11. Major Transformation—Addressing Your Plan’s Hidden Barrier
Chapter Contents
Applying Tangible Culture to Transformation
Overview
This chapter applies Tangible Culture to major transformations. We cover the business and culture challenges for transformation along with examples of how Business Practices, Right vs. Right, and Outcome Narratives may be applied. IBM’s recent transformation history will be an example, as will composites from our other experiences. This chapter is helpful for those planning or implementing transformation or other changes that require new employee mindsets and actions. Readers may also want to reference Chapters 8, 9, and 10 (“Mergers and Acquisitions—Managing the Common Sources of Culture Clash,” “Alliances—Finding Ways to Leverage Your Collective Capabilities,” and “Major Restructuring—Gaining Sustained Value From Your Reorganization,”) if their transformation incorporates external organizations and/or restructuring.
Introduction
Companies transform for a variety of reasons—some voluntary and others foisted by circumstances beyond the company’s control and preference. One company may be facing current problems, such as bankruptcy or a stock-price drop. Another may anticipate future problems, such as increased competition and commoditization. Still others may see current or anticipated opportunities, such as the ability to move into a market-dominating position or create entirely new markets.
Whatever the trigger, transformation is difficult, and culture is relevant. In some cases, a company’s culture may prove helpful in achieving the transformation. However, culture is frequently perceived as a barrier to objectives—and much of the time, it is.
Business Challenges
Transformation takes a number of forms. To make the point, let’s look at IBM history.
IBM experienced near death in the early 1990s. The company contained loosely connected, independent business units with an unwieldy management system, redundancies, and disconnected technology. Driven by drastic cost-reduction needs, the company undertook an ambitious reengineering effort—and further reintegrated IBM, redesigned core processes, and refocused the company on customers and the market.
In the mid-1990s, the Internet led to new uses for information technology. Being the world’s largest information technology company, IBM needed to establish a leadership position, and point of view, on the Internet. Was it only for browsing and online shopping, or was it something more important and enduring? IBM’s view: The Internet would transform the fundamental nature of transactions—in commerce, education, health care, and government—under the umbrella term e-business. And this meant IBM needed to transform its own strategy, operations, and investment priorities—touching every aspect of the company from research to product development, services, workforce enablement, and talent development. All this would be necessary to make e-business a unifying strategy, and not simply good marketing. This second transformation came on top of the earlier company-wide reengineering and transformation still underway.
Early in the new century, IBM’s third transformation began—one based not on disruptive technology but on broad-based marketplace requirements. Clients wanted increased flexibility and a variable cost profile for technology and other support functions. They spoke of a competitive and market environment more volatile than anything they had experienced, and how systems and modes of operation needed to be far more responsive and resilient. These client requirements led IBM to On Demand Business—a view of the future for both business and computing infrastructure. As just one example, in a discussion between IBM’s CEO, Sam Palmisano, and Procter & Gamble’s CEO, A. G. Lafley, Lafley said that P&G might be able to function with only 25 percent of its current workforce—yet transform into a much more competitive enterprise—by relying on a network of sophisticated partnerships with third-party providers. (Hamm and Ante)
At this writing, IBM is three years into a journey to becoming an On Demand company—a journey that may take 15 years. So what is IBM’s vision for On Demand Business?
An On Demand Business is an enterprise whose business processes—integrated end to end across the company and with key partners, suppliers, and customers—can respond flexibly and with speed to any customer demand, market opportunity, or external threat.
For IBM, this means changes in inter- and intra-company interactions, working styles, and organizational infrastructure—just to name a few. And IBM is not alone—most companies face these same challenges.
Extended enterprise networks
Companies are using multiple sourcing arrangements to rapidly gain new capabilities, flexibly respond to growth and fluctuations, and achieve a variable cost structure. This multi-sourced environment means alliances—both internally and externally—with all the challenges mentioned in Chapter 9.
Integration is difficult even within one company (especially large global ones). “If each entity in the network works only within the context of its own mission, strategies and management processes, conflict will be a constant and cooperation an accident” (Street et al). For IBM, this means relationships with 35,000 suppliers and 45,000 business partners in a multitude of different types of business arrangements.
