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Becoming a focused organization to achieve perpetual transformation

ANTONIO NIETO-RODRIGUEZ

In his 1962 book Strategy and Structure, Alfred Chandler argues that an organization’s structure should be driven by its chosen strategy and that, if it isn’t, inefficiency results.¹⁰¹

Taking this one step further, the degree to which project activities are reflected in the organization’s structure determines overall implementation success. When executives underestimate or completely ignore this fact, organizations fail to evolve (or adapt) as quickly as the business and markets do. As a result, organizations disappear and a large proportion of strategic projects fail.

Having the right organizational and governing structure is probably the biggest challenge of achieving perpetual transformation. Making changes within an organization is extremely complicated for two fundamental reasons: those that pertain to history and those relating to human behavior. First, organizations are built over many years; and over time, they become rusty, expensive to run, and out of touch with reality. Second, the hundreds and sometimes thousands of individuals that make up an organization have their old habits, which they are often reluctant to change. Some of these individuals are also influenced by decision-making power, which is often reflected by who has the largest department, the highest budgets, and the biggest salary.

Most Western companies have a functional or hierarchical structure. The theory behind hierarchy aims at efficiency and specialization. This was ideal for running the business efficiently in a stable world. Departments are divided along a value chain influenced by Michael Porter’s value chain model.¹⁰² Traditional companies are generally run by a CEO, a CFO, and often a COO and a CIO, followed by the heads of business units and functional departments. Each has their own budget, resources, objectives and priorities. Hierarchical organizations consolidate information and control on a few people at the top of the company, where all the information comes together. The most essential and strategic decisions are taken by the leading group, often slowly and far removed from the market reality.

What today’s organizations really need is a strategy to help people make the decisions. Organizations need the agility to react at the level of where things are actually happening, which is typically at the operating level.

In addition, until recently, departmental success was measured using key performance indicators tailored to each unit or function. For example, the finance department’s success was measured by whether it was closing the books and producing the financial statements on time, and the HR department’s by whether it had managed to keep good people on board (low turnover) or had finished employee appraisals on time.

A few heads of units tend to establish their own territories, and collaboration across different parts of the business is often troublesome. To the point that it is not unusual to have conflicting performance indicators between departments.

On the other hand, the most critical transformations, the most strategic ones, are of transversal — company-wide — nature. They require resources, time and budgets from every single department in the organization. Without the commitment and contribution of everyone, it is most likely that the transformation will not succeed.

Cross-departmental — or company-wide — transformations in a traditional functional organization always face the same difficulties, some of which are linked to the following questions:

• Which department is going to lead the transformation?
• Who is going to be the project manager?
• Who is the sponsor of the transformation?
• Who is rewarded if the transformation is successful?
• Who is the owner of the resources assigned to the transformation?
• Who is going to pay for the transformation?

The silo mentality adds to this complexity, with managers often wondering why they should commit resources and a budget to a project that, although important, would not give them any credit if successful. Rather, a management colleague, often a direct competitor, would benefit.

Within the traditional organization, transformation is cumbersome. Managing just one strategic initiative in such a complex structure is a challenge, so imagine the difficulty of trying to achieve perpetual transformation; impossible.

Creating a culture where transformation is fostered

A company’s successful transformation depends not only on whether the company performs well. A successful company also achieves sustainable growth of both revenues and profits; consistently delivers its strategy; outperforms the competition; is viewed as a market leader and has fulfilled staff.

One of the outcomes of my research was that these successful organizations in a world driven by change were not just reaching but were also exceeding their strategic objectives. Although having a great leader, a well-known brand, and a very good product or service contributed to this success, what made all the difference in their ability to surpass their expectations and create an organization where transformation is always underway was the fact that they were FOCUSED.

To better explain the key elements, a company needs to be successful in a world driven by change, and to put transformation at the center, I turned the word FOCUSED into an acronym that stands for:

F — Fewer projects, rather than many. A focused organization that can effectively select and prioritize its transformation projects and invest in just one or two good initiatives at a time clearly outperforms organizations that take on too many projects. The few projects that are selected are linked to one or several strategic objectives and are fully supported by top management.

It is fundamental that these few initiatives are communicated and understood by the entire organization. The chance of having the organization understand and remember three transformative initiatives is higher than if the company were faced with multiple initiatives. Also, because only two or three strategic projects are selected each year, management is forced to find the best ideas. Transformation projects require full management attention, and to carry out more than three almost guarantees failure.

O — Organized staff. In a focused enterprise, the staff is organized in such a way that all personnel know what is expected of them and are recognized for their contribution. They do not waste time on activities that are not part of their core skill set; rather, they focus on their key strengths and core capabilities instead of trying all the time to improve their weaknesses.

Top management monitors the execution of these transformation and strategic projects at least monthly and follows through until the projects are completed, the benefits are delivered and the transformation is achieved. They have to split their time between change, managerial activities, participating as project sponsors, attending project steering committees, and dealing with day-to-day operational activities such as sales meetings. Because they have set the business’s priorities, they know how to distribute their time most effectively.

