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A fresh perspective on business change.
Barometer on Change 2014
1
Opportunity in a dynamic economy
The economy is experiencing a sense of optimism that has not been felt for several years: economic conditions are improving and businesses are seeing the best prospects for innovation and growth since the deepest recession in living history.
Conversely, this is coupled with continued public sector austerity, albeit
against a backdrop of some of the largest government transformation
programmes ever witnessed. This creates a peculiar set of conditions and
challenges for organisations across the UK.
Organisations’ success remains far from straight forward in this evolving
climate. As the pace of change picks up, so too does the importance of
understanding and addressing those obstacles that may inhibit the
realisation of business goals. A dynamic economy presents opportunity;
but organisations may only have a limited amount of time to act if they are
not to be left behind.
Such is the setting to the third annual Moorhouse Barometer on Change,
in which we seek to understand how well equipped business leaders are
for the tests that lie ahead. Through our research with Board members and their direct reports we
have shed light on some of the priorities that are emerging as the long-awaited recovery gains
momentum.
Stephen Vinall Managing Director, Moorhouse
2
Contents
3 Introduction
5 The changing picture – emerging trends
8 Theme one: Without strategic clarity, and aligned change initiatives, chances of growth are diluted
12 Theme two: Failure to embrace change remains a significant risk to achieving strategic goals
16 Theme three: Difficulties in accessing the required skills to make change happen will hurt organisations’ ability to successfully realise transformation
19 Conclusion
3
Introduction
The Moorhouse Barometer on Change is based on a survey1 of over 200 Board members and direct Board reports, from a range of organisations spanning the private and public sectors. Their total spend on transformation initiatives in the last year is £4.2 billion, with an average project
spend per respondent of over £20 million. This replicates our approach from the past three years,
enabling comparisons between data sets, and the identification of trends at a critical time for the UK
economy.
Barometer Sample
1 Structured telephone interviews were carried out by Illuma Research amongst 203 senior managers and directors in UK public
and private sector organisations during January and February 2014.
4
We surveyed those
responsible for
spending £20.8m
per organisation on
strategic change
initiatives. This
represents a total
spend of £4.2bn.
5
The changing picture – emerging trends
Our Barometers on Change have identified some
intriguing trends since their inception.
In 2012 our research was conducted during a period when investment was limited and general market
performance poor. Unsurprisingly, given the insecurity of their circumstances, many leaders identified
the ability to conduct change initiatives routinely, as an essential capability and one that was critical to
business success. Furthermore, by not changing, there was a tangible risk of organisational failure in
the harsh conditions of the time.
The following year, the 2013 Barometer on Change suggested a more upbeat message. Success was
seen as achievable despite the lingering impact of the financial crisis, but only for those organisations
who took direct responsibility for creating the necessary conditions to enable this. Investing in growth,
rather than focusing purely on survival, was required to maintain a competitive advantage. However,
the confidence felt by senior decision makers was potentially misplaced since there was also an
observed failure to realise the benefits of their growth investments, in part due to a lack of proper focus
and resourcing.
The past year has seen a blossoming sense of economic optimism. At the end of last year, Bank of
England Governor, Mark Carney, announced that recovery “is taking hold” in the UK and growth in
2013 was the strongest for six years2.
Organisations’ confidence is building, but there are still many risks. Corporate balance sheets remain
highly stocked with cash3. Although talk of mergers and acquisitions or infrastructure investment now
seem more commonplace than previously, there is a long way to go before reticent CFOs let cash
reserves drop to levels seen before the crisis. There is perhaps a sense of consciously avoiding the
overconfidence of 2008.
2 Office for National Statistics – Economic Review March 2014 3 Capita – The FTSE 100: Amassing the Cash 2008-2013
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Our 2014 Barometer on Change shows that optimism around overall economic growth is itself
increasing – 69% of respondents expect at least 6% annual growth in their organisations over the next
three years, compared with 55% in 2013. But as the market becomes more dynamic, new challenges
to success emerge, adding to those that already exist.
Without strategic clarity, and aligned change initiatives, chances of
growth are diluted;
Failure to embrace change remains a significant risk to achieving
strategic goals;
Difficulties in accessing the required skills to make change happen
will hurt organisations’ ability to successfully realise transformation.
There are three key themes that emerge from our survey
and these are explored further in this report:
7
In 2013, only 9% of
respondents were
investing in one primary
market differentiator
compared to 38% in
2014.
