GPM First
Chapter 4 of Digital Enterprise Transformation (978-1-4724-4854-5) by Axel Uhl and Lars Alexander Gollenia

Transformation Capability

4

Nils Labusch, Robert Winter and Axel Uhl

 

4.1 Overview

Digitalization can focus on improving operational processes by use of innovative technology, however, the Digital Transformation as it is being discussed in this book causes far-reaching changes across the entire enterprise and eventually can affect the entire value chain of a company.

In order to tackle such structural changes, organizations require the ability to adapt as market and technological conditions change. These skills are different from those required to manage business-as-usual operations. As a matter of fact the experiences of successfully running the business can considerably constrain transformation. Therefore, envisioning, engaging, implementing and leading corporate transformation calls for a specific set of skills. Ultimately it is the experience of knowing how to apply these skills that will support successful transformation into a Digital Enterprise.

Many well-known and successful companies go out of business after a couple of years – others survive by constantly changing their business models, adapting to the market environment, and refreshing their inner structures. Companies survive because they have developed a mature Transformation Capability. Thus, together with the other capabilities presented in the Digital Capability Framework, the Transformation Capability is an important enabler of becoming a digital enterprise. Therefore, we start with a discussion about what a transformation is and how it can be managed. We go on by illustrating how transformation pertains to the company’s performance and what modern transformation management approaches are available.

This is followed by a discussion of how new technologies can help to improve the company’s Transformation Capability. A core issue here is how social media, cloud computing, mobility or big data processing can improve a company’s transformation.

We explain the Digital Capability Maturity Model as it applies to the Transformation Capability. The Maturity Model helps to assess how well the company does concerning the Transformation Capability.

Finally, we provide an illustrative case study of a company that can be regarded as a leader in long-term, fundamental, and successful transformation: IBM. Being born in a merger of three independent companies, one of IBM’s major strategic goals for more than 100 years has been to improve its transformation capability.

Objectives of this chapter:

  1. Analyze ‘Transformation’ as a phenomenon and explain how it can be managed.

  2. Provide an overview of the Digital Capability Maturity Model for the Transformation Capability.

  3. Illustrate a case of a very successful Transformation Capability.

 

 

4.2 Status quo

 

4.2.1 Definition – What is Transformation?

Transformation refers to major changes that are not routine, but fundamental, and that substantially alter an organization’s relationships with its key constituencies. Transformation can involve new value propositions or changes to the structure of the enterprise (Rouse, 2005). Furthermore, transformation may mean providing old value propositions in fundamentally new ways. The transformation concept is also known as ‘business transformation’ (Stiles and Uhl, 2012), ‘organizational transformation’ (Dixon et al., 2010) or ‘enterprise transformation’ (Baba and Rouse, 2006). Transformation addresses radical, enterprise-wide changes and not incremental or local changes.

Transformations are usually conducted within a period of about two years (Romanelli and Tushman, 1994), however, transformations can take longer or, when very well managed, less time. Examples of fundamental transformations are significant changes to the business model, mergers and acquisitions, or introductions and replacements of enterprise IT systems.

Transformations need clear direction. Lahrmann et al. (2012) conducted a study to investigate how transformations need to be managed in order to be successful, and identified three different approaches to transformation management. The Value-Driven Approach was present in 57 percent of the companies examined and is characterized by target-driven planning and comprehensive benefits management. The Un-Governed Approach was present in almost 25 percent of the companies and is characterized by minimal governance of people and technology. The Change Driven Approach was present in 18 percent of the companies and is characterized by sophisticated people and technology governance, holistic change management and commitment to transformation.

The study showed that holistic approaches that cover a wide variety of management disciplines and areas of business transformation, have a greater probability of succeeding.

 

4.2.2 The Case for a Transformation Capability

Without appropriate transformation management making major changes to a complex company is almost impossible. The transformation process is influenced by many parts of the organization as much as the environment (Uhl, 2012). In addition, transformations are rarely limited to a single company, but instead affect the whole value network. But why are companies conducting transformations?

Labusch et al. (2013) based on the work of Rouse (2006) identify four main triggers for transformations: First, the revenue opportunities of emerging markets or new technologies are initiators of transformations. For example, the rise of mobile applications has completely changed some businesses and the value propositions of companies, which has made it necessary to transform processes, technologies and strategy (Basole, 2005). Second, market threats are causing transformations. Faced with the danger of anticipated failure, fundamental changes are necessary. Third, transformation initiatives by main competitors drive transformations. Sometimes, changes in the environment become visible only if a major competitor adapts itself and suddenly performs better or attracts more customers. Finally, internal crisis within the enterprise forces transformation. Examples of crises include eroded performance, steadily declining market performance or cash flow problems.

Transformations involve different stakeholders, disciplines and topic areas and therefore cumulate in a great deal of complexity and uncertainty (Elliot 2011). This difficult environment leads to many failures. Kotter (1995) identified typical reasons for these failures: a sense of urgency is not established, a powerful guiding team does not exist, a vision is not created and/or not communicated, insufficient planning is conducted, improvements are not consolidated, and new approaches are not institutionalized.

Indeed, many transformations still miss the mark. Ward and Uhl (2012) find that almost 30 percent of transformations fail while only 30 percent are considered a full success. Therefore, even if much research has already been conducted, the topic still requires new and innovative approaches in order to increase the overall success rate.

