Why transform - Costs of not transforming - part 1 of 3
Updated: Jan 4
Introduction to this blog series on why transformation is needed
Many companies have proven that an Agile Culture Transformations done right has enabled their sustainable success. But change doesn’t come easy. It requires a comprehensive change of workflows and a major shift in corporate culture and mindset.
To justify the major investments required to successfully transform, it is essential to understand why a transformation is needed. What happens if a transition to an Agile Culture is not tackled and what are the benefits of successfully implementing these disruptive changes?
Therefore, in this blog series, we will uncover why an Agile Culture Transformation in today's volatile, uncertain, complex, and ambiguous times is essential.
We aim to provide well-founded information to be able to take the right decision on an Agile Transformation.
In this blog post, we describe the major cost drivers of not transforming. We understand the costs of not transforming as the effects of following the status quo.
Ward Cunningham developed the metaphor of technical debt referencing the well-known problem of financial debt. It describes the future costs (debt) accumulated when not keeping a system up to date with the current technical and operating environment, thus growing into legacy systems.
The cost of legacy systems is substantial with an average of 60-80% of IT budgets allocated to keeping them running. According to Avenade an estimated 90% of businesses are held back in terms of growth and enhanced efficiency due to old technology.
Next to causing enormous costs and hindering growth, unsuccessfully managing technical debt can cause situations where upgrading systems to the latest technologies is impossible and the development needs to be discontinued and support of the product ceased. This can have catastrophic effects on the business.
Increased work absences
In software development employee overload and the resulting stress has increased in many companies and more work absences and even loss of employees due to invalidity are unavoidable.
According to a Gallup report, absences are increased by a significant 81% for the top-quartile compared to the bottom-quartile of companies regarding employee engagement. The production losses in Swiss corporations due to stress have been estimated at over 6.5 billion per year or 1% of the economy by the Swiss Federal Statistical Office.
Increased employee turnover
An increase in employee turnover is unavoidable if employee engagement is not improved.
The companies with 25 per cent worst results in employee engagement according to Gallup not only have significantly lower productivity (-18%), profitability (-23%), customer loyalty/engagement (-10%), but a massively increased employee turnover (+18 to 43%) compared to the companies with the 25 per cent best engagement values.
Lost efficiency due to trench warfare
If actions to counteract the growing split of organizational areas are not put in place, teams across the organization will not work together in unity – this is the silo effect.
The loss of efficiency, in that case, can be enormous, as well as stifling innovation from cross-functional, cross-departmental collaboration.
To mention some numbers from surveys, 39% believe that there isn’t enough collaboration between teams in organizations, 86% blame a lack of collaboration or bad communication for team problems and failures and less than 50% thought their organizations effectively and honestly discussed issues with employees.
Misalignment between culture and strategy
Corporate culture needs to align with the corporate strategy, otherwise, an increased or optimal performance of the individual, the teams and the organization will be impossible to sustain.
The consequences of this include a lost sense of mission, disoriented employees, damaged public image, and increased turnover.
Loss of market alignment
Without enabling and fostering a culture of innovation the ability to react to market changes and benefit from new market opportunities are lost.
This Innovator’s Dilemma causes a misalignment with the market and will make your market position dwindle.
The identified major cost drivers of not transforming can be grouped in to five main parts:
Team and Cross-Team satisfaction
Identifying opportunities towards the market
As we’ve seen these costs are enormous and can even lead to a total failure of an organization.