Strategic clarity
8
Theme one:
Without strategic clarity, and aligned
change initiatives, chances of growth
are diluted
Strategy development is a difficult balancing act
between defining direction whilst maintaining
flexibility.
The relationship between these two elements depends on a variety of factors, including
external economic conditions, and confidence about future growth. This year we witnessed an
increase in some organisations’ strategic differentiation and a shift in their approach to
delivering change, and noted an intriguing correlation with predictions of growth. Specifically:
Greater strategic clarity and focus on differentiation tend to correlate with higher growth;
Higher growth is also predicted for those organisations that are better able to align their change
initiatives to their strategy.
Being all things to all people is no longer seen as the optimum approach to take
In 2013 only 9% of organisations were focused on one primary market differentiator. This
figure is now 38%, indicating a marked trend away from hedging bets and a move towards a
distinct and defining market position. Being all things to all people is no longer seen as the
preferred approach to take.
9
In addition, when we look at the differences between low growth organisations (growing by
under 5%) and their high growth counterparts (growing by more than 5%) an interesting
division becomes apparent. In short, high growth organisations tend to have had greater
confidence in their strategic clarity.
Looking forward, the difference is even more pronounced. In 2013, 37% of low growth
organisations claimed their business strategy was extremely clear for the next three years.
This figure remains largely static in 2014. Over the same period, however, the same measure
of strategic clarity for high growth organisations rises from 50% to 59%.
In other words, there is evidently a beneficial link between strategic clarity and the level of
expected growth. And this gap is widening between those organisations that anticipate
expansion and those that do not.
10
Misalign your strategy and change portfolio at your peril
Moreover, misalignment of the organisation’s vision and the programmes commissioned to
deliver it is bound to cause confusion which in turn impacts growth. In 2013 we found that high
growth organisations displayed a greater association between their strategies and their change
initiatives than low growth organisations. This continues to be the case this year.
Why might it be that so many organisations are continuing to struggle with the alignment of
their change initiatives to their strategy? Whilst many organisations are maturing in the way
that they manage programmes and projects, a large proportion appear still to be struggling to
get to grips with effective portfolio management, which can help define, prioritise and provide
balance across initiatives. How can organisations be certain their change initiatives are
responsive to changes in their strategy? Working to develop mechanisms to weed out pet
projects, and ensuring leadership incentives are aligned with the strategy of the organisation
are important steps in developing a productive synchronization of efforts across the
organisation.
In summary, something is preventing low growth organisations from catching up with higher
performing competitors, and this appears to be linked to their strategic clarity. This is
happening regardless of the economic recovery, presenting a real risk that low growth
organisations will get left behind. At a time when expansion is seen as UK CFOs’ top priority4,
instead of reaping the benefits, they may find their organisations increasingly marginalised.
If your organisation’s strategy is not focused or clear, and if your change initiatives are not
aligned to your strategic direction, this is likely to have a tangible impact on the growth you can
expect over the coming years.
4 Deloitte CFO Survey: 2014 Q4 Results
11
Less than one in five
organisations is
currently seen by senior
management as
change-embracing.
Embrace change
12
Theme two: Failure to embrace change remains a significant risk to achieving strategic goals
This year’s Barometer on Change indicates that
leaders feel the pace and pressure of change is
increasing as they seek to prepare their organisations
to exploit improving economic conditions.
They expect this to continue in the short term. Our research identified three distinct areas that must
be embraced in order to successfully enable a strategy.
A corporate culture that welcomes change goes hand-in-hand with the likelihood of achieving
growth;
Readiness for change needs to be reflected in the organisation’s investment initiatives;
Ongoing cost cutting may be detracting from important proactive investment decisions.
Less than one in five organisations is currently seen by their senior management as change-embracing First, the ability to change is anchored in corporate culture, and currently less than 20% of
organisations surveyed have the required behaviours in place amongst their leadership team and
workforce. Although there is a positive trend in this area compared with 2013, still less than one in
five organisations is currently seen by their own senior management as change-embracing. Indeed,
two in five are even described as anti-change (“change-sceptical”, “change-resistant”, or
“entrenched”). Without a culture that fosters support for change, and the benefits to delivery
associated with this, a strategy remains a theoretical concept detached from operational reality. The
2012 Barometer on Change outlined that a “lack of ownership from staff / stakeholders” was seen as
the biggest threat to the successful outcome of an organisation’s projects, and in 2014 it still remains
amongst the top three threats to delivery.
