Business transformation – not the same old story!

New technologies, globalisation & Co. – the world is changing. Companies have to adapt accordingly.

So far, so good. In itself, this is nothing new. Changes, in the sense of transformation, have always been part of successful companies. At the latest since Corona, the need for business transformations has been a constant companion in entrepreneurial discourse.

And yet, these endeavours often fail in implementation and even with the basic understanding of the concepts.

What exactly is business transformation?

In short, we understand business transformation as the fundamental and holistic redefinition of a company’s vision. This includes a revision of business models, processes, values and objectives, as well as a restructuring of employees, cooperation and the customer base.

Why do so many companies fail in their transformation?

Businesses face increasing demands for more comprehensive services, production speeds and innovative solutions. A far-reaching business transformation is correspondingly complex and often places additional strain on internal structures.

So is business transformation always doomed to failure? Absolutely not – and once it has succeeded, the benefits of change are extensive and lasting. Therefore, this article intends to provide you with the essential concepts and methods for a successful transformation.

More vision than with change management

Change or transformation – are they the same?

The terminologies themselves often lead to confusion. Although business transformation is often used interchangeably with change management, it is essential to distinguish between these concepts from the beginning – the lack of clarity can negatively impact the success of the process!

Change management is about tangible responses to concrete circumstances, incidents and problems. Therefore, this “change” is about smaller or larger adjustments, depending on the cause. For example, this could be a restructuring within the human resources department or a change in the production’s pattern of similar products – whereby the employees may have to relearn a few steps.

Unlike change limited to specific areas, business transformation is fundamental, holistic and visionary. In other words, business transformation is about changing the “genetic architecture” (Recklies, 2012) of a company.

Moreover, business transformation isn’t a one-time process, nor does it always have a precise end date. Instead, the ability to continuously evolve is a critical competency of successful companies. Giants such as IKEA and IBM show how it is done – with continuous adjustments in their service (cf. Spindler, 2011) or a continuous implementation of strategic topics in their business model (cf. Mustermann, 2010).

Sounds extreme? It is. Instead of a singular action in response to a specific problem, the starting point of business transformation is to create the perfect target company.

Change fixes the past, transformation creates the future.

Tanmay Vora
Director R&D, India

So the goal isn’t to get more performance out of an already depleted company, but to create a source of strength with a refreshed company from which more sales and more ideas can be drawn.

Business transformation triggers

In contrast, to change management, business transformations are more future-oriented and holistic. Nevertheless, the idea of a comprehensive transformation does not (usually) arise from thin air.

In other words, the business transformation process also has specific triggers (cf. Ikker, IHK), although the process goes far beyond a simple reaction to these particular triggers.

It’s frequently the case that the need or change towards business transformations are justified by digitalisation reasons. However, the “Kickstarter” of such an undertaking includes at least the following factors:

Generation change

Employees and customers have different values, expectations, structures and habits.

Mergers, acquisitions & cooperations

In some instances, these changes can and should be the starting point for restructuring the entire company.

Increased digitalisation & new technologies

Of course, these factors also create opportunities and pressure to trigger business transformation.

These few examples already show that the triggers can be external and internal and that an additional distinction between top-down and bottom-up methodologies is notable.

However, it’s crucial for a successful business transformation that it doesn’t only take place at the trigger level but that all business areas are rethought and included in the process.

Challenges of business transformation

We can state: business transformations are fundamental and holistic, an end date isn’t necessarily fixed, and the impact goes far beyond the cause or the trigger.

Due to these characteristics, business transformations are more complex and “more unpredictable than change projects” (Behrend?, Impulse) and usually harbour higher risks. This can result in a drop in sales as well as the loss of employees and customer relationships.

But we are convinced: renouncing a necessary and appropriate business transformation can lead to the same results in the long run.

Nokia – remember? It exemplifies what happens when you lounge around for too long and fail to recognise the company’s need for change and implement it in due time.

It’s important not to avoid change but to implement it correctly and with foresight.

