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An executive's guide to business transformation

Article  in  Business Strategy Series · March 2007

DOI: 10.1108/17515630710684204

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An executive’s guide to business
transformation
Umit S. Bititci
Umit S. Bititci is a Professor
at the University of
Strathclyde, Glasgow, UK,
and also the Director of the
Centre for Strategic
Manufacturing (CSM). He
can be reached at
u.s.bititci@strath.ac.uk
In the new economic climate we
no longer compete on price
alone; we need to find
innovative ways of restructuring
our competitive basis, which
means we need to transform
our businesses. This article
provides the executive with a
practical high-level roadmap to
business transformation. First,
the competitive structure of a
business is introduced, and
then the eight components of
the business transformation
formula are outlined. The article
concludes with a roadmap for
business transformation.
DOI 10.1108/17515630710684204
e are living in a world of increasing complexity and uncertainty. Our businesses are
W under constant threat from global forces. The business models that worked and
created value for a business in the past are no longer valid. If we look back 20
years, we will see that there are very few businesses around doing the same things the same
way. Either they do things differently or they are doing different things.
In the new economic climate we need to find innovative ways of restructuring our competitive
basis, which means we need to transform our businesses.
But there are two barriers we need to overcome first. These are:
1. fear of the unknown; and
2. not knowing where to start and what to do.
The objective of this article is to provide the executive with a practical high-level roadmap to
business transformation. It combines 20 years of practical and academic experience into a
formula for business transformation.
However, before we can understand how to transform a business we must first understand
the competitive structure of a business.
The competitive structure of a business
In its most basic form any business consists of a series of activities that are performed by
people. When you put these activities end-to-end what you get is business processes.
Some of the processes are customer-facing, i.e. they touch the customer. Typically, these are
operational processes that develop products, generate demand, fulfill orders and support
products and customers. Other processes exist either to manage the processes of the
business (i.e. manage processes) or to support all other processes (i.e. support-processes).
This process structure of a business is illustrated in Figure 1.
One complexity is that any business, irrespective of its size, usually has different products
and/or markets with different competitive criteria. For example, in the whisky industry there
are £10 bottles of whisky and there are £100 bottles of whisky. The £10 product is a
commodity and it competes mainly on price. The £100 product is a fashion item and it
competes based on its brand values. There are similar examples in all other industries
including engineering, electronics, retail, fashion, and so on. In short, any business consists
of a number of value streams, and the customer-facing operational processes must be
configured and aligned to deliver competitive advantage for that value stream.
So how do businesses create competitive advantage? The short answer is that businesses
create competitive advantage by having efficient and effective customer-facing operate
processes for their value streams, which are supported by efficient and effective support
VOL. 8 NO. 3 2007, pp. 203-213, Q Emerald Group Publishing Limited, ISSN 1751-5637 j BUSINESS STRATEGY SERIES j PAGE 203
 Figure 1 The competitive structure of a business

processes. This creates value for their customers and shareholders here and now. However,
businesses sustain competitive advantage by having efficient and effective manage
processes that monitor performance and the external environment and look into the future on
a continuous basis. These identify potential opportunities and threats, assess their
significance and make strategic, tactical and operational decisions. Consequently, they
drive both incremental and transformational change.
People operate these processes using systems and other resources. The skills,
competencies and behavior of the people together with the quality and appropriateness
of all resources determine the efficiency and effectiveness of these processes.
All companies have these processes: the only difference is that good companies have good
ones and bad companies have bad ones.

