Organizational change management
Digital transformation, disruption and VICA environments are three vital elements that are changing the way we understand business models and their management. Twenty-first century organizations that want to survive must learn to manage and live with new tensions by creating a new framework for action that the Global Chartered Controller Institute (GCCI) has defined as the New Order of Change (NOC). In fact, many of today’s organizations may have begun their decline without their financial results indicating it.
Traditionally, the Controller had to verify that everything was carried out in accordance with the adopted program, the orders given and the administrative principles. The purpose of the Controller was to point out faults and errors so that they could be repaired and avoid their repetition. It was a profile purely focused on costs and deviations. But it is no longer sufficient.
We are moving towards environments and ecosystems of constant change, and although this has always existed, its pace is now different. The immediacy, the magnitude of the impact and the number of factors to take into account have increased drastically and exponentially. We live in a world overloaded with information and changing at a dizzying pace under the influence of technology.
Three key factors
Any organization that wants to survive will have to coexist with and manage three factors.
- Digital transformation
We are living through the fourth industrial revolution, known as the “intelligence, technology and information revolution”. The world is moving fast thanks to technology. We are living in the era of “digital Darwinism”, a time when technology, organizations and society are evolving faster than our ability to adapt and respond. One example is automotive companies. Many of them, the traditional ones, could go out of business because they apply the evolutionary approach and focus on making the car better. However, the technology companies, like Tesla, Google, Apple, take the revolutionary, disruptive approach and make computers on wheels. They produce cars that are more autonomous, more innovative, safer, and with fewer accidents.
The world has changed, and the pace of change has accelerated and is accelerating. Digital transformation is not just about technology. It is a comprehensive and global transformation, a new way of thinking and managing, it is an aptitude towards this new reality.
- Disruptive environments
We live in a time of social and economic disruption in which it is essential to learn every day. Is it necessary to have cabs to be the largest company in the world in the sector? No, a clear example is Uber.
Nor is it necessary to have hotels to be the largest company in the world in this area, Airbnb proves it. In this environment it is no longer enough to do things better, it is essential to do them differently, innovating and providing unique value.
- VICA environments
The acronym VICA -Volatility, Uncertainty, Complexity and Ambiguity-, VUCA for short, originated at the U.S. Army War College to describe the conditions resulting from the Cold War.
Volatility is the quality of being subject to frequent, rapid and significant change. In a volatile market, for example, commodity prices can rise or fall significantly in a short period of time and the direction of a trend can reverse suddenly. Uncertainty is another component that causes events and outcomes to be unpredictable.
Complexity, on the other hand, involves a multiplicity of issues and factors, some of which may be intricately interconnected. An example of positive complexity is a product that goes viral and becomes an Internet sensation.
The fourth factor, ambiguity, manifests itself in a lack of clarity and difficulty in understanding exactly what the situation is.
The main objectives sought by this model are to anticipate problems that change conditions, understand the consequences of problems and actions, understand the interdependence of variables, prepare for challenges and alternative realities, and interpret and take advantage of opportunities.
In these circumstances, the Controller will act as the doctor diagnosing the disease (VICA elements) and, on the other hand, will propose solutions that, in this case, are addressed to the patient represented by the organization.
The six tensions
Organizations will have to manage several tensions and live with them, creating a new framework that the Global Chartered Controller Institute (GCCI) has defined as NOC (New Order of Change).
Tension 1. Innovation, sales and profitability
Microsoft has taken 16 years to reinvent itself, to innovate, to bet on a different business by changing its main source of income from Microsoft Office licenses to Cloud Computing. A time marked by continuist decisions, in which its competitors were growing steadily while the PC market, its main source of income, was slowly dying. If an “elephant” with more than 130,000 employees and a market capitalization of more than 850 billion dollars has been able to make such an important cultural and business change, any company, including SMEs, can tackle it. Creative innovation is the process of exciting the customer with something new. This allows us to gain a privileged position in the minds of consumers who will be willing to buy our products, generating significant revenues that will lead to a profitable business.
