In this complete guide to organizational transformation, we’ll cover transformation from top to bottom.
Among other things, we’ll look at:
- The definition and concept of organizational transformation
- Transformation vs. change
- Why change must be managed … not just mandated
- Best practices and tips
- Why employees play such a crucial role in organizational transformation
- How to successfully lead and manage organizational changes
Whether you are just doing research … or whether your organization is implementing a full-scale transformation … this guide covers everything you need to know, from top to bottom.
Organizational Transformation FAQ
To begin, let’s cover the basics of organizational transformation.
Here are some of the most commonly asked questions about organizational transformation.
What is the concept of transformation?
Organizational transformation aims to “reinvent” a business – its revenue model, strategy, mission, or even the very nature and purpose of an organization.
In short, an organizational transformation represents deep changes across practically every area of a business.
As we’ll see below, organizational transformations are enacted through a set of interdependent change initiatives.
By definition, this makes organizational transformation more complex and challenging than discrete change projects.
Organizational Transformation vs. Organizational Change: What’s the Difference?
According to an article by Ron Ashkenas in the Harvard Business Review, organizational changes are discrete projects.
These change projects have a beginning, an end, and clearly defined scopes.
However, Ashkenas says that organizational transformation is a “portfolio of initiatives which are interdependent or intersecting.”
More importantly, the goal of transformation is to “reinvent the organization and discover a new or revised business model based on a vision of the future.”
In other words, organizational changes involve targeted shifts in processes, tools, and so forth.
Organizational transformations, on the other hand, reinvent a business from the ground up.
What is the aim of transformational organizational change?
Every transformation initiative will have its own unique aim, cause, and purpose.
As mentioned, a transformation involves a massive, sweeping set of business changes.
But the changes themselves can vary as widely as the causes of those changes.
Here are a few examples to help illustrate this point:
- Desktop computers enter the mainstream, pressuring a typewriter company to completely change its product, business model, mission, and strategy
- A company’s existing business model is producing dismal results, prompting business leaders to completely reinvent their business strategy, product line, market, culture, and processes
- A business whose revenue depends on a single product suddenly becomes threatened when competitors begin offering the same products more efficiently and more cheaply, so they diversify their product offerings and enter a new market
In short, transformations are “reinventions,” rather than discrete improvements or enhancements.
They are often complex, difficult, and daunting.
But in many cases, organizations transform out of sheer necessity.
Successful transformation can often mean the difference between survival and extinction.
Why is organizational transformation important?
As with many other business projects, organizational transformations are designed to solve problems.
To recap some of the reasons covered above, organizational transformations are important because they:
- Help organizations overcome crises and difficult challenges
- Increase an organization’s chances of survival and success
- Keep organizations relevant, competitive, and profitable
Organizations, like organisms, must adapt and evolve in order to remain competitive in their respective ecosystems.
What are the types of organizational change?
There are several ways to view the different types of organizational change.
For example, changes can be categorized by which business areas they affect:
- People – Changes that revolve around people can focus on behavioral changes, employee training, improving employee engagement, or cultural changes
- Processes – Process changes can involve changes in workflows, operational processes, procedures, protocols, and so on.
- Technology – Organizational changes that focus on technology can involve digital adoption, IT modernization, implementing new equipment, or other changes that affect a business’s tools and technology.
They can also be categorized by their scope:
- Organizational transformations, for instance, are organization-wide changes that reinvent and revolutionize the very nature of a business
- Organization-wide changes may impact an organization, without fundamentally restructuring the nature of the business
- Subsystem changes, often just called “organizational changes,” are discrete projects that are more limited in scope
Changes can also be defined by whether they are intentional or not:
- Planned changes are intentional and have specific objectives, such as programs designed to improve employee engagement or customer loyalty
- Unplanned changes occur accidentally and are caused by natural circumstances, such as sudden changes in the marketplace, natural disasters, or digital disruptions
Regardless of the type of organizational change, change management plays an important role in improving the outcomes of any organizational change (see below).
How is organizational transformation implemented?
Below, we cover this topic in much greater detail.
