A quick guide to enterprise transformation
Make sure your organization has the right competencies and capabilities for the future
By Michael D. Oliff
In 1996, I was commissioned by Accenture (then Andersen Consulting) to write a monograph with the title “Transforming the Enterprise in Turbulent Times.” Previously, as a professor at IMD in Lausanne, Switzerland, I had worked with 20 of the world’s most successful corporations and their management teams. Nestle, Johnson & Johnson, Audi, Sony, Siemens, IBM, DuPont, Exxon, SABIC, BP and Nokia were among them. As director of IMD’s Manufacturing 2000 project for five years, our team of business professors delivered more than 100 development projects focused on differentiating dominant from dying organizations. Our studies focused on dominance – building and sustaining influence in chosen markets. Our corporate partners were growth-oriented businesses confronting significant turbulence (a high rate and magnitude of change) in their markets. That effort led to much of what we know today as enterprise transformation.
Much has changed in the past 20 years, with dramatic growth in global connectivity and competition; customer choice and mobility; and discontinuities – both natural and man-made. One result has been an increased organizational recognition that incremental change and improvement, while necessary, is insufficient to meet the competitive demands of an age of turbulence. Ours is a time when firms experience both meteoric flights of success or equally precipitous plunges back to earth in decreasing amounts of time.
Engineers and managers long have been enamored by continually improving operations, products and services. From early time studies and statistical methods to process re-engineering and lean methods, a host of performance improvement toolkits have been developed and successfully applied to organizations around the globe. Systems views and systemic frameworks have helped businesses better understand the contexts and consequences of organizational change. Enterprise transformation, now formally recognized as a discipline in and of itself, is based on these advances but is not limited to them. It includes fundamental changes in the strategy, structure and human systems of the enterprise. It connotes a metamorphosis. Significant, complex change is the result of business transformation.
While enterprise transformation relies on process re-engineering and continuous improvement methods, it begins with a corporate strategy founded on the drive to create value with customers – not simply more revenues and profits, or reduced costs and expenses. It recognizes that building new business structures, often distinctive competencies, are required to engineer broad pervasive change. Finally, it relies on the development of stretch cultures to sustain any meaningful improvements.
Creating value with customers begins when you stop selling altogether and focus on your customers’ future success. Building distinctive competencies begins when you start viewing internal resources as value generators and bundles of cross-functional, corporatewide abilities. Developing stretch cultures begins only after you recognize the difference between performance and potential at every level within the business, beginning with the individual employee.
Corporate success/dominance requires the resilience to weather social, political and economic discontinuities. It demands that the expectations of both customers and consumers (or end users) be met and exceeded. Turbulence, discontinuity and customer supremacy have created the need for today’s transformer and tomorrow’s enterprise transformation. Nasim Taleb’s Black Swans concerns itself with high-impact, hard-to-predict, very rare events. The book’s main premise is not to predict black swans – we really can’t – but to build organizational robustness to exploit them.
To do so, paradoxically, both enterprises and individuals increasingly will be compelled to consider higher risk/reward choices revolving around transformation, not on incremental change or continuous improvement alone. These choices – and enterprise transformation itself – assume large-scale (relative to the size of your organization), interdependent changes in the strategy, structures and management/human systems of your business. Personal transformation relies on significant changes in your purpose, focus and discipline. Enterprise transformation rarely occurs without sustained personal transformation. It begins and ends with you.
Transformational change is different from incremental change. The first includes significant changes in corporate strategy, business structure and management systems; the second doesn’t. The first cuts across functions, business units and geography; the second doesn’t. Enterprise transformation is focused on creating customer and employee value concurrently and pervasively across markets and resource groups. In turbulent times, enterprise transformation is becoming the best bet to build and sustain dominance.
In his book, Innovation: The Attacker’s Advantage, Richard Foster tells the story of one of the last major sailing ships, the Thomas Lawson. The Lawson account is cited to illustrate the danger of attempting to compete on underlying factors pushed beyond their practical limits.
A huge ship with more sail and cloth than any great sailing vessel ever considered or constructed, the Thomas Lawson was designed to outperform in speed and distance the new class of vessels powered by steam-driven turbines. It would become the last of its breed ever built. The Lawson’s capsizing in the English Channel in 1907 forever changed an industry. With the advent of steam power and radically different designs, merchant vessels transporting cargoes never contemplated before reached new distances at greater speeds. A dramatic change in propulsion technology left previous efforts in its wake.
Modern enterprises propelled by stretch cultures, high performance teams and transformed individuals and that are structured on more flexible and focused distinctive competencies are achieving dramatically different results that yield sustained customer value streams.
Traditional organizations – built rigidly on functions and departments, fueled by cost reduction and efficiency programs, motivated by profit and managed assuming predictability – have reached the point of diminishing returns. They will not win many more competitive races in the age of turbulence.
In the uncertain future, dominant enterprises must build four distinctive, value-focused competencies – customer value development, brand value development, employee value development and partner value development. These corporatewide abilities that customers value and competitors fear will be disbursed geographically, leaving only two overarching requirements for headquarters to fulfill: periodic strategic intent programs and the resulting resource allocation decisions that follow them. The four competencies will in turn be supported by a number of world-class capabilities, including six specific ones – offer innovation, demand generation, demand chain optimization, communication and connectivity, complex program management and value measurement.
How do you plan to differentiate yourself and your organization tomorrow? How do you measure your own potential and success and that of your enterprise? If there is any certainty, it is this: Competition will increase relentlessly, as will customer expectations and economic/political upheavals. Transforming yourself and your business may be your best bet to sustain influence in your chosen markets.
Michael Oliff was a professor and the director of the School of Management at the University of Texas at Dallas, a professor and the director of IMD (International Management Institute) in Switzerland, and a research and international fellow at the University of South Carolina.