 

4.2.3 Related Work

Different approaches exist in order to support transformations. The Business Transformation Management Methodology (BTM2) for instance comprises four transformation phases (envision, engage, transform, and optimize) and integrates discipline-specific technical and methodological expertise from several areas. BTM2 provides a base to integrate contributions from management disciplines as diverse as strategy, value, risk, IT transformation, program and project, change, process, and competency management. While strategy, value, and risk management set the course for business transformation, other disciplines enable the transformation process. The discipline of Meta Management is put in place for orchestrating the various work streams (Stiles and Uhl, 2012).

Another prevalent approach, developed at the Massachusetts Institute of Technology (MIT), is the Enterprise Strategic Analysis for Transformation (ESAT), an integrated, analytical framework for diagnosing and improving overall enterprise performance. Similar to BTM2 it includes an understanding of the enterprise value streams and considers value flows between key stakeholders and the enterprise. The ESAT framework further aims at setting up appropriate governance as much as designing an actionable transformation plan. The development of the method was strongly influenced by the defense sector, for example, Boeing and Lockheed. Another publicly available approach, which is mostly driven by the Canadian government, is the Business Transformation Enablement Program (BTEP). This approach is structured as a circle with eight steps that claim to cover the entire transformation. However, as opposed to BTM2, the approach does not explicitly provide guidance on how to integrate existing specific management disciplines.

A related discipline to transformation management is enterprise architecture management (Winter et al., 2013). Enterprise architects and transformation managers share many important skills, deal with many common artifacts, use many similar techniques and tools, have some common users and stakeholders, are both concerned with transformation, and are both involved in change projects. However, differences exist with regard to the prioritization of the necessary skillsets and prioritization of activities the two disciplines need or conduct.

In conclusion, existing literature provides some guidance on how to transform organizations and how to measure transformation readiness, however, it neglects the latest impacts of modern and game-changing technologies and it usually lacks a holistic perspective or fails to sufficiently integrate specific management disciplines.

 

4.2.4 Successful Transformation as a Performance Driver

Being successful in conducting transformations is very important for the performance of the company. In the worst case, if transformation management is non-existent or wrongly conducted, the company may fail.

It is dangerous to manage transformation by looking only at financial figures. Many factors that are relevant during transformation have an effect on performance in the long run, but not in the short run. Keller and Price (2011) emphasize this issue by calling the company’s ability to align, execute and renew itself faster than its competitors ‘organizational health’. Health is positioned next to financial performance, which is important in order to satisfy stakeholder groups such as shareholders. Robust health should, however, also be maintained in order to stay competitive in the long run. Studies show that good health (and thus a strong transformation capability) also has a significant impact on financial figures like EBITDA. For example, companies in the top quartile of organizational health are 2.2 times more likely than lower-quartile companies to have an above median EBITDA (Keller and Price, 2011).

 

4.3 Today’s and Tomorrow’s Technologies as a Transformation Enabler

Modern technologies such as social media, big data, cloud and mobility should be applied to leverage the Transformation Capability. According to BTM2, Transformations can be broadly distinguished into four phases (Stiles and Uhl, 2012): 1) envision (create a case for change and sense of urgency), 2) engage (empower people to act on the vision and plan the effort), 3) transform (change behavior, processes, technology, culture and values) and 4) optimize (internalize, institutionalize and optimize transformation, create stability). Table 4.1 illustrates how modern technologies can be leveraged during these different phases.

 
Table 4.1 Modern Technologies in the context of the Transformation Capability

graphics/tab4_1.jpg

 

4.3.1 Envision

Social Media

During the envision phase it is important to create a sense of urgency and to make everybody understand that the transformation is necessary. This can be achieved by applying the principles for social media campaigns (David, n.d.):

  • Make it personal – try to explain the transformation in a way that addresses the people being affected personally and not in a generic manner. Try to look at it from the point of view of the transformation stakeholder: What does the transformation mean to him/her?

  • Make it frequent – vary the message but send it often. Explain the transformation whenever possible.

  • Create a sense of urgency – include an urgent call for action. Make it clear that the company needs to be among the first to catch up. If the company is the last in a market undergoing transformation, failure is very likely.

  • Encourage sharing – ask colleagues to share their posts and discussions with colleagues – and colleagues of colleagues. Do not forget to share and retweet or repost their thoughts on the transformation (especially, of course, if these posts can help promote the transformation).

  • Make it remarkable – describe the transformation in a way that is special.

  • Do some research – try to figure out the right times to communicate the transformation. You should be able to react to posts and hit people in the right mood. Thus, would it make sense to start communicating the transformation the day before Christmas? Probably not.

  • Budget – keep in mind that social media marketing is not free and professional results need a professional budget.

 

 

4.3.2 Engage

Social Media

During the engage and transform phases, social media in particular can be used to collect feedback and to explain the transformation again and again. Social media allows everyone to post their thoughts about the transformation, and directly communicate with many other people. While some managers would consider this as a high risk, we see it differently: It allows issues to be openly addressed.

Big Data

Big data allows the processing of all the data that can be collected from sensors, social media platforms, tweets, and so on. Thus, it is a package of technology that can prove especially useful in the engage phase.

Companies nowadays have the chance to collect lots of data to prepare their transformation, however, this data needs to be processed and analyzed. Consider an energy company that can predict power consumption by using 350 billion meter readings from 20 million households; or an insurance company that settles legitimate claims 70 times faster than competitors (Bhambhri, 2012).

