Chapter 4

Defining Your Transformation Objectives

In This Chapter

Understanding the need for transformation

Identifying your breakthrough objectives

Putting together a Transformation Charter

In transforming an organisation, you’re looking to achieve something specific and substantial. This transformation can mean switching focus from one market sector to another, entering an entirely new market, streamlining the organisation, or performing at a previously unprecedented level.

Throughout this book we focus on business transformation through Lean Six Sigma. Whilst this focus doesn’t preclude any of the above types of transformation, it does tend to focus effort on transforming business performance in some meaningful way. The best starting point is to have one clear corporate objective (or at most a couple) that is fundamental to sustained future success. That objective has to be established with and agreed among key stakeholders; it also has to be set out in an unambiguous way to communicate the key points to everyone involved in the transformation process. The Transformation Charter is an appropriate way to communicate this information (see the later section ‘Creating a Transformation Charter’ for more details). This chapter looks at how to develop and define the key transformation objectives.

Identifying Your Need

You’ve identified that you need to make a substantial change in your organisation. Very often (but not always) the desire for business transformation stems from the need to address a ‘burning platform’ (that is, urgent) issue, examples of which include:

• Unacceptable levels of customer churn – with the associated high cost of acquiring new customers to replace those leaving
• Systemically low efficiency or reducing profit margins
• Interventions by industry regulators

You don’t have to be facing a problem of crisis proportions to make the need for a transformation surface, however. Other reasons include:

• The need to create competitive advantage through sustained levels of efficiency or customer satisfaction
• Changes in technology enabling radically new and different business models
• New market opportunities (in new locations or market sectors, for example)

Maybe a combination of opportunities and problems is what’s driving your need for a business transformation. Whatever your motivation for seeking a transformation, it needs to tie into the strategic objectives of your organisation.

Spotting longer-term corporate objectives

The overarching strategic objectives of your organisation may define your transformation objective. Although the corporate objectives are likely to be at too high a level to form transformation objectives themselves, they can help to identify where transformation is required.

Start by listing the core longer-term objectives that define the approach to business over the next few years. The trick is to keep these objectives simple, balanced, yet comprehensive – written in a way that does not prescribe how they are to be achieved.

Management guru Peter Drucker suggests that corporate objectives should cover eight key areas:

• Market standing – Market share, customer satisfaction, product range
• Innovation – New products, better processes, use of technology
• Productivity – Optimum use of resources, focus on core activities
• Physical and financial resources – Factories, business locations, finance, supplies
• Profitability – Level of profit, rates of return on investment
• Management – Management structure, promotion and development
• Employees – Organisational structure, employee relations
• Public responsibility – Compliance with laws, social and ethical behaviour

Hewlett-Packard provides a good example of corporate objectives:

• Customer loyalty

  We earn customer respect and loyalty by consistently providing the highest quality and value.

• Profit

  We achieve sufficient profit to finance growth, create value for our shareholders, and achieve our corporate objectives.

• Growth

  We recognize and seize opportunities for growth that build upon our strengths and competencies.

• Market leadership

  We lead in the marketplace by developing and delivering useful and innovative products, services and solutions.

• Commitment to employees

  We demonstrate our commitment to employees by promoting and rewarding based on performance and by creating a work environment that reflects our values.

• Leadership capability

  We develop leaders at all levels who achieve business results, exemplify our values and lead us to grow and win.

  Global citizenship

  We fulfil our responsibility to society by being an economic, intellectual and social asset to each country and community where we do business.

These are Hewlett-Packard’s corporate objectives, not its transformation objectives. However, they may help identify where transformation may be appropriate. Think about your own organisation and answer these questions:

• Is the company delivering best-in-class levels of customer satisfaction? Are customers loyal to the business? Is customer churn a problem?
• Is the current profit level generated sufficient to meet the expectations of shareholders or to finance the desired future growth of the business?
• Is the current rate of growth adequate to sustain and grow market share?
• Are regulatory bodies constantly challenging the company’s business standards and practices?

If your answers suggest that one or more corporate objectives are not being met, then you’re potentially facing a burning platform issue that may demand business transformation.

