Transforming your Business
Helen Mallovy Hicks
In this episode of Strategy Talks, guests John Mackinlay, leader of PwC's performance improvement practice, and Michelle Moore, an independent consultant, discuss business transformation.
Voiceover: Welcome to Strategy Talks, the business podcast series from PwC Canada. Hosted by Helen Mallovy Hicks, National Leader of PwC’s dispute analysis in Valuations Practice; and Calum Semple, an operations in consulting partner. This interview series featuring new topics and guest every episode is designed to give you valuable insight into some of today’s hottest issues affecting your business.
Helen: The economic landscape has changed and chances are so has your business. But how do you make change work for you? Joining us today are John MacKinlay, a partner in PwC’s consulting practice and Michelle Moore, an independent consultant. They will discuss business transformation in the private sector and why it should matter to you. Welcome Michelle, welcome John.
John: Thank you.
Michelle: Thank you.
Helen: Before we start, perhaps John you can offer our listeners a brief definition of what is meant by business transformation and why should companies be considering it.
John: Well thanks Helen, first of all I think business transformation is unfortunately one of the most overused and ambiguous terms in our industry. You know what I think is really important when one goes about a major transformation program; is understanding the implications to people, process, technology and business structure. So, really when we try to define it when we try to help our clients define what’s really intended by a big transformation program, we try to get their focus into all those four dimensions of change.
Why it’s important to answer that question, I think coming out of this most recent business cycle, assuming that we are coming out of it and I think we are. There is a new normal emerging from this economy and particularly the banking space which was so decimated by this most recent economic crisis. This new normal what it really means is there is very little confidence around what the revenue models look like for a lot of financial institutions and a lot of banks and; therefore, what does the cost structure needs to look like to adjust to that new revenue model. So the big challenge facing a lot of these institutions is how do you re-gear your cost structure to be able to meet what in many cases is an uncertain revenue model going forward.
Helen: That’s very interesting John, I would add to that, that business transformation is probably the new word for continuous improvement companies have to be agile to face new market demands be it an upturn in the marketer or a downturn and business transformation is anything that forces change in a company to achieve better results across all of the areas that you mention. So every company that wants to remain competitive in its market place or expand into new markets has to look at how it needs to transform its existing people, processes, technology in order to achieve their business strategies.
Calum: Michelle is the change in terminology to business transformation from continuous improvement a reflection that the change that is needed now as more dramatic, more important? What’s really driving the differentiation between those two terms?
Michelle: Well, I would say we’re talking about continuous change, and if you’re continually changing hopefully you are improving. So the business transformation element is about constant change, it’s about transforming best practice, what was best practice 5-10 years ago to the new best practice and that’s what’s transformational about it. It’s become more complex because of the complexity of markets and interaction in and between markets so thus the transformation is much more multi-dimensional than maybe a change program use to be 10 years ago.
Calum: Maybe some of the low hanging fruits are being taking care of and the world’s a completely different place, hence the transformation.
John: What’s really interesting about is well is you know incrementalism which is the way of a lot of change in operations and business models has taken place in the last ten years. Really hasn’t harvested all the benefits that I think had been business cased and certainly hoped for by a lot of the senior executives in banks that we work with. So there’s this really kind of new sense its palpable and feel it when you talk to our clients there’s this new sense that you know large change is required and small incremental tweaks to processed technology to your organization structure whatever the dimension isn’t getting at the real benefit and isn’t creating as we call it change that sticks. So you know tackling some of these large large programs is generally being accepted as a better way of getting at the opportunity that’s trapped within the business.
Helen: I think John as you said as we emerge from the recession this is really triggering the need and the awareness that some transformational change is needed. Michelle, what would you say the top 3 short term challenges organizations face today as they emerge from the recession what would those three top short -term challenges be?
Michelle: I think I’m going to focus on some of the people challenges that were mentioned in PwC’s annual CEO survey. It mentions many dimensions, but what companies have found is that they probably cut staff too heavily and during the downturn and they maybe didn’t cut the right people. So they’re really now in a struggle to assess what’s the right talent that we need. Do we have the existing talent in our organization, who do we need to pull back into the organization that we let go, and how do we manage that talent going forward?
That is a huge challenge the other challenge is really redefining peoples roles and responsibilities such that measureable outcomes are possible. As global companies also look at their roles for functions across the organization they’re struggling with how do they redeploy people to the higher growth markets. Maybe there is downturn in Germany and they need to redeploy both leaders and middle management to India or Brazil for example where there’s higher growth and they’re struggling with standard practices around moving those people around from basic things like global mobility to rewards and performance structures for the career paths that are impacted by those people.
