New Rules for Reducing Risk in Business Transformation

A version of this post appeared on Risk & Compliance.

Business transformation is pervasive. Nine out of 10 companies are undergoing transformation, according to a KPMG survey, with billions of dollars a year spent on business repositioning, portfolio realignment and expansion, turnarounds and recoveries.

Millions of employee hours will be dedicated, and yet only 24 percent of these efforts will put their organizations ahead of the competition in the short- and long-term. No wonder so many companies no longer like to use the word “transformation.”

But calling transformation by another name does not reduce the forces causing companies to transform or the urgency with which transformation is being pursued. According to the Harvard Business Review, the ‘topple rate’ of industry leaders falling has doubled in a generation. And Innosight analysis uncovered that at the current churn rate, 75 percent of the S&P 500 will be replaced in less than 10 years.

A number of factors determine whether a transformation will succeed, but one of the key characteristics that successful transformations share is a focus on shifting the mindsets and behaviors of stakeholders. McKinsey & Company found that companies that translate the transformation business strategy into an engaging case for change that people can connect to, and then communicate that vision on an ongoing basis to all audiences, are eight times more likely to report a successful transformation than those that do not.

Companies failing to make communications a priority during times of change is not new. Reasons range from time and resource constraints to the challenge of quantifying and tying efforts to business results. The importance, however, of using communications to enable change – as compared to even just 10 years ago – has increased. Communications now plays a material role in a transformation’s success or failure because it has a powerful impact on how people think and feel (mindsets) and what they do and how they act (behavior).

Consider the high-level approach of a corporate breakup into multiple, independent companies. In the past, a company could expect to issue a press release announcing the decision; hold a call with investors and media to explain the rationale for the deal; file the necessary paperwork with the Securities and Exchange Commission and other regulatory bodies; create new brand identities; and issue internal announcements from leaders to employees tied to organizational and benefit changes. The leadership team would wrap up the process by trekking to New York City to do media interviews and ring the bell at the relevant stock exchange.

Much of the above remain important milestones, but today’s environment is more complex. Consider eBay Inc.’s* spinoff of payments arm PayPal* in 2015. Leading up to the breakup announcement, eBay had to contend with a high-profile proxy fight waged online and over social media. Shareholder activism is by no means new. However, eBay was faced with handling all the requirements of a complex transformation, while also managing stakeholders – from investors to merchants to employees – who were bombarded around the clock with company criticism, counterarguments and speculation. With an activist investor rallying opposition and publishing market-moving tweets at all hours, eBay had to match the activist investor’s speed, and double down on communications to reinforce the strategy and maintain confidence internally and externally throughout the demerger.

The challenges eBay navigated highlight the increased role of communications in transformations today and illustrate how changes in technology and the role of trust in business and leaders have reset the rules for how organizations must engage. In our experience, three key success factors increase trust, accelerate growth and positively shift mindsets and behaviors to enable transformative change:

A human and credible voice. According to Edelman Trust Barometer research, the public’s trust has been undermined by lack of confidence in media. In a world filled with “fake news” and disinformation, the role that business plays in being a source of credible, trustworthy information has never been more critical. As one example, nearly half of respondents (46 percent) said they are more likely to believe a major corporation’s take over that of a news organization when it comes to analysis of an important social issue. This creates significant opportunity for companies and their leaders to provide transparent and timely communications to navigate and lead the way.

Adaptive and always-on communications. In the new media landscape, everyone, including investors, employees and customers, relies on digital and social media as much as on traditional sources of news. Information – accurate or not – travels faster than most companies can keep up with and all stakeholders, even those with unpredictable viewpoints, have microphones. Rather than the event-driven approach of the past, organizations and their leaders must proactively communicate throughout the transformation and adapt to reach their stakeholders based on how they now consume information. Companies must ensure that communications plays a role on the transformation team in shaping critical decisions and must balance reaching audiences at the speed they require with maintaining compliance and coordination with legal, finance and other related functions.

Engaged and empowered employees. It is more important than ever to engage with increasingly active and vocal employees, many of whom already suffer from change fatigue and act (sanctioned or not) as company ambassadors on social media. In our experience, the individual contributions of employees often dictate whether a transformation will be successful or not, and it is critical to earn their buy-in from start to finish. With the likelihood that nearly three-quarters of a company’s employees are active on social media, organizations must find ways to embrace and mobilize the powerful voice of their employees, who are seen as more trusted than CEOs on issues such as customer relations, company performance, and crises and issues, according to our research.

No one would argue that communications alone drives success. But business leaders must no longer view communications as transactional and event-driven, and instead take a human-centric, always-on and proactive approach at all levels of the organization. In other words, adopting a communications mindset fit for today’s constantly transforming world.

Jim O'Leary is practice chair, Corporate Affairs and Advisory Services, U.S., Canada and Latin America.
Adam Gerstein is general manager, Corporate & Public Affairs and Business Transformation Leader, New York.
Will Crain is senior vice president and Corporate Affairs practice lead, Austin, TX.

*Edelman client

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