think big, act smart reducing uncertainty in ...€¦ · perspective hugo trépant rami mourtada...
TRANSCRIPT
Perspective Hugo Trépant Rami MourtadaSaibal Chakraborty
Think Big, Act Smart Reducing Uncertainty in Transformational Change
Booz & Company
Contact Information
BeirutRamez [email protected]
Raymond KhouryPrincipal+961-1-336433 [email protected]
CanberraDavid [email protected]
ChicagoEduardo [email protected]
Mike [email protected]
DelhiSuvojoy [email protected]
FrankfurtStefan [email protected]
Olaf [email protected]
LondonGreg [email protected]
Hugo Trépant Partner [email protected]
Rami [email protected]
Saibal Chakraborty Senior [email protected]
MilanEnrico [email protected]
New YorkJeffrey [email protected]
São PauloJorge [email protected]
ShanghaiAndrew [email protected]
SydneyPeter [email protected]
1Booz & Company
EXECUTIVE SUMMARY
Few companies can afford the money, time, and risk involved in traditional large-scale transformations. In the past, such efforts have rarely brought the hoped-for benefits, primarily because the conditions and assumptions under which the transformation was begun did not remain steady, or evolved to create unacceptable or unmanageable levels of uncertainty.
Companies looking to pursue strategic transformations, we believe, must take a very different course, one that ensures a greater degree of flexibility and agility. The process involves breaking down the transformation into smaller elements of change, which allows for periodic reassessments of the busi-ness environment and recalibration of the way forward. We are not advocating a mere phased implementation plan or a cautious “continuous improvement” scheme; indeed, companies must be willing to “think big,” developing a bold, ambitious vision of the future, if they are to achieve fundamental change. At the same time, they must “act smart” by structuring the transformation itself in incremental but stand-alone steps, with regular review points that allow them to respond rapidly to the changing business environment.
To make this new approach work, companies must ensure that two critical elements are in place. First, every transfor-mation-related decision must be guided by a business case that is based on sound assumptions and is analytically robust. Second, a strong governance body, with representatives from key stakeholders in the business and real authority to make decisions, must be created to oversee the transformation program’s key go/no-go review gates and ensure objectivity in decision making.
1
2 Booz & Company
There comes a time in the life of every large organization when the case for transformational change becomes clear. For many organizations, the recent recession and the resulting increased uncertainty have meant that that time is now. In hopes of reinvigo-rating corporate performance and jump-starting growth, executives are looking to make major improvements in efficiency, innovation, and customer service, and they are contemplating substantial changes in the people, processes, and underlying technology needed to meet those goals.
For most organizations, however, the era of the large-scale, multiyear program is long gone. The reason is twofold. First, major all-or-nothing projects have a poor history of success in both the public and the private sectors. Far too often, organizations have launched ambitious, multiyear programs, only to realize later that the outcomes fell far short of expecta-tions. Hindsight reveals that the pri-mary reason was the rigid approach
taken to bring about the transfor-mation, which required designing a desired end-state operating model based on today’s realities, making significant up-front investments in technology and infrastructure, and then driving the program toward the end state using best-practice manage-ment techniques. As the business envi-ronment inevitably changed, however, organizations found that the original assumptions underpinning the change had proven inaccurate and that the planned end state was no longer viable, or even desirable. Yet more often than not, the approach didn’t allow for midcourse corrections.
Second, if anything, the odds of suc-cess using such an approach have decreased even further, given today’s economic and political uncertainties and an ever-increasing pace of change in technology, business models, and the competitive landscape. It is there-fore time to fundamentally rethink how business transformations should be carried out.
HOW ORGANIZATIONAL CHANGE MUST CHANGE
3Booz & Company
We believe that the key to successful transformation today lies in flexibility and agility. Organizations must be able to assess and adapt to changes in the business environment and to ensure that the impact of any major environmental change is rapidly incor-porated into the program’s goals and plans. We think that the way to do this is to break up the transformation into discrete elements of change. This is a far more fundamental reconcep-tion of the transformation process than a mere phased implementation plan; organizations need to conceive of and design the transformation itself in an incremental way.
