22.1 What is organizational transformation?

Company transformation takes many forms and has many banners – turnarounds, revitalization, mergers and acquisitions, outsourcing, etc. – and covers a wide variety of changes. It could be the deliberate modification of formal relationships among organizational components, or redesign of work processes, or delayering and elimination of structural elements through outsourcing, spinning off, selling off, and divesting businesses. Transformation could also include downsizing or re-engineering, but in itself it is a much broader and more inclusive concept. It can include the modification of financial structures (share repurchases, reducing debt/equity ratios, and issuing new shares), market structures (changing product/service portfolio), technological structures (automation), production structures, and organizational structure, and also delocalization (transferring production units to lower-cost locations). It could cover changing the portfolio of existing businesses (selling off unproductive divisions or activities and entering new businesses through acquisition or internal growth, rationalization or spin-offs). Restructuring even goes beyond the confines of the organization itself to embrace other elements of the value chain; it can dramatically affect the organizations of suppliers, customers and other business partners and corporate stakeholders. But in almost every case the basic goal remains the same: fundamentally to transform the ways of conducting business in order to cope with a new, more challenging and more complex environment.

Transformation may be viewed as a three-stage process following a sequence of restructuring, revitalization, and renewal.1 Restructuring, also called the awakening stage, is especially relevant to underperforming firms. The transformation process in these firms often starts with a major downsizing, pruning the product or service portfolio, and overhauling structures and management processes, which help to redefine the firm’s vision and redesign its strategic and core competencies. At the end of this stage, the firm reaches a minimum threshold of profitability that allows it to survive, but this is not enough to restore competitiveness. The focus in the second stage, revitalization, is on improving the firm’s growth and profitability. The effort may include identifying new business opportunities and competencies, as well as strategic alliances to access these opportunities and competencies with the help of others. The third and final stage is renewal, when the firm seeks to be continuously engaged in identifying