To transform or not: the cost of sustainability

When leaders decide not to change, their organisation will decline

Have you come across someone that answers a question in another category from which it is asked? For example, the question is “what colour is the sky today?” and the person answers “5”. This could be the right answer, but we would need a little context to understand. 

Today I’m writing about the opposite situation: Mr Exec asks questions in the wrong category in his attempt to solve a serious problem.

What are you doing about it?

Consider these two types of business executives. Both are regularly visited at night by anxiety. Some leaders may think “the business is getting out of hand, I’m shackled to this place doing the work of my subordinates, can’t find enough time to work OUT of the business to get new business, can’t find time at all to work ON the business. I need clarity and control. I need better systems“.

Other leaders in more mature businesses may be proud of the large ship they are steering; the accumulated amount of resources and the skills and the experience that it contains. Yet, on the dark side, they see the lack of initiative, poor decision-making, internal politics, silos, disconnection from the market, outdated practices and waste, decaying systems, and inertia. They shiver when they consider how quickly things can go wrong, business risk, cash flow and all. They think, “how can we develop a culture where competent employees are engaged every day, where decisions are made at the right level, where processes are looked after and continually improved, where customers really matter. How can we regain the entrepreneurial spirit of yesterday but with proper systems? We need transformation here!“. 

(Both situations are actually quite usual and are symptomatic of particular organisation growth stages. See Greneir’s Growth Model).

So they look for solutions or sometimes they bump into improvement practitioners…

The wrong questions

So Mr Improvement Guy, what can you do for me? And Improvement Guy (IG) begins to sell himself.

Then more often than not come the wrong questions: “tell me, how quickly can we change the organisation? What is the ROI on your program?” as if they were investing in new technology.

There are two major flaws in the way the questions are asked. Firstly, the problem that Mr Exec is wanting to solve is about transforming people AND processes, simultaneously (see this post), not investing in a machine. Can you buy a culture? How long does it take to change it? (at least 7 years, I am told).

In the short term, doing nothing is always cheaper than doing something.

Secondly, Mr Exec is comparing doing nothing to doing something: investing in the transformation of the organisation.

Since the success of the transformation is overwhelmingly dependent on leadership, the ROI on a business improvement program (whenever remotely accurate) measures leadership performance.

So, you say, how does Mr Exec make IG accountable? By establishing Challenges (breakthrough objectives) and associated Target Conditions (short term deliverables). That’s a conversation for another post. First, Mr Exec has two good questions to answer.

How do you measure ROI on:

  • A strategic process that works
  • An increase in customer satisfaction
  • Employees happy to come to work on Monday
  • An HR department that delivers a great service to Operations
  • Being confident to project sales in new markets and/or to introduce new products/services
  • Supervisors that lead well, make decisions and solve problems
  • Not being at the mercy of suppliers and customers
  • The present value of being in business in 15 years.

The first question: can we afford not to change?

Executives are responsible for steering their organisation in a general direction that reduces business risks and increases the likelihood of sustainability. Additionally, we know that organisations naturally transition through growth crises that require changes in leadership style and organisation structure. By engaging in a strategic planning process, they would ask these types of questions:

  • If business as usual, will we be around in 2 years? 5 years? 15?
  • Which growth stage is our organisation going through?
  • What do we need to change: market segment, products, services, processes, structure, people and… leadership?
  • What does it mean to build a multi-generational organization?
  • What is a purposeful organization? Why does it matter?
  • Every employee engaged every day?
  • How do we develop a culture of continuous improvement, problem-solving and decision making?
If Mr Exec has a good sense of the current reality, a vision and a good dose of courage, then he has already made the decision to change.

The second question: how are we going to change?

Mr Exec was able to obtain a consensus with the top team. They have decided to pursue a long term strategy of operational/organisational excellence.

The choice of the driving team and resources to pursue Operational Excellence depends on how one answers the questions:

  • Where are we now?
  • Where do we want to go?
  • How are we going to get there?
  • Can we deliver with the current structure?
  • Do we have the capability to build capacity over the long run?
  • How do we integrate change with our management system and thus make the transformation sustainable?
  • Do we have the technology to support the strategy implementation and management system?
  • How much does it cost now and tomorrow?

These are the only approach to build a team to drive transformation: an internal team or a combination of external and internal resources.

