Before launching transformational change initiatives, companies should assess and possibly upgrade their level of change readiness. A high degree of readiness can enable a company to leapfrog its peers in developing market advantages, while an unrealistic overconfidence in change management preparedness can result in catastrophic setbacks to company capabilities.
In his April 2004 article in the Harvard Business Review, business guru Michael Hammer explored the concept of "deep change" through operational innovation. "Operational innovation," he wrote, is "the invention and deployment of new ways of doing work." In describing change ready organizations, Hammer distinguished operational innovation from "operational excellence" and "operational improvement," which both consist of refinements to existing operational processes.
To illustrate the strategic, marketplace and operational benefits that are achievable through deep change, Hammer offered Toyota, Dell and Wal-Mart as examples of companies that have utilized operational innovation to dominate their respective markets. In these companies, operational innovation has produced dramatic shifts in such areas as customer loyalty, cycle time reduction, development expenses and time to service initiation, all equating to significant effects on the bottom line and sustained advantages over their competitors.
Hammer estimated that only 10 percent of companies are able to make deep change an intrinsic part of the way they do business. Those that prepare their leaders and associates to adapt will be positioned to take full advantage of opportunities for scale, efficiency and agility made possible by operational innovation that leverages technology, globalization and outsourcing.
Attributes that indicate companies with high potential to successfully leverage change readiness include industry awareness, shared accountabilities, objectivity, experience, disciplined communication, risk management and shared reporting. This article addresses each of these elements in detail.
Potential Areas for Improved Innovation
There are many ways in which a strong change management competency can bolster companies’ ability to move beyond operational efficiency to true operational innovation.Consider these areas in which high competency can positively affect the bottom line:
Outsourcing
Outsourcing transactions often fail to deliver on their full potential because they are designed for operational efficiency rather than operational innovation. In defining outsourcing requirements and objectives, companies usually miss the opportunity to engineer more effective operational approaches.
According to research by the International Association for Contract and Commercial Management, 57 percent of companies do not incorporate a governance program in the context of a collaborative strategy review prior to going to contract. Thus, there is limited shared accountability or broad industry perspective during the early strategic phases. While efficiencies are usually achieved through the service provider’s technology, scale and labor arbitrage, opportunities to fully exploit standardization of non-core functions or to collaborate toward more operationally innovative solutions are often taken off the table, as both parties often perceive these objectives as entailing too much disruption, complexity and/or risk. Only in a change-ready organization can outsourcing reliably facilitate transformational innovation.
Shared services organizations:
Shared services organizations are often under-funded or under-supported within the organization, relegated to delivering efficient operational processes to other business units. In this role they have limited influence on how services could undergo an end-to-end transformation or whether user requirements might be re-evaluated to enable a more effective mix of solutions for the enterprise.
Oftentimes, corporate enterprises perceive shared services organizations as primarily seeking to justify their purpose rather than contributing as collaborative sources of innovation. In these instances, under-performance becomes a self-fulfilling prophecy. Shared services organizations must possess the leadership talent, visibility, executive influence and peer support to deliver full change. Frequently the greatest gaps occur in the areas of industry awareness, objectivity and communication capabilities, resulting in an internal focus. In change-ready companies, re-evaluation and re-design of shared services to enable efficient collaboration and integration with other processes, providers and customers within the organization are both possible.
Integrated global delivery capability:
When pursuing offshore strategies, companies typically make their selection based on a variety of factors, including labor cost and skills, language and culture, risk and geographic proximity. By contrast, change-ready companies, through leveraging shared accountabilities and reporting, are able to orchestrate a complex and integrated portfolio of global resources by taking a more holistic and long-range view. This entails considering the optimal combination of different onshore, offshore and near shore options to transform the manner in which the company efficiently delivers goods and services across business lines and geographies, while managing shifting market risks and advantages.
The differentiator between innovation and efficiency is a company’s ability to engage the hearts and minds of all stakeholders in collaboration, analysis, design, execution and support for an adaptive approach to business. This is where change readiness plays a critical role. In an organization with a strong change management competency, there are mechanisms for the effective engagement of stakeholders, the broad inculcation of a transparent competitive market view, and the strategic management of risk. These traits equip the company to effectively consider and act on a greater range of innovative solutions. An advisor such as TPI can provide objective external perspective in the identification, evaluation and execution of greater opportunities and can also help to develop the change capabilities to do so successfully.
The Role of Company Culture
Culture is the framework upon which relationships are built and grown and the lens through which decisions are made. The historian Jacob Burckhardt defined culture as "that million-fold process by which the spontaneous, unthinking activity of a (group) is transformed into considered action."
Because culture often acts on the subconscious level, as well as on the conscious, a change to culture is likely to create conflict, confusion and inaction. Leaders who try to change their company’s culture often discover that they undermine the fabric of their organizations. For a healthy company, effective change management is not about forcing a change to the culture but, instead, opening the existing culture to a broader landscape that introduces a more natural process of adaptive change during the long term.
Change readiness creates a framework for information, options and decisions in a manner that can be absorbed, understood and acted upon in the context of the current working environment. Working with the existing culture results in faster and more effective change than would be otherwise possible.
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