META MANAGEMENT Connecting the Parts of Business Transformation

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1 META MANAGEMENT Connecting the Parts of Business Transformation The aim of this article is to introduce Meta Management in the context of business transformation management and to show how it helps making business transformations successful. Studies showed that there is no lack of knowledge about change-management or other individual disciplines that comprise business transformations; there is, however, a lack of integration between the disciplines which eventually leads to a transformation failure in the majority of cases. 24 by Philip Stiles and Axel Uhl Why Business Transformation? Every business today is facing increasing pressures from changing environments. Take for example, the ever-growing imperative for sustainable business practices or technological innovations like the increasing use of services for mobile devices. Developments like these have far reaching implications for businessmodels and overall business strategies and often open out into a transformation. 1 As a matter of fact, also endogenous change like product innovation or restructuring provides the potential for large-scale transformation. 2 Business transformations imply fundamental and complex organizational changes alongside the value chain and can also radically alter the company s relations with the wider economic and societal environment. It is obvious that the nature of business transformations is highly complex and that the results are directly influencing future business success. The ability of companies to manage transformation has long been recognized as crucial to their competitive advantage. 3 Responsiveness to changes in the business environment and being innovative not only in client offerings, but also organizationally, is an integral feature of sustainably successful companies. At the organizational level, there is a need to build up a transformation capability in order to provide the innovation for competitive advantage. 4,5 What stands out in that context is the fact that less than 40 % of all transformation attempts can be called a success. 6 Problems with change are manifold, starting from wrong diagnosis through to poor implementation and the failure to win the staff over. In the course of research on that topic it became clear that the lack of a holistic point of view for a transformation attempt has severe consequences. Another major reason for failure was poor management of the transformation, especially in regard to stakeholder commitment. 7 Methodologies on the Market Transformation is a common feature for most organizations. So it is rather unsurprising that there is a profound research base concerning practicing change. Traditional regularities have accumulated over a long period of time and represent a solid conceptual knowledge of the change process. Step models were

2 the first to emerge with a classic formulation of three phases: current state, future state, and transition state. 8 Gap and force field analysis usually accompanied the models. 9 Inherent in the step models is a combination of both rational elements for example diagnosing need, shaping the vision, and monitoring progress and emotional elements, that is, mobilizing commitment, engaging with the vision, and building affinity and identity with the change. The models have produced a variety of patterns for managing change, concerning leadership, culture, and maintaining momentum. However, there are a number of issues raised by the use of step models. Firstly, they imply a linear approach to changemanagement, with each step leading to the next. Though feedback loops are nearly always included, essentially these models are mechanistic in their approach. Secondly, the links between the steps are rarely described. So despite the fact that each individual element in the model is outlined, the overall change process remains incomprehensible. This is problematic, both theoretically and practically. In theoretical terms it is unclear how change is managed, as a collection of routines is missing a crucial linking part. Calls to approach change from a more holistic point of view have not been included in the tradition of step models. In practical terms, how transformation is enacted not just in a piecemeal way but in a synchronized manner is not answered. Until now a number of approaches sought to implement a holistic view and to fill the afore mentioned gap. The 7s framework by McKinsey, the Balanced Scorecard by Kaplan and Norton, and Lean or Six Sigma are the most commonly known ones. The 7s framework revolves around seven core elements of an organization and argues for their mutual linkage should the organization be affected by change drivers. 10 However, this tool is more a diagnostic than an implementation technique, and while useful in analytic terms, it does not reveal specific aspects of the change elements or their linkages. The balanced scorecard approach identifies a number of core areas, such as financial, customer, process, and people. 11 This approach shows the inter-linkages between the various areas and is helpful in providing guidance to an overall integration, but it does not present a methodology for the process of transforming organizations. Lean, or Six Sigma, approaches try to shed some light on change through business excellence models. They provide a number of standard tools, primarily focusing on project management and statistical control to manage change. 12 The emphasis lies clearly on the rational side of change, with the emotional aspects rarely addressed. Given that a large part of change success rests on the appropriate management of people, more is needed to have a solid and effective change process. 25 Abstract In response to the limitations of existing methods and management approaches and in view of the complexity of business transformation, successful business transformation management can be seen as a Meta Management discipline that integrates and extends individual management disciplines. In the course of the article, an overview of the current state of research is given and hence the causes for creating a holistic approach. Then, Meta Management is briefly described and put into the context of business transformation management. It is explained why Meta Management augments the likelihood of a successful transformation. The authors emphasize that Meta Management may not be seen as a cookery book for any intricacy during a transformation, but is well meant to provide a framework for coherent, consistent, and successful business transformation management.

