Leading Enterprise Transformation

Several years ago, I was the value chain lead for a computer peripherals company. The company served a large funnel for retail consumer peripherals as its main business model. However, it had several other hardware device businesses that were struggling to establish effective end-to-end value chains to support their business models, from sales through reverse logistics. The three business models used by the company were:

• B2C — positioning products with retailers via distributor channels
• B2B — positioning products with businesses via integrator channels
• OEM — making and positioning customer branded products via customer channels

My job was to assess each current value chain for each product line business model, identify the gaps, recommend solutions, and put together cross functional teams to make the changes. When the newly hired OEM sales executive approached me with her strategy to turn around our flagging OEM business, I was excited. The business had been in decline for several years. She had developed a new sales strategy for engaging the OEM customers that was designed to increase revenues, drive down cost points, and be much better positioned and more responsive to product demands. Our discussion and my excitement for driving the transformation resulted in me becoming an international road warrior spending the better part of my life in Asia and Europe, touching every function in the company, on our journey of transformation.

What is transformation and why is it needed?

Before we get into the particulars of that effort, let’s talk about what we mean by organizational transformation. Transformation is challenging, high pressure work. It requires an executive aligned and sponsored effort resourced by all impacted functions. Because transformation is such a sweeping effort, it is only undertaken under extreme circumstances. Almost all transformational efforts are prompted by the organization pursuing a market opportunity or, more likely, to address an existential threat.

To that end, enterprise transformation refers to a strategy driven shift in business operations, and with that shift upgrading the organization infrastructure and likely the organization structure and core technology that supports the new business operations. The transformational efforts that I have either supported or lead have been preceded by some or all of the follow:

• An extended period of revenue malaise or drop off.
• Changing trends in customer interests, desires and needs.
• New competitive factors at play in the market.
• Shifting leadership teams and alignment toward a new direction.
• Profit margin narrowing.
• Employee dissatisfaction and loss of high performers.
• Failing business processes and/or underlying technology infrastructure.
• Industry introduction of new technology that provides a competitive advantage.

The bottom line is that the clear and present danger created urgency within the leadership to move in a new direction and bring the entire enterprise along. Beyond the leadership the rest of the workforce were quite aware that ‘things weren’t right’, engendering in them a willingness to participate in the difficult effort of transforming the organization.

Revolution is the order of the day.

In my ‘Building Product Operations from Scratch’ article I argued for targeted and opportunistic incremental improvements to drive big changes without overwhelming the organization. In this article, I am arguing the opposite. Urgency calls for something more radical. If you have not read the ProdOps article, there are two ways to drive change, revolution and evolution.

Evolution requires incremental solutioning, tackling a more narrow problem and solutioning in a way that tests and fortifies the solution, engaging the organization in the development and growing team support even before the first improvement is delivered. This approach takes far more time and an extended years long effort. However, this incremental extended effort results in an organizationally supported, working solution for which it is easier to demonstrate value. With this in mind identifying the most organizationally obvious problem that can be improved with obvious results is always a safe place to start.

Revolution means you are tackling everything at once. You are ripping off the band aid and deploying the new way of doing things wholesale. The value of holistic change is that it is fast, comprehensive and moves you into the new paradigm as quickly as possible.

The downside is that it is quite disruptive, and risky. The risk is two fold. The first risk is cultural rejection. Culture rules. If the transformation you are driving does not bring culture along then it will be rejected. The other risk is that, if you have in any way misdiagnosed the problem, the comprehensive solution will result in at least operating issues if not operating failure. Revolution is a great choice if your organization is in a deep crisis. Organizational appetite for the pain of a major change is much higher when in a significant crisis. Otherwise, the disruption and potential risks of a major deployment outweigh the conceptual benefits. To put it more personally, the organization is in pain and so are its members. They are ready to take on a large, difficult effort.

Transformation efforts are predicated on capturing a fleeting opportunity or addressing an existential threat. So, despite the risks, [but managing them closely,] it is full speed ahead. That is… full speed ahead with a clear strategy, well developed portfolio of change programs, and complete alignment of the organization.

