Most of us have heard the phrase “driving effective organizational transformation.” To many, this sounds like MBA speak. So what exactly does this term mean, and how does the size of your organization affect this concept?
What is an organizational transformation?
According to Harvard Business Review (HBR), a transformation is “a fundamental shift in the way that an organization conducts business, resulting in economic or social impact.” Others define it as a strategic method or business strategy for moving your company from where it is now to where it needs to be to accomplish business goals and objectives. According to HBR, on the corporate level, only 22 percent of large firms achieve the transformation they sought. For such a transformation to be effective, it must achieve the goals and objectives outlined in advance — and continue to achieve them in the ensuing years.
Be aware that the larger the company, the harder the transformation. This is because of the number of people involved (for example, thousands versus tens), the ingrained culture, resistance to change, and entrenched processes and systems. The good news is that it is much easier for smaller companies to transform their operations.
Effective change is driven by a joint top-down and bottom-up approach — with support from ownership and senior management as well as user feedback. Those driving the process need to communicate well and often. Obtaining buy-in as early as possible and sustaining it is absolutely critical to success.
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How to know when you need a major transformation
To determine whether your company needs a large-scale transformation or restructuring, ask yourself a series of questions:
- Does your organizational chart accurately depict the roles and their true reporting paths? If you use project teams, does your chart show this? Or is your organizational chart just there for titles and positions that need to be filled?
- How much overlap is there? Does one person report to two or three people for different reasons?
- When was the last time you updated your organizational chart? Does it match some original definition before you made new hires, modified your business model, took on new clients or opened new locations?
Moving beyond your organizational chart, these questions also point to a need to make major changes:
- Has growth or revenue slowed or begun to reverse? Is this a blip or a long-term trend?
- Has customer acquisition slowed? Are you actually losing customers?
- Are you encountering serious cash flow issues that you can’t determine the basis of?
- Have your profits plateaued or even decreased and been on this trend for two or more years?
- Has your competition out-innovated you or otherwise developed a new competitive advantage?
How to implement a major restructuring
Once you realize an organization-wide transformation is necessary, you can take different paths to implement this, such as:
- Hire one or more external consultants, depending on the size of your organization. Your internal leadership team may be able to provide the necessary expertise and implementation skills, but if they have been part of the same groupthink that got you to this point, you need a fresh perspective. The consultant needs to be a good listener who is adept at working at the board and senior management level as well as all other organizational levels. As a caveat, if you have leadership team members who have been advocating for change for a while, now is the time to let them craft a plan, get buy-in and begin making changes. Be aware that employees typically find it easier to speak candidly with external consultants than internal management when the work culture does not support open, effective communication.
You may think you have the answer, but you first need to dig deeper and find the root causes.
- If you’re unsure how the issues began, ask your consultant to determine where to begin and what departments or groups need to be transformed first. For organizations with fewer than 150-200 employees, the process can typically begin company-wide, as long as all senior management are in agreement and have defined their sub-goals based on the company’s goals. You cannot determine the changes needed in advance until you begin this implementation process. You may think you have the answer, but you first need to dig deeper and find the root causes.
- Best practices and a holistic road map go hand in hand for a project like this. According to Boston Consulting Group, this road map should start with goals and commitment, then move to baseline/target state, then solution and capability development, and, finally, implementation and sustained improvement.
- You’ll know you’re done when the changes you implemented are driving greater engagement among employees, stronger cash flow, and a reversal or elimination of the issues you were targeting. For example, your quarterly profit or revenue is increasing, or your customer satisfaction survey scores are significantly improving.
How to measure success
Since you defined success at the beginning, measuring success will be relatively easy. This is why setting goals and objectives at the outset and agreeing on them is so critical. Your success measures need to be multiple and multifaceted, quantitative and qualitative. Focusing solely on revenue growth, for example, could lead to lower operating and profit margins.
- If success was defined as profit, profit will be improving. This may go in steps, such as moving from unprofitable service or product lines to profitable service or product lines, and then beginning to see monthly or quarterly overall profit improvements.
- If cash flow was negative, it will become positive and improve.
- If your service or product offerings were all over the place, you will now be offering a smaller product range that customers respond well to.
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An immediate marker is an improvement in employee optimism, as well as communication between ownership and senior management. If employees move from being stressed, overwhelmed, highly competitive or indifferent to being hopeful, engaged and smiling more, you’re on the right track. If ownership and senior management are discussing deeper issues and delegating more regularly (or being delegated to), that’s a strong sign you’re moving in the right direction.
A quarterly focus is important, so you learn the value of making adjustments as information comes in and not waiting until a yearly planning session, if ever.
Give yourself time, as follows:
- Check changes and their impact weekly, but check progress against goals at three months, six months, nine months and one year. A quarterly focus is important, so you learn the value of making adjustments as information comes in and not waiting until a yearly planning session, if ever.
- Thereafter, set yearly goals with quarterly sub-targets and track quarterly.
How to retain your successful track record
You can evaluate the success of your transformation based on the past six months to one year (for smaller businesses) or two to three years for very large or moderately large, highly distributed businesses. To maintain this successful, cohesive track and cement your results, do the following:
- Continue weekly or biweekly management/ownership meetings with agendas.
- Continue translating company goals into departmental goals, and then share these goals and objectives with all employees.
- Provide periodic (monthly or quarterly) updates on progress toward goals.
- Review financial statements and operational metrics on a monthly basis. If there are significant differences, determine the cause; these could be issues to resolve or opportunities to seize. Use the same type of analysis and discussion that you used before.
Following this process gives decision makers a 360-degree view — so they can “see around corners” — and provides the supportive, motivated teamwork they need to enact meaningful change.
Yes, effective organizational transformation is an involved and intensive process, but the rewards are tremendous. A “transformation” is also sometimes referred to as a restructuring, but the term “restructuring” sometimes carries a negative perception of business financial issues. Whatever terminology you use, the key is to wholly revamp your organizational processes and procedures and fully leverage your employees and management at every level to rebuild or reposition your company to achieve long-term goals and sustainability. According to Korn Ferry, organizations that succeed here “understand the organizational power of people to do extraordinary things.”
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