C — Competitive mindset. A focused organization competes with the outside world rather than internally. Internal competition, which might be good in the short term, but negative in the long term, is eliminated because all the organization’s effort is placed on doing what it does best. The CEO and top management explicitly identify rival organizations, often referring to them in their speeches and communications to the company.

The focused company is also very clear about how to beat the competition. In fact, there is only one way: creating better products and delivering better services. A high degree of innovation is a key and common characteristic of a focused organization.

In addition, the employees of such companies tend to have winning attitudes. They are talented and ambitious and want to progress in their careers. Unlike employees in unfocused organizations, they do not compete with their fellow employees because the focus on outside forces is so strong.

Examples of this external competition exist in almost every industry: Windows versus Mac; Google versus Yahoo; Facebook versus LinkedIn; Shell versus BP; HP versus Dell; Boeing versus Airbus; and many others. With today’s extreme globalization, competition comes not only from the same industry, but from different industries. For example, Microsoft competes with both Apple and Google.

U — Urgency. In a world driven by change, time is money. Organizations need to launch their transformation initiatives quickly. The time-to-market for new products must become shorter and shorter. Creating a sense of urgency is a competitive advantage, and the focused organization is always aware of this fact. Urgency is also needed to focus people and encourage them to give their best performance.

Ensuring that employees are very familiar with the key strategic projects selected by top management helps to build this sense of urgency. Employees know that they cannot postpone their work and that they must deliver on time what is expected from them.

Clear deadlines, fixed goals and knowledge of the importance (and the benefits) of each strategic project are tools with which to infuse the entire organization, both management and staff, with urgency and focus. These techniques also provide the sense that things are moving faster, almost as if the tempo at which the company usually works is doubled or tripled. People work harder; the tempo seems faster, and results are achieved more quickly. This sense of urgency can be achieved in both the run-the-business and the change-the-business dimensions. However, pressure can be applied more strongly to the change-the-business side, which would then serve as a driver for activities in the rest of the organization.

One point to consider, and a real warning for top management, is the need to impose the sense of urgency carefully. If management and staff are pushed too hard for too long, they will not be able to cope with the pace and will burn out. A collateral issue is that when pushed too hard to perform, people tend to take higher risks than normal. At first, this behavior may pay off; but in the long term, it is not sustainable. In addition, management and staff may find ways to produce exceptional results without following the “rules.” Both scenarios often have disastrous consequences for the organizations.

In 2005, a new CEO arrived at one of Belgium’s leading banks, with a mission to grow the bank internationally and bring it into the European Ivy League of Banks. He created focus by setting two clear targets: first, to increase the benefit per share by at least 10 percent between 2005 and 2009; second, to double the profit coming from outside Benelux from 15 percent in 2004 to 30 percent. He also introduced a few strategic initiatives that would help achieve these targets. Beginning with his management team, the new CEO quickly increased the focus and the pressure in the entire organization.

This approach worked for three years, with the organization moving faster and faster and targets being met. One of the CEO’s strategic initiatives was to buy a small bank in the US to build and sell in the subprime market. At the same time, an opportunity arose to join a consortium of leading banks, Royal Bank of Scotland and Banco Santander, to buy one of the leading banks in the world, the Dutch ABN Amro.

With two very strategic projects immediately following a couple of years of aggressive focus and pressure, management and most of the staff were exhausted. The organization could not cope; and with the collapse of the financial market, the bank went into bankruptcy.

This is probably the most important risk of a focused organization and perpetual transformation: Putting too much pressure for too long on the staff and the organization — what I refer to as aggressive focus — can bring amazing short-term results but in the long term is not sustainable.

S — Strategic alignment. Every transformative project in a focused organization should be linked to one or several strategic objectives. Any initiative that is not so linked should be immediately cancelled. This alignment is necessary to ensure that the company achieves its stated goals.

Having only a few key transformative projects is the best contribution to strategy achievement. For example, recently a consumer goods producer decided to acquire a company in China that built and sold ironing machines. This project was perfectly aligned with the company’s strategy, which was to have a presence in China and to increase profits coming from that region by 20 percent. The company successfully acquired and integrated the Chinese plant, which immediately provided a 30 percent profit coming from the Asian region.

E — Excellence. A focused organization applies the highest standards to everything it does, and its products and/or services are known for their quality. Sustainable excellence requires attention to the details of every aspect of the organization: values, quality of employees, internal and external processes, products, and customer service.

The key strategic initiatives are managed by and staffed with the most capable people. Both the project sponsor and the project team are selected based on which employees throughout the organization will be the best at driving the initiative. This approach leaves little room for internal politics.

D — Discipline. Companies today need discipline to execute their key initiatives; without it, consistent performance becomes very difficult and perpetual transformation fails.

Discipline is defined as “training to act in accordance with rules” or “the activity, exercise or regimen that develops or improves a skill.” It requires practice and helps organizations to quickly react and perform. One of the most disciplined organizations, the army, would not be able to carry out its defense programs without discipline.

