{"id":8951,"date":"2021-03-26T06:53:29","date_gmt":"2021-03-26T11:53:29","guid":{"rendered":"https:\/\/flevy.com\/blog\/?p=8951"},"modified":"2021-03-25T06:56:41","modified_gmt":"2021-03-25T11:56:41","slug":"5-critical-success-factors-for-successful-business-transformation","status":"publish","type":"post","link":"https:\/\/flevy.com\/blog\/5-critical-success-factors-for-successful-business-transformation\/","title":{"rendered":"5 Critical Success Factors for Successful Business Transformation"},"content":{"rendered":"<p><img decoding=\"async\" class=\"alignright wp-image-8958\" src=\"https:\/\/flevy.com\/blog\/wp-content\/uploads\/2021\/03\/Stock-image-1-Business-Transformation-CSFs-300x199.jpg\" alt=\"\" width=\"277\" height=\"184\" srcset=\"https:\/\/flevy.com\/blog\/wp-content\/uploads\/2021\/03\/Stock-image-1-Business-Transformation-CSFs-300x199.jpg 300w, https:\/\/flevy.com\/blog\/wp-content\/uploads\/2021\/03\/Stock-image-1-Business-Transformation-CSFs-768x509.jpg 768w, https:\/\/flevy.com\/blog\/wp-content\/uploads\/2021\/03\/Stock-image-1-Business-Transformation-CSFs-1024x678.jpg 1024w\" sizes=\"(max-width: 277px) 100vw, 277px\" \/><a href=\"https:\/\/flevy.com\/browse\/stream\/transformation\">Business Transformations<\/a> have become a necessity in the fast-changing technological and competitive business environment.\u00a0 Transformation is characterized by significant and risk-laden <a href=\"https:\/\/flevy.com\/business-toolkit\/restructuring\">Restructuring<\/a> of a company, with the objective of accomplishing <a href=\"https:\/\/flevy.com\/operational-excellence\">Operational Excellence<\/a> and changing its future course.<\/p>\n<p>Business Transformation is a priority for many top executives but it is usually a reaction to challenging circumstances rather than being a preemptive measure.<\/p>\n<p>Business Transformation is prompted by a combination of 2 situations:<\/p>\n<ul>\n<li>Need to address inherent problems causing organizational drag\u2014these problems may be internal and\/or external.<\/li>\n<li>Aspiration by the top management and other senior stakeholders to seize the occasion of addressing these problems, in ways that deeply alter the Business Model of the organization including <a href=\"https:\/\/flevy.com\/browse\/stream\/value-creation\">Value Creation<\/a>.<\/li>\n<\/ul>\n<p>Business Transformation entails not just making incremental changes but fundamentally changing all or some of the following:<\/p>\n<ul>\n<li>Organizational Structure<\/li>\n<li>Core Product or Service Portfolio<\/li>\n<li>Systems<\/li>\n<li>Processes<\/li>\n<li>People\u2014the way employees work<\/li>\n<li>Technology<\/li>\n<\/ul>\n<p>Undertaking such arduous effort requires approaching the task in a structured way.\u00a0 Research shows that quite a few of such undertakings are based on anecdotal beliefs instead of being based on empirical data.<\/p>\n<p>Countering this trend, the Boston Consulting Group conducted an empirical study of financial and non-financial data-set comprising 300 U.S. public companies.\u00a0 The data spanned a period of 12 years from 2004 to 2016.\u00a0 Selection was based on the following criteria:<\/p>\n<ul>\n<li>Companies that had a $10 billion or more market capitalization between 2004 and 2016.<\/li>\n<li>Of these, companies with an annualized deterioration in <a href=\"https:\/\/flevy.com\/business-toolkit\/total-shareholder-value\">Total Share-holder Return (TSR)<\/a> of 10% or more relative to their industry average (2 years running or more) were identified.<\/li>\n<\/ul>\n<p>Based on extensive analysis\u2014that included use of methodologies like trained proprietary algorithms, prediction models, and Multivariate Regression Analysis\u2014a pattern pertaining to <a href=\"https:\/\/flevy.com\/browse\/stream\/transformation\">Business Transformation<\/a> emerged.\u00a0 The pattern depicted the following themes:<\/p>\n<ol>\n<li>Frequency of Failure<\/li>\n<li>Impact of Digital Disruption<\/li>\n<li>Impact of Downturn<\/li>\n<li>Competitive Volatility<\/li>\n<\/ol>\n<p>The study also suggested the following 5 evidence-based <a href=\"https:\/\/flevy.com\/business-toolkit\/critical-success-factors\">Critical Success Factors (CSFs)<\/a> for achieving Transformation Success.