Why Business Transformations fail? Is there a way to transform and change successfully? Put people first?
Did you know that since the new millennium, half of Fortune 500 firms have vanished? If not, it is maybe even more important to learn that Innosight forecasts that 75% of today’s S&P 500 organizations will be eventually “replaced” with new ones within the next decade. The million-dollar question though, is why. Experts suggest that the major reason is that companies cannot keep up with the rising shifts and complexity in the business ecosystem. This came from rapid technology advancements, customer preferences’ shifts, digitization etc. Organizations are now facing multiple existential threats every single day, therefore experts come to one conclusion: companies should transform or change, otherwise they will eventually disappear within the next decade. However, changing and transforming a business is not simple. Over the last 15 years, 60-90% of business transformations have failed (“Excellence in Execution”, 2017). So, the big question is why did they fail?
Back to basics. Most companies are changing and transforming their business to increase customer satisfaction and improve profitability. They need this transformation in order to keep up with latest changes in the industry and the market. Business transformation is a bold strategic shift, a large initiative and a wholesale change, which will maximize additional value. Transforming a business basically involves fundamental and profound changes on how a business operates, including all people (i.e. employees, managers etc.), processes, technology, and other major functions. This helps make a strategic pivot for the whole organization. “Accelerating change and growth beyond typical incremental advancements” is the overall purpose. If we break up business transformation into smaller chunks, we will realize that change management is a critical part of that transformation, as it will determine whether this transformation will be successful or not. Change management determines how continuous steps towards transformation, will be planned and implemented to close the gap between the current business state and the ideal business state. This is necessary because businesses are reacting to external forces or circumstances. Sometimes a business needs to encourage improvement, in other words change. Change management deals with reversable changes or shifts, while transformation is permanent and more fundamental, as it cannot be reversed or maybe its reverse will have a very high cost and risk.
Studies have shown that people in companies which have been through practical, procedural or governance changes, are 3 times more probable to disengage, than people working in companies that have not been through any kind of change or transformation. Leaders in such organizations that will need to be transformed in order to survive, should carefully consider what should come first in a transformation. Experts suggest that managers and decision makers need first to determine which are the beliefs and behaviors they would like to change and then proceed with effective change management practices, in order to transform supporting processes, structures or governance mechanisms. Those beliefs and behaviors of course come from the people within the organization that are involved in those changes. People are forming the “bridge” between the strategy design of a transformation and the actual implementation of that transformation.
The solution to a successful business transformation: people-centered strategy
To transform an organization, any manager first needs to convince the people that this change is needed and to determine how people will embrace that change. It is all about changing the culture of an organization and at the same time boosting employee engagement. To do that, you need to find a new purpose and communicate that purpose effectively to the people who will be working towards it. Netflix’s transformation, one of the most successful ones of the last decade, it was initiated by the CEO’s memo to their employees. He wrote: “We don’t and can’t compete on breadth with Comcast, Sky, Amazon, Apple, Microsoft, Sony, or Google. For us to be hugely successful we have to be a focused passion brand. Starbucks, not 7-Eleven. Southwest, not United. HBO, not Dish.” Any leader, responsible for a business transformation, should involve autonomy and accountability. Leaders should support and embrace the company’s new culture and respect, motivate, and support the people who will bring the best results out of a change. During a transformation, managers do not only develop processes and structures, but managers will also develop people. There is an increasing need to empower employees through innovative learning and development opportunities. Recent surveys have shown that 72% of HR and Learning & Development professionals believe that this need is significant enough so that they will increase their training budget during a transformation by almost 50%.
Transform it, but first communicate it! Organizations with senior managers that are communicating with employees across all levels are seen to be 8 times more probable in achieving large transformation efforts, compared to those firms where communication is only limited to the people in the level below senior-level executives. However, right now, 70% of managers are expressing some dissatisfaction with communicating transformation plans and objectives to employees, which may be attributed to the large percentage of failing transformations. This people-centered strategy is key to the solution. It will not only be successful just because the organization will provide L&D opportunities, but also because the communication was actually effective. After all, offering development opportunities to people is the key to embrace change but only if it is communicated in the right way. However, many leaders have been asking what exactly to communicate. Here is what should be communicated:
- Transformation objectives
- CEO’s clear engagement with transformation and change management
- Constant access to all available information by all employees
- Senior executives’ constant engagement with transformation procedures and the people involved
- How the new strategy design of the transformation will be planned and implemented
Amazon Inc. was stepping in aggressively and Best Buy saw its market share in consumer electronics dipping month by month until the new CEO came to change the company. He came up with a new innovative transformation idea, with the vision to make Best Buy the digital technology leader. Best Buy was just selling technology. The CEO presented not just selling technology but the use of technology for the company’s own success to enrich people’s lives. Going digital was a bold strategic move, a huge transformation that took almost 7 years to complete. Best Buy created a whole new digital technology system that would decrease the time of delivery, offer advice to customers about products and services, and help customers get most of the unique services the organization had to offer. The firm stopped using snail mail, and aggressively started taking advantage of digital marketing. They used critical consumer digital data to provide customized assistance to customers, offer recommendations, provide price matching systems and introduce the innovative Geek Squad for remote support. Surprisingly, one result mattered the most: its stock price increased from $23.70 in 2012 to about $74 today. Of course, the question behind all that is how. The new CEO first and foremost transformed the perceptions and mindset of people working for Best Buy, going less traditional, more innovative. People had to first realize that consumers were not making the most out of Best Buy’s services and then to be convinced that digitization is what would help boost customer assistance and delivery times. Learning and development along with proper communication, in regard to people, were the actions that would stand out for a business transformation to be successful. In the end, systems, procedures, and structures are changeable by only one click, but what will truly transform an organization is its people.