In light of yesterday’s unsurprising announcement that the UK has officially entered recession, Corporate Finance Partner Luke Morris looks at why good change management is so difficult, but necessary, for businesses to survive.
Unsurprising because for months we’ve seen our high streets shuttered, restaurants closed, leisure facilities locked up, empty cruise liners languishing off the coast of the Solent, sporting events cancelled, the City of London quiet (save protests).
Alas, protests, nor indeed clapping for carers, maketh GDP or tax thereon.
It was unsurprising as this was the chosen policy response of our government, of which Rishi Sunak is of course a significant part. The worst contraction on record of 20.4 per cent between April and June, figures from the Office for National Statistics revealed. Rishi said the figures showed the government was “grappling with something that is unprecedented”. I shall leave it to future historians to decide, in the context of Spanish flu and many others before, whether COVID-19 is the unprecedented thing, or whether global government reaction to it is what is truly unprecedented.
What is not unprecedented is business and the private sector dealing with change. Academics, consultants and commentators have been writing around change management and turnarounds for decades (often selling their support to boot). Nonetheless, there has been only a slow trickle of evidence of real improvement in the way that transformations are managed by businesses over that time frame. I think this is for three primary reasons: –
Firstly, many organisations don't consider change management as a core area of competence (like "finance" or "HR" or "marketing"). Consultants are great at producing shopping lists of activities or technical tools to make change happen, but in practice the context against which those activities is set gets very little attention. If it's not a "core area" for the board it tends not to be taken seriously.
Secondly, organisations that do understand that change is as core for the whole board as finance or HR, will often balls up the execution. They will either try and implement all of the activities at the same time, or perhaps do things in the wrong order. A classic case would be failing to get a leadership team together on the same page followed by a false start in a transformational programme (Exhibit A – the NHS track and trace app in May this year: cost £11.8m to the taxpayer, lead manager still in post…).
Thirdly, whilst transformation sounds like it's by definition a "one-off and transitional" type thing, getting from A to B, it is in fact an ongoing effort. A little bit like a diet! You have to keep at it. It's hard. Business leaders need to hold their course and keep pushing for change when the initial fanfare or programme has disbanded.
It's an interesting time to be talking about turnarounds, transformation, change and change management. The past 10 years or so – post the (previous) crisis – have seen a pretty benign and anaemic business environment in the UK with historically low interest rates. Much has been written about so-called zombie companies, those allowed to cheerfully trade from year to year without too much trouble in such an environment. Many of these, particularly when debt laden, would otherwise have been killed off in "normal" times of interest at 5 or 6%. This has meant that "doing nothing" has been, for many companies, a strategy in and of itself. And whilst they have not all died exactly, they have not achieved the potential they should have achieved.
That's why it is far easier to think of recent business transformation failures rather than successes. Why didn't Blockbuster Video or the BBC change to become Netflix, for instance? How come Elon Musk arrived on the scene when Ford has been around for 117 years? Shouldn't Ford have had high end electric cars sewn up? One thing we can say about the past 150 days is that no company is now doing nothing.
We have all been impacted by COVID-19. And there is certainly more awareness today that change needs to start at the top of an organisation, at the board. That strong leaders need to be developed or put in place from the outset. Industry training has helped to raise the subject on board agendas, as an area of key competence. That wasn't the case even just 20 or so years ago when I started my career in this area. Cost-cutting, not surprisingly, is a consistent theme in any transformational process. Inevitably that is near the top and many agendas of companies at the moment. There has been plenty of work done on this over the years and top change performers are usually those boards (or CEOs) that manage to achieve absolute clarity in the process: clearly, comprehensively and compellingly communicated. Clarity is the best way to mobilise and sustain energy, and high energy is precisely what will be required at a time where the prevailing environment is now not quite so benign.
Scrutton Bland are currently busy helping our clients manage change, much of it necessitated by the Coronavirus. You can find out more about our restructuring and reorganisation services here.