The idea is to structure the change as stand-alone, self-sufficient elements, each of which can be executed wholly within a short change cycle to deliver tangible benefits by itself. Thus, the transformation process becomes a sequence of plan-design-execute-adapt cycles. The goal is to reduce the level of uncertainty surrounding the project’s underlying assumptions over the change cycle to a fraction of what it would have been with a traditional approach (see Exhibit 1).
At the end of each change cycle, the organization has the flexibility to reflect. If the business environment
THINK BIG, ACT SMART
Exhibit 1 Think Big, Act Smart: The New Way to Transform
Source: Booz & Company analysis
TRADITIONAL APPROACH TO TRANSFORMATION
THINK BIG, ACT SMART
Unc
erta
inty
Unc
erta
inty
0 to 6 months
0 to 18 months
6 to 10 months
At the end of a cycle, reflect and continue or replan if necessary
10 to 18 months
-
Characteristics
- Ambitious goals
- Multiyear transformation
- Large up-front investment
- End-state operating model designed at start
- Phased journey toward end-state model
- Limited flexibility to respond to business environment changes
Characteristics
- Ambitious goals
- Multiyear transformation
- Significantly smaller up-front investment
- Flexibility to change target operating model
- Self-sustained plan-design-execute-adapt cycles
- Significantly shorter lead times to respond to business environment changes
Uncertainty Drivers
- New business models- Product substitution- New technology- New regulations- New growth markets- New competitors- New leadership- Mergers and acquisitions
Plan-design-execute-adapt cycle
Plan-design-execute-adapt cycle
Plan-design-execute-adapt cycle
Shorter, self-sustainedcycles mean reduced uncertainty
4 Booz & Company
has changed substantially and the assumptions that once underpinned the transformation no longer hold true, it can refine, restructure, post-pone, or cancel its current initiatives and plan future initiatives anew.
It is important to understand that the length of the change cycles need not be uniform or fixed in stone. The main requirement is that each cycle deliver a discrete, self-sustained element of change with an associated return on investment. Each cycle could last anywhere from three to 12 months, depending on how the change is structured, the degree of uncertainty in the current business
environment, and the organization’s risk appetite. If an unforeseen event occurs midway through a change cycle that renders the original assump-tions inaccurate, the cycle could be shortened or even terminated, and replanning could happen sooner than originally anticipated. In every case, however, the lead time to respond to environmental changes is significantly shorter in the new approach.
The notion that transformational change should proceed through short increments may feel too cautious, or even tactical, to some. We believe, however, that it is possible—indeed, necessary—
to both “think big,” by developing a bold, ambitious vision of the future state of an organization, and “act smart,” by managing very care-fully the delivery of that ambition. The traditional approach to transformations always involved significant long-term risk: All the money was bet on one horse. As we see it, working incremen-tally provides greater certainty in achieving the desired strategic outcome while allowing organi-zations to drive large-scale trans- formational change. It allows companies to be bold, but also to understand clearly where their boldness is leading.
Working incrementally allows companies to be bold, but also to understand clearly where their boldness is leading.
5Booz & Company
MAKING IT WORK IN THE REAL WORLD
We recently began following this new approach for a large client in the public sector. Each of the client’s several business units maintained its own procurement and life-cycle man-agement of its engineering equipment. As a result, the company was missing out on the significant benefits to be gained from economies of scale and other process synergies. We segmented the multiyear transformation of the company’s operations into several discrete phases; the goal of each phase was to create a new, independent, and self-sustaining “capability center” that will centralize and harmonize demand management, sourcing and vendor management, and technology standards for a specific category of equipment across multiple business units. Our client has the choice to undertake the full program and imple-ment all the capability centers if the economic and political environment remains unchanged in the coming years. However, if circumstances change—due to heightened financial constraints, for example—the organi-
zation has the flexibility to stop after implementing some of the capability centers and still realize an appropriate portion of the originally envisioned benefits.