The business transformation formula

The business transformation formula is about transforming the companies’ business
processes to instill an effective and efficient competitive business structure. It impacts on all
business processes identified above, be it operate, manage or support. It is about instilling:
B efficient and effective processes through people, organization, systems and
infrastructure; and
B transformational capacity that allows the organization to continually learn, change and
reinvent itself with minimum fuss and pain.
Figure 2 illustrates the fundamental building blocks of the business transformation formula.
The key message to note here is that we cannot do any one or just some of these
components in isolation. We have to address all of these components concurrently. A simple
plan for business transformation structured around these components does indeed provide
a very useful roadmap for managing the transformation journey.
Another important point to note here is that a plan is never absolute, i.e. it will never stay
static. This is also true for transformation plans. What is important is to have a simple high
level plan and review it regularly at the highest level within the organization. The trick is to

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PAGE 204 BUSINESS STRATEGY SERIES VOL. 8 NO. 3 2007
Figure 2 The business transformation formula

treat it as a living, changing and emerging plan. In essence the transformation formula
provides the basic rules that would allow us to manage this journey.

Value streams
We have already talked about value streams when we were introducing the competitive
business structure. What is important here is to recognize the different value streams in our
business and start managing them separately. During our work, we have found that even the
smallest business can have more than one value stream.
If we do not recognize our value streams and understand their competitive basis then the
danger is that we will manage these as if they are one of the same, thus potentially
compromising both. There are some simple tools available that allow us to identify our value
streams. For example, using the Department of Trade and Industry’s (1995) uncertainty and
complexity grid, shown in Figure 3, facilitates differentiation between different markets,
customers and products.

Figure 3 The complexity-uncertainty grid and corresponding competitive factors

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VOL. 8 NO. 3 2007 BUSINESS STRATEGY SERIES PAGE 205
 The trick here is to ensure that we do not end up with too many value streams. The
danger is that every single product or market becomes a value stream of its own. The key
skill is knowing when to consolidate or differentiate. As a rule of thumb, anything between
one and four value streams are acceptable – any more and I would start asking
questions. Remember, the more value streams we have the more complicated our
business is, and we do not want to make it more complicated than is absolutely
necessary.
We need to be able to articulate each of our value streams very clearly. That means we can
clearly articulate the competitive factors, customers, products, processes as well as
business performance (i.e. sales, costs, profitability, competitive position against
competitors) for each value stream clearly and unambiguously.

Strategy
‘‘Strategy’’ is a big word. I have even heard a board member saying to one of his senior
managers, ‘‘You should leave strategy to the board and just get on with what you are
supposed to do’’! The reality is that strategy is everyone’s job. The performance of our
businesses is determined as a result of things we do in our operations. Strategy is not worth
the article it is written on unless it makes a change in what we do and how we do things in our
operations. And this means it must affect and involve everyone.
If everyone is going to be affected then the strategy should be simple. A lot of people think
about strategy as a plan. This is indeed the traditional view of strategy. What we said above
for the transformation plan is also true for strategy. A plan is out of date as we compile it; it will
never stay static. It is often useful to think about strategy as a set of business rules that would
guide everyone towards making the right choices. For example, in a value stream competing
on its brand values a simple statement like ‘‘Never jeopardize product quality’’ provides a
simple but clear guideline for everyone.
The value matrix (Martinez and Bititci, 2001), shown in Figure 4, is a useful tool for defining
these business rules. As advocated by the Harvard Business guru, Porter (1985), and by
Treacy and Wiersema (1996), the best companies have focused and simple strategies. The
value matrix identifies six generic value propositions that can be used to develop these
focused and simple strategies.
In fact, what we have found is that best companies have strategies for each one of their value
streams that are focused on delivering a single value proposition. This is okay, as long as:

Figure 4 The six generic value propositions (Martinez and Bititci, 2001)

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B the strategic focus is clearly defined for each value stream;
B we manage each value stream as a virtually separate business; and
B we relentlessly and rigorously pursue the adopted value proposition.
This is often not easy. It is easier to get distracted with a whole load of noise and
opportunities. The trick is keeping focused and knowing when to say no to some of these
potentially distracting opportunities.
Essentially, here, the key message is that we should be focusing our value streams to deliver
a very clear and unambiguous value proposition and we should be supporting this value
proposition with a set of business rules that guides everyone and lets the strategy emerge.

