Re-align business and boost profits

Despite what carefully constructed adverts in airports and business magazines may claim, business transformation is not a silver bullet designed to save money and earn an executive promotion. But what is it and how do you do it successfully? Tim Stafford explains


Expensive marketing campaigns by technology and consulting firms have seemingly produced as many definitions of business transformation as proponents of it. It can refer to anything that includes a significant change to reporting relationships, operations, job design, or other structures of a company, business unit, or function, along with a focus on cost efficiencies.

It’s no surprise, then, that corporate functional heads are drawn to transformation to signal their intent to innovate or improve performance and service at lower cost. What is surprising to managers, who embark on business transformation, is that few succeed and those who do rarely produce sustainable change.

Detlef Thielgen, chief financial officer of pharmaceutical firm UCB, which recently undertook a significant finance transformation, agrees. “It’s always a question of sustainability,” says Mr Thielgen. To make the change as sustainable as possible, he says, “we included many people from finance and that took longer than it would usually”.

To achieve tangible benefits, executives must realise that business transformation is not a quick fix, but an evolutionary process that intelligent leaders pursue consistently over time. Moreover, managers must explicitly understand how the initiative will benefit their function and the enterprise as a whole.

After evaluating hundreds of transformation projects, CEB, a global member-based advisory firm, has seen that the most successful focus on realistic business goals, clearly articulate what they want to achieve, invest in people as much as in process and technology, and improve their employees’ facility with information and data.

FOCUS FIRST

Executives should begin by articulating how transformation will help do one or both of the following:

1. Sell more goods or services

2. Make more money from the goods and services being sold.

If the transformation team does not understand how their efforts will result in one of these two business outcomes, then it is unlikely they will be successful or that any early gains will be sustained. Once the business outcome is clear, the company needs to be specific – and realistic – about what must change to achieve that outcome.

Jean Martin, executive director at CEB, explains. “One of the most common mistakes businesses make in attempting transformation is overshooting or being too generic on the definition of the end-goal and, inadvertently, making success impossible or undesirable,” she says.

There may well be many definitions of business transformation, but the only important one is that which helps a firm sell more products or make more money from selling them

For example, 90 per cent of finance functions aim to complete 100 per cent of their internal customers’ requests. While this displays commendable customer service, it is not feasible or desirable to please everyone and will not benefit the organisation to attempt to do so. As Mr Thielgen says: “The business has to get used to [the fact] that we are not a ‘one-stop shop’.” The more specific the transformation objective, the better companies can prioritise efforts and align their work to a higher-order business objective.

INVEST IN PEOPLE

To align a transformation to business objectives, managers should invest consistently in the most underappreciated part of the transformation trinity of “people, process and technology”, namely people.

Transformation marketing campaigns will often promote either technology vendors or consultancy firms, who offer lengthy engagements to improve functional processes. Technology and process are incredibly important to get right, but the best-designed technology or the most minutely constructed processes are only as good as the people using them.

Executives predict they will need a 20 per cent improvement in performance above current levels to meet business objectives. Moreover, the vast majority of companies will have to realise these gains by relying on their current workforce, not by hiring more employees.

A simple check to understand whether managers have the right balance of investment is to ask: “Imagine I managed to achieve the efficiency gains we’re looking for and could give every person on our team at least 20 per cent more time from tomorrow, would they use it wisely?”

If the answer is “no”, then it probably means you’re investing too much in making the efficiency gains and not enough in the people who must capitalise on them. Talent is a scarce resource – more than capital or technology – and poses a significant barrier to growth. The ability to source, develop and retain talent is a critical differentiator.

“Ultimately, it’s the effort made to update the quality of the teams that goes furthest to separate successful transformations from unsuccessful,” says Ms Martin. “A great team can be great with even a mediocre technology or process; a mediocre team with a great technology is never more than mediocre.”

THIRD, IMPROVE JUDGMENT AND INFORMATION HANDLING

It’s almost certain that anyone answering “no” to the above question pictured their teams struggling with information analysis, and the ability to help line managers interpret and make decisions from that information.

Big data is a concept that generates nearly as much hype as business transformation, but all it promises is worthless if employees can’t use the data. Information volume grows by 60 per cent a year, yet CEB’s data shows two in three workers lack the analytical skills necessary to apply the good judgment. And, for example, less than 20 per cent of business leaders and less than 15 per cent of senior HR managers think their firm’s talent analytics focus on the right issues.

Functions employing teams with the right data skills perform about 24 per cent better than other functions across a wide range of measures, including effectiveness, productivity, employee engagement and market-share growth.

There may well be many definitions of business transformation, but the only important one is that which helps a firm sell more products or make more money from selling them. And, for that, managers should focus on realistic goals, invest in people, and improve employees’ information handling and judgment.

CEB works with some of the world’s most progressive companies to evaluate hundreds of proven business practices each year. This enables CEB to support managers at all stages of the business transformation process.

For more, visit cebglobal.com/transformation