Written by in-house researcher Katherine Day
Edited by in-house researcher Natalie Bair and CEO Ernest Stephens II

The business world is highly dynamic.

Today’s corporate catchphrase is transformation. Some factors that trigger such transformations include low profit and turnover, market changes, or innovative technologies. For example, technological developments create a need for digital transformation; climate change creates a need for green transformation.

Big brands such as General Motors, Nokia Corporation, and Netflix have had to overhaul the way they run their operations throughout the course of their business.1

Business transformation is an inevitable step of developing your company, as adapting to the change in market infrastructure is imperative. Yet there is confusion about what the word transformation really means.

What Is Business Transformation?

Business transformation is a general term. It refers to organizations implementing fundamental changes in their operations.

Fundamentally, there are three distinct categories of transformation: Operational, core, and strategic.

The first, operational, transforms businesses by doing what you are currently doing better, faster, or cheaper. The essence of the company doesn’t change in any material way, but customers may feel more satisfied, costs may be lower, and business may go digital.

The next category, core transformation, involves doing what you are currently doing but in a fundamentally different way. Netflix is an example of this type of effort. Beginning in 2007, Netflix shifted from sending DVDs through the mail and began offering subscribers the option to stream some of its movies and television shows directly to their homes through the Internet. Later, it shifted away from distributing other people’s content to investing in the creation of its own content, using its knowledge of customer preferences to connect with an audience. Series such as Stranger Things, The Umbrella Academy, Breaking Bad, and Ozark are all highly successful shows created by Netflix after it shifted its business from DVDs and used data it collected from streaming to users to target audiences.

The third category of business transformation is strategic. This one has the greatest promise but also can be perilous. Why? Because it involves changing the essence of a company. Examples of this include Google moving from advertising to driverless cars and Amazon.com from retail to cloud computing. Executed successfully, strategic transformation reinvigorates a company’s growth. Poorly executed, a business may find itself in a maelstrom of criticism by naysayers and customers alike.2

Business transformation sounds like a straightforward change. However, in practice, it involves many layers and may take several years to complete. It also means that these classes of efforts need to be measured and managed in diverse ways and the metrics used to track performance will also change. For example, when Apple transformed strategically, it moved from computers to consumer gadgets, and thus widened its competition to include Sony, Nokia, Motorola, and others in addition to Microsoft, IBM, and Dell.

Four Types of Business Transformation

In a recent Harvard Business Review article, four types of business transformation are identified based on two questions: 1) Is your transformation driven by internal needs or external forces? and 2) Does it need to happen quickly, or do you have more time to transform?3

Slow-Motion Transformation

Slow-motion transformation is when leadership introduces a new vision with a long timeline for execution.

Dominos, the pizza delivery company, is an example of slow-motion transformation. Back in the mid to late 2000s, the organization found itself amidst a crisis. Customers complained that the pizzas tasted cheap and the crust was like cardboard. Stock prices were dropping and Dominos urgently needed transformation.4

Led by CEO Patrick Doyle, Domino’s turned things around in slow motion. They acknowledged their pizza was not great, brought in a focus group, and identified what needed to be done to improve the product. They launched a marketing campaign and identified a need for stronger customer engagement as well as improvement throughout the delivery process. CEO Doyle decided to invest and develop new digital innovation and, in 2008, became the first pizza delivery company to launch its Pizza Tracker, a technology to keep customers updated on the progress of their orders.

Later, in 2011, Domino’s IT team launched a mobile application through which customers could make their orders. This quickly became the dominant ordering chain.

In 2015, they went a step further by launching a system called Anywhere, which allows customer order from any number of devices, including Amazon Echo, Google Home, Siri, Smartwatches, Smart TVs, Slack, Facebook Messenger, and Twitter.

The result of Domino’s digital transformation of its business?

Between 2010 to March 2017, Domino’s share price outperformed those of tech giants Amazon, Apple, Facebook, and Google.

The challenge with slow-motion transformation is to keep focused on the direction and the target of the change. This requires managers to adopt a long-term view and patience, in addition to embracing the spirit of continuous learning and improvement during the process.

Sprinted Transformation

These initiatives can be introduced by internal needs but are characterized by an urgent challenge to the status quo.

An example of a recent sprinted transformation is Facebook’s evolution into Meta to gain a first-mover advantage.5

On October 28, 2021, Facebook rebranded itself as Meta and upended a 68,000-person networking company toward the theoretical metaverse that would introduce people to shared virtual worlds and experiences across different software and hardware platforms.

Internal disruption and uncertainty ensued.

In this sweeping transformation, thousands of new jobs in labs that make hardware and software for the metaverse were created, and employees had to apply for augmented reality and virtual reality roles.

As a company entrenched in online advertising and social networking, changing the course of its business caused internal disruption. According to the New York Times, that while “some workers were excited about Meta’s pivot, others questioned whether the company was hurtling into a new product without fixing issues such as misinformation and extremism on its social platform. Workers were expected to adopt a positive attitude toward innovation or leave.”

