Dual Transformation - How to Reposition Today’s Business while Creating the Future
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The document discusses the concept of dual transformation in business, emphasizing the need for organizations to fundamentally change their operations and offerings to stay competitive. It outlines a strategic framework that involves re-imagining the organization, curtailing investments in legacy systems, and fostering disruptive innovation to address new challenges. Key components include changing the 'how' of delivery, creating new solutions, and effectively managing the transition between core and new growth businesses.
Dual Transformation - How to Reposition Today’s Business while Creating the Future
- 1. Dual Transformation How to Reposition Today’s Business while Creating the Future
- 2. Transformation means When the fundamentals of your business changes. E.g. Caterpillar to Butterfly, Solid to Gas i.e. ➔ It's not just replacing a fax machine with email and introducing a mobile app. ➔ Remember, your key metrics changes; else it’s not transformational (it’s just transactional) ➔ No more monolithic transformation; Transformation ≠ Good to Great ➔ It's about, “How to do you convince ‘TOP TALENT’, that there remains a viable future in a rapidly diminishing business ? ◆ Convince not with DATA (ofcourse, data doesn't exist); but with a grand VISION & STORYTELLING Solid becomes Gas
- 3. Dual Transformation | A + B + C = Δ 1. Re-imagining the very soul of the organization 2. Curtail investments in legacy core 3. Repositioned, core business and quickly growing new growth business 4. Disruptive innovation happens in the historically constrained market, bringing new solutions to millions of people 5. Prepare for change when you’re at the top of the game. Refer Fitness Landscape below A + B + C = Δ ★ Formula is simple; But execution is Complex. Killer formula. ★ A = Change the ‘How’ i.e. finding more effective and efficient ways to address the customer needs to maximize re-silence of your existing / historical core business. ★ B = Finding new way to solve a different (new) problem. Rethinking ‘What’ we deliver. Create a new growth engine. ★ C = Bridging the capabilities link between A and B. Taking advantage of difficult to replicate assets without succumbing to the sucking sound of core. ★ Why do both A and B - because to expand the core business without facing existential threat Your company;at Top of the heap. Only option is “No direction but Go down” Disruptor Try Crossing the Chasm to move ★ from ⬛ After disruption, 10’s of 1000’s of Know-How is lost Local maximum Top of the Heap
- 4. 4 step actions framework to start Dual Transformation ● The courage to choose before the platform burns ● The clarity to focus on a select few moonshots. ● The curiosity to explore even if the probable outcome is failure Netflix’s Reed Hastings started the transformation before it was necessary; an action setup for a decade of successful growth. Aetna’s Mark Betrolini decision to reconfigure the insurance giant. Former President. John F Kennedy, USA - send a man on the moon and bring him back within this decade. Call it “Pie in the Sky” Adopting the process of ‘Trial and Error’ method; with many failing efforts along the way A motivational purpose and relentless separation of work. Even when everybody is in doubt “leaders remain firm in the face of commitment, saying “A does A; B does B” ● The conviction to preserve in the face of predictable crisis
- 5. Select examples of companies adopted the transformation ● Xerox ○ Core threat to Xerox was commoditization in its core printer and copier business. Driven by globalization, the rise of internet, which dampened demand for physical solutions. ● Adobe ○ Everyone familiar with PDF. Software packages such as Photoshop, Illustrator, After Effects, Dreamweaver were backbone of modern internet. But, when Shantanu took over in 2007, it lost US$ 1 B in revenue due piracy software ● Aetna ○ Healthcare spend in US (GDP) ○ 6% in 1960 to 20% in 2011 ○ Obamacare put pricing pressures on pharma and medical device companies; but looked like a panacea for insurance companies
- 6. Transformation A = Change the ‘How’ you deliver 1. A - is for a validated / broad market. A is confronting the Innovator’s Dilemma. 2. It's a Gale of creative destruction. 3. Mostly importantly, ‘What’ you deliver remains same; Only ‘How’ you deliver changes. i.e. finding more effective and efficient ways to address the customer needs to maximize re-silence of your existing / historical core business 4. Note: The biggest/core problem for companies “Change the way they operate i.e. over time companies develop rules, norms and metrics designed to perpetuate how they create, capture and deliver value” 5. First > understand at a detailed level - the jobs to be done that customers consider unique and meaningful. 6. Second > Then innovate your business model to those jobs. Remember, customer pays not for product; but for satisfaction 7. Third > Determine and Measure new metrics a. Most companies do wrong in the name of Digital transformation is, simply doing what they used to do digitally. E.g. ripping out fax machines with email, and email with text messages . 8. Fourth > Implement aggressively ie. Do Knee-deep execution . Sometimes, you have to ‘burn the boats’.
