I have recruited a number of transformation roles for clients and, as a result, I have met and interviewed a large number of transformation directors and managers. Typically these people have run programmes in the large to very large category: in the millions of £pounds, through to very large scale and complex programmes in the hundreds of millions of £pounds, involving full people, process and technology change. I find it fascinating that there are a multiple of scenarios that drive companies to go through transformation. So, from my discussions with these experts, I thought I would compile 15 reasons why they do.
1 - Business Environment
The environment that business operates in is constantly changing: new demographics, new geographies, new markets and the need for new revenue streams, are just some of the challenges that companies face. For many, this means a need to make fundamental changes in how business is conducted to cope with changes in market environment. Many businesses are experiencing very sluggish growth in the western, developed economies, as mature markets offer limited opportunities for anything other than small amounts of incremental growth.
For example, in the insurance world, the Pru has opted to focus all its growth efforts in the Far East as the rapidly expanding economies of Asia with their newly wealthy middle class demand financial services in an underdeveloped market. Conversely, more than half of all photographs are now taken on smart phones (when was the last time you took your digital camera out with you?) meaning a plunge in sales for digital camera makers and the associated retail activity. As companies respond to changes is business environment, by bringing new products and services to market, changing the operating model of their businesses - and the major paradigm shifter: going Digital - the actions of bringing together people, processes and technology changes requires major transformation programmes.
2 - New Business Stream
Large business enterprises are constantly looking for opportunities to bring new offerings to market, but it needs a transformation programme to bring people, processes and technology together to ensure coordinated success. I attended a seminar where the head of UK banking at Santander UK, outlined the process that they went through for the introduction of several new business streams. As a “challenger” bank to the established Lloyds, RBS, Barclays and HSBC, Santander needed to come up with alternative offerings to its customers: the 123 Current Account and Credit Card was their answer on the retail side, plus they brought a number of new offerings to market in their corporate banking business. This involved coordination of a major marketing campaign; introduction of new operational processes and training in their 900 branches, plus their call centres; and also development of their technology platform to handle the new offerings; rounded off neatly with all the risk and regulation processes that banks have to go through these days. None of these activities could be done in isolation – all the projects were interdependent - requiring a significant transformation programme. It is seems that it worked: Santander has increased its customer base from 1 million to 3 million, and trebled its deposits at the same time.
3 - Providing Customers with an Optimum Service
This is key to commercial success, and in heavily competitive markets, can mean the difference between business success and failure. The way businesses deal with customers, focusing on treating customers well and proper customer care, has led to very considerable transformation programmes.
In the insurance world, LV= achieved a very considerable change in their fortunes by a key focus on treating customers better, plus a new marketing campaign. This took a 2 year transformation programme, focused on simplifying literature and contracts, swift resolution of claims, a rigorous training of call centre staff to be understanding and empathetic, plus an ease of buying by phone and online.
In recent years transformation programmes to move customer call centres back to the UK, have been prevalent because many offshore ones, although considerably less costly to run, were damaging to brands, with the potential loss of customers such that the cost savings were wiped out by the loss in business. Anyone who has had the misfortune to encounter an offshore call centre person with a limited grasp of English who is clearly reading from a script, will immediately want to change their allegiance to another company who has a UK call centre, and a friendly and empathetic voice who is willing and able to resolve your problem.
4 – Workforce Demographics
The level of sophistication in skills sourcing means that businesses can acquire lower cost capabilities and have a more flexible business model, by switching business functions abroad, or to specialist providers in the UK.
To make this move will involve a major transformation programme to transition these back office processes and transform the business operating model.
Whether this is “offshore” or “near shore”, there are many examples where matching skill requirements to business needs can be beneficial from not only a cost point of view, but also access to appropriately skilled staff.
The options are widespread these days: be it an outsourced finance and accounting team in Poland, an IT team in India, or an HR and payroll service in the Czech Republic. If you are a mobile phone manufacturer, the vast factories in Taiwan have the technological capability and the low cost workforce to produce components at a fraction of the price that it would cost in the West.
5 - New Business Strategy
New business models can evolve fast, rendering more traditional models redundant in very short time frames. The ability to transform business models to meet a new business paradigm is vital for survival in many business areas. We have witnessed the breakneck speed that technology has changed some markets, rendering some previously successful business models completely redundant in a few short years.
Take the music industry as an example. Most music is now downloaded rather than buying CD’s. HMV was a very successful traditional high street model which failed to transform, and was completely taken over by innovators in the download and streaming markets: they failed to spot Spotify, were caught napping by Napster and didn’t sing to the same tune as iTunes. Even the highly successful iTunes model is potentially under threat as consumers turn to renting music from streaming services rather than buying songs. Apple has recently responded by paying $3billion for Beats Music – a transformation in their model.
6 - Go Digital
Customers want a quick, error free and seamless digital experience, and they want it immediately: the digital revolution is forcing many companies to radically change the way they operate, and answer the challenge of selling and communicating with customers online.
