What is Business Transformation?
Business transformation is a change management approach involving shifts, realignments, or fundamental alterations to business operations. The primary objective is to align the company’s processes, people, or systems (technology) with its business strategy and vision.
There are various reasons why a business might consider implementing a transformation, such as the emergence of new technologies, shifts within the market, low profits and turnover, or a merger and acquisition. The transformation may involve changes to the entire organization, such as integrating two companies involved in a merger or acquisition. Alternatively, it may entail changing a specific function, such as IT, Supply Chain, HR, or Finance. For instance, IT leaders may push for a new ERP system as the current solution may end. Or functional leaders may outsource human resource management and back office finance operations to enhance efficiency and derive operational cost savings.
Image Source: Canva
Business transformation types
There exist three primary kinds of business transformation:
- Operating Model – Implementing alterations to the methods of operation to improve efficiency, speed, and talent retention or reduce costs, such as digital transformation, process automation, or robotics in manufacturing.
- Core transformation – Shifting to a completely different way of functioning (i.e., via outsourcing, zero-based budgeting, relocating offices to a cheaper location, and maximizing shift patterns)
- Strategic – Altering the fundamental nature of the organization by shifting the focus to something new (i.e., managing the sales segments or diversifying the portfolio).
Business transformation focus areas
The type of transformation required for a business will depend on its objectives and plans. For instance, some of the scope activities could be any of the following:
- Preparing for a merger and integration after an acquisition (i.e., consolidating HR terms and conditions/ payroll)
- Reducing costs via consolidating teams or procedures (i.e., centralizing Procurement, using credit cards, zero-based budgeting)
- Implementing CRM, ERP systems, and other technologies to remove manual processing and improve business reporting
- Establishing shared service centers for functions like IT, Supply Chain, Finance (Accounts Payables and Receivables), HR (i.e., Benefits, Payroll), and Procurement
- Moving operations offshore, outsourcing or insourcing them, or opening new offices in different geographical regions
- Optimizing the supply chain and associated processes (i.e., Supply Planning, Demand Planning, Customer Service, Transport Planning, Warehouse Management, Inventory Control)
- By standardizing global processes for repeatable activities, for example, IT service desk response and troubleshooting or research and development product lifecycle processes for ideation through materials ordering.
Drivers of business transformation
An organization may undergo a business transformation for various reasons, often in response to change. In today’s world, change is a constant factor. Extremely competitive market conditions and disruptive technologies are transforming traditional business models and revolutionizing employee and consumer expectations. Business leaders can use transformation programs to maintain a competitive advantage. Leaders must be adaptable to change and implement successful programs supported by robust employee engagement programs. Consequently, companies seek to become more agile, enabling them to flex and modify in response to constant change. Agility is a priority for business leaders, and they believe that leading and delivering step changes is the highest priority for conducting business.
Business transformation influences
Businesses must adapt to shifts in the economy, technology, organization, and consumer behavior to stay competitive and grow. This applies to both companies and academic institutions. By monitoring these changes, business leaders can make informed decisions and take strategic actions with business transformation programs.
In the modern business landscape, companies prioritize the factors driving business transformation. They are exploring new opportunities and leveraging technological advancements to challenge their conventional ways of thinking. Adopting cloud-based systems or process automation is emerging as a critical approach to enhancing business operations. Of utmost concern to businesses is how to differentiate themselves through innovative approaches that improve customer experiences and maintain a competitive edge. As such, companies are asking, “How do we differentiate to enhance our customers’ lives and stay ahead of the competition?”
Organizations may need to prioritize various factors related to business transformation to achieve their objectives and goals. This process could entail an evaluation of existing processes to identify more effective working methods and the elimination of any redundant activities. It may also involve the restructuring of teams or the entire organization, as well as the implementation of new technology through digital transformation. By focusing on these factors, organizations can improve their operations and position themselves for success.
Focusing on certain factors that can significantly impact the business is imperative in organizational development. Among these factors lies the need to reduce costs, which may arise due to many reasons, such as high expenses or a desire for cost savings. This transformational change may require cutting costs in specific areas or throughout the business, depending on the organization’s unique circumstances. Business leaders must identify areas where operations can cut costs without compromising service or product quality. By prioritizing the reduction of costs, businesses can improve their financial stability and increase their competitiveness in the market.
Business needs to grow.