Subcontracting transformation is not an option; it’s like asking the nanny to raise the kids.

So, how do you choose the transformation team?

Firstly, there must be an internal champion with both the interest and authority to drive change over the long-run. For example, an Ops Executive/Director is a natural choice. Heads of Department have a leadership responsibility to also embrace change to both improve their processes and reduce overall risks in their departments.

First leadership needs to decide to change the organisation or not and then choose the right team

Secondly, these are the different options available to make the team.

The Transformation Team are the Internal Champion and the HODs +

  • Nothing. The internal structure of managers and associates improve processes.
    If it is true that improvement activities are part of the job, with no or limited expertise in Lean and additional resources, it is unlikely that the change will be sustained.
  • An internal junior improvement specialist.
    The focus will be on improving processes and not the entire system. The specialist will have a tendency to do the job herself and not develop other people skills.
  • An internal Senior improvement specialist or manager.
    She will have a broad systems approach to transformation and the experience to back it up. The investment is in a senior manager with the additional cost to company.
  • A Continuous Improvement Program with the associated consultant/facilitator.
    Branded products are time tested and all inspired by the Toyota Production System. Consultants are experienced in the field of Lean Management/Manufacturing and will support the champion well. The cost is usually high and thus the depth and duration of intervention is limited. The focus is on process improvement, often in people development, but not in integration with the business (quality) management system. Also, top management is not always engaged. Both aspects negatively affect the sustainability of change.
  • External Consultants.
    They are experienced in Lean and can provide quick results in process improvement. When it comes to the long term transformation, they will have to create a bespoke program or take it from somewhere else. They will be able to develop a long-term relationship with the champion and the executive team.
  • impi! Business Improvement Solutions with the associated coach.
    The impi! coach approaches transformation through coaching of the internal champion, HODs and project leaders. She practises the continuous improvement and coaching Kata (routines). Each of the impi! solutions aim at establishing leadership routines. impi!’s unique value proposition is that of the integration of continuous improvement and quality management, both supported by the right technology platform. The breadth of the program and the use of cloud-based technology can be a constraint for the Executive team’s decision to choose the implementation team.

And how do we pay for this?

Now that Mr Exec has chosen his approach to transformation, we can now go back to the cost question.

From the outset, top management needs to realise and clearly communicate that improvement of people and processes is a non-optional part of every person’s job. It is intentional and personal. The cost of improving is built into the existing structure. There isn’t any other department in charge of transforming the organisation into its future better self.

Transformation will require budgeting additional costs for training, hiring specialised skills and setting time aside from daily work to make improvement. So top management needs to plan for it. Else, they are planning to fail.

One of the first initiatives is to secure early wins: follow the money and harvest the low hanging fruits by achieving quick operational improvements. This has to be measurable and real. Rapid success will vindicate the decision to embark in the change process.

What results should we expect? As a general rule, how much you can improve depends on where you are at the start e.g. excess inventory, delivering to customers in weeks when the process takes hours and spending an excessive amount of resources in rework and overtime. There are examples of organisations reducing inventory by 90%; lead times reduced from weeks to days and cost going down by double digits %. But… this all depends on leadership engagement…

By engaging everyone in daily continuous improvement, there are long term results in savings but also in safety, quality and delivery. The organisation becomes more competitive and both more agile and robust, i.e. anti-fragile, than the competition that wouldn’t adopt a similar strategy.

The decision to pursue operational excellence is based on comparing the cost of not adopting the strategy against that of investing in it. The nature of business and market forces will drive the organisation to change anyway.

References

Pierre Bienvenüe

Pierre is the founder of impi!

This Post Has 2 Comments

  1. This is a very good analysis and should be everyday practice for any business.
    Why does a business have to stop and think about transformation and excellence?
    If this is not part of a business DNA, in other words built-in as the way we operate – continuous improvement, then the choice to take a look at transformation becomes debatable amongst management. Very few businesses consider the next question – how sustainable is the business over the next period of time – there is a responsibility to sustain the employees and investor interests, after all. So continuous improvements and even reinvention is required.

    1. Thank you, Francois – projecting oneself into the long term is difficult for Execs in very uncertain times when their default brain is into fight or flight mode. Taking time to use their thinking brain is the first step of the transformation journey…

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