RETHINKING TRANSFORMATION
Transformation is everywhere. You hear it in breakfast forums in the morning and cocktail events in the early evening. It’s also the topic of late-night business shows on television.
“We’re changing our business model into one that leverages customer relationships,” says one
CEO. “We’re going digital,” quips another. “We’re pursuing new partnerships to stimulate growth and innovation,” goes a third. They then go on to explain why transformation, the radical overhauling of most if not all aspects of a company’s operations, is a must.
It’s in the agenda of every other business conference or CEO summit. Whether it’s in the name of achieving industry leadership, sustaining profitability, achieving the nation’s development goals, or preparing for ASEAN integration, the call of the day is for businesses to transform or perish.
But is total transformation needed in each and every case? We know from the ancient Greeks that change is constant. Managing and adapting to change is the story of our lives. But business seems different. Enterprise owners, CEOs, and managers are under pressure to engineer fundamental changes every time the organization faces a major challenge.
A RECENT STUDY SHOWS THAT ONLY 3 OUT OF 10 TRANSFORMATION INITIATIVES ARE SUCCESSFUL
The founder and owner of a group of companies in the entertainment industry woke up one day to discover that his businesses were no longer profitable. What used to be a cash-rich concern went bankrupt almost overnight. Customers were dwindling as rivals introduced more innovative entertainment formats. Board members and business consultants urged radical change and capital injection. But since he had controlling interest, he ignored their recommendations and clung to what worked well in the past at great cost to his business.
The CEO of a leading logistics company rolled out a new IT system to enable enterprise resource planning and improve management’s ability to collect and use data from business activities. The ambitious plan was to implement the new system in a year. As it happened, it took all of three years, with a significant negative impact on sales, margins, customer satisfaction, and employee engagement. While the project team’s lack of experience was a big factor for the fiasco, the CEO says the ultimate responsibility lies with him and top managers. “My leadership team and I should have been more involved and should not have left it to the project team,” he says.
To maintain market leadership ahead of greater Asean economic integration, the CEO of a manufacturing company initiated an organizational restructuring that entailed job cuts. At the same time, the company began acquiring a competitor’s facilities to build production capacity. Meanwhile, business processes were overhauled while new IT systems were introduced. Finally, the company also introduced product innovations that entailed new ways of engaging with customers. While the CEO remains confident that all these will deliver double-digit growth in revenue and profits, middle managers and their people were simply overwhelmed. Unable to cope with simultaneous changes around them, rank-and-file workers resisted the CEO’s transformation plans.
The foregoing examples show that organizational transformation is never easy. It is no surprise that a recent McKinsey & Company study shows that only 3 out of 10 transformation initiatives are successful.
There are no easy answers. There are only questions that business owners and company boards must ask when CEOs and their leadership teams come to them with proposals for transforming the organization. First, why change at all? What is driving it and what will the end game look like? Second, what is the magnitude of the proposed change, and what is the readiness of the organization for change? Aren’t the CEOs and top managers overstating the need for transformation compared to more modest, incremental changes? Third, what is the degree of commitment and courage of the company’s leaders to change themselves and become the beacons of the new order of things?
That’s not all of it but the answers to these few questions could very well spell the difference between growth and stagnation or survival and bankruptcy.