July 24, 2012 | Written by: Kirk-Dale
Business Transformation: Re-imaging The Case for Change
Have you ever found it difficult to create meaningful
business cases for implementing organizational change? All too often transformation leaders and CIO’s struggle with challenges when trying to translate transformation strategies into business benefits or executable systems and processes. When they are successful, technology or business model advantages are easily copied and competitive advantages are
often short lived. This year’s leading edge innovation is available next year more cheaply and with less risk.
Transformation leaders need to refine the lens of how they define, initiate, monitor and evaluate their transformation program’s performance. In order to maintain a competitive advantage, their thinking must be agile yet focused. Leaders should strive to achieve strategically aligned business objectives because failure to do so has resulted in technology, structural and process change that are at best commoditized. Thus, each firm utilizes the same solutions with few ensuring business model innovation. Even worse, it results in solutions that are significantly misaligned or at odds with the organizations’ overall vision.
So ask yourself this question. Are you a qualitative leader or a quantitative leader?
The process of defining and analyzing costs and benefits leverages both types of capabilities. Business benefits must be understood qualitatively – they must be articulated such that process owners understand and accept them. Benefits must be enumerated – their impact must be measurable so that organizations can make corrections as their plans are executed.
Although arriving at a balanced view is important, the process by which the organization assesses an initiative’s value is as important. As is, how they attempt to operationalize it. By following a comprehensive framework, leaders secure stakeholder acceptance, ensure alignment with business objectives and prioritize initiatives that avoid premature commoditization.
The impact of a transformative initiative can be understood by using the Altman Z-Score. It is a recognized metric that reflects the health of an organization. This financial ratio utilizes financial measures, which have has been used to predict bankruptcy and value corporate bonds. The Z-Score measures an organization’s performance on the basis of:
• asset utilization;
• efficient use of working capital;
• earnings efficiency and profitability;
• market value of equity; and
When organizations start analyzing a transformation initiative, they should ask questions like: How does this improve asset utilization? What impact does this have on our profitability? Or, how will this decision impact working capital? Try to map out the process that produces the best business benefit from the lowest level tasks being performed through to the balance sheet and income statement. This should be done quantitatively and qualitatively. The business case is then based on the
responses to these key questions. The more tenuous the response –the weaker the business case.
So, the next time leaders are faced with developing a business case for organizational change, try leveraging the Z-score. It’s the optimal lens through which to prioritize initiatives, identify their financial impact, monitor the outcomes and build (or rebuild) a healthy organization.