Business transformation often involves significant changes to an organization’s overall business strategy, leadership, structure and technology. Effectively managing the people-related impact of a transformation effort can be incredibly challenging. In a recent roundtable discussion, three Towers Watson experts with deep experience managing business transformation projects discussed how organizations can begin to think about addressing these challenges.
Kiley: What is business transformation, and how does it differ from M&A transactions and other types of large projects?
Giampietro: Business transformation is an initiative that fundamentally changes what an organization is and how it operates. A merger or acquisition may be an important component of the initiative, but transformation often happens without any significant M&A deal.
The goals and implications can vary widely. Sometimes transformation involves a switch to a very different business model. For example, IBM, HP and other high-tech companies have moved from a hardware focus to a much greater concentration on services. Another example is the financial services industry, where a company specializing in one area — say, investment banking or credit cards — might broaden its portfolio to include a wider range of financial services.
Another type of business transformation is a change in how a company operates. For example, a company moves from a highly decentralized operating model to a centralized one. All transformations have major implications for the business and the people. And the challenge of managing the change becomes especially difficult when the company has a long history of operating in a particular way.
St. Clair: Successful business transformation always adds value to an organization. A merger alone could broaden the company’s footprint, expand its customer base or change its cost structure. But an M&A transaction doesn’t always lead to transformational change.
Kiley: What are some of the most challenging people-related issues in a large business transformation?
St. Clair: People issues often center on how an employee’s current world is changing. Business transformation affects people in that it changes what work gets done, who does it and how it gets done. For example, some employees are asked to move from broadly defined to more specialized roles. And transformation often involves major changes in leadership and structure, which means some people will report to new leaders who have different objectives, expectations and styles. It also usually means people will be given new technology that will help them get work done more efficiently, and they’ll need to learn how to take full advantage of new tools.
In the period leading up to the transformation, as well as after, employees will be asking how the transformation affects them. For example, “Will I have a job in the future? When will I know more about what’s changing? Should I start looking for opportunities outside the company? How does this change affect the role I’m in, the work I do, the people with whom I work and the individuals to whom I report?” Managers and leaders need to give employees the time and space to ask questions, and they need to be equipped to respond to employees’ rational and emotional reactions to the change.
Giampietro: People issues vary depending on the type of transformation. For example, a company might be shifting from a focus on cost control to a focus on growth. It’s often much easier to foster effective employee behavior when your goal is to cut costs than when growth is the focus. For the change to be successful, you’ll need to encourage behaviors that will support basic processes, precise job roles, disciplined work load allocation, and very clear and precise structures.
Once an organization cuts as much cost as it can and then shifts to a growth agenda, there’s a whole different set of behaviors needed, including diversity of thought and opinion, and support for risk taking.
St. Clair: Also, if the transformation requires managers and employees to learn new skills or to work differently, that can significantly affect employee engagement and commitment. If employees feel that they’re supported and will have the opportunity to acquire the needed skills, they’ll be excited, committed and engaged. But if they think they’re being asked to do more than they feel they’re capable of, or if they feel unsupported, they may feel nervous, scared and disenfranchised.
Kiley: Oftentimes, transformation involves major changes in the organization’s culture, the type of people it’s hiring and the types of employees that succeed. For instance, changing to a centralized operations model could mean moving workers to a central location — asking them to uproot their families and possibly change the trajectory of their careers — to align them with the future of the business.
Giampietro: Yes, and in cases like that, we need to help them see the silver lining. If we don’t help employees understand what they’ll gain, they could perceive the benefits of centralization — for instance, consistent standards — to mean they’ll lose control of their turf. Behaviorally, that’s one of the more difficult things for people to accept.
St. Clair: Business transformation has many implications for the organization’s culture or “how things are done around here.” When your business model changes, how things get done can change significantly for different segments of the population. For effective change management, we need to understand who’s affected and how. Managers need to understand how various employee segments experience the transformation and what each group needs to work through the change, so they’ll be better able to support their teams.
Kiley: What are some of the best practices for managing these people issues?
St. Clair: First of all, it’s critical to have support from leadership and to make sure leaders are visible. Second, make sure employees understand what’s changing, why it’s changing and what’s in it for them. Third, involve and engage the high-potential employees you need for the future, and critical talent and business leaders with significant influence. Give them a voice and an active role in shaping the new organization.
Giampietro: It’s also important to recognize that people are wired differently and will react to things differently. For some people to accept change, all you need to do is show them the data behind why and how change needs to happen. Others respond to a more emotional or inspirational appeal, so you address the personal aspects of the change.
Make sure all elements of the change management plan are well integrated. People are quick to notice if one message doesn’t align with another — it makes them question the entire transformation strategy. The communication must be holistic.
St. Clair: Leaders at all levels must be able to tell a compelling, cohesive story that includes the reasons for the transformation and how it’s going to add value to the organization. Leaders need to build employees’ understanding, awareness and commitment to the change, and gain their trust that the future will be a better place for them and the organization. Only then will employees be able to substantively change their behavior and performance.
To help build employee trust and understanding, make sure there’s a vehicle for employees to ask questions and easily find relevant information about the change. Ensure there’s a vehicle to cycle employee feedback to the project team. The project team members need to know whether they’re doing all they can to support employees and managers.
Giampietro: Communication is crucial. But too often companies think change management is only about one-way communication or training. Those are two really important elements, but neither is effective at uncovering difficulties people are having in a large transformation. In our example of transformation to a centralized business model, leaders who have been independent and in full control suddenly may be dealing with new visibility, and with changes in governance over the type of work they do and how they spend their time. Management needs a mechanism to hear about leaders’ struggles.