While corporate objectives should be regularly reviewed and refined, they should remain consistent over several years. It may be appropriate to add, modify or remove one or two objectives in any given year, but, if effective, most will remain unaltered for several years at a time.

Corporate objectives are those that relate to the business as a whole. They’re usually set by the Board or top management of the business and they provide the focus for setting more detailed objectives for the main activities of the business.

Factors that can influence these objectives include:

• Age of the organisation
• Size and legal status of the organisation
• Ownership (privately owned; stock exchange quoted)
• Views of owners and managers
• Market conditions
• Legislation
• State of the economy
• Competition
• Risk and attitude to risk
• Corporate culture
• Political factors
• Social attitudes

Working out corporate objectives

The devil is in the detail, and the next level of objectives needs to be SMARTer:

• Specific – The objectives should state what is to be achieved.
• Measurable – The results should be capable of being reliably and consistently measured.
• Achievable – The proposed strategy may be stretching, but should nonetheless be capable of being realised.
• Realistic – Any objective should be relevant and meaningful to the organisation.
• Time-bound – A deadline should be set for the achievement of the objectives.

The business-level objectives should relate more specifically to the organisation’s current and next financial year, rather than the longer term. Taking Hewlett-Packard’s objectives from the preceding section, these could be developed along the following lines:

• Customer loyalty: to be recognised this year as number one in our industry sector in the survey of customer satisfaction.
• Profit: to achieve a 12 per cent increase in earnings per share before taxes (and dividends).
• Growth: to increase the organisation’s turnover to £105m in the next financial year.
• Market leadership: to launch our next generation of online training products in the European marketplace by November of this year.
• Employees: to resolve the issues that emerged in last year’s Employee Satisfaction Survey by raising the Employee Motivation Index into the first quartile amongst those in the survey reference group.

Some of these corporate objectives will be more challenging than others; some may be critical to the continued existence of the organisation, others may be more routine, continuing to develop success at its natural pace.

You now need to distinguish breakthrough objectives from operational day-to-day objectives. Breakthrough objectives are those that, when executed, will transform the business. They’re distinguished from day-to-day objectives that, when executed well, simply deliver good but otherwise normal operational performance. Consider whether any of the corporate objectives you identify are addressing a burning platform issue like those listed in the ‘Identifying Your Need’ section earlier in this chapter.

Linking with breakthrough objectives

At this stage you should now have two lists of objectives:

• Potential breakthrough objectives – which should include any burning platform issues
• Day-to-day operational objectives

Hold the second set for now and concentrate on your first list. You now need to prioritise those objectives to identify the vital few. From these, you will in due course establish your breakthrough objective(s).

Focusing on the Vital Few Breakthrough Objectives

You’ll probably identify several possible breakthrough objectives – after all, you’ve more than one corporate objective. Success in improving your profit margins can require dramatic improvement in your customer service, which in turn may require a major change in the way your company is organised, and so on. Your possible breakthrough objectives are likely to be interconnected so, to avoid being overwhelmed with detail, try to focus on just the few drivers of success.

To achieve this focus:

• Identify any objectives or details that are outside the scope of the planned transformation
• Group together overlapping or related objectives
• Understand any cause–effect relationships between the objectives (to confirm which are fundamental)

Once you’ve focused on these points, you can identify these fundamental objectives as the vital few breakthrough objectives. You can then select the particular objective (or objectives) for the proposed transformation.

Looking at who should be involved

In going through the transformation process, you need to involve a wide range of people:

• Senior executives with leadership responsibility.
• Individuals with relevant expertise or a particular interest in the outcome.
• Capable change managers to guide the process. Facilitators need to focus on keeping things on track rather than being responsible for the content. Good facilitators will involve everyone and bring out the best from the team whilst ensuring a good outcome.

A workshop or series of workshops is most appropriate. Senior management has to buy in to and own the outcome, so involving them directly in workshops is highly desirable. Doing some preparatory work with a group of people working for senior management first may, however, be a good idea.

The next sections look at this process step by step.

Step One: Scoping

In this step, the possible transformation objectives, activities and elements are brainstormed by the workshop group, and the outcomes are discussed and reviewed. The aim of the scoping workshop is to establish what is definitely going to be part of the transformation effort – and what is not.

