26th February 2020
Transformation has become something of a business buzzword. As organisations becomes more competitive, customers grow more demanding and technology disrupts everything, both commercial enterprises and public sector organisations face a very real existential challenge. Leaders are responding by embarking on business transformation programmes.
Yet what does ‘transformation’ really mean? Most clients and colleagues I work with have differing understandings of transformation, often do not understand the difference between ‘change’ and ‘transformation’ and cannot easily identify what is required for organisations to transform. This lack of shared understanding causes hindrance and even potential failure, as inappropriate processes and support activities might be deployed. McKinsey1 estimates the success rate of transformation programmes is less than 40%. An MIT Sloan Review2 in 2018 notes that:
“Given the [risky] stakes… research underpinning the design and execution of corporate transformations is surprisingly thin. As a result, transformations are often guided by beliefs that, while seemingly plausible, are more anecdotal than empirical in nature.”
I think clients often conflate four fundamentally different kinds of transformation. The first is operational transformation – which is about doing what you already do better, faster, cheaper… Many companies use digital technologies to achieve this, but as the essence and form of the business is not materially affected, such business improvements are not real transformation. A more representative example of organisational transformation is to the business model – whereby the way a business works is fundamentally different: for example, Netflix shifted from sending DVDs of other companies’ films through the mail, to streaming content digitally and even creating its own content; and Uber reinvented the taxi industry. A third category of transformation is strategic transformation - where the whole customer offer and business model is revolutionised, and business boundaries are redefined: for example, Google moving from selling advertising to driverless cars; or Amazon from online retail to cloud computing…
The fourth category is cultural transformation. This focuses on reimagining leadership and workforce mindsets, talent and capabilities, and centres around continuous learning and decentralised decision-making. Experian and PitneyBowes are examples of cultural transformation – companies which successfully introduced cultures of innovation and customer-centricity. In my experience, cultural transformation is imperative to the sustainability of any business transformation but it is not usually the starting point: cultural transformation is a product of (and not a pre-requisite for) the other categories of organisational transformation.
How is transformation different to change?
First, it is worth stating categorically, that ‘transformation’ is not a synonym for ‘change’. They are different processes. When a snake sheds its skin it changes: when a tadpole becomes a frog it transforms. Change modifies actions, but transformation modifies identity. Change is small, incremental and reversible, whereas transformation is deep, encompassing and enduring.
With corporate change, a guiding assumption is that there is a goal, a desired endpoint or clear sense of where to get to. The change process serves the vision, and broadly, what is required of leadership is direction – to hold the vision and drive the implementation of the strategy. What is required of teams is collaboration.
While transformation is beyond vision, it still has to be in alignment with the purpose of the organisation. What is required of leadership is continence – to hold the process without knowing in advance what final identity and form the organisation will take. What is required of teams is co-creation.
So what do clients really want – change, or transformation? And if the latter, what kind of transformation? I suspect that the clearer we are about contracting for the right level of intervention, we could help get the success rate up beyond McKinsey’s estimate if 40%...
- Isern, J. et al. (2009) ‘Corporate transformation under pressure’. McKinsey & Company Journal. April. https://www.mckinsey.com/business-functions/organization/our-insights/corporate-transformation-under-pressure
- Reeves, M. et al (2018) ‘The truth about corporate transformation” in MIT Sloan Management Review, January 31sthttps://sloanreview.mit.edu/article/the-truth-about-corporate-transformation/