In this three-part series, Boyden's Guy Herbertson interviews Robert Aitchison, an interim executive who has led change and transformation in a range of industries but with a focus in aerospace and defence.

By Guy Herbertson
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Part 2: Finding ways to pursue transformation within prudent fiscal constraints

In this three-part series, Guy Herbertson of Boyden gains insights from Robert Aitchison, an interim executive who has led change and transformation in a range of industries but with a focus in aerospace and defence. His career highlights include founding a leading-edge remote systems management business as well as establishing a ground-breaking defence capability services business line for a global tier-one aerospace engineering company.

Herbertson: Can you start off by talking me through how you balance the risk vs advantages when analysing a transformational opportunity?

Aitchison: Almost by definition, a truly disruptive or radical change represents a high risk. But if incremental change, however prudent, cannot reverse a decline or achieve the scale and/or rate of growth required, radical change might actually be the least risky option. Of course, this must be analysed intelligently to avoid negative consequences overwhelming the benefits.

In genuinely dire circumstances, even the most outlandish strategies may have merit but more often, simple actions are necessary to create a sufficiently stable commercial platform on which to build sustainable recovery and/or reinvention. Whatever the circumstances, the next challenge is to ascertain which of the opportunities identified can realistically be pursued.

Ultimately, the leadership team or its nominated delegate for business strategy must be able to assess the available options and select the most attractive ones. It’s critical however that each has been conceived and structured to address cashflow, for instance by demonstrating how a) large initial investments can generate large income streams quickly, b) large investments can be made incrementally and the consequent income growth accrues commensurately, at worst or c) the venture is essentially self-funding or requires only limited ‘up-front’ investment.

Although these principles and the techniques for assessing anticipated financial returns, typically some kind of discounted cashflow (DCF) based approach, are straightforward, it’s surprising how often new ventures are either stillborn because the assumed scale and/or timing of investment is unnecessarily pessimistic or allowed to proceed purely because a senior executive had a ‘good feeling’ about it. Equally, many otherwise sound ventures have been abandoned because an insufficiently qualified and/or experienced senior executive misunderstood or had a ‘bad feeling’ about them.

Robert Aitchison
Interim Executive
Aerospace & Defence

Herbertson: It’s always a challenge to find that balance but how do you ensure investment is pragmatic yet still transformational and what are the pitfalls?

Aitchison: In the end, prudence comes from a combination of informed imagination and authoritative scrutiny, moderated by a dispassionate, probability-based analysis.

For example, unless there is a single, ‘dead cert’ opportunity of sufficient size to meet all the organisation’s ambitions, the more opportunities that can be pursued effectively, the greater the overall probability of success.

However, this intuitive but simplistic principle is dangerous and frequently results in the ‘scattergun’ or endemic ‘dabbling’ approach to transformation, where any and every opportunity identified is pursued but none is afforded the resources necessary for success.

In these circumstances, the result is failure to make worthwhile progress in any direction, loss of any semblance of strategic coherence, disillusionment with novel ideas and consequent stagnation or decline. Another common pitfall is unjustified optimism about the pace with which the organisation can acquire missing competences or market recognition/receptiveness.

Herbertson: And what’s the trade secret from your own personal experience?

Aitchison: The secret to selecting the right opportunities to pursue is to:

  1. Avoid ‘groupthink’ among assessors (if selection of new ventures is governed by a body with little or no experience beyond what the organisation has always done, they are unlikely to consider opportunities that break new ground)

  2. Avoid naivety among assessors (a body with limited experience is unlikely to recognise either the nature / scale of a novel opportunity or its potential pitfalls)

  3. Be clear about what constitutes attractive business

  4. Employ an appropriate investment appraisal methodology and ensure the assessors understand both how it has been applied and what conclusions should be drawn (and why)

  5. Encourage and support teams proposing new ventures by working with them to hone their business plans

  6. Be creative in finding ways to support as many attractive novel opportunities as possible but ensure they don’t rely on unattainable competences and won’t result in dilution of effort or unnecessarily accelerated starvation of the base business

  7. De-conflict separate individual ventures both between each other and with the base business (or insulate them from the base business if they are incompatible / competitive with it and yet the enterprise’s future depends on their success)

Herbertson: When all of this is then completed what, in your experience, would be a realistic timescale for the returns?

Aitchison: Realistically you will need a patient and supportive executive team - significant returns are likely to take in excess of 2-5 years to be realised, depending on the industry. Prudence does however dictate that any financial projections can be rationalised and justified with minimum subjectivity and any residual subjectivity can be qualified, for example with reference to analysis by individuals or teams with relevant expertise and appropriate experience.

Ultimately, no matter how rigorous the analysis or how prudent the approach, there is no guarantee of success, not least because ‘making it happen’, the subject of our final discussion, is perhaps the most challenging terrain to navigate. Businesses should therefore be clear about the point at which they must walk away, irrespective of the scale of ‘sunk’ costs.

Click Here for Robert Aitchison's Interview Part 1: Discovering and Realising Transformative Opportunities 

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