Transformation 101
Transformation 101
This is an introduction to Transformation. Material includes a synopsis from multiple sources for easy reference for educational purposes.
What is Transformation?
Transformation is an intense organization wide program to enhance performance and boost organizational health. It requires making dramatic changes to your way of doing business, using technology and innovation. It could be in response to latest industry trends, or in response to disruptive changes in your business model, requiring urgent action. It’s deeper than change, which modifies actions in response to external influences. Transformation modifies internal beliefs (values and desires) over a period of time, so that natural actions achieve the desired results. Transformation represents a large and significant change in the business culture of the organization, including the underlying strategy and processes, sustained over a period of time. It originates at a higher level due to the massive impact on an organization’s goals, scope, timing and budget.
Performance and Portfolio Changes
Business transformation programs have long focused on productivity improvements, taking a better, faster, cheaper approach to how the company works; disciplined efforts boost productivity, as well as accountability, transparency and execution, and the pace of decision making, delivering faster results to the bottom line.
Digitization, advanced technologies, and other forms of technology disruption are upending industry after industry, pressuring companies to remake who and what they are as organizations, understand where the value is shifting in the industry, spot opportunities in the inflection points, and take purposeful actions to seize them.
Transformation requires organizations to go all-in by focusing on performance and portfolio changes at the same time; performance improvements help to deploy the next set of portfolio changes, and that builds momentum propelling the company to the next level.
Transformation includes five big moves, including two performance moves and three portfolio moves. Performance moves include productivity improvements (substantial changes resulting in better margins) and differentiation improvements (includes innovation in products, services and business models). Portfolio moves include active resource allocation (shifting 50% capital spending on business/markets), programmatic M&A (doing at least 1 deal/year) and capital programs (ratio of Capex to Sales far exceeding industry medians).
Leading from the front
Embarking on a transformation requires big commitments from the leadership, starting from the CEO, who mandates involvement and gets into details. It’s critical to set an extremely high aspirational goal. Leaders commit to the transformation, develop one voice as a leadership team, and lead by example. A holistic approach incorporates all levers of value creation, including top line (revenue expansion) and bottom line (margin expansion, reduction of working capital, capital expenditure and operating costs). Build execution discipline from the start by focusing on immediate activity. There could be a two-speed transformation, where you implement some immediate interventions (first speed) to create the oxygen needed for the full transformation (second speed); that makes the program self-funding and demonstrate a bias to action and momentum for change. Transformation is not just another project, or business as usual; It’s framed as a way to accelerate the metabolic rate of decision making and execution within the company, and the start of a never-ending journey to continued excellence.
Transformation Infrastructure
Transformation programs often fail, with 70% not reaching their stated goals. Establishing a performance infrastructure is an essential ingredient for success. To deliver extraordinary results, you need a highly disciplined methodology encompassing the “what” and the “how”.
“What to do” includes (a) independent diligence (do investor style due diligence of business), (b) bottom-up planning(develop a transformation plan with initiatives and financial projections owned by line leaders), and (c) implementation(full scale effort to drive value to bottom line). “How to do it” includes (a) change management (tactical action to change mind-sets and behaviors to sustain transformation), and (b) performance infrastructure(put people, process and tools in place to ensure superior execution and delivery to the bottom line).
Managing change at speed across various work streams require a governance structure that includes a Transformation Office (TO), a Chief Transformation Officer (CTO), a delivery cadence of weekly transformation meetings, and tools and systems to monitor performance.
(a) Transformation Office
Transformation Office (TO) consists of a few respected executives supported by analysts from finance and HR functions. TO is led by a Chief Transformation Officer (CTO). TO regularly reports progress to the CEO, highlighting issues and decisions for resolution.
(b) Chief Transformation Officer
The Chief Transformation Officer (CTO) leads the company’s transformation, reporting to the CEO. CTO has extensive experience orchestrating transformations and is responsible for coordinating across all transformation workstreams. CTO often comes from outside the company to maintain objectivity and has the mandate and authority to address all levers and influence decisions regarding personnel, investments and operations.
(c) Delivery Cadence
A delivery cadence of weekly transformation meetings is an indispensable part of an effective performance infrastructure. Each workstream should have 1-hour weekly meetings, and there is a separate 2 hours weekly TO meeting including all workstreams. This cadence is aggressive and relentless and provides a closed loop accountability. These are supplemented by daily performance management to instill execution-focused mentality across the board.
(d) Tools
Tools and Systems to monitor performance include metrics dashboards, organizational health assessments, benchmarks, value capture models, and visual management and planning aids. They track initiatives by departments, owners, delivery status, etc. making it easy to spot delays, observe trends, monitor impacts, and create rich user-friendly reports.
Sustaining Transformations
Transformations start with ambitious goals, which then become initiatives that are designed and implemented from bottom up.
Initiatives move through a structured stage-gate pipeline process from L0: Idea (initial opportunity with rough order of magnitude), L1: Identified(selected initiative with preliminary sizing), L2: Validated (approval of business case), L3: Planned (implementation plan with refined business case), L4: Executed (all steps to realize value completed) and L5: Realized(value realized in actual cash flows).
Initial transformation impact targets are optimistic, and L1 estimates usually fall by 70% by the time they reach L5. Thus, organizations need a pipeline with total transformation impact value of three times the initial target to achieve their target transformation impact. During execution, organizations have to be relentless, focus their resources, and plan and adapt. Avoid too many milestones, too many metrics, and overburdening of the top performers.
Initiatives can be grouped by transformation impact into ‘boulders’ (largest impact, more complex), ‘pebbles’ (smaller impact, less complex) and ‘sand’ (minimal impact). On average, 50% of total program value typically comes from ‘sand’, which are easier to implement. Focusing on ‘boulders’ can be risky, while ‘pebbles’ and ‘sand’ can add up to big impact.
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Monty Pandey
Los Angeles, CA