Understanding the Gaps

The first step in setting up your portfolio of transformation programs is to understand where you are headed and how much ground you must cover to achieve your destination. In the case of the OEM business the strategy was to, in essence, be the customer supply chain owner for peripherals with a limited slate of high coverage products. The big changes to the strategy included:

This shift in approach rippled through all functions:

This last table sets up the work streams, or program portfolio, for the transformation. Some of the transitions could be completed largely within the function, such as the aftermarket activities. While other efforts required, such as the demand / supply signals and product positioning required end-to-end efforts which ran through multiple functions.

The Transformation Framework

Once the program portfolio is well understood, you are now in a position to plan and execute your transformational effort. However, because the effort will be high risk, cross-functional and will impact all levels of supporting operations and technology, the effort requires executive alignment, program governance, portfolio management, and execution tracking on steroids. Below is the transformational framework. While the efforts are described separately and appear in a more or less linear, step-by-step fashion, in reality most steps are either iterative between efforts or operate in parallel.

Establishing the Strategic Outcomes

In my experience, the best way to establish strategic outcomes for a transformational effort.is to establish the end state vision and rough timing. Then translate the vision into the company’s commitment structure as owned by the executive team. Many companies these days use the OKR framework — Objectives [O] and Key Results [KR]. If you use this approach your objectives should reflect various aspects of your end-state vision, and may last through all phases / years of the transformation. The Key Results should reflect the measurable near term goals for that particular objective. Using the category champion example from above you might frame an OKR commitment as:

Note that while the objective puts a stake in the ground for the transformation, and may endure for multiple years, it is not measurable. The objective is more like slicing off a piece of your vision. The KRs, on the other hand, are measurable. In terms of measurability, you may need to go further in your measures, identifying both the KR delivery KPI and operational metrics. KR3 has both the delivery KPI and operational revenue, margin, and demand metrics.

In my mind, OKRs are business objectives, so should ultimately be associated with revenue, operating expense, profit margin, capital availability, and/or enterprise priorities. If the work you are doing is on infrastructure, and not directly associated with the enterprise success measures, then choose metrics that are a proxy for those top and bottom line success measures.

Leadership Alignment

If you have established the transformational effort in terms of the corporate OKRs, you have taken a big leap forward towards leadership alignment. However, you are not done. Your leadership needs to know what they are getting from the effort, and their sponsorship and investment requirements. In other words, you need to arm yourself for leadership discussions with data and some level of confidence in your numbers.

Providing a Compelling Picture — This means you have a fair amount of planning work to do to sort out what your transformation program portfolio will be, early expectations for performance, and rough functional resource requirements for each program. You will have met with internal leaders and experts, as well as vendors [if needed] to structure your initial estimates. Additionally, you need to have some clarity for the operational impacts for managing in the new world that you are building.

Committed Executive Governance & Sponsorship — Once armed with that key information, you will have conversations with each of your executive leaders that goes something like:

“I think that you would be a great sponsor for O7 KRs 1 & 2 [for these reasons]. Additionally, we are going to deliver XYZ capability that will allow you to do ABC. For this initiative we will need a cross functional team of six including one full time lead from your organization. Finally, we will need the equivalent of three additional members of your team to cover the other transformational programs.”

I am grossly simplifying this effort for which your discussions will likely be accompanied with presentations, documents, and/or spreadsheets that have been pre-validated across the organization. At the end of this alignment effort, if you are incredibly effective and a little bit lucky, you will have a governance body of senior executives that each own one or more of the OKRs and a C-suit chair, preferably the CEO, COO, or CFO.

Portfolio Planning

Once the leadership is aligned and teams form it’s time to do the detailed planning which includes project planning and portfolio valuation.

Project planning: Complete comprehensive business requirements, program detailed expenses and spend schedule, vendor contracting, and project plans including identified risks and dependencies. You know, project planning for all programs.

