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If a change is worth doing, focus on doing it well.

Barometer on Change 2013

Topic Headline Example

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Growth against the odds

“We have all witnessed the challenges of the past few years as the UK economy has struggled in and out of recession.

These challenges have been particularly evident on the high street with

some big names having to close stores and undergo large-scale

redundancies. In spite of this, the FTSE is performing strongly and (as

seen in this survey), many larger organisations are still achieving growth.

However, with UK non-financial corporate cash balances at nearly three

times the level a decade ago1, even those that are growing seem

reluctant to invest the funds they have.

But in an increasingly competitive market doing nothing is not an option.

With official growth projections remaining below 3% for the next 4 years2,

organisations cannot rely on the economy to drag them up. They will

need to identify their own growth initiatives and invest accordingly.

However in such a risk-averse market, organisations will need to be sure

they are picking the right initiatives to deliver this success.

This is the second time that we at Moorhouse have surveyed UK business leaders through the

Barometer on Change, and this year provided some interesting results. In particular we can see that

senior decision-makers are relatively confident in their strategies. However, for some this confidence

may be misplaced. Comparing those who have achieved high growth in the past three years with

those that have not, there are some definite differences in outlook and approach. These include: better

alignment of change initiatives to their strategic challenges; more effective staff engagement to foster

a pro-change attitude; and the ability to deliver initiatives more effectively and adjust what they are

delivering to remain on track.

This all suggests that success can be achieved in spite of the economy, but that organisations will

need to be proactive in setting the conditions for that success.”

Stephen Vinall Managing Director, Moorhouse

1 In 2002 UK non-financial corporate

2 Source: official Office of Budget Responsibility growth forecasts

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Contents

5 Context: The force for driving change

6 Introduction

8 Growth in a challenging market

11 Aligning the strategy

15 Cultivating the strategy

19 Dynamic effective delivery

22 Conclusion

5

Context

At Moorhouse we have witnessed a number of organisations grappling with the challenges of successfully transforming for the long-term, whilst simultaneously addressing very pressing cost reduction priorities.

In particular, we have witnessed organisations are often unclear on their priorities which are not

always consistently understood by their people. We asked senior business leaders if this is the case

for them, and in particular how confident they were in their strategies and their ability to address their

strategic challenges.

The 2013 Barometer on Change points to a positive outlook among senior business leaders, who are

generally bullish about their growth prospects and confident in their strategies. However there are a

number of difficulties that organisations are facing which may challenge this confidence:

• Strategies are not always as clear as organisations claim they are;

• The lion’s share of focus is on cost reduction and organisations are generally less focused on

addressing other strategic challenges;

• There is resistance to change from staff and messages supporting the strategy are not always

getting through; and

• Organisations are finding it difficult to deliver individual initiatives.

However, the results also show us the lessons that can be learned from those organisations that have

achieved high growth to address these challenges and provide the building blocks for success. In

particular, higher growth organisations:

1. Align their change initiatives to the broader strategic challenges facing the organisation, besides

cost reduction;

2. Effectively engage with their staff to foster a pro-change attitude embracing new skills;

3. Deliver initiatives effectively and are willing to adjust what they are delivering based on relevant

performance information.

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Introduction

The Barometer on Change: this is the second year that Moorhouse has undertaken this survey, focused on what is driving strategic change and how effectively such change is delivered.

More than 200 UK Board members and those who directly report into the Board provided their views

on their strategic priorities and change initiatives3. Those surveyed were responsible for spend on

strategic change initiatives averaging £22m per organisation, representing a total spend of £4.4bn.

Barometer Sample

3 Structured telephone interviews were carried out by Illuma Research amongst 201 senior managers and directors in UK public & private sector organisations during February to April 2013.

Industry type

Duration of change initiatives

Level of organisation

Value of change initiatives Business type

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We surveyed those

responsible for

spending £22m per

organisation on

strategic change

initiatives. This

represents a total

spend of £4.4bn.

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Growth in a challenging market

The findings from the Barometer on Change show

organisations are relatively confident about their overall

growth prospects.

