Blog

Business Transformations have become a necessity in the fast-changing technological and competitive business environment.  Transformation is characterized by significant and risk-laden Restructuring of a company, with the objective of accomplishing Operational Excellence  and changing its future course.

Business Transformation is a priority for many top executives but it is usually a reaction to challenging circumstances rather than being a preemptive measure.

Business Transformation is prompted by a combination of 2 situations:

• Need to address inherent problems causing organizational drag—these problems may be internal and/or external.
• Aspiration by the top management and other senior stakeholders to seize the occasion of addressing these problems, in ways that deeply alter the Business Model of the organization including Value Creation.

Business Transformation entails not just making incremental changes but fundamentally changing all or some of the following:

• Organizational Structure
• Core Product or Service Portfolio
• Systems
• Processes
• People—the way employees work
• Technology

Undertaking such arduous effort requires approaching the task in a structured way.  Research shows that quite a few of such undertakings are based on anecdotal beliefs instead of being based on empirical data.

Countering this trend, the Boston Consulting Group conducted an empirical study of financial and non-financial data-set comprising 300 U.S. public companies.  The data spanned a period of 12 years from 2004 to 2016.  Selection was based on the following criteria:

• Companies that had a $10 billion or more market capitalization between 2004 and 2016.
• Of these, companies with an annualized deterioration in Total Share-holder Return (TSR) of 10% or more relative to their industry average (2 years running or more) were identified.

Based on extensive analysis—that included use of methodologies like trained proprietary algorithms, prediction models, and Multivariate Regression Analysis—a pattern pertaining to Business Transformation emerged.  The pattern depicted the following themes:

1. Frequency of Failure
2. Impact of Digital Disruption
3. Impact of Downturn
4. Competitive Volatility

The study also suggested the following 5 evidence-based Critical Success Factors (CSFs) for achieving Transformation Success.

1. Cost Management (drives short-term success)
2. Revenue Growth (drives long-term success)
3. Long-term Strategy and R&D Investment
4. New, External Leadership
5. Holistic Transformation Programs

Let us examine in a bit more detail some of the CSFs.

Cost Management

In order to launch the Transformation effort on the correct footing, Cost Management is key, in the short term especially.  Predictably, empirical analysis suggests that the leading driver for organizations recovering from severe TSR deterioration is a determined Cost-cutting effort during the 1st year of Turnaround.  By year 3, Cost Reduction is accountable for the major share of TSR growth as companies divert their portfolios and make available funding for growth investments.

Revenue Growth

Merely short-term operational improvements do not augur well for a sustainable Transformation.  There has to be a long-term Growth Strategy put in place.  For this to happen, leaders have to challenge the foundations of the company’s Business Model.

Research divulges that Revenue Growth progressively becomes the driver for TSR recovery after year 1 in all the successful Transformation efforts.  Revenue Growth overshadows, by far, all the initial drivers for TSR recovery by year 5 of all successful Turnaround efforts.

Long-term Strategy and R&D Investment

Turbulent competitive environments, particularly, require long-term Strategic Planning and investment in Research and Development for fruitful Business Transformations.  Empirical research and analysis demonstrates:

• A 4.8% difference between Transforming companies showing above-average long-term strategic direction compared to companies with a below-average orientation.
• More pronounced findings in transforming companies operating in turbulent competitive environments—long-term orientation linked with a TSR increase of 7%.
• Companies with above-average R&D investments had upwards of 5.1% TSR impact in contrast to those with below-average spending.

These CSFs strengthen the odds of success in Business Transformation individually.  When used together, most of them produce an impact that is larger than the totality of their individual parts.

Interested in learning more about the 5 Critical Success Factors for Successful Business Transformation?  You can download an editable PowerPoint on 5 Critical Success Factors for Successful Business Transformation here on the Flevy documents marketplace.

Want to Achieve Excellence in Business Transformation?

Gain the knowledge and develop the expertise to become an expert in Business Transformation.  Our frameworks are based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts.  Click here for full details.

"If you don't transform your company, you're stuck." - Ursula Burns, Chairperson and CEO of VEON; former Chairperson and CEO of Xerox

Business Transformation is the process of fundamentally changing the systems, processes, people, and technology across an entire organization, business unit, or corporate function with the intention of achieving significant improvements in Revenue Growth, Cost Reduction, and/or Customer Satisfaction.

Transformation is pervasive across industries, particularly during times of disruption, as we are witnessing now as a result of COVID-19.  However, despite how common these large scale efforts are, research shows that about 75% of these initiatives fail.

Leverage our frameworks to increase your chances of a successful Transformation by following best practices and avoiding failure-causing "Transformation Traps."

Learn about our Business Transformation Best Practice Frameworks here.

Do You Find Value in This Framework?

You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library.  FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives.  Here’s what some have to say:

“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market.  They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions.  I strongly recommend FlevyPro to any consultant serious about success.”

– Bill Branson, Founder at Strategic Business Architects

“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power.  For us, it is an invaluable resource to increase our impact and value.”

– David Coloma, Consulting Area Manager at Cynertia Consulting

“FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients.  In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over!  The quality of the decks available allows me to punch way above my weight – it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”

– Roderick Cameron, Founding Partner at SGFE Ltd