<\/p>\n<ol>\n<li><strong>Cost Management (drives short-term success)<\/strong><\/li>\n<li><strong>Revenue Growth (drives long-term success)<\/strong><\/li>\n<li><strong>Long-term Strategy and R&amp;D Investment<\/strong><\/li>\n<li><strong>New, External Leadership<\/strong><\/li>\n<li><strong>Holistic Transformation Programs<\/strong><\/li>\n<\/ol>\n<p><a href=\"https:\/\/flevy.com\/browse\/flevypro\/business-transformation-success-factors-5561\"><img decoding=\"async\" class=\"aligncenter size-full wp-image-8956\" src=\"https:\/\/flevy.com\/blog\/wp-content\/uploads\/2021\/03\/Slide-deck-image-Business-Transformation-CSFs.png\" alt=\"\" width=\"1002\" height=\"752\" srcset=\"https:\/\/flevy.com\/blog\/wp-content\/uploads\/2021\/03\/Slide-deck-image-Business-Transformation-CSFs.png 1002w, https:\/\/flevy.com\/blog\/wp-content\/uploads\/2021\/03\/Slide-deck-image-Business-Transformation-CSFs-300x225.png 300w, https:\/\/flevy.com\/blog\/wp-content\/uploads\/2021\/03\/Slide-deck-image-Business-Transformation-CSFs-768x576.png 768w\" sizes=\"(max-width: 1002px) 100vw, 1002px\" \/><\/a><\/p>\n<p>Let us examine in a bit more detail some of the CSFs.<\/p>\n<h2><strong>Cost Management <\/strong><\/h2>\n<p>In order to launch the Transformation effort on the correct footing, <a href=\"https:\/\/flevy.com\/business-toolkit\/cost-management\">Cost Management<\/a> is key, in the short term especially. \u00a0Predictably, empirical analysis suggests that the leading driver for organizations recovering from severe TSR deterioration is a determined Cost-cutting effort during the 1<sup>st<\/sup> year of Turnaround.\u00a0 By year 3, Cost Reduction is accountable for the major share of TSR growth as companies divert their portfolios and make available funding for growth investments.<\/p>\n<h2><strong>Revenue Growth<\/strong><\/h2>\n<p>Merely short-term operational improvements do not augur well for a sustainable Transformation.\u00a0 There has to be a long-term <a href=\"https:\/\/flevy.com\/business-toolkit\/growth-strategy-growth\">Growth Strategy<\/a> put in place. \u00a0For this to happen, leaders have to challenge the foundations of the company\u2019s Business Model.<\/p>\n<p>Research divulges that Revenue Growth progressively becomes the driver for TSR recovery after year 1 in all the successful Transformation efforts.\u00a0 Revenue Growth overshadows, by far, all the initial drivers for TSR recovery by year 5 of all successful Turnaround efforts.<\/p>\n<h2><strong>Long-term Strategy and R&amp;D Investment<\/strong><\/h2>\n<p>Turbulent competitive environments, particularly, require long-term <a href=\"https:\/\/flevy.com\/strategic-planning\">Strategic Planning<\/a> and investment in Research and Development for fruitful Business Transformations.\u00a0 Empirical research and analysis demonstrates:<\/p>\n<ul>\n<li>A 4.8% difference between Transforming companies showing above-average long-term strategic direction compared to companies with a below-average orientation.<\/li>\n<li>More pronounced findings in transforming companies operating in turbulent competitive environments\u2014long-term orientation linked with a TSR increase of 7%.<\/li>\n<li>Companies with above-average R&amp;D investments had upwards of 5.1% TSR impact in contrast to those with below-average spending.<\/li>\n<\/ul>\n<p>These CSFs strengthen the odds of success in Business Transformation individually.\u00a0 When used together, most of them produce an impact that is larger than the totality of their individual parts.<\/p>\n<p>Interested in learning more about the <a href=\"https:\/\/flevy.com\/browse\/flevypro\/business-transformation-success-factors-5561\">5 Critical Success Factors for Successful Business Transformation<\/a>?\u00a0 You\u00a0can download\u00a0<a href=\"https:\/\/flevy.com\/browse\/flevypro\/business-transformation-success-factors-5561\">an editable PowerPoint on <strong>5 Critical Success Factors for Successful Business Transformation<\/strong> here\u00a0<\/a>on the\u00a0<a href=\"https:\/\/flevy.com\/browse\">Flevy documents marketplace<\/a>.<\/p>\n<h2>Do You Find Value in This Framework?