In a recent article on the Deloitte Strategy Blog: ‘Business Transformation: evolving the way business is conducted’ we outlined a new way for companies to think about the much used term Business Transformation. For us it is not a ‘costly, big bang, once and done’ exercise, rather business transformation is an evolution. An evolution in the way an organisation conducts its business and delivers value that is sustainable. This allows organisations to be more agile and respond to future shifts in the market or operating conditions. Put differently, transformation is a continuous exercise that has the deliberate focus of management and teams.
In this article we weigh-in on the many opinions about transformation by highlighting 3 factors that we believe are fundamental to leading effective business transformation.
1) Transformations are complex but the ‘narrative’ must be simple
There are many layers of complexity to transformation – multiple moving parts, management and coordination across business units and functional areas, changing roles, process, technology, policies, leadership. A simple, unifying story that can be understood from the market to the board, to management and the staff on the frontline is crucial. This narrative needs to be told in a way that is relevant to all intended audiences.
An example of this comes from a study of Google. Google’s search advertising revenue appears to be reaching a peak, particularly as it competes with social media, native advertising and mobile apps for attention and advertising dollars. Deloitte’s 2015 Media Consumer Survey found that advertising delivered through social media are now on a par with unsponsored search advertising in terms of consumer influence (with 34% of respondents ranking them in their top 3 influences of advertising they encounter online). As a result, Google is diversifying its focus to other bets – ‘Alpha-bets’ (bets above market return…). These are the moonshots (like Project Loon (internet for the world), Titan (drones), Calico (biology and lifespan studies)) all of which play a different role towards Google’s purpose of ‘organising the world’s information and making it universally accessible and useful’.
The narrative in the press release for Alphabet is characteristically Google and simply put. It starts – “Google is not a conventional company. We do not intend to become one.” The founders Larry and Serge have been careful to distinguish the boundaries of Google and other Alphabet businesses and the opportunities for employees to work on Moonshot concepts and thereby avoid a loss of focus on Google’s core business.
2) Take a minimum viable approach
Tomorrow’s most impactful business model changes are now starting their lives as minimum viable transformations (MVT). In the past 10 years, we have learned a great deal from entrepreneurs. Steve Blank’s The Startup Owner’s Manual and Eric Ries’s The Lean Start Up told us amongst other gems that “No business plan survives first contact with the customer.” Both authors shed light on the importance of the minimum viable product – a process of testing hypotheses, identifying flaws and working to improve them as rapidly as possible. The same is true for businesses: there are unknowns in business model construction—from minute changes to operations to global restructuring of the go-to-market delivery strategy — the process of iterative discovery could help to provide deeper and better understanding of business model risks and results in getting the changes to ‘stick’.
An example of the MVT in action is the market leader in financial software Intuit. It started its journey offering shrink-wrapped desktop products and is now posting record revenue figures as a software-as-a-service provider. As a large incumbent Intuit’s transformation journey could have gone the way of many others. One, often referenced study, found that 70% of all major transformation initiatives fail. So what was different about Intuit? According to co-founder and Chairman, Scott Cook, the secret to their success has been “acting small,” and applying the principles of minimum viable product thinking to big business. The core principles of the minimum viable product—validated learning, rapid prototyping, careful creativity—can assist organisations in limiting the drawbacks of traditional transformation programs. Approaching transformation with a minimum viable mindset can help speed decision making, surface issues faster and accelerate change, which are all essential to enabling transformation at scale
3) Focus on adapting capabilities, investing in new and divesting non-strategic
Assumptions and risks have been tested and now you are looking to scale but what should organisations do about their existing capabilities in relation to their strategic ambitions? In nature, adaptations can take many forms: a behaviour that allows better evasion of predators or a protein that functions better at body temperature. Adaptation is an equally important capability for business transformation. Organisations that critically review their capabilities for alignment to strategic ambition and adapt existing capability, invest in new and divest the non-strategic are more likely to evolve into a position where they can create sustainable value.
Nokia, the 150 year old Finnish communications company, is a practised transformer. Though it is probably best known for its dominance of mobile devices in the 90’s and early 00’s – it encapsulates the ‘adapt, invest, divest’ ethos of minimum viable transformation. Picking up on its transformation journey since 2011, Nokia has been focused on its winning ambition to build technologies for a connected world. At first, Nokia adapted its capabilities by choosing a new leadership team, changing its organisation structure and developed a VC capability. In 2014, in the face of market dominance by Samsung, Apple and cheaper devices from Xioami or Huawai, it divested its legacy mobile device business and took a 100% stake in its Nokia-Siemens-Network joint venture. These adaptations have evolved Nokia from a consumer device focused company into a network and technology focused in line with its strategy.
In short…Business Transformation is not easy, it is highly complex, and there are many examples of failed transformations. However, if organisations approach transformation as a continuous exercise with the focus of management and teams (not a ‘once and done’ exercise), develop a simple narrative to support the complexity, take a minimum viable approach to evolving business models and focus on adapting capabilities, investing in new products and services and divesting the non-strategic ones your transformation efforts are more likely to succeed.