Transformation was already high on the board agenda prior to Covid-19, but its importance is growing as boards and executive teams wrestle with how the post-pandemic economy will shape up. As a board member, do you know enough about the mechanics of business transformation to fully support the executive team as they engage with one of the more fraught episodes in anyone’s management career?

It’s likely that Covid will shape the business agenda for the rest of the decade. The IMF has already calculated that global lost productivity amounted to $28trn in the first wave alone.

Early movers have already indicated they are making permanent changes to their operating models. These include Fujitsu’s new borderless office strategy (with 80,000 remote workers), Twitter’s “forever” remote promise, and Siemens’ New Normal Working Model that promises remote work to staff who want it.

These changes come on top of the shift to digital processes, the introduction of AI and machine learning and more agile ways to work. There is unprecedented pressure to innovate or change the way business is done.

Supporting success

So what are the key aspects of business transformation that will help board members to ensure that leadership succeeds?

1. Employee empowerment and trust

Transformations have a habit of degrading employee empowerment and trust. Not only are they often couched in terms of staff reductions, but the change plan implies that the organisation lacks the skills and aptitude for digital work. That leads to hiring consultants and contractors, which can create division in the organisation. The board should encourage leaders to sensitise themselves to the disempowerment risk inherent in transformation.

2. Governance structures

There are plenty of ways companies manifest their transformation—working with start-ups, more use of Software As A Service (Saas) platforms, creating new partnerships and converting to agile working. A common error is to manage all this using traditional project management tools. Many business transformation programmes consist of multiple smaller projects and you need to encourage leaders to use the appropriate governance structures for each—sometimes traditional and sometimes new.

3. Complexity

Transformations tend to be additive—that is, they add more technology, more projects, more products. But success really lies in what you take out—old technologies, unprofitable product lines or those that are becoming less popular. By not weeding out the old, companies increase complexity and make success more difficult. The board should encourage the CEO to prune products and technology, as well as adding them in.

4. Change visualisation

When transformations are run through traditional mechanisms, most information on their progress end up in databases and therefore become difficult to see, except through well-filtered reports. Modern techniques make more use of visualisations and, often, these adorn the walls of the relevant departments, ensuring real transparency for everybody. The board should ensure the narrative of change is visualised, and ask to see it regularly.

5. Change momentum

A true business transformation or a change to overall business agility is a rare but necessary event. Though total transformation may be the initial purpose, the focus soon becomes the transition to digital processes and from there, executives become transfixed with the IT department. Business teams have a much harder time embracing change. IT departments interact with the global IT culture all the time, which is very change-focused. Not so for people in strategy, sales, marketing etc. The board should watch out for this shrinkage of purpose and offer insights into how the executive team can sustain change momentum on the business side.

6. Operating model

Companies need to give sufficient time and attention to their operating model (OM). Typically, talk of change focuses on business models (how we acquire revenue) rather than the OM (what infrastructure and services are needed to support that activity). Transformations rely on a target OM that consultants map out based on previous experience. Boards tend not to query its relevance or detail. The modern OM will be adaptive or generative (i.e. it can generate new ideas for direction) and less of the set, future management framework that consultants offer.

7. Planning vs practice

Transformations fail to meet expectations for many reasons but one of the most overlooked is that planning techniques allow for a level of complexity that humans struggle with in practice. An agile approach, rather than a traditional approach, would place the emphasis on trial and error, learning and adaptation. It’s worth raising the point that the shift to agile should be done in an agile way, and across the entire business and not just IT.

8. Leadership skills

Transformative leaders are detailed and strategic—not one or the other. You will find leaders abdicating from this difficult combination of skills and focus. Apple recently revealed that all of its senior managers are expected to know the detail of jobs three layers down in the reporting hierarchy. It’s tough but necessary for your leaders to know the detail, so the board should check that they have methods for keeping on top of it.

9. Anticipating risks

Risk officers are focused on financial and solvency risks to the firm. However, they have a big role to play in anticipating risks posed by transformations. These include negative risks (the transformation goes wrong) and also proactive risk (opportunities are lost). They can play an important moderating role for CEOs who have sold the transformation and become too attached to it. And they can also be a source of advice and insight for board members.

10. Learning from failures

The majority of large-scale transformation programmes fail to satisfy their sponsors’ expectations and a lot of energy therefore goes into talking up the successes without grasping the opportunity to learn the wider lessons. This is a tricky one for boards. Do you highlight the failings? Often, information filters are very strong, so not even the CEO is aware that their teams are being blown off course. Nonetheless, it is important to find a way to wrest fact from fiction. Ultimately, the company will benefit from the board’s tenacity on this one.

Questions the board needs to ask

• Have we done a thorough exploration of which products, services and technologies to take out before we add more complexity in?
• Are we managing the transformation through traditional tools or is it designed and governed in an agile way?
• Is our risk function monitoring the transformation? Many risk managers focus only on financial risk without keeping up to speed with the enterprise risks (reputation, failure, vendor relationships) posed by transformations that start to go wrong.
• How adaptive is our future operating model? Does it create a learning environment where management can make OM adaptations as necessary?
• Is there a plan to anticipate and manage the alienation of key staff, particularly in the legacy areas of our business where we rely on their goodwill to keep the lights on?
• What is the ratio of contingent workforce (such as contractors and consultants) working on the transformation to actual employees? Greater than 10% is a warning sign.
• When will the first examples of value be delivered? Greater than six weeks indicates a bloated transformation programme.
• What mechanisms are we going to put in place for this to be a key learning experience for the senior team? Leaders have to show the way through their own continuous improvement and learning.

Fin Goulding is a former CIO at Aviva International and Haydn Shaughnessy has worked as an adviser to the EU, SWIFT and Fortune 100 companies. They run business transformation consultancy Flow Academy.