Thus, big data can be used extensively to keep the most important transformation stakeholder in mind: the customer. Big data analytics help to predict and analyze customers’ needs and their behavior after the transformation.

Cloud

The usage of cloud services can leverage digital transformations especially in the engage, transform and optimize phases.

During the engage phase, the cloud can be used to provide quick insights into new technologies and allow the company to assess the possibilities of modern technology. Thus, the cloud is an important tool in order to set the vision. For example, if an insurance company plans to set up a modern web platform to sell and configure its products, cloud services can be used to present a first mock-up.

Mobility

The term ‘mobility’ summarizes the availability of manifold technologies such as tablets or smart phones that allow users to work from everywhere at any time. This has impacts on the management of transformations in terms of challenges and opportunities.

Formerly, special action was required in the ‘envision’ and ‘engage’ phases to communicate the necessity of change and the path that should be followed. In order to address many employees, central road shows, meetings etc. have been used. In a world of mobility, transformation managers need to consider that employees are not necessarily available at their office location but can be traveling anywhere in the world or in their home office. In consequence, transformation managers need to use mobile technology to communicate the transformation to all the employees in their home offices and around the world.

In order to plan the transformation, depending on the business model, mobile technology can provide valuable information. For example, assume a logistics company wants to start a digital transformation and needs to become aware of their most important routes and the challenges for truck drivers. In the past they would have had just a rough idea of the trucks’ locations and the current road situation. With mobile devices in place, it is now easy to track and collect the required information. Such information helps to identify the key challenges of the business and to integrate them into the transformation plans.

 

4.3.3 Transform

Cloud

Cloud services can reveal most of their potential during the transform phase. In this phase, uncertainty needs to be governed and the cloud can be used to govern this uncertainty in manifold ways (following paragraphs based on Labusch (2011)). If for example, the company is less experienced in certain technologies and is not aware of technical design requirements, cloud computing is a governance mechanism for this kind of uncertainty. Because of its flexibility, users can change very quickly to other technologies and adopt these (Böhm et al., 2011).

Very often, the resources that will be needed during a digital transformation are hard to predict. For this problem, cloud technology can offer the perfect solution due to its flexible, demand-driven price model: you pay for what you consume. The general concept of cloud computing assumes an almost unlimited availability of resources on the provider side and a level of high flexibility for the client (Böhm et al., 2011). Switching from one provider to another is considered to be easy if standard interfaces are used (Youseff et al., 2008).

Cloud computing can also prevent the transformation initiative from vendor lock-in. If standards are used to connect the cloud service provider, it no longer matters which vendor provides the service in the background (assuming that multiple vendors provide the same quality of service and data security).

Mobility

Mobility also affects the transform phase. Managers need to change many routines and cultural aspects of the company. Mobile devices can provide new ways to foster this change for example, by working with gamification which means motivating people to do certain things by making use of their natural desire to play. Consider for example the Nike Plus running app that makes you go running by allowing you to earn cheers from your friends on Facebook, and provides reminders and motivation to move (Alba, 2012). Another example is RedCritter Tracker, where employees earn points whenever they finish work packages on a project. When transformation managers are able to incorporate such new approaches for motivating transformation stakeholders, the likelihood of a successful transformation increases significantly.

 

4.3.4 Optimize

Social Media

During the optimization phase, social media could be used to collect ongoing issues and optimization potentials. Thus it can be used as a corporate history of transformation experiences.

Cloud

In the optimization phase of a transformation, the cloud can be used to refine processes and reduce costs. For example, one could think about sourcing not only applications from the cloud but whole processes (referred to as ‘business process as a service’ – ‘BPaaS’).

 

4.4 The Transformation Capability Maturity Model

It is essential to mention that on no account should the digital transformation be limited only to the topic of IT transformation. Without addressing the business site and the identification of their business needs and capabilities digitalization might be doomed to failure. Therefore, we propose to consider the topic of Transformation Capability from a far more holistic perspective. We propose using the Transformation Capability Maturity Model to assess the level of companies’ transformational abilities. For setting up a holistic assessment model we used nine BTM2 management disciplines as outlined in Chapter 2. In Table 4.2 we set out the essential skills and experience with respect to Transformation Capability. For better comprehension we compare the weakest level 1 (initial state) with the highest level 5 (excellence in Transformation Capability).

 
Table 4.2 Outline of the Transformation Capability Maturity Model (contrast between a low vs. high maturity level

Discipline

Level 1 – Initial

Level 5 – Excellence

Meta Management

  • Culture that is completely against transformations

  • Employees do not understand the need to transform

  • Management does not support initiatives to improve the transformation capability

  • Leaders are neither educated nor interested in guiding transformation activities

 

  • The corporate culture considers transformation as its strategic objective that ensures the future competitiveness of the company

  • Being a Thought Leader in transformation is key to the company’s activities

  • Best practices in learning and sharing transformation knowledge from inside as well as outside

  • Leaders are engaged directly; they are open to external and internal feedback

  • Employees and leaders have a continuous dialog in a team-based culture about the manifold transformation activities

 

Strategy Management

  • Transformation Capability plays no role in the corporate vision

  • Transformation Capability is not taken into account while changing business model

  • Transformation strategies might be developed, but ‘stay in the drawer’

