Everything about what is Business Transformation (BT), Business Transformation Frameworks, Benefits, Different Types of Business Transformation and well-known examples.
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It’s no secret that in order to thrive, businesses need to adapt to changing market and customer requirements. This holds even more true in a world that has been rapidly moving towards digitalization and tech automation.
And more often than not, the changes needed to remain competitive entail much more than applying a new management approach or tweaking a supply chain. In fact, some of the most successful global businesses that have experienced exponential growth in the past decade have done so by undergoing a complete business transformation.
The term business transformation is relatively new and first emerged in the realms of IT and management consulting. Experts in both industries recognized that external changes in the market call for an all-encompassing shift in how a company is run.
This means rethinking its entire operating model and making fundamental changes to its processes, technology, and personnel. But business transformation is much more than just creating a more efficient, digitized system. It involves a change in mindset and coming up with a business strategy that can continue to evolve in the future.
Business transformation is an umbrella term that describes all transformation processes – including operational, cultural, and digital – that a business goes through in order to cope with shifts in the market. Its goal is to generate new value, increase customer satisfaction and cut costs.
Even though business transformation sounds like a fairly straightforward term, it’s complex and disguises multiple layers. If done right, it’s an initiative that takes several months or years to complete. As the scope is broad and the decisions made affect every area of the organization, business transformation needs to be driven from the top.
The CEO, Board of Directors, enterprise architects, and business architects are in charge of all business transformation management efforts and redefining the company’s vision. By breaking down the entire business model and deciding which changes need to be made to processes, personnel, and systems, they create more value in the future.
A complete business transformation is not an easy undertaking. It requires smart strategic decisions that take a company’s individual capabilities into account. But if done properly, the benefits are manifold. It’s also important to note that in the long run, it might be an organization’s only choice if it wants to keep or increase its market shares.
Below are the five biggest benefits associated with business transformation.
1. Increased efficiency: New integrated technologies provide intelligent automation that allows for streamlined processes in manufacturing. Smart machinery and edge computing give instant data insights for quick decision-making.
2. More productivity: By adopting digital technologies, businesses can maximize their output and minimize waste. Through tracking automated production and data analytics, it’s easier to predict and manage the number of materials needed.
3. Return on investment: With increased efficiency and productivity comes a better return on investment. Many companies are hesitant to invest large sums into new digitized systems. However, after approximately 5 years the payback period sets in.
4. Better sustainability: Business transformation allows a company to implement intelligent energy management systems. By monitoring and meeting sustainability targets, an enterprise can protect the environment and strengthen its public image.
5. Increased safety: Automated production lines help keep human intervention to a minimum. Robotics and artificial intelligence provide greater control and protect the workforce by replacing humans in hazardous situations.
Even though business transformation has a lot to do with introducing new digital technologies, it entails more than just replacing current systems with automated ones. In fact, business transformation stands for multiple transformations that can be divided into six categories.
Keep in mind that only if all areas are given equal attention, a full business transformation can be achieved. The six types of business transformations are outlined below.
Business transformation starts with redesigning a company’s structure and its mode of operation. This ever-evolving process is driven by general management and heavily focuses on the employees. Only if they’re supportive and on board with new work processes an actual transformation can take place.
New generations have redefined hierarchical structures and internal relations. Rigid systems and too many middlemen hinder growth and make it more difficult to foster real talent. Plus, a more fluid leadership model with collaborating forces can easily adapt to changes that will happen in the future.
This might be the most challenging transformation for long-established companies. It involves changing the mindset of the individual and the collective. Implementing a new corporate culture can only happen after a managerial transformation has taken place and a vision is formed.
In the digital transformation process, a company needs to rethink its business model with a digital strategic mindset. The leadership develops a digital business transformation strategy and decides in which way modern technology could improve the product and every aspect of the customer experience.
At the core of a business transformation lies the transformation of its information systems. This includes all information management resources like technologies, processes, and staff.
Integrating new technologies also means that there is a flood of newly available data that can be analyzed and shared across departments.
Identifying which business processes can be improved is a vital step towards more efficiency. It’s important to weigh different options that could save time and resources. The automation of repetitive tasks by employing digitized tools frees up labor hours and lets the company focus on core business processes instead.
With all the different types of business transformations in mind, it’s not surprising that every initiative that aims to change a business from the ground up involves multiple steps. If a business transformation isn’t planned out well, it can cause major disruptions to the company and unnecessary loss in revenue.
From strategy to integration, below we’ve outlined the 7 most important steps as a guideline.
Before anything is set in motion, a company needs to develop realistic business transformation strategies. It’s important to understand the current state of the business, so it’s easier to map out a vision for the future in the form of a target operating model. Every decision that follows should align with this vision.
