Success beyond change management or re-engineering
by Jeanne Urich and Dave Hofferberth, SPI Research, and Michael Kanazawa, Dissero Partners
Professional service organizations (PSOs) provide one of the highest leverage business models to quickly grow revenues and profits, but can be the most difficult organizations to transform and change.
Learn from history
Think about the once great dot.com eBusiness integrators (Scient, Viant and Sapient) who launched new methodologies and penetrated the Fortune 50 almost overnight. Don’t forget IBM’s massive strategic shift into IT services and consulting, and the rapid dominance of Tata in IT outsourcing.
Now, consider the cold, hard facts. Over 70% of major change programs fail to achieve their desired results.
Why? One major barrier to success: leaders often underestimate the magnitude of change, the need to fully engage the entire organization and the requirement for leadership focus and follow through. By managing change in a more complete way, as a business transformation, the odds of success are greatly increased.
Organizations begin a service transformation because they want to:
- Accelerate revenue and margin growth either through mergers and acquisitions or internal process improvements.
- Drive alignment between the service organization and other departments, or improve internal service organization alignment.
- Assimilate new groups, companies or functions.
- Capitalize on new markets and create new solution offers.
- Implement new systems and processes to improve effectiveness and efficiency.
- Improve quality and client satisfaction.
- Optimize sales and marketing effectiveness.
In today’s marketplace, the term transformation describes everything from high-risk complete business overhauls to tactical changes in IT systems. For PSOs, transformation often focuses on a wide variety of actions and opportunities required to drive continuous business growth. The reasons for this change may be one of many:
- Realigning as a new leader “takes charge.”
- Launching a new phase in the organization’s maturity.
- Entering new markets.
- Integrating acquisitions.
- Breaking down organizational silos.
Put simply, transformation means opening up new possibilities for growth and moving from one state to another. It is tough work, and many change initiatives fall short, or end up as “flavors-of-the-month.” To prevent that from happening, PSOs need to understand the difference between transforming the organization and changing hastily as a reactionary measure to internal or external drivers.
Differentiating Transformation, Re-engineering and Change Management
Failure to differentiate between change management, process re-engineering and business transformation often leads to using the wrong tools at the wrong time. The table below shows how the goals differ among these three types of change.
Typical change efforts that focus primarily on change management and process re-engineering often fall short and do not include two important factors in a successful professional service transformation project:
- Benchmarking and using best-practices data to drive fact-based decisions
- Following a complete and proven business transformation process that engages the leadership team and cascades input and commitment throughout the organization.
To deliver a comprehensive service assessment and transformation solution, the following framework is essential Figure 1 indicates the scope of this transformation solution and how it compares to typically under-scoped efforts to drive change.
Source: Dissero Partners, March 2009
Often what seems to management as a minor tweak in business process is a major shift disruptive to daily sales, service delivery and operations. Much more preparation and consideration is required for success. Typical service transformation gaps include:
- Absence of executive alignment and leadership, due to the project being viewed as only tactical.
- No market, benchmark or customer fact-based data to substantiate decisions on priorities or to describe why the rationale behind the changes. Lack of meaningful engagement of business operations and employees until it is too late for them to have input, investment or engagement in the process.
- No ongoing process for strategy execution and follow-through, resulting in lack of sustained focus and follow-through.
Leadership and strategic focus make a big difference in bottom line performance. This is especially true in the case of PSOs, which are people-oriented businesses and have the flexibility to become highly fragmented without clear strategic focus. Specifically, Table 2 shows 40 percent faster revenue growth and more than double the profitability when the team has high confidence in its leadership.
Table 3 shows that PSOs with better clarity of vision and mission and strategic alignment drive over 50 percent faster revenue growth and 65 percent greater profit margins. In addition with improved leadership focus the PSO lees less staff turnover and improved on-time delivery performance.
A solution that works
Combining a benchmark with a proven process for transformation provides a recipe for success in driving increased revenue, profitability, human capital alignment, and delivery quality. That’s PS Transformation!
