Most Transformation initiatives fail to achieve their anticipated objectives.
Change Management is all about engaging and rallying people — at all levels in the organization — to make the transition and sustain that change. It is critical to ensure that the entire workforce is eager and ready to embrace the required new behaviors. More often than not, the technical side of a change initiative is well planned, but it’s the implementation part that fails — particularly, changing the mindsets and behaviors of the entire workforce to enable change to stick.
Managing change is not an occasional affair; it is an iterative process that works on motivating human behavior to accept and adjust to a desired state of mind. The process is naturally evolving as it adapts in accordance with the feedback from the people.
Change Management demands a thorough yet organized approach to enable the “people side” of change to work — essential for accommodating and sustaining Business Transformations. This entails assisting people incorporate new mindsets, processes, policies, practices, and behaviors.
A methodical approach to make the entire workforce accept and support change constitutes 8 critical levers:
- Defining the Change
- Creating a Shared Need
- Developing a Shared Vision
- Leading the Change
- Engaging and Mobilizing Stakeholders
- Creating Accountability
- Aligning Systems and Structures
- Sustaining the Change
Now, let’s discuss the first 4 levers in detail.
1. Defining the Change
The first step entails outlining the rationale, scope, and results of the change initiative for the enterprise, key departments, and roles. There is a need to define critical elements, including the requirements from the initiative, the execution planning, and the adjustments needed to encourage people to work better.
The project sponsors need to clearly outline the essence of the proposed Transformation initiative, to realistically embed Change Management into the design of the program, and develop effective Change Management plans. An initial baseline of the expected effect of the program on people should be performed. The baseline also helps analyze the impact of the change program — in terms of skills inventory, head-count indications, adjustments in accountabilities and relationships, shifts in incentives and pay structures, and future learning needs.
2. Creating a Shared Need
Once the change and its impact has been delineated, the next thing to do is to create a shared understanding of the rationale for Transformation across the organization. To create a shared need for the Transformation endeavor, the change sponsor needs to build awareness of the necessity for change amongst the senior team, key stakeholders, and the entire organization; demonstrate to the people the benefits of change; and set up a feedback mechanism across the organization. The alignment afforded by developing a shared need for change helps build a strong footing for Transformation.
3. Developing a Shared Vision
An essential element of implementing transformation entails delineating a clear vision that outlines critical actions and the anticipated outcomes. It helps in encouraging and involving the workforce in the Transformation initiative, giving them a sense of purpose by becoming a part of something bigger. The vision of the organization after Transformation should be coherent with the company values and mission.
4. Leading the Change
This lever entails developing change leadership and implementation skills needed to drive and enable sustainable change. Engagement and commitment of senior leaders is essential for leading change. They are responsible for planning their and the entire workforce’s actions, demonstrating or role modeling the new mindsets and actions, designating program sponsors — e.g., business unit leaders who are enthusiastic about the Transformation initiative and also act as change agents — motivating others to support transformation, and setting up a road map for the change leaders to steer the organization to achieve the anticipated performance milestones.
Interested in learning more about these levers to Change Management? You can download an editable PowerPoint on 8 Levers to Change Management here on the Flevy documents marketplace.
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Transforming a product-driven firm to a customer-driven enterprise is inevitable in order to stay ahead in today’s extremely competitive markets. The days of mass marketing, mass media communications, and little-to-none direct interface with customers are long gone. The emphasis, now, should be on maximizing customer relationships and becoming customer-driven organizations rather than merely selling products. The technological advancements of this age offer potent tools for organizations to utilize in order to engage with the customers directly; gather and mine information; and tailor their products and services appropriately.
Leading organizations are making huge investments in data analytics and transforming their strategies to focus on the customers’ evolving needs. They are striving hard to improve their customer retention and deepen their relationships utilizing rich customer insights, tailoring products according to the personalized needs of the customers, and presenting the offerings in a variety of store formats.
The Customer Department
To become customer-centric organizations, companies need to transform their traditional marketing function into a new unit called the “Customer Department.” The Customer Department should be created to deliver maximum profits to the customers and nurturing customer relationships instead of pushing products.
This necessitates transforming the organizational structure, culture, strategy, and reward programs in line with the shift in focus from managing transactions to cultivating customer relationships. Specifically, there is a need to add the position of Chief Customer Officer (CCO)—under the CEO—and various Customer Managers underneath the CCO. The roles and responsibilities of these positions should be:
Chief Customer Officer (CCO)
The most prominent shift in a customer-centric organization is replacing the traditional Chief Marketing Officer (CMO) role with the Chief Customer Officer (CCO) role. Reporting to the CEO, the CCO is primarily responsible for devising and executing the customer relationship strategy, directing all the client-facing roles, and fostering a customer-driven culture in the organization. The main tasks of the CCO position include ensuring smooth flow of customer information, increasing productivity utilizing various metrics, and regularly interacting with the customers to understand their concerns.
