Implementing Transformational Change through Strategic Roadmap

Before the financial crisis of 2008, the term “restructuring” was extensively used by small and large firms to define and undertake any organizational change with a perception that change can be realized only through restructuring, and that was the final point of any change. Restructuring was the all-inclusive term used for any change. The disaggregation of change had not developed enough to improve the quality of strategic decision-making. However, the use of the term restructuring, which included downsizing activities, was justified to reduce losses and financially stabilize the firm. Transformational change was not developed during that time to be considered as another option for change. Moreover, senior managers lacked knowledge of the change scope: width and depth of change — they could not estimate the exact scope of work required to deliver the required change for a turnaround. Therefore, the success rate of most change implementation programs was poor. Research indicates that 70% of the restructuring efforts fail. After the financial crisis, novel approaches to change and implementing context-specific change have emerged. This blog article describes how the components of change can be used as building blocks, or phases of the roadmap or change path to implement a context-specific change, to achieve a transformational or realignment change.

Types of Changes

Change management is a complex process, and to manage it, change can be divided into two key categories: transformation and realignment, based on the final results or the desired goals and objectives a firm is pursuing. Realignment and Transformation are described in more detail below:

Realignment

Realignment is a non-transformational change in which the change process does not involve any re-evaluation of the primary assumptions and beliefs held within the organization. However, it involves slight adjustments or tuning to the firm’s strategy, structure, culture, systems, and processes that are built on its business model. Its fundamental purpose is to realign the firm’s strategy with its operating environment. Restructuring and adaptation are components of realignment. When the realignment change is implemented gradually or step-by-step, it is called adaptation. When the change is implemented much faster and suddenly, it is called restructuring or reconstruction.

Transformation

Transformational change is a fundamental change that is hard to implement. There has to be a major reason for transformation, and it should only be undertaken when the firm has exhausted all other strategic alternatives to restore the firm to its competitive position. Managing strategic transformation typically involves redefining the mission, goals and objectives, and strategies that will give the firm a new direction in response to the perceived environmental threats.

Realignment and Transformation can further be subdivided into evolution and adaptation, and revolution and restructuring, respectively, based on the nature of the change desired. The nature of change can be incremental, delivered over the long term (4 to 10 years), or big bang or rapid change delivered in the short to medium term (1 to 3 years). These four types of changes are briefly described below.

Adaptation

Adaptation is a less fundamental change implemented slowly in stages. The firm may not be in financial trouble; however, to resolve companywide other important issues, such as frequent customer complaints, low morale, performance, and corporate social responsibility (CSR), the firm may undertake multi-stage programs over several years to resolve the issues. Examples of companies that delivered adaptations are Nampak Plastics Europe, a manufacturer of plastic milk bottles, and Tesco, a British multinational grocery retailer in Europe.

Restructuring

Restructuring is a forced, reactive, and less fundamental change. It is implemented much faster than adaptation, mostly to realign the firm with its competitive environment, to restore performance. The firm’s weak competitive position causes lower sales and profits, resulting in poor performance. Restructuring can be small or large-scale. Restructuring is implemented in phases such as contraction, consolidation, and growth. Contraction involves reducing the workforce, cutting costs, and selling off assets to reduce losses and financially stabilize the firm. In the consolidation phase, programs are implemented to operationally stabilize the remaining lean organization. To achieve this, plans are developed to reduce overhead costs and improve functional productivity and efficiency. If the company is successful, it focuses on the third phase to grow and become profitable again. Many restructuring programs, such as the ones performed at Air-France KLM, Siemens, ITV, and Delta, were needed to restore performance in a relatively short period, for example.

Evolution

Evolution is a transformational change in which change is implemented gradually through different stages. It’s a proactive transformation in which activities are most likely planned and implemented based on the needs of anticipated future change. Prospectors and analyzers are two basic types of strategically oriented companies that focus on this type of change through innovation and emphasize exploring new market opportunities. Examples are product innovation in the automobile and personal computer industries. From 1890 to 1912, rapid innovation took place in the auto industry. Over time, the product innovation cycle and the industry life cycles have constantly shortened. Patterns of evolution also differ based on the product’s industry and geographical location. Some more popular examples of evolution are Fiat, GE, and British Airways, which have delivered fundamental evolutionary transformational change through cultural change.

Revolution

Revolution is a large-scale transformational change that is implemented rapidly within a short period, typically within 1 to 3 years. Forced reactive transformational measures are undertaken when the firm’s performance is declining because of its competitive environment. The need for this type of transformational change arises when a company determines that it can no longer pursue its old or current strategy and needs a new strategy to fill the strategic gap in performance, and therefore, forces a fundamental change in a short period to accomplish the required change. General Motors (GM) and Kodak attempted revolution at one time, but both got entangled initially in the downward spiral of restructuring. Later, GM realized its mistakes and finally delivered a revolution through innovation in its new car models. Kodak failed to deliver a revolution and finally filed for bankruptcy.