But this faith may not be well founded for all. Achieving year on year growth will be no small feat given

the challenges of today’s market.

First, the market-place is competitive. With

an economy that has dipped in and out of

recession, 44% of survey respondents

have achieved a Cumulative Annual

Growth Rate (CAGR) of greater than 5%

for the past three years. However, with

55% forecasting this level of growth for the

next three years and 98% forecasting

positive growth, such opportunities will be

highly contested.

Second, external pressures are

increasing. 65% of those surveyed felt the

pace and pressure of change had

increased over the last three years, and

three-quarters projected this pace will

increase yet further over the next three

years. In such a changing market, the

ability to anticipate, accommodate and

exploit change is increasingly important.

Actual and Forecast Cumulative Annual Growth Rates

How much has the pace & pressure of change increased and how much will it increase?

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In addition to these external pressures, organisations face their own internal challenges. The majority

of organisations reported a tendency to deliver initiatives late, indicating they are still finding it difficult

to deliver change effectively and efficiently4.

Even when organisations are able to change, there remains a significant focus on cost reduction.

Whilst much of this may be essential, many organisations are not then reinvesting these savings in

initiatives focused on growth.

This means that organisations will have to work pretty hard just to maintain their current position, let

alone deliver growth. Yet many are targeting above-market performance despite a notable absence of

past success. What are they basing these positive predictions on?

So what can organisations do to achieve high growth in a struggling market?

The Barometer on Change 2013 researched senior decision-makers at organisations that have achieved high growth and those who have not. The results suggest there are three particular characteristics of success.

4 This mirrors the findings in the Barometer on Change 2012, where more than 40% of respondents stated that less than half of their change programmes were delivered successfully.

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74% of respondents

believe their strategies

are clear, and 82%

believe their

organisations are

focused on doing the

right things.

Aligning the strategy

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Aligning the strategy

74% of respondents believe their strategies are clear,

and 82% believe their organisations are focused on

doing the right things.

However comparing what they are reporting to do, with what they claim they should be addressing,

we can see a mismatch. In particular:

• Strategies may not be clear – the majority of organisations are seeking to be “all things to all

people”; and

• The focus of initiatives is too narrow and not addressing the strategic challenges that

senior decision-makers are identifying.

The confidence leaders have in their strategies may reflect an inherent optimism bias. This is not

really surprising. After all if leaders are not confident in their strategies, how can they expect their staff

and shareholders to be? However, if this confidence is to be justified in the longer-term and grounded

in reality, it is worth learning from, and applying, the lessons from those organisations that have

achieved higher growth.

Strategies are not as clear as organisations think they are. Despite 74% of respondents claiming their strategies are clear, the reality seems different. Almost

90% of respondents claimed their organisation was focused and organised around simultaneously

differentiating itself in at least two of: best products; operational excellence / efficiency and customer-

centric solutions. Rather than being highly focused around a single differentiating strategy,

organisations are hedging their bets and pursuing less focused strategies with greater breadth. In

particular a large number of organisations are focused on driving out operational efficiencies (80% of

respondents) alongside developing market-leading products (75% of respondents).

How focused is the organisation and how clear is its strategy?

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The theoretical case against this has already been made by Treacy & Wiersema’s Value Discipline

Model5. They argue that excellence can only be achieved in one area. Organisations must decide

what they will excel in if they are to avoid diluting that excellence by spreading themselves too thinly.

The reality suggests that very few have made such a choice.

Initiatives are too narrow in their focus With such a trend of broad strategies with multiple areas of focus, one would expect there to be a

range of initiatives being undertaken. Yet, when asked to describe what challenges their change

initiatives were addressing, respondents were overwhelmingly focused on cost reduction. 54% of

organisations stated that they had initiatives aimed at addressing cost reduction and 22% aimed at

performance improvement. Less than a fifth of organisations claimed to be addressing new products

or services.

As a result organisations are claiming their strategies are relatively broad in focus, yet their change

initiatives are myopically focused on operational efficiency in the form of cost reduction and

performance improvement.

