Planning and Implementing Transformative Change Translating Strategies into Effective Operational Plans
The Unique Alternative to the Big Four ®
Businesses spend significant time and effort developing and refining their corporate strategies, yet often struggle to translate those strategies into effective operational plans. Many struggle even more when it comes to prioritizing and executing these plans. To overcome this challenge, executives must be able to identify and prioritize those initiatives that are most promising for producing real results. At the same time, however, they must also recognize the need to operate within the boundaries of the organization’s business assets including human, organizational, financial, and informational. Even more important, they must possess tools and techniques that enable prompt follow-through, successful execution, and measurement of financial and performance outcomes, while maximizing the effective use of these assets. In short, they require a truly transformative change that empowers their companies to make the leap to the next level of performance and achieve not just satisfactory, but superior results.
Planning and Implementing Transformative Change
An Industry Challenge: Making the Transition to a New Level of Performance
Kaplan and Norton argue these shortcomings stem from “failure to balance the tensions between strategy and operations,” and they conclude that, “breakdowns in a company’s management system, not managers’ lack of ability or effort, are what cause a company’s underperformance.”
Former General Electric CEO Jack Welch once observed, “I sat in rooms for years, looking at promising strategies that never delivered results.”1 That experience undoubtedly sounds familiar to a large number of executives, especially during a difficult economy. Even before the most recent downturn, most would admit having at least some doubts about their company’s ability to actually execute their strategies.
Many executives would instinctively agree with this assessment, but nevertheless remain stymied in their efforts to meet the challenge and successfully translate strategies into action. For some, the failure to execute strategy manifests itself in a growth plateau, where the company struggles to reach the next level as it encounters challenges that limit its size, scope, and complexity. Others hit an operational “wall,” encountering increases in claims, service complaints, bad debt, or other unexpected breakdowns.
“I sat in rooms for years, looking at promising strategies that never delivered results.” According to Robert S. Kaplan and David P. Norton, who developed and popularized the “balanced scorecard” management system, failure to achieve strategies is a pervasive problem in contemporary business. In a recent Harvard Business Review article, they note, “Various studies done in the past 25 years indicate that 60 percent to 80 percent of companies fall short of the success predicted from their new strategies.”2
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In some cases, companies have a reasonable and promising strategy to break through and reach the next level, but are uncertain where to begin and unable to overcome inertia to get started. Even if they are able to accurately identify the best initiatives, their ability to effectively execute and gain full or longterm adoption remains sporadic, at best.
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The Need for Transformative Change The inability to successfully execute strategy is more than merely a source of frustration; it can threaten the very survival of a business. Companies in this situation often launch a series of one-off projects, using various skills and disciplines with which they are already familiar such as business intelligence, quality, lean manufacturing, vendormanaged inventory, and other specialized tools. Some of these initiatives help, but only to a limited extent, because the chosen initiative may address only a fraction of the full set of issues required for success. Moreover, businesses typically have no strong process to ensure they have chosen the best starting point and the best, full set of initiatives. An approach that fails to accurately assess the potential payback of a full suite of alternative initiatives not only runs the risk of failing to achieve results, it also runs the risk of missing critical opportunities and perhaps even exacerbating a problem. Well-intentioned but inadequately planned efforts can be counterproductive, with often disappointing outcomes such as:
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Setting turnaround expectations with ownership but then not realizing the results; Underestimating the complexity of the problem; Providing only one component of the overall solution that is needed to instill lasting change (for example, fixing the IT system but not dealing with needed organizational change, or focusing on process changes but failing to provide much-needed management system support that will ensure results are realized); and Inability to bring projects to a conclusion due to insufficient resources. What is needed is an approach that starts and ends with a clear business focus, beginning with clear identification of the desired business outcomes, and ending with the accurate tracking of the actual business results. This provides management with a mechanism to choose the most appropriate and highest ROI alternatives to execute. The process needs to provide a strong monitoring system to track realization of the targeted results. To be successful, such an effort ultimately must establish a “new normal” – that is, a new, accepted method of operation that truly transforms the organization into a high-performing entity.