Variable, virtual work
Increasingly, employees are mobile and work on teams that come together for specific projects, and then disband. Often the people come from different geographies and companies. Use of contractors is growing as a way to supplement the workforce with specific skills while avoiding fixed costs.
Also, jobs are not what they used to be. Now they are frequently a compilation of roles, often tailored to capabilities of the individuals, making it more challenging to manage, deploy, hire, and replace employees. The best leadership for this environment is hands-on, entrepreneurial, customer centric, and focused on coaching and enabling others virtually, no matter who the employees work for. For IBM, this means a workforce where 40 percent do not go into an IBM office regularly, and where most people take direction from multiple leaders.
Flexible, distributed organizational infrastructures
To enable the variable, virtual workforce, many capabilities are needed. These include modular and voluntary organizations (for example, business “components,” communities of interest), distributed authorities, flexible measures and incentives, and mechanisms to locate expertise and assign staff. Restructuring is often needed, bringing the issues cited in Chapter 10.
One IBM example involves business solution professionals chartered with developing industry solutions for the long term. They report into one group, are funded by another, and have distinct measures, compensation mechanisms, and organizational arrangements to enable their work.
These core challenges place stresses on governance, communications, and relationships—at all levels. And they set up the potential for brand misalignment and inconsistencies in customer experience, especially where value chains of organizations are in play.
IBM faces a series of implementation challenges in achieving On Demand:
Funding and roadmap—IBM does not have a pot of money tagged for transformation. (If you have one, we envy you!) In lengthy, large-scale, complex global transformations, deciding where to begin is tough. Certainly payback for reinvestment is important, and so is weaving in foundational capabilities where return may be difficult to calculate. Agreeing to these priorities is “fun.”
True integration—For IBM’s On Demand Business vision, it is necessary to go beyond running parallel workstreams on structures, processes, technologies, and so on. The workstreams must be woven together into an integrated, seamless capability so that nothing blocks rapid response to customer demands and changing market conditions.
Governance—Making key decisions, guiding the process, and tracking performance are necessary for success. Although tempting (because they’re easy to measure), implementation dates and budgets are certainly not enough to measure true success. It is necessary to track real business results and not just the steps toward them.
But it’s worth it. One example: IBM’s supply-chain results to date include savings of nearly $20M over three years through integration of 30 supply chains into one. This generated $500M in cash over two years through reduced inventories while simultaneously achieving IBM’s lowest unfilled order level.
However, we are still working on a few things, such as fostering a collaborative culture; breaking down the business and cultural barriers in our global, multi-sourced environment; reaching out seamlessly to customers, suppliers, and business partners; and differentiating business value.
“To address our biggest challenge—collaboration—we’re pulling the levers that influence people and enable teamwork—new tools, processes, education, compensation, and rewards. But they’re only effective if people collaborate naturally—as we must in our networked world. Employees need to think, ‘Who else can benefit from what we’re doing? Who should I contact to gain new perspectives for this project?’ Once collaboration moves from ad hoc to ingrained behavior, culture change makes a step-function improvement across the organization.”
Linda Sanford
Senior Vice President, Enterprise On Demand Transformation
IBM Corporation
At the core of these challenges, a “people” element emerges. And for IBM, and any company engaged in transformation, this means that people need to change how they think about the business.
Culture Challenges
Major transformation, no matter the trigger or type, faces some culture challenge. By its very definition, transformation implies changes in many directions, from what to do, how to do it, who does it, and so forth. When we think about the basic business building blocks—people and organization, processes, and technology—it seems logical that real transformation in one will drive transformation in at least one of the other two.
In recent IBM market research, companies told us that a mindset shift was critical to achieve the On Demand Business characteristics of resilience, flexibility, responsiveness, and horizontal integration. What mindset shifts in particular? Well, one was a move away from the reliance on hierarchy and control mechanisms, and another was focus on sensing the market and not simply responding.
This meets our own experience: It is mindsets that drive the Business Practices deemed appropriate for a given situation. For this reason, for transformation, Right vs. Right mindsets are the starting place. This differs from every other type of effort we have described so far, where the starting place has been Right vs. Right Business Practices.
