7 kinds of business changes/transformations
In our last edition, we were wondering about the main drivers for change and identified 6 different ones: regulatory, customer, technology, competitiveness, growth and crisis. Our next question is how these lead in any way to the main change types that are initiated in companies nowadays, with the background assumption that there may be different challenges and different ways to approach and manage them.
Recalling on our experience and some research, we initially come up with 7 major business changes or transformations. We will describe them and try to find what differentiates them.
Business Changes / Transformation types:
Culture change: Some companies who have not changes progressively to follow the market may realize they are outdated in terms of culture and may need to adapt to new management style for example. A clear example of this is the NWOW wave hitting historically stable and conservative “industries” such as banks and public sector. NWOW stands for New Way of Working, involving more empowerment and more agile way of managing people with the goal to generate more entrepreneurship spirit. and decrease a rank and file attitude that is not cost effective.
- Business Model change: One path towards radical innovation is by revisiting its business model. The company or a business unit looks at its value proposition, looking both at the customer and supplier sides, identifying the right customer target, the right distribution channels to reach them, the right relationship to maintain them, the right partners, the right activities to perform and the right resources. All this looking at the financial model that will make the business profitable in the short or the long-term, having an impact on the financing needs. Companies who need to reinvent themselves may use this type of change. It may be a challenge to do this in well-established organization, so this may be done in spin-offs initially to allow a different culture to grow , needed to support this new model.
- M&A: In the search for ever-lasting growth companies in many industries consolidate over time in the hope to reach economies of scale, or to access new markets. One company acquires another and makes sure it can control the new entity. Overlapping management functions typically result in layoffs and company cultures can be difficult to merge.
- Reorganization: This type of change is frequent in large organizations for different reasons. This involves a change of roles and responsibilities of the different departments. It can be moving from a regional to a centralized model for some business functions or vice-versa (for example setting up shared service centers to handle repetitive operations more efficiently, it can be outsourcing some non-core business operations such as manufacturing an focusing on product design and/or sales, it can be the offshoring of some activities to lower labor cost countries, often for cost reasons but can also be growth enablers to be closer to new markets, or any combination of the above. In this context, people are directly impacted in their daily job and can find it hard to deal with these changes.
- Process reengineering: When the company has grown for a while it may not be lean anymore , having processes that are not efficient across departments. When products get mature, margins are under pressure and companies start to look at ways to decrease costs. Beside putting pressure back on their suppliers , they also need to improve their internal efficiency. Making the company run faster with fewer people for the same business scope. This does not necessarily lead to lay-offs because people can be reassigned to other functions or new business opportunities.
- Technology driven: implementing strategic systems enabling growth. The typical example in IT is an ERP implementation. The larger the company grows the more it needs structuring of its processes. An ERP (Enterprise Resource Planning) can help in this area by streamlining the business. The challenge there is to find a balance between the standard process and the ability of the organization to digest this new way of doing. One way is to gradually implement processes across the organization, enabling the organization to integrate these changes and to learn from it. Technology change can also occur in the production side, when a product is made with equipments of a new generation. Similar challenges are faced.
- Turnaround: The turnaround type is specifically about responding to a crisis threatening the survival of the business in the short term. In these situations, there are typically clear financial issues such as lack of liquidity/treasury to pay for the recurring costs with uncertain or low sales. This may result from a structural profitability issue where margins are too low to cover overhead costs, or from operational issues preventing the company from delivering its customers either on-time or with the required quality. In this situation, there is no time to fuss around. Drastic measures need to be taken. It is often a matter of weeks or months, not years. A quick diagnostic must be run and changes implemented on the fly. It can be replacing staff that underperforms, solving technical issues, focusing on profitable customers, dealing with bad suppliers, etc., while refinancing to be able to catch breath. The art at that moment is to set priorities right so that the recovery can start while gradually thinking back to the longer term and take measures that take time to bring benefits.
We can wonder if these change types are really completely different.
Let’s look at how they differentiate by looking at different criteria:
- What are their main drivers?
How frequent are these changes?
How long do they typically take?
How deep the changes are using the Dilts logical levels of change? We discussed about this model in our previous serie of newsletter (click here to read the article) and found another interesting article to read (see 4th article in this newsletter).
We tried to summarize the links in the following table. Note that the analysis is based on intuition and personal experience, so of course cannot be considered as scientifically valid. I am interested in your thoughts on this.
From this tentative analysis, it appears that:
There is no direct 1-to-1 relationship between change drivers and change-types
Culture change is one aspect often present in Business Model, M&A and sometimes reorganizations
M&A could be considered as a subset of Reorganizations
There is often some overlap between Reorganizations, Business Process Reengineering and Technology change types, because they impact simultaneously processes, systems and organization.
What seems interesting to investigate further is to start from these change types, see which Dilts levels and stakeholders they involve and then define approaches and/or tools to deal with these change levels.