The increasing speed of disruption from specialized, digitally advanced and often non-regulated entities, combined with ongoing economic, regulatory and technical change, is forcing organizations to rethink the way they’ve traditionally approached transformation.
Pervasive Transformation, Elusive Success
We know virtually all large organizations are in the midst of a transformation. In fact, KPMG’s 2015 survey of nearly 1,000 executives from U.S.-based multi-nationals found that 98% of organizations are in some stage of transformation, up from 93% in 2014. While transformation is pervasive, consistently achieving value is not. Nearly one-third of companies surveyed indicated they generally fail to achieve the business benefits targeted at the onset of their initiatives. Inadequate planning for operating model changes is one of the chief obstacles to effective transformation execution.
We also know that establishing and tracking metrics creates critical guideposts to achieving the value of a transformation. Yet only 14% of businesses surveyed currently define metrics and connect them with the strategic vision and desired business outcomes before getting the effort underway. There is, of course, cause and effect between the lack of setting metrics and the inability to achieve success. Other challenges to achieving transformation results include aged legacy technology and resource constraints, according to the survey.
A Rapidly Evolving Approach
In my discussions with executives, the thinking around successful transformation is evolving rapidly. What was recently measured in annual cycles must now be measured in monthly and quarterly increments due to the speed of disruption. In fact, I have seen large organizations with annual strategy-setting cycles recently move toward quarterly cycles. We are beginning to speak of transformation in terms of continuous, iterative and agile actions intended to drive incremental enhancements of operating model tactics in pursuit of longer-term step changes to business model aspirations.
This doesn’t mean businesses need to cast aside long-term strategic goals for growth, profitability and increased market share. But for transformation strategies to drive sustainability in a constantly changing environment, reduced cycles must be in place to mine market signals more frequently, which must be engineered to make ongoing course corrections to execution plans.
Mining Market Signals
There are a host of market signals driving disruption across industries. Mining these signals is a process that requires resources with a pulse on the competitive ecosystem, which are able to reconcile “outside in” data points to “inside out” tactics. Here are just a few that warrant consideration:
- Due to an entrepreneurial mindset coupled with low barriers to entry, the collaborative economy is reshaping the economic environment. Power is shifting from corporations to marketplaces where online experience and the social aspect are key for success. This impacts everything from lodging to transportation to financial services.
- Millennials are opting to live in cities rather than suburbs, and as a result, are delaying purchases of cars and homes, and timeframes for life events such as marriage and starting a family. This impacts their participation in markets that are structured around “life event” planning.
- This delay in life event planning means millennials are more likely to use unbundled services that create efficiencies in slivers of their lives as opposed to bundled services offered by traditional providers across the spectrum of the value chain.
- Health and wellness awareness is spiking, with a proliferation of sources offering nutrition advice. Technology, including wearables, is enabling a quantified self where people are more aware of calories, sustainability and food sources. This is impacting everything from large food manufacturers and beer brewers/distributors to restaurants and grocery chains.
- The standard definition of currency is rapidly changing with mobile app payments (loyalty), discounts, elevated experiences with likes and hashtag use (social) and crypto-currency such as Bitcoin. In fact, the definition of what a “wallet” is has come up for debate.
These are just a few examples of market signals that must be constantly mined to determine what course corrections are required as part of a transformation effort. In some cases, those course corrections may be minor tweaks to operating model tactics, but in other cases organizations need to revisit strategic imperatives that form the foundation of the transformation. This is a different world and one that requires nimble and agile management, all the way up to the board and management committee levels.
Charting the Course
At the start of any transformation effort, there are some foundational questions that can help define the strategy, execution journey and measurement of success, including:
- What are the issues impacting your business and what are the relevant market signals you should mine?
- What is your ambition? What criteria will you use to define success?
- How will you compete? What is your participation strategy with regard to markets, propositions/brands, customers and channels?
- How will you win? What is your competitive strategy with regard to enabling your operating model to support your business model in an efficient and agile manner?
- What metrics will you use to measure ongoing success and how do you get to the data required for that measurement?
- How do you instill a continuous improvement culture in your people and keep them motivated based on a demographically diverse work force?
While these questions are important at the onset of transformation, it is perhaps more important to continually re-assess the ecosystem and make course corrections to strategy and operating model tactics. The KPMG survey found that the majority of organizations (57%) start out thinking big. They begin with a strategic plan to address a defined set of high-impact issues that require an interrelated set of projects across the business. However, the road to agile transformation requires frequent course evaluations and corrections. Most organizations are simply not structured to “turn on a dime.” Rather, the “turning an aircraft carrier” analogy more often applies, which adds timeline and cost overruns to most transformations.
A Reality of Disruption
We believe disruption is the new reality for the foreseeable future and this requires a more proactive approach. The answers of the past — large-scale, multi-year technology replacements — take too long, fail too often and are constantly re-prioritized due to their size, scale and complexity. Rather, we see a shift toward what we call a “freeze and wrap” approach. We recognize that some technology is simply old and must be replaced either for performance or regulatory reasons. We believe those efforts should continue as “business as usual,” but should not be viewed as responses to disruption. Rather, we are seeing the emergence of parallel and multiple efforts to freeze the code base of legacy technology and reduce its capabilities to simple accounting.
Stop adding code onto legacy technology that you know won’t sustain your business aspirations. Rather, “wrap” that legacy technology with middleware and web services capabilities that can leverage core data while shortening time to market and enhancing the data you push to both internal and external customers and channels. Spend more of your time and budget focused on the “digital overlay” of that technology, applying analytics to present data in the form of information reporting and dashboards that can enhance sales and decision making capability, and simplify experiences for all your customers.
Do this in a way that adopts bits and pieces of agile methodology with a focus on combining multi-functional teams — product, ops, IT and developers — in “delivery cells” or “product pods” that can drive expedited product functionality through a customer experience value chain. We have seen this strategy reduce cycle times to weeks and months rather than years and we argue that it’s also an effective way to better align revenue and market share enhancement goals to budget spends. That is a potential value proposition that cannot be ignored or even delayed.