 

  • Transformation is considered a key element of the corporate vision

  • Transformation Capability as a core competence when changing the business model

  • Strategic transformation projects are set up with partners in order to improve transformation capability across the entire value chain

  • The execution of the transformation strategy includes key partners, suppliers and customers

 

Value Management

  • Companies do not plan and execute value realization measures

  • No defined responsibilities for value realization and baselines

  • Lack of value measurement tools

  • The benefits of a transformation remain unknown

 

  • Value identification for transformation initiatives is considered a company KPI

  • Planning of value realization is a standard procedure within the company or ecosystem

  • Framework for measuring quantitative and qualitative benefits of the transformation initiatives is defined and mandatory for all transformation initiatives

 

Risk Management

  • Transformations are run without any consideration of potential risks

  • Lack of risk mitigation strategies for transformation initiatives

 

  • Risk is considered a strategic topic and well- discussed by top management

  • Formal risk planning for strategic and operational risks is in place

  • Top management is involved in order to plan mitigations for strategic risks

  • Risk mitigation is executed on strategic as well as on operational levels

 

Business Process Management

  • Processes run in silos and no governance or ownership is in place

  • No up-to-date, formal process documentation, no standards and process management knowledge

  • Lack of process optimization measures – unrecognized issues and process inefficiencies

 

  • There are company- and eco-system-wide process management established for supporting the transformation initiatives

  • The application of process management methods is mandatory for all transformation initiatives

  • Process improvements focus on quality

  • Processes are highly automated and quantitatively monitored

 

Transformational IT Management

  • Analytic requirements and data quality are not considered for transformation initiatives

  • Many silo applications, no reference architecture model

  • No application lifecycle management is connected to the transformation programs

 

  • Analytics are used for unstructured and semi-structured data

  • Data sources are integrated into the transformation processes and security levels for transformation programs are defined

  • Implementing new technologies like cloud technology or social media in order to communicate the transformation efforts

 

Organizational Change Management

  • Stakeholders are not identified and no stakeholder analysis is conducted

  • Communication needs are not analyzed

 

  • Detailed understanding of change impacts and the communication needs are analyzed for all relevant stakeholder groups

  • Professional organizational change management planning is an integral part of all transformation initiatives across the entire business ecosystem

 

Competence and Training Management

  • Training needs are not directly associated with the transformation initiative

  • Educational activities are not coordinated or aligned

  • No training for the transformation is provided and conducted

 

  • Excellent understanding of the required skills

  • Curricula are differentiated between stakeholder groups

  • Participation in trainings is mandatory for all affected employees and leaders track progress

  • The evaluation assesses whether training results are transferred to daily work

 

Program and Project Management

  • No program and project management frameworks are applied

  • Transformation initiatives are not managed as a program or not even as a project

 

  • Methods and tools for program and project management are in place company-wide

  • The organization structure for program and project management is in place and is seen as a career opportunity

  • Communication and knowledge exchange is fostered between the different projects

  • All transformation initiatives in the company are integrated across the company; inter-dependencies between different transformations are managed

 

The Transformation Capability Maturity Model is based on the assumption that the maturity increases if a company considers the following aspects:

  • Developing the transformation strategy is considered as one of the most important top management activities;

  • Transformation is not restricted to IT and the business is strongly involved in transformation activities;

  • Benefits of the transformation efforts are continuously managed and measured;

  • Transformation governance, methods, tools and processes are in place;

  • Strategic transformation projects are set up with partners across the entire value chain.

 

Companies which resolve to undertake the digital journey place greater emphasis on excellence in Transformation Capability. They consider it as a holistic approach that connects all relevant management disciplines and coordinates them. Moreover, these companies maintain a strong relationship to their business network and include their customers and business partners in the transformation endeavor.

 

4.5 Case Study: IBM – Mastering a Fundamental Transformation Journey

The International Business Machines Corporation (IBM) as a long standing, well-known global brand is our lighthouse-example for Transformation Capability. The company emerged from a transformation (merger of three companies) and has reinvented its business model many times. This chain of re-invention allows the company to continue to be successful – in contrast to most of its competitors, many of whom have gone out of business. Transformation is one of the most important components of IBM’s business model. Since 2000, the company has acquired more than 140 companies in order to increase its portfolio of products and offerings. In 2012 IBM’s revenue was $104.50 billion with more than 430,000 employees (IBM, 2012).

We have prepared this case study based on publicly available material that we identified during an extensive literature review. IBM’s transformation journey is used to illustrate the Transformation Capability of the Digital Capability Framework.

 

4.5.1 IBM’s Transformation Journey

As a result of a merger of three companies, IBM was founded in 1911 as a ‘computer tabulating recording company’ (the journey section is based on Wikipedia (2013)). The three companies manufactured a wide range of products, including employee time-keeping systems, weighing scales, automatic meat slicers, coffee grinders, and punched card equipment. IBM then had approximately 1,300 employees.

The CEO at that time fostered effective business tactics: sales incentives, a focus on customer service as well as a company culture of pride and loyalty in every worker. As the sales force grew into a highly professional and knowledgeable arm of the company, the CEO focused their attention on providing large-scale, custom-built tabulating solutions for businesses. He also pointed out the importance of customer orientation – a paradigm that is still in place at IBM today. The name IBM was established in 1924.