It also seems that organisations may know their focus is too narrow. When asked to identify the main

challenges facing their sector over the next three years, there was a clear mismatch with many more

organisations identifying challenges than were addressing them. For example, 72% cited new

products and services as a strategic challenge, yet only 19% of organisations have initiatives

addressing this.

5 See Treacy, M. & Wiersema, F., The Discipline of Market Leaders: Choose your customers, narrow your focus, dominate your market, Perseus, New York, 1995.

How focused are organisations around different market differentiators?

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Optimism bias? Overall the results tell us that organisations as a whole are not delivering the change initiatives that

are consistent with their claimed strategy or addressing their stated strategic challenges. However

they are also claiming to have clear strategies and be doing the right things. This may well reflect the

optimism bias of individuals whose job it is to build support for the strategy.

The route to growth Comparing high growth organisations with both lower growth and negligible growth organisations, we

see some contrasts. Higher growth organisations are less likely to cite cost reduction as their biggest

challenge. They are less likely to have cost reduction initiatives in place. They are also more likely to

be investing in initiatives to engage their staff or pursue growth (such as culture change, accessing

new markets or mergers and acquisition).

For lower growth organisations seeking a higher performance the lessons are clear. Growth is

unlikely to come through focusing on cost reduction alone. The savings may be better being

reinvested in initiatives that generate revenue or engage employees.

How well do organisations’ change initiatives address their strategic challenges?

How does the focus of initiatives differ with the organisation’s growth success?

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The strategy alone

cannot deliver success.

It needs to be

understood by the

business and translated

into effective action.

Cultivating the strategy

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Cultivating the strategy

Of course the strategy alone cannot deliver success. It

needs to be understood by the business and translated

into effective action.

The results of the survey suggest there may be a discrepancy between those who are able to set the

conditions for strategic delivery, and those who are not. In particular, high-growth organisations:

• Adopt a pro-change attitude;

• Get the message through with more effective communications and engagement; and

• Are more open to new skills to ensure they have the right skills.

We have already seen that higher growth organisations are more likely to make deliberate

investments in growth releasing initiatives such as culture change. This proactive attitude seems to be

at the heart of their ability to cultivate and foster the strategy across the organisation.

Adopt a ‘pro-change’ attitude The majority of organisations reported an increased

pace and pressure of change over the last three

years (65%) with even more (74%) projecting

that the pace and pressure will increase yet

further. However, 41% of respondents described

their organisations as ’change-sceptical‘,

‘change-resistant‘ or ‘entrenched‘. However

despite this resistance, almost half of such

’anti-change‘ organisations projected year on

year growth of over 5% for the next three

years.

So, in a climate of increasing change pressure, and

with an organisation that is, at best, sceptical of

change, how can organisations deliver such growth?

The answer is they are less likely to.

Looking back at historical performance we see that

those organisations who are pro-change (‘change-

able’ or ‘change-embracing’) are almost twice as likely

to grow at above 5% as those organisations that are

anti-change.

"Pro-

change"

"Anti-

change"

How pro-change are organisations?

How related are growth and attitude?

41%

59%

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Get the message through Despite 95% of respondents saying their strategies were ‘clear’, approximately a fifth felt the strategy

had not been either communicated to, or understood very well, by their employees.

The strength of belief in the effectiveness of communications drops for Board-reports compared to

Board-members. Those who ultimately sign-off the strategy seem to have a more positive view of

their employees’ perceptions (which may reflect the optimism bias discussed earlier). 60% of Board-

level respondents believe their strategies have been understood ‘very’ or ‘extremely’ well by their

organisations, compared with 48% of Board-reports.

There is also a difference between higher and lower growth organisations. High-growth, pro-change

organisations are better at building commitment. They are 1.6 times as likely to have ensured their

people understand the strategy ‘very’ or ‘extremely’ well.

How clear, how well communicated and how well understood is the strategy?

Do Board members perceive the effectiveness of their communications differently?

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Putting the right skills in place Most organisations surveyed believed they would need new skills and capabilities to support growth,

but high-growth organisations are more likely to seek new skills to realise their strategy. 60% of high-

growth organisations felt they were likely to need new skills to deliver their strategy, compared with

only 44% of lower growth organisations. This suggests that higher growth organisations are setting

themselves a greater challenge in trying to do new things.

