Business processes are doomed to worsen over time, but an ongoing focus on transformation can be a source of enduring competitive advantage.
There’s a good reason why many chief financial officers end up becoming chief executives. The overlap between the two roles on skills related to strategy, leadership and operational excellence is perfect. What’s more, as digital and business transformation has become the number one priority for directors and CEOs, there’s every reason for CFOs to develop their muscles still further in this area. Business transformation should be cemented at the top of the agenda for many leaders.
It has become clear in recent years that if companies want to preserve enduring competitive advantage, they need to evolve from episodic to dynamic business process transformation. It means designing additional elements of agility and innovative operating models into business processes. This is what we call Dynamic Process Transformation.
Products and processes
Let’s back up a bit for context on the need for Dynamic Process Transformation. All organizations constantly sense and respond to changing needs; some are simply better at it than others. Shell did not start off in the energy industry in 1833; its origins are in trading seashells. Nintendo began in 1889 as a playing card company, but, like Shell, it evolved over the decades. Companies evolve to consistently win in the marketplace in two ways – by creating winning products in line with shifting customer needs, and by improving their operations to get their products to customers more effectively. There is a way to create enduring competitive advantage by revolutionizing business operations. It involves solving the challenge of creating unbeatable, constantly evolving business processes.
Some of you may challenge that assertion right away. Isn’t a winning product much more important? After all, even if the Microsoft Zune MP3 player (remember that?) had been supported with the most effective business operation in the world, it would never have come close to the success of Apple’s iPod. That is fair – and we would say this isn’t a case of either/or. Winning organizations evolve both products and business operations. Unfortunately, innovating on products tends to be sexier than transforming business operations. The former gets a disproportionate share of attention. We need to correct that – it is time to give transformational business operations their due. Recent studies have demonstrated that companies with more resilient operating models deliver 30% greater shareholder returns than their peers.
How processes worsen over time
The issue with the business processes of every company – in product development, production, manufacturing, sales, finance, information technology, human resources, and so on – is that they quickly become obsolete due to ongoing changes in the marketplace, technology or capabilities. These business processes grow more complex, rigid and siloed over time – and that sets up a dangerous sequence of events.
- Business processes become obsolete
- One-off transformation programs are kick-started to re-engineer, standardize, or automate processes. However, these rely on having the right prime mover to sense and sponsor this change
- Business transformation programs, even if initiated, fail to deliver 70% of the time
- Meanwhile, if an economic crisis, industry disruption, or global crisis occurs (e.g., the Covid-19 pandemic), the company is caught flat-footed by competitors who have already evolved their operations.
Sound familiar? It should. We have seen this occur in all types of organizations – big multinationals, small and medium-sized enterprises, government agencies and non-profits. This is inevitable, since it reflects the long-established business rule that ‘organizations are organisms.’
Our task as leaders is to prepare for the “survival of the fittest”, not just by getting episodically fit via periodic transformation programs, but by being continuously fit, via Dynamic Process Transformation.
Dynamic Process Transformation
To foster lasting evolution in internal operations, companies need a mechanism to prevent business processes from becoming stagnant in the first place. You need a dynamic, living model for constant process evolution and optimization.
Dynamic Process Transformation gets to the root causes of the recurring obsolescence of business processes. First, even the best business process design can become stale if it doesn’t constantly compare itself with the most disruptive new ideas across companies and, more importantly, across industries. Second, functional business processes tend to be optimized within their silos. That is a problem, because it leads to sub-optimization at the holistic end-to-end level. Finally, unless there is a disciplined methodology to drive this constant re-optimization to every person in the operations, it leads to episodic business transformation. These three root causes of obsolescence are important to note, because these are also the three drivers of change for dynamic processes.
Three drivers of change
To ensure that their business operations are not reactive, sporadic and siloed, chief financial officers are required to focus on three drivers of change.
1 Open market rules. Each business process must be run as a separate business, instead of via a monolithic structure where mandates come down from on high
2 Unified accountability. Outcomes must be clear and consistent across the company, instead of being siloed within departments
3 A dynamic operating engine. The final driver is a methodology to convert the constantly changing business process goals into tactical day-to-day employee actions
The strategic risk of being caught flat-footed on process transformation became glaringly obvious during the Covid-19 pandemic. As supply chain problems became widespread, for example, it was abundantly clear that companies with siloed process operations struggled longer and harder with their operations than competitors who had dynamic business processes.
Adopt a dynamic approach to business process transformation and leaders can set up a positive spiral of agility, efficiency and effectiveness.
Tony Saldanha and Filippo Passerini are the authors of Revolutionizing Business Operations: How to Build Dynamic Processes for Enduring Competitive Advantage (Berrett-Koehler, 2023).