Transformation, that all-encompassing “T word”, that seemingly describes how an organisation responds to disruption, the changing market or the changing customer. It is very much the corporate bingo word of the moment, and is often the case, such words are misunderstood (just google it). You may have noticed, the T-word, is an over-used term and is seemingly being used to symbolise almost everything from cost-cutting to a dramatic rallying cry.
To understand what it is, you need to understand why it is needed which is not as easy as it sounds. In a true sense, the pace of change is so fast that it doesn’t take much for an organisation to recognise that transformation is needed in response to “market shifts, ground-breaking technologies, or disruptive start-ups”1. Then it is a relatively simple equation, if an organisation does not respond, there is a real risk of that organisation disappearing or being absorbed. A recent HBR highlights some sobering findings where it is estimated that one in three Fortune 500 companies will delist in the next five years- a far faster rate than ever before2.
Some organisations respond to the disruption by having a transformation programme that is effectively cost cutting, and this is likely to be driven by benchmarking. Yes, it is important that an organisation has a realistic cost structure, and there are times where a focus on cost is necessary. This is not transformation- in fact it could make the mistake of benchmarking to a cost structure of yesterday, and not the required structure of tomorrow. Don’t forget, competitors also face the same pressure, and they will respond differently.
Sometimes a transformation has a real operational focus, let’s be better, faster and cheaper. This is what digital is too many, using new technologies to solve old world problems. But fundamentally this Operational Transformation is like moving from Word Perfect to Microsoft Word. Sure, this may sound harsh, but fundamentally this type of transformation does not change the organisation’s view of the customer, the value chain or the paradigm that it exists in. It should be the implementation of continuous improvement programme using the tools of six sigma or lean.
Sometimes a transformation focuses on the operational model and involves doing what you are currently doing, in a fundamentally different way. Described by Scott Anthony as a Core Transformation it will be a significant change to processes, customer interactions and likely to involve IT replacement. Examples of this could include Netflix moving from a DVD delivery service to an online provider; or Life Insurers moving from insurance to wellness.
Sometimes a transformation is an actual Strategic Transformation. This is where there is a real focus that changes the actual essence and purpose of an organisation. Apple from computers to consumer gadgets, Spark from landlines to security systems. If executed successfully, strategic transformations can reinvigorate an organisation’s growth engine and have business academics and analysts get excited about the success. Of course, if executed incorrectly, organisations will fail, and the media and analysts will say they should have stuck to their knitting. Such is the risk of strategic transformation.
Just by these explanations you could determine that not all transformations are created equal and are of equal impact.
A transformation focused on cost or operations will in the end deliver nothing more than meeting the market- maybe. A very inward looking approach, it will naturally lead to a short-term survival focus, and it in a real sense will create a transformation programme that is always on- it must, competitors and the market are constantly moving.
A core transformation focus can have an impact for an organisation if it tackles the infrastructure, the underlying platforms, the integration between technology, data, process and people. It will have a greater impact if it has a clear focus on the customer and what can be delivered to enhance the customer experience.
Strategic transformation, if executed correctly and successfully, should lead to a future of growth, as an organisation delivers value. I say should, because for organisations with a proud heritage and a history of growth, the past can pull it back unbelievably. They will come with real baggage; legacy systems, legacy customers and legacy mindsets. In addition, it can take years for a transformation initiative to become significant enough to replace the revenue that can be provided from existing business streams. And, if the old model is abandoned too quickly, it could throw away the advantage an organisation might still enjoy.
Gilbert et al and UK research suggest that transformations should happen in parallel. Firstly, the operational transformation or core transformation should start by adapting the existing business model to the market place and challenges the organisation finds itself in. It seeks to build the strongest competitive advantage the current business model can sustain- which does not mean cost cutting (which often is the natural reaction). It is literally doing things better, faster, smarter- but more importantly seeks to get performance for as long as possible.
Then, a strategic transformation should take place, disrupting the business to develop the innovations that will drive future growth. In short, this will allow an organisation to embrace the possibilities of the new market and the new value chain as energetically as the disrupters do.
Whatever the type of transformation, defining what leaders mean when they drop the ‘T’ word matters. Not only because it speaks to the connection with purpose, the quantum of effort required, the type of measurement needed to define success, but also the type of leadership required.
Further reading and references
- Gilbert, Eyring and Foster (2012), Two Routes to Resilience, HBR December 2012
- Anthony, Scott (2016), What do you really mean by Business Transformation?” HBR February 2016
- Johnson, Yip and Hensmans (2012), Achieving Successful Strategic Transformation, MITSloan, Spring 2012