Business Transformation is the process of fundamentally changing the systems, processes, people and technology across a whole business or business unit, to achieve measurable improvements in efficiency, effectiveness and stakeholder satisfaction. These can be specific programmes of changes that usually last anywhere from 2-5 years.
When executives say transformation what do they really mean? Business Transformation encompasses the cultural shift and business processes driven by changing market demands. Often, the word confuses three fundamentally different categories of effort. Outlined below are the different categories of transformation, but remember, at the core, I believe they have the same principle: moving from the current state to a new better state due to market demands.
Operational Tranformation
The first is operational, or doing what you are currently doing, better, faster, or cheaper. A big operational change can drive real business impact, but also needs “a marked change in form, nature, or appearance” or “to change (something) completely and usually in a good way.” It is no good just focussing on lower costs, customer satisfaction going up, but the essence of the company isn’t changing in any material way. And, in a quickly changing world playing an old game better is simply insufficient. You need to continually improve (transform) to market demands and that’s where the strategic execution part of operational excellence fits in.
Usage should also focus on the operational model. While improving the process, department, division etc or hearing what feedback from users and clients, opportunities should be exploited that involves doing what you are currently doing in a fundamentally different way. Tools such as Design For Six Sigma (DFSS) can help redesign the way you work to something new.
Digital and IT Transformation
Some companies are using “Digital” new technologies to solve old problems and digitise or automate existing processes. Digital Transformation is the adoption of digital technology to transform services or businesses, through replacing non-digital or manual processes with digital processes or replacing older digital technology with newer digital technology. Of course Digital is more than just ‘digitisation’, it should be a driver of the business and looking at new ways of generating more profit, new revenue streams and better customer integration feedback. So whats the difference between business vs Digital vs IT:
Business transformation encompasses the cultural shift and business processes driven by changing market demands; i.e., the company’s culture of change and business drivers.
Digital transformation encompasses the tools and processes implemented to support business transformation; i.e., applications.
IT transformation is the reassessment and overhaul of information technology/hardware to support digital transformation; i.e., infrastructure.
Strategic Transformation
The final usage, and the one that has the most promise and peril, is strategic. This is transformation with a capital “T” because it involves changing the very essence of a company. Liquid to gas, lead to gold, Apple from computers to consumer gadgets, Google from advertising to driverless cars, Amazon.com from retail to cloud computing, Walgreens from pharmacy retailing to treating chronic illnesses, and so on. Executed successfully, strategic transformation reinvigorates a company’s growth engine. Poor execution leads naysayers to pounce and complain that a company should have “stuck to its knitting.”
Defining what leaders mean when they drop the word transformation matters, because these different classes of efforts need to be measured and managed in vastly different ways. Operational model transformation should change the metrics the company uses to track performance. For Netflix, a DVD-based model requires managing warehouse utilization and physical distribution costs. A streaming model requires managing website uptime and bandwidth costs. If a company is using the same metrics before and after its so-called “transformation” effort, it really hasn’t transformed in any material way. Strategic transformation changes a company’s competitive set. In its core advertising business, Google competes against other content and technology players; its driverless car will competes against manufacturers like General Motors and BMW. Similarly, historically Apple competed against Microsoft, IBM, and Dell; the iPod and iPhone led it to take on new companies like Sony, Nokia, Motorola, and more.
Not all of these efforts are of equal impact. Focusing on “today better” operational efforts does nothing more than create parity with the best executors of yesterday’s model. It is a recipe for short-term survival, not long-term sustainability. Leaders instead should be thinking about how to blend together operational model and strategic transformation to execute what Innosight calls a dual transformation. “Transformation A” strengthens today by reinventing the core operating model. “Transformation B” creates tomorrow’s core business. The efforts should be connected and coordinated through a carefully constructed capabilities link. This is the way that leaders can rise to the existential challenge of disruptive change to own their future, rather than be disrupted by it.
Content adapted from: Scott Anthony’s 2016 HBR article, What do you really mean by business “transformation”?