This is the first of a two-post series. This part focuses on the overarching themes for a successful business transformation. The second part focuses on the guiding principles that ensures sustainability of the transformation.
Consistently successful organizations know that what works today won’t necessarily get the job done tomorrow. Adapting to new market conditions, discovering new efficiencies, and seizing opportunities as they develop aren’t just ways to grow a company’s market share and improve its bottom line. Nowadays, a constant openness to transformation can be the key to an organization’s very survival.
Relatively few businesses, though, get transformation right. Every industry is littered with stories of companies that wasted money, time, and effort in misguided attempts to transform themselves to keep pace with the times. I developed my 4×3 approach by analyzing more than 40 successful and failed business transformations, and then addressing common anti-patterns that emerged during those efforts.
Why many business transformations fail
One thing I identified is that many organizations embark on their journeys with the primary assumption that new and modern technologies—including many that fall under the “cloud-native” umbrella—will be the panacea to all their current problems. Thus, organizations rush to deploy these technologies within their ecosystems. This approach not only adds undue stress upon the entire organization, but also defragments the ecosystem by introducing additional complexities and failure points.
Yes, modern technologies are imperative for a successful transformation, but so are light-weight processes that can be automated in quick succession. Having the right technologies driven by optimized processes is key to setting up the transformation for success. Technology by itself can only be an accelerator for a transformation and cannot make it successful by itself. Technologies should be selected based on their ability to help organizations achieve their business outcomes.
Next, planning for a transformation journey also involves identifying the right transformation change agents who will drive improvements to an organization’s culture, processes, people, and technologies. Not having the right change agents in the right places, or not adequately enabling them, can dramatically impact the success of the transformation. Finally, my analysis also revealed that many endeavors fail because organizations don’t realize that change is not the same as transformation.
Target transformation, not just change
Some failing companies blame government regulations. Others point fingers at the digital landscape’s rapid and sometimes feckless pace of change. Still others might blame personnel—ill-equipped managers, sandbagging employees, or foolhardy executive leaders. Each of those factors might play a role in a given organization’s struggles with transformation, but across the board the most common reason businesses fail to adapt to changing markets is more fundamental.
Change—the incremental adjustment of current practices, policies, and processes—has always been a part of doing business. And, over time, most companies become set in their ways of managing change. The very idea of change becomes rigidly defined, and success is measured against standards that themselves have failed to adapt to the times. The result is a dangerous situation in which companies convince themselves that their current efforts to foster and manage profitable change are sufficient.
Transformation, on the other hand, represents a comprehensive break from a company’s traditional presumptions and the adoption of new operating paradigms. It is in no way incompatible with change, but is fueled by a growth mindset, lean experimentation, and an ability to accept failure as a necessary step for success.
Too many organizations fail to fully understand and honor the crucial difference between change and transformation. They may undertake initiatives to eliminate waste and redundancy, invest heavily in their technology infrastructures, and develop innovative new products and services—and yet they still fail to transform themselves in a way that supports long-term success. The problem doesn’t lie with efficiency, technology, or innovation. It lies with leadership’s conflation of those healthy change factors with a commitment to proper transformation.
Customers are the key
Customers drive market changes, and every successful business transformation is geared toward better understanding and serving current and prospective customers. This is easier said than done. Companies must be prepared to accept inconvenient realities—for instance, that customers most want features and services already being provided by competitors—and they must respond to those realities with new offerings at a pace that matches the market’s ability to adopt them, at a high level of quality.
This requires more than a bit more market research and a few more dollars spent on R&D. It requires a wholesale shift in the way a company sees itself in the marketplace. Transformation must be undertaken thoughtfully and purposefully, but also sustainably, in a way that makes the best possible use of the organization’s core competencies.
The 4 x 3 approach, explained
Successful transformations can be wildly different in their specific goals and methods of execution but, from a bird’s eye view, they tend to follow a common structure of four themes: portfolio management, business outcomes, flow modernization, and generative culture. Each of these themes is supported by three primary steps.
Let’s look at each in detail.
Portfolio management
Among the most difficult, and also fundamental, questions any company needs to ask itself is: What do we offer our customers? That might be why so many successful companies find it easier to add to their portfolios than they do to reduce them. When a company divests an offering from its portfolio, it must be prepared to forgo some of the return on its long-term investments, including the investments it has made in its staff.