Over three-quarters of respondents suggested they would need to look externally beyond their

organisations to find these skills. This suggests opportunities for mergers, outsourcing and

professional advisors.

Remarkably only 11% of respondents were not confident in their ability to access the right skills.

Having a proactive approach

It is clear that growth strategies are not realised by themselves. They require deliberate and

methodical action to build the organisational buy-in and harness the right attitude to change. The

results show organisations that are more likely to grow have a better attitude to change, are better at

engaging with their people and are more open to new skills.

Do high growth organisations understand their strategies better?

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Dynamic effective delivery

Organisations are still

experiencing a general

delivery challenge with

42% identifying a

tendency to run over

cost, and 53% identifying

a trend of late delivery.

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Dynamic effective delivery

So far we have seen there are differences between higher and lower growth organisations in both the

strategic decisions they have taken and the culture they have fostered to embrace and harness those

decisions. These differences continue when looking at the ability of organisations to deliver their

initiatives and flex what they are delivering to remain on track.

Higher-growth organisations are more likely to:

• Deliver individual initiatives effectively;

• Flex their portfolios and be able to stop initiatives that aren’t delivering; and

• Keep their strategy live through informed decision-making.

Delivering initiatives effectively Organisations are still experiencing a general delivery challenge with 42% identifying a tendency to

run over cost, and 53% identifying a trend of late delivery. This picture differs according to the

organisation’s growth performance. Higher growth organisations are better at delivering change

initiatives. They are over five times as likely to deliver ‘ahead of time’ and 1.5 times as likely to

be on budget.

Are higher growth organisations better at delivering individual initiatives?

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Flexing the portfolio However, whilst high growth organisations are undoubtedly better at delivering change initiatives, they

also seem to be better at changing their change initiatives and flexing to keep on track. Indeed

respondents from high growth organisations were 1.5 times as likely to be ‘very’ or ‘extremely’

confident in their ability to cancel change initiatives if they are no longer adding value or supporting

the strategy.

This suggests that a key delivery capability is not just the ability to do what you planned, but the ability

to alter what you are doing in line with changing plans. The higher growth organisations seem to be

better at both.

Keeping the strategy live Higher growth organisations are more likely to review their strategy in flight, and less likely to be

linked to the individual movements of Board members. 75% of high growth organisations

characterised their strategy development as either following a regular review or live and evolving, as

opposed to only 55% of slower growth organisations. Conversely slower growth organisations were

proportionately more likely to review their strategy reactively because of external shocks or internal

changes in senior management than higher growth organisations were.

Are higher growth organisations more confident in their ability to cancel failing initiatives?

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Such dynamic decision-making hinges upon information and being able to effectively weigh-up the

benefits of competing demands on resource. Whilst there is a general trend of tracking benefits whilst

initiatives are delivering, higher growth organisations are 1.4 times as likely to still be tracking

benefits after delivery. This suggests that flexibility and dynamism needs to be underpinned by

reliable performance information.

The lesson seems to be that faster growth organisations are better informed about how they are

performing, more dynamic in changing what they choose to deliver, and better at delivering.

Do high growth organisations approach their strategy development differently?

Are higher growth organisations better at tracking benefits?

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Conclusion

Whilst many organisations are confidently projecting above market growth for the next three years not all of the organisations appear set-up to achieve it.

If organisations want to succeed against their ambitious strategies, they need to learn the lessons

from those organisations that have delivered high growth, and put the building blocks in place for

success. In particular:

1. They should align their change initiatives to the broader strategic challenges facing their

organisation, besides cost reduction;

2. They should effectively engage with their staff to foster a pro-change attitude that embraces new

skills;

3. They must deliver initiatives effectively and be willing to adjust what they are delivering based on

relevant performance information.

Growth certainly seems possible, but it is unlikely to come without a proactive effort from those

seeking it.

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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 publications and articles which can be found at: www.moorhouseconsulting.com

Published May 2013 ©2013. Moorhouse. All rights reserved.