Keywords

Introduction

Most of today’s mature organizations are optimized for operational efficiency rather than strategic agility. After their start-up phase, they lose their ability to make the most of opportunities and to avoid threats. When they see a new exciting market opportunity or face a real dangerous threat, they try to pull together a major business transformation initiative using an established change process that worked in the past. But the traditional ways of defining, implementing, and leveraging strategy are failing us today (Kotter 2012a, p. 43).

In the past, companies used to evaluate, redesign, and change their strategies only very rarely. Products and services offered, customer segments, hierarchical structures, and organizational processes were all set in stone. But today’s business context is changing both rapidly and continuously. “The speed of change continues to increase” (Kotter 2012b, p. vii). There is a diversity of triggers coming from the marketplace (KPMG 2014, p. 5); they are unprecedented in their sheer number and intensity bringing business transformation to the forefront of the corporate agenda (ATKearney 2013). Changing customer demand is often perceived as the primary trigger of transformation. Customers always want something new, and companies need to answer with an improved product or service, or actively push a new breakthrough solution by anticipating customer needs (Moreno 2014). However, changes in technology, to the competitor landscape, or in the regulatory framework are often equally significant drivers. To make matters even more complicated, these drivers interact with each other. For example, customer demand is often redefined by changes in technology. While reacting to these drivers, business leaders need to first bridge the dichotomy of seeking competitive advantage without disrupting daily operations, which ultimately deliver the much-needed results to the company’s stakeholders. The ability to manage business transformation is, or should be, a core organizational capability (Ashurst and Hodges 2010, p. 218).

In a lot of organizations change is quickly becoming the new normal. Business transformation now has a prominent place on the corporate agenda; more than 90 percent of US-based multinational corporations are currently in some phase of changing their business models (KPMG 2014, p. 1). But while most managers remain comfortable with consistency, they need to face a pressing requirement to change, and this change will be followed by another change. Corporate leaders may feel “like being on a treadmill with the speed control set to max” (Hemerling et al. 2015, p. 3). Once started, the circle of continuous change will never end. “The concept and the execution of transformation are never complete because the marketplace changes, and so do the needs of […] clients and customers—and the digital era just accelerates all of that” (Catherine Bessant, Bank of America, as quoted in: KPMG 2014, p. 3). In short, “continuous change isn’t about the end state” (Stebbings 2010). Creating an environment of continuous improvement can keep an organization’s performance from stagnating or regressing (Jacquemont et al. 2015, p. 2). After all, organizational success—and indeed, organizational survival—depends on an organization’s ability to adapt and transform. Yet, the successful management of strategic change continues to be a major issue for many organizations (Ashurst and Hodges 2010, p. 217); the returns that organizations derive from their change initiatives continue to disappoint (Messner 2013, p. 363).

After this short introduction, the remainder of this chapter is organized as follows. It first looks at some of the many and often confusing attempts of defining continuous business transformation. Next, it classifies the types of business transformation. It then goes on to highlight the challenges of executing continuous business transformation, and guiding employees through the trajectory of change. It concludes by suggesting that companies must constantly seek competitive advantage through continuous business transformation without disrupting daily operations.

Myriad Attempts of Defining Continuous Business Transformation

Although the term business transformation is very familiar to management consultants and strategy writers (Philip and McKeown 2004, p. 625), there is considerable confusion among industry practitioners about what business transformation is all about. As of December 2015, Google delivers more than 4.8 million hits for the term “business transformation,” but just a little more than 6100 for “continuous business transformation.” Google Scholar returns 18,800 and 38 results, respectively. The literature defies easy summarization because of the range of definitions (McKeown and Philip 2003, p. 5); business transformation appears to be a catchall phrase for a variety of economic and organizational outcomes (Muzyka et al. 1995, p. 346).

The following reviews some of these exemplary definitions. First, definitions of business transformation as used by the American business advisory, benchmarking, and transformation consultancy The Hackett Group, the American management consulting firm M&S Consulting, and the Indonesian consultancy Jakarta Consulting Group are looked at. Second, the views of the multinational management consulting firms McKinsey and Boston Consulting Group are presented. Third, definitions by Infosys (the Indian multinational IT consulting and outsourcing services company), Oracle (the American global computer technology corporation), Accenture (the multinational management consulting, technology services, and outsourcing company), Gartner Group (the market research and advisory firm), Wipro (the Indian multinational IT consulting and system integration services company), and Huawei (the Chinese multinational networking and telecommunications equipment services company) are studied. While these sections cover the arena of the service providers, the fourth section examines definitions used in the academic literature.

