Six things you need to do to ensure business transformations succeed
You’ve invested time, money and effort into a significant business transformation. Getting to this point has taken dedication from the whole team and a relentless drive to change. And it’s looking hopeful you’re going to succeed. The danger here is to assume that the hard work is done. It isn’t. It’s only just beginning.
McKinsey’s research has shown that, on average, twenty per cent of a transformation’s value is lost after its initiatives have been fully executed. What a waste of all that time and effort! Most of the clients we coach are undergoing some form of transformation, hitting an inflexion point or transition in their growth that necessitates change. As part of our coaching, we help them embed transformational discipline by changing business-as-usual structures and processing.
McKinsey surveyed a variety of organisations as part of their global research. It compared businesses that had seen long-term success from their transformations with others that had stayed the same. They looked at the processes inside the businesses that had changed substantially. It’s heartening to see many of the things we suggest to clients included in the McKinsey research. We’re focusing on the right places.
So what is it that separates successful transformations from the rest? What do you need to do to reap the benefits of your hard work? Based on our experience and McKinsey’s research, you need to narrow it down to the following:
1. Weekly executive-level meetings
This is the activity that has the most impact on the success of a transformation, according to McKinsey. It increased the likelihood of success by 2x. That’s a lot.
We agree. Getting the executive team together weekly is central to the drumbeat of meetings we suggest to our clients. These are your tactical alignment meetings. Run them using a Level 10 format and prioritise them. Check-in with KPIs and OKRs. Are all the KPIs green? If not, ensure there is an owner for each one that is amber or red. Do they have a solution? Are the OKRs on track? Again, who is accountable if not and what’s the plan to fix them?
Employee or customer data should be discussed routinely as part of these meetings. Great companies measure employee and customer engagement using tools like Friday Pulse and NPS. Every executive should speak to at least one customer and one person not in their team every week to get a personal feel of how things are going. This information will build a complete picture of any internal or external issues.
2. Monthly or quarterly reviews of performance
These are important for ironing out business objectives and target setting. McKinsey identified that 75% of companies with successful transformations put these in place, leading to a 1.6x increase in the likelihood of success.
Look at your target operating model and functional accountability chart and the areas in the business that are not green. Take a broader look at the OKRs and the annual time horizon. Are they on track, or do they need adjusting? We always suggest a quarterly rhythm to our clients as, time and again, we’ve seen how effective this can be.
3. Individual performance dialogues
Regular discussions about performance can lead to a 1.5x increase in successful business transformations, according to McKinsey. Start with the executive team and put scorecards in place. Get clear on the expectations your company has for each role. You’re investing a level of salary, and there’s a certain level of return that you expect. For example, if you have billable consultants in your business, you’d expect their contribution at a gross profit level to be 3x their all-up compensation. For salespeople, you’d be looking for 3x to 5x.
For each role in the Executive team, what is the number 1 metric that this person would need to push forward a year from now? Find one thing you’re going to use to measure their success. And are there some leading or lagging indicators of their performance that could be used throughout the year? Once you’ve done this with the executive team, roll it down through your entire organisation. Then introduce weekly 1:1s for every employee where these numbers can be discussed and tracked. This is how you make progress.
4. Annual business planning, budgeting and forecasting
Interestingly, of all the organisations surveyed by McKinsey, only 45% have any form of planning in place. And these are well-established organisations that have relationships with McKinsey. Surprising! This rises to 70% in businesses with successful transformations, accounting for an uplift of 1.4x in the likelihood of success.
As part of our coaching package, our clients have a two-day off-site with us yearly. We don’t just plan for a year. We look at a horizon that’s bespoke to the client’s business. It will be dictated by their growth rate and how quickly they will double the size of their organisation. If they’re looking to double in three years, this is the time horizon we plan for. If they’re growing 100% year over year, we’ll focus on the immediate annual horizon as they will have enough to handle in the next twelve months without planning for more extended time frames.
5. Capital allocation
In the McKinsey research, there’s not a vast delta between businesses that successfully transform and other organisations. However, when I think about capital allocation, I’m reminded of Peter Drucker’s work. One of the most influential and well-known management thinkers, he said there are only two processes that your organisation needs. One is marketing, i.e. the ‘go to market’ piece – growing revenues and customers. The second is innovation. As you grow your business, you will need incremental add-ons to existing products or new lines of business.
These are the areas where we do the most work with our clients. Firstly, we’re working out how they keep up their growth rate. Secondly, how do they build a culture and org structure that drives both incremental and new innovation? Targeted capital allocation is central to this.
6. Talent allocation
This is at the bottom of McKinsey’s research table, which surprises me. In my experience, talent allocation can make a massive difference to the success of projects, and I’d expect this to be higher up the list.
Increasing the percentage of A-Players in a business is, in our opinion, critical to accelerated growth. We introduce clients to our talent assessment matrix and work with them to increase the level of talent in their business (starting with the Executive team, who should all be A-Players). Then we identify the projects that will be key to their transformation and ensure that the people allocated to these are all A-Players. Put simply, your transformation efforts will fail if they’re not. We know because we’ve seen it!
Although not included in their survey, McKinsey also talk about the importance of longer-term incentives, and I think this is key. It’s one of the things we did at Peer 1. If you’re trying to create an effective executive team, you need to decide how to measure the score and over what period. Initially, we didn’t have this in place. But we knew we were working towards the exit of the business in five years, and EBITDA drove the company’s valuation. So we chose this as the number one focus for the entire executive team. EBITDA drove everyone. It ensured our initiatives were embedded and sustained until we successfully reached our goal.
- NAVIGATING AND COMMUNICATING CHANGE
- BUILDING COMPANY CULTURE
- CHOOSING THE RIGHT OPPORTUNITIES
- ORGANISING YOUR A-TEAM