In a customer-centric organization, the Customer Managers (CMs) are in charge of various customer segments. They are accountable for enhancing the value of a customer relationship by ascertaining customers’ product needs. To make this role effective, there is a need to realign resources—people, budgets, authority—from product managers to the CMs.
The main tasks of the CM position include defining customer needs, extracting and interpreting customer insights utilizing various sources—e.g., mining customer forums, blogs, and online purchasing data—, and striving to improve the lives of the customers.
Additional Responsibilities of the Customer Department
Customer-centric organizations make the Customer Department accountable for some of the critical customer-facing functions which were once considered an integral part of the Marketing Department. These functions include:
- Customer Relationship Management (CRM)
- Market Research
- Research & Development (R&D)
- Customer Service
Customer Relationship Management (CRM)
Traditionally, the CRM function belongs to the Information Technology Department owing to the technicalities involved in managing the CRM systems. The function demands evaluating the customer requirements and behaviors—which is a core function of the Customer Department alongside gathering and analyzing data necessary to execute a customer-development strategy.
In customer-centric organizations, the Market Research function goes all the way from the marketing unit to other units that deal with customers—e.g., Finance for payments, Distribution for delivery. These organizations take a more granular view of customers’ behaviors, and gather and incorporate clients’ feedback to further improve customer lifetime value and equity.
Research & Development (R&D)
The R&D function should also report to the Customer Department, as, nowadays, the traditional R&D-driven new product development models are conceding to creative collaboration between the client (users) and producers. It’s not a good idea anymore to pack tons of features into a product and cause feature fatigue to customers. What’s more appropriate is to seek and incorporate customers’ input into product features by involving them into the product design process.
Customer Service (CS)
CS is another function that should be handled by the Customer Department to guarantee quality of service and to nurture long-term relationships. This important function isn’t worth outsourcing overseas as this often causes negative impact to the clients and organizations alike, due to poor customer service.
Interested in learning more about Customer Metrics, Customer Department, and Customer-centric Organizations? You can download an editable PowerPoint on Customer-centric Organizations: The Customer Department here on the Flevy documents marketplace.
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Changing the behaviors of people is the foremost issue with every transformation initiative.
Nudge theory is a novel Change Management model that underscores the importance of understanding the way people think, act, and decide. The model assists in encouraging human imagination and decision making, and transforming negative behaviors and influences on people. The approach helps understand and change human behavior, by analyzing, improving, designing, and offering free choices for people, so that their decisions are more likely to produce helpful outcomes for the others and society in general.
Nudge theory helps reform existing (often extremely unhealthy) choices and influences on people. The theory is quite effective in curtailing resistance and conflict resulting from using autocratic ways to change human behavior. The model promotes indirect encouragement and enablement—by designing choices which encourage positive helpful decisions—and avoids direct enforcement. For instance, playing a ‘room-tidying’ game with a child rather than instructing her/him to tidy the room; improving the availability and visibility of litter bins rather than erecting signs with a warning of fines.
Organizations are increasingly using behavioral economics to optimize their employee and client behavior and well-being. Nudge units or behavioral science teams are being set up in the public and corporate sectors to influence people to address pressing issues. For instance, to increase customer retention by changing the language of support center staff to motivate customers to consider long-term benefits of a product; or to make employees to follow safety procedures by placing posters of watching eyes to remind them of the criticality of the measure.
An effective Nudge initiative necessitates much more than deploying a few experts in heuristics and statistics. The senior leadership should lay out a conducive environment for successful behavioral transformation. This entails assisting the Nudge unit to focus, place it appropriately, create awareness, train and de-bias people, implement effective rewards, and follow high ethical standards.
The leadership needs to think about and prepare to tackle 6 key challenges Nudge units face when implementing effective behavioral transformation initiatives:
- What should be the focus of the Nudge unit?
- Should the Nudge unit be placed at the headquarters or at the business unit level?
- Which resources be made part of the Nudge unit?
- What are the critical success factors to consider for the unit?
- How to communicate the results and early wins?
- What should be done to tackle skepticism and resistance to change?
Let’s, now, dive deeper into the first 3 key challenges.
What should be the focus of the Nudge unit?
The foremost action in creating a Nudge team is to clearly spell out the value proposition for the unit. The leadership needs to define the purpose of creating a Nudge unit. They need to clearly outline whether the Nudge team will focus on employees, on customers, or on both. For instance, the purpose of its creation could be to deal with workforce motivation, to make better decisions in boardrooms, to increase the internal capabilities, or to improve the behavior of employees. The focus on customer issues, for example, entails encouraging better pension provision, inculcating behavioral science into the marketing mix, or to analyze the experiences of customers and employees—e.g., in-store service initiatives, digital operations, and HR processes.