There are estimates that the web will influence more than half of all retail transactions this year. This presents a major challenge to many companies who have to undergo major transformation of their marketing, sales and delivery models to enhance the customer experience and keep up with the competition.
It is not enough to automate existing processes: they must reinvent their operating model with new business processes, cutting the number of steps in the process, cutting the number of documents, building automated decision making processes, plus processes to deal with regulatory and fraud matters. This means re- skilling, changing organizational structures, and redesign of roles to meet the needs of the new processes.
For those that get it right, the benefits of reduced costs can be massive, enabling them to delight customers and reduce prices at the same time. Customer expectations are now very high – thanks to the likes of eBay and Amazon, or the insurance aggregators such as gocompare.com. The John Lewis Partnership has been around for 150 years, but it recognises that we are in the middle of a digital revolution and has to maximising the opportunity . The winners will be those organisations that successfully transform to gain competitive advantage.
7 - Cost Reduction
Cost reduction enables companies to release funds which they can re-invest to achieve growth in other areas. This is often seen by outsiders as a means of making people redundant, and in some cases it is, but often it is about eliminating costly processes to release funds which can then be used to hire more people, or redeployment of existing staff into more productive roles.
In the public sector, there has been relentless pressure from the Government to reduce cost and achieve more value for the tax payer. Most public sector organisations have made redundancies and process improvements over the last few years and are under pressure to make more major savings over the next three years. The only way to make big savings is to introduce new methodologies to deliver services. The operating model has to change, and this often means tearing up the existing operating model and starting again. There will be very big chunky changes, including mergers, shared services and integration to eliminate wasteful processes.
8 - Process Improvement
A rigorous reworking of internal processes can make big differences to business fortunes – huge amounts of cost can be driven out by eliminating wasteful processes, whilst at the same time improving customer satisfaction and employee relations.
As companies evolve, existing processes get stale: the market moves and businesses find their existing processes have not kept up with market changes, and many elements of the business become irrelevant or over- complex.
Human beings have a propensity to make things complex, and often businesses find that over time, they will end up with a much wider range of products than is required, or multiple processes that do essentially the same thing, or a multiple of product offerings where a focus on a small number would be better.
Various methodologies have evolved over time to reduce complexity and improve efficiency, such as Lean, Six Sigma and Kaizen. Much of the thought leadership originated from the Japanese approach to more efficient manufacturing. However, large US corporations such as GE, 3M and Honeywell embraced these approaches and embedded them into their business activities.
Now, business transformation programmes to improve operational efficiency are evident in every sector whether it is healthcare, central government, financial services and pharma. It is not, as commonly perceived, just about cutting costs; it is equally about improving customer experience and workforce harmony.
It is also not just about “tinkering at the edges”, but about taking a holistic approach and embedding the ‘lean’ culture into an organisation.
9 - M&A Strategy
Mergers and acquisitions are about driving value in a business – integration and transformation of the merged or acquired business is a key factor in effective realisation of shareholder value.
For example, one business may have a strong supply chain process backed up with strong technology and finance systems, and another business has a strong sales & marketing operation with the capability to cross sell complimentary products. By acquisition and merger of the two, and transforming the merged business to optimise the best bits of both, considerable value can be achieved.
American giants such as GE, 3M and Oracle are masters of the swift acquisition and merger of complementary businesses (and swift divestment when they no longer fit the strategic plan).
In the private equity markets, underperforming businesses are targeted and merged, and with transformation and slick financial engineering, can achieve considerable improvement in return for investors.
However, it is not all success – in fact the failure rate of acquisitions is estimated at a startling 70-90% - indicating that CEO’s are often unrealistic about the benefits of mergers, and fail to understand how to integrate and transform. Despite these horrific failure rates, £billions continue to be spent on M&A each year: good news for the lawyers, investment banks and other advisors, but not so often for shareholders.
10 – Shareholders
If the markets perceive that a business is overburdened with cost, or its business model in danger of falling behind its competitors, then an active transformation programme can improve perception in the investor community, which will have a positive impact on the share price.
This will require the board of directors to demonstrate that the successful execution of the company’s strategy, facilitated by a transformation programme, will improve financial strength.
Typically, this will be done by investing in new systems, applications and business platforms to drive growth, plus increasing operating effectiveness and efficiency.
11 - Front End Problem. Back End Problem
Transformation programmes will often take place in a particular function of a business, where there is a specific problem. This may be at the “front end” of the business, focusing on customer engagement, sales and marketing processes; or the “back end” of the business, such as finance and accounting, HR processes and IT systems.
At the “front end”, companies with a large customer base will have a key focus on customer engagement, whether it is front line staff in supermarkets, or call centre staff in mobile phone companies and banks. Unless the “front end” of the business is working in harmony with the needs of the customer, customer engagement will not happen.