This includes, among other things, involving employees in the transformation, even if management itself doesn’t always know the exact direction and the individual steps! According to Janice Miller (Harvard Business Publishing), business transformation often fails because employees aren’t convinced about the project (cf. Boulton, 2018).

Therefore, it’s helpful to view business transformation as a collaborative learning process. To ensure that this learning process is structured and not chaotic, those responsible need a high degree of tact and competence in leadership and communication skills.

High standards? Yes. But it’s worth it.

Because the right approach leads “to a targeted and sustainable transformation, those affected are engaged and involved, collaboration is redesigned, and shared values are created. The organisation’s performance and orientation towards its goal are restored.” (Fraunhofer IPA)

Success factors: how business transformation succeeds

As already mentioned: in the best case, business transformation isn’t a singular process but a central component of corporate competencies. Therefore, agility and a forward-looking approach are essential.

The result should be a dynamic company with many potentials in terms of sales, new ideas, and an overall dynamic company culture.

So what are the prerequisites and suitable approaches for successful business transformation? Let’s take a closer look:

Prerequisites in management

Regardless if management or a separate department is responsible for the company transformation – for it to be successful, management should have the following characteristics (cf. Ikker, IHK):

Leadership quality

Assertiveness is combined here with emotional competence. It must be made clear that changes are necessary and have a clear purpose to achieve the common corporate goal. At the same time, attempts must be made to consider the interests and concerns of all.

Communication skills

Here it is essential not to present employees with a done deal but to enter into a dialogue and act as a diplomatic and fair link between (all!) business levels.

Supporting change

The path of business transformation isn’t set in stone. Each company is unique, which is why template solutions rarely work. A clear plan tailored to the company and close monitoring during its execution are essential. The existing work methodologies and existing processes must be adapted, step by step, to the new vision and strategy.

Agility

This point is in no way contradictory with assertiveness. Instead, there should be the possibility to restructure or completely scramble plans when necessary, rather than getting stuck in outdated ideas.

Are these qualities not strongly represented in management? Then it may be worth considering additional hires, new positions or outsourcing for them to prevail.

Is there an opportunity for change in the company?

As important – and too often ignored – is the question of the company’s ability to change in general (cf. Meyer, Nordantech).

In other words, do the existing corporate structures offer fruitful foundations for transformation? Or are the systems too outdated or worn out for there to be profound changes?

To answer these essential questions, you should consider the following guiding questions:

  • Is the financial cost of the endeavours more important than the benefits change will bring?
  • Do innovative ideas – if they exist at all, regularly fall on deaf ears?
  • Do we walk the talk?

If it’s not the case, you’ve laid out the most critical foundation stones for a successful business transformation – there’s an opportunity for change!

If you’ve answered most of these questions in the affirmative, it’s best to tackle the eradication of these engrained structures sooner rather than later. Either before a business transformation is started or by giving this issue an exceptionally high priority in the process.

Success through the 4 Rs of business transformation

One of the best-known models for business transformation is the 4 Rs: Reframing, Restructuring, Revitalising and Renewing. Since Gouillart and Kelly (1995) launched the framework, many have applied and optimised it. The 4 Rs, as starting points and stages of a successful transformation, are as follows (cf. Gouillart & Kelly, 1995; Recklies, 2012):

Reframing

This first phase of business transformation is all about the vision. The company’s attitude and consciousness do voluntarily change. The company reinvents itself and sets new goals. It’s about preparing for the time of transformation but not yet implementing it.

Contents of the reframing phase (Recklies, 2012):

  • Mobilising or creating a reserve of motivation in the company.
  • Designing a vision
  • Defining the objectives

Restructuring

Restructuring primarily concerns the corporate body – for example, by laying off employees. This phase involves pitfalls and risks: managers see quick successes and often stop at this point of the company transformation. Employees lose motivation because of the loss of their colleagues – mainly if they only participate peripherally, or not at all, in the revampment of the company and can’t identify with the new vision.

Nothing kills your culture like layoffs.

Herb Kelleher
Southwest Airlines

Communication, transparency and emotional competence are specifically important!

