In today's fast-paced world, most companies undergo one or more major transformations each year, driven by increasing globalisation, competition, and rapid technological advancements. However, many organisations fail to achieve the desired outcomes from these initiatives. Based on our experience, the most successful transformations start with a business-centred approach, followed by functional and technical planning.
Most of us have been part of major transformation programs, and usually, success has not been as expected due to diverse reasons. Thus the question: what could have been done better in the planning phase to secure better results. For example, a 2022 McKinsey global survey found that 90% of respondents had pursued at least one large-scale digital transformation in the previous two years. Yet, they realised only 31% of the expected revenue increases and 25% of the anticipated cost savings. This highlights a common issue: the opportunity cost of misallocated resources and missed change initiatives, as key experts are often tied up in these programs.
Based on our experience, several common challenges that arise during business transformations should be addressed in the planning phase:
Narrow transformation scope: Focusing on individual systems rather than end-to-end business capabilities limits the impact of the transformation.
Incomplete operating model redesign: Major transformations often fail to include necessary changes to business processes and the operating model, leaving key areas unchanged.
Underestimated change requirements: Resource and investment needs, as well as the effort required for managing people through the change, are often underestimated.
Disconnect between business results and required changes: Planned business results may not materialise if the necessary changes in business capabilities are not adequately identified and executed.
Fragmented transformation planning: When transformation efforts are split into separate programs without coordination, the overall roadmap lacks coherence, reducing the chances of success.
At this point it’s perhaps better to state the obvious: these are not the only factors to consider in transformation planning – but the ones that we feel deserve specific focus to increase the business impact and success rate. In our previous blogs, we have approached transformation from different angles.
Read also: Why does experience matter in organisational change?
We recommend starting transformation planning from a business perspective—a process we refer to as business design. This approach ensures the transformation scope, requirements, and impacts are considered broadly, aligning with business objectives from the outset. Business design provides guidelines, priorities, and requirements for detailed planning, making functional and technical design more efficient and aligned with the overall business goals.
By focusing on business design first, companies can ensure that no significant elements are overlooked, and the transformation scope is clearly defined in relation to business objectives and execution limitations. Additionally, this approach links planned changes to tangible business impacts, increasing the likelihood of achieving the desired outcomes. Engaging all stakeholders early on also ensures that critical requirements are factored in from the beginning.
A successful transformation requires identifying and assessing changes to business capabilities during the planning phase. Before moving into execution, it is essential to conduct an objective assessment of the transformation's requirements. Too often, change expectations are not met due to overly optimistic views on resource needs—insufficient budgets, overworked program teams, and unachieved business outcomes are common pitfalls.
Dr. Michael Hammer’s well-known reengineering rule from the 1990s—NT + OP = EOO (New Technologies + Old Processes = Expensive Old Operations)—remains highly relevant. When undertaking a major transformation, it is crucial to review and redesign the operating model to reflect the full impact of the changes. This includes redesigning processes, updating roles and responsibilities, redefining KPIs, targets, and incentives, and building the necessary competencies. All of this must be done alongside the technical and functional changes related to data, systems, and assets.
The most important aspect of any transformation is managing people change. Planning, leading, and managing cultural and behavioural changes are essential for any transformation's success. Change management frameworks like ADKAR are useful, but experience is even more critical. Knowledge gained from past transformations helps identify the nuances vital for success.
Read also: What is wrong with organisational change management?
A strong understanding of business and operational perspectives makes it easier to clarify the future, address resistance, and align stakeholders with the transformation's goals. It also helps build a compelling narrative beyond rational arguments for change by providing a vision that inspires hearts and minds.
While executing people change requires diligence, and discipline, one often overlooked aspect is impactful communication, employees of the transformation's benefits. It’s not enough to explain the rational reasons for change—leaders must also show how the transformation will improve the way business is done and what it means for people, creating a shared vision that motivates the entire organisation.
An engaging strategy should be reinforced with tangible incentives to strengthen the execution of the change. Choosing incentive objectives directly tied to transformation goals ensures that employees stay focused and act in alignment with the strategy. The impact on individual compensation should be significant and proportional to the scale of the transformation. Leaders must use sound judgment to prioritise the most critical transformation targets to drive meaningful behaviour change.
Our cumulative experience has shown that the most successful transformations start with a business-centered approach: aligning capabilities with strategic priorities, and managing change effectively at every level.
We’d love to hear about your experiences with business transformations. If you need assistance managing your next major change, we’re here to help with questions such as:
How do you move from strategy to execution in transformation programs?
How do you align changes in business capabilities, priorities, and operating models with the transformation goals?
How do you ensure the successful implementation of organisational change?
Senior Managing Consultant
Healthcare is in crisis in many countries, and Finland is no exception. When resources are limited, and the demand keeps ...
Read more
For business and IT leaders, preparing for a business cycle shift means ensuring the right strategic target state and ambition-level ...
Read more
Jarkko Peltonen and Janne Takala joined Midagon as consultants in May 2024. Let's get to know them a bit better!
Read more
