What is organisational transformation?

Behind the word change lie very different occasions, and each confronts management with different tasks. Four types of change can be distinguished. Crisis management and restructuring deal with an acute crisis and are limited in time. Ongoing optimisation continuously exploits existing potential for improvement. Both remain within the familiar patterns of change.

Deep transformation is also limited in time, but it intervenes in the organisation's established architecture. Foresighted self-renewal is the permanent form. It is meant to avoid emergency operations and prepare the organisation in good time for the unexpected. In these two types the organisation also looks at its previous practice of change. Those who renew in good time gain a time budget that makes a radical transformation less likely.

A changed market situation, entrenched silos or unclear responsibility can provide the impetus. What matters is which changes in strategy, organisation, people, culture and leadership need to be linked.

A transformation becomes necessary when the company recognises that continuing on its current path will sooner or later lead to a strategic imbalance. It reaches deep into the historically grown identity, into logics of success, decision routines, roles and cultural patterns. This creates uncertainty and ties up attention for weeks and months. At the same time, performance must not decline. The rebuild takes place with the engine running.

Technological and digital initiatives can be a trigger or a component, but they are not the same thing. Technological transformation renews IT systems, IT processes and infrastructure. Digital transformation also affects the business model. Both reach into routines, decision paths and responsibilities. Treating them as a purely technically driven, linear project creates considerable acceptance problems during introduction.

Improving existing processes is a different task from shaping future value creation and the conditions for it. In the DVVision programme this distinction was used to work on the group's future direction.

The goals of a far-reaching transformation cannot be achieved through coercion from the hierarchy. It demands sacrifice, commitment and creativity from everyone involved, and none of these can be forced. Management must understand itself as part of the change, because the change of the organisation requires the change of leadership. It starts with a shared answer to the question of which plight needs to be averted.

Conveying this urgency credibly is becoming harder because many organisations are tired of change. An attractive perspective for the future is also needed. The push away from the old and the pull towards the new create the arc of tension that carries the change. The architecture of the initiative follows an inner logic with a fixed sequence of steps, and each step requires certain key decisions. The organisation shifts its expectation from certainty of results to certainty of process. Accompanying reflection is part of it as a steering element.

First the starting situation is understood. Building on this, the relevant fields of action are worked on and the capacity for further development is anchored. Scope and approach depend on the specific organisation.

The group had successfully completed several restructuring programmes and was strongly geared towards cost reduction. Top management recognised that restructuring, efficiency gains and continuous improvement alone do not create a long-term perspective. The programme was made a matter for top management and designed from the outset to run for at least five years. It was less about finding the important topics than about how they are worked on and decided.

Each participating department followed eight steps. The analysis captured the current and desired character of the organisation and the strategic starting situation. In the development phase a vision of the future and a strategy map with the strategic levers were created. Implementation examined and changed structures, introduced new routines and set up monitoring of effectiveness. A handover phase gradually placed responsibility in the line organisation.

Turnarounds and radical cost programmes are often the result of strategic failures in the past. In the following years they are often followed by the next turnaround, because the core of the organisation was not changed. Radical cuts cost a great deal of energy and destroy competences that would be needed for renewal. The more an organisation has optimised and rationalised in the past, the fewer free resources are available for a transformation.

Conversely, transformation is not an end in itself and not a one-off project. It is the path by which an organisation develops, strengthens and permanently anchors its capacity for renewal.

A new structure, a training programme or a strategy presentation can be part of a transformation. On its own, none of these elements changes the patterns by which a company works. The real task is to connect strategy, organisation, people, culture and leadership.

In the DVVision programme, future direction and new communication and decision routines were worked on together. This specific project experience is not a standard roadmap for other companies. But it shows why a change has to arrive in everyday work: people need tasks, scope for decisions and feedback in order to try out new ways of working. A transformation assignment therefore clarifies which patterns should remain, which are renewed and how the company can observe its further development itself.

The four types can be assigned to three levels. First-order change is the continuous, unsteered adaptation that produces dynamic stability. Even perceived rigidity is the result of ongoing small adaptations. Second-order change deals with an occasion using proven routines, in other words with more of the same. At the third level the organisation changes the way it changes. It asks what it learns about itself when it creates such problems and deals with them in this way.

In crisis management and radical restructuring, management must choose the moment at which it names the situation a crisis, and take responsibility for doing so. Any moment can be too early or too late. Under high time pressure, the measures that remove the threat must be initiated: reducing cash outflow, securing liquidity, negotiating with lenders.

Added to this are decisive action in the right places and difficult negotiations with employee representatives. As a rule, such a crisis cannot be overcome with in-house resources. It is therefore important to find a suitable restructuring manager and position them effectively.

Ongoing optimisation requires involving the observations of everyone concerned alongside operational business, testing impulses for usefulness and relevance and implementing the selected ones promptly. The organisation reads the importance of the programme from the seriousness of implementation. Merely giving it a push is not enough.

Transformation first requires a careful analysis of the experiences the organisation has had with previous impositions of this kind. Foresighted self-renewal requires constantly fine-tuning sensitivity to the environment, for example through forms of cooperation with key customers, suppliers and research institutions. Regular occasions evaluate impressions for their strategic relevance, at all levels of the hierarchy. Old routines are consistently replaced by new ones. At the same time, the task remains to do good work in day-to-day business.

Deep transformation is also referred to as genotypic transformation. It requires more than an understanding of the threat. The organisation must be prepared to intervene in its established identity and in structures, processes and routines. It needs the will to endure time pressure and unrest for months. Vertical and horizontal communication creates transparency and ensures that insights and perspectives are shared. Push and pull require a viable leadership constellation.

Viewed soberly, the existing energy of an organisation is directed towards preserving the status quo and established routines. Existing goals and the personal interests of the actors linked to them reinforce this. The first challenge therefore lies in a shared understanding of the problem among all important decision-makers. Without a common picture of what will happen without change, collective efforts cannot be pooled.

The second challenge is dealing with uncertainty. In the initial phase there are no final answers yet to many important questions. Leadership must act even though much only becomes clear along the way. It gains certainty more from the professional design of the process than from premature decisions on content. No change process can be planned. It must remain capable of learning and flexible, which requires accompanying observation and targeted evaluation.

This results in a dramaturgy in five phases. The first creates transparency about the pressure to act. The second develops an attractive perspective for the future. The third specifies the implementation steps, the fourth steers implementation. The fifth evaluates the entire change process. A change of this size is an exceptional occasion for an organisation to learn about itself. If the evaluation is omitted, unpleasant experiences of failure repeat themselves.

Strategy, organisation and people are mutually dependent. They form a triad that must be led together in a transformation. Leadership and culture are further key influencing factors. Each of the five elements makes its own contribution.

Strategy answers the questions of tomorrow. A viable strategy makes it possible to meet market requirements, give employees orientation and secure the company's success in the long term. The organisation determines how small the blind spots remain in observing the environment. This requires cross-functional cooperation on an equal footing and a structure that promotes it. In addition to this networking, a wide range of competences is needed to develop solutions from the information gained.

People is about the shortage of qualified and motivated specialists and managers that exists in many industries. Self-renewal requires a more developed HR management, from recruiting through people development to incentives. What is needed is a good mix of talented new hires from outside and specifically developed talent from within.

Managers are key figures in change processes. They have to decide despite uncertainty, take interactions into account and live up to their role model function, and they are enabled to do so. The lived culture contributes significantly to success. Changes to strategy and structure only succeed if they take the corporate culture into account, because otherwise the workforce will not support them. To do this, a company must know its culture. Changing it is demanding, but can become necessary if it limits the organisation's performance.