Understanding the challenges of enterprise transformation
Once a child has been born, barring any pathological challenges, it must begin to grow and experience the various growth processes that are man’s by nature. Every child first learns to sit. It then learns to stand and finally it steps out to that long walk in life that ends in death or other compelling circumstances. In essence, the child goes through a process of change, which spans its entire existence, from cradle to the time of death. In a simple and single word, this process is called transformation.
Transformation is a change in the composition and form of anything. The words composition and form are used here advisedly. Transformation could be mere cosmetic change on the external part of a thing. A house could be transformed by the application of fresh colours of paint on its external walls. Anybody that sees the house will call it transformed, even though they may not know that the change is only external. That is not real transformation. Real transformation is more internal than external but encompasses both.
It is important to note that the process of transformation of a child comes with its own challenges, both for the child and its parents, and in so many areas, including food and nutrition, health and security. A child under good parental care will experience positive changes at every stage of this transformation process. As the child transforms, it becomes more irritable in the sense of the excitatory quality of living organisms to respond to changes that occur around them or in their environment. It feels cold and the parents wrap it up in warm clothes. It feels hungry and food is served. All the demands and, especially, the real needs for growth and good health are provided as the child grows from one stage of life to another.
The same thing happens in the life of an enterprise. Enterprise transformation therefore shares some commonalities with child or human transformation. It is not a mere fancy word used by economists to bamboozle their audience. In a technical sense, enterprise transformation may be seen as the application of dynamic and effective management principles to realign, reform, reshape and restructure an enterprise and its products to meet the needs of a dynamic world. It encompasses such transformation elements as digital transformation, whereby physical brands, processes and service offerings of a business are brought online. Almost all enterprise transformation processes include I.T Transformation. Essentially IT transformation seeks to change such cost centres as IT to service delivery sections with possible change to revenue centres, if not profit centres.
For our particular purpose in this piece, enterprise transformation seeks to turn larger microenterprises of the economically active poor to small businesses. Just as operators must understand the times in the lives of the institutions they run, lenders must do the same to the enterprises they fund. For instance, most microenterprises start as composite organizations and this is not the form of any proper corporate organization. They need to be known for certain things. Microenterprises are usually like Jack of all Trades, involved in several business activities, including foe instance, growing crops, collecting the raw crops, processing them and even retailing the produce. They make their own baskets to hawk their own fruits. Evidently, many of these enterprises would do better and increase their productivity if they limit the number of activities they take upon themselves. The big question is whether they know when to make such a limiting decision – so they can buy the baskets for hawking the fruits rather than making the baskets themselves; or sell to middlemen instead of directly to end user of their produce, for example. Thus, entrepreneurs must know when to make the move and let go of some services while taking on somethings new – that’s transformation.
In like manner, lending institutions have a great role to play in the transformational life of the microenterprises they finance. They must begin with an understanding of the critical elements of transforming enterprises. As transforming institutions focus, perhaps, on limited number of activities, new challenges show up. Such new challenges will reflect in the structure and composition of their staff complement, technology, marketing, credit and cash management and supply systems.
Transforming enterprises have need for staff transformation. As they usually start with a staff complement that is skewed in favour of family members, the first challenge of transformation is to reform the staff colouration to something more translucent, if not entirely transparent, rather than opaque. Transformation takes an enterprise to new markets that must be large enough to absorb increasing output and stable enough for sustainability. These will have to be complemented by sound technology, way beyond the one at the starting blocks of the enterprise.
Additionally, enterprise transformation calls forth additional needs in the areas of product supply, cash management and financing or credit. A transforming enterprise that has developed new markets and acquired relevant improved technology to service them will, of necessity, need to ensure that its own supply system is stable, reliable and not subject to unwarranted disruptions. This would require the enactment of secure, stable, and long-term supply contracts to prevent disappointments.
Finally, but without an attempt to assume exhaustiveness, successful enterprise transformation requires two more important acts. First, the keyman or director of the enterprise should be bold enough to know and establish a clear distinction between two types of cash that come into his possession – his private and the enterprise’s cash. This is usually one of the last parts of the transformation “give-ups”, and evidently the root cause of many enterprise failures. Micro and small enterprise owners who hope to become corporate leaders must wean themselves of the wrong idea of the business being the same as its owner.
The distinction between the founder and the business – the establishment of sustainable institutional structures – is a prerequisite for effective enterprise transformation and growth. Accordingly, cash management takes on a new meaning as an enterprise transforms. Lastly, transforming institutions must recognize the challenge of liquidity and proper funding. This could be met by way of additional capital but every enterprise in transformation needs a stable source of credit. Growth calls for additional funding, especially by way of working capital. This must be ensured, one way or the other.
Emeka Osuji