METHODOLOGY | RESEARCH

SUCCESS AND FAILURE IN TRANSFORMATION

To remain competitive in increasingly global markets, many businesses need to transform either what they do or how they do it or both. Economic turbulence and uncertainty can also make the need to change more urgent but, at the same time, make it more difficult to accomplish successfully. Given these challenges, it is not surprising that studies show that only about 30% of transformation programs are completely successful, while

Abstract
In developing the BTM methodology, we carried out 13 case studies of different types of business transformation in large European corporations. Of these 30% were successful, 40% partly so and 30% were unsuccessful. Each case was assessed against the BTM methodology disciplines to understand why they were more or less successful. Many of the failures were due to lack of alignment with the business strategy, lack of clarity of the expected benefits and inadequate risk assessment. In implementation, the IT and process changes were often performed more successfully than the organizational changes, resulting in some benefits being delivered, even in some of the less successful cases. But this rarely was enough to enable the transformation to achieve its strategic objectives and the majority of the benefits. Overall the organizations whose approach to managing transformations included attention to the majority of the BTM component disciplines were more successful than those that did not.

30% fail completely. Our study of 13 business transformation cases of different types in large European corporations is consistent with this pattern of success and failure: four of the transformations were very successful achieving all the main objectives, five were partially successful as some expected benefits were achieved, but not all, four were unsuccessful, achieving none of the transformation objectives, or they were not completed. Most incurred substantial costs. Every business transformation is different but not unique and lessons can be learned from the experiences of others. Because these cases showed the same pattern of transformation success and failure as other studies, they were valuable in developing and testing the BTM methodology. The cases were developed through interviews with those involved in the transformation and reviews of relevant documentation. They were carried out, analyzed and written up by teams consisting of experienced academics, consultants and senior company managers. Some have already been published in the BTA 360 the Business Transformation Journal and others will be in future. Each case

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was analyzed in terms of how extensively and how well the BTM component disciplines were performed. The results were compared to identify significant aspects which appeared to affect the level of success achieved. Analyzing these transformations of varying degrees of success shows that those organizations whose approach to managing transformations paid attention to the majority of the BTM disciplines were more successful than those that did not. The case studies were in the following industries: automotive, pharmaceuticals, construction (see case study in issue 1 of this journal, page 38), food, oil (issue 2, page 46) and chemicals, financial services (issue 1, page 52), telecommunications (issue 2, page 54) and IT. The cases included transformations to develop new products and services as well as restructuring and reorganizing core business functions and introducing global processes and systems. All involved changes in organization structures and individuals roles, responsibilities and behaviors, including, in a few cases, large scale staff relocations and redeployments. All the cases included new and significant investments in IT to enable the business changes, but, in all except one of the cases, IT benefits were not the main rationale for the transformations. The BTM Methodology Disciplines An overview model of the methodology components and relationships is shown in figure 1. Figure 2 shows an example of what have become known as transformation heat-maps of the BTM discipline components and how well they were performed (in this example: for a partially successful case). These maps were used to analyze all the cases. As would be expected, the successful cases were largely green with some amber and even a few red. In the unsuccessful cases, the boxes were mostly red and amber, but there were also always a few that were green! Findings for each of the eight methodology disciplines are now discussed, start-

Meta-Management:

- Communica1on

- Leadership

- Culture and Values

Direc8on
Value Mgmt.

Strategy Management Risk Management

Organisa8onal Change Mgmt. Process Management

Business Transformation Management

Program/ Project Mgmt. Competence & Training Mgmt.

Enablement

IT Management

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ing with the three direction disciplines, before considering findings regarding the enablement disciplines and the Meta Management aspects. 1) Strategy Management A transformation needs to be driven by a clear strategic rationale a rationale which should be easy for every employee to understand, otherwise there will be little motivation to change. All the successful ones had imperatives to transform the business, not just one function. It was also clear that in all the unsuccessful cases the need for transformation was relatively low; either there was no pressing strategic need or it was not seen as a business priority at a senior level. In three of the four successful transformations the need for change was endorsed at executive level and then time and effort was spent to gain the buy-in of the rest of the organization and develop the ability to undertake the changes. In most of those that were partially successful, the readiness to transform appeared to be high, as well as the strategic need. They were not entirely successful mainly due to over ambition, or even over enthusiasm; too many positive assumptions were made with little assessment of the potential risks. Fig. 1: The direction and enablement disciplines (source: BTA)

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Meta Management

Part of Global IT project: HR Excellence function established and many further benefits have been identified.

