Project Management Institute

Putting people first

the driving force for sustained transformation

Deloitte Consulting LLP

Submitted for PMI® Global Congress 2013 – North America
by

Maria Demeke, Manager, Deloitte Consulting LLP

Alex Braier, Senior Manager, Deloitte Consulting LLP

Aftab Hossain, Manager Deloitte Consulting LLP

Abstract: Organizations today face unprecedented challenges and changes. An ageing workforce and impending shortage of key skills are creating a global talent crisis that is expected to last for decades. Globalization is creating worldwide competition for resources, talent, products, services, and markets. Technology advances are eliminating the barriers of time and space, as well as accelerating the pace of change. And customers and investors are growing more demanding. These powerful forces are driving many organizations to transform the way they operate.

Transformation can have a significant impact on the people in an organization, but the irony is those same people can have an even greater impact on transformation. We believe people are ultimately the force that drives sustained transformation. Not technology. Not processes. Not even strategy. In the end, it is the collective behavior of an organization's people that can make or break a transformation.

Over the past 10 years, countless studies have been conducted to understand why organizational transformations often fall short of achieving their desired objectives. In nearly all cases, the answer is related to people—poor leadership, not enough sense of urgency, resistance to change, incompatible cultures, and inadequate training, to name a few. We believe that organizations can reverse this trend by adopting a new transformation approach that puts the primary emphasis on people.

The traditional approach to managing people and change relies on broad brushstroke interventions that try to do everything at once. The new approach defines and prioritizes the change agenda based on the organization's business strategy and desired transformation outcomes. The result can be a greater focus on the things that really matter: differentiating the organization from its competitors, driving value for the organization, and improving the capabilities and service offerings that new and existing customers care about most.

This paper presents a framework to address many of the people-related challenges associated with organizational transformation and offers time-tested advice and insights to help make people-driven transformation effective.

Organizations don't transform themselves just for fun—they are compelled to transform by a variety of external factors. According to a recent survey by Deloitte Research, (CITATION?) the strategic issues that are currently capturing the most management attention are as follows (from highest to lowest):

Figure 1: Top Strategic Issues

Top Strategic Issues

Issues like these are spurring organizations to transform the way they operate. And whilst they may not have much choice about the need for transformation, they have a lot of choice when it comes to structuring their transformation to achieve the desired results.

Figure 2: The People Dimension of Transformation

The People Dimension of Transformation

A Comprehensive Approach to People and Organizational Transformation

People-related challenges are the most significant barrier to organizational transformation. For example, 60 percent of all mergers do not deliver the expected benefits,2 and according to our research, the two leading causes of failure are cultural incompatibility and inadequate leadership. Similarly, a study3 of shared services transformation showed the four challenges that are most likely to be underestimated are training, culture, communication, and executive alignment. Effectively tackling the people-related issues associated with an organizational transformation doesn't happen by accident. It requires a comprehensive, focused, structured approach that addresses every aspect of the challenge and aligns with the overall business strategy. Key areas for managing the people dimension are listed as follows:

  1. People risk and impact management: Understanding the people-related risks of transformation and developing formal plans to help manage the impact
  2. Leadership alignment and stakeholder engagement: Having people with authority, power, and influence visibly lead the change; engaging as many stakeholders as possible
  3. Communications: Engaging employees, managers, leaders, and external stakeholders through compelling communications
  4. Culture: Aligning individuals’ beliefs with the organization's values and providing supporting procedures and infrastructure to help drive the desired behaviors
  5. Organizational design and governance: Realigning the organization to enhance resources and employee effectiveness
  6. Talent requirements and HR programs: Developing HR strategies, programs, and practices that align with and proactively address the organization's changing talent requirements
  7. Workforce transition: Planning and executing a smooth transition that increases benefits without disrupting productivity
  8. Learning and capability transfer: Providing knowledge, tools, and training to help employees operate effectively in the new environment

These eight areas are the levers for managing the people dimension of transformation. They can be categorized into three groups of activities identified in the framework: Change Leadership, Organization/HR, and Learning. The following pages examine the key challenges in Change Leadership Activities and offer specific insights to help organizations achieve and sustain an effective transformation.

