Embracing change: Transformation vs transitional change

Buki Obayiuwana, Managing Director, Change and Transformation

In a rapidly evolving business landscape, understanding the distinctions between 'transformation' and 'transitional change' is crucial for leaders aiming to steer their organisations through periods of adjustment and renewal. These concepts, while related to the process of change, differ significantly in scope, strategy, and outcomes.

What is transformational change?

Transformational change refers to profound, radical shifts that fundamentally alter the core of an organisation. This type of change redefines the business model and necessitates a reimagining of operational processes, corporate culture, and customer interactions. It is often driven by the need to adapt to significant external innovations, disruptions, or shifts in market dynamics.

Characteristics of transformational change - the butterfly:

dramatic and complete change from one form to another, like the rapid transformation of a caterpillar to a butterfly within weeks
encompassing and deep, affecting the organisation at every level
aimed at fundamentally redefining the organisation’s purpose and how it delivers value
usually driven by external forces that require an entirely new approach to the business.

Examples of transformational change

Amazon's expansion into cloud computing

Originally an online bookstore, Amazon fundamentally transformed its business model by launching Amazon Web Services (AWS) in 2006. AWS now leads the cloud computing industry, which was a significant shift from Amazon’s retail roots.

Netflix’s shift from DVD rentals to streaming

Netflix transformed the entertainment distribution industry by transitioning from a DVD rental service to a streaming service, and later into content creation. This shift not only changed how Netflix operated but also how people worldwide consume entertainment.

Apple's introduction of the iPhone

Apple’s introduction of the iPhone in 2007 was a transformational change that altered the mobile phone industry and Apple’s business trajectory. It combined a phone, an iPod, and an internet communicator into one device, revolutionising mobile technology.

Goldman Sachs' shift to consumer banking

Traditionally an investment bank serving corporations and wealthy individuals, Goldman Sachs underwent a transformational change by launching Marcus, its own digital bank for the public. This marked a significant shift in their business model, targeting a completely new customer segment with personal loans and savings accounts.

Artificial intelligence (AI) and machine Learning for claims processing

Companies such as Lemonade have disrupted the traditional insurance model by using artificial intelligence to handle claims and underwriting processes. This technology enables the insurer to provide more accurate pricing, reduce fraud, and speed up the claims process, fundamentally transforming customer interactions and service efficiency.

Blockchain for fraud prevention and smart contracts

Firms are exploring blockchain to manage and authenticate policies via smart contracts and to streamline payments. This technology has the potential to significantly reduce fraud, enhance transparency, and improve the efficiency of claim settlements, transforming the core aspects of insurance operations.

What is transitional change?

Transitional change, in contrast, involves more incremental shifts that help an organisation evolve from one state to another without a fundamental transformation of its core functions. This could be in response to new leadership, mergers, acquisitions, or the need to enhance operational efficiencies. Transitional changes are about navigating from the current way of doing things to a new, improved state without altering the foundational aspects of the organisation.

Characteristics of transitional change - the frog:

less abrupt and more incremental shifts like the gradual metamorphosis of a frog over the course of a year
targeted and temporary, often with clearly defined objectives
focuses on improving or optimising existing processes or systems
generally less disruptive and does not necessitate a fundamental shift in business operations.

Examples of transitional change

Starbucks’ sustainability initiatives

Starbucks has been transitioning to more sustainable business practices by phasing out single-use plastic straws and introducing reusable cups. These are transitional changes that improve the company's environmental impact without altering its core business of coffee retail.

Introduction of contactless payment technologies

Most banks have transitioned to offering contactless payment options. This shift improves customer convenience and transaction speed, optimising the existing payment processing systems without a fundamental change in the service provided.

Barclays' restructuring for efficiency

Barclays has undergone various transitional changes, including restructuring its operations to improve efficiency and reduce costs. This included reducing its branch network and investing in digital banking services, a transition aimed at modernising customer interactions without altering its core banking services.

Digital customer portals

Many traditional insurers have introduced online customer portals and mobile apps that allow policyholders to manage their policies, make payments, and file claims digitally. I can now manage my mortgage and my home insurance policies online. This transition enhances customer convenience and operational efficiency without altering the fundamental insurance product or service.

