Most business transformation projects fail. That’s a fact, not a secret. A 2013 survey by the Economist Intelligence Unit, for example, found that 44 per cent of strategic initiatives over the previous three years had outright failed. More recently, in a 2014 McKinsey survey, only 26 per cent of respondents said that business transformation projects had been “very” or “completely” successful at improving performance and allowing the organization to sustain improvements over time.
Simply put, when it comes to transformation initiatives, success is easier said than done unless you are aware of the pitfalls. At Wellington, we use the following fictional case to illustrate how easily failure can happen:
Frank is the Chief Operating Officer of a successful, but struggling, company. In the past four years, the company’s financial results have slipped as new rivals have gained market share. To turn things around, Frank and his executive team knew the company needed new strategies, so the C-Suite engaged a consulting firm to help it become more competitive. The conclusion: significant front-office improvements, including offering more products and services, along with profitability-boosting back-office cost reductions, were desperately needed. To make this happen, the company crafted a great strategic vision and selected a new system that promised to achieve the stated objectives. Mary, a rising company star, was placed in charge. Since being named VP of Operations four years ago, she had reduced costs by 15 per cent, while increasing throughput by 10 per cent. As a result of her past success, Mary was confident when selected to lead the change program. However, her confidence quickly eroded as she struggled to manage her day-to-day duties while also leading the transformation initiative, because the plan she was in charge of executing seemed like a moving target. And whenever Mary asked for clarity and direction from above, Frank and other senior executives were vague and even evasive when responding. Mary also had trouble getting commitments from the folks in Marketing, Sales and Technology. Even her own people in Operations didn’t seem to firmly get with the change program. While Frank was aware of Mary’s challenges and generally supportive of the initiative, he was more concerned with reporting progress to the board. And instead of helping Mary address the barriers to success, he left her hanging by simply insisting she develop a new approach that would gain some real traction. As a result, Mary was sucked into a crowded black hole.
Over the past 30 years, study after study has shown that transformation program managers face the real and present dangers of being sucked into a transformation trap, along with buckets of wasted money. Most of these studies, of course, offer recommendations on how to fix the problem. So why are failed projects still so common, if not the norm? In other words, why don’t surveys show that success is improving over time? Based on our experience, programs continue to fail at an alarming rate because there are actually three problems that need to be addressed, not one.
PROBLEM 1: UNENGAGED LEADERSHIP
In the example above, Frank was expecting great things from Mary because he understood that the future of the company could depend on the successful execution of the transformation program she was leading. Unfortunately, he failed to realize that he was also required to lead. Frank and the other members of the executive committee were not properly engaged in the transformation because they were focused on day-to-day operations, not to mention quarterly targets. As far as Frank was concerned, his responsibilities to the transformation project came to an end after a new strategy was developed and Mary was put in charge of execution. And because Frank was not willing, or not able, to remain engaged, he failed to provide clear direction and help Mary get other stakeholders to properly engage. Under pressure to move forward, Mary and her team were left to make “best guesses” at a myriad of issues. Not surprisingly, they did not get everything right, leaving stakeholders frustrated, timelines unmet, and budgets overstretched — hallmarks of the black hole of business transformation.
Keep in mind that there is really no such thing as an IT project or an operations project — they are all business projects, and their success should be defined by the achievement of business objectives. In other words, all programs and projects are business transformations and they all should have business leadership, meaning a senior-level project sponsor — typically a busy person who will become even busier after taking on the sponsorship of a mission-critical project.
In order to effectively manage day-to-day business and drive transformation at the same time, project sponsors are usually forced to delegate. But not all forms of delegation are created equal. Leadership requires visible engagement, open two-way communication, the creation of organizational buy-in, awareness of progress or obstacles, and offers of support. However, too often businesses ineffectively delegate or even abdicate transformation leadership to those in the organization who do not have the knowledge, skills, or authority to be successful. Senior leaders then compound the problems by becoming frustrated when the transformation team keeps coming back and asking for more direction, clarity, or just general help.
PROBLEM 2: WEAK GOVERNANCE
In our fictional case, Mary is a bright and extremely talented individual who knows how to run an operations department. This is well known, thanks to her record of increased efficiencies. But asking her to run an organization-wide business transformation initiative without senior-level engagement set her and the project up for failure. There was likely a key role on the project for Mary, but it was not leading the day-to-day transformation.
According to a 2015 Harvard Business Review study, only 8 per cent of leaders are good at both strategy and execution, which helps explain why confusing the skills of managing a business with the skills required to transform a business can be expensive, time-consuming, and damaging to careers. Nevertheless, many companies simply assume that because a leader is good at running day-to-day operations, they will be good at leading a transformation. And this has led to failure time and time again. It is like asking a world-class sprinter to run a world-class marathon and vice versa. Both are runners, but they are worlds apart in the experience and skills needed to be successful.
PROBLEM 3: MISUNDERSTANDING CHANGE
Ironically, when transformation projects get into trouble, the first thing that is typically cut is the organizational change budget, which limits the ability to change employee behaviour and gain increased support for a new way of doing things. Corporations seeking change need senior executives to understand that effective transformation is all about people, not systems, operations, and procedures. The latter can all be changed, but unless your people embrace changes to systems, operations, and procedures, your business will struggle at best.
