Like it or not, most organisations must transform if they want to stay relevant in today’s increasingly dynamic markets. If we accept that most organisations will attempt to transform at some stage, why do most of them fail? It’s not a new challenge either. Many organisations have been trying to transform for years and the failure rates are well published. So why haven’t we evolved to better deal with this glaring existential threat?
I’ve spent my career helping organisations to transform. At Datacom, I’m surrounded by industry-leading specialists in strategy, people and process change. Over the years, I’ve noticed three key transformation paradoxes that leaders commonly stumble over on their transformation journeys.
Paradox 1: Avoiding the fight only increases our need to enter it and our chances of losing it
A recent McKinsey study revealed a staggering 86 per cent of transformation initiatives fail to create sustainable value. Given the significant level of investment typically required and the high statistical risk of failure, getting transformation right should be top of every leaders’ priority list. Why are we not seeing higher success rates as a result?
Part of the problem seems to lie in a quirk of human behaviour. Simply put, we don’t like to address the big, tough issues – so we put them off for as long as possible. This makes sense from a survival perspective. If someone told you that you have an 86 per cent chance of losing a fight, your first instinct would be to avoid the fight altogether. The problem is this fight is not going away and the longer you leave it, the stronger your enemy becomes and the weaker you become.
Organisations that delay their transformation until they’re ‘on the ropes’ are counterintuitively increasing their chances of failure. They often have less capital to spend, morale may already be low, operations are inefficient, and customers are already leaving for better experiences elsewhere. In my experience, the organisations that resist the urge to delay and proactively transform while they’re strong – some even aspire to a constant state of transformation as ‘the new normal’ (i.e. smaller, faster, iterative changes) – have better odds of coming out on top.
Paradox 2: The Prisoner’s Dilemma
In an ideal world, we wouldn’t have to transform at all. Transformation typically requires significant investment and, as per the first paradox, most of them fail.
In this world, the competitive landscape would move at a glacial pace and our customers would be content with the same old experiences they’ve always received from us. We could carry on like ‘the good ol’ days’: turning up to the same job, doing the same thing for our entire careers, and gracefully exiting with a gold watch and a set of new golf clubs at the end of it. So, where did we go wrong?
Ironically, we’ve done it to ourselves. Like an arms race, the very fact that our own organisations and our competitors’ organisations are transforming means the bar is constantly being raised on efficiency and customer experience – which means the entire industry must then transform to meet or exceed the new standard, or risk losing the war. This paradox is known in game theory as ‘The Prisoner's Dilemma’ – in some situations, completely rational individuals acting in their own self-interest can inadvertently create the completely opposite outcome for themselves.
While the transformation arms race means that the golf clubs come out less, there is an upside. Careers are much more exciting and varied, and there are endless opportunities to gain first mover advantage, disrupt our competitors, and grow our market share through new and engaging customer experiences. Like it or not, the race is on so we’re either in a constant state of transformation or we’re being left behind. Smart leaders can see there is no turning back the clock and instead of trying to delay or slow down the process, they focus their energies on leading the pack.
Paradox 3: You can’t buy transformation, but everyone wants to sell you one
Throughout the world, marketers have latched on to the need to transform and stretched the word ‘transformation’ into every conceivable shape to sell their products. You can buy transformations online or instore, in any colour, size, shape or quantity you like. It’s been hyped up, over-promised and under-delivered for years now. It seems that the very word ‘transformation’ has itself been transformed into a synonym for ‘snake oil’.
While this was great for sales and marketing teams, it’s a nightmare scenario for organisational leaders. It’s effectively made what was already a fairly tall hill to climb, even taller. Not only do we have to transform (see the second paradox) despite the odds being firmly against us (see the first paradox), but the pathway to successful transformation is made all the more confusing by this cacophony of conflicting information everywhere we look.
Ironically, despite all of the products being marketed using the words ‘transformation’, you can’t actually buy it. Most leaders would be more than happy to make the simple calculated investment to purchase a clearly priced product that guaranteed their transformative success with a clear return on investment (ROI), but those products simply don’t exist. In fact, a global KPMG transformation study found that transformation initiatives that start with technology as opposed to strategy, are twice as likely to fail.
Truly transforming an organisation means transforming the entire organisation. This means leading with clear, strategic direction and supporting the execution with strong people, process, and technology change. Successful leaders ensure that their people have bought into the vision and are empowered with the ability to be the change – actively contributing to it and guiding it from their unique position on the front lines of their organisation. This is what enables the agility aspect – a direct line to the front lines of the business, allowing us to adjust and pivot in real-time to constant and unpredictable market changes.
Process change is also critical. Transforming an organisation without transforming the underlying organisational processes and workflows that drive them forwards is akin to purchasing a new car and dropping your old engine into it. In fact, the same KPMG study found that underestimating operating model change is the highest barrier to transformation.
You may have noticed that agility and speed are the common thread weaving through these paradoxes. When I say agility, I don’t mean ‘agile methodology’, as it is often misunderstood, but organisational agility. An organisation’s ability to transform itself comes down to its ability to respond rapidly and proactively to the ever-increasing competitive cycles that characterise modern markets.
This means meeting our challenges head-on, embracing the speed of change in our markets and purposefully designing our organisations to adapt to them. Traditional, rigid structures cannot do this. We need flexible, organic and autonomous structures, where leaders (who have visions and directions) and teams can make decisions about how they will get there in real-time on the battlefield.
Agility is transformation. It is the only truly sustainable competitive advantage. It is difficult, and it can’t be avoided or bought. Yet the best leaders actively design their organisations to do it constantly.
How agile is your organisation?