Organization
We introduced the competitive business structure by saying that people perform activities
that generate business results. Therefore, any transformation process cannot be complete
without transforming the way we organize our key resources, i.e. people.
The way we are organized today (i.e. functions) is counter-productive to making the
processes shown in Figure 1 flow efficiently and effectively. If we want our businesses to
perform we need to create an organization that would allow us to manage these processes.
This means we need to create teams to work along these processes. We need these teams
at all levels. Just as we need cross-functional teams for product development, order
fulfillment, support product and so on, we also need teams working along manage
processes. We must also recognize that some people will be in more than one team. For
example, I would expect a production manager to be part of the Fulfill Order team as well as
Manage HR team and Manage Performance team.
We also need to create the right environment for these teams to succeed. I am sure
everybody can quote examples where they have seen perfectly good and previously
successful teams fail because the right environment has not been created for the team to
succeed. Creating an organizational structure that is aligned with our processes, with a clear
understanding of the above business rules, is a good start but in itself it is not sufficient. We
need to support this organization with an appropriate set of performance measures and
honest, open, caring and sharing leadership style. But more on these later.
At this point, you are probably thinking, ‘‘What will happen to our traditional departments and
functions?’’. This very much depends how you choose to achieve the above. If you are bold
and courageous enough you may just throw the whole lot in the air and start fresh with an
organizational structure that looks like Figure 1. But not many people are that bold and that

Highland Spring
Highland Spring (see www.highland-spring.co.uk), the UK’s most successful and fastest growing
bottled water producer, has three value streams:
1. the Highland Spring value stream, focused on brand leadership, where the product image and
quality image are the top priorities;
2. the own-label value stream, supplying value-for-money product to a well known supermarket
chain focused on price minimization, where manufacturing and distribution efficiencies are the
top priorities; and
3. the water media value stream, supplying small quantities of bottled water with customized
labeling to own design, focusing on process simplification, where flexibility and fast turn-around
time are the top priorities.

Linn Products
Linn Products (see www.linn.co.uk) produce the world’s highest quality and most accurate hi-fi
systems. Their simple business rule is ‘‘Do not produce anything unless it is clearly better then
anything else in the world’’.

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VOL. 8 NO. 3 2007 BUSINESS STRATEGY SERIES PAGE 207
 courageous. The founder of business process re-engineering, Michael Hammer, in his
Harvard Business Review article (Hammer, 2001), identifies a power shift in companies that
started to manage their business processes correctly. What happens is that in the
organization the power shifts from functions and departments to the process teams and the
team leaders. The role of the functional manager changes from managing a task to
facilitating, coaching and guiding. The focus becomes maximizing the contribution each
function can make to the process performance.
In creating the right environment for this new organization to work, there are a few other things
we need to put in place. We need to ensure that everyone understands what their new job is
and how they are expected to work in teams. We need to ensure that every individual and team
is clear on the scope of their and their team’s responsibility, i.e. when can they make a decision,
when they need to consult with other individuals or teams, and when they need to refer the
decision to another individual or team. In redefining the organization we also must redefine how
we are going to appraise and reward everyone. We need to ensure that everyone’s and teams’
development needs and performance appraisals are somehow related to and derived from the
performance of the process. So the performance measurement system we are going to use
must integrate with the review and appraisal systems – that is, we must integrate our Manage
HR process with the rest of the business through appropriate performance measures.

People
Having defined the new organization we need to make sure that we have the right people in
the right positions. This is probably the most difficult part of the transformation process. In
simple terms, people bring two things to the party:
1. skills, experience and knowledge – what people know and what they can do; and
2. attitude and culture – how people work.
Try the following: just imagine that you can have a one year’s fully paid holiday as long as you
find someone who can do your job as well as you. Now you must start creating a list of
attributes that describe the ideal person.
When you do this experiment what you usually get is a list of items where about 20-30 per
cent relates to skills, experience and knowledge and the remaining 70-80 per cent relates to
attitude. Using the words of Collins (2001), the trick here is to be rigorous and not ruthless.
We need a systematic and rigorous way of assessing individuals’ qualities against the two
attributes listed above. This also takes the emotion out of the processes. Figure 5 illustrates
an output from such a process.

