What is Business Transformation?
Business transformation refers to the process of fundamentally changing the way a business operates in order to improve efficiency, effectiveness, or competitiveness. Business transformation initiatives can involve a wide range of activities, such as introducing new technologies, streamlining processes, changing the organisational structure, or adopting new business models.
These initiatives are often driven by the need to respond to changing market conditions, customer demands, or regulatory requirements. Business transformation can be challenging because it often requires significant changes to the way a business operates and can impact many different areas, including technology, people, processes, and culture. However, if successful, business transformation can lead to significant benefits.
Why is Business Transformation Important?
Business transformation is important because it allows businesses to adapt to changing market conditions, customer demands, and regulatory requirements, and to improve their efficiency, effectiveness, and competitiveness. By undergoing business transformation, businesses can stay relevant and meet the needs of their customers in a rapidly changing environment.
Business transformation can also help businesses stay ahead of the competition by introducing new products, technologies, or business models. It can also help businesses to reduce costs and improve profitability by streamlining operations and eliminating waste.
Overall, business transformation is an important way for businesses to remain competitive and successful in today’s rapidly changing business environment. By embracing change and continuously improving and adapting their operations, businesses can stay relevant and meet the evolving needs of their customers.
Companies like Apple, Amazon, IBM, Netflix, and Facebook keep transforming their businesses to stay ahead of the game. Conversely, companies that do not transform their business begin to experience a decline in profits. They struggle by attempting transformation with inadequate expertise and eventually get acquired or shut down.
Four Types of Business Transformation
Let’s consider the four types of business transformations, which are Radical, Architectural, Modular, and Incremental transformations.
Radical Business Transformation
Radical business transformation refers to the process of fundamentally changing the way a business operates in order to adapt to significant changes in the market or industry. This type of transformation often involves a complete overhaul of the business model and can involve significant changes to the organisational structure, processes, technologies, and culture.
Radical business transformation can be a high-risk but high-reward endeavour, as it often requires a significant investment of resources and can be disruptive to the business. However, if successful, radical business transformation can lead to significant benefits, such as increased competitiveness, improved customer satisfaction, and increased profitability.
Radical Business Transformation Example
A traditional print media company has been struggling to adapt to the digital age, as more and more people consume news and entertainment online. To stay relevant, the company decides to undertake a radical business transformation to completely reinvent its business model. As seen in the illustration below, business model transformation is the most difficult type of transformation. This explains why most companies stay safe with product and service innovation and shy away from new business models.
As part of the transformation, the company shuts down its print operations and instead focuses on creating and distributing digital content. It introduces a new online platform, which allows users to access a wide range of articles, videos, and other types of content, and also introduces a subscription model, which allows users to access premium content for a fee. The company also uses data analytics to better understand the interests and preferences of its users, and to create personalised content recommendations.
Through these changes, the company is able to reinvent itself as a digital media company, and better meet the needs of its customers in the digital age. The radical business transformation leads to increased customer satisfaction and improved profitability.
Business Architectural Transformation
Business architectural transformation refers to the process of redesigning the fundamental structure and processes of a business in order to improve efficiency, effectiveness, or competitiveness. This can involve a range of activities, such as reorganising the organisational structure, streamlining business processes, introducing new technologies, or adopting new business models.
Business architectural transformation can be a complex and challenging process, as it often requires significant changes to the way a business operates and can impact many different areas, including technology, people, processes, and culture. However, if successful, business architectural transformation can lead to significant benefits, such as increased efficiency, improved customer satisfaction, and increased competitiveness.
Business Architectural Transformation Example
A healthcare provider has been facing increasing pressure to reduce costs and improve the efficiency of its operations. To address these challenges, the provider decides to undertake a business architectural transformation to redesign its operations and better meet the needs of its patients.
