The latest word to lose meaning through corporate overuse is “transformation”, with more than three-quarters of corporate chief financial officers, human resources heads and chief information officers reporting they have initiated transformation efforts.
The energy to transform springs from some very real challenges that companies now face. Two disturbing facts confront most executive teams as they look across the next few years. The first is that their public plans imply substantial productivity gains – 20 per cent or more. These gains are from an already high level due to careful staffing and expense management during and after the financial crisis. The second, often unstated, but deeply recognised, is that large-scale corporate cost efforts fail – repeatedly and often spectacularly.
This second point is really important. It isn’t just that cost- saving efforts harm other key goals (they do); our analysis has shown that companies try to cut costs and simply fail. Often, costs taken out in one area reappear in another; for instance, the legal department that saves costs by pushing contract review back on to the salesforce. While overall corporate productivity may have risen across the past decades, the number of individual companies that initiate and sustain multi-year efforts that make them more competitive at an individual company level is minimal.
“Transformation” is the response of vendors and the major process consultancies to this uncomfortable fact. The target is the same – the overwhelming majority of executives report that the objective of these efforts is cost-savings. But, as with the re-engineering fad two decades ago, the means to this end is a wholesale rethink of technologies, processes and roles in finance, IT and HR. In health terms, forget diet and exercise – think major surgery. This obviously serves advisers who sell large-scale transformation efforts well, but what of the corporates who embark on these efforts?
Efforts focus too heavily on automating routine transactional activities, at the expense of higher-value information gathering and support of vital business activities
So far, the news is not that positive – more than two in three executives who have initiated transformations report that they didn’t see the returns they expected. The news in HR is particularly depressing, with 83 per cent of HR chiefs reporting real shortfalls.
The root cause appears to be that, in initiating transformation efforts, corporate leaders are fighting the last war. Most efforts we see are almost exclusively focused on general and administrative cost, with little regard to how these efforts will change the productivity of the overall company. And as such, the efforts focus too heavily on automating routine transactional activities, at the expense of higher-value information gathering and support of vital business activities.
Simply put, it’s hard to imagine a division president telling a board that he or she grew earnings by 15 per cent because the accounts payable or benefits administration process is more highly automated. On the other hand, it’s not hard to imagine that the divisional president might credit their chief financial officer with sharing insights about supplier behaviour that gave real cost leverage, or thank their HR partners for better analysis of employee productivity that changed key bonus structures.
The learning for would-be transformers (the corporate kind, not the cool, giant metal kind), is that any change effort should be targeted on architecting meaningful information flows and having the right people in place to analyse and interpret them. The focus of change should be on the insight and tools supplied to general management, and the overall outcomes at the company level.
Done right, “transformation” doesn’t have to be English for “expensive failure”.