THE FACULTY QUARTERLY 

Summer, February 2013

Transformation – stunning success or spectacular failure?

“Transformation has become a buzz word for many CEOs, CFOs and CPOs, infiltrating not only language but strategy,” says Andrew Cordner, The Faculty’s recently appointed Director of Consulting. 

But it goes well beyond the procurement sphere: “There’s enterprise wide transformation, systems transformation, functional transformation, structural transformation - the list is endless.”  But according to Andrew, all forms drive major change for any business and mishandled, can represent costly and spectacular failures for the business and the reputation of the Executive Team. 

Andrew on transformation: “Most businesses attempt an enterprise wide transformation every five or so years, but at a functional level, transformations now occur every one – two years on average.”

From Finance, Procurement, Operations and Shared Services; Sales and Property; IT to Call Centres and Distribution, all functions must “reinvent” themselves over time if they are to remain relevant to the business and the servicing of the customer.

Transformation is, by definition, game changing, bold, and visionary. With over 12 years of experience conducting major transformation projects for multi-nationals, Andrew believes the complexity, risk and extensive resourcing required to undertake a transformation is often grossly underestimated. The type of transformational change is only growing in complexity. To put this in context, Andrew notes that the average size of enterprise wide transformations is now over $313m (a combination of technology and operational costs over the life of the project).               

Transformations are typically a reaction to one or a series of compelling events including:

  • Significant reduction in shareholder value
  • Significant company or business unit under performance
  • M&A activity – be it a split/demerger and/or a major game changing acquisition
  • Significant competitor moves / change in market conditions
  • Significant accelerated growth plans built into organisational strategies
  • Major technology upgrades.

In 1999, the big transformation driver was Y2K – “If we do not comply, all our systems will fall over and our company will not be able to operate”. During the early 2000s, Australian organisations faced the reality that emerging markets were significantly cheaper in manufacturing goods and services, and were driven to either offshore or overhaul the efficiency practices and performance of their own business.

A recent survey of Global CEOs revealed only 53% believed their transformational programs had delivered real / tangible shareholder value. For Andrew, there are two key measure of transformation success:  1) The transformation must deliver uplift in performance that is significantly greater than functional or enterprise performance improvement projects alone; and 2) Transformations should also enhance the customer value proposition – i.e. customers and end users should be better off.  

Effective transformation management needs to be part of a strategic direction that is championed from the very top of an organisation and accepted right through to the shop floor. “Without this, failure is nearly certain,” says Andrew.

 

Other reasons transformation projects fail, include: 

  • Failure to balance “business as usual” and “transformational” activities. - “There appears to be no difference in my role – so I treat the two things the same”
  • Management lose focus and energy or priorities shift - “The CEO lost interest so we did too”
  • People are focused on short term performance measures – “That is what we get incentivised on – not the transformation initiative”
  • Leaders tolerate “blockers” or “non – performers” for too long– “There was too much resistance within the teams to change so I left it as is”
  • People lose sight or cannot articulate the transformation vision – “Not sure what we are trying to achieve but I will go along with what everyone is telling me”
  • Organisations become too internally focused – “We became so internally focused around the need to change, we forgot about the customer”
  • Over time open and honest communication dies away – “We got a bit slack on the communications – it felt like we were saying the same thing over and over”
  • Organisations unde estimate the extent of change required to make the leap – “We have done change before and we reckon we are ok on execution”

 

What questions should Procurement ask to position your business for success?

Any procurement function contemplating transformation must be prepared to ask questions that will challenge the accepted fundamentals.  From understanding why they need to change (creating a “burning” platform for change within the organisation), to how they will change, to implementation of the change.

Before embarking on a transformation program, or to help keep the change program on track, Andrew recommends that CPOs ask seven key questions:

  1. Is the rationale and objectives around why do we need to transform clear and understood throughout the business?
  2. Is the leadership aligned with the transformation outcomes?
  3. Is there clear executive sponsorship from strategy through to execution?
  4. Has the program been set up with clearly defined roles/responsibilities and accountabilities?
  5. Have we the right people to manage the transformation?
  6. Are there clear and defined delivery phases that can be tracked/ monitored regularly?
  7. Are communications planned and clear throughout the transformation?

In addition to fully understanding the issues and risks, Andrew believes: “Being prepared to act quickly and decisively with the overall strategy and context of the transformation will ultimately separate success from failure.”

The Faculty has an extensive track record of working with clients undertaking procurement transformation programs, including helping to formulate and drive the procurement transformation strategy (operating model, processes and systems); assisting the CPO execute on the vision; running the Transformation Office and providing significant work stream support.

To discuss your intended transformation program or learn more about The Faculty’s experience in leading procurement related transformations, contact Andrew Cordner, Director of Consulting on +61 3 9654 4900 or via email: Andrew.Cordner@thefaculty.com.au