As part of the transformation, the provider reorganises its organisational structure to create a more flat and agile structure, with fewer levels of management and more cross-functional teams. It also introduces a new electronic medical records system, which allows for the digitisation of patient records and the automation of many administrative tasks. Additionally, the provider implements a new patient portal, which allows patients to access their medical records, schedule appointments, and communicate with their healthcare providers online.
Through these changes, the provider is able to reduce costs, improve the efficiency of its operations, and enhance the patient experience. The business architectural transformation leads to increased patient satisfaction and improved profitability.
Modular Business Transformation
In a Modular Transformation – while the overall architecture remains intact – there are changes to the core design of the enterprise, which are externally visible. Modular transformation refers to the process of breaking down a business into smaller, more manageable parts, or “modules,” and implementing change on a module-by-module basis. This approach allows businesses to make changes to specific parts of their operations without disrupting the entire organisation.
Modular transformation can be a useful approach for businesses that want to make incremental changes to their operations, or for businesses that have complex or large-scale operations that would be difficult to transform all at once. However, it can also be more time-consuming and resource-intensive than more radical approaches, as it involves implementing change in smaller, more incremental steps.
Modular Business Transformation Example
A large telecommunications company has been facing increasing pressure to reduce costs and improve the efficiency of its operations. To address these challenges, the company decides to undertake a modular business transformation, which involves breaking down its operations into smaller, more manageable modules and implementing change on a module-by-module basis.
As part of the transformation, the company begins by introducing new technologies to automate certain processes in its customer service department. This allows the company to reduce the number of customer service representatives it employs, while improving the speed and accuracy of its service. Next, the company focuses on improving the efficiency of its supply chain, by introducing new logistics software and partnering with suppliers that can deliver materials more quickly and at a lower cost. Finally, the company implements a lean management approach, which involves identifying and eliminating waste in its operations.
Through these changes, the company is able to gradually improve the efficiency of its operations and reduce costs. The modular business transformation leads to increased profitability and a stronger competitive position in the market.
Based on the four types of business transformations presented above, it is debatable whether an incremental transformation can be regarded as a real “business transformation”, particularly when com-pared to the other three types where the degree of transformational changes and level of visibility are more distinguished than with the incremental transformation. This observation may also explain why there appears to be a confusion about the use of the term business transformation, as it may not mean the same type of trans- formation. Therefore, it may also be useful to specify, using the four types, what kind of transformation we are referring to when talking about a specific business trans- formation.
Incremental business transformation refers to the process of making small, incremental changes to a business over time in order to improve efficiency, effectiveness, or competitiveness. This approach involves making gradual changes to the business, rather than attempting to make radical or disruptive changes all at once. Incremental business transformation can be a more manageable and less risky approach than radical transformation, as it allows the business to adapt to change gradually and minimise the impact on operations. However, it may also be slower or too slow to achieve the required results quickly enough.
Incremental Business Transformation Example
A manufacturing company has been operating for many years and has a well-established business model. However, the company is facing increasing pressure to reduce costs and improve the efficiency of its operations. To address these challenges, the company decides to undertake an incremental business transformation, which involves making small, incremental changes to its operations over time.
As part of the transformation, the company introduces new technologies to automate certain processes and improve the accuracy and speed of its production. It also streamlines its supply chain by introducing new logistics software and partnering with suppliers that can deliver materials more quickly and at a lower cost. Additionally, the company implements a lean management approach, which involves identifying and eliminating waste in its operations.
Through these changes, the company is able to gradually improve the efficiency of its operations and reduce costs. The incremental business transformation leads to increased profitability and a stronger competitive position in the market.
What is the Difference Between Transformation and Change?
The chances of an organisation getting what it wants will increase when it is clear about what it wants. Teams need to agree whether they want to build a better version of what they already have (Change) or something something new (Transformation). Both will consume human resources and budgets, and be very challenging, but the outcomes will look very different.
If Netflix CEO Reed Hastings has chosen Change, he would have built a better DVD business. Fortunately for him and his organisation he opted for Transformation and built a video streaming business instead.