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    The Hackett Group defines business transformation as “a wide-reaching, strategically driven campaign to improve the way in which a company conducts business” (Hackett 2015). This view clearly limits business transformation to a disruptive initiative focusing on the existing business. In the eyes of M&S Consulting, “continuous business transformation is an approach to treating business transformation as a service where business process models, business intelligence information, and executable process layers are iteratively improved for an informed and proactive strategy to traverse the business landscape” (M&S 2012). For The Jakarta Consulting Group, “business transformation is a process of change that requires cooperation in order to gain a better position to answer and face business challenges and changing business environment accurately, as well as fulfilling new internal demands. Change is conducted holistically and continually across paradigms, perspectives, company’s policy, business strategy, corporate cultures, as well as organizations attitude and capability” (JCG 2014). Both these definitions are rather all-embracing, but they leave the reader clueless on what business transformation really is all about.

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    In a McKinsey insight publication, Keller et al. (2010) report that most executives focus transformations in their companies “wholly or in part on changing organizations’ long-term health by building capabilities, changing mind-sets or culture, or developing a capacity for continuous improvement.” In other words, this view holds that business transformation is different from continuous improvement. Business transformation comes first, and kick-starts continuous improvement. McKinsey clearly concentrate their definition of transformational change as a key source of competitive advantage (Keller n.d.) on “any large-scale change, such as going from good to great performance, cutting costs, or turning around a crisis” (Keller et al. 2010). Change initiatives, which are smaller in scope and maybe even incremental, are not included in this classification. The Boston Consulting Group takes a similar stance: “We define a transformation as a profound change in a company’s strategy, business model, organization, culture, people, or processes—either enterprise-wide or within a specific business unit, function, or market. A transformation is not an incremental shift in some aspect of the business but a fundamental change aimed at achieving a sustainable, quantum improvement in performance and, ultimately, shareholder value. […] Unlike continuous improvement—which focuses on small-scale changes that start with employees and percolate up through the organization—[…] transformation requires a series of much larger, interdependent initiatives that are driven by top management” (Hemerling et al. 2015, p. 4). This explanation appears to maintain that business transformation cannot be driven bottom-up, that employees are unable to identify change opportunities, and that only top management—probably aided by strategy consultants—can identify and initiate transformation.

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    In an Infosys whitepaper, Leyva (2012, p. 2) rather unhelpfully state that “definitions of business transformation can differ from company to company.” For Oracle, “continuous business transformation is the ongoing improvement of processes, the exploration of new ways to use information, and the constant evaluation of how to apply technologies. The goal is to improve immediate business performance while securing future business performance” (Oestreich et al. 2010, p. 3). While this interpretation clearly brings in the continuous aspect of business transformation, it mixes an episodic realignment of the current business with a more fundamental shift of getting ready for future challenges. Business transformation programs led by Accenture are either “focused on customer acquisition, retention and increased share of wallet to drive additional revenue” or attack “costs through a range of efficiency initiatives”; they are aimed at “setting new standards of excellence, which create a capability that can be leveraged by the enterprise again and again” (Wallis et al. 2012, p. 4/8). This approach appears to be nothing but the traditional hierarchy-based business (Kotter 2012a): We identify a problem, find and analyze internal or external data, build the business case for change, and gain approval. Gartner Group and Wipro differentiate business activities between running the business, growing the business, and transforming the business. The last one looks at entering new markets with new value propositions for new customer segments (Hunter 2012; Sankaran 2013). This definition, while certainly providing some ideas for companies to redefine their operational systems, puts business transformation at the level of diversification investments, of strategic entry points into new markets which set the path for other investments (Messner 2013, p. 46). Huawei focuses on the evolutionary aspect of business transformation, and maintains that “transformation is a constant and continuous process that can never end” (Huawei n.d.).

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    In the A*-ranked European Journal of Information Systems, Irani et al. (2001, p. 63) suggest in the context of implementing a manufacturing information system that continuous business transformation as a lifecycle methodology involves many aspects of an organization. This definition clearly highlights the ongoing and always-on aspect of business transformation. In the A-ranked International Journal of Information Management, McKeown and Philip (2003, p. 3) describe “business transformation as an overarching concept encompassing a range of competitive strategies which organizations adopt in order to bring about significant improvements in business performance.” In the B-ranked European Management Journal, Muzyka et al. (1995, p. 348) apply a two-dimensional view on the topic and conceptualize business transformation as “a fundamental change in organizational logic which resulted in or was caused by a fundamental shift in behavior.” It is about “bringing radical changes in organizational culture in terms of structure, processes, and, above all, people’s attitudes, beliefs, and behaviors” (European Management Journal; Philip and McKeown 2004, p. 625).