However, a brief summary of organizational transformation projects would look something like this:
- Business leaders – or those throughout the business – begins to recognize the need for a major transformational change
- A cross-disciplinary group, which can include executives, senior managers, directors, managers, consultants, and so on, works together to analyze and define the problem
- If the problem is serious enough (such as a crisis-level threat), then the solution can be an organizational transformation that reshapes the very nature of the business
- The organizational transformation – a set of interdependent, interconnected change projects – is designed, executed, managed, and optimized as best as possible
Because organizational transformations are so difficult, costly, complex, and even chaotic, these are among the most challenging types of organizational change.
Organizational change alone is challenging enough – but that difficult multiplies significantly when a business must engage in multiple interdependent change projects simultaneously.
This difficulty makes change management more necessary than ever.
Who is responsible for implementing organizational changes?
Typically, a number of parties are involved in decision-making and management, including:
- Business leaders
- Change managers
- Senior managers
- Third-party consultants and vendors
During any change project, different groups will be assigned different responsibilities.
The change management team, for instance, will often be responsible for coordinating, managing, and executing the project.
An implementation team would be responsible for actually implementing the change.
Complex organizational transformations, however, can easily become more complicated, involving many overlapping roles and responsibilities.
What are the biggest challenges to organizational transformation?
Successful transformation and change hinge on people’s ability to change.
For instance, the following examples demonstrate that successful transformation depends on how successfully people can change and adapt:
- Digital adoption. Digital adoption, or the implementation and full use of a new digital technology, requires that employees change their workflows, learn new skills, and make adjustments to their digital workplace.
- Restructuring. Restructuring a business – such as introducing new personnel, new managers, or reshuffling departments – can result in uncertainty, friction, negative reactions, and resistance.
- Cultural change. Changing a corporate culture means shifting the values, assumptions, and beliefs of an organization and its workers. This alone is a challenging task, especially if the new ideas conflict with existing beliefs or ideas.
In each of these scenarios, individual employees are the catalyst that can either fuel a change – or obstruct it.
In summary: organizational change is driven by people, so the biggest challenges to organizational change management usually revolve around employees.
These challenges can include:
- Learning curves on new workflows or tools
- Lack of confidence or motivation
- A fear of change
- A lack of trust in the change project or in leadership
- Fear of incompetency
All of these, in turn, can ultimately result in problems that can obstruct success and growth, such as:
- Employee resistance
- Skills that plateau at a basic level
- Burnout, disengagement, or abandonment
Overcoming challenges such as these is a key aim of change management.
And when engaging in such complex organizational transformations, change management is a necessity.
A Few Examples of Organizational Transformation [What Transformation Looks Like in the Real World]
Here are a few examples of organizational transformation:
- IBM – In the early 1990s, IBM was losing money because it was selling hardware when customers wanted business solutions. Losses continued to mount until a decision was made to transform. Seven teams were created, composed of 100 senior non-managers, who worked together to first define in detail the function and purpose of their departments. They then created a new vision for the company, and designed a sophisticated set of change systems to help them transform the nature of their business.
- Amazon – Amazon is an obvious example of a business that has taken organizational transformation to an entirely different level. What began as an online bookstore has transformed into something extending beyond an ecommerce site. Bezos’ early vision was an “everything store,” and perhaps that is the vision that helped drive organizational transformation after transformation – all while continuing to introduce and acquire new businesses.
- Walmart – Walmart offers a good example of transformation for the sake of necessity. Since it did not capitalize on the internet’s potential as quickly as other online retailers, it faced threats from the likes of eBay, Amazon, and other ecommerce sites. To keep up, Walmart has undergone an extensive digital transformation effort, augmenting its in-store experience with digital technology, using machine learning to improve a number of processes, adding thousands of tech employees, and so forth.
In each of these cases, we can see that the business changes involved extensive transformation.
To accomplish such complex change initiatives, change management is an absolute necessity.
Next, we will look at what change management does, how it works, and its bottom-line business value.
The Importance of Change Management in Organizational Transformation
Organizational transformation is like organizational change – only more complex.
This means that change management is crucially important when it comes to organizational transformations.