Planning and Implementing Transformative Change
Impediments to Success There are many reasons why companies fail to accomplish transformative change, and instead struggle with incremental, uncoordinated initiatives. One common impediment arises when companies fail to take a broad-enough view of the challenges. Beyond this unnecessarily limited view, the company may also encounter a number of other frequent obstacles including: Limited resources (both financial and human); Competing and conflicting priorities within the organization; Individual executives’ inability to recognize the strategic implications of their initiatives; Lack of executive support or a powerful champion within the organization; Lack of clear and measurable business objectives; Problems linking the strategy to specific operational initiatives; Lack of a proper management system to sustain performance gains and perpetuate the new manner of doing business; and General resistance to change. One impediment to transformative change can be particularly difficult to recognize – and even more difficult to overcome. That obstacle is the false complacency that can emerge as a result of partial or limited success. Author Jim Collins summed up this challenge in the opening sentences of his popular book, “Good to Great:” “Good
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is the enemy of great. And that is one of the key reasons why we have so little that becomes great ... The vast majority of companies never become great, precisely because the vast majority become quite good – and that is their main problem.”3
Key Requirements for a Solution Recognizing the need to overcome such impediments to transformative change, Crowe began developing an approach to help companies step away from isolated or disconnected improvement projects, and instead take a broader view of the organization’s strategy and its implementation. The solution would need to begin with a high-impact review of the existing environment, followed by clarification of improvement targets and performance benchmarks, and identification of a series of potential initiatives to provide maximum impact. Then, the solution would need to prioritize these initiatives, based on their individual and collective ROIs and strategic impact, into a clear action plan that enables the organization’s leadership to begin implementing an appropriate mix of short- and long-term initiatives. Next, the solution would need to ensure that the plan can be executed successfully, taking into account personnel availability, executive commitment, and project interdependencies. A critical requirement in this regard would be the existence of a strong, effective management system to ensure that the chosen initiatives are executed effectively, and that the organization remains consistently attentive to ensuring the projected returns are realized.
The solution would be distinct from strategy and, in fact, would require a defined strategy as one of its key inputs. The goal was to move from the realm of strategy toward an executable implementation plan that would enable the organization to realize value faster, and at a higher level, by executing the right projects in the right sequence to get the maximum business results. In short, a transformative business results solution would have to be built, with the purpose of identifying and implementing major initiatives that achieve major change. It would need to help a company assess all the many elements related to strategy, organizational change, and advanced process improvement opportunities – encompassing the entire suite of potential initiatives that could be undertaken – and then provide an accurate assessment of the business impact each of those initiatives would bring to the organization. Finally, beyond prioritization, the solution must also enable the organization to move quickly in actually executing the chosen initiatives successfully over a 12 – 18 month period, beginning initially with some “quick wins” that create momentum and help engage the organization. These would be followed by longer-term initiatives that, over the course of the execution plan, would move the organization toward the enhanced performance level called for by the strategy.
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An Overview of the Solution: The Crowe Business Results Road Map The solution that was developed in response to these requirements became known as the Crowe® Business Results Road Map. Crowe’s road map projects follow a rapid, intensive approach and typically can be achieved on a sevenweek timetable. Despite the speed of the analysis and launch, the road map process is comprehensive and results-focused, generating an array of the highestimpact improvement projects. In addition to identifying potential new valuedriving solutions, the road map also identifies opportunities to build upon and incorporate existing projects and investments. This portfolio of both new and existing opportunities is organized into five basic categories: Products — including new product development, product profitability, item rationalization, stocking and customer service levels, quality, and portfolio mix projects; Organization — including programs designed to update personnel roles, organizational structure, responsibilities, business policies, intergroup dynamics, outsourcing, shared services, internal best practices, and risk management; Systems — including projects focused on business processes and system integration, as well as specific technology projects such as enterprise resource planning, business intelligence, forecasting, warehouse management, data collection, and document management;
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Pillars for Road Map Initiatives Products
Customers
Supply Chain
Customers — including initiatives that involve relationship management, forecasting, channel partners, service level agreements, customer collaboration, early access to customer ordering patterns, special terms/ royalties/rebates, and customer inventory visibility; and Supply Chain — including projects that affect suppliers, supplier-owned inventory, transportation, production, distribution centers, service level agreements, and contract management.
Organization
Process/Systems
Opportunities in these five categories are considered according to their impact on the company’s organizational, financial, operational, and strategic goals. For each possible initiative considered in the road map development project, Crowe and the client organization collaborate on a comprehensive list of key dependencies and risks, rating the maturity of current processes, projected business benefits, client resources required to implement, and critical success factors. The road map helps to effectively coordinate the delivery of these initiatives and deliver positive results, while also providing management with additional and valuable perspectives they would otherwise not receive.