Much later, in the 1950s, the company needed to undergo change again. During the two World Wars, much funding was generated by government military contracts. However, peacetime required changes. The company and the environment were in a phase of rapid technological change – electronic computers, magnetic tape storage, and programming were introduced at this time. The CEO at that time reacted to the challenges by rapidly adapting the structure of the organization and by creating a modern management structure that allowed better oversight of the company. He codified the well-known, but so far unwritten, practices and philosophy into explicit corporate guidance.

IBM has frequently changed its business model and divested itself of elements that were no longer considered to be its core business. As an example, its clock production operation was sold in 1958, after 70 years of building clocks and clock equipment. In addition, IBM invested in engineering and developing new products. Even in the Great Depression, the company did not lay off personnel, but instead continued hiring. IBM always provided benefits to employees that were uncommon in those times, such as group life insurance and paid vacations.

In 1969 IBM needed to conduct another huge transformation – unbundling software and service from hardware sales. Until then, software and services (for example, systems engineering, training, and system installation) were included in the hardware leasing rates. The driver for this transformation was antitrust inquiries resulting from IBM’s high market share during this time.

In 1981 the era of the personal computer began, and IBM launched the IBM PC that became the market standard for decades. Even if it was not spectacular compared to what competitors could offer, IBM managed to combine the most desirable features into one small machine. It was not cheap, but it was affordable for businesses compared to other computing machines at that time. IBM changed its internal strategy of producing most parts internally by outsourcing major components to Intel or Microsoft.

Nevertheless, by the late 1980s IBM found itself in trouble. The organization (at that time comprising 400,000 employees) was overly complex; processes were inefficient and core products were under price pressure. People started to buy smaller servers instead of mainframes. Thus, purchasing decisions in customer companies were made by different people than before. No longer were mainframe experts talking to IBM sales clerks but instead IBM was talking to business people – a group of customers with whom IBM did not have good relations. As a consequence, the company adjusted its structure to more vertical lines and to business units with strong leaders in order to compete in the different market segments – for example, network components (competitor Novell), microprocessors (competitor Intel) or disk drives (competitor Seagate). Again, IBM disposed of parts of the company that were no longer considered to be core business (for example, printers or typewriters).

Still, IBM struggled and many jobs were lost. In 1993 a new CEO took the helm and transformed the company again. He continued shrinking the workforce (down to 220,000), sold parts of the company and recognized that one of IBM’s important strengths was providing integrated solutions. Thus, he revised the decision to implement independent business units. One year later, the company was profitable again. A global services business was created, that quickly became a leading technology integrator. In 2002 IBM increased the service business significantly by acquiring the consultancy division of PricewaterhouseCoopers.

As a parallel strategic move, IBM heavily invested in software, especially focusing on middleware products and even embracing the brand-new open source development movement.

 

4.5.2 IBM as an Example of an Excellent Transformation Capability

IBM is oftentimes considered as THE example of continuous transformation excellence. This can be attributed to the transformation-savvy structure, culture and behavior that emerged during recent decades and still evolve today.

We conducted an assessment using the Transformation Capability Maturity Model for IBM based on accessible company data. Figure 4.1 summarizes this assessment which revealed that all knowledge areas are rated as excellent except the ones where we did not find enough background information.

 
Figure 4.1 Results of the maturity assessment for Transformation Capability at IBM

graphics/fig4_1.jpg

Meta Management

At IBM transformations are not managed somewhere and somehow, but instead the transformation management unit reports directly to the CEO. Its current (2014) head, Linda Sanford, is a senior vice president (Center for CIO Leadership, n.d.). From her point of view, strong governance models need to be established in order to overcome silo structures, however, establishing such structures sometimes requires trial and error. IBM is aware that such structures need to be changed from time to time and no transformation leader should be afraid to conduct this change (Sanford, 2010).

In addition, IBM has noted that leaders who are keen on transformation need to be available at all hierarchical levels. In particular, the company has used social networking skills in order to leverage the transformation strategy all over the world-wide business ecosystem. Leadership principles have been established that include thinking in terms of systems and patterns, the ability to handle uncertainty with optimism, openness to different cultures, meaningful collaboration, and a spirit of restless reinvention (Sanford, 2010).

Technology is used to manage the transformations: IBM is running one of the largest private cloud environments in the world. It is mostly used to run manifold analytics that consolidate information from nearly one hundred different information warehouses and data stores, providing IBM teams with analytics that rapidly deliver solutions to clients. Because of the cloud environment, the company expects to realize tens of millions in savings over five years. IBM aimed to have 80 percent of its internal development test activities supported by the cloud by 2010. Optimized IT also delivers substantial cost savings that can be reinvested to further the transformation process. So far, IBM’s transformation efforts have been funded in part by the more than $1 billion in IT savings that were gained over the past four years (IBM, 2012).

Strategy Management

IBM has managed to establish goals and visions of transformation and was able to rebuild its internal structure or change its business model (for example, from hardware sales to services and software). Currently the company aims at progressing in markets like Shanghai that grow much faster than traditional markets (Sanford, 2010).

In addition, the company has understood that moving into the future is not only about understanding what needs to be added and invented, but also in which areas they need to divest. Businesses that no longer fit the strategy are discontinued, like the sale of the ThinkPad business to Lenovo. The company claims that without doing so it would be larger – but at the same time less client-oriented and less productive. On the invention side, the company fosters organic investments and growth by acquisitions in higher value segments such as business analytics and cloud computing (IBM, 2012).

