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Strategy for privatizing a company. After all the data have been collected and the company valued, the seller may ask the consultant to advise on the privatization strategy. Such strategies may involve, for example:

●privatizing the company as a whole via a public offering of shares; sale of shares by auction, either open or limited to pre-selected bidders; sale of shares through direct negotiation or private placement or in exchange for vouchers;

●splitting up the company into smaller units;

●various combinations of these approaches.

Searching for investors and marketing. This may be the most important and valuable input the consultant can make. Prospective investors may be in other countries or sectors, and may be unaware of the opportunity. The consultant should assess not only their financial potential and interest in the deal, but mainly their real potential for keeping the company alive and developing it after privatization. Errors in choosing investors have been the main cause of failures and asset-stripping of many privatized companies.

Negotiations and documentation. Once the seller has received a written offer, the consultant can assist in evaluating the offer, negotiating the purchase of the enterprise with the potential investor, and handling issues such as providing warranties, developing business plans, and defining payment schedules.

In a privatized enterprise, the transfer of ownership rights, and the related legal and organizational restructuring, is usually only the beginning of its total transformation. Privatization changes the owner and the rules of the game and creates new opportunities, but provides no guarantee that the new enterprise will be immediately prosperous. It therefore creates fertile ground for the application of the various approaches and methods of company transformation and renewal reviewed in the previous sections. This has been well understood by the many consultants who have chosen to focus on post-privatization consulting.

22.14 Pitfalls and errors to avoid in transformation

It is rare for a transformation programme to be evaluated as a total success. To begin with, managers and consultants often focus excessively on drawing up perfect plans for change and insufficiently on supporting their implementation and removing organizational and cultural obstacles to the new vision and strategic change. Also, transformation efforts tend to focus more on activities than on results. With results-driven changes, a company introduces only those innovations that can help achieve specific goals. Results-driven programmes bypass lengthy preparations and aim at quick, measurable gains within short periods.

Other problems have been the re-engineering illusion and downsizing trap (cost reduction versus added value). Restructuring is a strategy for growth, a process for adding value and enhancing an enterprise’s capacity to deliver products and

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services. In practice, however, many companies have applied it as a methodology for downsizing and mere cost-cutting. When re-engineering focuses on eliminating people without making significant changes to reduce the amount of work, there is little likelihood that the firm is gaining long-term benefits.

Many programmes have not been keyed to specific results. This means that dramatic improvements have been made in processes that do not significantly add value or improve bottom-line results. This can happen when re-engineering is approached on too low a level, without a clear strategy and without identifying the real problems: the expectation is that activity-centred steps (training, quality control, new measurements, etc.) will lead automatically to better business performance.

Very often management ignores short-term results. When activity-centred programmes fail to produce improvements in financial and operational performance, managers seldom complain, since they are afraid of being accused of preoccupation with the short term at the expense of the long term. This leads to failure to create short-terms wins. There is also a very common phenomenon of “the tail wagging the dog”, for example when technology rather than business becomes the driver for restructuring. Because of inability to link cause and effect, there is virtually no opportunity to learn useful lessons and apply them to future programmes.

A big problem in organizational transformation occurs when management fails to involve those directly affected by transformational efforts. Although planning must be top-down, implementation generally works best when it is bottom-up. Also attempts to improve business results at the expense of the quality of life of employees and other social aspects sooner or later lead to failure. As a result, management fails to create a sufficient powerful guiding coalition.

Many years of experience in transformation indicate that, in most cases, it is necessary to replace the top managers who have taken the company to the situation where radical change became necessary. These managers, as a rule, are unable to lead the transformational efforts, particularly radical ones. Proposing new candidates for top management positions, or at least advising on their competence profile, is often an important task of management consultants. These candidates should possess qualities of transformation leaders.

People who possess an internal locus of control feel that they are in charge of their own lives; they perceive their destiny as affected by their own decisions, not by outside factors. Such people are generally self-confident, relaxed, active, striving, achieving, futureand long-term oriented, proactive and innovative. Their strong belief in their own capabilities makes them resistant to influence, coercion and manipulation. People with an external locus of control, on the other hand, often see changes as a threat. Because they do not feel in control of the forces that affect their lives, they adopt a rather passive stance towards change and, as a result, they are often prone to various depressive reactions. Companies subjected to a turbulent environment – those for whom change is the norm rather than the exception – would do well to select “hardy” people who have an internal locus of control.

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As a minimum to succeed in organizational transformation, corporate stakeholders and management consultants should start the process by securing the best available leaders who have a vision and can inspire, motivate, act decisively and promptly, coach and build team spirit.7

1See B. Chakravarthy: “The process of transformation: In search of nirvana”, in European Management Journal, Vol.14, No. 6, Dec. 1996, pp. 529–539.

2See C. M. Christensen and M. Overdorf: “Meeting the challenge of disruptive change”, in

Harvard Business Review, Mar.–Apr. 2000, p. 67.

3G. Hamel: “Waking up IBM”, in Harvard Business Review, July–Aug. 2000, p. 142.

4G. Hamel: Leading the revolution (Boston, MA, HBS Press, 2000).

5J. P. Killing: “Managing change: The urgency factor”, in Perspectives for Managers (Lausanne, IMD), Vol. 29, No 1, Feb. 1997.

6G. Hamel: “Reinvent your company”, in Fortune, 12 June 2000, pp. 105–120.

7See e.g. J. Kotter: Leading change (Boston, MA, HBS Press, 1996).

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