13
This observation around culture is especially pertinent to those organisations described as low
growth, where only 48% describe themselves as pro-change (compared with 72% amongst high
growth organisations). Whilst the low growth cohort report improvements in strategic clarity over the
last twelve months, they still remain largely anti-change. This cultural distinction between low and
high growth organisations appears to be an important and causal differentiator in determining ability
to enable a strategy and deliver growth.
Consideration therefore must be given to the challenge of how to achieve change in an anti-change
environment, or how to create a more pro-change culture. Good programme and project
management is not enough – organisations need to invest in developing their change leadership
and change management capabilities. Intriguingly, the proportion of organisations describing
themselves as “change-able” has actually declined over the past year, whilst there is now a greater
number defining themselves as “change-embracing”. In other words, those that are pro-change are
becoming more so, but there is a genuine risk that a sizeable percentage will get left behind.
The second factor relates to the willingness of senior management to support ambitious investment.
Even though some sectors may be in better shape than others, there is a common theme here.
High growth organisations were more likely to have increased their investment in change initiatives
over the past year.
A willingness to invest in proactive change initiatives is important in achieving growth Moreover, there is an additional divergence to be observed that offers clues to the relationship
between investment and growth. Those organisations that saw a 5%+ increase in investment tended
to invest in targeted proactive projects to get ahead of the market (e.g. new products and services).
14
Those which spent at a lower rate typically made more reactive investment decisions aimed at
keeping pace with the market. They did not necessarily take the bold steps required to access new
markets or increase their share of existing ones.
It is apparent too that access to capital budgets plays a key role in investment decisions – twice as
many of the high investment organisations cite this as a factor in their decision-making. It seems
that a willingness to put one’s money where one’s mouth is has an important role to play in the
overall attitude towards change.
Cost reduction is not an end in itself The third point relates specifically to cost reduction. Cost reduction programmes remain an
important focus for many organisations (irrespective of improving conditions), albeit marginally
declining as a priority. That said, as levels of investment increase, and as savings from cost
reduction are realised, decisions must be made as to where to allocate funds. The 2014 Barometer
on Change shows that low growth organisations are still more focused on cost reduction
programmes than high growth ones (49% compared to 32%).
Where cost reduction continues for too long we see a likelihood that certain organisations will be left
behind, as their competitors take calculated risks to alter their change initiatives in order to facilitate
growth. Whilst each senior management team must understand their organisation’s (and market
sector’s) specific context, a paradigm shift in investment planning is required at some stage, and
this means actively embracing change.
To conclude, a pro-change culture can be self-perpetuating. However, whilst many leaders can
speak with greater strategic clarity it would appear that a significant number sit atop organisations
that are not suited to enable this. Culture starts at the top, and leadership has an opportunity to
demonstrate what it wants from its staff through bold decision-making that embraces uncertainty
and promotes ambition.
An organisation’s vision needs to be tied closely to the investments leaders are willing to make. Is
the investment profile fit for purpose in terms of scope and scale? Now is the time to reassess the
corporate culture that might have been valuable and necessary during the recession, but which may
not be suitable for your ambitious requirements going forward.
15
Accessing skills
Only 35% are very
confident they will be
able to access the skills
they need.
16
Theme three: Difficulties in accessing the required skills to make change happen will hurt organisations’ ability to successfully realise transformation
There is confidence amongst our survey respondents that they will increasingly be able to
deliver the transformation programmes they have been planning. But accessing the capability
to make change happen is not straightforward and careful planning is needed.
Buoyancy about the future may be at odds with organisations’ capacity to access the skills they need to
transform;
Innovating to secure skills in a timely manner must be a priority for senior management.
Almost 60% of senior leaders claim they are now at least very confident in their organisation’s
ability to effect successful transformation (compared with 41% in 2012). Based on
performance in the past year there is every reason to be positive – after all, where in 2012 only
19% claimed that 80%+ of their transformation programmes were successful, in 2014 this
figure has doubled to 38%.
The future challenges require different capabilities from those of the past
However, there is a need for a degree of caution. Organisations may be giving themselves a
false sense of security if they fail to consider how the challenges of the future differ from those
of the past three years. We have already observed how the size and nature of their
investment is going to change in order to target opportunities presented by a strengthening
economy. The more outwardly focused activity predicted for the coming years requires a
different approach and set of skills from the previous focus on cost reduction.
