Tragic Tale No.008

This is the eighth in a series of tragic transformation tales, shared by a diverse group of business leaders, in conjunction with the launch of Angie’s book, TransformAble: How to Perform Death-Defying Feats of Business Transformation.

Today I’m talking to Shannon Karels, Co-founder and Partner at OPSisters Consulting, as she revisits a transformation tragedy from her past.

Angie: Shannon, you have a unique tale of an acquisition and merger that tragically reversed a successful transformation.

Shannon: Yes. We had spent five years transforming our division, with real results: a substantial swing from unprofitability to profitability. But after merging with a newly acquired division, we ultimately experienced an increase in quality and compliance issues, and a decline in both productivity and customer satisfaction.

Angie: That is a major swing. I’m sure you put in serious, sustained effort to move your division into profitability. And then to have your changes destroyed…I can’t even imagine the frustration you must have felt. Tell me about how it went down…

Shannon: We were a division of a global manufacturing firm, and we had just finished completely transforming our plant, which had previously been losing money every month. Over the course of 5 years, we had improved the layout of the plant, implemented standards, improved quality dramatically, reduced the cost of inventory by more than half, and went from losing money to a nicely profitable 15% return on sales.

Angie: That sounds great! Amazing.

Shannon: It was. But then our parent corporation bought a new division. It had a similar product line, and the corporation decided to combine us with that new division. The goal was to increase overall revenue in this space while cutting costs through reducing similar leadership roles.

Angie: And did it achieve those goals?

Shannon: It saved money from reducing duplicate roles, but the revenue didn’t grow to any significance beyond just combining the two divisions.

Angie: An all-too-common situation with a merger. But your story doesn’t end there. This merger does more than short-term cost cutting. This one unintentionally harms the operating health of your division.

Shannon: Yes, it destroyed all the great work we had just done. The acquired division was larger and many of their leaders replaced ours. And with that, came their management practices.

Angie: And they were significantly different?

Shannon: We had created sustainable processes that were repeatable, well documented, and structured by role, not person. In contrast, the new division ran as a mom-and-pop shop. They had been successful at that model at their scale, but it was very dictatorial. Leaders would walk around with a clipboard, going from station to station, to check that products were being produced and were ready to ship. It was a very manual, hands-on operating model. Quite different from what we had just transformed to.

Angie: And perhaps not scalable. Almost overnight, they had a much larger company. How well did that approach work now?

Shannon: Not so well. What happened was that over time, as our leadership was replaced, that hands-on approach was applied to us as well, which eroded a lot of the value we had created. It was heart-breaking to watch all of our hard work go down the drain. Still to this day, many years later, I look back and ask myself, “what could I have done differently to prevent this?” When reading your book, I wondered if there was something in the Lock In period we could have done differently or better? It was clear we didn’t have the upper management commitment to sustain our transformational changes.

Angie: Let’s think about that upper management. What was going on at corporate headquarters? It sounds like they simply stuck two divisions together, reduced “duplicate” roles in leadership, booked the savings from that, and called it a win. Done. Without any consideration for the transformational elements of these actions.

Shannon: I think you’re right. Looking back on that time, that is exactly what it felt like they did.

Angie: I don’t think this was a Lock In issue with your divisional transformation. I think this merger was an entirely new transformation, but it wasn’t treated that way. There was an opportunity to assess and apply the best of each division as they were combined, and drive some real business value. They should have established a clear vision for the teams, done some recon…they should have executed all the elements of a proper transformation to retain and grow business value—far beyond cost-cutting.

Shannon: They definitely did not do that. Now that you say that, I can see it more clearly. There were significant changes to our division, and this merger was definitely not treated like a transformation.

Angie: This happens a lot. Most acquisitions fail to create real value. You know, this is probably another pitfall I need to document.

Shannon: You definitely should! It may have created an immediate cost savings on paper, but it had detrimental effects on our business. Over the next few years, complexity increased significantly, not only in the duplication of products, but a lot of the streamlined processes were reversed—

Angie: Wait. Explain that. That’s hard to understand from the outside. Why were those more efficient processes reversed?

Shannon: Every time there was an issue—for example, a missed order—instead of improving the process, the new leadership would dismantle it and revert to the manual checking and management they were comfortable with. Our lean process wasn’t viewed or acknowledged as a more efficient process, and so, tribal knowledge came back as the way to do things, bit by bit.

Angie: Wow.

Shannon: Yeah. And because of the more controlling, top-down culture, and a return to a more old school manufacturing culture, leadership quickly lost the hearts and minds of the people who had successfully changed the “old ways” and were now being returned to them.

Angie: Shannon, this is a fascinating tale, that I’m sure has influenced your career. You now run your own business, OPSisters, and guide many organizations to setup and execute successful lean transformations. How did this tragic experience shape you personally?

Shannon: One of the biggest things I came to realize is how much I disagreed with how the changes happened and what it did to the morale of the team. It solidified in my mind that the lean mentality is how I wanted to run my businesses. I’ve been lucky to be part of multiple transformations after that, where the hearts and minds of the people are just as important as the tools to improve processes. That’s what I do through OPSisters—teach people how to use the tools, but also how to be a leader that engages the people.

Angie: People are at the heart of any successful transformation. That is something I emphasize strongly in my book. It is a core philosophy for transformation that you and I definitely share.

Let’s sum up this tale. We have a merger of divisions, executed without consideration for the people, not treated like the transformation it was, that could have created more business value but instead destroyed the more scalable, advanced operating practices of the smaller division. Thanks for sharing your tale, Shannon.

Shannon: Absolutely. As painful as this tragic transformation was to experience, I loved sharing it with you so we can help prevent this type of transformation tragedy from happening again!

-----------------------------------------------------
Order Angie’s book TransformAble: How to Perform Death-Defying Feats of Business Transformation from your favorite bookseller. 

Angie Tuglus is a transformation expert and executive advisor. She has led numerous business transformations as a former Fortune 500 executive, and has worked in companies ranging from startup to Fortune 10. 

Shannon Karels is Co-founder and Partner at OPSisters Consulting. She has led multiple lean transformations and has run operations for large publicly traded corporations. She is known for creating and leading accountable organizations, built on trusting relationships, to improve profitability and customer experience. www.opsisters.com
-----------------------------------------------------
© 2021 Angie Tuglus