What Is Organizational Transformation and Should You Transform?

In a world of increasing customer expectations and decreasing resources, many organizations are finding ways to do more with less by consolidating and integrating departments, functions, business processes, IT infrastructure, and entire organizations. But 75 years of research on organizations has shown that over 85% of all organizational performance problems are in the structures, systems, and culture in which people work – put good people in bad systems you get poor performance. So trying to address changes in the business environment by reorganizing, changing leadership, consolidating and integrating IT infrastructure and business processes, downsizing, or implementing new management and cost-cutting programs creates change, but when done without an understanding of the overall “system” within which managers and staff members work, this strategy tends to solve one problem and unintentionally create others. What today’s top managers need to address the frenetic pace of change in the business environment is a well-defined approach to organizational transformation

As defined in the business literature, organizational transformation refers to deep, fundamental, often radical, changes in an organization’s mission, strategy, structures, systems, and culture, rather than incremental change and improvement. Organizational transformation initiatives are often used to respond to the forces and demands of the business environment that require a company to change how it does business to survive in their industry. For the last 25 years, organizational transformation has been referred to by a number of different names; e.g., business process reengineering, downsizing, rightsizing, and more recently organizational culture change. But the overall purpose and fundamental goals of all these approaches have been similar; e.g., to make deep fundamental changes in how an organization structures, organizes, and uses its human, material, and financial resources to act on (and react to) changing forces and demands in the business environment.

Organizational transformation has both a change and transition element. The change required to align an organization’s structures, systems, and resources around a new mission and strategy that increases the value delivered to customers is situational and tends to happen quickly. In other words, functional “silos” are consolidated with new leadership, reconfigured org charts, and directed to hit bigger targets with fewer human, financial, and material resources. The transition element of organizational transformation is a protracted cultural and psychological process that managers and staff members go through to let go of the old organizational reality and identity that they had before the change took place and learn new ways-of-working. Managers and staff members must learn to take ownership in (and come to terms with) their new role in the reconfigured organization. The most important lesson to be learned from hundreds of documented transformation initiatives is the necessity to manage both change and transition throughout the entire organizational transformation process.

So what criteria should leaders and managers use to decide whether or not to begin an organizational transformation process? Deep organizational change almost always requires a burning platform and there are two kinds: reactive and proactive. The reactive kind is when managers wait until the situation has gone critical then respond reactively by reorganizing, changing leadership, downsizing, consolidating functions and systems, or implementing aggressive cost cutting programs without understanding the “end-effects” of these decisions. Most managers don’t directly experience the long-term consequences of their decisions because they have a system-wide effect that spans multiple departments and may impact an organization’s day-to-day operations (positively or negatively) for years to come. The inability of most people to directly experience the long-term systemic consequences of their decisions is the primary reason why most people don’t learn from experience, especially when the consequences of a decision are removed from the cause by more than 1-2 years. Reactive change does not lead to organizational transformation.

The proactive kind of burning platform is when managers realize that while the forces and demands of the business environment may not be critical right now, they will become critical if a sense of urgency is not developed about transforming how the organization does business. Proactive managers define a new direction, set the platform on fire, and reconfigure the organization through: a) change that realigns the structures, systems, and resources around a new mission and strategy that increases the value delivered to customers, and by managing b) the transition associated with the cultural and psychological process that people go through to learn new ways-of-working, let go of the old organizational reality and identity, and to gain ownership in their new role in the reconfigured organization.

Bottom Line: Leaders and managers must develop a compelling, credible, and easy-to-understand business case that describes what transformation would actually accomplish, what would be gained, and what transformation would actually achieve in terms of the return on investment of time and resources needed to see the process through. The business case and vision for transformation must inspire managers and key personnel to enlist and actively support the transformation initiative with their hearts and minds. The business case and vision should also answer questions like, “Why are we doing this rather than maintaining the status quo or other alternatives? What will be gained for me and the organization long-term and will it be worth the time, energy, disruption, and organizational ‘pain’ that we’ll have to endure to get there? What new challenges are we meeting, and why is it important to meet them now?” In the absence of a compelling, credible, and easy-to-understand response to these kinds of questions, an organization should not undertake a transformation process.