What is business transformation?

This post is to address a succinct review of business transformation and provide a high level context to recognize the significance and the complexity involved with this type of organizational change.

Business transformation is a practice that fundamentally changes the way a business operates. A business operates externally to drive value through its products and services to its customers for a profit. Internally the business operates to drive cost efficiencies and increase their operating margins to drive more profitability.  This maximization of margins allows a business to invest and engage its growth engine to drive customer enhancement or new product market innovation enhancements to maintain competitive advantage.

Value chain

Mr. M. Porter defined a business value chain as noted in the diagram. Each function or activity is represented and has a defined operating model to accept inputs and create outputs to drive final product / service development through the value chain to the customer.  This allows organizations to be transparent regarding the flow of cash and revenues, identify financial and performance management measures and recognize the value creation.

Business transformation experts evaluate primary activities to both optimize costs and develop market growth plans. While simultaneously analyzing support activities for efficiency and look to optimize costs to reduce operating income.

Business transformation uses a variety of evaluation tools to hone in and isolate the problem. Below is a small subset of tool as examples such as:

Depending on the analysis and post recommendations to be executed business transformation may be very complex and disruptive to the business environment.  One must recognize the good practices and the businesses ecosystem to enable a successful transformation.
To execute business transformation is a complex delivery and requires management buy in, flawless execution using the disciplines of good process and project management.  The transformation team must develop a strong communication and change management practice to set the vision and support the needs of customers, employees, management and stakeholders. This is a critical practice since these initiatives generally involve risk / reward, require stamina since they are multi-year in duration and involve everyone to take on more responsibilities in additional to one’s normal role.

To summarize the value of the business transformation aids management to:

  • Create a transparent value supply chain of the business

  • Recognize the financial and performance flows across the business

  • Drive changes in the value chain to optimize performance and drive innovation

  • Gain alignment with stakeholders and position in the businesses ecosystem

Related articles
References:
http://upload.wikimedia.org/wikipedia/commons/thumb/7/70/Porter_Value_Chain.png/340px-Porter_Value_Chain.png
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17 thoughts on “What is business transformation?

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