"Business transformation" is a phrase used to describe what happens when an organization fundamentally changes its operations. The goal of business transformation is to enhance operational and financial performance. Business transformation may occur at the organizational level or within a department or product group.

A business transformation initiative may take the form of a wholesale change in how something operates, or it may mean making a series of incremental changes to a business process or product.

Business transformation may be either opportunistic or responsive. For example, adding a new product to address an untapped market exemplifies opportunistic business transformation. On the other hand, switching to a work-from-home model during the COVID-19 pandemic was responsive. Embracing remote work long-term to attract a wider pool of talent is one way to turn a responsive transformation into an opportunistic one.

The Harvard Business Review describes three types of business transformation:

Operational: Changing how an organization does things to make operations cheaper, better, or faster. For example, data-driven process improvement. 

Core transformation: Adopting a fundamentally different way of operating, for example, moving from a retail to an online-only model.

Strategic: Changing the company's direction to take on a new opportunity, for example, entering new markets or introducing new product lines. 

While core and strategic transformations are infrequent and are driven by top executives, most organizations have the opportunity to have everybody participate in operational change every day.

What Drives the Need for Business Transformation?

Businesses engage in transformation for several reasons, including:

• A decline in business growth
• Challenging economic conditions
• A need to become more efficient
• Leadership changes
• New regulations or restrictions
• New technology
• Cost reduction needs
• Low employee engagement
• Quality problems
• And more
  
  

The Most Significant Benefits of Business Transformation

Business transformation is often necessary for an organization to reach its goals. Of course, the benefits will are unique to each business, but there are some significant benefits that most organizations enjoy when they alter their approach to business operations.

Organizational Alignment

For business transformation to be effective, it is first necessary to define and communicate the organization's strategic priorities. This starts with identifying the long-term, breakthrough objectives that will significantly impact the organization's trajectory. These "big" goals are then broken down into annual goals and specific opportunities for improvement that will make change possible. With this insight, leaders can give employees performance goals that directly align with the strategy. When the priorities are clear, decision-making improves, conflicts are easy to resolve, and everyone is rowing in the same direction.

Employee Engagement

A true business transformation relies on employees identifying opportunities for improvement and implementing them. While the shift may start at the top, the rubber hits the road on the front lines. Employees who develop a sense of ownership over their processes are more willing to put in discretionary effort to solve problems and explore new ideas. In addition, employee engagement has a significant economic impact. Engaged employees are less likely to turn over. According to Employee Benefit News, it costs around 33% of a worker's annual salary to replace them. 

Agility

Organizations that are consistently willing to engage in business transformation, even minor incremental improvements, are better positioned to react to changing conditions or to take advantage of new opportunities. Employees steeped in the principles of continuous improvement are better prepared to respond to disruption and more likely to be helpful in decision-making.

Happy Customers

Customer satisfaction is a crucial driver of business transformation. The customer impact of every change must be considered, no matter how big or small. The most successful organizations view the value of their products and services through the eyes of the customer and conduct research to make sure that their business transformation aligns with customer needs and preferences.

Leadership Skills

True business transformation requires a proactive and strategic approach to daily management. Each manager must understand how the work of their functional area impacts the overall business transformation goals and strategic objectives. Over time, they become more effective at setting priorities, engaging in change, and coaching others to improve continuously. 

Cross-Functional Collaboration

Sadly, it is common for different departments, teams, or functional areas to have conflicting objectives and priorities. The problem is made worse when there is no central way of communicating and managing improvement activities. Because business transformation requires transparency and communication, it helps to break down silos and rally everyone around the annual and long-term goals. Improvement management software is one way to bolster cross-functional collaboration by giving all teams one platform from which to work and report on improvement projects.

Quality

Because business transformation requires process improvement, it opens the door to addressing the root cause of product quality problems. Attention shifts from fighting the fires of today by applying Band-aid fixes that may only cover up significant issues toward understanding each process step's purpose and expected results. Meeting production goals through any means necessary will not create meaningful change, but root-cause analysis and structured improvement certainly will.

Knowledge

Each time team members experiment with an improvement, they learn more about what works and what doesn't. Even if a change ultimately fails, it is a learning opportunity that can make the next experiment more effective. Business management software is ideal for capturing all the learnings regarding improvement and making them available to the rest of the organization. 

Reduced Cost and Waste

While we often associate business transformation with doing new things, it is often the result of doing less. When organizations map the flow of value through the product life cycle, they often find activities or materials that do not contribute to the value and can be reduced or eliminated. Removing unnecessary steps from a process decreases cost, lowers the risk of defects, speeds time to market, and frees employees to focus on value-added activities. 

Resilience

Organizations comfortable with business transformation are more resilient in the face of micro or macro challenges. For example, they are better prepared to survive or even thrive in a recession by making more out of the resources and talent they already have. They can also better respond to supply chain disruptions or other market forces by applying the problem-solving, and structured improvement skills workers already possess.  

Best Practices for Business Transformation

Both McKinsey and the Boston Consulting Group have put the success rate for business transformation at a disappointing 30%. However, BCG found that businesses that adhere to the following best practices increased their transformation success rate to 80%.

• Have a clear, integrated strategy with simple goals and a roadmap to achieving them.
• Start with committed leadership at the top and get buy-in from managers at every level.
• Make sure that the best people are in the right place to support change and provide strong incentives.
• Operate from an agile mindset applying the approach to new business experiments, technology, and other areas.
• Monitor and quantify your transformation progress toward the strategic goals.
• Implement a business lead technology and data platform to help align individuals with business goals.
• Demonstrate and build on small wins to increase the momentum of positive change.i
• Engage employees at every level of the organization and empower everyone to identify opportunities for improvement. 

Transforming business operations while becoming more agile and adept at continuous improvement is no small feat. However, the benefits are well worth the effort, and one can argue that it is essential to remain competitive in today's business landscape.