Process of Business Transformation

Jayashantha Jayawardhana,

The writer currently work as the Project Lead-Marketing content at a leading Digital Marketing Solutions company in Sri Lanka. He holds a special degree in Business Management from Wayamba University of Sri Lanka.

We call it by many names: total quality management, reengineering, rightsizing, restructuring, cultural change, and turnaround. But, the goal of every transformation initiative is the same; that is, to make fundamental changes in the way a business is carried out so that it can cope better with a new, more challenging market environment. Sadly, however, most of the major change efforts - whether meant to enhance the quality, improve the culture or turn back a corporate death spiral - produce only the mediocre results.

Many fail spectacularly. It is interesting to ask why so many corporate change initiatives fall so flat. John P. Kotter, one of the world’s leading authorities on change management, and formerly Konosuke Matsushita Professor of Leadership at Harvard Business School in Boston offers penetrative insights into the process of transformation in his classic 1995 Harvard Business Review. It’s noteworthy that even 17 years after its original publication, his work on leading change still remains as valid.

As Kotter explains, transformation is a process not an event. But, few managers understand this. It advances through a series of stages that are built on one another.

It rarely happens as fast as most managers want it to. Hell-bent on achieving quick results, they skip the stages. Shortcuts, however, do not work. Equally troubling, even the smartest managers make grave mistakes such as declaring the victory too soon. Such errors easily result in the loss of momentum, reversal of hard-won gains and foil the entire transformation process.

Kotter delineates eight critical stages of a successful transformation process and points out the pitfalls peculiar to each stage:

* Establish a sense of urgency
* Form a powerful guiding coalition
* Create a vision
* Communicate the vision
* Empower others to act on the vision
* Plan for and create short-term wins
* Consolidate improvements and produce more change
* Institutionalize new approaches

Establish a sense of urgency

While we are involved in running the day-to-day affairs of a business, sometimes, something strikes us as odd and prompts us to look hard at our competitive position, market dynamics, technological trends, and financial performance. We concentrate on the potential decrease of revenue when an important patent expires or when a big client abandons us for one of our competitors, the five year trend in plummeting margins or an emerging market everyone seems to take little notice of. It is right here that successful transformation efforts originate.

Whether it is about a crisis, a potential crisis or a valuable opportunity, once we take it in, we should communicate this information broadly and dramatically. This step is crucial because initiating the transformation calls for the concerted efforts of many individuals. But, for many of us, it is a challenging job to get people out of their comfort-zones. Sometimes, we overestimate their success in the process. Sometimes our patience wears thin and we try to rush the process.

In many cases, fear of failure holds us back. We fear, perhaps naturally, that the senior employees will offer deep resistance to the change initiative, that the employees will be de-motivated, that the events will spin out of control, the short term business results will decline, stock will plunge, and they will get blamed for being the architects of a crisis.

The first phase of the renewal process calls for strong leadership. But, it is leaders, not just managers who can guide change in this stage because the latter’s mandate is to minimize risk and keep the current system running. Thus, it is essential that real leaders be promoted or hired into the senior positions. Until we do this, the phase 1 will hardly produce the desired results.

Transformation starts when an organization has a new chief, who is a good leader and who realizes the need for a major change. Where the renewal target is the whole company, it is the CEO who should lead the change; where it is a division, the vice president of the division can guide the transformation efforts. However, he or she should be a great leader and a change champion.

When it comes to transformation, dismal business results can be both a boon and a bane. Sure, heavy losses draw people’s attention. But, then there is less room to maneuver. When a business performs well, it is much harder to convince people of the need for change. On the brighter side, there are more resources at our disposal to help with change.

In a successful renewal initiative, we open a candid discussion of the potentially grim facts about the competition, declining margins, shrinking market-share, flat earnings, slow growth of revenue or any other indicators of a deteriorating market position. Where the chief is not a change champion and the norm is to shoot the messenger bringing bad news, executives may count on journalists, consultants or customers to break the grim news to the authorities concerned. The aim of this whole exercise is to make the status quo look more dangerous than venturing into the unknown.