Calum: So really sounds like global organizations is the future you’ll need to have a much higher degree of flexibility inherited in their process. The best performing organizations who’ll be the ones that capture that flexibility.
Michelle:Exactly the ability to move talent across the globe quickly, measure them properly and reward them properly. I guess the pace in change in the world today is exerlerating hence the way we go about conducting business.
Helen: Is it all about people or are there other short term challenges that are facing businesses?
John: Well if I refer again to the bank and the financial industry as I talked about the new normal in terms of the revenue models that’s obviously a big challenge not only does it impact people but it impacts everything from how you communicate to your buy-side institutional investment community to how you engineer your back office to have the flexibility and agility with what we talked about. In the case the Canadian banks they’re under constant pressure to obviously grow their earnings and we’re in a pretty mature banking market and a very oligopolistic market all be it but pretty mature so growing the top line is a bit of a challenge a bit of a dog fight for market share so a lot of them have been thinking about expansion into other markets. As I’m sure you know they’re very capital rich banks, the Canadians banks have survived indeed flourished in this environment relative to a lot of other competitors and a lot of other countries.
But you know the agility in the business model in this domestic market is probably the most staggering change and being able to bring new products to market increasing channel richness being able to service your customers in a very integrative way across channels is really the next horizon I think operationally of where banks can differiante themselves and succeed in that as I described the dog fight around market share. We’re starting to see banks get innovative about using technology as a differentiator, so be it mobile banking applications for your smart phone or whatever your technology is getting more and more interested in social networking is becoming landing on the radar screens of a lot of our banking clients and the implications for how you inculcate yourself into social networking is pretty important and delivering more and more knowledge as opposed to just data into customer facing channels in the banks is important and being able to indeed empower back to the people side empower people to make decisions on behalf the bank they’re in the best interest to the banks.
You know banks, a lot of organization frankly not just banks have spent a lot of time in the over the past 15 years retrenching the empowerment into centralized function and trying to devolve you know various strict rules around how do we interact how do we onboard, how do we service our customers. When In fact what they’ve done in theory you know probably at the time sounded very appealing and very cost effective, but as we all know in some cases is a result of some pretty negative customer experiences. So getting that reestablishment empowerment of network is pretty important to these guys.
Calum: We were talking about stats with large change projects, and it was kind of astounding to us, the percentage of large change projects that fail. I think it was over 60 percent. Do you have an idea why that stat is so high?
Michelle:I think the statistics for failure are high because companies approach change often in a siloed fashion. So let’s say the change is driven by a major system implementation. The company might make the mistake of letting that change project be led by the chief information officer or by the IT department. In that case, all dimensions of change and the impact of that change on the rest of the organization are often not taken into account, and therefore you have low acceptance in other parts of the organization who are impacted by the change. The other component of why transformational projects fail is because companies do not focus on benefits management right from day one.
If benefits of the change are articulated to all stakeholders, and communicated consistently throughout the change program, or throughout the business transformation, everyone understands, all the time, “why is this good for me? Why is this good for the business? Aha, yes, therefore I will participate.” The third factor for high failure in transformation projects is back to involvement and stakeholder engagement. In particular, at the C Suite level. If you have the C Suite engaged and fully behind your business transformation which impacts your entire organization, your success rate is going to be much higher. Often companies push down the responsibility for implementing change to lower levels, to middle management, and the change fails because not enough authoritative C Suite sponsorship is behind it.
Calum: It seems incredible that you’re talking about major transformational projects being pushed down to middle management, C Suite not really sponsoring it. It would seem to me that for big change to happen, The C Suite would want to sponsor that, would have to sponsor that. But it doesn’t sound like that’s the case.
Michelle:They often sponsor it in terms of – they might sit on a steering committee, they might officially be in all the plans, that they’re behind it. But if they’re not out there in the fields, so to speak, engaging with messages from leadership, if they don’t attend the meetings, if they don’t really make the decisions, that’s when you have lack of C Suite engagement.
Helen: Also the benefits communication, I can see that as being a really key piece, and that’s not necessarily a simple thing to do.
Michelle: That’s correct, because you’ve got benefits which are financial in nature. What are the benefits to the bottom line for the entire organization? That’s also sometimes complex in terms of financial modelling to calculate, but it needs to be done. And you have all of the intangible benefits to be reaped from the change. And they change throughout the course of a project.
Helen: Sure. And communication, too. How do you get your message out?
Michelle: Exactly. And using all the different means.
Calum: When companies undertake large projects, they often have an integration plan. At least the good ones do. Is that the type of approach you’re suggesting here, for big transformational projects, that you develop a well thought-out plan? Because it sounds like a lot of companies do it in a more haphazard way than they should.
