In part one we noted the importance of clear and achievable transformation goals. The next step after identifying those goals is to test what they mean in terms of Key Performance Indicators (KPIs). If the aim is to become 1st in the industry, this will, for example, imply a certain level of revenue, cost-efficiency, customer satisfaction, and staff engagement. Calculating what goals mean in these specific quantifiable terms is critical, not only to measuring performance, but in relating vision to day-to-day activity and tasks. What gets measured gets done, and there is an obvious link here to reward, discussed later, if change is to take root and be successfully delivered. Frequently the KPI reporting process suffers from several dysfunctions. The first is too many KPIs. Everyone has an opinion on what matters most, and a vast list of possible measures needs to be distinguished from what is most important for transformation goals. Appropriateness to audience is key to managing this. The CEO does not need to know the number of impressions that division A’s website achieved last month, and does need to know if division B is missing its sales budget.

Kaplan and Norton’s work(1) on the balanced scorecard remains as relevant today as it was in 1992– perhaps even more so for digital business models which produce vast amounts of data for which it can feel difficult to see the big picture. This brings us to the second dysfunction often seen in KPIs i.e. a backward-facing approach. Past and current performance always needs to be compared to long and short-term transformation goals, so executives can see any gap between current performance and the goals. Discussions can then be focussed on what adjustments are necessary to close that gap, be it realignment of incentives, new skills and resources, or more efficient and effective processes. Without this KPI reporting is rather like playing bingo, and few people will know what good looks like, or what to change.

Finally, it’s important that KPI design is done collaboratively across the organisation with full leadership support. Without this different teams and divisions will produce their own analysis of their performance to prove their value. This may not be linked to an overall common goal and may even conflict with information produced by other parts of the organisation, making it difficult to steer and achieve excellent execution.

Different people are motivated in different ways. For some, bottom line and bonus rules. For others altruism is paramount above all else. However, there is a constant – offering the wrong incentive to the wrong person will not achieve the motivation required for successful transformation. We noted earlier in discussion of KPIs that “what gets measured gets done”. This is true for financial and altruistic motivation. Regardless of the subjectivity of the goal, or its validity to different people, we need to find a way to set a target that is aligned to the overall transformation goal, and assess progress toward its achievement, or little will be done.

Often, creative thinking, and experience handling metrics for different organisations, is required to set targets for subjective performance areas. For example – Q: How do you measure effective communication? A: Ask customers to rate on a scale of 1 to 5 how effective that communication has been. The next step from setting clear targets is to link this to incentives. For one manager it may be that to achieve an 80% operating cost ratio means a 20% bonus; for another it may be that to reduce carbon footprint by 20% means recognition in the form of an accolade an at annual conference or promotion. The work of Karl Weick (1984) referenced in part one is again critically relevant here – goals can be big and audacious, but they need to be capable of being broken down into smaller achievable short-term targets so that people can reap the rewards, intrinsic or extrinsic.

The closing topic here, collaboration and ownership, is probably the most important aspect of transformation and change. Everything else discussed here, despite its necessity just to run a business well, can be seen as a flag to rally around and build ownership and support for transformation. Selecting a small team of high potential executives and managers to design the transformation in a dark room is a waste of time. Any executives and managers presented with the output without their involvement will be likely to feel shut out from what is happening and adopt a sceptical and critical stance. As a result, execution will not be supported by people, and it will be more likely to fail.

Whilst this needs to be balanced with the need to deliver an execution approach efficiently, to respond to market demands and opportunities, which is rightly the job of executives, great transformational value can be created by engaging a representative group of managers and staff on the process which is about to take place. To include them in this by assigning tasks for planning, design and problem solving is an effective way to gain their support, and turn them from critics of change into its promoters, which is the biggest force for positive change that any leader can hope for. This process requires know-how, and may demand the use of independent experts to help back the right idea, set up for success, deliver excellent execution and reap the rewards. The process itself requires design, to tailor it for the needs of the transformation, and facilitate its execution drawing on experience of the human aspects of transformation. People are more likely to share their insight in safe environment, and building credibility and trust is fundamental to that.

In these three mini-articles this week we have looked at the critical elements required for transformation – let’s recap the critical elements from all 3 parts, including metrics, reward and collaboration discussed in this Part 3. Different executives and managers will naturally tend to have one or more of the elements of transformation at the forefront of their mind depending on their own working style and background. There are usually certain aspects which will be a potential blind spot for the executive, or maybe even the organisation’s specific culture and history. This is where the risk of change manifests itself, and it is often helpful to have a fresh assessment of where the gaps may be in transformation plans – in summary:

• Clear Business Goals – have they been analysed to identify how much change is needed to deliver them, and are they relatable to managers and the day-to-day work of staff?
• Optimal Governance and Decision-Making – has thought been given to the best decision-making process, who will make decisions, and how to measure the effectiveness of decision-making?
• Effective Communication – have clear messages on the impact of change been sent across multiple channels, have you engaged managers and executives, and provided the opportunity for feedback?
• Robust Business Case – have enough resources been allocated to developing an evidence-based business case, and is this linked to a clear goal? Have financial stakeholders been engaged, the chances of success for different options calculated, and actions to manage key risks been identified?
• Operational Structure – have alternative structural models been considered in terms of divisional autonomy, a top-down or bottom-up approach to innovation, and what is the best way to organise to respond to customers?
• Mature Business Capabilities – has the strength of current capability been assessed, and has the new capability necessary to deliver transformation goals been identified? Have services, processes and skills required to deliver that capability been designed?
• Metrics That Matter – have transformational goals been expressed as clear KPIs which enable measurement of day-to-day progress, and is there a simple balanced scorecard to measure the impact of change?
• Intrinsic and Extrinsic Reward – do KPIs cover intrinsic and extrinsic motivations, and are they clearly cascaded through the management structure, as forward-facing short-term objectives which enable staff to measure their contribution to a long-term goal?
• Collaboration and Ownership – has planning and design of the above transformation elements been done collaboratively with executives, managers and staff, so that they own the vision and the roadmap for excellent execution?

This concludes our three-part series on critical elements of transformation. Tomorrow all three pieces will be published in one document for your future reference.

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Sources:
(1) The Balanced Scorecard, Kaplan and Norton, 1992