Practical challenges - thoughts from an interim manager
We are now entering a period when many organisations will face market pressure to improve the service offered to customers and to reduce costs. At the same time, many companies will be combining operations following an acquisition or merger. In this article Paul Kennedy gives an overview of some of these challenges and the crucial role of the Interim Manager.
Introduction
During the last year we have experienced extraordinary events in the banking sector and the economy generally. So far in 2009 we have seen the impact spread to other sectors, with the rapid change across the economic landscape predicted to continue for the foreseeable future. With reduced consumer confidence and less disposable income, individuals will be more discerning when purchasing goods and services in the future. In these quieter market conditions the quality of the product and service offered will be important to ensure growth, or in some cases, survival of the organisation. Companies must therefore aim to operate more efficiently and reduce their cost base.
The corporate activity witnessed during the winter and predicted for the coming months will result in projects to integrate both operations and products. For those organisations untouched by corporate activity there will be pressure to improve services and reduce costs to achieve a competitive edge in the market. More efficient and streamlined organisations will therefore be a common aim during the next few years.
In this article we look at some key challenges faced by the management team when integrating two organisations and consider some of the options that can transform operations to help companies operate more efficiently and reduce costs. The Interim Manager is well placed to contribute to these changes by offering experience and impartial advice. In many cases this can make the difference; ensuring the change is viewed (as a success) positively for the organisation.
Integration
When organisations are brought together, there is an initial need to establish basic communication across all sites (eg. by email). It is also vital to integrate reporting and the product portfolios. In fact, one of the earliest priorities is to address product alignment so that any competition rule issues can be dealt with swiftly.
To deliver the longer term benefits and synergies, integration of the organisations will need to be managed in a structured manner. Beyond the initial practical steps, the overriding challenge for successful integration will depend on how the different cultures are aligned and how members of the management teams are motivated to work together. An effective Interim Manager will be able to support this process. Seen as both experienced and independent, the Interim Manager will have high credibility with both management teams and will be able to champion the preferred business solution.
In addition, these are some of the more common issues and challenges:
- Product alignment and development; competing products will need to be streamlined with some being phased out, and a range of products launched, which are supported by the core strengths of the combined organisation. Refining the product range will also need to address any competition rules. In the longer term, the inherent expertise of the management teams must come together to develop the product range.
- Branding; the future brand of the organisation should be identified as a priority and a strategy developed to build its profile. Ideally the new brand should be launched along with the newly aligned product portfolio.
- Premises; when organisations are brought together there may be a need to reduce the number of operational sites. When considering the future for each, it is important not to lose particular expertise. In some cases it may be preferable to maintain separate sites to ensure product knowledge is not lost or technical expertise remains in the organisation. A long term view of future recruiting may also be considered as the local community may have relevant expertise as a result of other employers in the area.
- Operations; the initial focus will be on removing duplicate functions and ensuring unnecessary costs are reduced or removed. During many integrations the aim will be to move to the 'best' processes chosen from each of the organisations. In practise, developing more efficient processes and improving the service to customers will probably require some re-engineering and will be viewed as a transformation of the business, which we will cover in more detail later.
- Human Resources; aligning the terms of employment and benefits provided to employees is always a high profile, sensitive issue and will have a huge impact on the morale and motivation of staff. The transfer of staff from one employer to another is the subject of much legislation and cannot be covered in detail here. Suffice to say the perception of how fairly staff are treated will be one of the key influences on their future motivation and the success of the new organisation.
- Finance; beyond the initial alignment of internal reporting timetables, the longer term aim will be to migrate to a common Finance IT architecture and chart of accounts. In addition, the tax implications of the joint entities will need to be reviewed and changes to the corporate structure adopted where appropriate.
- Information Technology; as part of integration, the systems supporting the business are unlikely to be changed. This is a subject for future development, probably as part of a transformation programme. The focus is therefore on ensuring functionality is available to the relevant teams across the organisation and reducing the operating costs by removing duplication of resource and expertise.
- Outsourcing; many organisations have outsourced functions to third party providers, and the combined entity is likely to have several third parties to work alongside. This can be particularly challenging when the same function has been outsourced by both organisations and where different Service Level Agreements (SLA's) offer different levels of support. For example, prior to integration the IT functions may be outsourced to competing providers offering different levels of support for the combined entity.