As the above shows, business transformation appears to be a difficult concept to describe; the term is used in many different ways (Muzyka et al. 1995, p. 351). This chaos of opinion and hype created by an overuse of buzzwords is truly unfortunate. Moreover, “if left unresolved, it can easily turn a desire for bold, systemic change into a rag-tag collection of discrete, ad hoc initiatives. Less obviously, but perhaps more troublingly, it can also prevent the kind of meaningful discussion that keeps a management group pulling together toward a common end” (Dichter et al. 1993).

Types of Transformation

Strategic change can be understood by two dimensions: its nature and scope (e.g., Balogun et al. 2015, pp. 30–37; Haberberg and Rieple 2008, pp. 691–693; de Wit and Meyer 1998, pp. 242–248; Johnson and Scholes 2002, p. 536). The first dimension, the nature of change, spans from incremental to disruptive. Incremental change is a series of consecutive additions to the current state. By building on the existing skills, routines, and beliefs of an organization, change is likely to win over the commitment of employees and succeed. On the other side of the spectrum, a disruptive approach to change is occasionally needed to counter a situation of crisis, or to abruptly and very quickly change the direction the organization is heading to. The second dimension, the scope of change describes whether the transformation occurs within the organization’s current paradigm or whether the paradigm itself requires a fundamental change. Change within an organization’s current paradigm can be described as a realignment of strategy. A fundamental change means that all the interconnected components of an organization—that is its structure, strategy, systems, style, staff, skills, and superordinate goals (7S framework; Waterman et al. 1980)—need to be shifted in unison.

Combining these two dimensions shows a matrix with four types of business transformation (see Fig. 1.1): adaptation, reconstruction, revolution, and evolution. The last of the four types, evolution, is also referred to as continuous business transformation. All of them highlight the tension between norms and behaviors, between an organization’s old competencies, and present and future challenges (Muzyka et al. 1995, p. 348).

Fig. 1.1
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Types of business transformation

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Adaptation is the most common form of business transformation in today’s organizations. It is a change which can be accommodated within the current organizational paradigm; it may occur either as a one-time change effort (episodic adaptation) or incrementally (continuous adaptation).

Reconstruction is often rapid, and it may cause a great amount of upheaval in an organization. However, it does not fundamentally change the organizational paradigm. Instead, it merely tackles the failure of past corporate resource allocation processes. Examples are major cost-cutting initiatives, outsourcing or offshoring decisions, and market consolidation programs. Just like adaption, reconstruction leads to an immediate, tangible impact on systems and structure within an organization (Muzyka et al. 1995, p. 348).

Revolution comes along with a full and broad paradigm change when external pressures for change are extreme. For example, profits may have declined, a competitor activity threatens the existence of the firm, or the organization’s identity has to be reshaped after a takeover. Revolutionary transformation efforts are usually reactive in nature when an organization has become a victim of its own success, and when past ways of doing business and competing in the marketspace have become deeply embedded in the organizational culture, and taken for granted (Balogun et al. 2015, p. 6). This kind of business transformation is implemented in a rapid and full-scope fashion. While it leads to an uplifting and tapping of entrepreneurial behavior (Muzyka et al. 1995, p. 348), it is usually of a discontinuous change nature (de Wit and Meyer 1998, p. 244).

Evolution (or continuous business transformation) requires an organizational paradigm change, but over time. The management of the organization may anticipate the need for disruptive change, but there is enough time to reach the new state through incremental and moderate steps in an evolutionary way out of the present situation. Evolution with its low amplitude of change is in stark contrast to a revolution (de Wit and Meyer 1998, p. 245).

It is helpful to have a view of the scope of change required, and especially if the transformation can be achieved within the organizational paradigm or if a significant shift is required (Johnson and Scholes 2002, p. 537). Strategic leaders should actively manage the selection process of the type of business transformation to increase opportunity capture and avoid traumatic experiences of failed transformations (Muzyka et al. 1995, p. 348). In fact, executive leadership pervades every step of the business transformation process; no organization reporting success with strategic change had an unengaged or passive leader (Kaplan and Norton 2008, p. 20).

Some scholars tend to question the feasibility of delivering business transformation in a revolutionary, rapid, and all-at-once manner (Balogun et al. 2015, p. 6). They believe that if organizations shift by “earthquake,” it is usually their own “fault” (de Wit and Meyer 1998, p. 240). A full paradigm change can often only be sustained for a short period of time, after which the transformation momentum disintegrates again. In fact, any positive inclination toward change and improvement by the organization’s employees will have completely vanished by the time revolutionary change has been rolled out. The organization lapses back into a stable state, in which further change hardly occurs until the next external shock happens, and another round of revolutionary transformation becomes necessary to once again wake up the organization.