Strange or preposterous as it may seem to us, according to Kotter, in a few of the most successful transformations, a group has built a crisis. A CEO studiedly engineers the heaviest accounting loss in the history of the company, causing the Wall Street to exert huge pressure on the company. One division president commissions the first ever customer satisfaction survey knowing full well that the results would be pretty grim. Then, he goes on to make the findings public. At a glance, the stakes are a little too high in these moves. But playing it too safe we can not create the sense of urgency required to start the transformation process. In fact, Kotter maintains that there is adequate urgency when nearly 75% of the management honestly acknowledges that business as usual is completely unacceptable. Anything less can give rise to serious issues later on in the renewal process.

Form a powerful guiding coalition

Most of the renewal processes often begin with a group of two or three people. But, in the most successful cases, leadership coalition grows over time. It is critical, therefore, that, early in the effort, we get a minimum number of individuals to sign up. Sans this is something worthwhile is hardly likely to happen.

In the most successful change efforts, even as the chairman, CEO or division vice president is a reputed change champion, they get together with a group of individuals and develop a shared commitment to high performance through the transformation process. We must realize it here that the number of people in the group - 5, 10, 30, or 40 - depends on the scale of the operations of the organization. Notably, this group rarely comprises all of the most senior executives simply because some people just won’t buy in. But, for a successful change initiative, the coalition must be strong and powerful in terms of titles, information and expertise, reputation and relationships.

Whether it is a large organization or a small one, three to five people can guide the change during, say, the first year of transformation. But, in the case of large organizations, the coalition must grow to include 20-50 individuals to carry on the transformation process beyond the first three phases. Whereas senior managers make the core of the group, it can also include board members, a representative from a key customer or a powerful union leader.

The guiding team includes not merely the senior management but also those from lower ranks and those from outside; consequently, they tend to operate outside of the hierarchy. This can be pretty awkward, but clearly necessary. Change is required because the current hierarchy does not operate successfully. Thus, reform calls for activity beyond the formal lines of authority, expectations and protocol.

A high sense of urgency within the managerial ranks is a catalyst for a successful renewal programme. Additionally, someone has to rally the troops, help them see the problems and the opportunities, get them to develop a shared commitment to addressing the problems and making the most of the opportunities and cultivate trust and communication among them. Change-drivers prefer off-site retreats such as hotels and resorts to hold initial discussions.

Failure in the second phase occurs when we can not recognize the importance of a powerful guiding team and when we relegate the team leadership to an HR, strategic-planning or production executive rather than to a senior line manager. It isn’t impossible for change efforts to continue for a while even without a powerful guiding coalition. But, after a time, the opposition rallies itself and holds the change in check.

Create a vision

Developing a sound, sensible vision is a crucial step in the transformation process. It should be a compelling picture of the future that will interest the key stakeholders-customers, shareholders, employees.

A sound vision is more than a five year plan. In fact, it gives us a clear sense of direction. It is usually fuzzy at the start. But, when the guiding coalition works at it for a while- maybe for three months, six months or a year, it will emerge clearer and better. Frankly, it takes both deep analytical thinking and a little bit of dreaming to develop a compelling vision. Crafting a strategy for achieving this vision is the next part of this phase.

Kotter writes about a midsize European company whose first attempt at creating a vision contained only two thirds of the final product. The concept of ‘global reach’, for example, was there in the initial version. Also in it was the notion of becoming the leader in certain businesses. But one pivotal concept in the final version, namely, getting out of low value-added activities, surfaced only after a few rounds of discussions over a period of several months.

In the absence of a meaningful vision, our transformation effort can easily dissolve into a list of bewildering and incompatible projects that will drive it right into an impasse. Without a robust vision, the re-engineering programme in the production division, the new incentive scheme from the human resources division, the quality improvement programme at the factory, and the customer service initiative in the sales division will not add up in a sensible way.

In stymied transformations, we can find a plethora of plans, instructions, procedures but no vision. A big thick document carrying the procedures, goals, and methods in mind-boggling details but without a manifest and compelling statement about where all this is leading will not inspire people or get them together. It will either stagger or worse, alienate them.

Even where the guiding coalition has a vision, it won’t see much progress if it is too complicated or too fuzzy. Asked to describe their vision, an executive from a midsize company gives a barely understandable 30 minute talk. Buried in his reply were the key elements of a great vision-but they were buried too deeply.

Kotter gives us a rule of thumb. Unless we can communicate our vision to someone in five minutes or less and elicit a response signifying both passion and understanding, we should keep working at our vision.

