Traditional business transformation dooms your company to failure.

What is the purpose of this article?

Help shareholders, investors, founders, the board of directors and C-Suite discuss and improve business transformation.

You may download a PDF of this article from: Traditional business transformation dooms your company to failure

What are the critical learnings in this article?

Most transformation efforts fail and destroy company value.
The failure is due to leadership flaws with the company leadership: the board of directors, CEO, and C-Suite.
The leadership has limited understanding of employees and how to gain employee commitment to transformation.

What are some definitions of business transformation?

#1 “Transformation is about improving performance, not just cutting costs. Companies boost the odds of achieving breakthrough results when they simultaneously improve their operating discipline and make portfolio moves that collectively redefine their business.”¹

#2 “Transformation spans your entire organization, to address all the changes needed to reach your full ambition.“²

#3 “…rapid, visible, and sustainable step-change improvement in business performance; strengthen their organizations to win in the future; and turn their companies’ upside potential into radical performance gains.” ³

#4 “Business Transformation is the process of fundamentally changing the systems, processes, people and technology across a whole business or business unit, to achieve measurable improvements in efficiency, effectiveness and stakeholder satisfaction. As such, a business transformation project is likely to include any number of change management projects, each focused on an individual process, system, technology, team or department”⁴

What is the Oxford Dictionary definition of transformation: “a thorough or dramatic change in form or appearance.

“its landscape has undergone a radical transformation”

Transformation usually fails.

Major changes almost always fail. 12% achieve their target; 20% are total failures; 68% diluted the value of the company.⁵
Efforts to recover a poor business (i.e. transformation) typically fail. Fortune 500 (1998-2013). 33% of the companies grew; 35% went bankrupt or were acquired; 32% stalled. Only 10% of the stalled companies recovered. Of the recovered companies, 75% returned to the core business and 25% redefined their business model.⁶
Roughly 70% of transformations fail.⁷
More than half of M&A deals destroy value for investors.⁸

What is one consulting firm’s perspective on why most transformations fail?⁹

I have paraphrased the comments from the article. Any misinterpretation is my fault.

CEO doesn’t set a sufficiently high aspiration.
CEO unable to persuade the C-Suite regarding the need for transformation.
CEO and the leadership team doesn’t address skills needed to drive transformation.
The organization doesn’t buy in.
The organization won’t make the effort to make the change happen.
Lack regular performance management discussions.
Lack leadership oversight meetings.

Why do I think transformation efforts fail and doom your company to failure?

The consulting firm above points out the leadership flaws, especially with the CEO and C-Suite.
But where was the board of directors? Did they appoint and retain the right CEO? Did they approve the transformation plan? Did they monitor the ongoing execution. Did the have the appropriate skills to make decisions regarding: CEO appointment & retention, transformation plan approval, and monitoring of the transformation plan?
The board of directors and C-Suite are excluded from the transformation. The culture, skills, processes, values morals, and ethics of the board of directors and C-Suite do not change.
Major change results in major resistance to change.
The CEO and C-Suite have not built the urgent need for transformation and ensured that every employee understands and will support major change. g. Telling employees that they need to make major changes in order to increate company profit and C-Suite compensation ensures failure.
The board of directors and C-Suite don’t understand the employees and therefore don’t have the understanding necessary to craft a successful transformation plan and communication’s plan. McKinsey research shows that companies who disregard analysis of employee mind-sets never have an extremely successful transformation.¹⁰
The C-Suite does not have good two-way communications with the company.
The transformation does not make the talent and processes changes to ensure that future transformation will not be required. The transformation does not create a company which is continually changing and improving, driven by deep understand of the customers, employees, competition and how the company’s ecosystem is evolving.
A continuously successfully evolving company does not need two sets of organizations structure i.e. does not need a Chief Transformation Officer, Transformation Office, and transformation managers/teams throughout the company.
The word “Transformation” is usually misused and thus causes confusion. Many large projects are called “Transformation” when all they actually are is a large project.
The Transformation is not driven by the future scenarios for customers and the company ecosystem, but is rather focused internally. One major consulting firm (I won’t share the name) states that their approach to transformation is “Start with the balance sheet and then profit and loss statement.”

What are your next steps?

#1 State the facts as to what is driving your need for transformation:

Declining customer and employee satisfaction, declining market share, declining profits, declined return-on-equity, ecosystem pressures, etc.?
Passion to increase customer and employee satisfaction, increase market share, increase profits, increase return-equity, position company to succeed in more of the future scenarios, etc.

If all you have is assumptions and opinions, get facts.

#2 Review the purpose of the company. Survey all employees to assess the alignment of company purpose with personal purpose and to determine their urgent needs and problems. Also do some employee focus groups and individual interviews. This process should include the board of directors and C-Suite.

#3 Estimate the impact and degree of change required to your: customer relationships, ecosystem relationships, talent (at all levels), technology, and processes.

#4 Based on the above facts and analysis, assess the degree of resistance to the transformation e.g. if the transformation will result in the termination of employees, why would the current employees support the change?

Resistance to change can occur at all levels e.g. will board directors and C-Suite support the company being bought if this results in the directors and C-Suite losing their jobs?

#5 Determine if this transformation is in reality a change which can be planned, executed, and benefits achieved by the existing board of directors, C-Suite, organization talent, and processes. If not, what needs to change to ensure an ongoing organization can succeed.

#6 Determine if you need an interim Transformation Officer to enable the creation of a future organization which will be constantly evolving i.e. no future need for a Transformation Officer.

Footnotes

¹ McKinsey, “The truth about transformation”,

https://www.mckinsey.com/featured-insights/the-truth-about-transformation

² Bain, “Business Transformation”

https://www.bain.com/consulting-services/transformation

³ Boston Consulting Group, “Business Transformation”

https://www.bcg.com/en-ca/capabilities/business-transformation/overview

⁴ Change Associates, “What is business transformation?”

https://changeassociates.com/what-is-business-transformation/

⁵ Patrick Litré, David Michels, Sebastian Walter, Melissa Burke, “Soul searching: true transformations start within” Bain

https://www.bain.com/insights/soul-searching-true-transformations-start-within/

⁶ David Jacquemont, Dana Maor, Angelika Reich “How to beat the Transformation Odds”, McKinsey