Planning and Implementing Transformative Change
The Road Map in Detail: Key Deliverables By developing the road map in a collaborative manner, Crowe and the client can identify, define, and prioritize specific initiatives that yield the maximum impact in critical performance areas. The development and execution processes are generally organized into a series of elements:
Milestone or Triggering Event This is the occasion or event that causes the company’s ownership and top management to recognize the need for significant, transformative change. The spur to action may be driven by a variety of factors such as the conclusion of a new strategic planning effort, the recognition of a critical failure to meet financial expectations, entry of a new competitive challenge, a change in management or management philosophy, integration of a new acquisition, or some other triggering event. Defining Objectives The recognition of needed change is translated into a series of clearly identified and measurable business objectives. Typical examples include cutting a critical line-item cost by a defined percentage, improving customer satisfaction scores by a specified metric, achieving targeted revenue growth, or improving net profitability by an agreed-upon number. It is against these specific measures that the initiatives will be selected and project success will be judged. Identifying Initiatives Crowe and its client work through a rapid and holistic exploration phase in which they identify a series of potential initiatives that could be undertaken by the organization to realize these results. The strong list of defined potential solutions to business problems are categorized into a manageable number of “themes”, typically eight to 12.
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Road Map Initiatives and Projects
Business Performance
Foundation for Growth
Products New Product Development
H
H
M
H
H
M
H
M
M
Existing Product Management
H
H
M
L
L
L
M
M
M
Roles and Organization Alignment
H
H
M
H
M
M
M
M
M
Performance Management
M
H
M
M
H
M
L
M
L
M
Organization
Systems ERP System Replacement
H
L
L
M
M
H
H
M
Forecasting/Demand Management System
H
M
M
M
M
H
H
M
M
Document Management/Workflow Enabler
M
M
L
H
M
M
H
L
M
Reporting/Business Intelligence Framework
M
M
M
M
L
M
M
H
M
Systems Architecture, Integration & Optimization
M
M
L
M
L
H
H
M
H
Supply Chain Process Improvement S&OP Process Improvement
H
M
L
L
L
H
H
M
M
Inventory Management
H
H
M
L
M
H
M
M
L
Sourcing
M
H
L
M
L
H
L
M
M
Service Quality
L
M
M
L
M
L
M
M
H
Returns
L
H
H
L
M
L
M
L
L
Additional Projects (identified post-review) New Distribution Center Assessment
M
H
L
M
H
H
M
M
L
Transition to 3PL
H
H
L
M
H
H
M
M
L
New Brand Introduction
M
M
L
M
M
L
L
L
L
Although an actual heat map would typically display many more potential projects, this example illustrates the clear visibility and prioritization this useful tool provides.
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= CRITICAL = RECOMMENDED
Data and Analytics
Controls/Risk Mitigation
Repeatable Processes
Scalability
Customer Service
NP Launch Savings
Returns Improvement
COGS Reduction
Inventory Reduction
Heat Map
Planning and Implementing Transformative Change
Heat Map Crowe applies its experience to create an objective, intuitive matrix, known as a Heat Map, which demonstrates the anticipated impact of each possible initiative and compares it against the defined objectives. For many initiatives, this impact assessment may include a detailed business case showing the relative return on investment (ROI) and the speed with which the program can be executed. This heat map helps prioritize projects to execute, based on their assessed impact. For example, those in which the impact is assessed as “high” in three or more categories are classified as “critical,” while others are “recommended” for execution. This prioritization stage is important to help counteract many companies’ tendency to try implementing too many projects at once, resulting in none of them finishing satisfactorily. Business Justification/ROI Crowe applies its knowledge of the industry, financial modeling, and operational experience to work with clients to develop a detailed documentation and payback analysis that can be used to justify key investments with top executives and the board of directors. In certain situations, these projects may also serve as key inputs into incentiveoriented projects based on actual business results.
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Charter Development The objective assessment of the projects’ impact, as spelled out in the Heat Map, is then combined with other critical decision factors to produce a prioritized list of initiatives. These decision factors usually include: • Timing (ideally a mix of quick wins and longer-term projects); • Potential barriers to implementation; • Resource constraints (including financial and personnel limitations); • ROI; • Risks; • Strategic importance; • Interdependencies among various departments and divisions; • Possible overlaps with other initiatives; and • Sponsorship from key executives. These considerations lead to the development of a high-level resource plan, which identifies the available resources from the client, Crowe, and potential third-party participants. This resource plan will drive the next phase of the process: the production of the actual Roadmap document.
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• Expected business impact;
Road map The outcome of the effort is an agreedupon action plan that creates clarity, aligns people with the mission, and shows how actions will drive toward the broad transformative change that is the overall objective. The final road map identifies:
• Expected costs; • Action plans for implementation and next steps; and • Suggested executive and management responsibility for each initiative.