- 7. Transformation B - Creating the new ‘What’ you deliver Essence“The process of making the complicated → simple, expensive → affordable always grows markets.” 1. B is about seizing the innovator’s opportunity. 2. B is the wind turbine to power the next wave of growth 3. Relentless focus on customer. 4. Most importantly, B is a separate entity, with a separate target market and a separate business model 5. Keys to success -Identify problems that target customer historically wanted to solve but cant’ a. Identify constrained markets b. Identify Consumption barriers i. Consumption pyramid - i.e. by wealth; highlight disproportionate spending and grow by simplification ii. Consumption map - where and how consumption happens iii. Consumption chain - take a look of the chain has potential to drive new growth 6. Beware illusionary non-consumption i.e. sometime people don't care much about the problem. Remember, not all ‘white spaces’ want to be filled. Some ‘blue oceans’ are crystal clear for a reason 7. Use your salesforce and powerful brand to access senior leaders at significant corporations and win meaningful deals.
- 8. ● D - Document, your idea with all components ● E - Evaluate, in multiple lenses to identify uncertainties and weak points ● F - Focus, on most critical areas ● T - Test, rigorously and rapidly ● H - Hypothesis, like a good scientist, start with hypothesis and then design an experiment ● O - Objective, make sure why are running and what hope to learn ● P - Predict, make a prediction on what the right answer is ● E - Execution, Execute against the prediction. 7. Most importantly, Business Model can be learnt only by Test & Learn approach. Start with a series of experiments. Discover the path by action and not just based on Analysis. The best predictor of future behaviour is past behaviour 8. Remember, successful innovators manage risk through’ disciplined experiments. E.g. Wright Brothers used ‘Kite’; when it fails, nobody gets hurt. Use DEFT and HOPE frameworks from The First Mile by Scott Anthony. 9. Focus on Deal Killers, which are binary make-or-break issues. Pivot points. Confidence Boosters. 10. Assess your competition, and accelerate capability via acquisitions and external hires. Apple made 26 acquisitions between 2001 - 2010. 11. In 1962, Thomas Khun’s book The Structure of Scientific Revolutions highlighted, “Paradigm Shifts, always came from outside of the established orthodoxy.” if you don't bring in aliens, it's unlikely you will be able to push the innovation further. 12. Involve 3 types of people for Transformation B to be successful a. Aliens - who will push you in a new directions b. Diplomats - who will help negotiate bilateral relationships; who can speak core and alien and arbitrate differences b/w two c. Savvy Veterans - a person who knows the people to call to get things done, recognizes the unstated assumptions, influence critical executives Transformation B - Creating the new ‘What’ you deliver
- 9. Transformation C - Capabilities link between A and B 1. C flips the innovator's dilemma into opportunity. But C is difficult to understand. And much harder to explain. 2. Late. Clayton’s Disruption theory show readers “New technologies cause great companies to fail”. 3. Only way for incumbents to succeed with disruption is by creating a separate organization and having substantial freedom 4. Medtronic (pacemaker - a small, implantable device regulates flow of electricity to heart) in India, could address the affordability problem with a radically cheap pacemaker. Device’s $1000 price point was unaffordable for most potential customers. Hence, Medtronic applied principles from Grameen Bank to serve previously unserved low-income consumers. 5. Digital Buyer needs a Digital Seller. Do role playing exercise to combat the biases that blind you. 6. 3 keys for successful C a. Stocking the link selectively b. Manage the interfaces strategically. Develop A and B systems with different set of rules i. People may be collaborative; byt systems are not. Systems such as how you budget, allocate people b/w teams, gather customer feedback, create products, measure and reward people. ii. Have different set of rules for A and B iii. Break things to move fast iv. Create a formal exchange team. Mix people from A and B. Ensure B is succeeding. v. Institute Transfer Pricing. c. Arbitrate actively i. For first few months, it looks like A is triumphing because A brings money for the present. Involve CEO 3 levels down to establish B is succeeding. ii. E.g. Aetna’s Mark Bertolini has driven the dual transformation aggressively .