Use Rudyard Kipling’s honest serving-men below to focus your brainstorming session:

I keep six honest serving-men

(They taught me all I knew);

Their names are What and Why and When,

And How and Where and Who.

Your questions may cover:

• The customer and market segments
• The products and services
• The processes involved
• The people affected
• The computer systems involved
• The type and extent of the results in improvement that are expected

You can use a simple Lean Six Sigma tool to help identify what you will and won’t include in your transformation process – the ‘In Frame/Out of Frame’ tool (see Figure 4-1).

Using the In Frame/Out of Frame tool is a straightforward process. Follow these steps:

1. Draw a picture frame, resembling the one shown in Figure 4-1, on a flipchart.
2. Brainstorm the various issues and write each one on a sticky note.
3. Stick the issues in what appear to be the most appropriate positions.
4. Review and discuss unresolved issues – essentially, those items that are on the ‘frame’.
5. Make a decision on each of these issues that needs clarification and then reposition them individually either inside or outside the frame.

The workshop team should now have a list of agreed-upon issues to address in the proposed transformation. The next step is to structure these issues and turn them into specific transformation objectives.

While no limit exists on the number of items you should have left in the frame, limiting them to a workable number makes sense. Before going on to Step Two, go through the sticky notes again and eliminate any duplication, combining any issues that significantly overlap.

Step Two: Grouping

Now that you’ve established what’s in the frame, you need to review and structure that information. The Affinity Diagram (see Figure 4-2) is a useful Lean Six Sigma tool for doing so.

Ask participants to read the sticky notes placed ‘in the frame’ in Step One and then to consider whether any other issues need to be added.

When all conceivable issues are written on sticky notes, remove them from the In Frame/Out of Frame diagram and stick them on the wall. Now ask everyone, simultaneously and in silence, to move the sticky notes around, putting them into what they perceive to be groups or clusters of similar ideas or themes.

Additional sticky notes can be written at any time. Also, an idea may appear more than once and in different clusters.

The facilitator will determine when it’s appropriate to break the silence. Almost certainly particular sticky notes will need clarifying and the thoughts behind emerging clusters may need discussing. The facilitator will also determine when it’s appropriate to move to the next activity in this step. Get the workshop participants to agree on a definition or description for each of the clusters and write them down on sticky notes of a different colour. These definitions or descriptions are termed ‘headers’. Using the headers (together with the associated individual sticky notes), get participants to draft associated transformation objectives.

Write these transformation objectives on individual sticky notes (using suitable names for them) and repeat the Affinity Diagram process until you have a small number of groups of objectives.

Merge the individual objectives within each group into a single overarching objective that best describes what you want to achieve. Each of these grouped objectives could now be a breakthrough objective in itself.

You still need to decide which of these potential breakthrough objectives is (are) to become the vital breakthrough objective(s) on which to focus your improvement efforts. Two more steps will get you there.

Step Three: Recognising causal interrelationships

Now you have a small number of potential breakthrough objectives. These potential objectives are probably interrelated, and if you can identify how they’re linked you can establish whether some are secondary to others – that is, they’re causally linked – or whether in essence they’re parallel objectives.

For example:

• Causal linkage: ‘Improve efficiency by 20 per cent p.a.’ and ‘Reduce waste by 40 per cent’ are causally connected; reducing waste will inevitably contribute to improving efficiency.
• Parallel objectives: ‘Re-focus the company to become recognised primarily as a services company (rather than a hardware vendor)’ and ‘Establish the talent management required to support our re-aligned business’ are both necessary for the sustained success of a company whose overarching strategic objective is to switch from being a hardware manufacturer to a professional services company in the IT industry. The first is a breakthrough objective with a marketing focus; the second is a breakthrough objective with a human resources focus.

The Interrelationship Diagram (see Figure 4-3) is a useful Lean Six Sigma tool for identifying causal relationships between your potential breakthrough objectives.

