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BTA Online 360 Journal - Success and Failure in Transformation

This article reports the results of an analysis of 13 business transformation case studies. Some were successful, some failed and the rest were partly successful. It shows how the BTM2 (Business Transformation Management Methodology) disciplines influence the outcomes and explains why some are more successful than the others. By John Ward and Axel Uhl

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BTA Online 360 Journal - Success and Failure in Transformation

  1. 1. 3030 METHODOLOGY | RESEARCH To remain competitive in increasingly global markets, many businesses need to transform either what they do or how they do it or both. Economic turbulence and uncertainty can also make the need to change more urgent but, at the same time, make it more difficult to accomplish successfully. Given these challenges, it is not surprising that studies show that only about 30% of transformation pro- grams are completely successful, while 30% fail completely. Our study of 13 business transformation cases of differ- ent types in large European corporations is consistent with this pattern of success and failure: –– four of the transformations were very successful achieving all the main ob- jectives, –– five were partially successful as some expected benefits were achieved, but not all, –– four were unsuccessful, achieving none of the transformation objec- tives, or they were not completed. Most incurred substantial costs. Every business transformation is differ- ent but not unique and lessons can be learned from the experiences of others. Because these cases showed the same pattern of transformation success and failure as other studies, they were valu- able in developing and testing the BTM methodology. The cases were developed through inter- views with those involved in the transfor- mation and reviews of relevant documen- tation. They were carried out, analyzed and written up by teams consisting of ex- perienced academics, consultants and senior company managers. Some have already been published in the BTA “360° – the Business Transformation Journal” and others will be in future. Each case SUCCESS AND FAILURE IN TRANSFORMATION Lessons from 13 Case Studies by John Ward and Axel Uhl This article reports the results of an analysis of 13 business transformation case studies. Some were successful, some failed and the rest were partly successful. It shows how the BTM2 disciplines influence the outcomes and explains why some are more successful than the others. Abstract In developing the BTM methodology, we carried out 13 case studies of different types of business transformation in large European corporations. Of these 30% were success- ful, 40% partly so and 30% were unsuccessful. Each case was assessed against the BTM methodology disciplines to understand why they were more or less successful. Many of the failures were due to lack of alignment with the busi- ness strategy, lack of clarity of the expected benefits and inadequate risk assessment. In implementation, the IT and process changes were often performed more successfully than the organizational changes, resulting in some benefits being delivered, even in some of the less successful cases. But this rarely was enough to enable the transformation to achieve its strategic objectives and the majority of the benefits. Overall the organizations whose approach to man- aging transformations included attention to the majority of the BTM component disciplines were more successful than those that did not.
  2. 2. 3131 METHODOLOGY | RESEARCH was analyzed in terms of how extensively and how well the BTM component disci- plines were performed. The results were compared to identify significant aspects which appeared to affect the level of suc- cess achieved. Analyzing these transfor- mations of varying degrees of success shows that those organizations whose approach to managing transformations paid attention to the majority of the BTM disciplines were more successful than those that did not. The case studies were in the following industries: automotive, pharmaceuticals, construction (see case study in issue 1 of this journal, page 38), food, oil (issue 2, page 46) and chemicals, financial ser- vices (issue 1, page 52), telecommunica- tions (issue 2, page 54) and IT. The cases included transformations to develop new products and services as well as restruc- turing and reorganizing core business functions and introducing global process- es and systems. All involved changes in organization structures and individuals’ roles, responsibilities and behaviors, in- cluding, in a few cases, large scale staff relocations and redeployments. All the cases included new and significant in- vestments in IT to enable the business changes, but, in all except one of the cases, IT benefits were not the main ra- tionale for the transformations. The BTM Methodology Disciplines An overview model of the methodology components and relationships is shown in figure 1. Figure 2 shows an example of what have become known as ‘transfor- mation heat-maps’ of the BTM discipline components and how well they were performed (in this example: for a partially successful case). These maps were used to analyze all the cases. As would be expected, the successful cases were largely green with some am- ber and even a few red. In the unsuccess- ful cases, the boxes were mostly red and amber, but there were also always a few that were green! Findings for each of the eight methodol- ogy disciplines are now discussed, start- ing with the three direction disciplines, before considering findings regarding the enablement disciplines and the ‘Meta Management’ aspects. 