So how can organizations seeking change avoid the black hole? Failed transformation programs have long been blamed on technology or operations. But the unavoidable truth is that only the business can set up and manage a transformation for success. As a result, reframing the transformation program as a business program is the first step toward success.
As we noted above, all projects are business projects, which means there should be a business leader in charge with an expectation of positive business outcomes. To be clear, there are only three possible business outcomes, which are increased sales, reduced costs, and risk mitigation. All other goals — such as better customer service, improved efficiencies, and even system upgrades — should be boiled down to one or more of the above.
With the success of business transformation defined in business terms, the second step to success is appointing a point person with the right commitment and skill set, meaning a fully engaged business leader/sponsor to ensure its success. This is a leader who has the ability to get all stakeholders engaged and excited about the coming changes, a leader who can envision the future, and one who can encourage others to commit themselves (and their teams) to realizing that vision. The right leader is also someone who is able to make tough decisions when silos form or people move to protect the status quo.
The primary jobs of the leader or business sponsor are to do the following:
- Ensure the transformation is defined in terms of business outcomes.
- Sell the vision of the new transformation across the business at every opportunity.
- Keep the team focused on the business objectives and stop scope creep from taking them off task.
- Engage the team and the right leadership to drive the transformation
- Facilitate getting the right information up to the sponsor and back down to the team executing the transformation, so that everyone can make smart, business-oriented decisions.
- Break down the barriers that naturally form when the status quo is challenged.
To properly execute the project, the right leader also needs to assemble the right team, which includes appropriate representation from all stakeholders as well as a day-to-day project leader experienced in transformation project management.
Keep in mind that while transformation projects require an engaged senior sponsor to stay on track, success also depends on having a program manager who can coach the business sponsor on what is required to succeed. A good program manager also knows how to get all stakeholders engaged, all teams working together, and all communications flowing in an accurate and timely fashion, while never losing sight of the fact that business objectives are being pursued.
In my experience, most businesses do not grow this talent in-house. So if you seek outside help, make sure that any firms hired to help have a clear mandate to engage as many of your people on the project as is practical. If this is not clear, there is a temptation for the firm to expand its own presence on the project, resulting in higher costs to you and less transfer of expertise to your people. Remember: this is your project, designed to help your business. So when the program goes live, consulting work should be wrapped up and your people should be left managing the transformed business. Anything else benefits the consulting firm but hurts you, the client.
With that said, transformation program managers have five key jobs:
- To build a plan that translates the strategy into a realistic, achievable plan with clear milestones and deliverables for each milestone.
- To coach the sponsor. The sponsor is very busy with many competing priorities. The easier the program manager makes it for them to understand your program and take any necessary actions, like the ones highlighted above, the more success there will be in getting the sponsor appropriately engaged.
- To engage all stakeholders. Similarly to getting the sponsor engaged, all stakeholders also need to be engaged. Just like the sponsor, they are very busy with many competing obligations. The program manager and the sponsor will need to “sell” them, and once they are sold it needs to be easy for them to engage. When they need to do something, (e.g., make a decision, help get their team engaged), it is important to understand how the stakeholders like to receive information and then provide them with all the information they need in short, concise ways in their preferred format.
- To build an environment of open and honest communication. Information is power. The more the program manager communicates the right information, the more they empower their team and sponsor. Too often, teams minimize or even hide serious issues because they are afraid of the reaction of the sponsor. This is a two-way problem. If sponsors react poorly and search for blame when problems arise, then they create a culture where issues get hidden. If team members are hiding issues that need help from the sponsor, they are creating a culture of secrecy and misinformation.
- To manage the day-to-day governance. Program managers need to manage the program’s overall day-to-day governance to ensure it is on track, and that accurate information is flowing. This allows sound business decisions to be made, while the objectives of the program are placed above any individual or departmental objectives.
Finally, success requires a commitment of time, energy, and money. Cutting budgets when things go south simply increases the risk of becoming another statistic in the world of failed transformations. Just because something is seen as a “soft” cost, does not mean it is not critical to the transformation’s success. A good program manager with business transformation experience knows this and can help justify the expense. But an organizational change leader must engage with everyone concerned in order to build a groundswell of support for the transformation. Business transformation is a perfect opportunity for leaders to model new expected ways of doing business. As a result, they also must:
- Create a picture of the end state that is new, fresh, and exciting. In other words, the place where people want to be and where all those affected by the transformation will be willing to help get to.
- Communicate, communicate, communicate. At every opportunity and in every fashion, the organizational change leader should take the opportunity to tell people about this new, amazing place where they will be able to work.
- Engage the best people in making the transformation happen and along the way knock down the barriers that will naturally form. This needs to be done quickly or the naysayers could gain momentum and support from others.
- Act to quickly and effectively engage the mechanics of change. To train people in the new processes, implement new forward-looking metrics, get new organizations in place quickly, and demonstrate the value of the new ways with quick wins.
Transformation projects do not have to keep filling the black hole. If you plan well and ensure that the critical ingredients for success are all part of the plan, you can get where you want to go.