Continuous business transformation, on the other hand, would, at the end, lead to the same outcome, but in a less dramatic fashion. It follows the paradigm of slow and steady wins the race as proposed by the Greek philosopher Aesop (620–560 B.C.) in the fable of the hare and the tortoise. Continuous business transformation is conceptualized as a continuous process of accommodations and adaptations, moving gradually but unrelentingly toward a long-term goal. It is long-term in orientation. Strategic change can originate both top-down and bottom-up; employees are encouraged to put forward ideas and initiatives to their managers. In this case, the organization’s leadership does not necessarily a priori have an intention to implement change.

Preparing for the Execution of Transformation

Execution is the hard part of transformation. More than half of the companies undertaking transformation fail to achieve the desired results (Moreno 2014). Dichter et al. (1993) warn that “organizations can easily grow enamored with the promise of continuous improvement, and forget that the transformation process cannot overcome fundamental strategic and structural disadvantages by itself. […] A winning strategy and a viable economic and organizational structure must underpin any transformation effort.”

A coherent corporate strategy does not just set goals; it draws on existing strength and creates new strength through the coherence of its design. Such strategy involves focus and choice. Focus denotes the identification of promising areas in which to search for business opportunities, or the identification of potential business threats which are to be circumvented. Choice means setting aside some goals in favor of others. Pursuing all possible goals and reacting to all kinds of triggers on the marketplace at the same time is hardly possible (Messner 2013, p. 6). The kernel of a good corporate strategy is therefore a mixture of thought and action with a basic underlying structure; it contains three steps: diagnosis, guiding policy, and coherent actions (Rumelt 2011, pp. 77–94).

The diagnosis defines and explains the trigger and challenge that the organization faces. A good diagnosis simplifies the complexity of the business world, reduces it to certain critical aspects, and replaces it with a simpler story, which allows business leaders to make sense of the situation so that they can embark on a transformation journey to solve the problem. Most strategic change is initiated by a change in diagnosis, which is basically a change of the view of the company’s situation.

The guiding policy identifies an overall approach for dealing with the challenge identified in the diagnosis. It does not yet fully define the exact form and content of the transformation process; neither is it a goal nor a vision, nor a description of the desired future state. Rather, it describes a method of how to take care of the challenge by channeling action into a certain direction, and by drawing upon existing sources of competitive advantage. The guiding policy generally spans multiple and complementary perspectives from various parts of the company, such as human resources, information technology, marketing, distribution, and operations.

The guiding policy alone is not a strategy, because it does not contain any concrete action. “Strategy is about action, about doing something. The kernel of a strategy must contain action. […] To have punch, actions should coordinate and build upon one another, focusing organization energy” (Rumelt 2011, p. 87). A set of coherent actions is required to carry out the transformation, step by step, coordinated with each other, continuously working toward accomplishing the guiding policy. Each of these actions is a finite duration and discretionary activity, which works outside the organization’s day-to-day operational activities. Together, they represent the force that accelerates the transformation of an organization, overcoming inertia and resistance to change (Kotter 2012a; Kaplan and Norton 2008, p. 103).

Unfortunately, in today’s organizations, it is quite rare to find such a system of coherent actions, which extends seamlessly from strategy to execution thereby supporting the continuous business transformation process. Montgomery (2012) recommends: “You and every leader of a company must ask yourself whether you have one [a system of coherent actions]—and if you don’t, take the responsibility to build it. The only way a company will deliver on its promises, in short, is if its strategists can think like operators.” Leadership builds systems, or transforms existing ones. Leadership takes the organization into new territory; management makes the system work. This point has huge implications for the process of continuous business transformation in today’s ever-faster-moving world (Kotter 2012b, p. vii).

Adjusting Humans to Continuously Changing Conditions

To a certain degree, the downside of change is inevitable. Whenever human communities are forced to adjust to shifting conditions, pain is ever present (Kotter 2012b, p. 4). While the organization goes through a transformation, the people impacted by change are going through a trajectory of their own (Messner and Messner 2013, p. 14), which Janssen (1996) summarizes in The Four Rooms of Change model. This model discusses organizational change derived from the school of existential thought within psychology; it attempts to deal directly with the nature of existence, viewed through the lenses of conscious experiences (Hind 2005, pp. 268–269). It takes an organization’s employees through the stages of strategic change shown in Fig. 1.2: contentment, denial, confusion, and renewal. Recognizing these stages will give the company’s leadership some support to guide their employees through these rooms, ultimately making the transformation successful in an efficient manner.