Change Path or Strategic Roadmap to Implement Change

Designing the strategic roadmap or change path to achieve the final results of the change is not only the most important but also the challenging aspect of change, because many organizations cannot differentiate between transformation and realignment. As a result, they cannot determine exactly the category and type of change they require. In fact, there is no clear separating line between realignment and transformation. The final result of change can be placed on a continuum: at one extreme, it is realignment with the less-fundamental shift in goals and business model, and on the other extreme, the change approaches complete transformation that involves a fundamental change in goals and business model.

The first step in managing change is to define the goals or final results (transformation or realignment) of change and the strategic roadmap of change. Then, based on the complexity of the scope of change, the roadmap can be disaggregated into core phases or stages to achieve the final results. The four types of changes (adaptation, restructuring, evolution, and revolution) described above are used as stages or phases, or building blocks to design the strategic roadmap. More phases can be added to the roadmap as desired. Each phase or stage can be further disaggregated into sub-stages or phases.

The process of roadmapping can help to identify the right change phases or stages, and select, sequence, and prioritize the change initiatives. Here, the process of roadmapping focuses on selecting the right types of changes required in terms of these four types, as described above, the sequence of the selected types, and the timing required for each type or phase. The strategic roadmap can be delivered through a single phase or multiple phases, which may involve only an alignment, or transformation, or both realignment and transformation, and their components. The number of phases required in terms of the types of changes, as described above, would be based on the context-related issues the organization is facing. Selecting the right design (nature of change) and roadmap, and the number of phases required is essential when planning for an appropriate change for the organization. Additionally, to manage change, the organization should have skills in strategic management because any roadmap of change is related to the change context. Additionally, the change agents should possess analytical and judgmental skills. When contemplating a change, it is always essential to assess and evaluate whether the final new strategy is about realignment or transformation. Here are some strategic roadmap sequence examples companies have used to implement change:

• Restructuring followed by evolution

British Airways followed a restructuring program between 1981 and 1982. It was only after completing the restructuring in the fall of 1982 that it started focusing on changing the image and culture from a transportation-based company to a customer-based company through an evolutionary transformational change. The phase one restructuring program generated the required money and time to implement phase two of the cultural change of the turnaround.

• Restructuring followed by evolution

In the process of transforming General Electric (GE), and after delivering a series of restructurings, GE CEO Jack Welch realized that a cultural change was also required at GE, and that could not be delivered through restructuring alone. Therefore, he extended the initial transformational change efforts through the 199os with a 10-year program (through evolution) known as “work out.”

• Multiple restructurings followed by revolution

After several unsuccessful restructuring attempts, GM finally realized that it needed a transformational change that could only be delivered through technological innovation (revolutionary transformation) in new car models. As a result, by the end of 2013, GM’s revenues reached new highs.

• A large-scale restructuring program in two phases

This is a large-scale example of a three-year restructuring program delivered in two phases by Air France KLM; however, it was named “Transform 2015” by the company. After suffering through the negative impact of the financial crisis of the Great Recession of 2008-2009, KLM realized that to regain its competitiveness and return to sustainable growth, it needed a transformation. Indeed, this was a two-phase restructuring program. Phase one focused on cost-cutting and downsizing, and phase two focused on structural change to the company.

References and Further Reading

1. Balogun, V. Hope Hailey, and S. Gustafsson, Exploring Strategic Change (United Kingdom: Pearson Education Ltd., 2016), Chapters 1, 2, and 4.
2. Ashok N., Internal Sources of Strategic Transformation: Competitive Advantage through Innovation, A&N Strategy Consulting, August 7, 2018.
3. L. Wheelen & J. D. Hunger, Strategic Management & Business Policy (New Jersey: Prentice Hall, 2000), Chapter 3.
4. L. Wheelen et al., Strategic Management & Business Policy (Malaysia: Pearson Education Ltd., 2018), Chapter 7.
5. M. Grant, Contemporary Strategy Analysis (United Kingdom: John Wiley & Sons, Ltd., 2013), Chapters 8 and 9.
6. Robert G. Cooper and Scott J. Edgett, Product Innovation and Technology Strategy (USA: Product Development Institute Inc., 2009), Chapters 6 & 7.
7. Ashok N., Design and Management of the Transition State of Strategic Change, A&N Strategy Consulting, October 29, 2019.