One of the most critical responsibilities of a CEO is to lead their organization through business transformation. After successfully navigating a number of business transformations, including start-ups, mergers/acquisitions, and major technology implementations, I’d like to share some practical learnings and observations I’ve had from these experiences and how the approach taken will directly impact the outcomes.
I’ve been asked, “As the CEO, is it really different leading an organization through transformation than it is leading during the normal course of business?” For me, the answer has been yes. There are always leadership challenges in any business, whether implementing planned initiatives or dealing with unplanned business issues that need to be tackled as they arise. However, true transformational change adds a layer of complexity over and above normal business challenges and results in a fundamental and foundational change in the nature of how the business is shaped, and will operate, in the future.
I have found several common leadership considerations as I’ve prepared for, lived through, and emerged from the varying stages of a transformation:
- The business case for transformation
- Understanding the impact of the transformation
- Managing through the change
The Business Case for Transformation
Often the need for transformational change emerges from a strategy session with the board of directors. There can be a level of excitement coming out of these discussions, especially when there is alignment on the need to move forward with transformational change.
And then, of course, at the next board or finance committee meeting the question will inevitably be asked “What does the business case look like?”
I’ve always believed that deciding to undertake a business transformation represents the ultimate strategic decision essential to achieving the long-term aspirational vision for the organization. In many cases this will not fall within a traditional business case framework, where there is a clear and simple investment/return payback calculation. But investment will typically be required, and a business case will be needed. The investment may include intangible considerations, such as the opportunity cost of not having organizational capacity while in transformation to undertake other initiatives that may generate short-term benefits. And often the investment in transformation is simply an added cost of doing business, as in the case of an enterprise resource planning (ERP) systems implementation.
It is also tempting to focus on, and sell, the upside of transformation – usually lower operating costs and increased growth. I’ve seen “hockey stick” financial projections result from this approach. I have always focused on understanding the true costs of transformation and the underlying risks. It’s important to ask the question “What can go wrong?”
A discovery phase can be used before moving ahead, to fully understand the costs and benefits and to build more confidence in the business case. After more detailed discovery, I’ve seen a business case where the costs ended up being much higher, and the savings much lower than the original estimates. Nonetheless, given the long-term strategic importance of the transformation, with some innovative approaches it still moved forward and was successful.
In the end, the most important thing is to be realistic and transparent with your board, and other key stakeholders, about what the transformation will really mean from a financial perspective. I recommend making the financial aspect of the transformation a standing board agenda item over the course of the transformation, and where appropriate provide updates to other key stakeholders.
Understanding the Impact of the Transformation
Based on my experience, transformational change has always been somewhat bumpy. I’ve often used the expression “it’s a marathon, not a sprint,” and as the CEO you will need both patience and perseverance. It’s important to remain flexible as challenges and other business issues inevitably emerge that need to be addressed during the transformation.
First – there will be an impact on your team. There will be strong resistance to the change from some, optimism and enthusiasm from others, and those (usually the majority) who just want to be left alone to do their jobs. This will create tension and stress in the organization, especially as resources are stretched and transformational fatigue sets in over time. Realistically, some members of the team will not make it, and this will require you to make some tough decisions. There will be skill and resource gaps in the organization that need to be filled – possibly from within, but more likely by bringing in both full-time and contract resources from the outside. As the CEO, it’s important to be in touch with your entire team and have empathy and understanding. It will be a true test of the cultural strengths of the organization.
Second – there will be an impact on your day-to-day operations. Coming from an operational background I’m probably biased, however, never underestimate the importance of having strong operational leadership and experience in place during a transformation. It’s tempting to pull your best people out of the business to work on the transformation. Consultants, subject matter experts, and the project team are critical in supporting the transformation, but they don’t have the responsibility to continue to run the day-to-day business. Stay closely in touch with the operational team and make sure they understand how important they are to the success of the transformation.
Third – there will be an impact on your customers. Obviously, the stated goal is always to make the transformation invisible and the transition seamless to customers. However, I believe it is not realistic to think there will be absolutely no impact on customers resulting from changes to existing business processes. And while customers may have some level of understanding of the changes underway, their tolerance for service issues will be limited. It is important while undertaking business transformation to recognize the risk to customer service levels. These risks can be managed and mitigated by:
- anticipating potential disruptions (look for what can go wrong);
- having solid and tested contingency and business continuity plans in place;
- reacting quickly in addressing issues that arise;
- ensuring you are closely monitoring service levels and other key metrics; and,
- communicating directly with your customers at both the executive and operational level
Managing the Change
I have yet to undertake any business transformation that doesn’t involve and usually require technological change. While ERP implementations stand on their own from an impact and scale perspective, seldom is any transformation accomplished without enabling technology. Let me offer a few observations:
- Data, data, data, data — it can be an Achilles heel if your data isn’t good. Getting good information will require hard work and significant effort before, during, and after the transformation.
- Business processes – ensure you have strong operational involvement in developing changes to business processes. Technology needs to enable and support business requirements, not define them.
- Governance – put in place strong strategic, stakeholder, and project governance models. It is helpful to establish and agree upfront on guiding principles for decision-making, especially for approving changes in scope. Governance should be led by your business leaders, not by the technology team.
I’ve also found that most organizations can only absorb a certain amount of change at any one time. Transformational change typically takes place over longer periods of time, perhaps even several years. As the CEO you will need to assess and be sensitive to where the organization stands in its overall capacity for change at any given time. I’ve seen businesses with so many priorities that managing and tracking the priorities becomes the business focus but none of them seem to get completed.
There will also be unforeseen issues that arise and impact the transformation. You may have to put planned initiatives on hold – even those that you feel are important or that might result in quick wins. Flexibility will be key and may mean making changes to project plans. In some cases, although carefully contemplated, the overall timing of the transformation can also be affected. At times, the transformation timeline may need to stretch to accommodate other things that the business needs to do. At other times you will need to push forward more quickly and focus only on the transformation. It is a judgment call that you as CEO need to make.
Finally, recognize there will be a stabilization period coming out of the transformation. You, and likely your board, will have a long list of initiatives to pursue post transformation. Be realistic around how quickly you move these forward – give the organization and your team some time to adapt to the post-transformation business model, and to recharge.
As I said at the outset “It’s a marathon, not a sprint.”
Transformational change is necessary, tough, and even exciting — particularly before it starts and once it’s over! As CEO you need to actively lead the organization through this change. Communication will never be more important. Be transparent, keep stakeholders engaged, stay close to the business, and most important, support your team. Good luck.
David Yundt is a seasoned CEO and operations executive with a track record of successfully developing, and implementing, innovative solutions that help businesses achieve their strategic and operational goals. Reach David here.