The transformation process consists of three phases:
1. Launch: A compressed launch phase focuses the organization, aligns staff and gets them fully engaged in driving the changes.
2. Execute: Having a specific process to cascade the plans puts leaders at each level in a role of re-setting priorities and making firm commitments to action at each level. This is followed by quarterly checkpoints to drive best-practices learning and to serve as waypoints to test the strategic direction.
3. Extend: Once the PSO has launched and executed full performance for a year, to extend its efforts, the organization must confront reality, focus and continue to align and engage employees (see Figure 2).
Figure 2: PS Transformation Timeline
Confront reality and focus on the highest impact initiatives for improvement is the next step. Through qualitative and quantitative techniques(1), a comprehensive review and assessment begins and includes:
- Vision, Strategy, Leadership & Culture; Finance & Operations; Human Capital Alignment; Service Execution; and Client Relationships
- High-level analysis of business plans, goals and reports
- Key leadership interviews for all major business functions
- Targeted customer and non-customer interviews to provide an “outside-in” perspective of the company’s strengths and challenges.
With this information, the leadership team can have an effective and fact-based conversation about priorities for strategic change and improvement. This information provides the catalyst for performance change that is executed through the transformation process.
What are the Financial Results?
Improvements for improvements sake aren’t very interesting. And often incremental baseline trending of budgets and sales forecasts isn’t enough to keep pace with fast-changing markets and the financial demands of the business. PS executives need to show demonstrable benefits from any investments they make. By focusing on the highest leverage areas first, the financial benefits can drive quick wins and solidify support for larger scale changes over time. The results in the following example are for a small PSO, but are scalable to larger organizations and based on the following assumptions:
- Number of PS employees: 130
- Number of Billable PS employees: 100
- Annual PS Billings: $20.0mm
- Revenue Leakage: 4.0%
- Utilization: 68.0%
While PSOs can make literally hundreds of potential improvements PS firms can target key performance measurements. Small improvements can yield significant results (Table 4).
A PSO with $20 million in revenue can improve profitability by a significant percentage. These improvements are realistic if the PS firm follows a proven business transformation process. Change initiatives with full executive team commitment and alignment that incorporate employee input can succeed in driving bottom-line profits.
Effective Professional Services Transformations
Knowing the common causes of failure is the first step to success. Effective change initiatives have the following in common:
- The ability of the leadership team to effectively confront the reality of the current business environment with a realistic fact base (and database) and competitive benchmarks.
- Clear focus (limiting the focus on a few key initiatives without competing or overlapping priorities).
- Alignment of all parts of the organization around a core set of improvement initiatives.
- The ability to rapidly engage the full organization in translating improvement plans into operational tactics and job-level objectives.
- The follow-through necessary to accelerate the learning and performing cycle while creating committed leaders at all levels of the organization.
By leveraging the structure of benchmarks  and following a process that keeps the responsibility for leading the transformation squarely in the hands of business leaders, the result is not only quantum improvement in targeted initiatives in a shorter-than-expected period of time, but also a fundamental improvement in leadership acumen from top to bottom. There is no reason that 70 percent of transformation and change efforts should fall short of financial expectations. The tools for success are available and the rewards are great for those who learn to capture that value.
 Service Performance Insight (SPI): PS Maturity Model 2009 Benchmark Study provides current and reliable benchmark data from over 200 PSOs.
 Dissero Partners: More than 25 years ago, groups of CEOs, division presidents and their executive teams participated in an innovative program at Harvard Business School chaired by one of the founding partners at Dissero Partners, Dr. Robert Miles. The executives worked collaboratively on their top business challenges with peers and key faculty. The biggest and most common problem facing executives was how to generate a tough confrontation of external realities and then fully engage their organization in executing business changes. Now captured in the book, BIG Ideas to BIG Results (FT Press 2008, Michael T. Kanazawa and Robert H. Miles), the process was built on the best practices that surfaced through that program and many years of refinement and streamlining.