But divestment is a necessary step for most companies before they re-invest resources in a transformational effort. In turn, the major steps toward transformational portfolio management are:
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Change the criteria by which you evaluate offerings and initiatives. This change should be rooted in your organization’s core competencies, and should be informed by thorough market analysis.
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Restructure your portfolio, making individual plans for the divestment and addition of each offering or initiative.
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Manage the entire process using lean-governance techniques, with full consideration given to compliance issues. Be sure to leave an audit trail, as much for your organization’s benefit as for that of regulators.
Business outcomes
To guide the process of transformation, organizations should develop a comprehensive system of measuring the outcomes of each step, and the progress each step represents toward fulfillment of the transformational strategy.
This theme is supported by three interdependent steps:
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A strategy tree is the framework connecting a business’s transformational vision to the discrete efforts that will combine to achieve that vision. Beginning with a simple statement of the organization’s vision, it describes each Objective and Key Result (OKR) required for success, along with the work done by each department toward achievement of each OKR.
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OKRs themselves should be reviewed both by the teams responsible for achieving them and by the executives responsible for the strategy tree. Teams must advise leadership on the feasibility of each OKR and what additional resources might be needed to achieve each; leadership must ensure that each OKR supports the strategy tree.
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To guide each team as it pursues its OKRs, a comprehensive and broadly accessible metrics framework is absolutely essential.
Flow modernization
For our purposes, flow is the movement of value from conception to realization. The term is often used while discussing product development, but it can refer to any business operation. Flow optimization is the means by which the journey from conception to realization is facilitated. If you have already implemented lean management practices, you might recognize this as optimizing processes and eliminating inefficiencies to increase intrinsic value.
Flow modernization is best achieved through three steps:
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Value stream mapping, or VSM, is a lean approach to analyzing, optimizing, and managing the generation and flow of value throughout an organization.
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Since flow is so heavily dependent on IT infrastructure, companies should accommodate the need to support both locally managed and cloud-based applications. The former are usually brownfield investments that have already achieved some degree of in-house flow modernization; the latter are often greenfield investments whose deployment, management, and use are more easily subject to flow-modernization procedures.
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As part of its overall flow-modernization effort, an organization should develop a long-term plan to harmonize these two IT strains as fully as possible.
Generative culture
Dr. Ron Westrum’s typology of organizational culture gives generative, or performance-oriented, culture pride of place over both pathological and bureaucratic (power- and rule-oriented) culture types. Generative cultures tend to support the highest rates of information flow and produce the most innovative and market-responsive results. A strategy of organizational transformation should seek as its final theme to instill and support a generative culture.
Again, three basic steps can achieve this goal:
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Because generative culture honors performance above other considerations, the single most effective step toward instilling a generative culture is to move toward performance-oriented assessment of all employees.
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Wherever possible, implement practices based on generative culture. These include proven approaches such as Lean, Agile and DevOps methodologies and practices.
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Generative culture is notable for encouraging far greater psychological security among employees than other culture types. Companies who instill generative culture as part of their transformation efforts are wise to capitalize on this extra security by encouraging risk-taking and experimentation, and by downplaying the risk to employee security posed by failed attempts at innovation. Even if the number of successes never exceeds that of failed experiments, the impact of successful employee innovation on the company’s bottom line will be more than worth it.
Prepping the transformation
Once the four themes have been internalized, preparing for an organization-wide transformation that implements them is a critical phase best achieved in three steps:
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Identify change agents within the organization and empower them to act.
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Carefully assess the current state of the organization and identify milestones that signal progress.
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Communicate every step with all employees. Then communicate some more. Transformation can be an intimidating prospect, even when the goal is more stable and happier employment.
A detailed discussion on beginning the transformation is available here.
Conclusion
Business transformation is complex, but that does not mean that it has to be complicated, or even especially difficult. The 4 x 3 system described here seeks to demystify the process for leaders and rank-and-file employees alike. It is itself the product of much experimentation, and has been applied successfully at a variety of enterprises.
In this first part, I have presented four overarching themes that drive a successful business transformation. In the next part, I will discuss three guiding principles that will help organizations sustain this transformation and make it part of their ongoing culture.