More Business Transformation Examples
Business Model Transformation
A traditional brick-and-mortar retailer has been facing increasing competition from online retailers and is struggling to maintain its market share. To stay competitive, the retailer decides to transform its business model by introducing an e-commerce platform and focusing more on online sales.
As part of the transformation, the retailer invests in a new website and mobile app and enhances its online shopping experience by offering a wider range of products, faster delivery, and easier returns. It also introduces a subscription-based loyalty program, which allows customers to receive discounts and other perks in exchange for a monthly fee.
The retailer also decides to reduce the number of physical stores it operates, and instead focuses on using its remaining stores as fulfilment centres, where online orders can be picked up or returned. This allows the retailer to reduce its operating costs and better meet the needs of its customers, who increasingly expect convenient and fast delivery options.
Through these changes, the retailer is able to shift its focus from traditional in-store sales to online sales, and better compete with online retailers. The business model transformation leads to increased customer satisfaction and improved profitability.
Merger and Acquisition Business Transformation
Company A, a manufacturer of consumer products, is looking to expand its operations and increase its market share. It decides to pursue a merger with Company B, a smaller manufacturer of complementary products. The two companies have complementary product lines and a similar business model, and the merger is expected to bring significant cost savings and other synergies.
As part of the merger, the two companies integrate their operations, combining their production facilities, distribution networks, and sales teams. They also merge their research and development departments, with the goal of introducing new and innovative products to the market. The combined company is able to take advantage of economies of scale, improving its competitiveness and profitability.
The merger and acquisition process is a complex and challenging process, involving a range of activities, including due diligence, integration planning, and communication with employees, customers, and other stakeholders. However, if successful, the merger can bring significant benefits, including increased market share, cost savings, and access to new products and technologies.
Digital Business Transformation
A financial services company has been struggling to keep up with the rapid pace of technological change in its industry. To stay competitive, the company decides to undertake a digital business transformation to revamp its operations and better meet the needs of its customers.
As part of the transformation, the company introduces a new digital banking platform, which allows customers to access their accounts and conduct financial transactions online or through a mobile app. It also implements a chatbot to handle customer inquiries and complaints and uses data analytics to better understand customer needs and preferences. The company also introduces new fintech products, such as robo-advisors and peer-to-peer lending platforms, to meet the changing needs of its customers.
Through these changes, the company is able to enhance the customer experience and improve its competitiveness in the market. The digital business transformation leads to increased customer satisfaction and improved profitability.
Four Famous Business Transformations
There have been many famous business transformation initiatives over the years, and it is difficult to say which one is the most famous. Here are a few examples of business transformations that have received significant attention:
IBM Business Transformation
In the 1990s IBM was facing significant challenges, including declining profits and a rapidly changing technology market. Lou Gerstner, who became CEO in 1993, led a transformation of the company, shifting its focus from hardware to software and services. Gerstner also streamlined the company’s operations and introduced a more customer-focused approach. This transformation helped IBM to return to profitability and remain competitive in the market.
Apple Business Transformation
In the late 1990s Apple was struggling to compete with other technology companies and was on the verge of bankruptcy. Steve Jobs, who returned to the company as CEO in 1997, led a radical transformation of the company, introducing new products, such as the iPod and the iPhone, and adopting a more innovative and customer-centric approach. This transformation helped Apple to become one of the most successful and influential companies in the world.
Amazon Business Transformation
In the 1990s Amazon was primarily a bookseller, but it has since transformed into a retail giant, offering a wide range of products and services. This transformation was led by CEO Jeff Bezos, who has consistently focused on innovation and customer satisfaction, and has helped Amazon to become one of the most successful and influential companies in the world.
Netflix Business Transformation
In the late 1990s Netflix was primarily a DVD rental service, which allowed customers to rent movies and TV shows through the mail. Netflix transformed its business model to focus on streaming content online. To support this transformation, Netflix invested heavily in developing its own content, including original TV shows and movies. This led Netflix to become one of the most successful and influential streaming video services in the world.
