The world's rapid changes are rapidly progressing faster than we can imagine. What used to be the norm is now quite different. Even if we go back in history, the time has come for major changes.
"Transformation" in business has three meanings
The word transformation is used in many ways. The author, Anthony, organizes the transformation efforts into three areas: "operation," "operation model," and "strategy," and gives an overview of each.
The slogan of today's enterprise is “transformation”. There is a good reason for that. Our Innosight study predicts that the composition of S & P 500 companies will change by 75% over the next 15 years (English report). In another study, one in three US-listed companies could be delisted in the next five years. Yet another study found that the odds of an industry leader falling five years after its position doubled during a generation (compared between the 1970s and 2000s).
Software is sweeping the world. The momentum of unicorn companies has not stopped and is bouncing around. Executives at large companies are well aware of the need to address them.
But what does it really mean when executives say “change”? The term is often confused with three radically different efforts.
The first usage is “operational transformation”. The aim is to do the current activities more skillfully / faster / cheaper. This is the "promotion of digitalization" that many companies are working on. It's an attempt to solve old problems using new technology. Operational reforms are sometimes painful and can greatly improve performance.
However, this does not meet the definition of transformation as in the dictionary: "significant changes in morphology, properties, appearance, etc." or "changing something completely (usually for the better)". .. Operational reforms may help reduce costs and improve customer satisfaction, but they don't change the essence of the company significantly. And in this volatile world, it's not enough to play older games better.
Second, there is a usage called “transformation of operation model”. Also called core transformation, it refers to doing the current activities in a fundamentally different way.
Netflix's efforts are a good example. Over the last five years, it has moved from DVD mailing to streaming video web distribution. In addition, they have invested a lot in the production of their own original works, rather than just streaming the works produced by others. In doing so, it leverages its vast knowledge of customer preferences to maximize the likelihood that the work will resonate with the viewer.
Customers have and still seek entertainment from Netflix and seek out new content. But the way the company solves that challenge has changed almost completely.
The third is the greatest potential and risk involved: “strategic change”. This will change an essential part of the company, so it's just right to call it change. It's like turning liquid into gas and lead into gold.
Apple has moved from computers to small personal devices, and Google has moved from advertising to self-driving cars. Amazon has expanded from retail to cloud computing, and Walgreens has expanded from drug retail to chronic disease care. Strategic transformation, if successful, will bring the company's growth engine back to life. If it doesn't work, give the opposition an excuse to blame "focus on what you need to do."
It is important to clarify the meaning of "change" as the leader says. This is because the efforts in the above three fields need to be measured and managed in very different ways.
In the transformation of the operation model, the indicators for measuring business performance must be changed. In the case of Netflix, the DVD model requires warehouse optimization and logistics cost management. The streaming model manages website uptime and line costs. If the same metrics are used before and after what we call change, it means that we haven't really made much of a change.
If you change your strategy, the group of competitors to which your company belongs will change. Google is competing with other content and technology companies in its core advertising business. Competing unmanned vehicles are manufacturers such as General Motors and BMW. Similarly, Apple has dealt with Microsoft, IBM, Dell, etc. in the past. After the iPod and iPhone, it will compete with new rivals such as Sony, Nokia and Motorola.
These three efforts have different impacts. Improving operations aimed at "today better than yesterday" is nothing more than an act that gives rise to masters of past practices. It is a short-term survival strategy and has no long-term sustainability effect.
Rather, leaders should think about how to combine operational model and strategic transformations to promote what we at Innosight call "two-pronged transformation" (see our paper "How to Simultaneously Promote Two Conflicting Transformations"). ..
In "Transformation A," we will review the current core operation model and strengthen today's business. "Transformation B" is carried out to create future core businesses (creation of new businesses). The two transformations require coordination and coordination through a carefully constructed “capability connection” (a system in which resources and capabilities can be shared and exchanged through both efforts).
Leaders can address the challenges of disruptive change in this way. And instead of being destroyed by the future, we can open up the future ourselves.