1) Strategy Management A transformation needs to be driven by a clear strategic rationale – a rationale which should be easy for every employee to understand, otherwise there will be lit- tle motivation to change. All the success- ful ones had imperatives to transform the business, not just one function. It was also clear that in all the unsuccessful cases the need for transformation was relatively low; either there was no press- ing strategic need or it was not seen as a business priority at a senior level. In three of the four successful transfor- mations the need for change was en- dorsed at executive level and then time and effort was spent to gain the buy-in of the rest of the organization and develop the ability to undertake the changes. In most of those that were partially success- ful, the readiness to transform appeared to be ‘high’, as well as the strategic need. They were not entirely successful mainly due to over ambition, or even over enthu- siasm; too many ‘positive’ assumptions were made with little assessment of the potential risks. Fig. 1: The direction and enablement disciplines (source: BTA) Competence   &  Training    Mgmt.   Program/   Project    Mgmt.   IT    Management   Process    Management   Organisa8onal   Change    Mgmt.   Value    Mgmt.   Risk    Management   Strategy    Management   Business Transformation Management Direc8on   Enablement              -­‐  Leadership        Meta-­‐Management:    -­‐  Communica1on              -­‐  Culture  and  Values    
  3. 3. 3232 METHODOLOGY | RESEARCH Having a clear vision of the intended fu- ture business and organizational mod- els and then allowing compromises and trade-offs in the detail of how they are implemented, is most likely to achieve stakeholder commitment. However, in some cases, when the drivers demand urgent action, a top down, mandated ap- proach to implementation can also work, but it tends to achieve stakeholder ac- ceptance rather than positive commit- ment. Most transformations involve at least two distinct phases – to create a new capability and then to deploy it. In most of the cases the capability was created, but not (yet) always exploited; hence the benefits achieved were often less than those originally envisaged. Creating a new capability can be done separately from business as usual, but deploying it usually competes with other operational priorities. 2) Value Management In the unsuccessful transformations the objectives and business cases were of- ten vague, based on a ‘benefits vision’ rather than evidence based benefits and an understanding of how to realize them. This made it difficult for some stakehold- ers to believe the transformation was worthwhile and commit the required time and resources. There was also often confusion between ‘changes’ and ‘benefits’: for example in- troducing common global processes is a change, not a benefit, although it may Enablement Program/Project Management Program Planning and Governance Program & Proj. Integration Mgmt Program & Project Scope Mgmt Program & Project Time & Cost Mgmt Program Quality Mgmt Program Human Resource Mgmt Program Procurement Mgmt Risk Management 360° Strategic Risk Assessment Deep dives for strategic risk areas Assess transformation business case Define risk strategy Risk Management Execution Risk Monitoring Identify additional improvement Risk Mgmt. as part of Board Governance Competence & Training Management Competence strategy Training need analysis As-is analysis Gap analysis Curriculum development Training preparation Training Evaluation & improvement Program Reporting Organizational Change Management Set-up & governance Stakeholder management Change  agent   network   Communica1on   management   Performance   Management  -­‐   Project  Team   Performance   Management  -­‐   Business     Change  readiness   assessment   Change   Monitoring   Process Management Determine scope of analysis From template to bespoke inventory Identify improvements / add attributes Map selected processes Plan process implementation Implement processes Evaluate processes Establish CIP Meta Management Part of Global IT project: HR Excellence function established and many further benefits have been identified. IT Management Business and IT Capability Assessment To-be analysis Gap analysis IT roadmap plan Solution architecture design IT Deployment plan IT Operations & Service Optimization IT Lifecycle Management Strategy Management AS-ISData Collection Analysis of needs & maturity level Design business vision Design Business Model Integrated transformation plan Business Case Organizational model Risk analysis Direction Value Management Baseline analysis Value estimation Detailed business case Agree ownership for realization Plan benefit realization Execute benefit realization Review and evaluate results Establish potentials for further benefits Fig. 2: Example pattern for a partially success- ful case (source: SAP) (see also journal issue 1, page 25) performed and performed well performed either only to some extent or not particularly well either not performed or performed poorly evidence about the sub-discipline was not available
