Transformation or optimization?

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During his time as a professor at Princeton University, Albert Einstein also took exams. When he rejected a student's answer as wrong during the oral exam, the student replied that he had asked him the question a year earlier and had found the answer correct at that time. Einstein replied: "Indeed, the question was the same last year, but the answer has changed in the meantime!”

Business process reengineering has been an established management discipline since the nineties. In a nutshell, the objective is to analyze business processes and optimize them in terms of costs, throughput times and quality. In the course of time, further aspects have been added. These include the analysis of operational risks, as the process map is well suited as a navigation structure for understanding risks; the analysis of customer satisfaction and customer journeys, as it is not enough to analyze only the company internal processes, organizations must also consider the customers' view of the products and services.

In recent years, far-reaching disruptions have turned the established rules of the game upside down in many industries and have challenged the business models of many companies across various industries, including:

• Music industry: from analog music and physical stores to mp3/digital downloads and streaming platforms.
• Car manufacturing/mobility: from classic vehicle vales, to shared mobility/pay per use, electric vehicles and connected cars/autonomous driving.
• Energy: from carbon-based energy, to decentralization of technologies, renewable energies and new storage technologies.
• Tourism and hospitality industry: from traditional hospitality business to booking platforms, alternative accommodation (e.g. Airbnb) and advanced technologies (e.g. AI and virtual reality).

Companies in all these industries are forced to fundamentally question their business model and launch initiatives for strategic transformation, but what does this mean for process optimization? Does this make it obsolete?

The 'S-curve' model of transformation illustrates the context:

Process optimization focuses on the question “are we doing things right?” (e.g. within the framework of an existing business model). The aim is to work as efficiently as possible, manage operational risks and increase customer satisfaction. However, if disruptive changes turn the industry upside down, then it is no longer enough to increase efficiency, even if there are still fans of vinyl records: A disruptive change (in terms of technology, legal framework, etc.) requires a completely new approach to the question of how to compete against the competition: “Are we doing the right things?”.

Change in a company never ends! The question is not “transformation or optimization?”, but “how to implement transformation and optimization successfully?”

Innovating and transforming the offerings while simultaneously driving productivity and cost savings is the way to go for today's leading companies. In a dual approach, a successful organization must allow for the rapid development and implementation of new ideas while optimizing the operational excellence within the existing business model.

Traditional management structures tend to focus on the optimization of the operational KPIs and struggle with simultaneous innovation and self-cannibalization (see Christensen's Innovator's Dilemma, 1997). Therefore, many established companies try to emulate start-up structures with flexible networks instead of hierarchical reporting lines to push innovation.

However if you are not in control of the daily business and implementation processes, even a brilliant strategy is of little use. This dual approach should be supported by a common repository to link the business operating model with the strategic business model as two sides of the same coin.

For more tips on overcoming obstacles when reimagining and transforming your business, access the process transformation whitepaper.