Follow these steps:

1. Write the headers for the individual potential breakthrough objectives on separate sticky notes and place them in a circle on a flipchart.
2. Look at the stickers in pairs to determine whether a relationship exists. For example, if the objectives are labelled A, B, C, D and E, you start with A and look at AB, AC, AD and AE. Next you move on to B and look at BA, BC, BD, BE, and so on.
3. Draw a line connecting two headers if you spot a relationship between them.
4. Determine which of the connected objectives logically drives the other. Now turn the connecting line into an arrow by drawing an arrowhead on it that points towards the objective which is affected by the achievement of the other objective. Repeat this process for all of the objectives.
5. Count the ‘arrows out’ and the ‘arrows in’ for each objective. The objective with the most arrows leading from it is the one on which you need to focus. The other objectives are in essence subsidiary to the one you have selected. You should also be able to identify objectives that, although loosely related to others, are parallel rather than subsidiary.

Step Four: Selecting your transformation objective

You are now in a position to decide on the focus of your transformation efforts. You need to step back and look at the output pattern of your Interrelationship Diagram (see Figure 4-4).

• If you see one clear overarching objective to which all others are subsidiary – but without those others being particularly interlinked amongst themselves – select this one as your single transformation objective.
• If you see a pattern in which no single clear overarching objective is obvious but two or more clusters of interlinked objectives are evident, you may have more than one single focus for your transformation efforts.
• If you see a combination of these two patterns (one overarching objective and other objectives effectively split into distinct groups, interdependent within the groups but not between them), consider establishing separate workstreams for transformation but with each subsidiary to the overarching transformation objective.

Transformation workstreams

If you selected more than one single breakthrough objective that you need to address, it makes sense to establish parallel (but interconnected) workstreams. For the IT company introduced in Step Three, for example, its overall breakthrough objective might be: ‘To transition from an engineering company focused primarily on hardware manufacturing to a marketing-focused professional IT services company’. The workstreams for these two breakthrough objectives could be:

• Operational capability: Developing the business processes required to cost-effectively run the new business.
• Culture: Shaping a new culture consistent with the marketing rather than engineering focus of the new organisation.
• Talent management: Locating the right people to work in the new company, and providing support for current employees who may not be able to make the transition.

If you’ve selected just one overarching breakthrough objective, then just a single transformation workstream may be necessary.

Limit the number of separate transformation workstreams to three at the most. You will be concentrating your strategy deployment efforts from the workstream level (see Chapter 9) so having more than three parallel breakthrough objectives at any one time is likely to prove unmanageable in practice.

Creating a Transformation Charter

You now have your proposed workstreams and their associated transformation objectives. Now you need to ensure that everyone sees those objectives in the same way. Having everybody singing from the same hymn sheet is important with any major project; for a key transformation programme it’s absolutely vital. The Transformation Charter (sometimes also called an ‘A3’) is a very simple tool for making sure that everyone involved in the transformation understands it.

Ensuring it’s a living document

The Transformation Charter is a living document; it changes and develops in line with the programme. Version control will therefore be important. The first draft of your Transformation Charter may be a little fuzzy on the details and subject to confirmation, quantification and refinement. This first draft must be prepared right at the start of the transformation process.

If you have more than one workstream, consider having a summary overall Transformation Charter, together with more detailed subsidiary charters for each workstream. It isn’t necessary for the Transformation Charter to repeat details covered in the individual workstream charters; however, it will need to show how the workstreams are planned to collectively deliver the overall transformation objective, who is leading each workstream and, in due course, how they’re progressing.

Breaking down the contents

Let’s consider the contents of a Transformation Charter for an individual workstream.

Figure 4-5 shows an example Transformation Charter and illustrates the key elements. The Charter obviously starts with the transformation objective itself – known here as the Transformation Statement – and then builds on this to become the summary document communicating the purpose and plan for the transformation effort. The core contents of the Transformation Charter are:

• The name of the transformation programme
• The transformation vision
• The Transformation Statement
• Associated or collateral objectives
• Transformation outcome
• Business case
• Key people and their responsibilities
• Time plan

Let’s look at each of these in turn.

Name of the transformation programme

This name may be a code name, for example ‘Fit for the Future’ or ‘Programme Orange’, or it may be more suggestive of the nature of the programme, for example ‘Strategic Waste Reduction’.

