What is business transformation?
Business transformation is an umbrella term that describes a strategic shift in how an organization operates. Going beyond incremental improvements, business transformation includes fundamental changes across an organization, from personnel and processes to technology and operations, to improve performance and efficiency or to change the strategic direction of an organization.
Business transformations are major initiatives driven by organizations’ leadership teams and boards of directors. They can take years to complete as they involve substantial changes to most areas of an organization, including technology, sales strategies, and operational systems and processes.
Types of business transformation
There are many forms of business transformation with nuances that vary by organization and industry. However, most business transformation initiatives align with one or more of the following categories.
Business process transformation
Driven by an organization’s strategic objectives, business process transformation radically changes the foundational functions that underpin product and service offerings. Business process transformation focuses on how products and services are created and delivered, typically driving increased automation and optimization to decrease costs and increase profits.
Business process transformation initiatives are usually executed in phases, starting with the highest-return areas and incrementally implementing changes across the organization. In many cases, this is an ongoing process that sees organizations continually updating and enhancing business processes.
Culture transformation
Culture transformation is a shift in how people engage with one another as well as how they are managed. Most organizations’ cultures evolve based on the personalities of the leaders.
For culture transformation to succeed, management must be aligned with the objectives and committed to change. In addition, there needs to be a clear reason for the culture transformation, with everyone understanding the expectations and motivations.
Digital transformation
Also referred to as information or data transformation, digital transformation focuses on optimally leveraging technology to increase efficiency and unlock value across an organization. Digital transformation initiatives harness the power of digital systems and data to speed the design, development, and sale of products and services. It also includes creating new or enhancing existing products and services with innovative uses of digital assets.
Management transformation
Management transformation reassesses how organizations are run and teams are organized. Typically, management transformation involves reimagining reporting structures, often dispensing with middle management and reducing hierarchies. Individuals are often granted more autonomy and empowered to make decisions about how to achieve their objectives. Another hallmark of management transformation is increased transparency and communication channels across an organization.
Organizational transformation
Organizational transformation focuses on how staffing resources are allocated. It requires rethinking how departments are organized and interact, evaluating reporting structures, and assessing in-house skills and experience. The objectives of organizational transformation are to break down silos, dispense with excess management structures, and right-size staffing.
Implementing business transformation
The steps for implementing a business transformation initiative will vary, but most have several common components and steps, including the following.
Strategy
Define clear, big-picture objectives and a vision for how the organization will look as a result of the business transformation. In essence, what is the reason for undergoing it?
Buy-in
An executive champion should represent the business transformation at the C-level and to the board of directors. They will share details about the initiative with stakeholders and staff to ensure that they understand why this is happening and how it will positively impact them.
Plan and scoping
The scope of the business transformation initiative must be clearly defined. Then, plans that detail the steps and processes to achieve the objectives need to be developed, as well as Key Performance Indicators (KPIs) and reporting criteria.
Capabilities
Identify which capabilities are needed to achieve those strategic goals as well as those that are available in-house or need to be hired or outsourced.
Program management
Create a program management plan that includes key roles and responsibilities.
Beginning a business transformation initiative with these core components carefully considered and thoroughly developed will help make this complex and laborious effort run smoothly and efficiently.
Knowing the “why”
Commonly cited reasons for the enterprise to undertake a business transformation initiative include:
- Address external challenges (e.g., competition or workforce changes)
- Adopt agile working methods
- Blend organizations in response to mergers and acquisitions
- Capture untapped potential
- Realize gains in growth
- Increase diversity, equity, and inclusion
- Increase operational efficiency
Objectives of business transformation
Each organization has its own goals for its business transformation, but many share broad objectives, including the following.
Business decline
Changes in market conditions or loss of market share that result in a decline are often catalysts for business transformation. Business transformation can stop the decline and reinvigorate the organization with changes in strategy, products, and services, and sometimes people.
Inefficiencies
Over time, compounding inefficiencies can put an organization at risk. Business transformation helps prioritize areas that need to be improved, uncover better processes and technologies to eliminate inefficiencies, and set a strategy that proactively identifies inefficiencies and directs remediation before they grow to be an issue.
Leadership changes
A change in leadership often precipitates business transformation as new leaders and teams bring a new vision for an organization. This also gives the new team an opportunity to clean the slate and make a fresh start.
Mergers and acquisitions
When organizations merge or make a significant acquisition, business transformation is often needed to facilitate integration. Mergers and acquisitions introduce new people, processes, and technology that may or may not be appropriate when the organizations are blended. Business transformations help organizations evaluate these elements and optimize them to best suit the updated organization.
Evolving regulatory environment
Regulations continue to change and can have significant impacts on organizations. In some cases, regulatory changes drive business transformation as a way to ensure compliance with new rules and quickly adapt to future changes.