Who Leads Business Transformation?
Business transformation is typically led by a team of executives or senior leaders within an organisation. This team is responsible for developing and implementing a plan to transform the business, and for overseeing the various initiatives and activities that are required to achieve the desired changes. In some cases, the team may also be responsible for communicating the vision and goals of the transformation to employees and other stakeholders, and for ensuring that the necessary resources and support are in place to enable the transformation to be successful. The specific leadership roles and responsibilities may vary depending on the size and structure of the organisation, as well as the nature and scope of the transformation.
Key Business Transformation Roles and Capabilities
CEO Role in Business Transformation
The CEO plays a critical role in leading business transformation initiatives within an organisation. The CEO is responsible for setting the vision and strategy for the transformation, and for aligning the resources and efforts of the organisation towards achieving the desired goals. The CEO must also communicate the vision and goals of the transformation to employees and other stakeholders and ensure that the necessary support and resources are in place to enable the transformation to be successful.
In addition to setting the direction and strategy for the transformation, the CEO must also be able to lead and motivate the organisation through the change process. This can involve inspiring and engaging employees, building a culture that is open to change, and addressing any challenges or resistance that may arise. The CEO must also be able to manage the risks associated with transformation and be prepared to make difficult decisions in order to ensure the success of the initiative.
Business Transformation Executive Board
A business transformation is typically overseen by a team of executives or senior executives within an organisation. This team is responsible for developing and implementing a plan to transform the business, and for overseeing the various initiatives and activities that are required to achieve the desired changes. In some cases, the team may also be responsible for communicating the vision and goals of the transformation to employees and other stakeholders, and for ensuring that the necessary resources and support are in place to enable the transformation to be successful. The specific leadership roles and responsibilities may vary depending on the size and structure of the organisation, as well as the nature and scope of the transformation.
Business Transformation Manager
Organisations should appoint a Business Transformation Manager who possesses the ability and authority to manage the overall transformation program and act as a key advisor to the Executive Steering Committee. Besides managing the vision and the value of the transformation, the Business Transformation Manager needs to be empowered to make strategic decisions in consultation with the Steering Committee during the whole life of the transformation program.
While the Transformation Manager will heavily depend on the Program Manager, ultimately, both are responsible for implementing the strategy into reality. One of the most critical decisions for the Business Transformation Manager is selecting the right Program Managers. The wrong choice can send the Business Transformation Manager and the stakeholders on a painful journey.
A capable Program Manager should have at least five to ten years of experience in this field and possess the ability to leverage program management best practices. These requirements should go hand in hand with the ability to build a bridge between strategy and realisation. The Program Manager needs to make sure that all activities remain focused on achieving the predefined outcomes which were aligned with the strategic objectives. Governance, management control, resource and financial planning, risk management, and stakeholder engagement are all key components of the Program Manager’s responsibility. In order to be successful, program manager must have exemplary soft skills as well as commercial and political acumen.
A fatal mistake would be putting a Project Manager in the role of a Program Manager, since the two roles require a very different set of skills. Program Managers have a greater breadth of responsibilities than Project Managers and are responsible for the set-up and day-to-day management and delivery of the program on behalf of the Business Transformation Manager. Program Managers oversee multiple projects, are accountable for achieving program outcomes, and are likely to work with stakeholders across the broader organisation. Their focus is on high-level specification (of why and what), stakeholder management, benefit realisation, dependency management, transition management/change acceptance and integration with business strategies.
If corners are cut and the Program Management capability is compromised, this may introduce unnecessary risks for the transformation. In such a case, programs often struggle and go out of control after three to six months. This is then often addressed by getting an external program manager to make sure the program gets back on track and that stakeholder confidence is regained by embedding a more rigorous degree of governance.
Project Managers are responsible for the project, the project team, and the products the team is working on, and typically operate cross-functionally. They are the single point of contact for day-to-day management of a project and their focus is often narrower and deeper than that of a Program Manager’s as they need to focus on detailed specification (of how) and control of activities to produce products.
