70% of large-scale change programs fail. How can you ensure yours is a success? We explore why business transformation is not a project with a deadline, and how to make change last within your organisation.
According to Wall Street Journal, “digital transformation risk” is the number one concern for directors, CEOs, and senior executives in 2019. Yet 70% of all digital transformation initiatives do not reach their goals. Of the $1.3 trillion spent on digital transformation in 2018, an estimated $900 billion went to waste.
However, the problem with transformation doesn’t stop at digital. According to McKinsey, the reported failure rate of large-scale change programs has hovered around 70% for many years.
The million dollar question is: why do some business transformation efforts succeed, while others fail?
Old dogs – same tricks
Often, we apply the “T-word” to any form of change, however minor or routine. The term has also become increasingly synonymous “digital transformation”: companies fundamentally reworking the way they’re wired and, in particular, how they go to market.
Most successful leaders will say that their companies are “constantly evolving” and engaging in digital transformation efforts. And for the most part, they’re probably right. Across industries, organisations have diversified their product and service offerings, undergone major IT development projects, modernised work processes, and even become involved in omnichannel marketing. In other words, we are used to approaching change. It’s a familiar process.
However, large-scale disruption is both episodic and infrequent – and most senior leaders are more accomplished at running businesses in stable environments than in changing ones.
According to McKinsey, average companies rarely have the combination of skills, mind-sets, and ongoing commitment needed to pull off a large-scale transformation. “For many organisations, this relatively placid experience leads to a ‘steady state’ of stable structures, regular budgeting, incremental targets, quarterly reviews, and modest reward systems,” McKinsey argue. “All that makes leaders poorly prepared for the much faster-paced, more bruising work of a transformation.”
Business transformation is not a project with a deadline
Currently, leaders are treating business transformation as a project with a fixed deadline and tangible goals. But digital transformation, or any other form of large-scale business transformation, must be approached differently from any change we have been through before.
“Digital transformation is not a project; it is a complete sea change,” writes digital strategist Joe Logan in an article for Forbes. “Think of digital transformation as raising the water level for all company vessels, while a digital project is improving a few of the vessels.”
One problem, according to Logan, is that digital transformation initiatives typically take on a very familiar format. Many companies are still locked into strategy development processes that churn along on annual cycles. Finally, business transformations take up a surprisingly large share of our leaders’ time and attention – and realising large-scale change efforts requires enormous energy.
As Logan points out, digital transformation “will likely involve the disruption of your current ways of working and your existing lines of business.” But he urges us not to treat transformation as a project. “These two things are very different,” he writes. “If the measure of success focuses on on-time delivery and project costs, you are setting yourselves up for failure.”
How to succeed with your business transformation strategy
McKinsey defines business transformation as “an intense, organization-wide program to enhance performance (an earnings improvement of 25 percent or more, for example) and to boost organizational health.”
According to them, “when such transformations succeed, they radically improve the important business drivers, such as topline growth, capital productivity, cost efficiency, operational effectiveness, customer satisfaction, and sales excellence.”
Of course, this all sounds wonderful. But how can you ensure that you succeed with your business transformation?
Here’s what we recommend:
Step 1: Agree your vision
By carrying out a situational analysis of where your business currently stands on areas like customer experience, communication, products and services, and working practices, you can get a holistic view of your current status.
If digital transformation is your goal, first you need to work out where you are relative to your immediate competitors within the same industry. There will, of course, be variations of digital maturities across industries – and even across different departments of the same company. It’s a tricky balance, but it’s important to understand the drivers of digital transformation in your own category, so that you can focus your time, energy and money on the right areas.
You’ll want to draw from as many sources and viewpoints as possible – from the boardroom all the way to the coalface, in order to minimise the chance that something important has been overlooked. It’s also good to review the outcomes (positive and negative) of any previous digital transformation efforts.
Step 2: Define your digital strategy
Once you’ve understood where you are currently, this stage is about working out how far from your vision you are, and what the role of digital in your company needs to be. When you know this, you can prioritise some initiatives and best use the capabilities, systems, people and resources in place.
Think of this stage as creating a map to guide your transformation. This is as much as a case of defining areas that are a lower priority for intervention, in order to ensure that key areas are prioritised, and important resources don’t end up diverted to serve other agendas within your organisation.
Of course, no plan unfolds exactly as originally envisaged – so it’s also crucial to ensure that you have defined process for modifying the project. This can help ensure that the process won’t be derailed by ad-hoc changes made without being properly communicated to the rest of the team.
Step 3: Set stretch targets
To succeed in establishing a vision rather than a project plan, McKinsey recommend setting stretch targets. During negotiations, leaders and line managers tend to go back and forth: “the former invariably push for more, while the latter point out all the reasons why the proposed targets are unachievable. Inevitably, the same dynamic applies during transformation efforts, and this leads to compromises and incremental changes rather than radical improvements,” they argue.
Often, ROI targets mean accountability – and, when missed, this can create adverse consequences for the project owners. Because of this, the default reaction to goal-setting becomes “let’s underpromise and overdeliver.”
To counter this natural tendency, leaders should aim to set stretch targets that seem almost out of reach. In McKinsey’s experience, targets that are two to three times a company’s initial estimates of its potential are routinely achievable – not the exception.
When stretch targets are backed up by well-grounded facts, and based on a clear analysis of your organisation’s specific revenue and cost goals, they can enable your business to take a single self-confident leap – rather than a series of incremental steps that don’t lead very far.
Step 4: Engage your team with incentives
Through working with companies to achieve organisational change, McKinsey found that employees were often passively “waiting to be told” rather than taking the initiative. Some had unconsciously decided that “there was no advantage in taking action, because if they did and made a mistake, the results would make the front pages of newspapers.” In other words, a bureaucratic culture had created a hidden paralysis.
To make progress, your organisation will have to counter this fear, and engage your employees. One way to do this is to create an engaging change story.
“Most companies underestimate the importance of communicating the ‘why’ of a transformation; too often, they assume that a letter from the CEO and a corporate slide pack will secure organizational engagement,” write McKinsey.
Instead, we need to aim to create a context, a vision, and a call to action that will resonate with each person individually. And to do so, we need to create incentives for lasting change that can motivate your employees to continue throughout your change efforts.
Step 5: Make the change last
One common problem is that, typically, transformations degrade over time, rather than failing visibly. The challenge here is to create change that lasts past the initial transformation effort.
According to McKinsey, after leaders and their employees have summoned up a huge initial effort, corporate results will start to improve, sometimes dramatically; and those involved pat themselves on the back and declare victory. Then, slowly but surely, the company slips back into its old ways.
The true test of a transformation, therefore, is what happens when life reverts to a more normal rhythm. It is absolutely critical that leaders try to create a repeatable process within the organisation, in order to deliver better and better results long after the change process formally ends.
“Embedding the processes and working approaches of the transformation into everyday activities should start much earlier to ensure that the momentum of performance continues to accelerate after the transformation is over,” they argue.
In short, it’s about creating a change in culture – not just processes.
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