  4. 4. 3333 METHODOLOGY | RESEARCH create the potential for benefits, such as reducing costs or higher service lev- els. Too often business benefits were overestimated, while the risks and the problems in making the changes were underestimated – perhaps deliberate- ly, otherwise it would be difficult to get funds and resources? 3) Risk Management Risk management was often glossed over, but given the high failure rate it makes obvious sense to identify and anticipate what could go wrong, before it happens! As a result many risks only became apparent during implementa- tion, leading to increased costs, delays, scope reductions and even abandon- ment. This reluctance to explore the risks earlier may have been influenced by executive instigation of the transfor- mation, which can discourage negative feedback, making it inadvisable, even career limiting, to point out the potential risks! To maximize the probability of delivering the intended benefits, the transformation should be planned in short deliverable stages, if possible. This also reduces vulnerability to changing business con- ditions and makes it easier to adjust the transformation to retain strategic align- ment. In essence, the outcome of the transfor- mation could be predicted from the pre- dominant ‘color’ in the assessment of the directional disciplines. How clearly and comprehensively the transforma- tion strategy, value and risks have been understood and communicated provides a strong indication of likely success. Had the organizations undertaken this analy- sis early in the transformation, some fail- ures and the significant resulting waste of money and resources could have been avoided. Having considered how the direction disciplines affect the level of success of a transformation, our attention turns to the enablement disciplines and how well they were performed in the cases. 4) Process Management The IT and process changes are usually performed more successfully than or- ganizational changes, resulting in some benefits being delivered, even in some of the less successful cases. But this was not enough to enable the transformation to achieve its objectives and the majority of the benefits. In some of the cases IT or process meth- odologies dominated the overall transfor- mation approach, making the implemen- tation of other changes more difficult. In two of the unsuccessful cases the IT function tried to satisfy all the expressed user needs, which increased the scope and consequently the costs considerably outweighed the benefits. 5) Program and Project Management Transformations cannot be fully planned in advance and have to adapt to both changing business conditions and pro- gram achievements. This is not neces- sarily a comfortable position for senior management and requires an empow- ered governance group to oversee and, as necessary, adapt the program. Effec- tive management of the change content and benefits delivery is more important than the efficiency of the process. In some unsuccessful cases the organi- zation relied heavily on the knowledge and capabilities of a third party supplier throughout, which changed aspects of the transformation towards what the sup- plier could do, rather than what was re- quired. The transformation manager should have expert knowledge in the area that is be- ing changed and also how to manage change in the organization. A key skill is being able to reconcile the differing views of the change and resource implications between senior managers and operation- al line management. The priority early in the program should be to gain agreement between senior and line management as to what changes the transformation in- volves, before ‘negotiating’ for the funds and resources required. In some of the less successful cases the ‘contract’ be-
