initiatives which validates the approach – Little gains often get rolled upto bigger wins.
- Smaller initiatives are easier to achieve and also improve employee morale because most of these initiatives are led by frontline employees. These efforts provide employees a stake in the transformation’s success.
Business transformation 2 – High Agility
- Successful transformations are agile which means that these transformations move fast and renew often.Companies work in sprints and turn their initial burst of idea generation into an achievable rigorous plan within a span of few months.The plan is then executed at a faster pace.
- At the same time, we need to understand that every transformation is unique and some transformations might take a long time.Generally when there are significant portfolio changes or there is a major shift in business models, transformations tends to be longer.
- Companies, when they achieved successful transformations launch their efforts by focusing on efficient use of Working capital and better management of discretionary expenses very early in their Transformation roadmap. The savings achieved through these initiatives is used for funding longer term growth initiatives like organic growth and building employee capabilities.In this way, Transformation follows a virtuous cycle.
- Companies that lag behind in their Transformation goals fail to renew their initiatives. This is because a lack of momentum causes portfolios to stagnate which affects value creation.
Business transformation 3 – Organizational Health
- In the quest of achieving rapid performance improvements, companies should not compromise on their working culture.Successful transformations focus on Leadership, accountability, innovation and learning.
- Companies with better working culture always tend to outperform other companies and achieve an increased Total returns to shareholders. Successful transformations mirror this approach.They set targets for working culture in conjunction with financial incentives and then measure the results.Successful transformations instill a sense of honesty, transparency and promote dialogue/engagement from day one.
Business transformation 4 – Renew aspirations often
- Companies start Transformations in hope of satisfying their aspirations which would mainly include high topline and margins.In case of Successful transformations, companies evolve their aspirations as the transformation journey moves ahead.By evolving their aspirations or changing their goal post, successful transformations achieve better results. This is because they set targets which are much higher than initial estimates and then strive to achieve the same.
- Successful Transformations start with internal due diligence to identify the areas of maximum improvement along with discerning any risks to implement these improvements.During the due diligence, successful transformations set targets that are atleast 70-80% of their trailing earnings.They then strive to achieve these targets and thereby improving the Total returns to shareholders.
- Having bigger aspirations and setting higher targets can give a Pygmalion effect at work with higher expectations lifting results up and lower experience holding them down.
- Business Transformations are challenging and often presents variables that no company can control.
- Companies that achieve successful business transformations go for the kill by moving fast and often stretching their targets to achieve but at the same time focus on improving their culture and organizational health.