Portfolio valuation: At the beginning of the effort, all is well. You have aligned the leadership and developed clarity on your programs. Then plan-hits-reality and reality gives you surprises. Some of them will be good. Most won’t be. At some point you will likely have to escalate trade off options for some sort of intractable, at least in the short term, problem. When that happens, you will want to be able to understand the implications across the portfolio. To that end, it is wise to understand the program’s success criteria. I discuss success criteria in my, ‘Crafting a Learning Strategy’ article. The abbreviated version is that success criteria includes revenue, expense, and other operational metrics that are expected at the successful end of the transformation effort. If you have established the criteria and have a developed understanding of how each of your transformation program efforts contribute to that success, when you need to make trade offs, you will understand how each option will impact the ultimate success.

Portfolio Management / Project Management Office

With sponsors, governance, project plans, and portfolio valuation in place, you are ready to run. The program management office [PMO] tracks progress, manages budgets and resource allocation, manages escalations, ensures service level objectives [SLOs] and agreements [SLAs] and manages the governance review cadence. It sounds fancy but is really just the transformation leader and program leads maintaining alignment and reporting out the transformation performance position to the governance body on an established cadence.

Change Management

Change management is all about the people of the organization. The goal of change management is to ready the business and people within it for the coming changes so as to shift into the new paradigm with the least possible pain and disruption. Change management has a set of complex interacting aspects that:

• Each function / team has the right resources in place and operating gaps identified and addressed.
• Team members are fully capable of operating in the new paradigm.
• Experts are prepared and available to assess performance.
• A support structure is in place to deal with issues as they arise.

All of the aspects of the transformation framework work together towards the transformation success. If any of these aspects are missing or dysfunctional the likelihood of a successful transformation is diminished.

Battle Fatigue

The final consideration is that transformational efforts have a limited lifespan. This shelf life issue has a few causes. Transformation initiatives are:

• An extracurricular activity. It is done on top of normal operational activities. So it is an investment above and beyond normal investments including improvement programs. You are rebuilding the car as you are driving down the road.
• Are expensive. Transformation programs are about making an urgent and huge leap forward for the organization. By nature, they require an extracurricular level of investment both in funding and in tying up some of the organization’s most capable experts.
• Are draining. These programs require both extensive executive leadership attention and run fast. So the folks working on them, whether asked to or not, tend to extend themselves with long hours and preoccupation during their personal hours.

I have supported or led a number of multi year programs. Between year two and year three an extended effort tends to wear on the organization with some efforts shifting more toward the incremental work of normal operations. Even if there is more transformation to come, the executive team members deprioritize their attention from the transformation effort to tackle new challenges, as they should. The experts are being slowly digested back into their home teams. Statusing continues but attention fades, [if all is going well.] As the transformation leader, you need to be aware of the turning tide and manage the effort accordingly. For a successful program, the transition is natural. Part of your job is to work yourself out of the transformational role.

The Take Aways

Successful enterprise pivots require a highly effective, well managed transformation effort. The things to remember include:

• Transformation efforts are necessary for a shifting corporate paradigm. Change your strategy and you will need a massive effort to shift business operations and infrastructure to support that strategy. Typically, transformation is chosen as the approach because the company is facing existential issues.
• To start the effort assess the gap between the current business model and the new strategy. Understanding that gap scopes the transformational effort.
• The enterprise leadership sponsorship is critical to the success of the transformation effort. If your governance is not chaired by the CEO, COO, or CFO, you may be setting up the wrong transformation.

The transformation framework includes:

• Establishing the strategic outcomes
• Leadership alignment
• Portfolio planning
• Portfolio management / PMO
• Change management

As critical as a transformation effort is to a company’s successful pivot, it is exhausting to all involved. That means that at some point the effort either needs to wind down or shift into evolution mode. The good news is that if you shift into evolution then you have led a pretty successful transformation.

Find more articles from Sarah at: www.operations-architect.com.