Shift matters - transformation planning
Stop living on a shoestring, embrace transformation and start thriving on efficiency
By Ian Shelley
February 12, 2010
February 12, 2010
The headlines in recent years have focused on the need to reduce costs, but the headlines are changing. Most indicators suggest the economy is no longer failing and some are clearly showing that growth has returned. For example, Q3 results from the large Canadian banks showed healthy profits.
Over this same period, we have seen operating expenses decline and spending seriously reduced, if not halted. This recent downturn lasted for less than two years and we intuitively know that most organizations did not achieve these savings by strategically restructuring their operations. All this implies that many organizations were able to match falls in revenue by simply cutting or deferring spending and trimming fat. With growth returning, these cost structures are making it difficult for many organizations to scale in order to meet increases in demand.
Transformation planning today
Now is the right time to begin planning your business transformation.
Most organizations are resisting cost rises as revenue grows. Partially this is because there still remains a very real caution about the economy, but there is also a reluctance to return to the operating models of three years ago.
The only way to support growth with a more competitive cost base is to fundamentally update your operating model. Now is the right time, since a transformation of this nature will take most organizations one to two years to properly implement. That means delaying your start could be a serious disadvantage and, as growth and complexity re-emerge, your capacity to focus on strategic change will be diminished by the tactical need to support the business operations.
We define transformation as a change to the business that results in a steep change in the organization’s capabilities, markets (customers), business or operating model. It will require the management and staff of the organization to work or behave in new and substantially different ways than have been the norm.
If it doesn’t involve discomfort, pain or significant changes in people’s behaviour within the organization, it probably isn’t transformation. Likewise, if measures of performance are not expected/targeted to grow by tens to hundreds of percentage points over the previous level, a change is probably not transformational.
Business transformation could therefore be said to be a step above business change initiatives, where the latter are primarily incremental in nature versus steep changes.
Transformed before
Transformation initiatives are not new. We have been through repeated cycles of business reinvention. What is different this time are the motive and the enablers.
In previous cycles, technology innovation has often been the driver of business transformation. Package-enabled reengineering in the ’90s has been a great example of technology-led innovation. ERP systems provided businesses with new capabilities, but required organizations to change their structures and processes to reap the benefits. Further back, the invention of electricity allowed Henry Ford to implement the production line, not possible with steam power generation, leading to one of the most radical changes to the automotive operating model.
Today, the motive is to enable better economic performance and cost management in order to support growth. While IT continues to innovate and offer businesses opportunities, it will no longer provide the same level of transformational impact as it has in the past. IT will not be seen as the powerhouse or leader—although, undoubtedly, it will be a key enabler of this next wave of business transformation.
The leading enablers will be innovative operating models. Organizations that can truly understand how to structure a complex, interconnected operating model that drives efficiency across the organization are those companies that will be able to successfully deliver business transformation.
Ian Shelley is senior manager, Advisory Services, Performance and Technology, at KPMG.
Over this same period, we have seen operating expenses decline and spending seriously reduced, if not halted. This recent downturn lasted for less than two years and we intuitively know that most organizations did not achieve these savings by strategically restructuring their operations. All this implies that many organizations were able to match falls in revenue by simply cutting or deferring spending and trimming fat. With growth returning, these cost structures are making it difficult for many organizations to scale in order to meet increases in demand.
Transformation planning today Now is the right time to begin planning your business transformation.
Most organizations are resisting cost rises as revenue grows. Partially this is because there still remains a very real caution about the economy, but there is also a reluctance to return to the operating models of three years ago.
The only way to support growth with a more competitive cost base is to fundamentally update your operating model. Now is the right time, since a transformation of this nature will take most organizations one to two years to properly implement. That means delaying your start could be a serious disadvantage and, as growth and complexity re-emerge, your capacity to focus on strategic change will be diminished by the tactical need to support the business operations.
We define transformation as a change to the business that results in a steep change in the organization’s capabilities, markets (customers), business or operating model. It will require the management and staff of the organization to work or behave in new and substantially different ways than have been the norm.
If it doesn’t involve discomfort, pain or significant changes in people’s behaviour within the organization, it probably isn’t transformation. Likewise, if measures of performance are not expected/targeted to grow by tens to hundreds of percentage points over the previous level, a change is probably not transformational.
Business transformation could therefore be said to be a step above business change initiatives, where the latter are primarily incremental in nature versus steep changes.
Transformed before
Transformation initiatives are not new. We have been through repeated cycles of business reinvention. What is different this time are the motive and the enablers.
In previous cycles, technology innovation has often been the driver of business transformation. Package-enabled reengineering in the ’90s has been a great example of technology-led innovation. ERP systems provided businesses with new capabilities, but required organizations to change their structures and processes to reap the benefits. Further back, the invention of electricity allowed Henry Ford to implement the production line, not possible with steam power generation, leading to one of the most radical changes to the automotive operating model.
Today, the motive is to enable better economic performance and cost management in order to support growth. While IT continues to innovate and offer businesses opportunities, it will no longer provide the same level of transformational impact as it has in the past. IT will not be seen as the powerhouse or leader—although, undoubtedly, it will be a key enabler of this next wave of business transformation.
The leading enablers will be innovative operating models. Organizations that can truly understand how to structure a complex, interconnected operating model that drives efficiency across the organization are those companies that will be able to successfully deliver business transformation.
Ian Shelley is senior manager, Advisory Services, Performance and Technology, at KPMG.