1. Leading Change – People Risk and Impact Management

We Have Met the Enemy and They Are Us

A major cause of a transformation not achieving its desired objectives is the stakeholders’ inability to see and feel the compelling reason for the change. As a result, fear, anger, or complacency can take root and cause resistance. In some cases, the lack of a sense of urgency lurks unseen or ignored because stakeholders are so busy making it appear as if they are complying with the transformation and because leadership does not take the time to fully explore the consequences of this type of behavior. Consequently, the main objective of the transformation is not achieved. Of course, leadership, not wanting to admit this, usually claims early “wins” and then moves on to something else. Organizations could take advantage of the transformation opportunity to build commitment through greater leadership exposure to their people, increased communications, and change leadership initiatives. When it comes to transformation, complacency, fear, and anger can quietly and effectively undermine the transformation effort and its benefits unless they are identified and addressed. Of course, a lack of urgency and the resulting resolve to make the transformation effective are just two of many obstacles to watch out for. Other transformation risks can include the following:

  • Failure to create and communicate a compelling vision and rationale
  • Failure to remove the organizational barriers that stand in the way
  • Failure to share visible, meaningful, and timely short-term ‘wins’ to help combat change fatigue
  • Failure to anchor the behavioral changes in the organization's culture
  • Failure to remember external stakeholders
  • Failure to form guiding teams to lead the change

To help achieve and sustain an effective organizational transformation, these potential obstacles should be addressed. In our experience, the first step should be to formally assess the transformation's impact on people—both inside and outside the organization. Who will be affected, and how? Are the affected people critical to achieving desired objectives? Do they have competing priorities? How might they perceive the transformation strategy, and are they committed to the effort?

Risks should also be identified through considering the organization's “change readiness”. For example: Is there strong and trusted leadership? How well understood are the transformation vision and objectives across the organization? Are communication channels timely and effective? Are decisions made and acted on promptly? Were previous change initiatives successful and what lessons can be learned from them?

The next step should be to develop specific and detailed plans to address significant risks to manage the impart? Word choice? and sources of resistance. Barriers to change can never be avoided completely. But by actively identifying and addressing them, organizations can increase the likelihood the barriers won't become show-stoppers.

Keys to Success

Get your stakeholders right. Understand how the transformation can affect each stakeholder group, as well as key individuals. Consider direct and indirect impacts both inside and outside the organisation.

Anticipate risks. Identify pockets of resistance before they surface, along with any potential business disruptions and risks that might arise. Then work through the resistance, diligently and systematically addressing what stakeholders see and feel.

Assess the situation. People have a limited capacity for change, particularly when it is added to their day-to-day responsibilities. Determine whether the magnitude and pace of change is energising or paralysing the organisation.

Set priorities. Prioritise activities, tackling the most critical barriers first.

2. Leading Change – Leadership Alignment and Stakeholder Engagement

Commitment Not Coercion

Sustained transformation requires deep, personal commitment at every level of the organization. This internal commitment can be difficult to achieve because it usually occurs only when individuals truly believe the changes are in their self-interest. Yet it is far more sustainable than commitment achieved through external pressure or fear. Many organizations try to build commitment by communicating their strategies, goals, business cases, and detailed action plans. This approach explains the rationale for transformation, but often does not inspire or unify the organization. In our experience, true commitment and sustained transformation require a compelling and powerful vision that is aligned with the aspirations of individuals. Many leaders don't try to understand employee requirements and aspirations because they don't consider them as important as the needs and aspirations of the organization. Yet people are usually an organization's largest and most valuable asset, and the business strategy and vision should reflect their requirements—just as it would for any other critical asset.