In order to be a customer-centric company, IBM has large parts of its workforce directly working at customer sites. Thus, the workforce is highly mobile. Mobility solutions are therefore also supporting IBM’s transformation efforts. The company addresses these different needs by providing internal app stores and the possibility to integrate employees’ own devices in the corporate infrastructure (Sávio, 2012).

In summary, the strategy focuses on providing a good client experience and this goal is key to all transformation initiatives in the company. The transformation is grounded in the strategy – it is not something done off to the side (Center for CIO Leadership, n.d.).

Value Management

As far as investor relations allow, IBM is measuring the success of its business model and the corresponding benefits over the long term, not in any individual quarter or year. The company’s strategies, investments, and actions are all taken with the objective of optimizing long-term performance. The financial benefits of the transformation initiatives are reinvested in initiatives that foster higher growth or higher margins, such as business analytics and cloud computing in addition to improving profitability (IBM, 2012).

By integrating major functions, the quality and efficiency of processes have been improved. The recent economic crisis could be successfully managed. In summary, IBM achieved more than $8 billion in productivity improvements during recent years. This has contributed to earnings-per-share gains (Center for CIO Leadership, n.d.).

Risk Management

IBM has established an enterprise risk management that involves all stakeholders in the company, all the way up to senior management teams. Risk management is seen as an indicator of good corporate governance. Thus, IBM established strategic decisions with an explicit consideration of underlying risks. Part of the enterprise risk management is also to take advantage of experiences that occurr elsewhere in the company. In consequence, risk is not managed in silos (for example, country by country), but holistically. This was achieved by creating a structured risk management methodology and by integrating risk management into all processes (Mattathil, 2011).

Business Process Management

IBM manages and optimizes its processes continuously. As many processes as possible are centralized, for example, IT, human resources, finance, supply chain, marketing and communications, real estate, legal and sales operations. The company has realized $4.2 billion in spending reductions through shared services (Sanford, 2010). The strategic goal was to become a globally integrated company by implementing a consistent set of processes and standards worldwide in order to reduce inefficiencies and to improve collaboration. The company fully standardized its major processes and was able to introduce a new operating model with global resource centers of excellence where they made most sense from a business point of view. This included a shift of resources towards building client relationships and employee skills while positioning the company for new market opportunities (IBM, 2012). In order to realize this goal, technology needed to be used in such a way as to have the information flow seamlessly all over the world (Center for CIO Leadership, n.d.).

One of the principles behind optimizing the processes is radical simplification. For example, the ‘opportunity to order’ process took much too long from the sales peoples’ point of view. The company simplified and optimized the process in order to save about five hours for each seller. During these simplification efforts, it was important to simplify from the view of the user – not from the view of the process owner (Sanford, 2010).

Transformational IT Management

As an IT company, IBM is using technology everywhere. Therefore, the CIO and her team are critical to the company. They are considered agents of change and a well-managed technology landscape is considered to be a big business enabler. It is considered critical that the CIO actively cooperates with other C-level members in order to keep the transformation running. IBM does not just consider its CIO responsible for keeping the data center running. The best CIOs are recognized as business experts as well as technology experts (Center for CIO Leadership, n.d.).

IT architecture-wise, IBM is integrating its business applications horizontally all over the world. The goal is integration across the whole enterprise on a common platform – the SAP Business Suite. This has already allowed IBM to get rid of 900 legacy applications and create major cost savings accordingly (Center for CIO Leadership, n.d.). Apart from that, IBM has simplified and standardized further applications, which in total lead to a downsizing from 15,000 to 4,500 applications – a further reduction by 800 is planned (Center for CIO Leadership, n.d.).

Organizational Change Management

IBM has understood that employees need to be convinced to join the transformation journey. In some situations this is easy: Back in the early 1990s, when IBM was fighting for survival, everyone understood that fast transformation was necessary if the company was to be saved. But even when times are good, the best companies continue to reinvent themselves. This is because IT technology, capabilities and requirements as well as market dynamics are always changing. A famous quote at IBM is ‘change is part of IBM’s DNA.’ According to the company, businesses today are not in a position to choose the technologies they will embrace or ignore. The choice is simple: get on board or get run over (Center for CIO Leadership, n.d.).

In order to create employee buy-in to transformation, different actions can be taken. IBM conducted world-wide online meetings, called ‘jams’, across the entire company on questions like what are IBM’s most basic values. The event took three days, but it was able to bring an impetus to the company that still lasts today. These ‘jams’ continue to be conducted in transformations and used in order to develop new ideas (Sanford, 2010).

In terms of human resource management, IBM was an early adapter of diversity principles and practices. The company added sexual orientation to its non-discrimination practices in 1984, created executive diversity task forces in 1995, and offered domestic partner benefits to its employees in 1996. The company is often listed among the best places for employees, employees of color, and women to work (Wikipedia, 2013).

Competence and Training Management

Managing training needs and skills is considered very important in the company. Due to the mode of transformation, IBM needs to remix and deepen its expertise constantly. For example, the strategy of focusing on analytics was underlined by hiring more than 8,100 experts with skills in that area (IBM, 2012).