In a more general sense, we see this approach as the most optimal position between major strategic change and tactical or continuous improvement initiatives. Large-scale change usually gets delivered via multiyear programs that fundamentally change the orga-nization’s technology landscape, busi-ness processes, and job roles. As such, the risk lies in being tied to a rigid approach. At the other end of the scale is continuous improvement, the preferred mode for executing smaller, tactical changes and minor tweaks to the operating model. This is typically treated as part of business as usual: No program office is set up, business units lead all aspects of the change, and routine IT releases deliver the necessary technology upgrades. Here, the risk lies in being too tactical because such efforts lack the strategic
6 Booz & Company
thinking to respond to major changes in the business environment. The new thinking described here gives businesses the option to transform incrementally and flexibly as a means of reaching a goal underpinned by bold, strategic thinking. It is thus an optimal position between the two extremes (see Exhibit 2).
In order to execute long-lasting transformations successfully using the new approach, organizations will need many of the same capabilities required in a traditional approach—senior accountability and engagement, core design, architecture and implementa-tion skills, strong program manage-ment processes, prompt resolution of issues, timely and accurate deci-sion making, and proactive risk and change management.
In our experience, however, the one critical area where the new approach will require organizations to be sharper and more systematic is in selecting and sequencing the change elements appropriately. Organizations need strong governance underpinned by rigorous decision-support mecha-
nisms, so that selection and prioritiza-tion can take place in an unbiased, evidence-based, emotion-free manner focusing purely on business outcomes.
Specifically, they need the capability to build an overall but granular business case and a measurable benefits realiza-tion plan for each change initiative. The business case must allow for smart scenario planning so that the impact of changes in the business envi-ronment can be easily assessed and incorporated. Furthermore, the busi-ness case must be treated as a living entity and not one that is created at the inception of the transformation, approved, and promptly archived or too rigidly adhered to. The organiza-tion needs to have the agility and the discipline to review and update the business case at the end of each change cycle and use it in a proactive manner to drive decision making.
Equally important is the governance of the transformation, which must safeguard the sanctity of the business-case-driven process. At one client, for example, we found that the gover-nance body that decided on the change
portfolio consisted solely of the heads of the business units and the various functions, including IT, HR, and finance. The body did not have a senior management representa-tive with an overarching view of the organization across business units and functions or the author-ity to make tough decisions. And the business units were not required to provide detailed business cases to justify every proposed initiative. This inevitably resulted in the most powerful business units—those with the most direct linkages to revenue generation—always getting their wishes granted. As a result, the orga-nization was left with many projects that weren’t meeting their goals, while the less powerful business units complained of a lack of budget for their own projects.
The need for a business-case-driven mind-set and an unbiased governance body with decision-making authority is paramount. This capability is even more important in a cost-constrained environment where business units will invariably jostle for their share of ever-dwindling change budgets.
7Booz & Company
Exhibit 2 Think Big, Act Smart: The Optimal Position
Source: Booz & Company analysis
Subheads
HEADING
9.2 million
4.7%5.8%
27.9%
30.2%
31.4%
Subheads
11.0 million
4.3%
6.2%
32.8%
26.6%
30.1%Asia/Pacific
Latin America
Middle East & Africa
Europe
North America
11.0 million = Subheads or highlighted text in Subheads
Guidelines:
aölkdfölka = Plain text / Body copy in Content Bullet points as dashes with tab position
32.8% = numbers in Content bold
30.1% = just white text on 100 % color
TABLE HEADINGS
A4 format: - width for 3 columns: 169 mm = 6.654 in- width for 2 columns: 111 mm = 4.37 in
Letter format:- width for 3 columns: 167,64 mm = 6.6 in- width for 2 columns: 110,35 mm = 4.343 in
Lines: 0,5 ptLines for legend: 0,5 pt dotted, black
Note:Please always delete all unused colors, after creating the exhibit,otherwise InDesign will import the spot colors of this Illustrator file.these colors can’t be deleted in InDesign. Thanks.