Direction
Strategy Management AS-ISData Collection Analysis of needs & maturity level Design business vision Design Business Model Integrated transformation plan Value Management Baseline analysis Value estimation Detailed business case Agree ownership for realization Plan benefit realization Execute benefit realization Review and evaluate results Establish potentials for further benefits Risk Management 360 Strategic Risk Assessment Deep dives for strategic risk areas Assess transformation business case Define risk strategy Risk Management Execution Risk Monitoring Identify additional improvement Risk Mgmt. as part of Board Governance Process Management Determine scope of analysis From template to bespoke inventory Identify improvements / add attributes Map selected processes Plan process implementation Implement processes Evaluate processes Program/Project Management Program Planning and Governance Program & Proj. Integration Mgmt Program & Project Scope Mgmt Program & Project Time & Cost Mgmt Program Quality Mgmt Program Human Resource Mgmt Program Procurement Mgmt Program Reporting

Enablement
IT Management Business and IT Capability Assessment To-be analysis Organizational Change Management Set-up & governance Stakeholder management Competence & Training Management Competence strategy Training need analysis

Gap analysis

Change agent network Communica1on management Performance Management - Project Team Performance Management - Business Change readiness assessment Change Monitoring

As-is analysis

IT roadmap plan Solution architecture design IT Deployment plan IT Operations & Service Optimization IT Lifecycle Management

Gap analysis

Curriculum development Training preparation

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Business Case

Organizational model

Training

Risk analysis

Establish CIP

Evaluation & improvement

Fig. 2: Example pattern for a partially successful case (source: SAP) (see also journal issue 1, page 25)

performed and performed well performed either only to some extent or not particularly well either not performed or performed poorly evidence about the sub-discipline was not available

Having a clear vision of the intended future business and organizational models and then allowing compromises and trade-offs in the detail of how they are implemented, is most likely to achieve stakeholder commitment. However, in some cases, when the drivers demand urgent action, a top down, mandated ap proach to implementation can also work, but it tends to achieve stakeholder ac ceptance rather than positive commitment. Most transformations involve at least two distinct phases to create a new capability and then to deploy it. In most of the cases the capability was created, but not (yet) always exploited; hence the benefits achieved were often less than those originally envisaged. Creating a

new capability can be done separately from business as usual, but deploying it usually competes with other operational priorities. 2) Value Management In the unsuccessful transformations the objectives and business cases were often vague, based on a benefits vision rather than evidence based benefits and an understanding of how to realize them. This made it difficult for some stakeholders to believe the transformation was worthwhile and commit the required time and resources. There was also often confusion between changes and benefits: for example introducing common global processes is a change, not a benefit, although it may

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create the potential for benefits, such as reducing costs or higher service levels. Too often business benefits were overestimated, while the risks and the problems in making the changes were underestimated perhaps deliberate ly, otherwise it would be difficult to get funds and resources? 3) Risk Management Risk management was often glossed over, but given the high failure rate it makes obvious sense to identify and anticipate what could go wrong, before it happens! As a result many risks only became apparent during implementation, leading to increased costs, delays, scope reductions and even abandonment. This reluctance to explore the risks earlier may have been influenced by executive instigation of the transformation, which can discourage negative feedback, making it inadvisable, even career limiting, to point out the potential risks! To maximize the probability of delivering the intended benefits, the transformation should be planned in short deliverable stages, if possible. This also reduces vulnerability to changing business conditions and makes it easier to adjust the transformation to retain strategic alignment. In essence, the outcome of the transformation could be predicted from the pre dominant color in the assessment of the directional disciplines. How clearly and comprehensively the transformation strategy, value and risks have been understood and communicated provides a strong indication of likely success. Had the organizations undertaken this analysis early in the transformation, some failures and the significant resulting waste of money and resources could have been avoided. Having considered how the direction disciplines affect the level of success of a transformation, our attention turns to the enablement disciplines and how well they were performed in the cases.