The benefits of sophisticated, well-structured change management in organizational transformation include:
- Improved project efficiency. Well-managed projects take less time, are less wasteful, and more cost-effective.
- Risk mitigation. A key goal of change management is to reduce risk, an inevitable consideration for any business project.
- Reduced employee resistance. Employees often resist change for a variety of reasons – change managers specifically aim to overcome that resistance.
- Greater employee support. Good communication strategies and leadership can help transform reluctance into support or even enthusiasm.
- Greater chances of success. Many organizational transformations and changes fail, often due to ineffective change leadership and management.
- Better project outcomes. Effective change management increases the positive outcomes of any change project.
To name just a few benefits.
The Role of Change Management in Organizational Transformation
To better understand the role of change management in organizational transformation, let’s look at a few change management frameworks.
Though each model varies slightly, it will become clear that each method has the same underlying approach: driving organizational change by changing individuals.
The Science of Organizational Transformations, According to McKinsey
According to McKinsey, changing mindsets and behaviors underlies any successful transformation.
Accomplishing such transformations is not easy.
However, systematic approaches that include four key actions can maximize the chances of success.
McKinsey’s research identified the following actions as the most important:
- Role modeling desired changes in mindsets and behaviors
- Fostering understanding and conviction about why changes are important
- Establishing formal structures and mechanisms to reinforce changes
- Developing talent and skills to support changes
No single action proved more important than any others.
Instead, the more actions employed during a transformation effort, the greater the chances of success.
Those familiar with other change management models, such as the ADKAR model or John Kotter’s 8-Step model (covered below), will notice similarities between those frameworks and McKinsey’s findings.
The ADKAR Change Management Framework
Prosci’s ADKAR model is a change management framework designed to implement organizational changes.
As mentioned, discrete change projects aren’t as sweeping or widespread as organizational transformation projects.
However, given that organizational transformations are composed of organizational changes, many of the same methods still apply.
Like McKinsey’s model, ADKAR focuses on fueling organizational change at the individual level.
Prosci claims that:
“Change happens at the individual level. In order for a group or an organization to change, all the individuals whtin that group or organization must change.”
The ADKAR framework identifies five milestones that individuals must achieve in order to change:
- Awareness of the business reasons for change
- Desire to engage and participate in the change
- Knowledge about how to change
- Ability to realize or implement the change at the required performance level
- Reinforcement to ensure change sticks
When comparing this model against McKinseys’ approach (see above), it is easy to see overlaps.
Both approaches, for instance, claim that employees need:
- To know the reasons for a change
- The skills and abilities to change
- Reinforcement to ensure changes stick
As we’ll see below, John Kotter’s well-known change model also shares many of the same approaches.
John Kotter’s 8-Step Model for Leading Change
John Kotter is a well-known authority in the field of change management.
Like the two approaches covered above, Kotter’s framework focuses on driving change from the level of the individual.
His model includes 8 steps:
- Creating a sense of urgency
- Build a guiding coalition
- Form a strategic vision and initiatives
- Enlist a volunteer army
- Enable action by removing barriers
- Generate short-term wins
- Sustain acceleration
- Institute change
Although there are differences both in the approach and the terminology among these models, Kotter’s method also shares a number of clear similarities between the previous two change approaches.
Namely, Kotter’s method also focuses on:
- Changing the hearts and minds of employees
- Driving organizational change through individuals
- Instituting (or reinforcing) change to ensure that it sticks
Most change management approaches are based on this same premise – that successful change depends on individuals.
Kurt Lewin’s Approach to Change
Many consider Kurt Lewin to be a forefather – if not the forefather – of change management, organizational development, and related disciplines.
His research revolved around group dynamics, group psychology, and similar fields of study.
Lewin’s research led him to develop a change model that involved 3 steps:
- Unfreeze old habits, processes, workflows, mindsets, and so forth
- Transition towards the new status quo by introducing new ideas
- Freeze the new processes in place
This model was developed in the mid-1900s.
Though simple, it has gone on to inform many subsequent change management approaches, such as those covered above.
How Culture Impacts Organizational Transformation
Culture also plays a pivotal role in organizational transformation – and can either aid transformation efforts or hinder them.