If the existence of the programme is intended to be confidential for a period of time, then a code name is more appropriate than something descriptive. But once the programme is launched, a name that conveys its intent will be easier to communicate. In all cases, the programme name needs to fit the culture and style of the organisation.

Transformation vision

This is a clear statement about the desired outcome of the transformation effort. The statement needs to identify at least some of the elements that need to be changed. Visions secure commitment and support by helping people understand what needs to be done and why. Below are some example visions:

• ‘Our company will remain customer focused but with a new marketing-led culture. Our primary products will be the added-value IT services we deliver and we will no longer be dependent on sales of hardware products for the majority of our revenue.’
• ‘Waste will largely be a thing of the past. We will dominate our market through our ability to deliver products and services that are essentially defect and waste free and at a cost that no competitor can even approach, let alone match.’
• ‘Number one in every customer satisfaction survey, everywhere, all the time.’
• ‘Not a penny in regulatory fines. We will know that we are compliant in all we do, without bureaucracy.’
• ‘By next year and every year thereafter we will have the best profit margin in the industry, without compromising in any way.’

Consider the different perspectives of the organisation, its customers and employees, and other relevant stakeholders. The vision should be inspiring to both them and, in particular, to everyone working on the transformation effort.

You will have the opportunity to further clarify the vision when you work on the transformation statement and the business case. The vision aims to appeal to hearts and minds rather than being factual and specific.

Transformation Statement

This is a brief description that answers the question, ‘What is this programme seeking to achieve?’ Examples are:

• Reducing waste by 80 per cent year on year over the next five years
• Delivering the best customer service over the next two years

Associated or collateral objectives

This is simply a statement describing any other objectives directly associated with the main transformation objective. To avoid waffle and reduce the possibility of misinterpretation, try to describe each objective in fewer than15 words (this also applies to the main transformation objective).

Transformation outcome

Your Transformation Charter needs to spell out the desired outcome of the transformation process; for example:

• By January 2015, Acme plc will be delivering not less than 22 per cent net margin.
• JC Smith Ltd will secure an average increase of 70 per cent based on all customer feedback during the next financial year.

Business case

This statement should answer the questions, ‘Why is the organisation carrying out this transformation process?’ and ‘Why now?’ Example responses are:

• Without a sustained world-class level of customer satisfaction we will not be able to gain the profit margins needed to finance our planned business growth.
• Our business strategy calls for cost leadership; to secure and retain this we need to reduce the waste in our business processes by 80 per cent year on year, every year, for the foreseeable future.

Try to make your business case statement succinct. This is a tougher goal than the 15 words demanded in the transformation statement because the ‘why’ questions demand both context and explanation; nevertheless, keeping it to 25 words or thereabouts should be your aim. If more than one reason for the transformation exists, then try to identify the most important ones and then describe the others as secondary or collateral reasons.

Key people and their responsibilities

Draw up a list of the individuals responsible for each of the key roles in the transformation programme. For example:

• The transformation sponsor: This is likely to be the chief executive or another member of the senior leadership team.
• The programme director: This will be a senior manager who may be seconded full- or part-time to manage the operational aspects of the transformation programme. For a Lean Six Sigma transformation, consider appointing a senior manager who is already an effective Lean Six Sigma practitioner or champion. In larger organisations, this person should be a Black Belt or Master Black Belt; that is, they are already responsible for leading the deployment of the current Lean Six Sigma programme in the company.
• Key members of the programme management office: You need to establish a small programme office staffed by individuals seconded from within the organisation. This office should include people with relevant project management experience and, ideally, expertise in Lean Six Sigma. Choose individuals who are well-respected and know how to get things done in your organisation.

Time plan

You need to create a detailed plan outlining the key phases of the transformation and the relevant milestones and deadlines. Consider using a Gantt Chart (see Figure 4-6) to help you structure this plan.

You may also want to use a multi-generation plan. You need to include milestones covering:

• The holding position based on current processes and capabilities of the organisation.
• The introduction of the new breakthrough capability in an initial pilot/‘proof of concept ’phase.
• The completion of the full transformation throughout the organisation.