Michelle: Absolutely, and that’s the advantage of consulting with PwC, because PwC provides a rigid framework - not a rigid framework, a flexible framework – but a consistent framework for making sure all of the issues are addressed, and making sure that from day one, you understand the impact that this change is having on whom, such that you know what kind of messaging to communicate to which stakeholder group, what are the benefits for each stakeholder group, and our approach to managing business transformation, helping clients through that process, is providing all of those tools and methods to enable that.
Calum: It sounds like with our approach: one, it’s a methodology, but two, we roll up our sleeves and really know what’s happening in the trenches so that we can help manage it appropriately.
John: I think one of the key findings in the transformation work that I’ve done in the past is that you typically have to put some very good athletes on the ground as your workstream leads, if you will. We’ve found it’s a combination of having very good industry depth, having specific subject matter domain knowledge if it’s in an area of credit reengineering or banking operations or payments, what have you – they need to know how to project manage. These people have to have rigorous skills around project management, because that’s a discipline that’s extremely important to these types of programs. And they all need to be good change agents, to Michelle’s earlier point. We expect everybody to be sensitive to what’s required in terms of communication and leadership around the change. That’s really how we differentiate ourselves in the marketplace, is the quality of the people.
The methodology...everybody’s got good methodology. I’ve seen I don’t know how many of them; more than I’d care to count. But it’s the people that will drive the change that we can support. The people that can drive the change into the organizations. I really think that’s what’s unique about our organization – how we’re able to cobble together deep industry skills with some of those technical skills to drive change.
Helen: John, can you share some success stories with us, or stories about how things have gone wrong, where PwC has been brought in and saved the day?
John: Yeah, we’ve been involved in several change initiatives, big and small, over the years. What I would do is, rather than tell a specific story is characterize – particularly in the domain that I’m most comfortable with, the banking domain – what tends to go wrong. I want to end this on a positive note, but maybe it’s a cautionary note, you know, what does tend to go wrong. Back to Michelle’s point, unfortunately the past 15 years seem to have been characterized by change programs that are led by the CIO or the CTO, the chief technology function. And people are waiting for technology to deliver this utopian type result and that technology’s going to be the saviour to all the business problems. Whenever I hear that or see a transformation program that’s architected with heavy dependence on technology, my gut tells me that this is going to be a failure, this is going to be a problem, because the engagement of the business, the ownership of the business, in fact the co-leadership of the business is extremely important to seeing success.
The other tendency of not wanting to do the discipline and rigor of driving benefits down to the level of individual projects is a problem. It’s a problem that organizations will hold the business case at a high level but drive down to detailed projects that nobody really understands how those individual projects hang back to that overall business case and deliver against the expected results. Those are some of the lessons that I’ve learned and am particularly alert to when I get involved in some of these types of transformations.
Helen: How about you Michelle, any stories to tell us?
Michelle: The one that I’m remembering is a European utility company that acquired a smaller company with entities all over eastern Europe. They had to do a merger integration type of project. They also had the element of regulatory-driven change because this company was listed on the New York Stock Exchange and had to make sure that the business processes of the client or of the company that they were acquiring would also be in compliance with Sarbanes-Oxley rules. So they had to embark simultaneously on merger integration issues, people and process integration issues, as well as a mindset around compliance. The lessons learned from that project are that the European entity coming into new cultures of operation tried to impose in a very dictatorial fashion, saying “We are the western company; we’ve bought the eastern company. This is how we do things in the west; this is how you’re going to do it now.”
They did not take the time to do stakeholder engagement with those key leaders impacted by this change. And they needed those key leaders to implement the change properly because it was too wide-ranging to be successful without that buy-in. So they struggled for about a year, at which point they brought in PwC to be an independent party to facilitate that sort of engagement and get everybody on board so that they as individuals in the other countries understood the benefit to them personally, and the benefit to the company as a whole, globally. So they lost about a year, maybe 18 months, of time because they assumed “well, best practice is in the west,” they assumed everyone in the east would understand that and just go. And that didn’t happen.
Calum: I find it interesting that both John and Michelle gave examples on how the people side of things was overlooked. If you look at any business, it’s run by people. And if the people aren’t following through with the strategy, then it’s not going to be successful. So I think that’s a big part of the message we’re taking away today. To wrap things up: business transformation is something we’re going to hear more and more about, because change today is constant, and the pace of it is accelerating. So thank you both very much, we really appreciate your time and your insights into business transformation. For more information on this topic, please visit our webpage at pwc.com/ca/consulting.
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