4) Process Management The IT and process changes are usually performed more successfully than organizational changes, resulting in some benefits being delivered, even in some of the less successful cases. But this was not enough to enable the transformation to achieve its objectives and the majority of the benefits. In some of the cases IT or process methodologies dominated the overall transformation approach, making the implementation of other changes more difficult. In two of the unsuccessful cases the IT function tried to satisfy all the expressed user needs, which increased the scope and consequently the costs considerably outweighed the benefits. 5) Program and Project Management Transformations cannot be fully planned in advance and have to adapt to both changing business conditions and pro gram achievements. This is not necessarily a comfortable position for senior management and requires an empowered governance group to oversee and, as necessary, adapt the program. Effec tive management of the change content and benefits delivery is more important than the efficiency of the process. In some unsuccessful cases the organization relied heavily on the knowledge and capabilities of a third party supplier throughout, which changed aspects of the transformation towards what the supplier could do, rather than what was required. The transformation manager should have expert knowledge in the area that is being changed and also how to manage change in the organization. A key skill is being able to reconcile the differing views of the change and resource implications between senior managers and operational line management. The priority early in the program should be to gain agreement between senior and line management as to what changes the transformation involves, before negotiating for the funds and resources required. In some of the less successful cases the contract be-

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METHODOLOGY | RESEARCH

tween the program team and senior management was agreed before the views of line managers had been taken into account. 6) IT Management The transformations whose main benefits were seen as IT cost reduction or ratio nalization or were led by IT were not successful. Some business transformations become IT replacement projects, as the first phase is about replacing old technology and systems and IT methodologies and approaches are used with little business involvement. It then usually proves very difficult to regain business interest when the IT part is completed. IT is often in a weak position in the context of a business transformation due to a lack of real business knowledge, but with a perception that they know how it works, but they only know how the IT systems work. These notions created conflict in some of the transformations. When IT won the argument the transformation was unsuccessful, but when it was business-led, any potential conflict was more easily resolved.

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Fig. 3: The transformation experience curve (source: SAP)

7) Organizational Change Management These cases suggest that organizations should manage business transformations as orchestrated, continuous, incremental sets of changes co-evolving and coexisting with business as usual priorities. The successful transformations usually addressed the organizational, people and capability aspects first, then the process and IT components. The less successful tried to do the reverse. Understanding and addressing stakeholder issues and having a strategy for accommodating or dealing with them as early as possible in the transformation is vital. The longer the time available to transform, the more the stakeholder views can and should be included in how the transformation is conducted. The methodologies used should enable all the main stakeholders to directly contribute their knowledge and plan their involvement, instead of relying on experts to interpret the stakeholders needs. Stakeholder engagement is a critical success factor in almost every transformation, and early alignment or reconcilia-

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tion of multi-stakeholder interests is very or absent, a strategy for developing them Fig. 4: Employees important in order to avoid, for example, is needed early in the transformation. dominance by a minority of stakeholders In the successful transformations people experience the or destructive negotiations between dis- were informed and educated about what effects of the the future business should look transformation senting groups. experience the eects Fig. 4 : Employees ointended f the transforma9on at dierent 9mes (source: SAP) The transition curve (see figure 3), de - like. This helped them apply their exist- at different times scribing how people and organizations ing knowledge to determining how the (source: SAP) experience major change should be vision could be achieved, but it also respected. A comprehensive and sus- exposed where knowledge was inadtained approach is needed to minimize equate. Where suppliers are providing the period that people spend in the val- essential competences, those also need ley of tears, which is characterized by to be appraised and managed in case uncertainty and even disillusionment. they have over-estimated their capabiliFigure 4 shows that different groups ties. Organizational and individual exreach this point at different times in the perience cannot always be transferred transformation. Senior management in- from transformation programs in other terests may have moved on, just when organizations. many line managers and staff are under stress, usually due to change and busi- In addition to the eight direction and enablement disciplines discussed so far, ness as usual pressures colliding. Meta Management considers themes which influence the performance of any 8) Competence and Training type of organizational transformation. Management Assessing existing competences as part From the case studies a number of lesof the Readiness is important in order sons about leadership, communication, to determine the strategy, because what culture and values can be learned. can be achieved is a function of two fac tors: first, the amount of work required Leadership to make the changes and second, the The successful transformations had knowledge and skills that can be made CEO sponsorship and a C level execuavailable at the required times. If some tive leading the transformation. Involve essential competences skills are limited ment should be real and visible or other

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executives will not see it as important. The evidence from these cases suggests that continuous personal involvement in the governance of the transformation is what is needed, but it is not always easy for a busy executive to sustain this over the extended period of most transformations.

