A transformation is a metamorphosis
Transformations were once rare events and only for brave chief executive officers and boards. They now abound and companies are being proactive in keeping up with the competition.
- Some companies will need to metamorphose to properly position themselves for the future.
Companies need to drive both productivity and innovation to transform.
- A good strategy must clearly set out direction of a company, its choices and priorities and what’s required to get there.
Driven by digital advances and convergence, many companies – and even whole industries – are taking drastic action to combat competitive challenges on cost, experience and business models. Some companies are doing this in a structured and considered manner. Sadly though, many are not. Such is the intensity of pressure in some industries.
This is particularly true in industries that provide market-matching services, where digitisation has allowed direct access and improved efficiencies. For example, financial services, recruitment, tourism with AirBnB and taxi services like Uber. However, companies in many other industries are wanting to transform with urgency too.
This pressure is resulting in several unhealthy phenomena.
Transformations that are only focused on cost-cutting, often in an unsustainable manner.
A rush to match competitors’ customer-facing digital interactions, for example, making decisions to develop applications without thinking about how the app should work end-to-end.
Treating digital as the panacea.
Not improving corporate health, for example, the capabilities and modus operandi.
None of these constitute transformations. They are simply projects or programmes of work that produce narrow or short-term outcomes. This may meet the short-term objectives of some companies, of course.
But for those facing significant disruption who wish to position themselves well for the future, they need to truly transform, to change significantly and holistically to be able to produce a step-change in activities and outcomes. They need to metamorphose. So what must companies do to drive this outcome? Understanding the anatomy of transformations may help.
Productivity and innovation
Companies need to drive both productivity and innovation to transform. The former alone is insufficient, as companies also need to grow. Productivity is simple enough to understand and is more than simply cost cutting. It is fundamentally about achieving the same, or more, with less. Smart companies are doing this by prioritising their work and stopping low value work, and addressing productivity.
Companies need to optimise the demand for work by reducing bad volumes and ensuring the lowest cost channels are used. They must also optimise the execution of work through efficient processes, automated if possible, minimisation of waste and optimising procurement.
In addition they need to optimise the supply of assets and labour for example, through asset utilisation and labour composition. Innovation is what’s required to step-improve the customer experience, introduce profitable new revenue and business models. In this fast-changing world, the process needs to be continuous. Transformation programmes must therefore stimulate innovation and create a creative ecosystem for this to be ongoing.
Consider these questions as part of this ecosystem.
1. What elements of innovation should be covered and prioritised? Recognise that innovation can apply to all aspects of the business, that is, on the revenue and cost side. For example, across products, brands, channels, processes, as well as customer engagement, revenue and business models and even offshoring and outsourcing models.
2. What will the overall approach be? For example, consider the use of accelerators, hackathons and/or design thinking
3. What capabilities and supporting activities are required? Consider acquiring deep customer empathy and insight, and drive rapid prototyping, to maximise speed to market, with risk minimised.
4. How should it be funded? This includes syncing of the funding with the iterative rhythm of contemporary innovation approaches.
5. What incentives need to be in place to promote collaboration? A key ingredient of creativity and innovation, within the corporation, across silos, and with external partners.
Digital is a key enabler
Digital, which is driving much disruption, is clearly a vital enabler. A holistic digital approach incorporates all types of technologies in driving both productivity and innovation. This ranges from Robotic Process Automation (RPA), which offers significant productivity improvement, to smartphone apps and chat bots, for improved customer experience, to a host of technologies that offer multiple benefits.
The convergence of these technologies with Artificial Intelligence typically supercharges the opportunities. Companies need to look through each of these digital lenses to see what productivity, experience and model opportunities present for them.
Strategy and implementation
A good strategy must clearly set out direction of a company, its choices and priorities and what’s required to get there. That is, the objectives, where to play, how to win, and the capabilities and systems that need to be in place. These choices need to be made in an integrated manner that aggregate to real transformational decisions. For example, do we just need low cost human resources and finance functions?
Or do we need a human resource function that can lift capability to an agreed high standard at 40% lower cost and a finance function that is world class? In this regard, the choice-making is vital. Companies cannot afford to do everything and must focus.
Innovation is what’s required to step-improve the customer experience, introduce profitable new revenue and business models.
Finally, it’s all about implementation. Get the outcomes of the transformation programme delivered on time and to budget. Every executive knows this, yet there are more transformation programmes that have failed than have succeeded. Why is this so?
The answer lies in having tight programme management discipline, the right capability to both deliver and govern, and applying contemporary approaches that de-risk transformational programmes. Specifically with the latter, agile methodology that incorporates cross-functional teaming and rapid prototyping prior to full implementation of anything major.
One key challenge for transformation leaders is how to drive both innovation and productivity. The former requires creativity, whereas the latter is primarily a disciplined and programmatic exercise, a creativity killer. An early start to the exercise may help generate clear air between the two endeavours along with a clear vision and very careful and nuanced communication. Typically, companies would drive productivity hard first, to release the cash and create a fund for the balance of their transformation program.
Disruption, caused by digital or other factors, can be incredibly unsettling for executives and staff. Consequently, many companies go hard at one or two dimensions alone, typically through productivity and digitisation. Unfortunately, this may satisfy the short-term need, but will not meet the long-term criteria for success.