Organisational Transformation: does it have to be that hard?
By Gary Burke
Due diligence completed, terms agreed, the deal’s signed and you’ve spent the past 100 days developing the integration strategy, complete with a target operating model (TOM) and high-level roadmap to bring the organisations together. Now all that needs to be done is execute that strategy to enable the expected synergies and benefits to be realised – and a transformation programme is born.
However, transformation programmes don’t tend to have a great track record of success. The bringing together of multiple technologies, ways of working and, most importantly, cultures, is hard – and it’s hard because it’s complex. There are many moving and interconnected parts but, in many cases, organisations make it much harder than it needs to be. With any transformation, much like an iceberg, there’s a lot that isn’t visible or immediately obvious that really needs to be understood, so you don’t end up with the transformation programme equivalent of the Titanic. Or the board meeting months after the start date where you need to discuss how much has been spent, the lack of progress and how to get the programme back on track!
What is Transformation?
Transformational change (ie. the raft of orchestrated changes required to bring about a transformation) is not the same as change ie. non-transformational change.
To illustrate the difference, think about home improvement. You can paint walls and ceilings a different colour, put down new flooring and replace the furniture etc. and, by doing this, you’ll have made changes but fundamentally you’ll still have what you had before. Whereas if you build an extension, it will increase the property’s value and gives the opportunity to rethink and make different and better use of the new space. It’s disruptive, there are far more things to do, more parties involved, it’s more expensive and there are more opportunities for things to go wrong.
Transformation is analogous to building an extension. It will be brought about by making significant changes to what an organisation does and how it does it (described by its business model and operating model respectively) as well as being open to the possibility of doing things differently – a different mindset. It’s common to hear transformation described as being about people, process, and technology but it’s actually much more than that.
Business and Operating models
At its simplest, the business model describes what the organisation does to create value: the products and services it provides, who its customers are and how those customers are served.
Operating models come in two flavours: there’s the TOM that describes the desired future operating state and the current operating model (COM) which, as the name suggests, describes the current operating state. An operating model describes how the organisation operates – the operating environment required to enable and support the execution of the business model. It consists of multiple components: how the organisation is structured, the governance framework, leadership and management styles, the culture, people and roles, workflows, processes, data, and all the applications and infrastructure. It’s how all these things work and work together. It’s not about mapping processes to the nth degree but understanding the interaction between these components and the various functions of the organisation – how they’re connected to each other and the reasons for those connections.
Determining the business model for the new organisation will have been a key factor in the acquisition decision and, together with the TOM defined during the first 100 days, provides the destination for the transformation journey that’s about to get underway.
The Transformation Journey
However, as with any journey, to work out the best route to the destination it’s imperative to know where you’re starting out from. For example, thinking about an actual journey, if you were in London and wanted to go to Edinburgh, you’d have various options and possible routes to choose from, but you’d have a very different set of choices if you were starting from Plymouth or Paris. In transformation terms, the starting point is defined by each organisation’s COM, although COMs are often poorly understood.
With any transformation, you can’t look at the components of the COM in isolation, and that’s one of the main pitfalls – having too narrow a view, operating and thinking in silos rather than assessing the impact of change across the entire organisation through a transformation lens ie. cross-functionally, holistically.
In not understanding the COM, you won’t know how things really work and the real problems that need to be addressed: the broken processes, siloed operations, lack of communication, appetite for change and level of possible resistance, poor customer service, flaky technology, manual workarounds, duplication of activities etc. You won’t have the information necessary to make informed decisions about the correct approach to take with the transformation programme, so you run the very real risk of setting off in the wrong direction with incorrect assumptions and priorities. The initial activities undertaken won’t be what they really need to be. Of course, this will be realised at some future stage but by then it will be much harder (and more costly) to recover the situation… assuming it is recoverable.
Some of these aspects may have been surfaced pre-deal during the due diligence stage but, post-deal, it’s critical to apply a transformation lens to validate the COM before the detailed plan is agreed and finalised.
Solid Foundations
There’s an apt adage from the woodworking profession – measure twice, cut once. This should be applied to any transformation programme to ensure there’s sufficient understanding of the situation before deciding how to act, as understanding the COM provides a solid foundation for transformation. You wouldn’t buy a house without solid foundations so why would you embark on a strategically important transformation programme without them?
This may seem overly simplistic, but it really is that simple. There have been lots of case studies over the years about why transformations programmes don’t succeed. A quick internet search gives dozens of failed M&A examples, including some of the well-known biggies, eg. AOL/Time Warner, Citicorp/Travelers Group, Daimler Benz/Chrysler, Microsoft/Nokia. But, regardless of size, the same reasons for failing are trotted out time and time again, ie. unrealistic expectations, overlooking cultural and operational differences, lack of communication, poor integration process etc. But if these reasons have been known for years (and they have) why do transformation programmes continue to fail, what’s really going on? A major factor is because the reasons typically given are actually symptoms and not the root causes – and there are only two root causes.
Root Causes
The primary root cause is simply a lack of understanding of what transformation is and how to approach it in the right way. If you’re embarking on a transformation programme, you’ll have an initial understanding of what’s involved: the (probably ill-understood) COM, the outcomes wanted, and what you presume needs to be done to get to those outcomes. The understanding of these aspects will align to the leadership team’s appetite for that amount of change, and from that alignment, expectations will develop regarding costs and benefits and timescales. But, once the programme’s been running for a while and it’s realised that what’s involved has been insufficiently understood and underestimated, you’ll find yourself heading towards a potential recovery situation, or at least a major re-plan.
The second root cause is not having the appropriate capability to deliver transformational change. This comes back to recognising the difference between transformational change and (non-transformational) change. They are very different beasts and need to be approached and managed very differently.
Just think about building that extension if you only have the knowledge, experience and tools for a bit of decorating!
Conclusion
Organisational transformation requires transformational change not just ‘change’. It’s disruptive by its nature – it’s a big deal – so it’s important to go into it with as much understanding as possible, so decisions, particularly key decisions made by the leadership team at the very outset relating to strategy, direction, priorities and investment are informed decisions. Transformation is hard because it’s complex, but it doesn’t have to be that hard if it’s sufficiently understood and approached in the right way because, let’s face it, anything is hard if you don’t have the right skills, tools, experience and mindset.
Gary Burke is a Transformation Advisor and an Associate Director at GPMIP. He works with leadership teams to help them better understand transformational change so it can be approached in the right way and executed and delivered successfully. He has guest lectured on transformational change at Surrey University and is the author of the Amazon bestseller, ‘A Transformation Lens’. You can find the link to Gary’s book here: https://gpmip.com/a-transformation-lens-the-savvy-business-leaders-approach-to-transformational-change-by-gary-burke/
Global PMI Partners is a specialist global consulting firm supporting our private equity clients and their Portcos with their buy and build strategies, carve outs, integrations, and operational transformations. We provide expert, on-demand M&A (diligence, planning & execution) and transformation project services and resources, leveraging our market leading approach & methodology. We can also provide interim business functional leaders and SMEs.