- 10. Courage to Choose using 7 Early Warning Signs grouped to 3 stages Stage 3 - Impact 6. Early Warn Sign 6 - A viable competitor fine-tunes a disruptive business model. 7. Early Warn Sign 7 - Slowing revenue growth is coupled with increased profit margins as leaders exit volume tiers and cut costs Stage 1 - Circumstances 1. Early Warn Sign 1 - Decreases in customer loyalty, driven by overshooting 2. Early Warn Sign 2 - Significant and Lasting investments by Venture Capitalists ○ Overestimate technology in short run, Underestimate the effect in long run Stage 2 - Catalysts 3. Early Warn Sign 3 - Policy Changes open the door to new entrants 4. Early Warn Sign 4 - Entrants emerge at the low end or market fringes with inferior-seeming solutions 5. Early Warn Sign 5 - Customer habits and preferences show sign of shifting 5 Tips on “How to Spot Early Warning Signs” 1. Go to periphery - i.e. Focus on non customers 2. Pay attention to small things - Just think where was Youtube in 2005; no-one watched 3. Think about what could happen in the future not what is happening now 4. Involve Outsiders - Because, it's hard to identify our own problem. E.g. Clark and Mark conducted a colloquium about responding to disruptive change. Intel, Kodak, US Defense dept attended. Kodak found problems with Intel’s low-end microprocessors. Defense guys could see Kodak;s challenge with Digital imaging. But none of the companies could see their own problem 5. Assess the cost of inaction
- 11. Clarity to Focus using 3 step process 1. Determining your growth gap (Remember, don’t spend too much time and overthink the problem) a. Set a Target b. Estimate the potential of current operations c. Estimate the potential of existing investments in new growth d. Calculate your growth gap 1. Determining the goals and boundaries (Create a bulls-eye diagram with Red, Amber, Green status) a. What type of service should it consider? b. How much was it willing to spend pursuing new opportunities? c. How long is company willing to wait before a given idea had an impact? d. What geographies should it target? e. Is it willing to pursue other regulated areas? f. Are areas replete with bribery and corruption worth considering? g. Which customer group can you target? h. What is the offering you will provide? How will you generate revenues? i. Which suppliers and partners you will use ? Whats tactics and Go-TO Market strategy you will use ? 1. Determine your strategic opportunity areas a. Is the what compelling? b. Is the who sufficient? c. Is the how believable? d. Is the why convincing? Key to success 1. Adopt a Future-Back mindset a. What next year will look like? b. Get on to Time-machine and decide what do you want to see ? c. Create a Blurb about, how the transformation will look like . Not $$$ d. Have executive conversation e. Draw From and To states f. Try 60-90 days effort 2. 5 key topics for Future a. The most likely future environment b. The desired state of the future company c. The most critical strategic initiatives d. The most critical assumptions e. Critical near-term action items to start the journey 3. Think across 3 frames a. Moonshot frame b. Lunar module (or launch pad) c. Tuesday lunch 4. Most importantly, be will to wave Good-bye to the past
- 12. Curiosity to explore 1. Problems of predictability at Procter & Gamble (P&G) a. Remember, strategy is what you do and not what you say. It is how you spend time and money and allocate your resources. b. One top P&G executive said, “we’re organized to deliver consistent, reliable results and that’s exactly the problem” c. P&G’s leaders were worried. They peered into the development pipeline and saw a problem i. Line extension and incremental ideas crowded the pipeline. That prospect a declining growth not next or next decade. Beyond that. ii. P&G leaders decided to systematically and reliably create ideas that the potential to create new brands and new categories. Through this thinking, the $ 10 Billion Pampers was born 2. How Predictability interferes with Innovation a. Pfizer exploring the drug coded “UK-92480”; hoping it would lower blood pressure(BP) in patients. It didn’t work. I.e. did not lower (BP). however, male patients be particular to come back and ask for more. Pfizer studied that, optimized side effects and new a drug for the erectile dysfunction category and multibillion-dollar blockbuster Viagara were born. b. In 1920s, Alexander Fleming brimming with ideas about how to kill bacteria. His mind was so crowded, he left the lab in shambles and took a vacation in Aug 1928. On his return, he found something he didn't expect, a petri-dish festering with bacteria - except for one particular part of the dish. And Fleming discovered Penicillin . 