Management accounting: Successful business change creates value and benefits, and contributes to business growth, writes Cecily Macdougall.
As any elite athlete knows, to become a world champion requires focus, training, hard work, dedication and time.
For an organisation to become an elite business performer, it also requires focus, hard work, dedication and time. However, the training is done through managed strategic change. Unmanaged change increases rework and cost, and the investment rarely delivers the required outcomes.
Strategic change is defined as the movement of a business away from its present state towards a desired future state to improve its circumstances. The change usually begins with the recognition of a business problem. In this case the executive director recognised that there was a problem and that change was mandatory.
The following case study, conducted from 2004 to 2007, provides an overview of the strategic change that was undertaken by a business to create value (effectiveness) and benefits (efficiency) that contributed to business outcomes and realised its vision. Using the same number of resources as before change was implemented, the business has become a successful and widely recognised entity across the enterprise.
When the project began, the look on the executive director's face indicated the size of the problem and the challenge being faced. There were so many dysfunctional elements in the business that it was difficult to determine where to begin. Operational staff were working all hours during the production weeks and morale was extremely low.
It was proving impossible to produce the outputs and achieve the outcomes required by the business without considerable strategic change and business improvement.
The business was responsible for reviewing and monitoring all significant capital programs and projects across their life cycle on a portfolio basis.
This included the coordination of a 10-year consolidated view of asset and asset-related investment proposals under consideration, and informing the budget process for the coming year.
This coordination also included guiding the business through 'what if' scenarios for budgeting and planning, as well as the triple-bottom-line evaluation and prioritisation for the investment.
The business was also responsible for the governance process for the preparation and submission of proposals for funding. Following funding, the business would monitor the financial and non-financial performance of significant capital programs and projects through to delivery and completion.
The operational and reporting responsibilities extended internally and externally on behalf of 11 businesses for their capital projects. The portfolio of 500 projects was worth approximately $20bn.
What was needed was strategic change. By working with the executive director the vision was established. This was to change the governance of capital works, and become the centre of expertise and information source for the management of projects, programs and portfolios.
There are many approaches used to manage strategic change, and the best one is usually dependent on an organisation's business context. Change is not a prescribed set of activities; it is specific for the organisational context. In this case an incremental approach, which involved implementation 'by stealth', was used. For example, the vision was known initially by only a handful of direct reports. Communication to the organisation was done through a series of contextual diagrams, which gradually released the vision over a period of time.
Through a series of planning sessions, the business objectives and outcomes were then constructed. The vision, the objectives and the outcomes provided the solid foundations for the strategic change, so their importance and the planning time to construct them was not compromised. They also needed to align with the enterprise's business outcomes.
Next, the stakeholders, both internal and external, were ascertained, and the elements that would provide benefits and value and contribute to business outcomes were identified. Many people refer to benefits and value as just benefits. However, it is useful to understand the difference.
Benefits provide a gain to internal stakeholders and are measured with efficiency measures. Value provides a gain to external stakeholders and is measured with effectiveness measures.
The contribution made by benefits and value in the strategic change model are not measured on their own because the contribution needs to be relative to the business outcomes. The contribution from benefits and value also needs to be balanced because a business may be extremely efficient but not effective, or vice versa. The larger the combined contribution of outcomes, the closer the business is to the realisation of vision.
Benefits and value differ from key performance indicators (KPIs). These are often used to measure the performance of a business but tend to count outputs. KPI results are relative to a target, and can drive behaviour in an unfavourable way.
These measurement methods differ, as results for benefits and value are relative to a range. Then, through a specialised algorithm, benefits and value are combined to ascertain the contribution to business outcomes. This outcome contribution is then combined to ascertain the realisation of vision.
The next task was to analyse the organisation, resources and processes. Using the strategic architectural framework (see diagram: the strategic architectural framework), it was determined that the change needed to include the following:
The organisation was restructured to take into account the vibrant personalities in the business
Redeployment and introduction of skilled staff to support the changes taking place. The tolerance levels and the gains of all parties were also taken into account
Processes were automated and streamlined, supported by consistency in business definitions and guidelines
Innovative technology was introducted to automate the existing outputs and create new services to respond more effectively to customer needs
Access to quality information was provided
The use of the strategic architectural framework enabled the arrangement of all the elements of the services and the building of innovative pathways to put the strategic change into effect.
The program of work had to provide coherence, so that there was continuity of existing services during the implementation of change.
The contribution model was created based on the contribution framework (see diagram: the contribution framework). This included the quantification of benefits and value, in non-financial and financial terms, to ascertain the net present value (NPV), internal rate of return (IRR) and the benefits cost ratio (BCR). This enabled the justification of the business case to implement the changes.
The baselines having been set in the strategic change contribution model were then used at nominated points along the journey to measure and evaluate the value and benefit contributions in both financial and non-financial terms, measure and evaluate the contribution of change to business outcomes, and measure the realisation of vision.
Using this model counters one of the common problems of strategic change, that of strategic drift. This is likely to occur at about 60 per cent completion of the program, and makes things time-consuming and costly to put back on track. In this case, the contribution framework and model provided transparency, consistency of results, and a communication mechanism for the change program.
The communications plan included internal and external stakeholders in various channels, such as workshops, newsletters, forums and one-on-one discussion. 'Communities of interest' were also formed to extend the communications. The language of the business was also changed, to put the focus where it needed to be.
The incremental strategic change took time but was extremely successful and had many 'quick hits' along the way. The change did invoke conflict, politics and resistance from some staff, both expectedly and sometimes unexpectedly.
Others were fearful of the change, wondering what it would mean to their current routines, what would be the same, what would be different and what would be new. These situations were managed as part of the risk profile of the program, and were either overcome or mitigated.
Contextual diagrams were used to provide 'helicopter perspectives' and enlighten the staff as to where they contributed to the overall picture. Any communications of strategic intent had to take the complex issues into ways that could be absorbed quickly.
The structure of the program of work ensured that major gains were obtained first and communicated widely to the organisation. This enabled the program to build momentum. The program also had flexibility to respond to new ideas and other organisational changes.
Strategic change is challenging, as it requires the ability to cope with the ambiguity of strategy, flexibility, insight and sensitivity to strategic context, the ability to relate to all levels inside and out of the organisation, the ability to drill right down to the detail, as well as an ability by individuals to the take on the roles of fixer, facilitator and negotiator as required.
The commitment of direction, the continuity of team, stakeholder engagement, the leadership and advocacy from the executive director and the steering committee all ensured the success of this strategic change.
The change greatly enhanced the value and benefits provided to the stakeholders, and secured the results it set out to achieve. The business has become the centre of expertise for the enterprise and has changed the governance of capital works. The business can now:
provide expertise on portfolio, program and project management
manage whole-of-life of capital projects over $10m, from identification through the governance stages to delivery and completion
support multiple businesses and their significant investment in programs and projects
provide business intelligence and early warning advice on the financial and non-financial performance of capital projects and programs
provide the enterprise with a single source of information
provide a positive work experience for its employees.
The contribution made to business outcomes and the realisation of the vision was continually measured. The contribution nearing the completion of the program is illustrated (see diagram: project completion and outcomes) for three of the major outcomes.
The change has been extremely successful and the business is continuing to benefit and value contributions for two of the three major outcomes. The contribution will continue to be monitored well past the completion of the strategic change program.
