HBR recently conducted a detailed study on list of companies from S&P 500 and Global 500 to narrow down on top 10 companies that exemplify strategic transformation. HBR defined the transformation as someone who has pushed and repositioned its business model into newer strategic growth areas while carrying the legacy business along with it. HBR considered three criteria 1. New Growth from creating new products, services and business models, 2. Core repositioning of their legacy business and 3. Ubiquitous financial performance. Methods of objective and subjective analysis has been provided for quick reference in the article. (Refer to the HBR article on “What the Best Transformational Leaders Do” dated May 08, 2017, https://hbr.org/2017/05/what-the-best-transformational-leaders-do). HBR analysis throws up with some of the usual suspects such as Apple, Amazon and Netflix along with some traditionally entrenched business model companies such as Microsoft, Aetna, Danone and Thyssenkrupp.
While innovation has been in their veins when we take Apple, Netflix and Amazon either on their business model or on their products or the agility with which they were able to manage their customer expectations, the most important lesson is on how these as well as the other companies were able to navigate the S-curve to newer businesses without completely overhauling or disrupting their core legacy business. The ability of the leader to strategically reposition their company in the market as well as internally with their associates remain paramount. The analysis throws out some important factors that drove this transformation:
1. Transformational CEOs Tend to be “Insider Outsiders”. This is applicable for many of the incumbents across industries looking at the examples of Satya Nadella or Shantanu Narayen who were with their companies for long but were largely focused on growing the new businesses that would pivot the growth of their enterprises in the future.
2. Strategically Pursue Two Separate Journeys. This is what we call bi-modal organizations in IT Parlance where the organization has to do sprint as well as run marathon at the same time. While the legacy core business will take its time to reimagine and rethink on newer ways of doing business, the newer strategic business has to grow exponentially to reposition the company in the long run. While we have always heard of how Amazon was successfully able to form largest cloud company in the world, they have always been a digital company with a different culture. The challenge for an Incumbent would be to look at these two businesses differently and enable them to transform on their own turf.
3. Use Culture Change to Drive Engagement. This again goes back to the first point about “Insider Outsiders” who knows the company culture and the one with whom employees can relate to. How the leadership at helm could infuse deeper cultural change and employee engagement can be seen from the likes of Microsoft (under Gates vs Ballmer vs Nadella) or IBM (Gerstner vs Palmisano vs Rometty). A good reference that I was able to appreciate this better in terms of cultural change was from this book on “The Silo Effect” by Gillian Tett. She takes the view of an anthropologist relating the human nature and culture on how they are organized within the society and within larger organizations. With increasing need for collaboration across the board this remains an important change management initiative to bring ideas and people huddle together to solve the large problem an organization faces.
4. Communicate Powerful Narratives About the Future. This requires a greater effort from Marketing and Communication team to send a consistent and pervasive core message to the second line of leaders and cascade it down with customized messages appropriate to employees belonging to different business groups, story board the narrative to the investor and the analyst community and equally communicate it to the client and the broader society as well. CEO has to be the vanguard of this core message and take every opportunity to spread the consistent message to his broader organization so that it is slowly internalized and imbibed into the working culture. Every industry is undergoing its own digital transition, Life sciences towards personalized medicine, Healthcare towards Value-based care, Banking towards self-service digital banking, Insurance towards D2C models and usage based insurance, Manufacturing towards fourth industrial revolution or the Industry 4.0 and retail towards seamless Omni channel experience. All these business model and value chain transformation requires a well thought through business plan and well-articulated communication plan. The success hinges on getting both the flanks right with appropriate course correction as market dictates over the period but the importance of change as well as the big picture has to be felt and understood by the employees who would then be able to appreciate their role in the broader organization goals.
5. Develop a Road Map Before Disruption Takes Hold. The article highlights an important point about the Transformation being not just about changing a cost structure or turning business processes into automated and digitized processes but it’s about an integrated strategy of repositioning the enterprise to capture newer opportunities in the ever changing market. It’s all about how good is your antenna to anticipate disruptive trends before they take hold of the market as well as how agile you are to capture the disproportionate market before others hop on to the bandwagon. We have been talking about the fast-follower strategy and how they had been successful for companies in the previous decades. But, today I think the destination is known but the direction is unknown to many and everyone has to experiment to find the right means to get to where we want to. You could look at the examples of Amazon or the Netflix how they redefined the cloud market or the entertainment industry well before others could figure out. As the catch-all phrase goes in the market, “Winners Takes it All”. We have seen actual businesses such as JPMC, BBVA, Citi and the solution companies such as Salesforce increasingly becoming externalized through partnerships and VC investments with the start-up community to get the pulse of digital transformation and be able to leverage these new ideas into their services.
One of the important challenges that a large incumbent faces is on how to transition his decades-old legacy business model to newer business models to stay relevant and grow in the market. This is where the “Zone to Win” model discussed in our previous blog may come in handy for the companies looking to transform their business model with one leg on the present and the other on the future with transformation and innovation zones acting as the platform for net new growth opportunities for companies. This also enables company to ring fence their potential future opportunities from the day-to-day operations and P&L pressures of the enterprise. CEO would have to spend his disproportionate time on the transformation zone to drive down the importance of this new line of business for the entire organization. This is a decade-long transformation and it requires right building blocks to be laid now and catapult the future organization from this foundation.
Other References:
“What the Best Transformational Leaders Do” dated May 08, 2017, HBR , https://hbr.org/2017/05/what-the-best-transformational-leaders-do
“What the Best Transformational Leaders Do” dated May 08, 2017, HBR , https://hbr.org/2017/05/what-the-best-transformational-leaders-do
“How IBM’s Sam Palmisano Redefined the Global Corporation” – Harvard Business Review, January 2012
“Gerstner: Changing Culture at IBM - Lou Gerstner Discusses Changing the Culture at IBM”, Harvard Business School
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