In contemporary times, businesses have shifted their priorities towards enhancing their operations to meet the demands of the ever-evolving market landscape. One of the most significant challenges companies face today is balancing their existing business processes and the need for innovation and expansion. This entails dedicating sufficient resources and time towards fostering growth while maintaining the current operations.
Joining businesses through mergers and acquisitions
The current priorities of business transformation entail mergers or acquisitions. When two organizations with differing approaches and cultures merge, it presents a complex challenge for business leaders. Furthermore, such mergers can involve several stakeholders, including private equity firms, who may be vested in the outcome. This process entails consolidating various assets and activities, such as human resources, IT systems, financial functions, facilities, sales, and marketing. The successful integration of these elements is crucial to the success of the overall transformation effort.
Change in management
In today’s fast-paced business landscape, companies must explore the factors that can drive business transformation. One key consideration is identifying new business leaders and managers with fresh ideas and perspectives. This may involve hiring new talent or pursuing mergers and acquisitions to integrate new teams and skill sets. Another important aspect is to re-evaluate the current organizational structure and identify areas that can be improved to better align with the company’s goals and values. Businesses can establish a culture of innovation and continuous improvement by implementing new strategies or goals, which can help them stay competitive and succeed in the long run.
Customer happiness is at a low level.
In today’s dynamic business landscape, organizations always look for ways to transform and stay ahead of the curve. One of the significant factors that can make or destroy a business is customer satisfaction. When customers are unhappy, it can result in low retention rates, lost talent, and extra marketing costs to acquire new customers. To tackle this issue, business leaders are constantly discovering innovative ways to align their business models with the changing needs of their customers. This may involve outsourcing, offering discounts, ensuring prompt deliveries and sales incentives, or ramping up their customer service game. After all, happy customers are the backbone of a successful business!
Customers’ expectations are increasing.
Customers expect more than they used to. Businesses need to keep up with these expectations to keep their customers happy. Firms are growing concerned about meeting customers’ expectations, which are constantly increasing. Companies seek to find novel ways to be more responsive, cost-effective, speedy, and customizable. To address these challenges, business leaders initiate transformation programs that enable them to be more agile and better positioned to respond to customers’ requests. Organizations can adopt a flexible business model to adjust customer needs and preferences and improve performance. By focusing on performance and metrics, businesses can increase customer satisfaction, loyalty, and retention, creating a more sustainable competitive advantage in the marketplace.
The ever-changing and intricate political climate can present a challenge when seeking to remain up-to-date on its impact on different industries. Nevertheless, organizations must stay mindful of political developments and adjust their strategies accordingly. Any political change, such as Brexit or a new policy or regulation like GDPR that affects the business, may necessitate an organizational change, which business leaders can facilitate through a business transformation initiative.
Industry adaptation within the political climate
Industries are discovering ways to adapt to the current political climate. Below are some examples of how they are doing so.
- Energy: As firms transition to clean energy, it is causing a significant transformation in the energy sector. Governments play a vital role in this change by implementing political policies and setting ambitious targets for reducing greenhouse gas emissions. Energy companies adapt to these changes by investing in renewable energy sources and developing innovative technologies to minimize their carbon footprint.
- Healthcare: The government heavily regulates the healthcare industry, making it highly susceptible to political changes. The industry has been adjusting in response to healthcare policy modifications, such as the Affordable Care Act and the COVID-19 pandemic. Additionally, healthcare providers are investing in technology and innovation to advance the quality and effectiveness of care.
- Manufacturing: The manufacturing sector is encountering various difficulties, such as increased labor expenditure, interruptions in the supply chain, and political strains. To cope with these hurdles, manufacturers are automating their processes, broadening their supply chain networks, and exploring new markets.
- Technology: The current political climate is also affecting the technology industry, with changes in the increased government regulation of the tech sector due to data privacy, online protection of children, fraud, and security concerns. In response to these changes, tech companies invest in security measures and develop new technologies to protect user data better.
The present political situation presents various difficulties and prospects for companies operating in all sectors. Companies that adjust to the evolving environment will have the best chance of success.
Business transformation success stories
Amazon, a multinational company that started as an online bookseller in 1994, has become the leading eCommerce retailer worldwide and a prime example of digital helping to transform their business model. By branching out into other market segments such as AWS, Amazon Business, and Prime, the company has become a global organization with a net revenue of $514 billion in 2022. Amazon’s success is an excellent demonstration of how digital customer expectations have transitioned into the B2B world.