To trace IBM’s three transformations is to uncover a series of progressive mindset shifts:
In the early 1990s, IBMers needed to
Shift their focus to customers and the external market.
Prioritize “one IBM” and not individual business units or regions.
Motivate and reward results, not simply efforts.
To become leaders in the e-business era, IBM needed to
Steer attention toward products and services that enabled an Internet-based business environment.
Shift to a blended focus on technology and business.
Regain confidence in its ability to lead (remember that this transformation started while IBM was still recovering from near death).
For On Demand Business, IBM is working on additional changes that also require mindset shifts:
Focus on industries and integrated solutions (and shifting away from brand focus).
Business-led sales and delivery (augmenting technology-led sales and delivery).
Shift from a full portfolio of products and services to one focused on innovation and value (which means regular pruning and divestitures).
“Seamless” delivery, no matter the brands, geographies, and delivery entities involved (including external partners).
“IBM’s experience with continuous reinvention is unparalleled—and its culture, especially the mindset of its people, is a critical factor. My research indicates other inhibiting factors that may be just as important as mindset, including flexibility and variety of resources, skills, alternative uses for technologies, ability to redeploy physical assets, and the firm’s financial ability to weather the storm.
Richard D’Aveni
Professor of Strategic Management
Chairman of the Strategy and Technology Group
Tuck School of Business at Dartmouth College
Author of Hypercompetition
We are navigating these changes with a global workforce of more than 300,000 where 50 percent have joined in the past 5 years—many due to acquisitions and outsourcing arrangements. (And remember, 40 percent do not go into IBM facilities on a regular basis.) Driving consistent mindsets in this type of environment is especially challenging.
To align the business environment with these mindset shifts, changes in Business Practices are needed. Here are a few relevant questions IBM is answering:
Who should be the primary client contacts when multiple brands, lines of business, and/or geographies are involved?
Who should lead cross-organizational sales opportunities and project deliveries?
How should brands, business units, and geographies be structured and measured?
How should experts be identified and engaged (including those outside IBM)?
Where should standardization be required, and where can judgment be applied?
We hope this brief discussion explains how transformation often starts with mindset shifts, which then lead to the appropriate Business Practices. Then—and we would assert, only then—is it possible to effectively identify the changes needed to make it all work.
“It can be very difficult to assess the existing organizational mindset by solely relying on internal perspectives. Enterprises often delude themselves regarding their relationships with customers, employees, and other key stakeholders, as well as the strength of their value propositions with these stakeholders. A structured, visible methodology, augmented with external perspectives, can help to identify and mitigate such delusions.”
William B. Rouse, Executive Director and Professor
Tennenbaum Institute, Georgia Institute of Technology
Author of Don’t Jump to Solutions: Thirteen Delusions That Undermine Strategic Thinking
Handling Key “People” Risks
During transformation, “people” aspects must be addressed. Before we focus our attention on culture, we want to offer some brief related advice.
Stakeholder strategies are increasingly important in an extended enterprise network because many more people are likely to be impacted (directly and indirectly), and the needed sponsor network is complex. If those who need to change are beyond the company’s direct control, it is risky to assume the partner will take needed actions (or that you can address your partner’s shortcomings with negative consequences). We suggest it is better to consider all impacted people as under one organizational change umbrella (no matter who they work for), and start with well-conceived stakeholder strategies as the first step.
Future-state visioning is vital to successful transformation because the journey is often long. Let’s demonstrate this simply: Suppose you want to move. If you are not sure where you want to go, your effort will be more difficult. Do you want to stay in the same city or move across the country? Do you want to keep your lifestyle, or change it—and if so, how? Without these answers, you will not know where to begin or how to set a reasonable timeframe. Simple example, but many companies embark on major transformation efforts and either fail to make the end-state clear or make it clear for only a small group of people.
Transition strategies are needed to sustain the changes over time. Although compliance is sometimes appropriate (that is, “We’ll tell you what to do, monitor your compliance, and dole out appropriate positive and negative consequences”), leaders often use this approach when it will not work well. How can you tell? Ask the following:
How well can we really monitor compliance with the new requirements?
Are we able and willing to monitor them, and apply appropriate positive and negative consequences, over the long term?