Before exploring how and when to make cultural changes, it’s a good idea to understand the basic definition of organizational culture.
What Organizational Culture Is
Organizational culture is commonly attributed characteristics such as:
- Beliefs, values, and assumptions belonging to a specific group – in this case, an organization
- Behaviors and attitudes
- Social rules, norms, and codes of conduct
A business’s culture evolves throughout the lifetime of a company.
Typically, the overarching vision and culture is established by the company’s founders.
However, that culture gradually shifts as new employees enter the workforce and employees gain new experiences.
Because culture affects mindsets, beliefs, and behaviors, it definitely can affect a change project or an organizational transformation.
Does Culture Hinder or Help Transformation?
Different cultures will have different reactions to different organizational transformations.
In some cases, culture may hinder transformations, in other cases it can help.
Because each situation is different, businesses should assess and make predictions as best they can, by:
- Clearly defining the proposed changes or transformations
- Predicting how employees will react to those changes (through research, feedback, polls, and communication)
- Assess whether a cultural change would be worth the cost
In certain circumstances, organizational culture can certainly benefit an organizational transformation program.
The Pros and Cons of Changing Organizational Culture
For instance, traits such as the following are more likely to support change projects:
- Openness to change
- Digital fluency
- A pro-learning mindset
However, bear in mind that changing the beliefs and values of people can be daunting, difficult, and taxing.
Here are a few reasons why:
- Employees must unlearn old ideas, concepts, workflows, and processes
- Inculcating a new culture takes time, energy, and effort
- Fear and uncertainty can easily transform into resistance or resentment
- Dismantling a group is the only certain way to directly change a culture
In an organizational transformation project – one that changes the very nature of the business – cultural transformation may very well be a necessity.
A Step-by-Step Approach for Changing Culture
If an organization decides that cultural change is important for the success of a transformation initiative, it should follow a systematic approach.
Like change management, that approach should place a heavy emphasis on change at the individual level.
Edgar Schein developed an approach for cultural change, which was influenced by Kurt Lewin’s change model, mentioned above.
Here are a few steps to follow when implementing cultural change:
- First, assess your own culture. Understand the underlying beliefs, assumptions, and values that underpin workplace behavior. Conduct interviews with employees and learn about day-to-day behaviors, social norms, dress codes, and so on. That information is the manifestations of culture – it can be used to uncover the business’s fundamental values and beliefs.
- Identify potential aids or hindrances. Determine how those beliefs and values would interact with the proposed organizational transformation. If cultural change is deemed necessary, identify the traits that should be transformed … and what they should be transformed into.
- Change beliefs, values, and assumptions – not processes. There is a school of thought that changing processes will automatically adjust people’s behavior. However, simply implementing new processes and approaches is not enough. In fact, forcing people to follow procedures without offer data-driven explanations can produce the opposite effect: employee resistance and resentment.
- Make a persuasive case that disconfirms old beliefs and reconfirms new ones. The best way to change beliefs, values, and assumptions is by making a solid, open-and-shut case. Following the Lewin approach: disconfirm old ideas first, then present and freeze the new ideas.
As mentioned, cultural change can be difficult and stressful on employees.
However, since organizational transformations are so comprehensive, cultural change may very well become a critical element of the transformation program.
Best Practics, Dos, and Don’ts of Organizational Transformation
Whether you are engaging in a large-scale organizational transformation or a discrete change project, the following tips can help you improve efficiency as well as project outcomes.
Take a well-structured, sophisticated approach to change management
The first thing to remember is that a complex approach is needed to solve a complex problem.
In the section on McKinsey’s research, we learned that, in the context of change projects, the number of actions performed directly correlated with project results.
In short, taking a sophisticated approach to change management will outperform an unsophisticated approach – or change that isn’t managed at all.
Business leaders, change managers, and other stakeholder should hold dialogues and meetings to develop an appropriate approach, strategy, and plan.
Use change management frameworks
As mentioned above, change management models give business professionals a ready-made roadmap for enacting change.
These are designed to act as step-by-step guides during any change process.
Because they stem from the field of change management, they tend to focus on individual change as the catalyst for organizational change.