• Initial budgets and expenses for various projects’ execution;
As noted, it is important that the road map also incorporates the company’s existing portfolio of projects, and that it rationalizes any change to existing project priorities. Furthermore, as with any major change initiative, the benefits of performing each project must be considered in light of the
• Projected savings, revenue enhancement, or other benefits associated with the improvement projects; • Appropriate timing expectations given resources, risks, and dependencies;
consequences to the organization, such as the impact on financial and personnel resources. Crowe’s assessment and prioritization process identifies and articulates these effects. Additionally, the road map also identifies the consequences of not acting on an improvement initiative or acting on projects out of order.
ACME Supply Chain Improvements – All Projects Road Map New Product Development ERP, Forecasting Roles and Organizational Alignment Systems Architecture and Integration
Critical (8 projects)
Inventory Management Outsource to Third-Party Logistics Provider Distribution Strategy Program Management
Optimization EU Distribution Introduction Document Management Systems and Workflow
Performance Management
Existing Product Management Sourcing
Recommended (10 projects)
S&OP Process Improvement Returns
Reporting/BI Service Quality
0 – 6 months
10
6 – 12 months
12 – 18 months
Projects Led by Independent/ Third Party
Phase II
Company-led Projects
Go Live
Planning and Implementing Transformative Change
Execution The road map and the significant amount of supporting documentation represents the major deliverable at the conclusion of the seven-week development process. It is, in reality, only the first important step toward achieving long-term transformative change. The ultimate measure of the road map’s success is the actual implementation of the identified projects. Building on the high-level resource map developed in the earlier phases of the process, management is now able to quickly and confidently assign responsibility for each project and confirm the project’s priority in the overall improvement effort. Those initiatives assigned to Crowe for execution are managed using a rigorous program management methodology, based on established best practices in program management. The approach is summarized in a change management model that recognizes the importance of clarifying the need and expectations of change before implementation, and the necessity of confirming change with formal reinforcement to help ensure it remains in place.
Ensuring Results The Crowe Business Results Road Map is designed specifically to benefit those companies that are willing to overcome significant challenges in translating strategy into meaningful operational improvements, but do not have the resources that are typically available to multibillion dollar global organizations. In addition, several other critical attributes differentiate the Crowe Business Results Road Map from other efforts at implementing strategy. Among these are: The ability to translate broad strategies into pragmatic and achievable projects, complete with the processes and tools that are needed to track results; The rapidity of the effort, which produces a realistic, actionable, and prioritized implementation plan in a seven-week period; Crowe’s thought leadership, which helps clients identify threats and opportunities that often are “off their radar”; The comprehensive nature of Crowe’s assessment of both the current environment and the recommended road map, which encompasses a detailed breakdown of each proposed initiative including project goals, tasks, expected timing, expected cost, required resources, and projected impact; The consistency of client involvement and feedback, with steering committee updates that ensure progress is made on a weekly basis and that issues are proactively addressed; and
Finally, it should be noted that the Crowe Business Results Road Map differs substantially from traditional assessments, which often serve primarily to confirm issues that management already suspects are impeding success. In addition to identifying such problems, the Crowe Business Results Road Map spurs the search for root causes. It offers an approach that addresses problems in a practical, prudently managed process, while relating each initiative back to the company’s defined strategy and objectives. The Roadmap ultimately creates a portfolio of realistic, actionable projects that drive a focused improvement effort. By identifying the investment required to correct a weakness, the projected payback, an achievable timeline, and a specific execution strategy, the road map helps clients achieve the transformative change that is required in order to turn sound strategy into measurable and lasting performance improvement.
1 Jack Welch, Jack: Straight From the Gut,
Warner Business Books, 2001, p. 383 2 Robert S. Kaplan and David P. Norton,
“Mastering the Management System,” Harvard Business Review, January 2008, http://hbr.harvardbusiness.org/2008/01/ mastering-the-management-system/ar/1 3 Jim Collins, “Good to Great”, HarperBusiness,
2001, p. 1
The assurance of identifiable improvement, as evidenced by Crowe’s willingness to condition a portion of its remuneration on the ability to identify agreed-upon savings opportunities and achieve measurable project results. www.crowehorwath.com
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Contact Information
About Crowe
Doug Schrock is a principal specializing in advisory services in the manufacturing and distribution industry with Crowe Horwath LLP. He can be reached at 317.706.2643 or doug.schrock@crowehorwath.com.
Crowe Horwath LLP (www.crowehorwath.com) is one of the largest public accounting and consulting firms in the United States. Under its core purpose of Building Value with Values®, Crowe assists public and private company clients in reaching their goals through audit, tax, risk, and consulting services. With 25 offices and 2,500 personnel, Crowe is recognized by many organizations as one of the country’s best places to work. Crowe serves clients worldwide as an independent member of Crowe Horwath International, one of the largest networks in the world, consisting of more than 140 independent accounting and management consulting firms with offices in more than 400 cities around the world.
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