<\/h2>\n<p>You can download in-depth presentations on this and hundreds of similar business frameworks from the\u00a0<a href=\"https:\/\/flevy.com\/pro\/library\">FlevyPro Library<\/a>.\u00a0\u00a0<a href=\"https:\/\/flevy.com\/pro\">FlevyPro<\/a>\u00a0is trusted and utilized by 1000s of management consultants and corporate executives. Here\u2019s what some have to say:<\/p>\n<blockquote><p>\u201cMy FlevyPro subscription provides me with the most popular frameworks and decks in demand in today\u2019s market.\u00a0 They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions.\u00a0 I strongly recommend FlevyPro to any consultant serious about success.\u201d<\/p>\n<p>\u2013 Bill Branson, Founder at Strategic Business Architects<\/p><\/blockquote>\n<blockquote><p>\u201cAs a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power.\u00a0 For us, it is an invaluable resource to increase our impact and value.\u201d<\/p>\n<p>\u2013 David Coloma, Consulting Area Manager at Cynertia Consulting<\/p><\/blockquote>\n<blockquote><p>\u201cFlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients.\u00a0 In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over!\u00a0 The quality of the decks available allows me to punch way above my weight \u2013 it\u2019s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.\u201d<\/p>\n<p>\u2013 Roderick Cameron, Founding Partner at SGFE Ltd<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>Business Transformations have become a necessity in the fast-changing technological and competitive business environment.\u00a0 Transformation is characterized by significant and risk-laden Restructuring of a company, with the objective of accomplishing Operational Excellence and changing its future course. Business Transformation is a priority for many top executives but it is usually a reaction to challenging circumstances&hellip;&nbsp;<a href=\"https:\/\/flevy.com\/blog\/5-critical-success-factors-for-successful-business-transformation\/\" rel=\"bookmark\"><span class=\"screen-reader-text\">5 Critical Success Factors for Successful Business Transformation<\/span><\/a><\/p>\n","protected":false},"author":110,"featured_media":8958,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"neve_meta_sidebar":"","neve_meta_container":"","neve_meta_enable_content_width":"","neve_meta_content_width":0,"neve_meta_title_alignment":"","neve_meta_author_avatar":"","neve_post_elements_order":"","neve_meta_disable_header":"","neve_meta_disable_footer":"","neve_meta_disable_title":"","footnotes":""},"categories":[82,81],"tags":[2426,2438,1535,2432,15,2437,2440,2439,2430,40,2431,2434,171,1834,2428,1868,2435,2433,2429,27,2427,232,824,2436,1199],"class_list":["post-8951","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-operations","category-strategy","tag-5-critical-success-factors-for-successful-business-transformation","tag-bcg-study","tag-business-transformation","tag-competitive-volatility","tag-cost-management","tag-empirical-analysis","tag-empirical-data","tag-empirical-study","tag-frequency-of-failure","tag-growth-strategy","tag-impact-of-digital-disruption","tag-long-term-strategy","tag-organizational-structure","tag-people","tag-processes","tag-product","tag-rd-investment","tag-revenue-growth","tag-service","tag-strategic-planning","tag-systems","tag-technology","tag-transformation","tag-transformation-programs","tag-value-creation"],"_links":{"self":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/8951","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/users\/110"}],"replies":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/comments?post=8951"}],"version-history":[{"count":9,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/8951\/revisions"}],"predecessor-version":[{"id":8962,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/8951\/revisions\/8962"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media\/8958"}],"wp:attachment":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media?parent=8951"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/categories?post=8951"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/tags?post=8951"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}