Most organisations understand well the responsibilities of a Project Manager, of which there could be many, depending on the nature and content of the transformation. Typically, a Project Manager will plan, manage, execute, and close a project to deliver the project outputs as agreed with the Program Manager.
As a conclusion, the three management roles in transformations are distinct and have distinct functions and capabilities. Skimping on transformational roles and capabilities in a multi-million Euro transformation initiative is more trouble than it is worth. Or would you – with the goal of surviving and winning a round-the-world yacht race – set out on the challenging voyage without ensuring that the right capability is on board to navigate the team through unchartered waters, reach the shore on schedule, within budget and with minimal damage to the vessel en-route?
What Drives Business Transformation?
There are many factors that can drive the need for business transformation within an organisation. Some common drivers include:
Changes in the market or industry: Businesses may need to transform in response to changes in the market or industry, such as new competitors, changing customer preferences, or regulatory changes.
Technological change: The rapid pace of technological change can drive the need for business transformation, as businesses may need to adopt new technologies to remain competitive.
Organisational inefficiencies: Businesses may seek to transform their operations in order to improve efficiency and reduce costs.
Changes in the business environment: External factors, such as economic conditions, demographic shifts, or political changes, can also drive the need for business transformation.
Strategic goals: Businesses may undertake transformation initiatives in order to achieve specific strategic goals, such as expanding into new markets or improving customer satisfaction.
Overall, business transformation is often driven by a combination of internal and external factors, and can be motivated by a variety of goals, such as improving efficiency, increasing competitiveness, or adapting to changing market conditions.
The Business Transformation Process
The transformation process is complex and time-consuming and is influenced not only by all major core disciplines of an organisation but also by its environment, such as customers, competitors, government, and regulators, as well as investors. In other words, transformation always occurs within an entire ecosystem. In order to execute a successful transformation process, the management of a meta-routine is crucial.
The Business Transformation Management Methodology (BTM2) provides a holistic and integrative perspective on the organisation and the entire complexity of its ecosystem. It does not reinvent the individual management disciplines but rather provides a framework that integrates individual ones.
The basis of the framework are the Meta Management disciplines, which provide the foundations for the success of other management disciplines including Strategy Management, Value Management, Process Management, Risk Management, Transformational IT Management, Competence and Training Management, and Program Management.
Each individual discipline is well developed, including a large body of knowledge supporting them, and targets a specific group of professional people. Although, each group is very valuable for the organisation, there exists a strong tendency for separation and a lack of integration between different departments. Many sources refer to this fragmentation of the organisation as a major reason for failure during the transformation process and for the increased risk of resistance.
Business Transformation Management Methodology
The Business Transformation Management Methodology (BTM²) provides a proven framework that can be used as a guide to achieve transformational success. BTM² can help organisations increase the odds of a successful transformation by avoiding common scenarios of schedule setbacks, and other issues such as quality, scope, value, budgets, and successful outcomes.
BTM² is a tool, and as with all tools, it is only effective when the person using it has the right capabilities. In unskilled hands, it will be no more effective than any other tool. Similarly, every effort should be made to secure highly capable individuals who can collectively orchestrate the nine management disciplines of BTM² and facilitate the capability, culture, and environment required for a strategy to be successfully transformed into reality.
Four Business Transformation Phases
As shown below, BTM² consists of four phases, which are Envision, Engage, Transform, and Optimize. Note the circle in the middle. This is because unlike projects, which have a start and an end, business transformation needs to be a recurring activity.
Nine Business Transformation Management Disciplines
BTM² also consists of the nine management disciplines, which we explore below.
Meta Management provides the foundation for the success of other management disciplines they are key to transformation success. Meta Management provides the overarching frame for a business transformation and provides the linkages amongst the disciplines and also the management structure, which will allow the transformation process to be effective. It addresses individual disciplines which include guidelines, leadership, culture, values, and communication.
