How to Mitigate the Risk of Failure in Business Transformation

A variety of events can change the business landscape and serve as a strategic inflection point to trigger organizational change. These factors range from changing economic conditions and business expansion or contraction to new competitive dynamics and the pursuit of innovation.

At no point in recent history have more factors been simultaneously at work than today amidst the pandemic. At this moment, we feel the continued pressures of a concurrent crisis of supply and demand, driving companies to innovate in order to survive. As these unique circumstances persist, nearly every type of business has felt the ripple effect, and many have been faced with questions of how and when to transform their operation.

Unfortunately, while the rationale and impetus to change has never been greater, that alone is not enough. Leaders must still overcome internal resistance factors and prepare their organization for the transformation process. The stakes can feel weighty, particularly considering months of financial, workforce and supply chain setbacks. The good news is that leaders will never have a better opportunity to reset their organizational structure, from people to process to technology, than they do today.

While leaders are typically well-ensconced in business planning and know the elements of a solid strategy, they may not have the same confidence and understanding of what constitutes a successful transformational plan in this environment. In fact, one question I am often asked by CEOs is, “What are the common problems that lead to failure in transformation?”

Below are five common mistakes I’ve seen companies make when trying to transform.  In my opinion, awareness and understanding are not only powerful tools, but they are the least expensive thing that leaders can do to avoid failure in this process.

1. Mistake #1: Setting the wrong scope by confusing symptoms and root cause analysis. Defining the right scope of a transformation is critical. The scope is the defined focus area for the transformation, and there are many ways to set the scope parameters. They could be defined in terms of a physical limit, in geographical terms, in functional terms (production, sales, logistics, operations, etc.), or in organization effectiveness terms. In most cases, it is a combination of these factors.
   An ill-defined project scope causes numerous problems and can, therefore, be a leading cause of failure. For example, the pandemic has brought to light prior issues that many companies faced but did not address; it then magnified those issues and introduced a host of new problems. As leaders assess the impact of COVID-19 on their business, they will need to examine true root cause factors that date back before the pandemic started. And, as those problems are articulated, it is essential that decision makers align on the problem to be solved.  The success of a transformation program hinges on answering the right business question.
2. Mistake #2: Having ROI (Return on Investment) myopia. Leaders who prioritize longer-term, sustainable goals over the short-term cost in the ROI assessment of a transformation project are more successful. A long-time client, colleague and friend of mine, Alistair Hirst, SVP of global supply chain of the Kellogg Company, refers to the inherent need to take two steps forward and one step back several times through the journey. “Too many transformational initiatives are designed to seek instant gratification,” he says. “We all need to have an internal rate of return and show results quickly, but that is relatively easy to get. True transformational change that delivers sustained superior results needs big investments of resources, time, and big leaders.”
   A transformation is difficult, and when carried through properly has its cost. The pressure to calculate a six-month or one-year ROI can drive leaders to bad decisions. They can end up structuring programs focused on short-term gains and become ill-equipped to accomplish the business transformation that can deliver long-term benefits and rewards.
3. Mistake #3: Not enlisting the right team and underestimating the need for help. With the proper definition of the scope and a better sense of the internal gaps, leaders can set up the human architecture of the program. The implementation team should include the program manager, the leaders of the workstreams, the team members for the workstreams, and administrative support. This team is accountable to the steering team – the coalition responsible for guiding change, providing visible support, removing barriers and being accountable for deliverables and benefits.
   This team composition extends the reach of the program team, allowing the transformation to cascade throughout the organization. Driven by the intent to minimize the cost of the transformation or by the impatience to adopt new tools, leaders sometimes unfairly set up their teams up to handle a lot more that they are capable of managing. To avoid failure, there should be an honest discussion about whether the organization has the team and expertise internally to execute with excellence.
4. Mistake #4: Not taking people with you through a structured engagement process. Employees must be highly engaged throughout the transformation process to deliver the results desired and, importantly, to sustain the momentum. Whereas engagement is sometimes perceived as simply communicating to employees, effective engagement is rooted in both shaping context and enlisting employees’ voices as part of the decision-making process. In order to do this, there should be no “us and them” in how leaders think about transforming the organization. When leaders think, “I have to transform the organization,” they often see themselves leading an act – one that they separate themselves from doing. Leaders must metaphorically become one with their teams and connect at the human level to create the trust and togetherness needed for success.
5. Mistake #5: Not keeping the organizational framework in balance. There are six pillars of organizational effectiveness that need to stay in harmony to drive culture and support transformation efforts. The pillars are: organizational structure, people, technology, work processes, leadership and management systems.
   It can be tempting for leaders to become hyper-focused on one element of this model being broken and work to repair only that element. For example, some leaders may feel they need different people – whether in skill or quantity – on board to achieve a desired business outcome. However, without the proper management systems, structure, technology or leadership in place, these new or reconfigured roles may not be effective due to organizational imbalance and lack of support. One of the most frequently missed and critical pillars is the management system, which unifies the framework, supports the transformation process, and provides the glue to make organizational changes stick over the long term.

In summary, companies that are mindful of transformation pitfalls and set themselves up for success can dramatically improve their outcome. A well-defined and well-executed transformation creates more engaged employees, stable and predictable processes, improved operational decisions, and enhanced collaboration. Additionally, it enables an organization to attain financial maturity, the connection between operational metrics and financial goals that drives strategic alignment. While achieving these results is hard work, your courage, conviction and vision will lead you on the right path to the rewards.

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