Transformation is the new business mantra. Managers are told that they need to change, and to transform their organisations before they are disrupted by some external force.
Share markets reward the disrupters and penalise firms that don’t respond quickly enough. And yet, for many managers, this call-to-action is confronting and confusing because there is no clear explanation of why they need to transform, what it means to transform, when transformation is preferable over a traditional change management approach, or even how to effectively implement a major transformation initiative.
Unfortunately, the vast academic literature on the topic of transformation provides little guidance. Transformation appears to encompass everything from simple changes to products or processes, to massive organisation turnarounds. Blumenthal and Haspeslagh (1993) suggested that the key defining feature of a transformation was a resulting behavioural change. They highlight that this behavioural change extends to improving operations, transforming strategy, and supports self-renewal. And while we agree that a fundamental change to the culture of an organisation is necessary to support a successful transformation, and that such change is certainly helpful in distinguishing transformation from traditional change management, behavioural change is insufficient to define transformation.
The challenge with this definition of transformation is that it tends to view transformation as a managerial process, rather than viewing it as the resulting end-state. We suggest that transformation requires that something “new” emerges that is different to the previous organisation in some meaningful and significant way. This reinvention is critical to transformation and requires reimagining the firm’s purpose. The requirement for something new also helps to clearly distinguish transformation from both change management and corporate turnarounds. Change management is concerned with adapting to enable the existing firm to compete more effectively, and corporate turnarounds are focused on enabling an organisation to survive. And even though both change management and corporate turnarounds can result in significant behavioural change, this does not necessitate a change of purpose.
Another interesting way to think about transformation is in terms of an organisational lifecycle (see Figure 1). We can see from the figure below that most firms in most industries will face choices about how they respond to a downturn in performance. While change management is optional prior to the point of inflection, the options prior to the point of no return are limited to recovery or reinvention. Change management, in this sense, is concerned largely with renovating processes and culture. This work typically occurs during the growth phase of the firm’s lifecycle.
The transformation phase can begin earlier but typically is initiated as the result of some undesirable change in performance. It is often the source of this change that influences whether a transformation or turnaround response is required. If the source of diminished performance is internal (i.e., capabilities or capacity), then firms will often seek to turnaround their fortunes before embarking on a transformation. Increasingly, however, the explanation for changes in performance are due to external disruptive influences (i.e., technology or market expectations), requiring that firms radically change their modus operandi and purpose. In such situations, the only option is to transform. Regrettably, if this decision is left too late or efforts to turnaround are ineffective, the choice may be taken away from the firm. In such cases, a receiver will be appointed as the focus will shift to restitution.