Strategy Management primarily addresses the Envision phase of the transformation life cycle, during which a strategy is developed. Strategy Development involves the selection of appropriate team members, collection of data, analysis of transformation needs and readiness, design of a business vision, and a business model and the definition of an integrated transformation plan.
Value Management involves defining the business benefits and changes needed to realise them, evaluating the feasibility of making the changes successfully, and producing an evidence-based, rigorous business case and supporting benefits realisation plan. Value Management relies heavily upon the engagement of stakeholders in the preparation of the business case and benefits plan to create the knowledge and commitment required to realise the benefits described in the business case.
Risk management provides fundamental guidance to the planning, development, and effective execution of a business transformation. It is vital that business transformation managers to manage the risks that relate to the process of transforming their organisation towards a desired future state and those risks that relate more to the possibility that this desired state becomes either obsolete or sub-optimal.
Business Process Management
Business Process Management defines the scope of process changes needed for the expected improvements in performance. To make the transformation effort a continuous success, business processes have to be considered from a strategic perspective. The identification of end-to-end business processes and the assignment of responsible process owners is a major task. It is important to understand that process management does not equal process modelling, but rather the relationship between IT, Business and People related tasks.
Transformational IT Management
IT Transformation Management evaluates the impact of current IT processes, competencies, and systems on business transformation, and vice versa. It assesses and enables solution readiness of the business, defines, and assesses the gap between the as-is and to-be of IT, deploys IT operations and services, and implements IT governance. It also improves IT operations and services and manages the IT lifecycle.
Organisational Change Management
Organisational Change Management (OCM) addresses the human element of business transformation. It deals with the people who have to change their ways of working and involves setting up a foundation for effective OCM with respect to governance and assessing organisational change readiness. Establishing and implementing stakeholder communication and performance management strategies, and continuously receiving feedback to make improvements is key.
Competence and Training Management
Competence and Training Management provides qualification and enablement with respect to the competences required for business transformation, and the strategic core competences vital for the company’s future success. Competence and Training Management identifies and analyses training needs and objectives, develops training measures for the identified gaps, foster the learning transfer and analyses the success of the measures.
Programme and Project Management
Programme management aims to support the implementation of the transformation strategy in order to achieve the business benefits described in the business case. Programme management focuses on high-level specification and the “why and what” of transformation. It includes stakeholder management, benefit realisation, dependency management, transition management/change acceptance and integration with corporate strategies. Project management focuses on detailed specification and the “how” of implementation, along with control of activities to produce products.
Business Transformation Capabilities
Most organisations have an abundance of experienced operational managers and leaders. But operations and transformation require very different capabilities, which means that the operational expertise most managers and leaders have, is a world away from the transformation expertise they need to success orchestrate transformation.
Those who ignore that fact eventually see the error of their ways. On the other hand, open minded managers and leaders go out of their way to complement their existing experience with new business transformation knowledge.
Business Transformation Consultants
Business transformation consultants are professionals who help organisations to plan and implement business transformation initiatives. These consultants can work with organisations to identify areas for improvement, develop a roadmap for change, and support the implementation of the transformation.
Business transformation consultants may have a variety of backgrounds and expertise, and may specialise in areas such as organisational design, process improvement, technology implementation, or change management. They may work with organisations in a range of industries and may be involved in projects of various sizes and complexities.
Business transformation consultants typically work with organisations to assess their current operations and identify areas for improvement, develop a roadmap for change, and support the implementation of the transformation. They may also work with organisations to develop a culture that is open to change and supports the transformation effort. Business transformation consultants may also provide training and support to help employees adapt to the changes being implemented.
Any established organisation interested in maximising performance, increasing efficiency, and still being around in 2030 should explore business transformation opportunities. There will always be places, processes, and structures that could benefit from an overhaul, and bypassing these changes in favour of the status quo often proves short-sighted and detrimental.
But if you do decide to embark on business transformation, ensuring you have the right capabilities on board will be fundamental to success.