Figure 5 Appraising people to put the right people into the right positions

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How we use these results is equally important. Under a positive light all we are doing is
appraising our people and making sure that you put them into jobs that they are capable of
handling. We are also establishing their development needs, identifying whether we need to
do a change management job with someone or just train and educate them or both.
Ideally, we want to create an achievement culture in the organization. Figure 6 tries to
illustrate what an achievement culture is in contrast to a dysfunctional complacency and
dependency culture.

Processes
We have already talked a lot about processes. Needless to say this section is about getting
our processes right so that they are efficient and effective.
When we create a new business it is like a nice round ball, it rolls along effortlessly. Then over
time we grow, introduce new customers, products and systems, make changes to our
processes, consequently what we end up with is a ball that has knobbly bits on it. Then we
are surprised when it does not roll along as efficiently and effectively as we expect it to.
In redesigning our processes we need to ensure that:
B we have clearly defined objectives and performance measures for the process in line with
our strategy and business rules;
B we eliminate all non-value adding activities from the processes;
B we minimize variation in the process;
B we compress the cycle time of the process; and
B we understand the cause and effect structure of our problems and ensure that we
eliminate the causes of current and potential problems: what we will usually find is that
problems we face downstream are caused by upstream activities (as illustrated in
Figure 7), so there is no point at looking at one part of a process – we need to look at the
whole of it.
Of course, the key to success here is to get the teams that will be working these processes to
redesign the future processes. We also need to make sure that we tie these processes in to
people’s and teams’ jobs and responsibilities to ensure that these are absolutely clear. Once

Figure 6 Achievement culture in contrast

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 Figure 7 Typical problems and causes in the value stream

again, the trick is to get a balance between detail and flexibility. When redesigning the
processes the devil is indeed in the detail, but defining the processes to the nth level of detail
reduces its flexibility and extends the redesign time. Trust the people who are doing the job
to deliver the right level of detail. They have to make it work, after all.
In saying this, we also need to accept the fact that we are never going to get this right the first
time. If we wait around until we have developed the perfect organization and the perfect
strategy and the perfect processes we will never change anything. We should be prepared
to implement what we have, review it and refine it as we go.

Systems and resources

All processes must be tooled up with the right resources. When we are negotiating for
resources we must always ask the question ‘‘How is this resource going to impact on the
performance of the process and on the business performance and how much is it going to
cost?’’.
Information and communications systems are just another resource. However, in today’s
modern business environment they are an essential resource. But this does not mean that we
should invest in new information and communication systems without due consideration. It is
important for everyone to understand the potential value and business impact that new
systems are going to have on people and processes. In many cases, with reliable, easy to
use, responsive and flexible information and communication systems support, people at all
levels to do their jobs more efficiently and effectively. Occasionally, I have seen companies
implementing systems, such as ERP systems, just because somebody (usually a consultant
or parent company) told them that that they needed one. If we are not convinced then we
should not do it – it is a waste of everyone’s time and money. But at least we should take the
time to evaluate it properly and understand its potential costs and benefits and make a
judgment based on facts, not on hearsay and gut feel.
It is also important to recognize that many successful transformations have been focused
around the implementation of new systems or other resources. Implementation of new
resources, particularly information and communication systems, is indeed a useful way of
making the change permanent. Once we go live with the new systems and have switched off
the old systems there is little chance of going back. In modern information systems, if you do
not follow the process its effects are immediately felt, so in a way it is a way of enforcing the
change. It is quite legitimate to use the implementation of a new system as a means of
embedding the new organizational structure, processes and rules.