Similarly, in businesses with low volume/ high value offerings, such as aircraft engines or luxury goods, unless there is an understanding of what drives customers to make a purchase, competitive positions in markets can be lost very quickly.
As a result, there has been a major driver for businesses to embark on transformation programmes to turn around business performance where there is a perceived “front end problem”. Some examples of where this will manifest itself is in a high level of customer complaints in banks, or a high amount of customer ‘churn’ in mobile phone companies, or a large decline in footfall in retail companies.
Transformation programmes with a focus on excellent customer engagement will start with the human side. Employee engagement is key here, as customer engagement will not happen without well trained and motivated front line staff. A technology solution will back this up: a well defined CRM system that captures the right data and enables understanding of the drivers of customers to make a purchase, will create a strong foundation for improved customer engagement.
The “back end” of a business is not seen by customers, but when it goes wrong it can have a devastating effect.
There is a natural tendency for Directors to pay less attention to the back end of the business: what the customer does not see does not matter, and if the business is reporting good profits, which compare favourably with other companies in its sector, there is little incentive to improve a bloated and inefficient back end operation.
Until it all goes wrong.
The HR function is a strong case in point. An ineffective HR function can quickly lead to a disenchanted workforce, resulting in very costly high levels of staff turnover. Issues such as effective communication with the workforce; fairness and consistency in numeration schemes, including salary, benefits and bonuses; plus progressive training programmes, can improve business effectiveness significantly. Also, talent attraction (my personal key area of interest), talent management and development is key to business success, particularly in highly competitive markets for the best staff.
Finance and accounting systems can, on the surface, report good profits, whereas in fact it is heading towards loss, or bankruptcy (witness the Enron debacle a few years back).
IT systems are no less of an issue. The highly publicised and damaging downtime on RBS systems last year, where customers were unable to access their accounts or withdraw cash, is a manifestation of the problem that most major banks have: the need for transformation programmes to keep hardware and applications up to date.
For many organisations, transformation is a continuum – seen as not something that has a start and end, but carries on over time.
12 – Cloud
You would be forgiven for thinking that Cloud this is purely an IT matter - to reduce the reliance on expensive and ever expanding physical data centres in a data hungry world. But the adoption of Cloud also provides an opportunity to transform a business by use the software-as-a-service model, giving much greater flexibility in the use of applications appropriate to the business need.
A good example is that if a business enters a new market such as China, it will need to set up a fresh set of business processes. Software-as-a-service delivered via the Cloud is a very agile way to do this. Also, enterprises that are highly acquisitive will want to integrate new companies as soon as possible – Cloud and software-as-a-service provides the ability to transform much more than the traditional ‘physical IT assets’ model.
13 - Integration of People, Processes and Technology
It is impossible to change one of these without changing the others – they are all interdependent in business these days. You can’t introduce a new business process without a corresponding change in technology, and vice versa.
This requires a coordinated transformation programme which takes full account of the human, business process and technology interfaces.
The implementation of a new technology system can be very seductive to CEO’s looking for a step change in business performance, but can be a very expensive waste of time if the users don’t know how, or are unwilling, to use it.
Transformation of all three components is key to success, but frequently overlooked. Cost overruns in technology implementation projects are often at the expense of the training budget, resulting in a shiny new IT system gathering dust as users stick to the old, familiar (and inefficient) ways of working.
Effective transformation can only come from leadership, and complete buy-in to the overall transformation programme from top level management.
14 – Regulation
Although many businesses are regulated (such as utilities and healthcare), new regulations have been particularly prevalent in the financial services industry in recent years. Banks, building societies and insurance companies have been subject to the plethora of regulatory measures such as anti fraud, anti money laundering, and capital adequacy tests.
These regulations have been driven by ongoing concern from the Bank of England that finance institutions have insufficient capital to withstand another major economic shock.
For leaders of financial services companies, there is no escaping it. The regulator has the power to close a business stream that does not comply, so leaders who want to hold onto their jobs have no choice.
This has driven very large transformation programmes in banks and insurance companies in recent years; not only to ensure regulatory compliance, but also to streamline processes which would otherwise make compliance a very involved, complex and unwieldy process.
Long and involved form filling has dire potential consequences for customer relationships - anyone who has opened a bank account in recent times will be aware of the number of checks the banks have to go through before an account can be opened.
15 - Vanity!
When a new CEO comes on board, there is a big incentive for that person to make a mark on the business. In most cases, the board will have hired the new CEO to make a difference, and what better way to make a mark than the “new brush” approach. o be seen to be doing something.
What better way than to change the organisation by a transformation programme with a view to boosting the company’s current performance.
This may be to help hold onto a premium market position on the one hand, or cut costs, on the other.
Jonathan Ross - executive search consultant. Welcome to my blog: articles for companies who are recruiting, people who are looking for a job, and some of my observations about recruitment, business and the economy.