One often misunderstood element of successful business transformation efforts is the importance of minimizing self-inflicted wounds. Toxic modes of thinking, unexamined assumptions, and decision-making processes that repeatedly fail to generate positive outcomes are all commonly found, in abundance, in underperforming organizations. As experienced change agents seek to implement and lead a successful business transformation, many select as their top priority reorienting the thinking of leadership, staff, and key stakeholders towards value creation.
Leaders of faltering organizations too often lapse into modes of thinking that are counter-productive at best and are worst are antithetical to value creation. I refer to these modes of thinking as value creation traps and consider highlighting and minimizing them to be a key element in any successful business transformation effort.
Value creation traps, in the form of modes of thinking, often fall into two main categories: errors of omission and errors of commission.
Errors of Omission
Failure to understand the problem. Too often, decision makers facing a crisis (and any company that embraces the need for a business transformation is implicitly acknowledging that it is a company in crisis) confuse symptoms (the “what”) with root causes (the “why”). A clear understanding of what the problem is makes subsequent efforts to address that problem much more likely to succeed. Conversely, absent a clear understanding of the problem, including its scope and severity, it is often difficult to win a mandate for an appropriately scaled business transformation.
Failure to make leadership team changes. Regardless of personal feelings, any company seeking to embark on a business transformation must embrace the reality that changes in the leadership team will likely be crucial for success. Leaders who have authored failed strategies are sometimes extremely reluctant to acknowledge their error, and the perception within a leadership team that there is a valid constituency for an in-progress business transformation effort to fail is toxic and value destructive in the extreme. Additionally, making changes in the leadership team sends a powerful signal to internal and external stakeholders and offers an opportunity to reset the dynamic at the highest levels of a company.
Failure to define success. For organizations that have struggled with underperformance for a period of years, success is an undiscovered country, and as such it is very often misunderstood. Managers who have endured years of insufficient budgets may believe that post-transformation, budgetary discipline will be relaxed, or that their own priorities will be met due to the increased availability of funds. It is vitally important for all key stakeholders to receive appropriate and consistent communication regarding what the goals of the business transformation are, what the timing and progress is, and what the end state is expected to look like. The effort to create a deeper sense of understanding of what success looks like will guard an organization against a sudden slump in morale when the goals of the business transformation have been reached but individuals feel that their key priorities have not been met.
Errors of Commission
Data agnostic decision-making. For companies that are laser focused on value creation, there are no “bad facts”; there are favorable and unfavorable facts, but even unfavorable facts can yield valuable learning opportunities. In a time of abundant data and a paucity of insight, a commitment to place gathering and analyzing data at the center of organizational decision making is a de facto commitment to value creation.
Slowing the rate of change. Business transformations, even wildly successful ones, can be traumatic for an organization. Staff are dismissed. Processes are upended. Long-standing practices are thrown into question and the internal politics of an organization are inevitably scrambled. And in the midst of this swirling change, leadership is busy reorienting the company to incentivize a set of behaviors and outcomes that had not been the focus before. The logic here is sound: a business transformation is essentially a sanctioned catch up period for an organization, and as such the scope of change will be broad and disorienting to many. But this is also a necessary element of a successful business transformation, as an organization seeks to make the leap from a status quo that is value destructive to one that is value accretive. The danger here is that, as business transformation efforts begin to bear fruit, the sense of urgency in an organization will lessen, and a de facto “slow down” constituency will begin to make itself heard. No organization can sustain a sprint indefinitely, but neither can an organization afford to cut short a period of rapid change aimed at meeting the value creation goals of a previously underperforming company.
Toxic and unexamined thinking creates value creation traps that collectively present the most formidable challenge for change agents. These value creation traps must be addressed both directly through a robust and disciplined communication strategy and indirectly by ensuring that business transformation efforts are successful in driving positive change that is perceptible to all key stakeholders.
About the Author
David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition. Over the course of his career David has served as financial advisor and interim executive to dozens of middle market companies. David is a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround, and value creation. He can be contacted at: email@example.com.