Contents of the restructuring phase (ibid.):

  • Establishment of an efficient business model
  • (Re)alignment of the infrastructure
  • Redesign of processes

Revitalising

In contrast to restructuring, much happens externally in revitalisation. For example, new relationships with manufacturers and partners are entered into, realignments to other customers occur, and much more.

Contents of the revitalising phase (ibid.):

  • Focus on the client
  • Develop new business areas
  • Achieve development goals by using technology

Renewing

In this phase, an open-ended learning process of the company starts. New competencies are created, areas of knowledge within the company are expanded and deepened. On the one hand, the opportunities for further training strengthen the motivation and confidence of the employees. On the other hand, a focus on knowledge transfer ensures the company’s long-term dynamic development.

Contents of the renewing phase (ibid.):

  • Creating an incentive system
  • Promoting individual learning
  • Renewing the organisation

The 4 Rs give a good overview of the “how” and “what” of business transformation. Individual changes in this process can be called change – but the successful and sustainable implementation of the overall process is called transformation!

Employees must be at the centre!

The 4 Rs show that employees (should) play an essential role in most phases of business transformation. However, employee engagement (see also Steinhoff & Pfannstiel, 2018) should go beyond measures that explicitly address internal structures.

It is vital to integrate employees, at any level of the company, into the process from the beginning. This allows for greater identification with the new corporate vision. If employees understand why the transformation is necessary as a joint change, it’ll counteract a drop in motivation during the more stressful phases. It would help if you communicated to employees that training and other benefits would be part of the transformation.

And we recommend a further step because one-sided – albeit good – communication isn’t necessarily enough to make the project a success. Instead of simply advising employees on what’s going on, they should have the opportunity to shape the changes actively. Regular feedback meetings can be the ideal platform for this exchange.

Conclusion

Unlike change management, business transformation is about a genetic change of the enterprise architecture. Profound? Yes. But possible (and necessary).

First of all, it is essential to analyse the company’s current situation, internally and externally, the possibilities for change and the necessary prerequisites in management.

With the help of the 4 Rs of business transformation, it’s possible to implement a new vision in a structured way that employees and management can identify with.

Do you want to make sure that your employees are pulling in the same direction during the company’s transformation? Use our free questionnaire!

Sources

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Boulton, C. (2018). Wie Transformation scheitert. Digitalisierung in Unternehmen. Abgerufen von: https://www.cio.de/a/wie-transformation-scheitert,3575058

Brooker, K. (2001). How did he do it? His way. Fortune Magazine. Abgerufen von: https://money.cnn.com/magazines/fortune/fortune_archive/2001/05/28/303852/index.htm

Goullart, F. J. & Kelly, J. N. (1995). Transforming the Organization.

Ikker, A. Unternehmenstransformation gestalten und umsetzen. IHK Südlicher Oberrhein. Abgerufen von: https://www.suedlicher-oberrhein.ihk.de/impulsnetzwerk/neuearbeitswelt/erfolgsfaktor-mensch-ikker-4842424

Mustermann, M. (2010). Ändere das Spiel. Die Transformation der IBM in Deutschland und was wir daraus lernen können.

Meyer, J. Diese 4 Dinge helfen Ihnen bei der Unternehmenstransformation. Nordantech Falcon. Abgerufen von: https://www.nordantech.com/de/blog/transformation/unternehmenstransformation

Recklies, O. (2012). Die vier R der Transformation. Das Digitale Managementmagazin. Abgerufen von: https://www.managementportal.de/inhalte/artikel/fachbeitraege/21-management-und-strategie/37-die-vier-r-der-transformation.html

Spindler, G. I. (2011). Querdenken im Marketing: Wie Sie die Regeln im Markt zu Ihrem Vorteil verändern.

Steinhoff, P. F.-J. & Pfannstiel, M. A. (2018). Der Enterprise Transformation Cycle.
Unternehmenstransformation. Fraunhofer IPA. Abgerufen von: https://www.ipa.fraunhofer.de/de/Kompetenzen/unternehmensstrategie-und-entwicklung/unternehmenstransformation.html