  5. 5. 3434 METHODOLOGY | RESEARCH tween the program team and senior man- agement was agreed before the views of line managers had been taken into ac- count. 6) IT Management The transformations whose main benefits were seen as IT cost reduction or ratio- nalization or were led by IT were not suc- cessful. Some business transformations become ‘IT replacement projects’, as the first phase is about replacing old technol- ogy and systems and IT methodologies and approaches are used with little busi- ness involvement. It then usually proves very difficult to regain business interest when the IT part is completed. IT is often in a weak position in the con- text of a business transformation due to a lack of real business knowledge, but with a perception that they know how it works, but they only know how the IT systems work. These notions created conflict in some of the transformations. When IT ‘won’ the argument the transformation was unsuccessful, but when it was ‘busi- ness-led’, any potential conflict was more easily resolved. 7) Organizational Change Management These cases suggest that organizations should manage business transformations as orchestrated, continuous, incremental sets of changes – co-evolving and co- existing with business as usual priorities. The successful transformations usually addressed the organizational, people and capability aspects first, then the pro- cess and IT components. The less suc- cessful tried to do the reverse. Understanding and addressing stake- holder issues and having a strategy for accommodating or dealing with them as early as possible in the transforma- tion is vital. The longer the time avail- able to transform, the more the stake- holder views can and should be included in how the transformation is conducted. The methodologies used should enable all the main stakeholders to directly con- tribute their knowledge and plan their in- volvement, instead of relying on experts to interpret the stakeholders’ ‘needs’. Stakeholder engagement is a critical suc- cess factor in almost every transforma- tion, and early alignment or reconcilia- Fig. 3: The transformation experience curve (source: SAP)
  6. 6. 3535 METHODOLOGY | RESEARCH tion of multi-stakeholder interests is very important in order to avoid, for example, dominance by a minority of stakeholders or destructive negotiations between dis- senting groups. The ‘transition curve’ (see figure 3), de- scribing how people and organizations experience major change should be respected. A comprehensive and sus- tained approach is needed to minimize the period that people spend in the ‘val- ley of tears’, which is characterized by uncertainty and even disillusionment. Figure 4 shows that different groups reach this point at different times in the transformation. Senior management in- terests may have moved on, just when many line managers and staff are under stress, usually due to change and busi- ness as usual pressures colliding. 8) Competence and Training Management Assessing existing competences as part of the ’Readiness’ is important in order to determine the strategy, because what can be achieved is a function of two fac- tors: first, the amount of work required to make the changes and second, the knowledge and skills that can be made available at the required times. If some essential competences skills are limited or absent, a strategy for developing them is needed early in the transformation. In the successful transformations people were informed and educated about what the intended future business should look like. This helped them apply their exist- ing knowledge to determining how the vision could be achieved, but it also exposed where knowledge was inad- equate. Where suppliers are providing essential competences, those also need to be appraised and managed – in case they have over-estimated their capabili- ties. Organizational and individual ex- perience cannot always be transferred from transformation programs in other organizations. In addition to the eight direction and en- ablement disciplines discussed so far, ‘Meta Management’ considers themes which influence the performance of any type of organizational transformation. From the case studies a number of les- sons about leadership, communication, culture and values can be learned. Leadership The successful transformations had ‘CEO’ sponsorship and a C level execu- tive leading the transformation. Involve- ment should be real and visible or other Fig. 4: Employees experience the effects of the transformation at different times (source: SAP) Fig.  4:  Employees  experience  the  effects  of  the  transforma9on  at  different  9mes  (source:  SAP)    
  7. 7. 3636 METHODOLOGY | RESEARCH Key Learnings ᐅᐅ The transformation must have a clear strategic rationale explained in a language which everyone can understand. Otherwise there will be little motivation to change. ᐅᐅ The outcome of most transformations depends on how clearly and comprehensively the transformation strategy, value and risks have been understood and communi- cated at the start. ᐅᐅ The successful transformations usually address the or- ganizational, people and capability aspects first, then the process and IT components. The less successful try to do the reverse. ᐅᐅ Most transformations involve at least two distinct phases – creating a new capability and then deploying it. The former can often be done separately from business as usual, but the latter inevitably competes with other opera- tional priorities, which can seriously delay or even prevent its exploitation. ᐅᐅ The transformation manager should have expert knowl- edge in the area that is being changed and also how to manage change in the organization. ᐅᐅ Overall, It is clear from these cases that the organizations whose approach to managing transformations included careful attention to the majority of the BTM component disciplines were