The Controller can contribute by providing theoretical and practical knowledge, constant renewal of what has already been learned, competencies and skills, without forgetting that there is still much to learn in order to guide the company in the necessary direction that will allow it to innovate, sell and generate profits in a sustainable manner over time. The broad spectrum of training required of the Controller, together with his or her broad strategic and transversal vision of all areas and processes, makes him or her the lighthouse that guides and unites all the pieces of the complex puzzle that companies are today.
Tension 2. Short term vs. long term
The culture of immediacy generated by the digital revolution also reaches companies, where there is pressure to do everything now (or even yesterday), in order to obtain results as soon as possible. Here, the figure of the Controller emerges with force, who must be able to manage the tension generated by immediate results, while keeping in mind the sustainability and survival of the company in the long term.
During its first stage, Amazon Inc. alternated years of losses with years of low net profit. It was able to wait 22 years until its profits grew exponentially. In this situation, the Controller must have the ability to identify the gap between “what is” and “what could be”, i.e. the ability to bring the future into the present, helping the company’s management to find the best path in terms of economic results, processes and efficiency. Jeff Bezos was a visionary and a great patient, simmering Amazon into what it is today. This is the difference between a leader and a follower. The leader draws where he sees the company in the future and manages change in a digital and disruptive environment by making the necessary decisions to reach the expected future as soon as possible. The follower does not know where he wants to go and makes decisions.
Thus, we can say that the most important asset of today’s companies is time, therefore, we must become “time managers”. To do this, we must segment all our work into two dimensions according to its importance and urgency in order to, and here is the key, decide what to do with each task according to the place where we have categorized it.
Tension 3. Enablers
Every company in its management has to balance three critical enablers: technological, human and process. The Management Control area is in a privileged position in this aspect, since it interacts with all these parts.
- Technological enabler.
If traditional economic theory kept capital, land and labor as the primary elements of study, information and technology have become the fourth resource to be managed. Information and data are the real raw material and the one that allows the most appropriate decisions to be made, providing all levels of the organization with the necessary knowledge for the correct performance of its work processes. Management control, in addition to obtaining and managing information efficiently, must use technology to generate simulators and future scenarios that allow the organization to make better decisions both on a day-to-day and long-term basis.
- Enabling human factor.
For the Controller to be successful and lead his organization to quotas of excellence, in addition to being an expert in analysis, planning and management, he must know how to lead and manage people. He must develop the art of adapting numbers and their meaning according to his interlocutor; it is not the same to communicate a number to a financial director as to a manufacturing director, or to a general manager as to a design manager.
- Business process enabler.
The Controller must have the ability to improve the performance (efficiency, effectiveness and agility) and optimization of business processes of organizations. Through his management, he must help to design, model, organize, document and optimize continuously.
Tension 4. Efficiency versus flexibility
Another determining tension in the balance between purely efficient and not very flexible or purely flexible and not very efficient management models. This will depend to a large extent on the sector in which the organization operates, since fashion is not the same as automotive. In the first case, flexibility will be vital to be able to face the competition, while in the second case, cost efficiency will be crucial. In this tension, it is essential to understand the company’s DNA and, above all, the speed at which it moves.
Tension 5. Decision-making
This tension is based on the quality of the decision plus the speed of the decision minus the effort. Most organizations do not make decisions for fear of being wrong and for stepping out of their comfort zone. However, in this new world, where agility is vital for survival, making slow, low-quality decisions puts the organization out of business. The Controller, through the management of information and data, can bring a lot of value at the time of decision making, generating agile and quality decisions.
The case of Kodak is a good example. It was one of the first manufacturers of digital cameras, but did not bet on this format until it was too late, fearing that the absence of film in these new cameras would damage its film business. That delay provided the opportunity for Sony, Nikon or Canon to take a large share of the digital market, something from which Kodak was never able to recover.
Tension 6. Trade-offs
It boils down to the art of trade-offs and trade-offs. Resources in organizations are not infinite, so resources have to be sacrificed in favor of others, and this is where the Controller with his transversal vision of the business and the P&L will provide a crucial vision to support management. The organization has to define the elements to increase, maintain, reduce and eliminate in order to optimize resources and respond in a solid way to the new scenarios.