Each of these points will require specialist knowledge and experience to ensure a smooth transition to the combined operating model. This may be available in the organisation, however, it is more to be another opportunity for the Interim Manager to contribute to critical business decisions.
Throughout the integration process, the most critical challenge for the management team is to create a strong desire amongst employees to achieve an effective combined operation. Motivating the teams to achieve this goal and addressing the cultural differences will, in most cases, determine how successful the integration will be. As an independent voice the Interim Manager is in a unique position to influence the outcome and in some cases lead the initiative to support the cultural change.
Effective communication is crucial to achieving this motivation. Its impact is often underestimated, however, open, honest and timely communication will influence the success of the programme.
For some organisations the desire to develop more efficient work practises and improved services will follow directly from, or form part of the integration, others will launch a fresh initiative.
Transformation
Following the Credit Crunch every business will need to respond to a new economic and social environment. With customers openly questioning business motives, every organisation will need to be smarter and more efficient to thrive in a more competitive and cost conscious environment. All of this comes at a time when capital will be more costly and difficult to find.
To address this issue, initiatives to improve business processes or reduce costs can be undertaken within specific departments or more ambitiously across the organisation. For example an initiative to improve the service offered by Finance to make the department more efficient may be launched, or a more far reaching change across the organisation may be applied to improve the quality of internal reporting and the efficiency of business processes.
The typical scope of a transformation initiative can be restricted to a department or include a mix of initiatives. These, along with a few of the typical challenges, are outlined below.
- Improve business processes - the business process can be analysed and 're-engineered' to remove any duplication or unnecessary tasks. Alternatively the process can be redefined to introduce a new approach, which will usually involve changes to the business systems. In many cases this initiative is unsettling for staff as any change to the process will impact their roles and responsibilities and may require fewer employees. Two of the more positive results are the immediate impact on the quality of the service and a reduction in costs.
- Information technology - improved systems can ensure the organisation is more flexible and responsive to the market, for example, enabling new product launches and improved internal reporting. Changes to the IT architecture will often be completed in conjunction with process re-engineering delivering improved service and long term cost reductions. The drawback is the high initial cost to introduce the improvements.
- Improve reporting - producing high quality and timely management information may be the key to improving business decisions across the organisation. Improving reporting of the relevant key performance indicators (KPI) is crucial to ensuring the behaviours across the organisation are monitored, providing management with the information they require to improve service standards and reduce wastage.
- Staff motivation - improving the working environment and enhancing the roles of individuals is key to motivating existing staff and attracting high quality people into the organisation.
- Improve controls - when business processes and management reporting are changed the opportunity arises to look at the organisation's embedded internal controls and improve the controls culture.
- Risk management - improve reporting to provide KPIs on the risks environment, providing timely information on the internal and external factors impacting the company. This is a detailed subject worthy of analysis in a separate article, and may be particularly relevant during the coming months.
Inevitably some of these initiatives will be more effective at improving service levels and reducing costs than others. Typically, costs will be reduced when processes are streamlined and made more efficient, reducing duplication and the effort required to complete the task. This may result in staff disruption and headcount reductions, however, if the change is managed effectively, in the longer term the streamlined team will be offering an improved service and individuals will have more rewarding and satisfying roles.
The Interim Manager will offer Management a smarter way to introduce the changes and improve the operation. This may be a proposal to change the business model, for example, introducing a shared service centre, or merely an efficient way to complete process re-engineering. Again, the Interim Manager has a key role to play in supporting Management.
As with the integration of organisations, the biggest challenge in delivering improvements will be ensuring staff are not de-motivated by the change. In fact, we want exactly the opposite!
Summary
Looking forward, many companies will need to streamline operations and improve the way they operate to remain profitable in the future. To be successful and grow the organisation will be an even greater challenge. Taking a proactive approach to integrating organisations and improving operations will be a step towards offering an improved service at a reduced cost.
The experience offered by an effective Interim Manager will provide the management team with a valuable insight into the issues they face when making these changes. At the same time, the Interim Manager has credibility with the staff to lead change.
Some organisations will combine integration and transformation, others will, by necessity or design, approach them separately.
The major challenge with both initiatives is to ensure staff believe in the journey to deliver change and remain fully committed and motivated by the changing environment. Regular, effective and honest communication is crucial in achieving this aim, however, it is often overlooked in the rush to introduce the change.
Paul Kennedy is an Interim Manager who has specialised in leading integration and transformation programmes in the Financial Services sector and regularly contributes to leading business publications.