Chief executives afraid of change need only look at the changing make-up of the world’s stock exchanges, even over relatively short periods, to understand why business transformation is essential.
“Look at the Fortune 500 in 1955 – only 12 per cent of those companies are still around,” says Lars Gollenia, of leadership consultancy Spencer Stuart, and former vice president of global business transformation services at SAP.
If anything, surviving is getting harder, says Professor Gianvito Lanzolla of London’s Cass Business School. “If you look at any ranking of leading companies, the tenure is shortening,” he says.
Threats to corporate existence come from many directions – disruptive competitors with leaner business models, reputational crises, regulatory change or raw material shocks, for example.
This short corporate lifespan means constant reinvention is required. Yet understanding that transformation is necessary is one thing, actually transforming a company is harder and needs careful planning.
Putting theory into practice
Jason West, founding director of Underscore HR and who has considerable experience in delivering successful transformation projects, says: “To transform a business you need to understand where you are today, where you need to get to tomorrow, then build and execute a plan to take you from one place to the other.”
While the theory is straightforward, the practice can be much harder. “You will almost certainly be operating on incomplete information about your current state and your future state could well be several years away. Visible and engaging leadership is therefore essential,” says Mr West.
“In addition to deliberate, planned and active leadership you need a clearly defined programme management methodology. For larger business transformations, a portfolio management methodology may also be required to integrate and manage dependencies between the various programmes of work underway. Finally, a structured change management methodology is essential to embed future ways of working, systems and processes into the culture of the organisation.”
The point is if we don’t change, we succumb – there is an implicit assumption that companies are for the long term
The experts all agree that a structure on which to build a transformation is vital and there are plenty of programme management methodologies on the market. Mr West adds: “If you have a corporate programme methodology, use this for your business transformation, as the business already understands the language and approach. If you don’t have a defined methodology then Managing Successful Programmes (MSP) is a good place to start.”
Companies should also use a tried-and-tested change management model, such as Kotter’s 8-Step Change Model or Lewin’s Unfreeze, Change, Refreeze approach. “My preference is Prosci’s ADKAR model as it is research based and comes with a vast array of tools and templates to help you deliver change practically,” says Mr West.
In his 2012 book, A Handbook of Business Transformation Management Methodology, Mr Gollenia with Axel Uhl outlines a holistic methodology called BTM2. This combines business process, change, strategy and risk management into a single methodology, which organisations can cherry-pick according to their needs.
An example of a successful transformation began in 2013 at Baxter International, the dominant player in the market for treatment of haemophilia A and a leading dialysis systems provider. The company concluded that shareholders would significantly benefit if the biotech division spun out and organised as a free-standing, publicly traded company, Baxalta.
The mechanics of the spinout were formulated in 2014 and focused on the concept of purpose-driven performance by highly engaged employees.
The company put together a 14-strong group of cross-function, cross-divisional leaders to look at what changes in day-to-day operations were required to deliver on the vision. The team drafted a scheme for the company that was then validated with team members around the world to create a plan called Spark.
The key idea behind the transformation was that employees would sign themselves up, or self-enrol, in the change.
John Glasspool, Baxalta’s head of corporate strategy and customer operations, says: “We wanted to make sure that it wasn’t seen as senior management rolling out the new culture and trying to cascade it down. With self-enrolling, everyone bought into it and we hard-wired what we wanted to achieve into the culture.”
Baxalta was successfully spun out in mid-2015 and was the target of a successful $32-billion acquisition by Shire in 2016.
These days, business transformation is often about digital transformation, something that Cass Business School’s Professor Lanzolla has helped many companies achieve.
“There is a significant skills gap at senior leadership level and not everyone understands exactly how digital transformation should be done,” he says.
Buying in the services of management consultants is an obvious route, but companies may do this too often. “Companies are creating risks in terms of who owns what,” says Professor Lanzolla, who believes in a three-stage journey.
“Stage one is to digitise and automate. Some companies think this is all that is required for digital transformation, but it’s just the beginning. Stage two is about building connections between computers and between people. Stage three is then to reconfigure the business model. It is a very long and painful journey, and it requires a lot of experimentation and mistakes.
“The point is if we don’t change, we succumb – there is an implicit assumption that companies are for the long term.”