Social media has been used at IBM for a long time. When social media began it was discussed for some time whether using social media at work should be allowed for IBM employees. Finally, the decision was clearly taken that social media should be allowed in order to have people trained in its usage. Back in 2006, the company invited its employees to help write the guidelines for blogging. By collaborating on those guidelines and creating what is called the Digital IBMer, the company demonstrated commitment to sharing expertise with clients and helping them create positive outcomes (Center for CIO Leadership n.d.). This helps IBM to stay in contact with all relevant stakeholders during the transformation effort.

Program and Project Management

IBM changed into a process and project oriented organization more than 15 years ago. It introduced one common standard based on the PMBOK (PMI, 2008) in order to standardize and simplify communications, tools, formats and techniques and to not reinvent things over and over. Furthermore, qualified project managers are assigned to all projects and project performance is measured. Project managers are embedded in a project management community that includes mentoring, teaching and the exchange of best practices (IBM, 2011).

The amount of data in an organization like IBM is gigantic – it is big data. In order to make appropriate decisions in a transformation and utilize the data for project management, it needs to be analyzed comparably fast, so that it can be used effectively. In order to become a smarter enterprise, IBM acknowledged that they need to figure out how to turn the information into insight – in order to take faster and smarter decisions (IBM, 2012).

For example, IBM uses technology for staffing transformation-related projects by matching job profiles of the open position with non-structured data from job postings and résumés. This enables the company to avoid under-utilized personnel and provide better client value faster. The measure of unassigned resources has dropped from 8 percent to 3 percent since this system was put in place. The productivity measured by billable utilization has improved by 18 percent. In addition, the analytical tool set is used for external perspectives on the transformation. For example, math experts from the research section are working on analytical processes to better understand and leverage the market environment (IBM, 2012). In addition, IBM used analytics to optimize the grouping of customers and sales areas and thus to sharpen the goal of the transformation (Mattathil, 2011).

 

4.6 Conclusions

The Transformation Capability is somewhat special since it both requires all other capabilities to succeed – and is also needed by these others to succeed. Thus, the importance of the capability depends on the context of the digitalization. Are there immediate business needs or, rather, long-term opportunities? Is there a sense of urgency, and a Transformation Capability needs to be established rapidly, or is the capability already sufficiently mature?

In order to build the Transformation Capability companies need to change their structure and incentive systems. The IBM case illustrated that a company that learns to gear all its benefits and incentive systems towards transformation learns how to successfully use this difficult but important capability. Here, the establishment of centers of excellence for transformation and the positioning of transformation at the top of the company hierarchy are key to success. While the broad inclusion of stakeholders into transformation is always difficult, current technologies help to deal these with challenges: big data in order to learn about the affected customers, cloud technology to govern risks, mobility and social media to communicate and collect immediate feedback.

But is this appropriate for every stakeholder? Very likely it is not. Thus, transformation managers need to consider the different stakeholder groups in different ways. For instance, this can be done by addressing different age groups in a different manner. It seems to be a good idea to have social media in place, but also being able to communicate the core of the transformation via more traditional media.

The transformation teams themselves should leverage diversity. Younger employees who want to learn and start their careers should be joined by experienced employees across various disciplinary backgrounds. The infamous business vs. IT conflict should be avoided by any means. Mixed teams are also very important in order to communicate the transformation needs across the entire company and to spread the sense of urgency for the transformation.

The presented Digital Capability Framework and in particular the Transformation Capability Maturity Model provide a holistic assessment and a starting point for identifying gaps in a company’s Transformation Capability. It helps to plan a development path for the capability and is thus a major part of the overall move towards a digitalized company.

Notes

[2] Social merchandising efforts focus on driving momentum and engagement for specific product rather than driving conversation about the brand in general.

[3] Collaborative consumption is a class of economic arrangements in which participants share access to products or services, rather than having individual ownership.

[4] See http://www.duolingo.com, last accessed 14 July 2014.

[5] For example, Google bought the free GPS navigation app Waze and plans to offer a comparison site for car insurance.

[6] See Digital Transformation Roadmap, this chapter for more information.

[7] Organizations embody socio-behavioral systems, i.e. human element, and technical systems, work operations and technological elements.

[8] Competences differ from capabilities in that an organization’s competence refer to its capacity to deploy resources, typically in combination with organizational processes, to effect a desired end, while capabilities refers to the firm’s ability to carry out a set of coordinated tasks, using organizational resources to achieve a particular end result (Ashurst, Doherty and Peppard, 2008).

[9] Examples from large companies can be accessed at http://socialmediagovernance.com/policies/.

[10] Accessed via Geo-Tag location feature on Instagram, e.g. ‘Googleplex’, ‘Google Glass Basecamp’.

[11] Based on Google’s Creative Sandbox and Think With Google case studies (sourced http://thinkwithgoogle.com) and content analysis of posts on Google+ (https://plus.google.com/+ThinkwithGoogle/posts).

References

82 

Alba, D. (2012) Top 10 Gamification Apps | Motivate Yourself and Your Workers. http://blog.laptopmag.com/top-10-gamification-apps, last accessed 15 October 2013.

83 

Baba, M.L. and Rouse, W.B. (2006) Enterprise transformation. Communications of the ACM, 49(7), p. 66.

84 

Basole, R. (2005) Transforming enterprises through mobile applications: a multi-phase framework. AMCIS. pp. 1935–1939.

