Digital transformation appears to be on most corporate agendas, however, most transformations are actually change-initiatives, i.e., adaptations to market conditions. And that’s a bad thing as change will not keep disrupters (from latin: disrumpere ~ break into pieces) away for too long, wow the customer, or offer any sustaining advantage over competitors.
Change or Transformation?
Let’s look at what some experts got to say about the two nouns:
According to the business dictionary:
Transformational change is a shift in the business culture of an organization resulting from a change in the underlying strategy and processes that the organization has used in the past. A transformational change is designed to be organization-wide and is enacted over a period of time.
Charlene Li, founder Altimeter Group, author of ‘The Disruption Mindset‘:
Transformative organizations must create cultures that nurture disruptive growth, rather than protect the status quo. Disruption requires looking fearlessly into the future.
According to Rob Llewellyn, founder of CXO Transform:
Change fixes the past. Transformation creates the future. Transformation always involves change but not all change is transformational.
According to Ron Ashkenas on Harvard Business Review:
Transformation is another animal altogether. Unlike change, it doesn’t focus on a few discrete, well-defined shifts, but rather on a portfolio of initiatives, which are interdependent or intersecting. More importantly, the overall goal of transformation is not just to execute a defined change — but to reinvent the organization and discover a new or revised business model based on a vision for the future.
When your organization undertakes projects or initiatives to improve performance, seize opportunities or address key issues, they often require changes; changes to processes, job roles, organizational structures and types and uses of technology. Change is about doing the same thing differently ─ often by replacing something, for instance, a typewriter by a wordprocessor.
If you’ve decided to implement a new CRM system, hoping to improve the way customer data is stored and can be retrieved, you do so without changing the process itself. You may still improve productivity, performance, or even the bottom-line, however, these initiatives are not transformational to the business as a whole.
Change starts with an assessment of the current situation. This allows you to determine how you can make things better, faster, cheaper, or more robust than before. Success is gauged by efficiencies and economies that are realized at the end of the Change-initiative ─ benchmarked against the situation before the change.
Transformation, on the other hand, starts with a vision of the future and how to create it. Transformation also takes into account how things are done today but only to understand how to get from where we are to where we want to be.
An example of a successful transformation-initiative is when Netflix decided to redesign its operating model ─ from a mailorder service to a streaming media service. It took a lot of resilience to make such a bold move (the stock dived 80%) but it literrally changed the future. Blockbuster, a robust competitor, lacked the resilience as well as the robustness to follow its lead and went bankrupt.
Robustness versus resilience
Robustness and change go hand-in-hand. Both aim to fix or improve the past, making the operation more profitable and more resistant to disruption. However, robustness is not a long term strategy ─ eventually, your defenses will give way.
One company needed to expand its assortment with a second productline, based on customer demand. However, the firm’s rigid systems were optimized for one productline. It took a lot of time and effort to add the second productline to the system. Due to the compromises that had to be made in the system, productivity took a hit, but customers were happy. However, further expansion of the assortment, given the limitations of the system and the manpower needed to devise a work-a-round, would not be feasable.
Resilience, on the other hand, relates to transformation. Resilience means that you focus on investments that provide you with an ability to create the future. The aforementioned example of Netflix wasn’t simply a defensive action, driven by a decrease in DVD-rentals due to early streaming media competitors: the company took a leap of faith and followed through.
SITUATIONAL GROWTH readiness
Organizational readiness indicates the relationship between people, processes, systems and performance measurement. It requires synchronization and coordination without which no implementation will be successful. The organization should, therefore, have processes and people in place to coordinate the efforts and communicate changes.
Organizations (people and management) will need to embrace change. Change is an ongoing process of learning and adaptation. While the goal, given the challenges of our time, is mostly on transforming the organization and changing people’s mindsets, organizational readiness is much more situational.
We, therefore, recognize four stages of Situational Growth Activation™:
- EXPLOITING GROWTH ─ Focus on improving commercial performance, reducing cost, automation, alignment, and productivity to raise profitability.
- EXTENDING GROWTH ─ Defend the current revenue streams by adapting to changes in customer demand and competitive offerings ─ doing the same thing better, faster, cheaper.
- EXPLORING GROWTH ─ Explore new opportunities for growth within the realm of the current business operation, by developing new products or entering new markets.
- EMERGING GROWTH ─ As revenue streams become end-of-life, due to disruption or otherwise, we may need to rethink, remodel, and redefine the entire operation ─ based on a vision of the future.
Situational Growth is greatly determined by the firm’s Situational Growth Readiness – its ability to respond decisively and effectively to arising opportunities, threats, weaknesses, and strengths.
Business Model Compass
The Business Model Compass™ is our perspective on a firm’s readiness to Situational Growth. The first figure (left) shows the arrangement of the four paths. The second figure is what we use to plot the results of an assessment of the current path versus a recommended path, based on market research. The large figure demonstrates a correlation with the Three Horizons of Growth.
REVISED ANSOFF MATRIX
The Business Model Compass™ is in alignment with the revised Ansoff Matrix. The Ansoff Matrix is a strategic planning tool that provides a framework to help executives, senior managers, and marketers devise strategies for future growth. For your convenience, we’ve added the original Ansoff Matrix (l), as well as the revised model (m), while also applying the Three Horizons of Growth model to it (r):
McKinsey: 70% rate of failure
According to McKinsey research, 70% of transformation projects fail. A cost to corporations of 900 billion USD per year (2017). Their research amongst senior executives revealed that 75% of companies are indeed transforming their organizations.
Reasons found for the extremely high (70%) rate of failure of transformation programs are:
- 39% – Employee resistance to change,
- 33% – Management behavior does not support change,
- 14% – Inadequate resources or budget,
- 14% – Other obstacles.
The rate of success in transformations where clients do NOT have holistic programs is 10% (!). With these numbers in mind, you’ll appreciate the fact that ROUNDMAP is an holistic framework.
McKinsey described three key success factors to reach a holistic desired endpoint:
- Implementation readiness – Systematic management structure and process to maintain and manage operation system and achieve continuous improvement.
- Mindsets, behaviors & capabilities – The way individuals and organization think, feel, and act at the workplace to ceaselessly pursue customer satisfaction.
- Infrastructure – Organize and use assets in a way to minimize waste and variance and maximize flexbility in value chain.