Apr 14, 2021 at 1: 40 pm

Three Types of Transformation

In our work, we identify three types of transformation: Shock, Shift & Evolution

Christian Rangen

3 MIN READ

Transformation is becoming the “new normal”, and is becoming more and more prevalent across industries. This trend is only expected to continue to accelerate.

Even heavy-asset industries (like GE) and slower-moving industry (energy & utilities) are facing an unprecendented level of industry shifts and disruption.

It is very clear to us that transformation, to many viewed as a complex, painful and deeply challenging leadership task, is about to become the “new normal”.

Rethink and Relearn How We Build and Operate Companies Globally

When transformation becomes the “new normal”, companies will need an entirely new playbook on strategy and transformation. We have moved from “strategy as analysis” to “strategy as innovation”. Next, we need to write the playbook that can guide companies well into the 21st century.

Many of the pieces are already on the table but need to be assembled into a complete Transformation roadmap. Mastering ecosystems, extensively exploring portfolios and world-class corporate venturing will become cornerstones of a new operating model.

How do we recognize Transformation?

How can we recognize a transformation that is already underway, or perhaps even successfully completed?  Well, there are three strong milestones that are worth paying attention to.

  • 25 – 30%+ of total revenue comes from new areas, new business units and new business models, typically far outside of the old core business model. This number may be higher or lower at this exact moment, but the trendline towards this level is clear.
  • These new areas, both in Growth and Explore, are growing faster than the Core, have a higher profit margin (or at least is projected to have a higher profit margin), and the new business models make up a disproportional share of the value expressed in the market capitalization. (i.e. your Market Cap Drivers)
  • Management and financial analysts are rapidly coming to the realization that in a very near future, the majority of profits will no longer be coming from the Core, but from Growth areas, accelerating a painful but natural discussion of exiting the old Core business areas and shifting the Growth areas into what is now becoming the new Core.

Once this scenario plays out, the transformation has gained so much momentum and overcome so many internal challenges, that it is most likely to play itself out in a successful manner. Yet, management and the board now realize, “we did it once, can we do it again, in a systematic, repeatable way”, and that now becomes the new challenge. We just call it “Step 10, repeat”.

The Three Types of Transformation

Shock

Shock is triggered by outside events or outside pressures that force the company to transform, or at least attempt to transform. Burning platform.
Very hard to pull off.
Case: Nokia

 

Shift

Shift is a sudden strategic move that carries massive and abrupt changes to the business models and underlying value creation logic.
Exit a declining core.
Case: Adobe

 

Evolution

Evolution is a long-term, planned and well-executed gradual change in resource allocation and business areas. The evolutionary transformation may play out over ten+ years. The Core-Growth-Explore playbook is virtually always followed.
Continuous reconfiguration.
Case: Microsoft

 

Shock

Shock is triggered by outside events or outside pressures that forces the company to transform, or at least attempt to transform. Burning platform. Very hard to pull off.

Three signs to look for:

  • Actively ignore weak signals and shifting context
  • Double down on legacy core business
  • Only fully realize it too late, new CEO, launching a flurry of initiatives at the last moment

Well-known cases: Nokia, Blockbuster, Kodak
Emerging cases: Volkswagen, GE

Shift

Shift is sudden strategic moves that carries massive and abrupt changes to the business model and underlying value creation logic. Exit a declining core.

Three signs to look for:

  • Strategy review kicking off a new era
  • Bold leadership
  • Willing to ‘burn the lifeboats’ and go all in, despite short-term fall in market cap

Well-known case: Adobe
Emerging case: Ørsted

Evolution

Evolution is a long-term, planned and well-executed gradually change in resource allocation and business areas. The evolutionary transformation may play out over ten+ years. The Core-Growth-Explore playbook is virtually always followed. Continuous reconfiguration.

Three signs to look for:

  • Long-term process evolving over time
  • Openly recognize and discuss the strategic dilemmas in the ‘old vs. the new’
  • Patiently guiding external stakeholders, media and financial analysts

Well-known cases: Microsoft, Amazon, Schibsted, Fuji
Emerging cases: Equinor, Shell

What are the Implications for your firm?

Learn more in the free report: Building the Transformational Company

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This post was an excerpt from the full Building the Transformational Company report. Download your copy here.

Christian Rangen
Christian Rangen

Strategy & transformation advisor to companies, innovation clusters, ecosystems and governments around the world.

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