Key Learnings
The transformation must have a clear strategic rationale explained in a language which everyone can understand. Otherwise there will be little motivation to change. The outcome of most transformations depends on how clearly and comprehensively the transformation strategy, value and risks have been understood and communicated at the start. The successful transformations usually address the organizational, people and capability aspects first, then the process and IT components. The less successful try to do the reverse. Most transformations involve at least two distinct phases creating a new capability and then deploying it. The former can often be done separately from business as usual, but the latter inevitably competes with other operational priorities, which can seriously delay or even prevent its exploitation. The transformation manager should have expert knowledge in the area that is being changed and also how to manage change in the organization. Overall, It is clear from these cases that the organizations whose approach to managing transformations included careful attention to the majority of the BTM component disciplines were more successful than those that did not.

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Communication A common lesson from many of the cases even the successful ones is that no amount of communication is ever enough! Informing everyone in the organization why change is necessary and about the consequences of not changing usually needs regular repetition. Equally important is being open about what the changes are going to mean, even if they will be unpopular with some stakeholders. Evasiveness builds distrust or suggests ignorance, both of which reduce credibility and hence commitment. The communication must explain what is going on and what the intentions are, and it must be conveyed in the language of the different stakeholder groups. De livering it at the appropriate times when it is relevant to the working context of the recipients is also critical if it is to be effective. Also communication is a twoway process; this is sometimes forgotten and in some of the less successful cases little attention was paid to questions, concerns or feedback which the transformation team (wrongly) felt to be distracting or unimportant. Culture and Values All the transformations included significant changes in organizational roles, responsibilities, and behaviors, and in many cases the changes were counter to the prevailing culture. The successful transformations recognized this was either desired or inevitable and addressed the organizational issues first to create a new context within which to bring about further changes. In some cases the transformation also demanded a change in the organizations values: for example, loss of autonomy and reduced discretion for local investment, consolidation to achieve corporate control of resources or standardization to achieve corporate rather local business advantages. Inevitably these changes created tensions and exposed cultural and value differences across the business units and functions, which had

But the cases also show that the early transfer of ownership to a coalition of business managers, who will actually deliver the changes and benefits, is the best way to develop the capability to change. One key decision that needs to be taken is the mode of change agency to be adopted. Either an expert task force or devolving change responsibilities to operational managers can work, but a lack of role clarity is likely to cause fragmentation and even disintegration of the initiative.

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to be either reconciled or over-ridden to succeed with the transformation. In the less successful transformations these tensions were not addressed and existing power structures prevented or sub verted the changes. The structure and mode adopted to bring about the transformation should normally reflect the organizations overall management style. The task force ap proach, which exercises the use of power, worked well in a situation when the need to transform was urgent, the objec tives were very clear and the means of achieving them were known. In the op posite situations, a more devolved ap proach enabled at least one successful

organization to increase the scope and ambition of the transformation, through knowledge sharing across the organization and individual managers learning from experience as the program evolved. As the transformation proceeds, it may be necessary to change modes and in turn the governance of the program. In particular the creation of a new capability can be carried out by a task force largely separated from day to day operations. However, deploying the new capability usually competes with other business as usual pressures, which can cause unexpected problems, delays or even unsuccessful deployment.

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Service
AUTHORS Professor John Ward is emeritus professor at the Cranfield University School of Management. John was Professor of Strategic Information Systems from 1992 to 2010 at Cranfield and Director of the IS Research Centre from 1993-2005. He has a degree in Natural Sciences from Cambridge, is a Fellow of the Chartered Institute of Management Accountants and is a past-President of the UK Academy for Information Systems. j.m.ward[at]cranfield.ac.uk

Professor Dr. Axel Uhl is head of the Business Transformation Academy at SAP. He is a professor at the University of Applied Sciences Northwestern Switzerland (FHNW) since 2009. Axel Uhl received his doctorate in economics and completed his master in business information systems. He started his career at Allianz and has worked for DaimlerChrysler IT Services, KPMG, and Novartis. His main areas of research and interest are sustainability and IT, leadership, and business transformation management. a.uhl[at]sap.com ACKNOWLEDGMENTS The authors would like to thank all those who were involved in developing the case studies. Without their work this article would not have been possible.