Kiley: We know some leaders are going to resist the change. How do we get them behind the transformation and demonstrating change leadership?
Giampietro: Leaders are employees before they’re leaders. They need to digest the impact of the change on themselves before we ask them to be a leader and advocate for transformation. If we manage the change effectively, leaders will have the time they need to absorb the implications, and they’ll be in a place emotionally to be effective leaders.
St. Clair: And to become change champions and ambassadors. Leaders need to tell a consistent story, share messages with true transparency and convey their own commitment to the change. And if you’ve supported them as they’ve come to terms with the change themselves, you’ve also given them the tools to support others.
Giampietro: Yes, and that support includes making sure that leaders are incentivized and rewarded for the right behaviors early in the process. We can’t ask them to change their behavior and then continue to measure their success using the old metrics.
St. Clair: It’s also important to build a culture of accountability and a sense of ownership within leadership. Leaders must believe and say, “This is important for us to do for the enterprise, regardless of compensation or other rewards. The change will move the organization forward and sustain it.”
Giampietro: You need to identify the folks — they always come forward — who will stand up and say, “I get this. It’s the right thing for the organization. I’ll do what’s needed to make it successful.”
You’ll also have difficult conversations with folks who don’t want to make the journey with you — the ones who become barriers to the transformation’s success. The earlier you can identify them, particularly those in leadership positions, the earlier you can help them leave the organization — and the better off you’ll be in the long run.
Kiley: That can be hard, because some of those people might have been great contributors in the old world. And they aren’t always easy to see. They may be saying all the right things and asking the right questions, but meanwhile, in the hallways, they’re saying to their people, “Don’t worry. Once this is over, we’ll go back to our old way of doing things.” You really need to address that quickly.
Kiley: When is the best time to inform leaders about changes?
Giampietro: That’s one of the more difficult things to gauge. It’s important to be transparent — and to respect that most folks are quite able to handle significant change if you’re open about it and how it affects them. That said, business transformation is a long process, and strategic plans can be sabotaged when word that big change is afoot begins to seep into the organization prematurely. If you communicate too early, you can create anxiety and ambiguity before you’ve pinned down what the change means for folks.
The right time is when you’re ready to say, “Here’s what we’re trying to accomplish as a business; this is what it’s going to mean for you and your staff, and here’s the process and the timing for providing you with more information.” Then you’re ready to start communicating and to engage a large group of stakeholders in the process.
St. Clair: Our extensive research in change and communication shows how important it is for leaders to be visible during times of change and not go “radio silent.” Even if a leader doesn’t have a lot to say, it’s important for her to share with her team what she does know, and to explain what she doesn’t yet know and the timing for getting additional information.
Kiley: Oftentimes, a dollar figure is the metric of transformation success. What other measures should businesses consider?
St. Clair: Employee engagement levels are helpful indicators. Conducting engagement surveys before the transformation begins and a few months after its completion lets you measure changes in employee attitudes on leadership, strategy, communication and governance.
Giampietro: Also incredibly revealing: A culture survey enables you to compare employees’ views of the pre-transformation culture with leaders’ views of the desired, post-transformation culture. You can look at progress along the way, and afterward determine whether you’ve changed the culture effectively. These data are unambiguous and credible to leaders.
St. Clair: All of these surveys can help leaders hear the voices of employees around the world, not just at headquarters. But if you feel a global engagement survey is too disruptive or difficult to pull off in a busy environment, you can use focus groups in different parts of the world or conduct a smaller pulse survey.
Giampietro: Yes, the latter approach can be very helpful. Frequent poll surveys using sampling allows you to learn every month, or at least every quarter, whether your messages are resonating and you’re on track for success. They can also uncover opportunities for you to quickly adjust things that have gone awry.
St. Clair: And don’t forget that social media is a great way to get feedback quickly and to collect additional data around the enterprise.
Giampietro: True, you need both qualitative and quantitative metrics, and social media let leaders hear the silent majority rather than only a vocal minority.
Kiley: The financial targets are important. But when you focus exclusively on financial targets, there’s a risk that the transformation could devolve into a series of workstreams with teams working in silos to achieve those targets. The result may be fewer people and lower operating costs, but transformational change won’t have been achieved. The change management team can play a role to ensure that the business transformation project hangs together as a tightly integrated initiative by establishing objectives and metrics for the implementation effort that transcend financial goals. This is important, because potential cost savings won’t motivate people to change in the same way as opportunities to work for a great company.
Giampietro: Measurement can also help you not only define but also foster the right behaviors. In one engagement assessment, we correlated employee confidence in the organization’s future with senior management leadership styles. We unearthed a very clear set of leadership behaviors that inspired employee confidence, and another set that were actually barriers to success.
The data showed leaders how some of their behaviors worked against the goals they wanted to achieve. Data can be quite compelling in influencing some senior people to change.
St. Clair: Then, you can integrate those data into the performance management and reward processes, and create incentive programs with rewards tied to the transformation’s success.
Kiley: What steps should an organization take to successfully manage change in a business transformation?
Giampietro: We focus on six things: leadership, measurement, communication, involvement, learning and sustainability.
By leadership, we mean equipping leaders to inspire employees’ confidence in the change, creating clarity and fostering a sense of community among leaders as well as all employees. By measurement, we mean using balanced metrics to define success and continuous progress. In communication, the key is integrating many different vehicles and tactics, and testing new tactics that you hope to keep in the new organization.
By involvement, we mean creating opportunities for employees to help shape the organization’s direction, getting their views of key challenges and really modeling the way forward. Learning means ensuring people have the knowledge and skills to work in the new model. Last, to sustain the change, make sure you have the right structure, the right enabling technologies, and all of the people programs and incentives to actually make the change stick.