Communicate the vision

Developing a sound vision is important, but not enough. We have to communicate the vision in a compelling way to ignite people’s passion and get them to buy into it. Communicating the vision should be a top priority in executives’ schedules. For example, in a routine discussion of a business issue, we can thrash out how proposed solutions match or (don not match) with the larger picture. In a regular performance evaluation, we can explain how employees’ behaviour helps or undercuts the vision. In assessing the quarterly performance of a division, we can talk not only about the numbers but also how the division’s executives contribute to the vision. To achieve greater success in the transformation process, we can avail ourselves of all current channels of communication to broadcast the vision. We can turn the soulless company newsletters into compelling articles about the vision. We can turn the boring monthly management meetings into animated discussions about the transformation. We can change the company’s management education programme to align with the new vision. In brief, we can use every possible channel available to communicate the vision.

Even more importantly, we should walk the talk. The guiding coalition should be the living symbols of the new corporate culture. It will not be easy for a 50 year old factory manager who has followed the command and control leadership model most of his life to adapt himself to a collaborative management model. Initially, he will be skeptical about delegating certain responsibilities to his subordinates. He will find it hard to become humble and nice to those under him. But, with a high sense of urgency, right communication strategy and feedback from peers and subordinates, he will be able to change his behavior. Actions speak louder than words. Nothing weakens the change more than the conduct of important individuals that is inconsistent with their words.

Also, under-communicating the vision is a critical drawback in this phase. Even as we succeed in developing a sound vision, we cannot communicate it by holding just a single meeting or by sending out a single communication. Also, it would not pay to confine the communication of vision to newsletters and speeches.

Particularly where transformation involves retrenchment strategies, credible communication is prerequisite to secure the support of people. We should convince them that the people who’re laid off will be fairly treated. Otherwise, it will be as useless as whipping the fog.

Empower others to act on the vision

As the transformation process advances, we start engaging more and more people. We encourage people to try new approaches, come up with new ideas and provide leadership. However, it is important that the actions fit within the boundaries of the overall vision.

The guiding coalition empowers others to act by communicating the vision. But, communication by itself is barely adequate. More often, transformation includes the removal of stumbling blocks. Sometimes, we find individuals who grasp the vision and want to make it happen, but feel bogged down for some reason. In some cases, it is just a matter of attitude and can be changed with a little bit of convincing. But, as Kotter writes, in most cases, these blockers are very real.

Sometimes, the organizational structure itself can be an impediment. When we define the job roles either too narrowly or too broadly, it can both undermine the efforts to raise productivity. In the first scenario, people will always try to stand within their silos whereas, in the second, people will cross the boundaries too freely. Sometimes, compensation or performance evaluation systems we introduce can make people choose between the new vision and their self- interests. Where the bosses refuse to change and make demands that are incongruent with the total effort, the transformation process grinds to a halt too.

Kotter tells us about a division head, who impeded a transformation initiative in this phase at a particular company. He paid lip service to the renewal process, but did not change his behaviour or get his managers to change theirs, either. He hardly rewarded the unconventional ideas the vision demanded. He turned a blind eye as the human resources people under him ran counter to the new vision.

It is interesting to delve into his motives. No doubt, they were pretty complex. Maybe, he did not believe that the company needed major changes. Maybe, he felt personally threatened by the change. Maybe, he feared that he could not achieve both change and the expected operating profit. Even as they embraced the new vision, his peers or superiors did little to stop him. Again, the reasons were complex. Some people were in awe of him. Also, they had not confronted such an issue in the history. The CEO did not want to risk losing a talented executive. The net result was catastrophic. When they got wind of it, people’s trust in the new vision began to crumble. Cynicism grew. The whole change effort just caved in.

At the beginning of a transformation effort, we do not have the momentum, power or time to shake off all the obstacles. But, we have to remove the big ones. Where the stumbling block is an individual, we should treat that person in a fair manner that is consistent with the new vision. We should remember also that action is crucial both to empower others and to keep the credibility of the transformation process intact.

Plan for and create short-term wins

Successful transformation does not happen overnight. In fact, it may take years to materialize. Therefore, short-terms wins are imperative to keep people motivated during the long march. Within 12 to 24 months in a transformation process, most people need to see the positive signs of progress. Unless we can pull off short-term wins, people will cede their efforts or start opposing the change.