Transformation should be geared to unlocking people's capability and performance. Alignment and internal commitment should start at the top. For example, one leader helped champion his organization's transformation by using stories from his own experience to illustrate problems and consequences. Some of the stories directly challenged the organization's cultural values, eliciting strong emotions and fueling the desire to change. In all cases, the leader was open and honest about issues caused by his behavior and clearly communicated how his effectiveness was linked to the results of the organization. The time and effort leaders must invest to visibly support the transformation should be viewed as a long-term investment that pays dividends long after the transformation is completed. One way to get leaders aligned and on board is to involve them in the transformation planning and execution, giving them ample opportunities to understand and influence the process.

This principle applies to other stakeholder groups as well. Effective transformation requires contributions and involvement from all types of players:

  • Some stakeholders will be co-creators who help shape the transformation vision and plans. These important individuals or groups should be engaged very early to confirm the proposed solutions are reasonable and practical—and to create a sense of personal involvement, ownership, and commitment.
  • Some stakeholders will be interpreters of the transformation. These people can help determine how the transformation is actually implemented and help shape opinions throughout the organization.
  • Other stakeholders will be consumers of the transformation. Although these people may not have much direct influence on the transformation, as a group they might very well determine its results. Solicit their feedback so they feel like part of the process, and let them know their opinions are valued.

Keys to Success

Influence the influencers. The most influential people in an organisation don't always have the biggest titles. Identify people within each stakeholder group who command the most respect, and then get them involved as champions for the transformation.

Strive for real commitment. People often go along with a transformation because they fear what can happen to them if they don't. But in our experience, that kind of forced commitment usually doesn't last, To sustain the transformation and results, make a conscious effort to understand people's needs and aspirations — and then make a concerted effort to accommodate them.

Equip leaders to drive transformation. The skills required to lead a transformation are different from those required to manage an organisation, Equip leaders with the unique knowledge and skills required to help their people get through this challenging and often traumatic period. Make leaders the role models for the desired behaviour.

Recognise there may be winners and losers. The impact of transformation varies from one stakeholder group to the next, and some may be unhappy with the outcome. Yet all stakeholders should be understood, engaged, and informed.

3. Leading Change – Communications

A Two-Way Street

Everyone knows communication is essential for change. So why do transforming organizations invest so little time and effort to communicate effectively? One reason may be that many leaders are reluctant to announce anything until all the details have been nailed down. Unfortunately, with transformation and other large-scale change efforts, the details tend to shift and evolve over time, which means leaders may find themselves waiting a very long time for definitive answers. Meanwhile, employees will have nothing to rely on but rumors and innuendo. Partial information may not be ideal, but in our experience it's much better than no information. Another communication challenge is finding a way to cut through the noise. People today are barraged with information—junk mail, Web pop-ups, TV and radio ads, and spam—and have learned to tune out most of it. So, how does the organization get heard above the noise?

WRITERS HAVE ASKED A QUESTION THAT NEEDS A DIRECT ANSWER. One way to ensure the message is heard is through compelling communication, which starts with a compelling idea. Transformation leaders should ask themselves: What is the transformation really about? What will be its true impact? Why use this strategy instead of another?

If the transformation makes sense, the answers to these questions should be persuasive. Just as effective transformation addresses what people see and feel, effective communication connects with people on two levels: rational and emotional. Rationally explaining the strategy and business case is useful background information, but what everyone really wants to know is: “How will the transformation affect me?”

Keys to Success

Think high-touch, not high-tech. In our experience, passive communications through print and electronic media are usually far less effective than a face-to-face dialogue. Yet many leaders are reluctant to interact with their people. Make a deliberate effort to connect leaders with employees, and empower line managers to discuss the impending changes with authority.

Acknowledge the past. An organisation that has already been through any kind of significant change will naturally want to know how this transformation is different — and when all the changes will stop. Today's effective leaders know the changes will never stop. But they acknowledge the past changes — regardless of the results — and then clearly articulate how the different initiatives fit together to help achieve a shared goal.