Leaders anticipate investing in a range of programmes, including product development and
launches, new IT infrastructure, and new operating models. Organisations will need to put in
17
place the required delivery capability, and this may require a fresh approach.
For all the other positive steps high growth organisations have taken (such as developing
strategic clarity and enabling the strategy through culture, investment and a balanced set of
initiatives), success will not be possible if the strategy cannot be delivered. From 2013 to 2014
the proportion of leaders saying that they need new skills and capability to deliver the strategy
has more than doubled. Given that demand for a finite skills pool is growing, it is not surprising
that over this period the percentage of respondents that are very confident they will be able to
access these skills has dropped from 47% to 35%. Additionally, whilst in organisations
describing themselves as low growth this figure is lower than in high growth equivalents, the
drop in confidence over the past twelve months has been more marked in high growth
organisations. In other words, access to the right skills to deliver the strategy is a common
challenge. A lack of dedicated resource and a deficiency of experience and skills within
project teams are stated as the two most important threats to the successful outcome of
transformation activity.
Typically change is more enduring when it is driven and owned by leaders within the
organisation – consideration should be given to whether the necessary change leadership
capability is in place or if it should be recruited and developed. Whilst interim leadership
capability can be hired on a temporary basis, this can impact negatively on the sense of
organisational ownership of the transformation.
18
Where does capability come from?
Aside from leadership, the delivery of large change programmes requires capacity and
capability that may have been trimmed down over several years of cost-cutting. Furthermore,
it may not be desirable to recruit delivery expertise for a finite transformation programme, no
matter how strategically valuable it is. Outsourcing the entire delivery of an enterprise
transformation programme is equally unlikely to be viable. This may have worked ten years
ago, but in the current climate it appears there is neither the appetite nor funding to do this.
This points towards a need to think differently about how to make change happen. Does the
organisation have the capability currently (and does it have the time to develop it?) and, if not,
what is the optimum approach to sourcing it in a timely and sustainable manner?
Organisations may want to plan their desired future resource profile now. Understanding and
managing the resourcing supply chain will become increasingly important, particularly as
demand increases in line with economic recovery. New models may allow management to
mitigate their risks better. Maintaining the balance between in-house ownership of
transformation and a subtly evolving mix of delivery resource presents a different challenge
from the pre-financial crisis approach. Traditional methods of securing capability may no
longer always be optimal.
Developing your resourcing strategy should be an immediate priority, since access to
capability is set to become a major bottleneck in the delivery of transformation programmes.
19
Conclusion
There is growing confidence in the UK’s economic
performance, and this is borne out by our survey
results. To be best placed to take advantage of the
opportunities associated with growth however,
organisations need to act decisively.
More than two thirds of respondents state that they expect a minimum of 6% growth for their
organisations over the next three years. However, respondents also indicate that the scale
and rate of change their organisations face in the coming year is going to increase, and if they
want to enjoy a share of the economic growth they must act decisively to address the
challenges this presents. Change and uncertainty are closely linked, and require careful
planning to ensure that risks do not impact performance in a negative manner.
The Moorhouse Barometer on Change 2014 sheds light on many of the concerns shared
across senior leaders from all industries. From these findings, we identified three key themes:
If you fail to develop a clear strategy or fail to reflect your strategy in your change initiatives
it is likely to put a brake on your ability to grow;
If your organisation is not ready to embrace change, or is not thinking proactively, there is
a risk that it will fall behind the competition;
Without swift action to develop an innovative approach to securing your required
capability, you may struggle to resource your transformation programmes with the talent
you need.
Of course every organisation is faced with a unique set of circumstances, and these themes
must be interpreted with reference to these. That said, a failure to grow in these improving
conditions may result in a widening of the gap between those organisations that are able to
confront these difficulties successfully and those that cannot; and for the latter group this may
present a challenge to their long term survival. Our challenge to senior management is to look
at their own organisation and see how it fares against our themes. How well equipped are
they? How ready are they to take advantage of the change in the country’s economic
fortunes?
20
About Moorhouse
Moorhouse helps organisations design and deliver
successful transformation.
21
Moorhouse helps organisations design and deliver successful transformation. Moorhouse is committed to sharing its knowledge and improving the effectiveness of transformation programmes across all industries. As part of this commitment, Moorhouse regularly surveys those responsible for transformational change and has produced insightful publications and articles which can be found at: www.moorhouseconsulting.com
Published May 2014 ©2014. Moorhouse. All rights reserved.