A few good frameworks to consider include those mentioned above:
- John Kotter’s 8-Step Model for Leading Change
- Kurt Lewin’s Change Model
Understanding these can offer insight into how groups react when presented with paradigm shifts and major changes.
Key steps to include in your change process
Because change management focuses on driving change from the individual level, change projects should also revolve around people.
That is, a change project should:
- Help employees become aware of the need for change
- Provide the necessary knowledge and skills needed for change
- Make it a point to keep employees motivated and engaged
- Reinforce change, even after the project is complete
Finally, each project should be analyzed and reviewed in detail.
That review can demonstrate the value of change management, as well as what can be improved during future projects.
Don’t just manage or mandate … Lead your transformation
Change managers oversee, organize, and manage a project.
Change leaders, however, are responsible for leading a transformation.
That is, effective change leaders:
- Define the vision of the future state of the business – what the business will look like after the change is complete
- Embody change first, setting an example for other employees
- Earn employees’ trust, gain their support, and mobilize an “army” of staff who are willing to enact change
In some cases, the role of change manager and change leader may be the same person.
Enterprises and larger organizations, however, may delegate different responsibilities to different parties.
In either case, it is important to carry out both duties.
One drives the change forward, the other manages and operates it – and both are necessary for change projects to succeed.
Develop a goal-oriented communication strategy
Communication is an essential skill to have for any change manager.
But it is just as important to have a goal-driven communications strategy in a transformation project.
When communicating to employees about an organizational transformation effort:
- Clarify the reasons for the change project. Explaining the purpose of a change project goes a long way towards earning employee support and minimizing resistance. It also adds more meaning to a change project, because employees know why they are being asked to make such significant changes.
- Explain the change processes in detail. After describing the “why” of a change project, explain the change process in detail. This can include information such as the project schedule, roles and responsibilities, details about employee training programs, objectives for each stage, and so forth.
- Clarify responsibilities, duties, and accountability systems. In a change project different teams have different tasks. Provide this information in writing so that employees can easily access it, whenever necessary.
- Define policies and procedures. Each organizational transformation will have a set of transitory policies and procedures, as well as new policies that will become permanent. These can include policies around training, technical support, which chains of command apply to which scenarios, and so forth.
- Listen to employees and make sure they feel heard. Employees who feel heard feel that they are participating in the transformation project. An important part of the communication strategy, as mentioned, is giving them a chance to participate fully, voice their concerns, and feel that they are being listened to.
The goals of any communication strategy should support and sync with the overall aims of a transformation project.
In fact the communications plan is a central vehicle for staying in touch with employees, maintaining motivation, and generating support.
Measure results and adapt
No project is perfect right out of the gate.
Some projects overdeliver – some underdeliver.
But one important way to maximize results and keep transformations on track is to continually measure results and change as needed.
The faster businesses can measure and adapt to issues, the better they will be at:
- Diffusing and preventing problems
- Overcoming obstacles
- Improving strengths
Since organizational transformation projects are so complex, analytics should be just as sophisticated.
The more granular and detailed the data, the more well-rounded the insights.
Metrics should measure individual change projects that make up the transformation.
This information can then be used to paint a picture of the overall health of the transformation.
However, bear mind that agility is as important as analysis – the faster and more effectively an organization can respond to its insights, the better its transformation will be.
Be Agile, Lean, and Adaptable
Today, there are many new business processes that are more flexible, more adaptable, and less wasteful than traditional business models.
Lean, for instance, is aimed at reducing waste, decreasing product release time, and making products that revolve around users …. not features.
Like kaizen, the Japanese concept of continual improvement, lean business models aim at continual, incremental evolution – not “waterfall” production.
Agile, another modern business approach, was originally designed for software teams. The aim was to increase collaboration between stakeholders, favor working software over documentation, and put users first, among other things.
Agile has become such a popular working method that is has been applied in a wide variety of fields, including change management.
In risky, massive business changes such as organizational transformation, business models such as these can prove invaluable.
After all, organizational transformations are likely to be chaotic, highly disruptive, stressful, and uncertain.
The more adaptable and flexible an organization is, the better it will fare during disruptive organizational transformations.