Approved Colors, Tints and Patterns:
CONTINUOUS IMPROVEMENT TRADITIONAL TRANSFORMATIONTHINK BIG, ACT SMART
No dedicated program team or budget; planning and execution by business units
Large program team driving planning and execution; separate transformation budget
Small program team; budget allocated separately for each cycle of change
executed in small, tightly scoped cycles to Small-scale, tactical changes requiring limited levels of investment
Large-scale strategic change, planned and executed in small, tightly scoped cycles to
avoid large up-front investment
Large-scale strategic change with large up-front investment and multiyear duration
framework contract approach allowing for Long-term IT supplier contracts in infrastructure, application maintenance
Flexible arrangement based on a framework contract approach allowing
for tighter cost management
Large, one-off IT supplier contracts, usually offering limited flexibility
usual; however, requires capability to Limited impact on business as usual, requiring little or no change management
Avoids single, large impact on business as usual; however, requires capability to absorb
frequent bursts of change
Organization-wide change program plus backfill measures to preserve business as usual
Risk: Changed business environment rendersoriginal goals irrelevant or hard to attain
Flexibility: Ability to respond to business environment and “course correct”
8 Booz & Company
In the current environment, spending and budgets will likely be restricted for years to come, reducing the appetite for large-scale transforma-tion efforts and their associated risks and costs. Yet businesses must continue to evolve if they want to compete and win in the long term. Success will accrue to those that adopt a smarter and more flexible approach to transfor-mation, using shorter, incremental change cycles and a fact-based, business-case-driven mind-set to guide every decision.
This approach neither substitutes for nor contradicts the concept of long-term strategic planning. In fact, it allows organizations to think bigger and be even more ambitious while retaining the flexibility to adapt rapidly should the macro environ-ment demand it. Indeed, the case for transformational change is even more compelling in a tough economic envi-ronment, in which organizations must develop innovative, differentiated business models to remain competi-tive. The winners will be those that “think big” and “act smart.”
CONCLUSION
Success will accrue to those that adopt a smarter and more flexible approach to transformation, using shorter, incremental change cycles and a fact-based, business-case-driven mind-set to guide every decision.
9Booz & Company
About the Authors
Hugo Trépant is a partner with Booz & Company based in London. He focuses on busi-ness and IT strategy, transfor-mational change, enterprise architecture, and benefits realization, primarily in the oil and gas and the public sector and government industries.
Rami Mourtada is a principal with Booz & Company based in London. He focuses on information technology in the services sectors, and special-izes in program diagnostics and turnaround, strategic business planning and performance management, and large-scale IT-enabled transformation.
Saibal Chakraborty is a senior associate with Booz & Company based in London. He focuses on IT strategy, governance, sourc-ing, cost management, and value assurance for large-scale IT-enabled transformational change in such industries as the public sector, financial services, oil and gas, utilities, and transport.
The most recentlist of our officesand affiliates, withaddresses andtelephone numbers,can be found onour website,www.booz.com.
Worldwide Offices
AsiaBeijingDelhiHong KongMumbaiSeoulShanghaiTaipeiTokyo
Australia,New Zealand & Southeast AsiaAdelaideAuckland
BangkokBrisbaneCanberraJakartaKuala LumpurMelbourneSydney
EuropeAmsterdamBerlinCopenhagenDublinDüsseldorfFrankfurt
HelsinkiIstanbulLondonMadridMilanMoscowMunichOsloParisRomeStockholmStuttgartViennaWarsawZurich
Middle EastAbu DhabiBeirutCairoDohaDubaiRiyadh
North AmericaAtlantaChicagoClevelandDallasDCDetroit
Florham ParkHoustonLos AngelesMexico CityNew York CityParsippanySan Francisco
South AmericaBuenos AiresRio de JaneiroSantiagoSão Paulo
Booz & Company is a leading global management consulting firm, helping the world’s top businesses, governments, and organizations. Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914.
Today, with more than 3,300 people in 61 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage.
For our management magazine strategy+business, visit www.strategy-business.com. Visit www.booz.com to learn more about Booz & Company.
©2010 Booz & Company Inc.