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  4. How do you know when you need a business transformation?
21 October 2016 08:00:11

How do you know when you need a business transformation?

Thanks to emerging technologies, disruption and social media, customers are aware of the best and want an optimum experience from every organisation they deal with. Source: Transforming to a customer-centric future.

KPMG partner Ron Gardoll says this is triggering a raft of transformation projects with customer needs and benefits at the core. In Australia, 28 per cent of organisations are completing at least one major change, and 25 percent have started a transformation initiative within the past 2 years says Gardoll. "Customer centricity is a driver in both the government and private sectors. One of the drivers is the understanding that customer expectations and perceptions have been rewritten by social media and the use of tools that give customers what they want immediately," he says.

Gardoll describes a transformation as a fundamental change in an operating model, which could be strategic and long-term, or reactive to unexpected movement in the marketplace.

Personally, I believe measuring key operating and future outcome criteria provide the platforms for assessing the health and future performance of an organisation’s business model. KPIs must also cover today and how you visualise the shape of your success going forward.

In my opinion, transform before your competitors. A relative comparative KPI analysis of your performance against major and emerging competitors should provide a sound platform for board-level decision-making on when, where and how to focus your transformation effort.

In my experience, organisations have inadequate metrics to drive their futures. Financial ratios only generally measure history and assumption-based forecasts. It’s the qualitative measures around competitive capability and customer perceptions of your performance that are going to be just as critical, because these are lead indicators of your future survival.

Mature and stable businesses require an ongoing process of transformation to keep ahead of their competition

If you can institute comparative measures around customers’ perceptions of the strength of your value proposition, customer satisfaction, loyalty and brand preference, these will help you assess strategies for market share protection and penetration, growth, margin optimisation and ultimately EBIT and free cash.

Weak performers attract predators. Strong performers keep aggressors at bay

Better to find out if you’re weakly positioned for the future through appropriate metrics now — and take appropriate action — than a reactive response to aggressive moves from a major competitor.

Maile Carnegie, Group Executive – Digital Banking at ANZ and former MD at Google Australia & NZ says: "In today's world, if you aren't a tech company or if you are not rapidly becoming one, then you're going to be in big trouble.

To win in the 21st century you have to create an innovation engine — one that looks very different to what was built in a winning company in the previous century. Disruptive technology firms and global giants such as Apple are challenging traditional markets, including banking. This isn't a new thing — just like the telephone saw the end of telegraphs and Wikipedia saw the end of encyclopaedias. What's important is you continue to transform so you can remain relevant for your customers.

Don't look at companies like Netflix or Uber and try to shoe-horn their solution to fit your company — typically, that will fail. Look at the overall risk profile and culture of your company and the industry you're in, then tailor a solution that will work for you and your customers," Carnegie concluded.

Andrew Ward, a successful transformation leader who has led multiple major transformation programs at McKinsey & Company and is currently working at Fletcher Building, believes that businesses frequently make the decision to transform too late.

In addition to the financial benefits, successful transformations typically build strong decision making processes, as well as high levels of organisational alignment and accountability.

"Mature and stable businesses require an ongoing process of transformation to keep ahead of their competition. Often business leaders will wait to see signs of decline to trigger a transformation, by which time the opportunity to truly transform the business becomes more limited. In those situations transformation will typically be more focused on cost reduction rather than taking advantage of the full set of potential opportunities to drive business performance. A successful transformation will include a framework to assess and prioritise all available opportunities and execute the most attractive opportunities at pace," he added.

Transformation skills and practices are critical to running a successful modern business and Ward believes business leaders should be looking to continually hone these within their organisation.

"In addition to the financial benefits, successful transformations typically build strong decision making processes, as well as high levels of organisational alignment and accountability. A company in transformation will typically strengthen the skills of its leadership and, in turn, deepen its talent pool and increase employee engagement. By getting in early with transformation, leaders can more fully leverage these benefits for their businesses" he concluded.

I believe there are some key customer-centric-based issues that help to define the moment and trigger some reflection for the future. These will vary according to the type of business and industry:

  • Do your customers think the company’s performance is superior to major competitors in key markets?
  • Is your competitive advantage strong enough to leverage more customers and more business from existing customers going forward?
  • Is profit growth by key customer segment in the current demand cycle better; compared with the average of the last three years?
  • Is the growth in the number of new customers stronger, compared to last year?
  • Is nett customer dilution under control?
  • Are customer contract or tender win-rates better than last year?
  • Is the ratio of sales to employees increasing, versus last year?
  • Is the regular introduction of new product revenues and margin growth strong enough?
  • Is the introduction of innovative value-added services for customers faster than the opposition?
  • Is customer satisfaction and loyalty better than last year in key market segments?
  • Is the quality of relationships with customers and stakeholders better?
  • Is the effectiveness of promotional activities to generate customer leads on track?
  • Is the quality of marketing support adding value to customers?
  • Are you throwing off adequate free cash to reinvest in opportunities as customer needs evolve?
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