Is Continuous Improvement Enough? Interview with Philip Price, Former CFO Reader's Digest Europe

In today's market, change is happening more rapidly and competition is getting more intense, says Philip Price, former CFO of Reader's Digest Europe, and that means you need to look at your whole business model in order to remain competitive. That's where a more radical approach becomes necessary.

In this PEX Network interview, Price discusses what he believes transformation means, how he sees continuous improvement approaches like Lean Six Sigma supporting it, and the keys to leading successful change within organisations. He also comments on why he believes focusing on cost is the wrong approach to take for process excellence.

Editor's note: this is a transcript of a video interview done earlier this year. To watch the original interview, please see it here: Why Incremental Change is No Longer Enough

PEX Network: We’re seeing the term business transformation being used more and more. Why do you think this particular term is currently in vogue?

I think if you step back and look at the business world as it is now, you see that the world is changing increasingly quickly and competition is getting more intense so companies can’t afford to stand still. Companies have to change, and incremental change is no longer good enough. I think in the modern business world it has to be transformational change - and not just transformational change in individual departments. You’ve really got to look at the business, the whole business model, and see how you can develop it and improve it to keep it competitive to drive cash-positive, profitable business growth, which is what we’re all about.

PEX Network: As a term it’s somewhat vague. What does business transformation mean to you? How would you define it?

I think you’re right. It means different things to different people. For me, transformation implies a significant step or a significant change. It’s not incremental, it is something radically different. And it’s different in terms of improving efficiency, effectiveness, or improving the customer experience. It is really doing something completely different. So, not incremental, but radical in whatever way that may well be, depending on the industry, depending on where the company is.

PEX Network: So, where would, say, continuous improvement approaches, traditional ones like Lean Six Sigma, Total Quality Management, any of the other plethora of approaches out there fit, within this notion of business transformation?

I think that the techniques of Six Sigma and Lean support business transformation. Even during business transformation, you will need the incremental change and improvement. Transformation is more infrequent. It is the one off thing you do to take you a step forward. And then you’ve got the incremental transformation going along at the same time, continuously. There these techniques - like Lean Six Sigma - they are hugely appropriate in all of these transformations, transactions and projects.

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PEX Network: You’ve led transformation at organisations ranging from SMEs and enterprise or operations, right through to global multinationals. What would you say are the keys to leading a successful transformation?

I think the first key, above all else, is you’ve got to have passionate leadership at the top leading the change. You’ve got to have someone who really wants to make it happen. If you haven’t got that as the starting point, you’re dead in the water. And then there are a number of different things as well that you need to have. And they are things like senior management buy in, so you might have, say, the CFO leading the transformation in Finance, but you need to have the senior management team, the senior Executive team bought in as well, understanding the need for it. And then to a certain extent, to make it happen - because you’re looking to probably change the lives of most of the people [in your organization] - is you need the impetus, the burning platform, as they say, to provide that edge to make everyone think that business as usual is no longer acceptable. We have to change because of whatever the burning platform is.

Then there are a number of other things as well which help to reinforce it. But those, for me, are my favourite ones in terms of really what you need. I think if you haven’t got those, then you’re really going to struggle.

PEX Network: Conversely, are there particular pitfalls to avoid?

I think that there are certain things that you know are going to help to derail the whole programme: You’ve got to recognise that it’s not going to happen overnight. It requires patience and it requires persistence. You’ve got to commit yourself to it taking 12 months, 24 months, maybe three years, depending on the size, the scope, of the transformation. So, it’s not going to happen overnight. Everybody’s got to recognise that you’re probably going to take a step backwards at first, so there’s the J-curve where you find performance goes down, but then the idea is that you get through that and then you come out the other side. Everybody in the business needs to understand that. Because that’s adversely affected me before, is you do something, everyone thinks that it’s done and it’s going to work fine, and it doesn’t.

Then you’ve got to have flexibility as well, in your execution, because you know things are going to go wrong, you’re not going to get it all right first time. And that’s fine, as long as you’ve got connectivity with what is going on so you can spot where it’s going off track at an early stage and you can get in there and rectify it. And then, I think, not declaring victory too soon. It is an important one that speaks to my first one, really, recognising this is going to take a while to get it all bedded in properly.

PEX Network: As somebody who has a background in Finance, you actually don’t believe that cost savings is where a company should be focusing their efforts?

The unfortunate thing, I think, is that most companies kick this off with a desire or an imperative to save costs, and unfortunately I think that’s the wrong way of doing it. Because if you look at costs, these are driven by the number of things you do, the time it takes to do each one, and the rate that you’re paying for time. So, you need to attack, I think, the drivers of cost rather than cost itself. And a great way to look at the best way of saving cost is by stopping doing things, and stopping making mistakes and processing errors. So, if you build quality in at the front end that will eliminate a certain amount of work because you’re stopping the rework, you’re stopping the errors, you’re stopping the exception. So, quality at the front end and then standardisation of processes and using Lean and Six Sigma to reduce the amount of time it takes to execute the transaction is the next thing. And then if you’ve systemised and standardised, then you can move work to an offshore location which enables you to take advantage of labour entourage. And then overriding all of that, what you need to focus on is not doing work in a lower cost operation, but eliminating the need for people because you’ve automated things. And so, I know people start with cost, but for me, to achieve that you have to address the drivers of cost, and what that will give you then is a slicker, a leaner, a more efficient and a more effective organisation. So, you’re not only achieving cost savings, but you achieve a lot of additional benefits as well.