85 

Bhambhri, A.(2012)Howtousebigdatatotransformyourcompany – SmartPlanet. http://www.smartplanet.com/blog/smarter-ideas-insights/how-to-use-big-data-to-transform-your-company/, last accessed 15 October 2013.

86 

Böhm, M. et al. (2011) Cloud Computing – Outsourcing 2.0 or a new Business Model for IT Provisioning? In Application Management, edited by F. Keuper, C. Oecking and A. Degenhardt. Wiesbaden: Gabler, pp. 31–56.

87 

Center for CIO Leadership, IBM Senior Vice President Linda Sanford Describes the Company’s Transformation of Systems, Products and Processes | Center for CIO Leadership. http://centerforcioleadership.com/?p=400, last accessed 7 July 2014.

88 

David, E. 7 Agency Secrets to Powerful Social Media Marketing Campaigns. http://www.adherecreative.com/blog/bid/152032/7-, last accessed 16 October 2013.

89 

Dixon, S.E.A., Meyer, K.E. and Day, M. (2010) Stages of Organizational Transformation in Transition Economies: A Dynamic Capabilities Approach. Journal of Management Studies, 47(3), pp. 416–436.

90 

Elliot, S. (2011) Transdisciplinary Perspectives on Environmental Sustainability: A Resource Base and Framework for IT-enabled Business Transformation. MIS Quarterly, 35(1), pp. 197–236.

91 

IBM (2012) Annual Report, Armonk, New York.

92 

IBM (2011) IBM: Keys to Building a Successful Enterprise Project Management Office, Armonk, New York.

93 

Keller, S. and Price, C. (2011) Beyond Performance: How Great Organizations Build Ultimate Competitive Advantage, Hoboken, NJ: John Wiley and Sons.

94 

Kotter, J.P. (1995) Why Transformation Efforts Fail. Harvard Business Review, pp. 59–67.

95 

Labusch, N. (2011) Cloud Computing – Governing Uncertainty in Distributed Electronic Business Networks. In ERCIS Working Paper No. 11 – Network e-Volution. Münster: European Research Center for Information Systems, pp. 91–111.

96 

Labusch, N. et al. (2013) The Architects’ Perspective on Enterprise Transformation: An Explorative Study. In Practice-driven driven Research on Enterprise Transformation (PRET-6), edited by F. Harmsen and H.A. Proper. Utrecht: Springer, pp. 106–124.

97 

Lahrmann, G. et al. (2012) Management of Large-Scale Transformation Programs: State of the Practice and Future Potential. In Trends in Enterprise Architecture Research and Practice Driven Research on Enterprise Transformation, edited by S. Aier, M. Ekstedt, F. Matthes, E. Proper and J.L. Sanz. Barcelona: Springer, pp. 253–267.

98 

Mattathil, G. (2011) IBM’s Transformation Journey: Enabling growth, productivity, and culture change, Available at: http://de.slideshare.net/gmattathil/ibms-transformation-journey, last accessed 9 July 2014.

99 

PMI (2008) A Guide to the Project Management Body of Knowledge (PMBOK® Guide), Newtown Square, PA: Project Management Institute.

100 

Romanelli, E. and Tushman, M.L. (1994) Organizational Transformation as Punctuated Equilibrium: An Empirical Test. Academy of Management Journal, 37(5), pp. 1141–1166.

101 

Rouse, W.B. (2005) Enterprises as systems: Essential challenges and approaches to transformation. Systems Engineering, 8(2), pp. 138–150.

102 

Rouse, W.B. (2006) Introduction and Overview. In Enterprise Transformation. Hoboken, N.J: John Wiley and Sons, Inc., pp. 1–16.

103 

Sanford, L. (2010) The Road to a Smarter Enterprise: IBM’s transformation journey, http://www.ibm.com/smarterplanet/global/files/se_sv_se_products_the_road_to_a_smarter_enterprise_.pdf, last accessed 6 July 2014.

104 

Sávio, M. (2012) Enterprise Architecture Governance for an Enterprise Transformation Journey: The IBM Internal Case. Sao Paulo: The Open Group. http://de.slideshare.net/msavio/enterprise-architecture-governance-for-an-enterprise-transformation-journey-the-ibm-internal-case, last accessed 6 July 2014.

105 

Stiles, P. and Uhl, A. (2012) Meta Management – Connecting the Parts of Business Transformation. 360 Degrees – The Business Transformation Journal, (3), pp. 24–29.

106 

Uhl, A. (2012) Introduction. In A Handbook of Business Transformation Management Methodology, edited by A. Uhl and L.A. Gollenia. Farnham: Gower Publishing Ltd., pp. 1–7.

107 

Ward, J. and Uhl, A. (2012) Success and Failure in Transformation – Lessons from 13 Case Studies. 360 Degrees – The Business Transformation Journal, (3), pp. 30–37.

108 

Wikipedia (2013) The History of IBM. http://en.wikipedia.org/wiki/History_of_IBM last accessed 1 November 2013.

109 

Winter, R. et al. (2013) Enterprise Architecture and Transformation: The Differences and the Synergy Potential of Enterprise Architecture and Business Transformation Management. In Business Transformation Essentials: Case Studies and Articles. Farnham: Gower Publishing Ltd, pp. 219–231.

110 

Youseff, L., Butrico, M. and Da Silva, D. (2008) Toward a Unified Ontology of Cloud Computing. 2008 Grid Computing Environments Workshop.

Submit your own content for publication

Submit content