Business Transformation

Cost cutting alone causes business change to fail.

December 2009 – By Tiffany Goodlet

The credit crunch and global recession are forcing some organizations to transform themselves, but experts warn that business transformations will fail if organizations focus solely on cost cutting and job reduction.

“While cost cutting is a necessary defensive move in these difficult economic conditions, we also need to focus on offence to build a positive vision of the future and involve employees in the transformation. Cost cutting alone is insufficient; employees need more meaningful reasons to engage and make the business transformation successful,” said Bruce Simpson, Director, McKinsey & Company.

Simpson, whose firm authored the global study, “Organizational Transformation and Engagement: Highlights from an Executive Study”, said that the personal style and involvement of chief executive officers, the authenticity and honesty of the senior management team, and a focus on business fundamentals and culture are all critical to successful business transformations.

“Our research indicates that only one-third of business transformations succeed. Transformations with leaders who were strongly involved and led from the front were twice as successful as those with uninvolved leaders,” added Simpson.

Companies change for a variety of reasons – merger or acquisition, new technology or products, planning for growth or reducing costs. In each scenario, the leadership team is critical for the change to be a success.

“We see firsthand the difference that good planning and an involved CEO make,” said Elizabeth Stevenson, Chief Executive Officer, Verity International.
“With the speed of the recent economic downturn, many companies moved into reaction-mode, and found it difficult to take all the necessary or ideal steps that they would normally to rebuild their businesses. Unfortunately, if companies don’t take the right steps during a crisis, the impact can be huge – there’s a big difference between successful and unsuccessful transformations or restructurings,” added Stevenson.

So, how should an organization engage its workforce in its transformation efforts?

“Communication, communication and more communication,” said Stevenson.

Active communication from leaders outlining the positive reasons for change and what the future vision looks like;

  • Continual communication regarding the process – tell them what is going to happen and when, tell them when it is complete, and what is going to happen next; and
  • Communicate using every medium possible – email, employee portals, town halls, department meetings, individually, in groups, and through employee action planning teams.
  • A good communication plan allows leaders to mobilize employees around a clear vision of the future, and create the momentum needed to successfully transform a business.

But when jobs are lost, what then?

“It is critical to reduce the fear and uncertainty caused by change and job losses. Treating people who lose their jobs with dignity, respect and support can have a profoundly positive impact on the employees remaining. It helps them move on and engage in the transformation, knowing that their former colleagues are well looked after, and they will be too, should it happen to them,” Stevenson said.

According to McKinsey’s research, there are five critical success factors in business transformation.

  1. 1. Set clear aspirations for the future of the organization, anchored in external and internal realities;
  2. 2. Ensure the top management team is aligned, focused, and driving the change;
  3. 3. Co-create a change story that describes a positive mission and purpose and engage the organization broadly in its description and execution;
  4. 4. Integrate the change in culture with a focus on financial performance rather than doing two separate programs; and
  5. 5. Engage in skill-building and relentless follow-through and execution.

About Verity

For over 25 years, Verity – one of Canada’s national HR consulting firms – has focused on the people side of business, specializing in three practice areas: Executive Advisory Services; Career Management & Transition; and Talent & Organizational Consulting. Through the national Verity Filion Inc. partnership, Verity operates in all major cities across Canada and in over 40 countries globally as a founding member of BPI group. Incorporated in 1984, Verity remains a privately held Canadian company.