In the early 1990s, Apple was on the brink of failure in the computer hardware sector. However, under Steve Jobs’ leadership, the company underwent a strategic transformation by shifting its focus to creating beautiful consumer products. This change of direction proved highly successful, and Apple has continued to achieve great success since then.
Netflix underwent a significant transformation in its entertainment business model, shifting from a DVD rental service by mail to a global online streaming service and content creator. This shift constituted a fundamental change that helped Netflix become one of the most successful entertainment companies in the world. In addition, the company expanded into original content creation, further bolstering its success and resulting in a CAGR (CAGR = Compound Annual Growth Rate) of 59% between 2012 and 2019, according to a report by the Harvard Business Review.
Siemens faced challenging periods in its business cycle but overcame them by altering its strategies and taking calculated risks. Over a few decades, Siemens implemented unconventional measures and significantly changed its business approach to adapt. By implementing initiatives such as the Ten-Point Program, Siemens managed to weather the storm. Siemens had a vision for the future focused on digital technology and sustainability and dedicated itself to working towards that goal. To align with this vision, Siemens made significant changes, which led to its current state. In 2014, Siemens introduced a new corporate strategy called Vision 2020, with a fresh outlook to advance in digitalization, automation, and electrification. The company sought to achieve its goals by cutting costs, revitalizing struggling businesses, improving customer satisfaction, enhancing capital efficiency, and increasing employee involvement in its success.
We can extract valuable insights from Nokia’s experience.
The downfall of Nokia, previously the world’s leading mobile phone company, which resulted in complete failure in 2013, is now a topic of discussion among teachers and students in business management classes. The company encountered various challenges, including management decisions, lack of innovation, disordered organizational structures, increased bureaucracy, and intense internal competition. These factors collectively hindered Nokia’s ability to adapt to the shift from competition based on products to competition based on platforms. At one point, Nokia held a dominant position in the global mobile phone marketplace, with a market share of over 40 percent. However, the company’s downfall was swift, culminating in selling its mobile phone company to Microsoft in 2013. The implications of Nokia’s downfall are far-reaching, highlighting the consequence of adapting to changing market conditions and implementing business transformation to maintain a competitive edge in the industry.
Business transformation is an inevitable process that most organizations undergo at some point in time. The business change could be the adoption of digital technology or a shift towards a more streamlined operational model. To facilitate the change, business leaders generally follow an established change management approach to support the leading change initiative. The success of such programs is heavily dependent on a well-defined and structured change management framework that can effectively manage the transition from the current state to the desired future state. It is important to note that a successful transformation requires a collaborative effort from all stakeholders, including management, employees, union representatives, customers, suppliers, and strategic partners, to ensure a smooth and efficient transition.
What is the leading change theory?
In his book “Leading Change,” John Kotter, a professor at the Harvard Business School and an expert in change management, presented an 8-step model for facilitating organizational change. This model was developed based on Kotter’s extensive research of 100 organizations undergoing a change process, and eight critical change management factors were identified. These factors possess the potential to either lead to transformation or result in a failed initiative. Kotter (1996) suggests that by following eight specific steps, it is possible to avoid these failures and create lasting transformations. The chart below visually depicts these steps within the 8-step model and referenced in the book.
Image Source: Kotter International, Leading Change book, John Kotter (1996)
Using change management models
Leadership teams assume managers must profoundly understand the organization, its people, and its culture to respond to change. Change management models, including Kotter’s eight-step plan, often involve vision and strategy and can support business transformation programs. Kotter’s model recognizes a critical principle that individuals see, feel, and then change in response to change. Although the eight-step model has several robust principles, it places significant pressure on leaders and managers. The model only requires a little from employees in terms of participation. Managers and leaders need help comprehending the ramifications of a change initiative. Kotter’s emphasis on obtaining buy-in and adhering to leadership guidance might lead to “learned helplessness” among employees, who do not think for themselves and become overly dependent on others for direction.
Business transformation summary
Business transformation and change programs help business leaders with the primary goal of enhancing organizational efficiency and effectiveness. These initiatives support organizations’ operating models and help to achieve a competitive superiority in the market by updating processes, reducing costs, and improving customer satisfaction. The primary motivation behind these programs is to facilitate a change in the organizational structure, culture, and processes that would enable the organization to adapt to the changing business environment. Such transformations require a strategic approach and a comprehensive plan guided by a clear vision and objectives. Organizations can achieve sustainable growth and success by adopting a proactive approach to business transformation.
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