Discipline should not be seen as something negative that inhibits innovation. Rather, innovation depends on discipline. Companies should clearly distinguish between the time set aside for creativity and time allocated to implementation. Focused organizations can make this distinction and move from the creative phase to the execution phase very quickly. If companies spend too much on innovation, they will be too late by the time they decide to execute their strategy. The challenge for the CEO and the company’s entire management team is to find the right balance between discipline and creativity/flexibility.

Discipline for the staff means that once the strategic project has been approved by top management, it should be meticulously executed without being questioned again and again. This does not mean that there is no room for discussion, especially if the project faces unexpected issues during the design or implementation phase; but the project selection should not be further debated.

One final, and very important, aspect of discipline in a focused organization is that required by the CEO and top management when waiting to see results. Many of the benefits of transformations are not seen until the medium to long term, and management must be patient to achieve the bigger results. Too much pressure on short-term results will eventually be harmful.

The benefits of becoming a focused organization

The benefits of becoming a focused organization are significant, the most important being:

Achieve strategic goals. Everybody in the focused organization, from the CEO to the accounts payable employee, knows the direction in which the organization is going, why perpetual transformation is vital, which two to three initiatives are the most important for that year, and the purpose for these few critical initiatives.

Attain financial and value creation results. Positive financial and value creation results are a direct consequence of achieving the company’s strategy. In the end it is probably the most important benefit of becoming a focused organization, since organizations need to have good results to survive and to provide a good return to their shareholders.

The benefits of becoming focused can be significant and the results can appear very quickly on the company’s bottom line, particularly on the cost side. Costs are reduced when irrelevant projects are canceled, which can add up to huge savings. Between 40 to 50 percent of projects could be easily canceled without any major impact, which in turn frees up budgets and resources to execute key strategic projects.

Become a high-performing organization. Because a focused organization is clearly organized, allocates its employees to those positions at which they are best, and clearly defines it goals, it becomes a high-performing organization. It is not just a team that is high performing, which can be the case in a very strategic project; it is the entire organization.

A high-performing team is characterized by a feeling of magic to the members. The sum of the team of people can achieve far more than the sum of the individual’s skills alone — “A high-performing team is a small number of people with complementary skills who are committed to a common purpose, performance goals, and approach for which they hold themselves mutually accountable.”¹⁰³

My experience is a high-performing team is rare. But when it happens, all members give their best, work hard, are committed, do not engage in internal competition, and are happy and feel proud to belong to that team. The same is true of a focused — high-performing — organization: Employees are happy to work there, are very strongly committed, and are proud to show that they work at such a good company. Obviously, all these benefits turn into one large benefit for the organization: successful strategy execution and improved financial results.

Develop a winning culture that embraces transformation. Today, many organizations love to discuss new business initiatives, especially in lengthy meetings; but they stop at the discussion stage. Alternatively, companies start initiatives and after a few months resume arguing about decisions made in the past. Progress is very slow, and the initiatives’ momentum is killed.

A focused organization selects just a few transformative initiatives and gets them done before starting new ones. Once an initiative has been chosen, all the company’s focus is on execution. Results are shown in short time frames, and progress is monitored according to plan. Building momentum is very important when creating a culture of getting things done, and the CEO and top management need to lead by example.

Build a happy, committed, and engaged workforce. The last major benefit of a focused organization is that its employees are satisfied and have a positive sense of accomplishment despite being in constant transformation. They work in the position they are best at and that adds the most value to the organization, and they like what they do as opposed to just performing a job.

Today every organization, public or private, operates in an environment subject to continual and sometimes disruptive levels of change. This extreme uncertainty generates a difficult operating environment for leaders and organizations. The yearly cycle that worked for almost a century no longer applies. The radically transformed circumstances call for new ways of working, more-agile and focused operating models, and new forms of leadership. Organizational structures, processes, and systems need to be adapted, too, to ensure the perpetual transformation of the organization and to take advantage of new opportunities brought by the deeply changeable world, also known as the Project Economy.

About the author

Antonio Nieto-Rodriguez is a leading expert in project management and strategy implementation, recognized by Thinkers50 with its Ideas into Practice Award. He is the author of the Harvard Business Review Project Management Handbook and four other books. The former chairman of the Project Management Institute, he is the founder of Projects & Co and co-founder of the Strategy Implementation Institute. Antonio has been teaching project management for more than a decade to senior executives at Duke CE, Skolkovo, Solvay Business School, and Vlerick. He has held executive positions at PricewaterhouseCoopers, BNP Paribas, and GlaxoSmithKline.

Footnotes

101   Alfred Chandler, Strategy and Structure: Chapters in the History of the Industrial Enterprise (Cambridge, MA: MIT Press, 1962).

102   “Porter’s Value Chain” (IfM), accessed 2 October 2018, https://www.ifm.eng.cam.ac.uk/ research/dstools/value-chain-.

103   Jon Katzenbach and Douglas Smith, The Wisdom of Teams (Harvard Business School Press, 1993).