Fig. 1.2
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The Four Rooms of Change model

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    Contentment. When everything is working fine, the employees know their processes, the communication channels are established, and exceptions can be handled skillfully. While things may not be perfect, the organization’s structure and processes is a familiar environment, and employees are comfortable with it. The contentment room encourages a stable internal perspective that totally ignores the outside triggers on the marketplace.

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    Denial. Things were running smoothly, when triggers made the transformation effort necessary. All humans are, by nature, resistant to change, and this is when employees will question every step of the transformation, but there is no falling back into the contentment stage (Hind 2005, p. 271). They might bring up a list of things that went wrong during the last transformation, and why it will also be similarly futile this time. Clear communication will be needed here; the organization’s leadership needs to come in publicly with their support, and draw a picture of the future using strategy communication tools as proposed by Kaplan and Norton (2004).

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    Confusion. The transformation is underway, maybe the changes are being introduced in a continuous and phased manner. For a while, both the old and the new way of working will need to coexist, and this can easily lead to confusion. Listening to the employees, bringing key people together on a regular basis to understand issues, and making procedures as clear as possible will be effective remedies during this phase.

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    Renewal (or inspiration). This phase should hopefully kick in when the fruits of transformation are becoming evident. The change is in place, the doomsayers have retreated, and employees can feel the real difference.

In the first phase of contentment, employees say no to change, but they are happy (No+). In the second denial phase, employees still resist change, but their mood has changed to unhappiness (No+). Subsequently, in the third phase of confusion, employees begin to accept the necessity of change while still being maladjusted to the new way (Yes−). In the final and fourth phase of renewal, employees fully embrace change, and they also get rewarded with a strong feeling of self-confidence (Yes+).

The model holds that employees realize the doors between the rooms are open all the time, just like the road between the rooms is not a one-way street. But this also means that one cannot stay in the exciting last room of renewal forever. The door to the first room of contentment is tempting with an irresistible magnetic pull. Similarly, the organization can slip back to the previous room of confusion (Hind 2005, p. 273). It is impossible to predict how long the cycle lasts, or if everyone in the organization will go through it completely (Haberberg and Rieple 2008, p. 704). Some employees never get beyond the denial stage, because pushing through to the next door and entering the room of confusion is a scary thing. They must acknowledge the need for change, they must change their attitude from “It’s not going to happen before I retire” to “When will it happen?” Otherwise, they risk falling right through into the dungeon of denial—this is one reason why business transformation programs are often characterized by high rates of employee attrition.

Obviously, everybody has the right to rest a bit after a transformation process, but not for too long. It is the job of continuous business transformation to keep the organization and its employees energized, and to turn the four-rooms-of-change cycle into a flywheel of success, where people spiral themselves upward in an energized way to greater heights and competitive advantage. The strength of this model and its contribution to transformation success is to make leadership aware of what is going on at the individual employee level. It provides existential insights into what is happening in an organization as it experiences strategic change.

Conclusion

The days of one-off major business transformations are coming to an end (Hemerling et al. 2015, p. 16). The old-era process of deciding on a top-down strategy, giving orders to employees, maybe asking an external partner for help with the implementation and roll out, hopefully hitting the targets, and finishing it off by declaring victory is no longer a viable option to counter the various transformation triggers in today’s dynamic business environment. Today, companies must constantly seek competitive advantage without disrupting daily operations (Kotter 2012a). Interestingly, leading management consultancies still continue to define business transformation as a profound change in response to a well-defined trigger—in clear contrast to incremental and continuous shifts. This may be one of the reasons why “people have been grumbling for years about the strategy consulting industry, whose reports fail to solve the problem of finding and implementing strategies to better fit a changing environment. A consultant’s report—[…] produced by smart outsiders, and acted on in a linear way by a limited number of appointed people—has little or no chance of success in a faster-moving, more uncertain world” (Kotter 2012a).

The whole notion of strategy and transformation has to evolve in the twenty-first century; business transformation initiatives should no longer only be born out of a crisis, but they should be triggered by an opportunity. Strategy identifies critical aspects and seeks opportunities; it designs a guiding policy as an overall framework for dealing with market triggers. Business transformation is the dynamic force that coordinates and executes initiatives swiftly and efficiently, in parallel to the existing operations of the company. Companies need a second, parallel operating system (Kotter 2012a), in which continuous business transformation helps the organization to accelerate, build momentum, and deliver impact. Continuous business transformation doesn’t jolt the organization in the way that sudden dramatic changes suggested by a consultant’s report do; it doesn’t require the organization to flick a switch in order to build something new. Continuous business transformation is always on, it never stops.