Should the Nudge unit be placed at the headquarters or at the business unit level?
The second challenge is to decide where to deploy the Nudge unit. The placement of the Nudge unit depends on the strategic purpose of creating the unit. At some companies, it is housed centrally within the corporate headquarters as a global Nudge operations center; a few have accommodated the unit within the R&D or marketing department; some have benefited by moving the unit away from the corporate center so as to be closer to products and services; whereas other practitioners believe that the customer-focused behavioral science team should sit within the product management domain.
Regardless of where the Nudge unit resides, its flexibility and assimilation with other methods of behavioral change—e.g., cognitive neuroscience, social psychology, and personality-trait science—are critical.
Which resources be made part of the Nudge unit?
Another critical element for the success of the Nudge unit is hiring and deployment of right resources. At the commencement of the program when key capabilities are typically not available in-house, most organizations hire people from the outside for their Nudge units. A few companies have recruited solely from the in-house due to the criticality of institutional knowledge and the long learning curve required to acquire it, whereas some have recruited across different geographies. On average, the unit comprises of 3 to 8 members, however, larger organizations can have more people scattered globally.
The ideal composition of the Nudge team is to include behavioral scientists and specialists in psychology, marketing, and advanced data analytics. The team should include people with the right attitude and abilities—e.g., curiosity, can-do attitude, problem solving, entrepreneurial mindset, ownership, and communication skills.
Interested in learning more about the Nudge Theory? You can download an editable PowerPoint on Nudge Theory: Key Challenges here on the Flevy documents marketplace.
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Stiff market competition, expansion into new territories, product portfolio extension, and gaining new capabilities are the prime reasons why more and more organizations are seriously looking into the prospects of—and carrying out—Mergers and Acquisitions. However, only a few M&As achieve their desired revenue objectives.
Revenue Synergies are a decisive factor in closing such deals. However, identifying precisely where these Revenue Synergies lie and then capturing them isn’t as easy as it sounds.
A McKinsey study comprising of 200 M&A executives from 10 different sectors revealed that all the respective organizations of the respondents remained short of achieving their Revenue Synergy targets (~23% short of the target on average). Securing Revenue Synergies is a long-term game. The companies that succeed in securing Revenue Synergies achieve the target in or around 5 years.
Leaders aspiring to achieve Revenue Synergies should first clarify the objectives from and the schedule of the revenue synergies, lay out the organizational priorities and go-to-market strategies, remove obstacles from realizing value, and gain across the board readiness and commitment for the initiative. Organizations that are most successful in securing revenue synergies pay close attention to these 7 guiding principles during the Post-merger Integration process:
- Source of Synergies
- Leadership Ownership
- Customer Insight-driven Opportunities
- Salesperson Driven Strategy
- Ambitious Targets and Incentives
- Sufficient Support
- Performance Management
These 7 guiding principles to capturing Revenue Synergies are critical for effective integration of two firms after a merger and unlocking potential benefits from the deal. Let’s discuss the first 3 principles in detail now.
1. Source of Synergies
The inability of the leadership of the acquiring company to spot major sources of revenue that integration brings in results in losing significant pools of opportunity and failure of M&As. Realizing Revenue Synergies demands a thorough methodology to ascertain and qualify revenue prospects along markets and channels, Go-to-Market Strategies, and developing commercial capabilities. This entails:
- Evaluating customers and markets, selling offerings of the combined firms utilizing existing and additional channels, and adequately training and rewarding the sales teams.
- Coming up with innovative new products and bundles utilizing combined R&D capabilities.
- Sharing best practices and commercial capabilities that mergers offer.
2. Leadership Ownership
Organizations that accomplish their Revenue Synergy objectives guarantee that their top management and employees commit themselves fully to the initiative from the onset. They identify potential value pockets from the integration, examine the assumptions about securing value, and get them endorsed by the senior management and front-line staff. The potential Revenue Strategies are regularly evaluated by inter-departmental experts.
3. Customer Insight-driven Opportunities
Accurate estimation of Revenue Synergies demands top-level estimates—assumptions on market share gain, revenue enhancement, or improved penetration—alongside comprehensive bottom-up customer insights, and evaluation of customer relationships. Other important elements to consider include analyzing the offerings being offered to customers, discerning other potential products and services required by the customers, and assessing the ability of the sales team and brands in terms of the potential they offer to the clients.
Interested in learning more about the other guiding principles of securing PMI revenue synergies? You can download an editable PowerPoint on Post-merger Integration (PMI): Securing Revenue Synergies here on the Flevy documents marketplace.