3 26 The Missing Link Contrary to the welter of books, cases, and how-to manuals on managing change, the integration of key concepts and their execution within transformation has been elusive so far. The nature of transformation is to range across an organization, which implies that transformation will come about when different disciplines come together and cohere behind a common direction. 13 With the inauguration of the Business Transformation Academy and the inherent Thought Leadership Network in 2009, one of the first aims was to create holistic knowledge about business transformation and to provide the right means for orchestrating the individual parts of business transformation management. The first milestone of the network was to create the Business Transformation Management Methodology (BTM 2 ), a comprehensive and holistic methodology for managing business transformation. Business transformation itself has been defined as a top-down phenomenon, starting at the C-level. Some other key characteristics are that business transformation management needs to be business driven, value-oriented, and an end-to-end process in order to be effective. In addition to that, there are many interdependencies between individual management disciplines that need to be orchestrated during a transformation. BTM 2 incorporates a number of key features from established transformation approaches, such as stage models and balanced scorecard approaches. The eight disciplines are chosen in a logical way and are of two types: 1. Directional. The Strategy, Value, and Risk Management disciplines create the case for action and vision of the future and set the direction for the transformation effort. 2. Enablement. The management of changes ranging from IT through process to organizational, plus the creation of new competences through training and education, supervised through an organizational program management capability. Risk Training and Skills Change Strategy Meta Leadership Program IT Value Process These disciplines are chosen as components of the transformation management methodology because they are directly connected and form a logical construct: Every transformation starts with a formulation of a strategy and a vision. Defining a new business strategy often becomes the only viable option to react to a changing environment. Next, a strategy can only be implemented if certain processes change. These process changes build the basis of additional benefits that are generated (Value Management), and frequently require changed behavior among the employees (Change Management) as well as new competencies (Training and Skills Management). Each change, however, also involves a certain risk (Risk Management) and many process changes are only possible using IT (IT Transformation Management). Transformation projects are also managed from cost, benefit, and quality perspectives and require program organization and evaluation (Program-Management). In this vein, the most important disci- DIRECTION ENABLEMENT Fig. 1: The Meta Management framework

4 Fig. 2: Phase model for business transformation plines all find their place in the context of business transformation management and contribute to a holistic perspective (see figure 1): Beyond Linear Thinking The central part of BTM 2 is seen in Meta Management, which is the response to the limitations of existing methods and management approaches. In view of the complexity of business transformation, in essence successful business transformation management can be seen as a Meta Management discipline that integrates and extends individual management disciplines. At its core Meta Management builds on a cyclic phase model as opposed to linear steps. It incorporates the notion by Peter Senge (author of The 5th discipline ): Reality is made of circles but we see straight lines. 14 The phase model consists of four parts (see fig. 2): Envision, Engage, Transform, and Optimize, which are cascaded through all other disciplines and thereby also part of the orchestration. Not only does Meta Management link all parts of business transformation, but it also greatly emphasizes and deals with interdependencies. In the Envision phase the case for change is examined, more often than not leading to a sense of urgency, which opens out into a vision or strategy. The Engage phase is synonymous with the mobilizing of commitment in the organization and other stakeholders. Involvement and communication are essential here, as well as the establishment of discrete projects to deliver change and drive momentum. The Transform phase embraces the actual transformation including the change of behavior, processes, technology, culture, values, and so forth. In the Optimize phase the transformation must be embedded and internalized as the new business as usual. Meta Management is meant to give the transformation attempt a structure and establish the guidelines for all management layers, roles, and disciplines. To achieve that, it utilizes dimensions of the Balanced Scorecard, in particular for planning and control measures. 27 Envision Engage Transform Optimize Every Business Transformation is an iterative process and goes through different stages in recurring cycles. Create case for change, sense of urgency, strategy / vision Empower people to act on the vision and plan the effort Internalize, institutionalize and optimize transformation; create stability Change behavior, processes, technology, culture, values 2010 SAP AG. All rights reserved. / Page 1