Within one to two years in a successful transformation, we may be able to witness quality starting to increase on certain indices or the net income going up. We may see new products being launched or market share getting bigger. We may see a boost in productivity or better customer satisfaction ratings. We may see a drop in overheads or higher sales.

The win, however, should be self-evident. In a successful transformation, we have to figure out ways to achieve performance improvements, set clear goals to achieve in the annual planning, achieve the objectives and offer recognition, promotions and financial rewards to them. Kotter narrates a great story about a guiding coalition at a US manufacturing company that successfully introduced a new product 20 months into its renewal program.

The new product was picked just six months into the transformation, as it met multiple criteria. It was chosen because it could be designed and launched in a relatively short time; because, a small team of people devoted to the new vision could build it; because, it had good prospect in the market; and because the new team could operate outside the established hierarchy of the department. Few things were left to chance, and the win instilled trust in the people involved.

We can see that pressure to produce short-term wins puts off some managers. But such pressure, as Kotter says, plays a vital role here. It’s key to keeping the urgency level high as people tend to slacken and lose faith in the renewal programme when they feel that major change takes years to happen. Also, such pressure can prove helpful in clarifying or rectifying the vision.

Phase 7-Consolidate improvements and produce more change

Even though it’s very important to secure short-term wins, declaring the victory too soon can bring the transformation to a halt. We have to understand that generally it takes five to ten years for changes to take hold. This is not to say that we should not celebrate the short-run victories. But, without developing a sense of complacency, we should consolidate improvements and bring about further change.In a successful transformation drive, instead of glorifying the short-term gains, we can use the credibility brought by short-terms wins to address even bigger issues. We can alter the systems and structures that are not consistent with the change vision. We can introduce even bigger re-engineering programs.

Sometimes, we squander a fortune on a renewal programme in terms of consultants’ fees, new IT systems, and the likes. And we make good progress too. But, to our surprise, the useful changes introduced start to disappear. In some extreme cases, not a trace of the initial transformation can be found after a while.

Whether it’s reengineering, quality management or cultural change, many transformation initiatives die prematurely. Most of the problems start early in the process. The urgency level is not high enough. The guiding coalition is not powerful enough. The vision is not clear enough. But it is when we celebrate the nascent victory that the momentum begins to weaken. Soon afterwards, the powerful forces akin to tradition recapture the organization.

It’s a tragic irony that both change initiators and change resistors join in the premature celebration of victory. While change initiators jump with joy at the first positive sign of progress, change resistors point it out as a sign of the grand victory. This puts an end to the renewal process. As change comes to a standstill, tradition creeps back in. All this points to the single most important fact about any transformation effort: It takes not just months but years.

Phase 8-Institutionalize new approaches

Even if we introduce change, it won’t be sustained unless it becomes deeply rooted in the company culture, shared values and norms.

With the pressure for change absent, it all can easily degrade. One way we can anchor changes in the corporate culture is to make a conscious attempt to convince people that the new approaches, behaviours, values and attitudes have engendered a significant boost in performance. Left to their own devices, we should understand, people make incorrect links and wrong assumptions sometimes. For example, they may attribute an increase in sales to the charisma of their Chief Marketing Officer instead of realizing how their improved customer service and efficiency have contributed to it. We need to help people see the right links. Intelligent communication is the key to achieving this.

Kotter writes about a company where they relentlessly communicated why performance was going up at every major management meeting and through the company newspaper and the likes. Needless to say, their endeavours were instrumental in driving the company growth.

Another way we can establish the new approach is to make sure that the next generation of the top management continues the renewal with unflagging enthusiasm and relentless commitment. One wrong succession decision, observes Kotter, can spell the ruin of a decade of travails and sacrifices. Admittedly, poor succession decisions are inevitable in the instances where the board is not a key part of the transformation. If the outgoing CEO is the change champion, his successor too should share with his vision and continue the former’s legacy. Where this doesn’t happen, the renewal won’t endure.

Whatever we say, transformation is not just a breeze. It’s messy and full of pitfalls.

It’s full of delightful surprises as well as rude shocks. On many occasions, it may require us to take a risky U-turn and venture into the unknown. It’ll be hard to resist the temptation to keep the status quo in the hope that a miracle will happen and the company will transform itself in the nick of time.

But, no miracle will happen unless we get down to the job and do it.