more successful than those that did not. executives will not see it as important. The evidence from these cases suggests that continuous personal involvement in the governance of the transformation is what is needed, but it is not always easy for a busy executive to sustain this over the extended period of most transforma- tions. But the cases also show that the early transfer of ‘ownership’ to a coalition of business managers, who will actually deliver the changes and benefits, is the best way to develop the capability to change. One key decision that needs to be taken is the mode of ‘change agen- cy’ to be adopted. Either an ‘expert task force’ or devolving change responsibili- ties to operational managers can work, but a lack of role clarity is likely to cause fragmentation and even disintegration of the initiative. Communication A common lesson from many of the cases – even the successful ones – is that no amount of communication is ever enough! Informing everyone in the orga- nization why change is necessary and about the consequences of not changing usually needs regular repetition. Equally important is being open about what the changes are going to mean, even if they will be unpopular with some stakehold- ers. Evasiveness builds distrust or sug- gests ignorance, both of which reduce credibility and hence commitment. The communication must explain what is going on and what the intentions are, and it must be conveyed in the ‘language’ of the different stakeholder groups. De- livering it at the appropriate times when it is relevant to the working context of the recipients is also critical if it is to be effective. Also communication is a two- way process; this is sometimes forgot- ten – and in some of the less successful cases little attention was paid to ques- tions, concerns or feedback which the transformation team (wrongly) felt to be distracting or unimportant. Culture and Values All the transformations included signifi- cant changes in organizational roles, responsibilities, and behaviors, and in many cases the changes were counter to the prevailing culture. The successful transformations recognized this was ei- ther desired or inevitable and addressed the organizational issues first to create a new context within which to bring about further changes. In some cases the transformation also demanded a change in the organiza- tion’s values: for example, loss of au- tonomy and reduced discretion for local investment, consolidation to achieve cor- porate control of resources or standard- ization to achieve corporate rather local business advantages. Inevitably these changes created tensions and exposed cultural and value differences across the business units and functions, which had
  8. 8. 3737 METHODOLOGY | RESEARCH to be either reconciled or over-ridden to succeed with the transformation. In the less successful transformations these tensions were not addressed and exist- ing power structures prevented or sub- verted the changes. The structure and mode adopted to bring about the transformation should nor- mally reflect the organization’s overall management style. The ‘task force’ ap- proach, which exercises the use of pow- er, worked well in a situation when the need to transform was urgent, the objec- tives were very clear and the means of achieving them were known. In the op- posite situations, a more devolved ap- proach enabled at least one successful Service AUTHORS Professor John Ward is emeritus professor at the Cranfield University School of Man- agement. John was Professor of Strategic Information Systems from 1992 to 2010 at Cranfield and Director of the IS Research Centre from 1993-2005. He has a degree in Natural Sciences from Cambridge, is a Fellow of the Chartered Institute of Management Accountants and is a past-President of the UK Academy for Information Systems. j.m.ward[at] Professor Dr. Axel Uhl is head of the Business Transformation Academy at SAP. He is a professor at the University of Applied Sciences Northwestern Switzerland (FHNW) since 2009. Axel Uhl received his doctorate in economics and completed his master in business information systems. He started his career at Allianz and has worked for DaimlerChrysler IT Services, KPMG, and Novartis. His main areas of research and in- terest are sustainability and IT, leadership, and business transformation management. a.uhl[at] ACKNOWLEDGMENTS The authors would like to thank all those who were involved in developing the case studies. Without their work this article would not have been possible. organization to increase the scope and ambition of the transformation, through knowledge sharing across the organiza- tion and individual managers learning from experience as the program evolved. As the transformation proceeds, it may be necessary to change modes and in turn the governance of the program. In particular the creation of a new capability can be carried out by a task force largely separated from day to day operations. However, deploying the new capability usually competes with other business as usual pressures, which can cause unex- pected problems, delays or even unsuc- cessful deployment.