5 28 Another crucial part of Meta Management is the focus on the people side. Meta Management includes recommendations for choosing the right leaders and promoters for key positions. Leadership, communication, and culture must not be underestimated, especially during a transformation. Above that, managing change under conditions of complexity also implies that change is not just within the organization itself but also through its relationships with key stakeholders, such as customers, competitors, government and regulators, and investors. Meta Management, in other words, is enacted within an ecosystem, and in order to effect change successfully, the metaroutine is necessary. In summary, Meta Management provides the following: It provides an iterative, cyclic phase model (Envision, Engage, Transform, and Optimize). It offers an overall business transformation structure, including management layers, roles and disciplines. It focuses on the dimensions of the Balanced Scorecard for planning and control measures. It delivers decision criteria for choosing the right leaders and promoters for key positions and facilitates transformation leadership. It creates culture and values on the basis of transformation principles and guidelines to internalize and institutionalize the transformation goals. It provides communication and engagement principles. Despite the direction and coordination that Meta Management delivers, it may not be seen as a kind of cookery book that helps prepare an exact transformation for each specific case. It is much more a coherent and consistent management method that creates a framework and helps to reduce complexity, but which must also be adapted to the specific context of the transformation. Meta Management closes the gap in the extensive transformation literature as well as in a lot of company practice, since a holistic or integrative business transformation management methodology was lacking so far. Meta Management is meant to be used as an overarching frame for effective business transformation management. It offers linkages amongst individual management disciplines and focuses on highlighting interdependencies, so that all parts of a transformation endeavor are aligned and managed properly. Finally, it addresses the main causes for failing transformation, which are a lack of consistency, poor transformation management, and too little attention towards stakeholders. Key Learnings Business transformation management needs to be business driven, value-oriented, and an end-to-end process in order to be effective. Successful business transformation management can be seen as a Meta-Management discipline that integrates and extends individual management disciplines. Managing change under conditions of complexity also implies that change is managed not just within the organization itself but also through its relationships with key stakeholders. Meta Management emphasizes the balance between rational and emotional aspects. Meta Management provides the overarching frame for effective business transformation management, including leadership, communication, and culture.

6 Service AUTHORS Professor Philip Stiles is a faculty member at Cambridge Judge Business School, University of Cambridge, UK. Philip s research work focuses on international human resource management, in particular the nature of performance management within and across borders and the operation and performance of the HR department. He works with a number of major companies worldwide and is currently Co-Director of the Centre for Internal Human Resource Management at the University of Cambridge. p.stiles[at]jbs.cam.ac.uk Professor Dr. Axel Uhl is head of the Business Transformation Academy at SAP. He is a professor at the University of Applied Sciences Northwestern Switzerland (FHNW) since Axel Uhl received his doctorate in economics and completed his master in business information systems. He started his career at Allianz and has worked for DaimlerChrysler IT Services, KPMG, and Novartis. His main areas of research and interest are sustainability and IT, leadership, and business transformation management. a.uhl[at]sap.com 29 BIBLIOGRAPHY 1 Arthurs, J. D., Busenitz, L. W., Dynamic Capabilities and Venture Performance: The Effects of Venture Capitalists. Journal of Business Venturing, 21 (2), Donaldson, L., Strategy and Structural Adjustment to Regain Fit and Performance: In Defence of Contingency Theory. Journal of Management Studies, 24, D Aveni, R., Hypercompetition: Managing the Dynamics of Strategic Maneuvering. New York, USA: The Free Press. 4 Bogner, W., Barr, P., Making Sense in Hypercompetitive Environments: A Cognitive Explanation for the Persistence of High Velocity Competition. Organization Science, Vol. 11 (2), Brown, S. L., Eisenhardt, K. M., The Art of Continuous Change: Linking Complexity Theory and Time-paced Evolution in Relentlessly Shifting Organizations. Administrative Science Quarterly, Vol. 42 (1), Isern, J., Meany, M. C., Wilson, S., Corporate Transformation Under Pressure. Organization Practice, 2, Lahrmann, G., Winter, R., Uhl, A., Transformation Management Survey Current state of development potential of transformation management in practice. 360 degrees the Business Transformation Journal, issue no. 1, June 2011, page Jick, T., The Recipients of Change. In: Burke, W. W., Lake, D. G., Pain, J. W., ed. Organizational Change: A Comprehensive Leader. San Francisco, CA: Wiley & Sons, Kotter, P., Force for Change: How Leadership Differs From Management. New York, NQ: The Free Press. 10 Strozinsky, L., Das 7-S-Modell von McKinsey. Norderstedt: Grin. 11 Kaplan, R. S., Norton, D. P., Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review, Jan-Feb, Pyzdek, T., Keller, P., The Six Sigma Handbook: A Complete Guide for Green Belts, Black Belts, and Managers At All Levels. 3rd ed. USA: McGraw-Hill. 13 Kogut, B., Zander, U., Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology. Organization Science, 3, 3, Senge, P., M., The Fifth Discipline: The Art & Practice of the Learning Organization. USA: Currency Book.