The psychology of transformation failure

While the experts, to a man (and woman), clamour for an injection of transformation urgency, the statistics are scary. One in three UK businesses will go broke in the next three years and 40% of today’s most familiar brands won’t exist a few years after that.

UK businesses are still slow to recognise the need for transformation, with just over 60% being on-board with the idea, yet, right now, barely 20% of these even, have an execution plan. 70% of transformations are failing and it takes around three years for most organisations to get to a point where they can even begin to compete in the digital marketplace, even when they get it right first time. You do the maths. As I said – scary!

This reluctance to act can only be rooted in business leaders’ failure to appreciate the urgency of the situation, which, may, in turn, be founded on their inability to distinguish between change, which is relatively simple, and transformation, in effect, re-building a business from scratch. However, this isn’t just a technical issue. It’s really about the struggle between primal instincts and commercial necessity.

Generations ago striking it lucky with a product or service meant finding a way to deliver it and then just ploughing on for years replicating the same offer using the same process. Innovations then were infrequent, so businesses could survive for years, decades even, without change. However just as Moore’s Law illustrates the pace of innovation in terms of the processor (processors have doubled in power every two years) a similar picture emerges within other areas of innovation. Every technological generation is built on the lessons of its predecessor, so progress is always redoubling.

The accepted pattern of business performance emerged early-on as a sine-wave – a repeated cycle of troughs followed peaks. This drove business management models where “transactors” responsible for maintaining the integrity of a process or product were periodically replaced by “transformers” charged with the task of reviving the failing business, which they achieved, where possible, by re-inventing the offer.

As progress accelerated the sine waves became tighter until, a few decades ago, the business world came to terms with the need to have transactors and transformers operating in tandem. This way, while the transactors got on with day-to-day business, the transformers were developing the next generation of product or service. Today any business is only as good as its next big idea and every product on the shelf of your local store has at least two generations of replacement in various stages of development back at headquarters.

What is emerging now though is yet another step-change in the evolution of business practice, and it’s a big one. Too big, in fact, for many businesses. Digital capability means that these days any kind of repetitive task can be handled more efficiently, better and definitely faster by machine. In effect we are pretty close to doing away with many transactional roles and with AI increasingly capable of handing exception management – which in many businesses accounts for over 70% of employee time – global organisations with just a handful of employees are already a reality.

I accept all kinds of debates arise from this, but the one I want to focus on here is the challenge faced by businesses as we switch mind-set to suit the new paradigm. I want to look at this now because, like it or not, this is today’s rather than tomorrow’s reality and we simply have to start adapting.

There is a lesson to be learned by comparing the patterns of development in different sectors. Unsurprisingly tech is the fastest evolving sector. This is because it is founded on innovation and innovative people. Compare this with sectors like financial services where the culture has always been paper-based, bureaucratic, labour-intensive and is way behind others in the race to digital transformation.

While at one end of the scale, the tech sector attracts hungry, energetic innovators, by contrast, those who have been successful and carved out a career in financial services are, by definition, comfortable with rigid rules, risk averse, rely on fixed processes and perform best when their role is purely transactional. It’s a very easy rut to settle into, given our primal instincts for order and process. Viewed this way it’s easy to see why the only innovation in the financial services sector right now is down to a few tech-minded infiltrators. Most of who are operating within the sector’s emerging disrupters.

This is Darwin’s theory of natural selection in play in the business world. If you are the kind of person who wants to wear a pin-striped uniform, are able to stay awake while you bang out a regimented process day-in, day-out and never take risks you’ll be quite at home with yesterday’s financial services world. However, that fact alone spells doom for organisations that have evolved into transaction-managed, risk-averse dinosaurs, because the businesses that will survive the next five years are the antithesis of everything that has made these businesses successful to date.

It’s not that all heads of regulated businesses fail to see the need for change though. In many cases it’s more the case that the only remedy open to them is alien to their every instinct, a bit like (as the great Tom Lehrer said) “a Christian Scientist with appendicitis! I once sat with the head of a regulated business discussing his opposition to a new and essential appointment. He voiced his objection, as “he’s not one of us”. My response was, “That’s precisely why you need to hire him” and THAT’S exactly what these business have to do to survive the digital economy – broaden their culture – but it won’t happen fast enough if you are going to rely on new hires to import the new culture. You have to liberate those of your existing employee base who, were it not for the constraints of your business culture, might behave in a different way.

The key to changing counter-productive cultures lies in brand development. Brands may be communities of people who share values and beliefs, but they don’t have to share everything, in fact, it’s healthier if they don’t. The values and beliefs of brands also have to evolve to reflect the wider community. Furthermore, if your brand becomes more popular, new people with values and beliefs that extend beyond those at your core will join your community and you have to embrace these too.

It’s tough for businesses dinosaurs. Humankind loves order, resists change and shies away from risk. We congregate in groups for protection and to hunt. We gravitate towards people who mirror us. None of this is in principle bad, but if your brand traits are risk-averse and process-driven it will probably prove terminal in the current environment. The trick that transactional business leaders have to pull off is to deny their primal instincts. That’s what brand development is partly about.

The starting point of any brand development programme – your brand model, is a tightly-written, definer of your brand that will provide a vivid focus, not only for the transformation process, but for the on-going management of your organisation. It will include your “purpose” (as distinct from your mission) , which in my experience, is rarely what organisations understand it to be. Take a look at Apple as an example. You might think that their purpose is to “make great computers” but in fact, this is more a part of their mission – happenstance more than objective, more evidence of achievement than the achievement itself. Apple is successful because they are innovative and insightful designers. Currently, they just happen to apply that thinking to the world of computers and phones, but they could equally – and rumours suggest they are – consider other product areas. Their purpose therefore is to introduce a different and consistent approach to design thinking. Many of my clients find this part of Brand Discovery the most difficult to come to terms with

Earlier this year I attended a talk by a senior executive of one of the UKs larger financial service businesses, who made a statement, quite revolutionary for this reserved sector. “We have come to terms …” he said “… with the fact that we are no longer a financial services business, but a marketing business. We just happen to market financial services”. Now, that suggests a business that might survive the paradigm shift, but as things stand, in the UK, it’s a rarity.

We need to take a fresh look at why so many transformations are failing. It’s easy to pass this off as lack of commitment from senior management, but, even if this is true, saying it isn’t going to resolve the problem.

Instead, we have to understand the psychology behind this lack of commitment. It’s no use trying to battle head-on against primal instincts like these. The key is to provide clear compelling rationale and the focus that so many transformations currently lack and that’s addressed by a well thought-out brand model. Once you have these reference points it is relatively easy for everyone in your business to understand what you are about and what you are aiming for. They will gain a sense of orientation, know where they fit into the scheme of things and can then buy into the brand ideals and commit to playing their part to the full in achieving the objective. Uncertainty that would otherwise represent a threat will be eliminated and primal instincts can be harnessed to drive momentum, rather than fought against. As a result, you will be more cohesive, eliminate time-wasting and the investment squandered on off-piste initiatives, both speeding-up and reducing the cost of your transformation.

At least this way some of the organisations destined right now to oblivion, have a chance of pulling back from the brink.

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