The managerial challenge for companies like Meta in a sprinted transformation is to build a powerful narrative to create the needed energy and motivation to change. Without this motivation, it is impossible to follow through on the desired direction.

Negotiated Transformation

External demands typically drive negotiated transformation, such as regulatory efforts. In these situations, a company cannot change, but only influence, the transformation. A slow pace and extensive stakeholder efforts characterize these transformations.

An example of negotiated transformation is when the U.S. Supreme Court ruled to stay the federal OSHA COVID-19 Vaccination and Testing Emergency Temporary Standard (ETS). Businesses with 100 or more employees are no longer required to document COVID-19 vaccinations or test employees.6 (This decision is now pending possible additional litigation in the U.S. Court of Appeals for the Sixth Circuit.)

States operating OSHA-approved plans have presented compliance complexities for many businesses beyond the normal requirements for workplace safety. Following the ETS decision, a handful of states opted to take no further action to enforce their state’s OSHA programs on vaccinations pending the outcome of future judicial determination. Some states, such as California, Connecticut, and Massachusetts, continue to issue executive orders regarding COVID-19 booster shots.

Additionally, the Supreme Court ruled that the Centers for Medicare and Medicaid (CMS) Interim Final Rule (IFR) that requires COVID-19 vaccinations for covered staff in any facilities that participate in CMS programs could proceed. This created a need for CMS to issue a second set of compliance deadline dates to account for the fact that the IFR had been stayed by litigation in 25 states.

All of this comes at a time when owners have invested money to adapt their businesses to previous COVID-19 safety regulations that are still visibly apparent — dividers separating employees and customers at a counter, stickers and placards denoting the number of individuals who can sit at a table, remodeled offices, and scaled-back restaurant seating in some areas of the country trying to bring employees back to the workplace.

The challenges in negotiated transformation are to engage in the debates, exercise influence where possible, and to carefully prepare an organization for transformation.

Hijacked Transformation

These initiatives are typified by sudden, disruptive changes brought about by outside forces. External parties, in effect, hijack the company’s agenda, forcing a transformation to align with the new reality.

Hijacked transformations can occur when new competitors enter an industry and change the rules of the game.

Examples of hijacked transformations by competitors include Netflix and other streaming services have threatened conventional TV, cinemas, and the movie industry. A lesser recognized example is Wikipedia. For centuries, it was encyclopedias that existed to provide important details on various subjects. Those were written and published for profit, with hardcover volumes being released regularly due to the constant updates and changes to information that needed to be included. Wikipedia eradicated that necessity for expensive, unsustainable information access. It is constantly updated, available for free, and though it has an air of distrust surrounding the information it presents, it still was enough to drive Encyclopedia Britannica to publish their final volumes back in 2012, after 244 of circulation.7

The managerial task with hijacked transformations is to move quickly and not to invest extensive efforts in debating the trigger. Accepting the external demand and moving quickly to a new reality is the only way to align with a new reality.

Benefits of Business Transformation

Executing a successful business transformation is not an easy undertaking. It needs well-calculated strategies. You also need to make decisions that take the company’s capabilities into account.

However, the benefits are many if done correctly. They include:

Better efficiency.

By integrating new technologies, a company takes advantage of intelligent automation tools. These solutions enhance streamlined processes in manufacturing.  Also, computing systems provide smart data. This can be used to make informed business decisions that propel a company.

More safety.

Human life cannot be risked to control hazardous situations. In such cases, automated production lines come in handy. They protect the workforce by replacing human effort.

Increased productivity.

Businesses can minimize waste and maximize productivity by adopting digital technologies. It is always easier to estimate the project cost by using automated tracking systems and data analytics.

Return on investment.

When you improve the efficiency of your business, you realize better returns overall. The transformation process may take a long and be expensive, but the payback period often sets in after five years.

Improved sustainability.

A business transformation enables a company to put in place intelligent sustainability systems. These tools help to oversee energy and environment conservation. This then helps strengthen the company’s public image.

How to Lead a Business Transformation

Many companies are looking to transform their processes or programs, such as going to the cloud, adopting digital strategies or even agile processes. While correctly diagnosing the transformation they are facing, managers must also be able to:

  1. Spot the need to transform. This means being able to identify the kinds of transformation they’re facing.
  2. Develop the appropriate process for each transformation. Hijacked transformations cannot be managed with processes aimed at managing a slow-motion transformation, or vice versa. It is critical to be aware of the different processes each transformation type requires, and you deploy accordingly.
  3. Understand the connection between transformations. While different transformations require different approaches, they may also be interconnected. For example, the hijacked transformation of your supply chain, such as those imposed by COVID-19, may put pressure on a sprinted transformation of your e-commerce transformation. Be aware of the interconnections of the transformations.

Transformations are inherently complex. As a manager, you may encounter a number of challenges as you lead the transformation:

  1. Weak engagement – you do not have enough people engaged in the project or they cannot devote a lot of time to the effort.
  2. Lack of clearly defined roles – people uncertain of who does what.
  3. Failure to access capabilities – people on the business transformation team don’t understand their capabilities or what is needed to accomplish objectives.
  4. Inconsistency of communication – sporadic or nonexistent communication.
  5. Inaccuracies in effort estimates or the work required to complete the transformation.
  6. Lack of momentum to implement change – many business transformations required 15 to 18 months of engagement; keeping the group involved and motivated is a big challenge.
  7. Wrong timing of implementation – in the time it took to complete the business transformation, the market may have changed or the industry shifted.
  8. Letting go of legacy processes or systems.

