“Most studies suggest that approximately 70% of major change attempts don’t succeed. For example, about two thirds of M&As don’t return the cost of capital” says RBL’s Norm Smallwood in a recent article. The key reason he suggests is that organizations often approach the change in the wrong way.
Typically, leaders divvy up accountability to improve parts of the organization to different senior managers. Consequently, the change process focuses on optimizing each part and not on how the parts should optimize the entire business. This approach to transformational change, rather than focusing on optimizing the whole business from the beginning, just presents a difficult, time-consuming, integration challenge at the end of the process.
So, what does best practice look like?
Smallwood quotes the example of Savage, a privately held global supply chain company based in Salt Lake City. Kirk Aubry, the newly appointed CEO of Savage, set up a change process which ensured that key influencers from across the business had a voice in the changes that would impact their future and would have deep understanding of the intent of the changes during implementation.
This extract from Norm Smallwood’s article explains how the Savage design team completed four phases to optimize the business:
1/ Diagnose the Business: Deeply understanding and agreeing to the current business challenges as well as diagnosing current performance interactions is critical to agreeing to future changes. For large-scale business transformation, leaders need a fact-based description of industry trends and implications, business strategy, structure, costs, processes, leadership, and value of services to customers/clients. Without common agreement about the current challenges, it’s virtually impossible to agree to major change. If conditions are not ready for transformational change, this is the time to determine it. This diagnosis is a critical impetus for the scope of what’s needed. As the design team works through this diagnosis exercise together, they gain perspective about the interdependencies of what’s needed and become champions for fixing the problems in an integrated way. Typically, the greatest insights during the diagnosis phase are about how parts of the business impact overall performance. One of the insights that the Savage team discovered in this phase was that they had expanded into more services than their original core business and that success in the new areas required different skills and capabilities than success in the core business.
2/ Envision the Ideal Future: The temptation in phase two is to jump to fixing the problems identified in the current state. Our experience is that this leads to incremental, not transformational, change. The design team must build a clear and complete design of the ideal future business model using the same elements as in the current state diagnosis: strategy, structure, costs, processes and so on but this time in a manner that is not based on current interpersonal dynamics, political issues, or even cost constraints. We encourage the team to take a ten-year time horizon to help them get out of the existing relationships and problems. In this phase, the Savage team started to get excited about the ‘what if’ notion of having more than one business that had a different strategy and organization design than the core business and could build distinctive capabilities and be rewarded in the market in a different way. This is not incremental change—the design team was reconfiguring how the business model could work.
3/ Gap Analysis and Transition Planning: The first part of phase three is to complete a gap analysis between the current reality identified in phase 1 and the ideal future in phase 2. The intent of gap analysis and transition planning is to build a consensus on the magnitude of the change with all stakeholders and how to approach implementation. This stage is all about good project planning and ensuring accountability for making the transformation. Another key to this is to challenge the ten-year time frame for ideal future. The ten-year timeframe allowed people to get out of the politics and myopia of the current state. After scores of times doing this, the ten years always looks closer to a two-year time frame. This was true for the Savage design team, who completed a gap analysis to improve their core business as well as setting up a plan to spin off a new business. The design team presented the first three phases to the senior executive team at the San Diego meeting. The senior executive team had been kept in the loop over the previous months, and the debate led quickly to a discussion about implementation.
4/ Implementation: Since the design team represented key influencers from across the business, there are built-in champions to implementation who understand the intent of the proposed changes. The key to implementation is to involve the rest of the people who are doing the work and expected to make the desired transformation to have a voice in the details of how it will actually be done.
Savage is in the implementation phase now. Implementation is never smooth. The oil price drop last year had an impact on the speed of some issues. But, implementation is what Savage is known for, so there is high confidence in achieving goals. Business transformation is never easy. Success is enabled when leaders follow a change process that is focused on optimizing the entire business from the beginning rather than improving the parts.
Read the original article on LinkedIn Pulse