There is a concept in the field of organisational learning, known as the competency trap, writes Conor McCarthy, Director Consulting with KPMG in Ireland.

In short, this occurs when a business is good at doing something, so it keeps doing that same thing, without one eye on the future. The business becomes reluctant to stand-back and reassess where it is going. It waits for a more appropriate time. For that business, the decline becomes almost inevitable, especially when the pace of change in the world around us is so rapid.

In 2005, video rental giant Blockbuster was a thriving business, built on hard copy video rentals with punitive late fees comprising valuable additional revenue. Blockbuster was competent but reluctant to stand-back, refresh their strategy and amend their operating model. They wanted to wait and gather more information before assessing where their business needed to improve. Five years later, Blockbuster was bankrupt, with Netflix emerging as the customer-centric dominant force, through their digitally distributed video content.

In 2013, Netflix itself was thriving and ultra-competent. However, it was at that point in time that the business made the bold move from simply distributing content. It decided to become a leading producer of original content that could win Emmys and Oscars. Over the ensuing six years, the revenues at Netflix went from c €4bn per annum to c €20bn per annum, even as other viable content distributors emerged.

There are numerous other examples.

In 2013, Dell shifted from being a hardware focused company to being a revolutionary cloud business integrating EMC’s storage management, tripling its value from that time.

In 2015, Neste, a regional oil and gas company, took a long, hard look at declining price of natural gas as a fossil fuel in the face of climate action and transformed into a global leader in renewable biofuels. 

The stand-back

In each of these examples, the successful transformation was undertaken by harnessing the power in the core business, whilst at the same time repositioning for new growth. Over the last number of years, this trend has followed through in Ireland, and in Cork in particular, with many of the larger and some of the successful, medium sized organisations engaging in similar transformations appropriate to their size and business lifecycle stage.

The starting point is always the stand-back. This requires the business to re-evaluate where it is going. Invariably, a senior management team will consider disruptive external/market forces versus known internal requirements and available resources, as part of a strategy review. The past few months have seen this exercise brought forward as a necessity for most businesses, as they responded to the Covid-19 situation through the standing up of a remote working capability across their organisation in short order. The stand-back question then became what opportunity or challenge this presented in strategic terms, e.g. reduction of leased office space or expectations around decreased pace (or indeed increased pace) of projects etc. 

The operating model

Once a senior management team get a collective handle on those medium-term opportunities, challenges or changes at a point in time, a new strategy is set. The operating model transformation must then follow.

An operating model transformation is essentially a shift across the appropriate mix of supporting levers which every business ‘tweaks’ from time to time. The typical list of levers most often comprises for example; the optimising of processes (perhaps supported by new digital or RPA solutions), further cost take-out through improved sourcing or the streamlining of the supply chain, an evaluation and mapping of existing capabilities/people, an evolution of how performance is measured and the performance management approach, a renewed focus on customer centricity, a revised approach to data/systems management and a streamlining in governance, policies and controls. Having considered all those levers and which ones require most attention, the transformation generally culminates in a refresh or a redesign of the organisation structure.

In the absence of an overarching evaluation across all the operating model levers, organisations can get dragged into a situation whereby one or maybe two operating model levers get ‘tweaked’ at various points in the business lifecycle.

This can often depend on which internal advocate or external advisor shouts the loudest at a given point in time. Such an uncoordinated approach can result in a myriad of internal ‘strategic projects’ in a business at various stages of evolution. Various special purpose project teams get set up, all competing for the same finite resources, often with a combined cost that is much greater than it should be.

By taking an amalgamated view of the operating model, an organisation puts itself in a ‘helicopter position’. This oversight allows energy to be focused on the operating model levers which will have the greatest impact for that business, without neglecting the consequences any transformation or change will have elsewhere in the business. It recognises that not all levers need to be pulled in the same way, or at the same time, but that each operating model lever has a knock-on effect. 

The role of culture

Over the last number of years, some of the more progressive operating model approaches in Ireland have seen an elevated focus on culture and the change management methods required to successfully implement the transformation. With any transformation, there will be inevitable expectations around changed behaviours. How these expectations are invoked in the business requires careful consideration, but it is necessary. Otherwise, ‘the way we’ve always done things’ can prevent the necessary changes from being implemented successfully.

The transformation programme must work with and through the existing culture of the organisation to effect the changes required, rather than seek a change in the culture upfront. Starting with the existing culture (good or bad) and engaging the political and social influencers is an oft-neglected but vitally important step. The people who will ultimately be affected by the change need to effect the change.

Starting from the bottom up, these colleagues need to be listened to and more importantly need to feel listened to. They need to become part of and advocates for the improvements in the business. The most advanced approaches will utilise a coaching skillset to ensure people feel involved in and become aware of the need for change in equal measure.

When executed effectively, this becomes a guided discovery approach wherein the required changes become almost self-directed by the workforce. Without these advanced engagement techniques, many programmes will struggle to overcome the industrial relations and employment law challenges that will otherwise occur.

What does Culture Work look like?

One size does not fit all and so the most appropriate starting point is the fundamental need to understand the current culture in the organisation. An initial culture diagnostic (with as much rigour as possible) is therefore a very worthwhile exercise prior to the commencement of any transformation programme.

Based on these results, a compelling vision and a simple case for change that will resonate with the business can be established. A sense of urgency and a carefully selected internal project team become key ingredients for success.

An appropriate comms and engagement approach, with a focus on ensuring the short-term wins are felt across the business supports the implementation. Most of all, visible and aligned leadership needs to be present.

To that extent, any culture change practitioner should operate like a good sports psychologist, working with and through the leadership of the organisation, as opposed to standing in front of them. It is vitally important that senior management are the ones leading the effort and that they are also the ones to be seen to be leading it. Albeit with the confidence of a supporting methodology and sound project plan in the background. 

Knowledge and skills transfer

Inevitably, the enduring knowledge/skills transfer into the business becomes the capstone for any operating model transformation. For that very reason, many transformation programmes are now seeing a tendency towards the stand-up of a Transformation Management Office (TMO) as a ‘leave-behind’ in the organisation, after the transformation programme has ended.

Unlike Project Management Offices, such TMOs usually have a mandate to maintain directive control over a broader suite of future internal change projects, acting almost like an internal mitigant against the competency trap.

These TMOs allow the business to focus on business as usual while they keep one eye constantly fixed on future threats and opportunities. The TMO will also protect the business against the risk of various projects being initiated in an ad hoc manner by ensuring that appropriate business-casing is maintained around the initiation of all significant change projects, with a consistency in approach, oversight in regards to the balancing or rebalancing of budget between these projects, as well as general directive oversight as appropriate.

In the last few months, the way we do business has changed. In that fight for survival, many organisations could not afford to take a stand back, see where they were going and consider their operating model. It was not the right time. Now that the dust has settled, very few businesses can afford not to.

This article first appeared in the Irish Examiner, and is reproduced here with their kind permission.

Conor McCarthy

Conor McCarthy

KPMG in Ireland
+353 87 137 3646