Reach beyond the workforce. Identify and engage every relevant stakeholder group: customers, suppliers, service providers, works councils and trade unions, regulatory bodies, the media, and the community at large. Don't focus just on employees.

Experience beats communication every time. Actions speak louder than words, so get people directly involved In the transformation process.

Establish an interactive dialogue. Two-way communication can help confirm that the audience received and understood the message. It also helps pinpoint potential issues and resistance to change.

Get the story straight. People talk. So to maintain credibility and trust, be sure to deliver consistent messages to every group — both inside and outside the organisation.

4. Leading Change – Culture

Define Your Culture or It Will Define Itself

Organizational culture has a critical influence on individual behavior. Yet it's often difficult to get your arms around it until you translate “culture” into its underlying infrastructure and behaviors. Culture is driven by everything from hiring practices, performance measures and leadership style to systems, work processes, and organizational structures. And once established it can be very difficult to change—particularly when it's not the culture the organization wants.

The widespread changes associated with organizational transformation usually have a big impact on culture. That's good news for organizations that want to improve their culture and know how to get there. But it's bad news for organizations that ignore the issue of culture—either knowingly or unknowingly—and simply let their culture develop. After all, when it comes to evolution, random mutations are usually not the fittest.

Creating the culture the organization wants—or preserving the one it already has—requires a deliberate program that aligns with other transformation activities. Without that conscious effort, it's easy to end up with an organization stuck in limbo between new ways of working and old modes of behavior.

Keys to Success

Focus on the things that really matter. An effective culture is one that creates sustainable business value, differentiates the organisation from its competitors, supports the unique requirements of the industry, and helps customers get what they really want.

Be consistent. Things that drive behaviour and culture must align with one another. For example, there's no point in implementing a robust performance management system that is not aligned with the processes, systems, and structures that drive everyday behaviour. Misalignment simply confuses people.

Understand the existing culture. Use a structured tool to help identify and review the key attributes of the current culture and how it is likely to be affected by the transformation. Define the processes within the organisation that drive culture and behaviour.

Design the new culture. Transformation can provide a window of opportunity to help improve an organisation's culture. Work with key leaders and stakeholders to determine the desired culture. Identify the key drivers of the current culture, and then develop initiatives to help shift them towards or align them with the culture of the future. Be sure potential merger targets, joint venture relationships, and service providers are compatible with the culture.

Reinforce it. Align all people-related initiatives — particularly rewards and incentives — to help foster the new culture. Establish the right leadership models. Introduce new words and vocabulary that highlight the desired behaviour. Shape internal messages and dialogue to help promote the new culture.

Don't forget about subcultures. In our experience, culture can vary across an organisation. For example, the culture in IT or Finance tends to be very different from the culture in Sales. Similarly, in a global organisation, the organisational culture from one country to another can often be very different, These variations should be understood and accommodated.

Putting Together the Pieces – People and Transformation

You Can't Have One without the Other

People are critical to achieving transformation objectives. They are also the leading cause of transformation results falling short. An effective way out of this dilemma is through a structured approach that covers all the angles. Be prepared. Be aggressive. Be flexible. And remember that people have the capacity to make or break your transformation effort.

The People Dimension of Transformation is a comprehensive framework that aligns with the business strategy and addresses everything from risk assessment and leadership alignment to behavioral change, communication, training, organizational design, and more.

About Deloitte

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Copyright © 2013 Deloitte Development LLC. All rights reserved.

2 “Solving the Merger Mystery: Maximizing the Payoff of Mergers & Acquisitions”, Copyright © 2000 Deloitte Development LLC. All rights reserved.

3 “Global Shared Services Survey”, Conducted by Deloitte Consulting LLP. Copyright © 2003 Deloitte Development LLC. All rights reserved.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2013, Deloitte Consulting LLC
Published as a part of 2013 PMI Global Congress Proceedings – New Orleans, Louisiana

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