Rami Mourtada Saibal Chakraborty. Think Big, Act Smart Reducing Uncertainty in Transformational Change

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1 Perspective Hugo Trépant Rami Mourtada Saibal Chakraborty Think Big, Act Smart Reducing Uncertainty in Transformational Change

2 Contact Information Beirut Ramez Shehadi Raymond Khoury Principal Canberra David Batrouney Principal Chicago Eduardo Alvarez Mike Cooke Delhi Suvojoy Sengupta Frankfurt Stefan Stroh Olaf Acker Principal London Greg Baxter Hugo Trépant Rami Mourtada Principal Saibal Chakraborty Senior Associate Milan Enrico Strada New York Jeffrey Tucker São Paulo Jorge Lionel Principal Shanghai Andrew Cainey Sydney Peter Burns Booz & Company

3 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 business 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 transformation-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. Booz & Company 1

4 HOW ORGANIZATIONAL CHANGE MUST CHANGE 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 reinvigorating 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 expectations. Hindsight reveals that the primary reason was the rigid approach taken to bring about the transformation, 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 management techniques. As the business environment 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 success 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 therefore time to fundamentally rethink how business transformations should be carried out. 2 Booz & Company

5 THINK BIG, ACT SMART 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 incorporated 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 reconception 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-executeadapt 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 Exhibit 1 Think Big, Act Smart: The New Way to Transform Uncertainty Drivers - New business models - Product substitution - New technology - New regulations - New growth markets - New competitors - New leadership - Mergers and acquisitions Uncertainty 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 0 to 18 months THINK BIG, ACT SMART Shorter, self-sustained cycles mean reduced uncertainty Characteristics - Ambitious goals - Multiyear transformation Plan-designexecute-adapt cycle Plan-designexecute-adapt cycle Plan-designexecute-adapt - cycle Uncertainty - 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 0 to 6 months 6 to 10 months 10 to 18 months At the end of a cycle, reflect and continue or replan if necessary Source: Booz & Company analysis Booz & Company 3

6 has changed substantially and the assumptions that once underpinned the transformation no longer hold true, it can refine, restructure, postpone, 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 assumptions 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 carefully 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 incrementally provides greater certainty in achieving the desired strategic outcome while allowing organizations to drive large-scale transformational 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. 4 Booz & Company

7 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 management 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 implement 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 organization 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 organization s technology landscape, business 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 Booz & Company 5

8 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 implementation skills, strong program management processes, prompt resolution of issues, timely and accurate decision 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 mechanisms, so that selection and prioritization 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 realization plan for each change initiative. The business case must allow for smart scenario planning so that the impact of changes in the business environment can be easily assessed and incorporated. Furthermore, the business 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 organization 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 businesscase-driven process. At one client, for example, we found that the governance 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 representative with an overarching view of the organization across business units and functions or the authority 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 organization 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. 6 Booz & Company

9 Exhibit 2 Think Big, Act Smart: The Optimal Position CONTINUOUS IMPROVEMENT THINK BIG, ACT SMART TRADITIONAL TRANSFORMATION Small-scale, tactical changes requiring limited levels of investment Large-scale strategic change, planned and executed in small, tightly scoped cycles cycles to to avoid large up-front investment Large-scale strategic change with large up-front investment and multiyear duration No dedicated program team or budget; planning and execution by business units Small program team; budget allocated separately for each cycle of change Large program team driving planning and execution; separate transformation budget Long-term IT supplier contracts in infrastructure, application maintenance Flexible arrangement based on a framework contract approach approach allowing allowing for for tighter cost management Large, one-off IT supplier contracts, usually offering limited flexibility Limited impact on business as usual, requiring little or no change management Avoids single, large impact on business as usual; usual; however, requires capability to to absorb frequent bursts of change Organization-wide change program plus backfill measures to preserve business as usual Risk: Changed business environment renders original goals irrelevant or hard to attain Flexibility: Ability to respond to business environment and course correct Source: Booz & Company analysis Booz & Company 7

10 Conclusion In the current environment, spending and budgets will likely be restricted for years to come, reducing the appetite for large-scale transformation 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 transformation, 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 environment demand it. Indeed, the case for transformational change is even more compelling in a tough economic environment, in which organizations must develop innovative, differentiated business models to remain competitive. The winners will be those that think big and act smart. Success will accrue to those that adopt a smarter and more flexible approach to transformation, using shorter, incremental change cycles and a factbased, business-case-driven mind-set to guide every decision. 8 Booz & Company

11 About the Authors Hugo Trépant is a partner with Booz & Company based in London. He focuses on business and IT strategy, transformational 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 specializes 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, sourcing, 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. Booz & Company 9

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