By Daniel Hunter
Organisations are placing too much emphasis on cost reduction and not enough importance on initiatives to fuel growth, according to new research from transformation consultancy Moorhouse.
The 2013 Barometer on Change finds that over half (54%) of organisations have initiatives in place to reduce costs, compared to just 22% with initiatives aimed at improving performance. Less than a fifth (19%) claimed to be addressing new products or services.
These initiatives are often not addressing the strategic challenges that the business faces, even though 82% of organisations believe they are focused on the right activities. For example, while 72% cited new products and services as a strategic challenge, just 19% said they had initiatives addressing this. While culture change was cited by 31% as a key challenge, just 13% have programmes in place to tackle this.
Organisations that have experienced higher growth in recent years (cumulative annual growth of above 5%) are more likely to have initiatives in place that engage staff or pursue growth. Organisations that have been less successful are more likely to be focused primarily on cost reduction. Those that remain agile and view themselves as “pro-change” are almost twice as likely to experience higher growth, compared to organisations which see themselves as “anti-change”.
The research spoke to over 200 Board-level directors and senior managers reporting directly into the Board at FTSE 250, UK multinational and public sector organisations, responsible for a total spend on change of £4.4bn.
“Some UK businesses have become stuck in a mindset of cost reduction and internal efficiency drives with little focus on initiatives that will generate their competitive edge and position them well for growth," Stephen Vinall, Managing Director of Moorhouse said.
"To achieve growth, organisations must look beyond cost cutting and at investing in the kinds of initiatives that will help support this ambition, such as accessing new markets or tackling regulatory-driven change. Savings being generated by cost reduction should be reinvested in these kind of activities to help safeguard the future of the business.”
Organisations are still struggling to deliver their change initiatives: 42% identified a tendency to run over cost, and over half (53%) feel they run late. Once again, higher growth organisations are five times as likely to deliver “ahead of time” and 1.5 times as likely to be on budget. High growth businesses are also more likely to be tracking the benefits of an initiative to ensure that it is actually delivering on its promise after the actual project has completed.
Nine out of ten organisations in the survey may also have strategies that are trying to achieve conflicting goals: 90% claim to be differentiating themselves around at least two of the following competing priorities; creating the best products, having a highly efficient operation or being entirely customer-centric. Yet the initiatives they are focusing on as a business do not reflect this, and it is rare that organisations can be successful at more than one of these ambitions simultaneously.
“Organisations are pulling themselves in opposing directions. A business cannot deliver the most bespoke service available to its customers while also being the most highly efficient; nor focus on either of these while developing the best products," Stephen continued.
"You can’t be an Apple or Dyson while also being a Tesco or easyjet. To differentiate themselves clearly, organisations should pick one of these areas and make excelling in this their strategic priority that their change initiatives then clearly support. Whatever their context, every business has to be adept at turning its strategy into a realistic and achievable portfolio of programmes or initiatives.”
Sharing the strategy once it has been agreed is also causing problems. Despite three quarters (74%) believing their strategy is clear, around a fifth feel this has not been well communicated to staff (18%) or is not clearly understood by the rest of the business (22%).
Confidence in the communication of strategy drops significantly from Board level respondents to those reporting into them. Yet high-growth businesses are 1.6 times as likely to have ensured their people understand the strategies they have in place.
High growth organisations are also better at adapting their strategy and remaining agile. Respondents from high growth organisations were one and a half times as likely to be “very” or “extremely” confident in their ability to cancel change initiatives if they no longer added value or supported the strategy. Three quarters (75%) of those in high growth organisations said they reviewed their strategy regularly, compared to just 55% in slower growth businesses.
Respondents also see the pace and pressure for change increasing: 65% say it has increased over the last three years, and 74% expect this to increase further. However, those organisations that are currently less capable at managing change are more concerned about the future pace of this. Organisations experiencing slow growth have greater fears about the future.
High growth organisations are also more likely to seek new skills to deliver their strategy: 60% felt they would need new skills, compared to 44% in organisations expecting less than 5% growth.
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