Here are the most critical steps to take when transforming a business:

  1. Have a strategic vision. It is critical to get the right strategic vision and to communicate where you’re going and why.
  2. Execution. This is often the hardest part because it requires getting people to adopt the vision and stay motivated.
  3. Identifying and handling your biggest challenge(s). A very common challenge is for a leader to let go of a current or past success; this success may hinder change.
  4. Customer demand. One of the main reasons companies desire business transformations is customer demand. Take a broad view and let this drive transformation.

The Difference Between Change and Transformation

Many managers don’t realize there is a difference between “change” versus “transformation.” They are not the same.

Change management means implementing finite initiatives. The focus is on executing a well-defined shift in the way things work, and these initiatives may or may not cut across the organization.

For example, introducing a new performance management system, shifting from decentralized to centralized marketing support, utilizing new productivity tools. By applying change management principles and tools, such as making the business case, building a coalition of leaders, getting early results, engaging stakeholders, etc., the shifts can be successfully executed.8

On the other hand, transformation doesn’t focus on well-defined shifts, but on a portfolio of initiatives that are interdependent. The overall goal of the transformation is to reinvent the organization and discover a revised business model based on a vision for the future.

How to Implement a Business Transformation

Understanding your company’s value and nascent opportunities can be daunting in a dynamic environment. Here are some ways to implement business transformation:

1. Strategize

Before anything else, a company needs to develop strategies for achieving the desired vision of the business. It also needs to consider the current state of the firm and market trends. Every decision made subsequently will be based on this strategy.

2. Develop Leadership

Businesses should assign a program manager or team to monitor the overall transformation process. The team will be responsible for controlling the transformation budgets. They’ll also ensure that all decisions align with the core vision.

3. Plan and Scope

This step takes the overall strategy to the next level. A company first identifies all its areas, systems, and work processes affected when a transformation is launched. The data is then used to outline budget limits, goals, sub-projects, and timeframes.

4. Develop Project Management

The program director should appoint transformation managers in each unit, such as HR, IT, and finance. They should then deliver in time while sticking to the main plan.

Their primary role is to monitor the success of the transformation and look out for potential challenges beforehand.

5. Build Resources

Don’t just assume that your current team of professionals can execute a business transformation. Instead, put together a team of experts to develop the relevant structures.

6. Execution

Business transformation doesn’t happen overnight. In fact, depending on the company size, it could take several years to go from strategy to execution. Ultimately, the project manager has to re-evaluate the plan regularly. They should also engage the staff about the progress.

7. Integration

Immediately after the transformation is executed, the most vulnerable step sets in – integration.

At first, it can be challenging to work with new systems. Studies reveal that 73% of employees are affected by transformation changes.9 Therefore, they must undergo training awareness before execution to help them cope with the challenges.

Best Practices for Project Management

  1. Know your company culture. Is ownership empowerment? Customer centric? Understand what is your what and leverage this.
  2. People. Knowledge is good, but currently companies are looking at a positive mindset to be as important as knowledge. People can be trained but a positive mindset is critical.
  3. Clear objectives. Know what your objectives are. Is it to improve customer or client experience? Time to market? Drill down on these objectives and keep them foremost in your strategy.
  4. Success factors for all. Have a compelling ‘why’ and communicate this throughout the company.
  5. Use modern tools and engage in outside expertise. This is particularly important if your internal resources are lacking.

Key Takeaway

Business transformation is not something that only reputable brands undergo. It’s an essential piece in the long-term puzzle of success for all businesses. They vary in terms of content, pace, and place of initiation and it means navigating a complex landscape of interconnected and interdependent issues. Your efforts should be connected and coordinated through a carefully constructed capabilities analysis. The goal of transformation is to reinvent your organization and discover a revised business model based on a vision for the future. With the help of business transformation and management consulting resources, your company can double its performance and unlock tremendous potential.

 

Resources:

  1. https://inform.tmforum.org/features-and-analysis/2017/03/digital-transformation-can-learn-netflix/
  2. https://store.hbr.org/product/what-do-you-really-mean-by-business-transformation/H02OTZ
  3. https://hbr.org/2022/06/4-types-of-business-transformation
  4. https://www.thepowermba.com/en/blog/examples
  5. https://www.nytimes.com/2022/01/31/technology/facebook-meta-change.html
  6. https://www.osha.gov/sites/default/files/publications/OSHA4161.pdf
  7. https://sprigghr.com/blog/alignment-direction/5-business-disruption-examples-and-key-takeaways/
  8. https://hbr.org/2015/01/we-still-dont-know-the-difference-between-change-and-transformation
  9. https://whatfix.com/blog/digital-transformation-statistics/

Author Natalie Bair

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