Leadership and performance measures

Leadership and performance measures are the cement that binds all other components
together. We have already said that we need to have the right people in the right positions.
This principle also applies to the leaders of our businesses. A single CEO with his or her
management style can either make or break a business. It is therefore critical that we have
the right people in our leadership teams. In his book, Good to Great, Collins (2001) explains
the traits of five leadership levels as summarized in Figure 8.
When it comes to performance measures, they can also make or break a business. There are
numerous examples where performance measures cause dysfunctional behaviors at all
levels and undermine business results and transformation attempts. What is really needed is

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Figure 8 Traits of effective leaders

a simple but integrated set of performance measures that links stakeholders’ expectations,
and strategies of the value streams, to the processes, teams and individuals within the
organization. Furthermore, the performance measures should provide everybody, from the
CEO down to the shop floor, with accurate, factual and timely information to allow these
people to make decisions on a daily basis.
The measurement system in the organization should be a living and breathing thing. It
should allow us to monitor performance in certain areas, at the same time facilitating
performance improvements in other areas. What we measure and what we do with the
information we get back should be sensitive to business priorities and, where necessary, we
should be able to change these priorities to realign the organization with a new or changed
set of objectives. The trick here is to develop a simple and integrated performance
measurement system first, then we can develop a process that allows us to review, refine
and change the performance measurement system as the business needs, environment and
strategy changes.
It is also worth considering investing in a software platform that would reduce the data
collection, analysis and reporting burden. This will also ensure that the performance
information is at our fingertips when we need it, usually through the web. Again, before we go
down this route we need to know what we want the system to do, how we want to use it and
so on. The comments we have made under ‘‘Systems and resources’’ are equally valid here.

Making it all happen

By now, we know that this is not going to be easy. Each of the components we have
discussed is a sizeable undertaking in its own right. We must accept at the outset that
throughout the transformation project we cannot plan to do anything else. We will have two
things to do:
1. run the day-to-day business; and
2. transform the business.

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 Anything else is going to compete for resources and distract from the transformation effort. It
will be worthwhile to make an inventory of all the projects that are ongoing in the business
and see how many of them can be tackled as part of the transformation project, and how
many need to be either stopped or expedited so that they are completed before the project
begins.
We also need to create a compelling need for transformation. Not everyone is going to say,
‘‘Oh that is great, let’s transform’’. Everyone needs to understand the need for
transformation; they need to understand the threats and the opportunities. Usually, losing
money, threat of closure, loss of customers and profitability are good reasons, but when
things are that bad it may be just too late. If we can, we need start transforming before we
have to. It is much less painful and we have more time.

The leadership team has a critical role in this journey. It is paramount that each and every
individual completely believes and supports what is happening. A common mistake that is
often made is that the leadership team creates a team of individuals, usually hand-picked
from the senior ranks, with the responsibility to transform the business. This is completely
bonkers! If this team is transforming the business then what is the leadership team doing?
And what is everyone else doing?
It should be the leadership team managing and driving the transformation while relying on
some of their competent managers to run the day-to-day business and not the other way
round. We also need to get everyone involved in the transformation journey.

Inevitably, we will need a project manager, sometimes with a small, dedicated project team
to support the leadership team, not to lead the transformation journey.

Figure 9 The business transformation roadmap

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Keywords:
Transformational leadership,
Change management,
Corporate strategy
View publication stats
We did start this article by saying that the objective is to provide the executive with a
high-level roadmap to business transformation. Finally, as a parting shot, we should answer
the question ‘‘Where to start?’’. The answer is that we can really start from anywhere as long
as we deal with all eight components concurrently and iteratively. However, in an ideal world
we would do as shown in Figure 9.
References
Collins, J. (2001), Good to Great, Random House Business Books, London.
Department of Trade and Industry (1995), Factory for the Future, Eureka Project: Factory EU 1005,
Department of Trade and Industry, London.
Hammer, M. (2001), ‘‘The super efficient company’’, Harvard Business Review, September/October.
Martinez, V. and Bititci, U. (2001), ‘‘The value matrix and its evolution’’, in Blackmon, K., Brown, S.,
Cousins, P. and Graves, A. (Eds), What Really Matters in Operations Management, University of Bath,
Bath.
Porter, M.E. (1985), Competitive Advantage – Creating and Sustaining Superior Performance, The Free
Press, New York, NY.
Treacy, M. and Wiersema, F. (1996), The Disciplines of the Market Leaders, Harper Collins, London.
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