3. Explore Vs Exploit 4. Curiosity and decision making 5. Curiosity is critical. Think of difference between a Venture Capitalist Vs Corporate Planner a. Remember, 75% of VC investments fail (median and mode) with fat ZERO. 6. 3 components of new ideas a. The funding component b. The focus component c. The failure component 7. Create safe places for innovation 8. Expose leaders to new thinking (i.e. ) involve outsiders to give a talk 9. Reduce the gap between customers and leaders
- 13. Curiosity to explore & Conviction to preserve 10. Reinforce the curiosity in routines and rituals a. Try “Customer Close-up” and “Get out of the building” i. Goto the store, put the trainee badge and directly interact with customers 1. Walk a mile in the shoes of the customer 2. Simplify experiments as like “Adobe’s Kickbox” 3. Celebrate desired behaviours e.g Dare to Try by TATA group 4. Find a inverse / reverse mentor i.e. who failed and has scars 5. Learn to code e.g. NOKIA Chairman - Risto Siilasmaa is coding and expert in ML 10. These are great immersive programs and ways to develop deep empathy with customers and lead participants to question underlying assumptions they have about the business. The larger the company is, the wider the gap between its leaders and its customers. Conviction to preserve 1. The mantra - A does A; B does B 2. You cannot win based on the numbers; so you ‘have to tell a compelling story at the centre of the strategy’. 3. Ground your effort towards motivating purpose 4. Remember, Theodore Levitt ‘Marketing Myopia’ ; don't focus on competition too much; because you get to obsolescence. 5. Manage 3 crises of transformation a. Crises of commitment b. Crises of conflict c. Crises of identity i.e. Communicating your new identity to all.
- 14. Adobe Aetna Singpost (Singapore Post) Amazon From Packaged software to subscription (Creative Cloud) Moving from software to marketing services e.g. with the acquisition of Omniture and other 2 companies Shift from selling insurance policies and administrative services to large companies. It created consumer-facing marketplace that would make shopping for health insurance. fundamental change in their pricing from Fee-for-service to Fee-for-value Committed to providing new services to doctors and hospitals. Help govt.and employers take better care of their beneficiaries by offering cost-effective access to high-quality care From mail delivery to logistics service provider. SingPost revenue grew $300M - 2004 to $700 M - 2014. E.g in US mail volume dropped from 206 B - 2004 to 155 B - 2014 i.e. 25% decline Introduced Bill payment services at Post offices, offering mailroom management and BPO services. Acquired Quantum solutions to power e-fulfillment services in 10 countries Amazon Prime, Customer reviews Amazon Web Services (Board members & investor - John Doerr said to Jeff Bezos, its a distraction and un-happy with AWS. Bezos ignored him) Example of Transformation A and B ACompany B
- 15. Final thoughts on Dual Transformation 1. How 2. Incremental 3. Exploit - precision 4. Piecemeal 5. Predictable, consistent and reliable 1. What 2. Transformational 3. Explore - finding new paths 4. Big & Bold 5. Exponential and disruptive Transformation A Transformation B
- 16. Inspiration & Courtesy to books and research reports 1. The Innovator’s Dilemma - Late Prof. Clayton Christensen 2. Theory of Disruptive Innovation - Late Prod. Clayton Christensen 3. The Structure of Scientific Revolutions - Late Thomas Khun 4. Dual Transformation - Mark W Johnson, Scott D Anthony, Clarke G Gilbert 5. Crossing the Chasm - Geoffrey Moore 6. The First Mile: A Launch Manual for Getting Great Ideas Into the Market - Scott D Anthony