If monitoring will be difficult or expensive over the life of the requirements, you need commitment (that is, workers taking action because they believe it is right, not because someone is watching them). If you are working to achieve an On Demand Business, for instance, you need to build commitment to that vision.
Consider the value of principles, values, and behavioral statements for conveying the new expectations and communicating your intent. And remember that you need active support from formal and informal leaders for credibility and motivation for change.
Let’s now look at how Tangible Culture concepts can be applied to transformation.
Applying Tangible Culture to Transformation
Figure 11-1 shows the general workflow. It is similar to what we have covered in other chapters, but with one very important difference: beginning with mindsets.
Figure 11-1. Method for transformation.
Let’s start with an example of how some of the outputs would look, and then give you the steps to get there, using the following story line.
Example
Senior executives have identified changes they want to pursue. They are concerned that the company is bogged down in old approaches to the market, and they want to radically transform—from the company’s structure to how people interact with one another to capability sourcing. Today, they are fully in-sourced with only customer-supplier relationships with other companies. They want to outsource parts of the Technology group and other administrative functions to reduce costs and allow the company to grow without delays. Their biggest concern: the ability to collaborate. Even internal cross-organizational efforts are slow and difficult, and they have few external experiences. They plan to simultaneously build collaboration capabilities and pursue outsourcing.
Table 11-1 shows excerpts from end-state mindsets in the charter.
Table 11-1. Charter Excerpts: Mindsets
Table 11-2 shows excerpts from the Business Practices decisions in the charter.
Table 11-2. Charter Excerpts: Business Practices
Table 11-3 shows an example Outcome Narrative to describe the future state.
Table 11-3. Example: Outcome Narrative 1
Table 11-4 shows excerpts from the gap assessment and what needs to be changed.
Table 11-4. Gap Assessment Excerpts
Table 11-5 shows excerpts from the prioritized action plan.
Table 11-5. Prioritized Action Plan Excerpts
Table 11-6 shows excerpts from the progress evaluation and additional actions needed.
Table 11-6. Progress Evaluation Excerpts
Work Steps
To create the preceding outputs (for Figure 11-1), follow the steps in Table 11-7. And, visit www.almaden.ibm.com/tangibleculture to download applicable tools and templates.
Table 11-7. Work Steps for Transformation
Benefits
In general, Tangible Culture gets at the root of what drives a successful transformation: mindsets and Business Practices aligned to the future state. Specifically, Tangible Culture
Provides for sustained change by helping to transform collective mindsets.
Makes the expectations real and tangible for people through Business Practices and Outcome Narratives.
Enables the organization to target its transformation efforts and funding toward the initiatives that will bring important benefits most quickly.
Conclusion
Most companies will significantly transform at some point, and addressing likely culture barriers is one key to successful transformation. Tangible Culture is especially helpful when current mindsets, and the Business Practices they drive, will not work well in the future. And because major transformations are typically multi-year efforts, it is important to use an approach that provides an objective way to evaluate progress and decide what additional actions are needed.
Let’s round out Section II, “The Application,” with a “grab bag” of sorts—a number of different circumstances where the concepts can be applied creatively.
References
Charan, R. “Conquering a Culture of Indecision,” Harvard Business Review on Culture and Change. Boston: Harvard Business School Publishing Corporation, 2001.
Gerstner, L. V. Who Says Elephants Can’t Dance? Inside IBM’s Historic Turnaround. New York: HarperCollins Publishers, 2002.
Hamm, S., and S. E. Ante. “Beyond Blue,” BusinessWeek Online, www.businessweek.com, April 18, 2005.
IBM, “From reengineering to reinvention: the IBM journey to becoming an On Demand Business,” IBM White Paper, 2005.
Palmisano, S. J., P. Hemp, and T. A. Stewart. “Leading Change When Business Is Good.” Harvard Business Review, December 2004.
Street, S., R. Hossack, S. Lin, N. McGee, P. Lawton, and S. Moulton Reger. “It’s time to flex: Create the organizational and cultural agility to do business on demand,” IBM Institute for Business Value, 2003, p. 8.
Weiss, J., and J. Hughes. “Want Collaboration? Accept—and Actively Manage—Conflict,” Harvard Business Review, March 2005, p. 93.