Several more specific objectives include:
- Changing business or operating models, such as a solution delivery model moving from a packaged product to an as-a-service offering
- Consolidating multiple business systems into a single, integrated system
- Optimizing supply chains and enhancing supply chain resilience
- Streamlining operations
- Developing new product lines or revamping existing products or services
- Implementing governance programs (e.g., compliance, security, or data)
- Migrating core systems and applications to the cloud
- Outsourcing functions
- Reengineering business processes
Roles and responsibilities
Business transformation starts with an organization’s leadership team and typically includes the board of directors. The CEO plays the critical role of championing the business transformation initiative. They share the vision, communicate the overall plan, and model the changes. Often, a chief transformation officer (CTO) is appointed and given a mandate, authority, and resources (e.g., personnel, budget, and operational function) to orchestrate the business transformation on behalf of the CEO and board of directors.
While the CEO, CTO, and board of directors set the business transformation strategy and provide high-level oversight, the tasks related to executing the initiatives fall to leaders at the division or team level management and staff. Key business transformation roles include:
- Executive sponsors
- Business process owners
- Solution consultants
- Technical consultants
- Project managers
- Business architects
- Business analysts
- System analysts
- Data analysts
- Test managers
- Trainers
- Change managers
- Business stakeholders
- End users
Achieving a successful transformation
Articulate the need for business transformation
Explain to stakeholders and staff the reasons why the business transformation is imperative and share a clear vision of the goals. To be successful, the initiative needs to have buy-in at all levels of the organization. Sharing details about the catalyst for the initiative and the expected results helps get everyone on board.
Be mindful of bandwidth constraints
It is common for business transformation teams to include people who have other responsibilities rather than being dedicated to that project. In these cases, be aware of their time limitations and other obligations when assigning tasks and setting deadlines.
Focus initial efforts on high-impact areas
Focusing on high-impact areas gives the business transformation initiative big and early wins that help motivate teams to embrace the changes and continue the efforts across the organization.
Turn ideas into detailed plans
A business transformation plan should have trackable, time-bound metrics to quantify outcomes, such as value creation, cost savings, growth opportunities, and operational improvements.
Use change controls
Change controls should be used to introduce and implement changes in a manner that ensures business transformation changes are hard coded into processes. Otherwise, the organization is likely to revert to legacy practices.
Understand how people, processes, and systems are related
Take time to understand the ripple effects of changes. Often, there are hidden interconnections that can have material impacts. For example, a change in a financial system can affect the human resources team, and a change in a data system can impact sales reporting.
Balancing people, processes, and technology is critical to the success of a business transformation initiative. Key considerations include the following.
People
Business transformation can only succeed if people are engaged and supportive. It is important to inform all stakeholders about the initiative, focusing on the reasons for the undertaking, the expected impact on individuals and the organization, and the timeline and process. Training on new tools and processes also ensures that people can support the changes that business transformation brings.
Process
Processes are a foundational part of business transformation. It is imperative to identify all existing business processes and assess how or if they fit with the vision for the organization. This effort also helps uncover requirements for new processes or changes to existing ones. Following a business process management framework can facilitate this work.
Technology
While technology is a crucial part of business transformation, it is essential to remember that its role is to support the people and processes, not drive them. Once the requirements for achieving the end goal have been established, technology should be selected.
When choosing technology, consider the use cases and evaluate the total cost of solutions (i.e., licensing, support, and maintenance). Too often, technology is overbought, with organizations selecting systems with a feature set that far exceeds needs. Evaluating technology based on use cases, budget, and users’ capabilities helps ensure that the optimal solutions are implemented.
Ensure successful business transformation by avoiding common pitfalls
By all accounts, business transformation requires significant effort, but the results are worth it. However, even when organizations work hard, their efforts may not meet expectations.
Business transformation requires buy-in and long-term commitments from an organization’s leaders and the support of the organization’s staff at all levels. Along with putting in the hard work, this is how business transformation is successful and yields the desired results of boosting overall performance to deliver increased revenue, lower operating costs, improved satisfaction, and optimized operational productivity.
Several of the main reasons why business transformation initiatives stumble or fail are related to people, communication, and measurement. Without the support of people at all levels of an organization, business transformation is simply not possible. A critical factor for engaging people is communication: Explaining what is happening and why it is being done, as well as keeping people abreast of progress and results, is critical. Finally, establishing metrics is the only way to measure success. Determining key performance indicators (KPIs) at the outset of the project is vital.
Other common pitfalls to avoid to ensure a successful business transformation include:
- Failure to refine throughout the initiative
- Inadequate leadership support
- Internal resistance
- Lack of budget
- Lack of established owners and accountability
- Misaligned skills
- A scope that is too small to make initiative transformational
- Unclear goals and/or undefined KPIs
- Unrealistic schedules and deadlines