Apart from the managerial transformation, a company needs to assign a program director or team that is overseeing the entire transition to a new operating model. This involves tasks like budget control and making sure the main vision is at the core of all decisions. The CEO, CFO, and members of the board are ideal candidates for these roles.
In this step, the overall strategy is taken to the next level. A business needs to identify all the areas, work processes, and systems that will be affected by the transformation. This helps to outline sub-projects, their goals, timeframes, and budget limits. It’s also crucial to plan how the changes will be communicated to staff and customers.
In order to establish program governance, the program director appoints transformation managers in each individual workstream like HR, Finance, and IT. It is their responsibility to deliver on time, motivate the team and stick to the roadmap. Many companies establish a Program Management Office that monitors the success and catches potential problems early on.
It’s not very realistic to assume that an enterprise’s current team is fully equipped to manage a successful business transformation. That’s why most companies seek outside help and hire experienced experts who work with the program director and internal transformation managers. A well-blended team ensures that a neutral perspective meets valuable insider knowledge.
With so many layers and steps involved, business transformation doesn’t happen overnight. Depending on the company size, the time from strategy to execution can take up to several years. It’s important to engage the staff and to regularly re-evaluate the implementation plan and adjust it along the transformation journey if necessary.
The most vulnerable period during the transformation process sets in right after the changes are implemented. New ways of working and new systems can be challenging at first. That’s why employees need to receive training before the execution and dedicated support during the integration phase while the integration architects provide critical data about the integrations within your organization.
When a company is looking to transform, there are several business transformation frameworks that provide guidance and structure. But since transformations take a long time to plan and execute, it’s important to keep in mind that especially digital transformations require a nimble framework. Innovation doesn’t end once new technologies are implemented.
It keeps on evolving at all times and forces an enterprise to go through a transformation that is continuous and ever-changing. In order to combat the conflict between day-to-day business operations and innovation, the Modern Business Transformation Framework (MBT) was developed.
In contrast to other digital transformation strategy frameworks, the cyclonic MBT framework takes a holistic approach. It’s built-in in a systematic and repeatable way and allows a company to make incremental improvements.
Most importantly, the framework takes into account that business transformation is an ongoing process that needs to be reviewed and adjusted as innovation continues to accelerate. The framework consists of three pillars that are outlined below.
Uplift Capability: Identifying aspects of business operations that should be optimized and prepared for innovative change.
Enhance Systems: In this agile process, the internal system capability is enhanced by incremental adoption.
Embed Innovation: At the core lies embedding the innovation itself and extracting the maximum value from innovative ideas.
Since this framework is built like a cyclone, more efficiency is generated if the outer pillars “Uplift Capability” and “Enhance Systems” are working together. After all, the core draws its energy from the outside’s momentum.
There are a few examples of successful business transformations that can be used as a source of inspiration. The companies Nokia, IBM, and Netflix provide three that truly stand out.
Nokia Corporation is a great example of a company that had to dramatically transform in the face of shifting market dynamics. Between the years 1985-1995, the corporation expanded its original product portfolio that was comprised of paper, rubber, and cables and started specializing in consumer electronics. Later on, this segment was replaced by mobile telecommunication networks.
Next to Nokia’s product portfolio, its corporate action patterns kept on re-adjusting as well. Periods of mergers and acquisitions were almost always followed by organic growth. Furthermore, the company was not always quick to react to market changes, but also to customer complaints or inefficient production.
The multinational technology company IBM serves as an example of another impressive business transformation that actually spanned over several decades. Few people know that the corporation started out with the production of clocks and typewriters at the beginning of the twentieth century. With the rise of computers, the company expanded its portfolio and is now still seen as the leader when it comes to “business machines”.
Nowadays, IBM is shifting its focus away from hardware in order to embrace the software and services model, following the biggest trend in the IT industry. Just like Nokia, IBM achieved this transition by acquiring companies in the software and services industry.
A more recent example of a successful business transformation is provided by the video streaming platform Netflix. In fact, it’s a company that has displayed exceptional use of technology and the ability to quickly adapt to a changing market. Netflix started out as a DVD rental by mail service and then switched over to digital distribution. In 2012, the company has also taken an active role as a producer of original films and television series.
As the first company in history, Netflix switched from a monolith architecture to a cloud-based microservices architecture in order to avoid server outages. Furthermore, the company is also known for a working culture that is defined by freedom and responsibility.
As the above examples illustrate, business transformation might not be just an option for any established organization, but the necessary ingredient for long-term success. Bypassing transformation opportunities simply for maintaining the status quo is a rather short-sighted business strategy and can lead to losing out on growth and value.
However, major overhauls of current operating models don’t happen overnight and require smart business transformation management as well as a dynamic framework. With business architects' help and a keen eye on innovation, any enterprise can maximize its performance and undergo a digital transformation to unlock new potential.
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