Remote working

In response to the COVID-19 pandemic, many companies rapidly transitioned to remote work setups. This change involved deploying secure virtual private networks, enhancing cybersecurity measures, and adopting digital communication tools to maintain productivity and service continuity.

Regulatory compliance

Insurers frequently adjust processes to comply with new regulations. For example, adapting to the EU's General Data Protection Regulations required insurance companies to update their data privacy and security processes. These are transitional changes as they modify existing practices to meet external requirements without transforming the business model.

Key differences

The main difference between transformational and transitional change lies in their intent and impact.
Transformational change is disruptive and visionary, often linked to a shift in business philosophy and long-term strategic goals.
Transitional change is more about refinement and efficiency within the existing framework, aiming for better performance without altering the company’s core essence.
Companies employ transformational changes to innovate and redefine their business and market approaches, while transitional changes are used to improve, adapt, or refine existing processes and systems in response to evolving business environments and regulatory landscapes.

Does it fundamentally matter?

Both transformational and transitional changes are pivotal as companies navigate technological advances and growing regulatory expectations. They are crucial for staying competitive and meeting the evolving needs of consumers and businesses in the sector.

The distinction is crucial because it affects the strategy, management approach, and the resources needed for each type of change. For example:

Strategic planning:
Knowing whether a change is transformational or transitional helps leaders to accurately plan and allocate resources. Transformational changes require a comprehensive rethink of the organisation’s strategy and may involve significant investments in new technologies or skills. Transitional changes, by contrast, might focus more on optimising existing resources and processes, requiring less radical resource allocation.
Change management:
The approach to managing these changes differs significantly. Transformational change often requires a deep cultural shift and strong leadership to drive the change through all levels of an organisation. It involves more risk and uncertainty, necessitating robust change management strategies to address potential resistance and ensure alignment. Transitional change typically involves more straightforward management techniques, focused on improving systems and processes without altering the core of the organisation.
Expectations and outcomes:
Clarity about the type of change impacts how success is measured and what outcomes are expected. Transformational change aims for radical improvements and can fundamentally alter the competitive position or market dynamics for a business. Transitional change seeks to enhance or refine the status quo, leading to improvements in efficiency and effectiveness without shifting the overall business trajectory.
Employee impact:
The impact on employees can be quite different. Transformational changes might require new skills, major shifts in roles, and can affect job security, thereby requiring detailed communication and possibly retraining programs. Transitional change might be less disruptive, but still requires clear communication about how work or responsibilities might shift.
Risk management:
Transformational changes are typically riskier, given their scope and impact. This requires careful risk management, including scenario planning and contingency strategies. Transitional changes, while still needing risk oversight, generally involve lower levels of risk and uncertainty.
Timeframe:
Transformational changes usually take a longer time to implement and to show results, given their complexity and scale. Transitional changes can often be implemented and yield benefits more quickly.

Understanding these distinctions helps leaders choose the right strategies and tools for implementing change and ensures that all stakeholders are aligned with the goals and processes of the change initiative. It also helps in communicating effectively with all involved, setting realistic expectations for the outcomes of the change process.

Strategic considerations for transformational change:

leadership must cultivate a culture of innovation and flexibility
there is a need for strong visionary leadership to guide the organisation through uncertainty
stakeholders must be prepared for a long-term commitment to achieving transformative goals.

Strategic considerations for transitional change:

detailed planning and clear communication are vital to manage expectations and maintain operational continuity
like transformation, it often requires meticulous project management to ensure that transitional steps are executed smoothly
transitional change can benefit from quick wins that help build momentum and demonstrate the value of the change to all stakeholders.

Both types of change are essential and choosing between them depends on the organisation's current needs, future goals, and the external business environment.

Leaders must assess whether their organisation requires a revolutionary change to stay relevant, or a series of evolutionary steps to enhance what already exists. Understanding these differences enables better strategic decisions, ensuring that change initiatives are not just effective but also align with the broader organisational vision.

Navigating these changes effectively demands not just strategic foresight but also an adept understanding of the organisational culture and the external market conditions, ensuring that any approach to change is both sustainable and conducive to long-term success.

For more information, contact Buki Obayiuwana or your usual Crowe contact.