Managing innovation and transformation is hard. In the established organisation it often requires a great amount of foresight and a lot of strategic insight. How to do this well is not an easy question to answer and there is definitely no quick fix.
In the first part of this two piece series on transformation and innovation, Ron Immink considers 2 formulas, 8 books, at least 25 questions and lots of lessons.
Managing transformation is a hot topic. Most of the business books focus on structure and time. For example “Zone to win” suggests you have to manage three time-horizons. “The day after tomorrow” suggests you should manage it as solid, fluid and superfluid and “Dual Transformation: How to Reposition Today’s Business While Creating the Future” suggest you manage two streams transformation A and transformation B.
Winter is coming
The argument is that it is not only about innovation but ongoing transformation. That winter is coming. It isn’t only winter, that’s coming to your boardroom. It is disruption. Disruption is coming. And it is coming at an unprecedented pace and scale. Kodak’s digital disruption took almost forty years to fully play out. Newspapers had about a dozen years of life after the internet shock. Nokia and RIM had only five years before great businesses painfully built over decades were ripped apart. And thus the innovator’s clock accelerates.
You are running out of time
Due to the hastening pace of disruptive change leaders have precious little time to respond. The time when leaders need to be most prepared for change is right at the moment when they feel they’re at the very top of their game. In response to the coming disruptive shocks, executives must simultaneously reposition their traditional core organisation while leading a separate and focused team on a separate and distinct march up a new hill.
You could create a spin-off company with completely separate staff, systems, and structures. But if you are going that far, why not simply give the capital to a venture capital firm to invest? In reality, almost any new growth businesses launched by an established company will feature some point of interface between today and tomorrow or transformation A and transformation B. If you manage transformation A and B well, you will have created a large company that combined assets of scale and entrepreneurial behaviour to drive massive impact.
The book gives you a formula A + B + C = Δ
A = transformation A. Reposition today’s business to maximise its resilience.
B = transformation B. Create a separate new growth engine.
C = the capabilities link. Fight unfairly by taking advantage of difficult-to-replicate assets without succumbing to the sucking sound of the core.
Carefully select critical capabilities, strategically manage the interface between the core and the new, and actively arbitrate when disputes arise.
(D × F × A × E)L > C
“Reinvention” has another formula. (D × F × A × E)L > C
Dissatisfaction (D): Ensuring there is a strong and powerful internal felt need for change.
Focus (F): Ensuring there is a compelling and articulated desired future state that generates forward movement and staying power.
Alignment (A): Ensuring appropriate infrastructure is installed. I think companies underestimate the importance of organisational design.
Keep your eyes open for the seven early warning signs of disruptive change.
- a decrease in customer loyalty,
- spikes in venture capital investment,
- policy changes,
- fringe entrants,
- changes in customers habits,
- the formation of new business models, and
- a shift of financial focus from revenue growth to margin protection.
Execution (E): Ensuring a comprehensive game plan with clear milestones is in place; installing a high-performance culture that executes well and fast.
Leadership (L): Ensuring exceptional leadership (self-leadership for individuals; organisational leadership for organisations) is exhibited; ensuring the change quotient is in place and high accountability to the game plan.
Cost of Change (C): The true and perceived costs of change relative to the reinvention effort (physical, social, financial, emotional, and mental). Disrupting the status quo can be painful.
Whatever formula you pick there are some fundamental lessons and questions.
What business are you in?
Separating the unique roles of transformation A and transformation B requires, first, a clear and consistent definition of today’s business—a seemingly simple step that is easy to skip. It is easy to describe what a company sells. And the reality is that the customer rarely buys what the company thinks it sells. Products and services don’t define a company. Rather, what a company does (or the problem it solves for customers) and how it uniquely solves that problem—these are what define a company.
Driving Transformation A
The essence of transformation A is changing the “how” and finding more effective and efficient ways to address customer needs to maximise the resilience and relevance of your historical core business. First, you must understand—at a detailed level—the jobs to be done that customers consider unique and meaningful. Nobody pays for a ‘product. What is paid for is satisfaction. You need to understand the fundamental problems facing customers, as well as the progress they’re seeking to make in overcoming them. Here are some suggested questions to find out the jobs your product is doing:
- Why have people historically bought from us?
- What do we provide that they really care about?
- What is the disruptive shift in our market?
- What used to matter to them but doesn’t really anymore?
- What do they wish we could do that we don’t?
Then you innovate your business model to deliver against those jobs, measure and track new metrics that reflect the new model and implement aggressively. You need to redesign your core business model so that you create the right value for customers, deliver that value as efficiently as possible, and capture sufficient value to fund investment in future innovation.
Cost and excellence
Transformation A is likely to require significant, perhaps painful, cost cuts, to the point that some companies brand transformation A as a “cost transformation.” However, the goal isn’t simply to cut costs but to reposition the business model to increase long-term competitiveness. Second, you need to identify, business model component by business model component, who in the world does the best, most innovative job of delivering excellence in that area. You should read “Breaking bad habits“.
That is Transformation A. In my next piece, I will cover Transformation B in more detail and the lessons from managing these transformations.
For Part 2 in the series and to learn about Type B transformation for organisations, please click here.
Pay particular attention to key business model elements:
- Production. What did we do that we can now outsource? What did we use to outsource that we should do?
- Distribution. Can we go direct? Use a different distribution channel?
- Customer support/ Can our customers support themselves?
- Revenue model. Can we wrap services around our product? Products around our service? Could a “freemium” offering drive usage? Can we shift from a one-time purchase to a subscription model?
- Pricing model. How frequently should we charge for our offering? How should we charge?