Business transformation is much more than change … it is a purposeful and progressive journey of many changes, delivering significant impact, creating a better future
November 14, 2022
Change and transformation are big words, and too often misused.
I cringe when I hear companies implementing new email systems, or an efficiency drive, or a new database, or a rejigged organisation structure. And calling it transformation.
Yes it’s a change. Changes typically fix problems, improve things. But transformation is about creating the future. A different, better future.
Transformation is a journey. Typically bringing together many changes, with a purpose, a direction, a structure, that magnifies their impact. It’s significant, lasting, irreversible, and with big impact.
And don’t be fooled by the phrase digital transformation either. Too often this is misused by IT consultants to mean the automation of existing business models and process. That’s just digitisation. You need to do more.
Transformation typically unlocks significant new business opportunities (say, a 25-50% growth in new types of revenues), and it can take a long time. Sometimes it’s a 10 year journey.
What motivates a business leader to embark on strategic business transformation?
Sometimes it’s a financial crisis, sometimes it’s the threat from a disruptive competitor, sometimes growth stagnates as markets mature or decline, sometimes it’s the opportunity to ride a new global megatrend, and sometimes it’s the result of proactive strategic planning.
To better understand the dynamics of why and how transformation happens, Innosight’s “Transformation 20” study evaluated the strategic change efforts of many companies, seeking to identify best practices across industries and geographies. The ranking is based on three factors: finding new growth (% of revenue beyond core), repositioning the core (giving the legacy business new life), financial growth (revenue, profit and economic value over the transformation).
Scott Anthony describes the essence of this kind of transformation: “What businesses are doing here is fundamentally changing in form or substance. A piece, if not the essence, of the old remains, but what emerges is clearly different in material ways. It is a liquid becoming a gas. Lead turning into gold. A caterpillar becoming a butterfly.”
Here are some examples of such transformations:
- Adobe … transformed from product to service, from document software into digital experiences, marketing, commerce platforms and analytics
- Amazon … transformed its own infrastructure into “Amazon Web Services” which enables other organisations to operate their online businesses.
- DBS … transformed itself from a regional bank to a global digital platform, a “27,000-person start-up” and crowned “Best Bank in the World.”
- Microsoft … transformed from a business model based primarily on selling product licenses (IP), to a cloud-based platform-as-a-service business.
- Netflix … shifted from DVDs by mail into the leading streaming video content service and now a top original content provider.
- Ping An … transformed itself from insurance into a cloud tech business providing fintech and AI-based medical imaging & diagnostics.
- Tencent … transformed from social and gaming business to a platform embracing entertainment, autonomous vehicle, cloud computing, and finance.
Transformation is about significant, lasting, non-reversible change to the way in which the company operates and creates value, typically where at least 25% of total revenues comes from new business units or business models. It can take time, 10 years as demonstrated by Orsted, but also sets the business on a new course for a better future.
Whilst digital technologies are a significant enabler of transformation, companies should beware of the term “digital transformation” which is often used to describe the automation of business functions, seeking more efficiency and speed, or broader applications of technology. Similarly, “culture change” is not the same as business transformation. In both cases it is only transformative if it is accompanying by a more holistic reinvention of the business, including its strategy and business models, propositions and performance.
Pivot to a new space
The destination of any transformation might be quite different from how it was initially envisioned. Many projects, and even businesses, find that they reach a point where they need to significantly change direction, based on what they have learnt. This is a “pivot”, and has been a feature of many start-up journeys in recent years.
- Instagram initially known as Burbn started out as an online discussion forum developed by Kevin Systrom whilst learning how to program, but now has 1 billion users simply sharing images.
- Slack started as a game called Glitch, developed by Stewart Butterfield after he sold Flickr. The game didn’t take off, but its platform evolved to become Slack, a place for collaborative working.
- Twitter was previously known as Odeo, a podcasting platform before podcasts took off. Jack Dorsey decided to shift to microblogging as he called, it, rebranding it as Twitter, and a leader in short posts and status updates.
- YouTube originated as a dating site, encouraging people to upload videos of themselves. Few people embraced the concept, but when the site opened up to anyone who wanted to share a video, over 2 billion people signed up.
For larger organisation, they need to learn to pivot as part of their evolution, and as a sequence of transformations.
As they ride the “S curves” of market change, they accelerate as new ideas take off, but then slow as ideas mature. Eventually, without change, the old business declines, as the market moves in new directions, and a new S Curve takes off. The challenge of transformation is to ride the S Curves, jumping to the new curve whilst still thriving on the old curve, transforming before you need to.
Transform for today and tomorrow
How can you create the future, whilst at the same time deliver today?
Janus was a Roman god with two sets of eyes, one pair focused on what lay behind, the other on what lay ahead.
Change unlocks new opportunities to create new markets. It is the moment when a business typically needs to protect and improve its current activities, but also seize the opportunities of tomorrow, to explore and create new businesses.
