Perils of transformation programs

Dunning-Kruger effect is based on the study of a sociological phenomenon, that has won the Ignobel prize in 2009. The theory, in layman’s terms states, that the less a person knows about a subject, the more he is convinced, that he’s an expert about it.  We joked about it at that time with friends, and didn’t take it seriously at all.

Interestingly enough I started noticing the effect, but not on personal, but on enterprise level. More specifically on transformation programs.

tl;dr

The companies starting transformation programs are usually showing the Dunning-Kruger effect in motion, as they progress.

They start with ignorant goal setting, and as the understanding increases, fear sets in. Too bad it’s always too late to do anything about it then. By the time the company overcomes the effects of the program it’s ignorance raises high enough to start a new program.

Transformation programs are usually heavily funded initiatives, that consist of a number of aligned projects, all targeting a preset strategical target. They usually take years of preparation and execution, and consume a significant portion of the subject company’s income, and capital on the way. There are quite a few situations companies take upon such an adventure, but the two two most significant of them are depression and bloom. Either the company is in the dumps, and is desperately trying to reinvent itself, or it’s rolling in it, and wants to change to be able grow even bigger. The transformations I encountered always targeted the replacement of something old, and outdated, that’s either the company’s old product line or the computer system running the core of the enterprise.

In any case, the programs start as a revolutionary management idea. They are approved at the highest possible level, after all it’s a huge and expensive move. This is where the Dunning-Kruger effect makes a debut. Management is usually very far away from the day-to-day business, they just say, we’ll throw enough money at it, and the guys will work it out, as they always do. To make sure they succeed, they even call in a few consultants from outside.

Things can go very wrong with consultants. If they are paid by the hour, they are not quite motivated to reach the targets fast. Even if they are of good intentions, they are always pressed for time, and cannot do a proper assesment of the situation. They give Cassandric advice, which in turn don’t matter, as the Dunning Kruger effect steps in, management already knows best and makes uninformed decisions.

dilbert-consultant

Having defined the top level targets, the next step in the program is usually selecting the suppliers. This is usually done without creating a comprehensible as-is and to-be view, so the actual transformation need could be identified. Even though the actual targets are not yet known, the RFx processes get on the way. The potential suppliers are usually given vague ideas, and they give outrageous estimates. The company has no idea how big the program is, and they go with the most favorable offer. Favorable can mean different things for different companies, ranging from the lowest bid, to the most expensive gifts to the CxOs.

Deadlines are carved in the statues of higher management, erected in the lobby of the company’s headquarters, representing the visionaries bringing on the golden age of the company. The transformation projects actually start, the suppliers take the sales people away and bring in experts and subcontractors, to do the job. The more experts are involved, the more the company, as an organism, starts to actually understand the effects of transformation. Knowledge increases, and along it the uncertainty, just as the Dunnung-Kruger effect dictates. It’s too late to stop, and restart, contracts are already signed, and substantial amount of money is already wasted.

There is no turning back at this point. The organiztion has been so dedicated it has changed the structure, assigned the resources, changed the bonus structure, all in order to take the program on.

Noone will admit their mistakes at this point, as there is just too much at stake, bonuses and even jobs are at risk. People are getting miserable and overstressed.

Information starts seeping up the chain, panic sets in on the middle management, and it’s carried on to the top, like wildfire. More external resource is involved, to fill the ever expanding gap between the contracts and the reality. As the DK effect suggests, the more they understand, the more they know is missing. The company starts to cut the scope, reduce the number of requirements, fill in the missing gaps. To cut the scope they get to understand the finer details, and the panic increases in the most seasoned experts. The first line snaps, overstressed expert employees leave the ranks, and are replaced by less experienced hires, usually withoout proper takeover. The overall expertise is decreasing again, and the confidence increases. The scope is further reduced, with less and less knowledge, to meet the deadlines.

The transformation program is inevitably postponed, but not by long, as it “stalls business growth”. As the final deadine approaches, the program targets are completely redefined, so the success criteria are low enough for the C-suite to get their bonuses. The program ends and goes live, the new processes are slower, and less effective than the original ones. Several previously working functions, are unavailable, the product portfolio is “streamlined” to only contain the products, that the new environment permits.

After the program, all the compromises start kicking in, audits fail, new projects must be started to fill the gaps created by the scope reduction. The operation is getting frustrated, as the things they used to do comfortably in the previous system is replaced with tedious workarounds and manual tasks. It takes years to patch the company together enough to consider it recovered from the transformation. The individual fixes and patches are no longer centrally organized, and the knowledge is dispersed in the company. By the time business normalizes, the actual understanding of the way the business works is dispersed so thin, it almost vanishes.

Never mind, you can always start a transformation program to deal with it!

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