Like Janus, business needs to be ambidextrous, to simultaneously think and work in the short and long-term. Short-term sales earn the cash, but also the permission, to create a better future. However, this is not a sequential challenge, nor a parallel challenge. The organisation shouldn’t delay tomorrow in order to win today or work separately on both.
The trick is to ensure that today leads to tomorrow, short-term actions lead to long-term progress. Too many leaders become obsessed by the short-term, and lose sight of the bigger goals. Of course, a heads-down focus on grinding out results looks good, often sub-servient to the perceived impatience of investment analysts. But this misses the point. Investors are most interested in future success, today is just a guide to it.
Scott Anthony, in his book “Dual Transformation”, describes this shift as three components.
- Transformation A: repositioning and improving the core business to maximise resilience (eg Adobe moving from packaged software to SaaS).
- Transformation B: creating a new growth engine (eg Amazon adding cloud computing services, and streaming content on top of ecommerce).
- Capabilities C: the best way to share assets and resources, brand and scale, and managing the interface between the core and the new.
Transformation A involves accepting changed circumstances, devising new metrics, and bringing in fresh talent experienced in emerging work environments. Transformation B requires understanding of future opportunities, changing consumers, and value patterns. This helps develop new business models through iterative experimentation and willingness to pivot. This may involve acquiring other companies and forging new partnerships, depending on expectations of impact periods.
Anthony likens the capability link to an airlock in a spaceship or submarine. This team includes savvy veterans and diplomatic managers, but the business leader will need to drive hard decisions on which core skills are relevant during transformation, and arbitrate during the inevitable arguments and turf wars. Tough calls will need to be made regarding speed of operation, pricing options, and assessing some of the inevitable failures along the way. Other challenges in dual transformation are balancing attention and assets, and protecting traditional income streams while also growing new sources in a slow and experimental manner.
Shifting the core
As businesses evolve, their centre of gravity moves.
We see this in the evolution of IBM, which grew famous as the innovator of mainframe computers. As the market shifted, driven by technological evolution, from mainframe to desktop to laptop, IBM found many more competitors.
For some time it moved with the trend, developing its own desk and laptops, whilst also exploring new business areas, particularly in services like consulting. Eventually it recognised that its strength was no longer in making any type of computers, but in the advice it could offer, and shifted to become a consulting business at its core.
The shit in the core can be seen in three stages:
- Focus on the core: clearly define your core business, strengthen it and seek to drive growth through it in existing and new markets
- Beyond the core: extend into adjacent markets, that can leverage off the core like IBM into services, with their own revenue streams
- Redefine the core: as markets evolve, the old core business may start to decline, before which is the time to shift to consolidate the new core
Whilst this shift might seem a fundamental transformation of the business, as we saw with Philips, it might simply be about following the same purpose, but interpreting how to deliver on that purpose in new and evolving ways. The shift might equally be represented by a more intangible asset, such as brand or capability, which can be deployed with partners in new industries, as in the shift of Ping An.
The agile business wins by focusing on the future, by making change normal.
By embracing experimentation and adaption as part of normal business life, change becomes less daunting and invasive. Few strategies are set in stone, most organisational models are fluid, rules become principles, disruption is encouraged.
Traditional forms of stability, such as detailed strategy documents or job descriptions, are replaced by summaries that outline broader areas, define boundaries rather than details, and can be easily adapted over time.
The key attributes of strategic agility are to:
- Focus on purpose, rather than strategy … try putting your strategy on one piece of paper, use the power of three ideas, embrace frames not details.
- Focus on customers, rather than competitors … be driven by insight not by being a little difference, solving problems not being cheaper, growth not share.
- Focus on opportunity, rather than capability … driven by future not your past, what you could do not did do, then find partners to help you do it.
- Focus on people, rather than structures … think about people and personalities, not job titles and status, and the power of small teams to achieve more.
- Focus on outcomes, rather than process … give people space to solve problems in creative ways, seek better outcomes not compliance.
The agile business is fluid, which can be disorientating but also liberating.
Agile organisations are complex adaptive systems. Distributed organisations, network-based ecosystems, empowered and self-managed teams, mean that whilst small parts might be clear, they don’t lead to an understanding of the whole. The benefits of the whole, are not achieved as before through standardisation and connectedness, but more through an interconnected web of many personal relationships and projects.
Organisations from Alibaba to Baidu, Haier to Supercell, Wikipedia to Al Qaeda, are examples of organisations who have defied the desire for structure, and instead exist as many moving parts, almost feeling chaotic. Indeed agile organisations are often said to operate “on the edge of chaos”.
- ASEAN Transformation Champions 2020 by Innosight
- The Transformation 20: Global Ranking 2019 by Innosight
- Your Next Transformation Should by All In by McKinsey
- Dual Transformation in Action by Innosight
- Business Recoded by Peter Fisk
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