“Responding to the challenge requires executing what we call dual transformation.”
Dear CEO
It’s cliché to say that the pace of change is accelerating. Indeed, that statement has arguably been true since the renaissance. But something feels different today. Businesses built painstakingly over decades get ripped apart almost overnight. Innosight’s research shows that 50% of the companies on the S&P 500 will not be on the list in 10 years. Many of the companies that will replace today’s giants likely do not even exist today.
Every business leader needs to think about the impact of ever-accelerating change. Broad trends such as the rise of robots and drones, the disappearance of computers into everyday life, everything-as-a-service, and big data analytics promise to bring disruptive change to every nook and cranny of the global economy.
Many leaders describe increasing uncertainty as an existential challenge. Indeed, it causes a leader to question his or her very identity. Most leaders ascended to their current position by mastering the intricacies of today’s business, making rigorous, fact-based decisions. They need to develop new skills to make decisions using judgment and intuition, replacing an optimization mindset with an exploration one.
While the pattern of market leaders being felled by disruptive upstarts feels like an essential factor of capitalism, it carries a heavy transaction tax, destroying know-how formulated over decades and ripping local communities apart. And, it is unnecessary, because the forces that threaten to disrupt today’s business simultaneously creates the possibilities of creating tomorrow’s. Leaders that learn how to bend the forces of disruption in their favor can own the future, rather than be disrupted by it.
Responding to the challenge requires executing what we call dual transformation. Transformation A repositions today’s business to increase its relevance and resilience. Think about how Adobe shifted its core business from selling packaged software to providing on-demand access over the Internet, or Hilti went from selling tools to providing tool management solutions. Transformation B creates tomorrow’s growth engine. Consider how Amazon.com turned an internal effort to accelerate IT projects into a multi-billion-dollar cloud computing offering, or how Nestlé is creating a portfolio of health and wellness businesses.
We call it dual transformation because these two transformations need to be pursued in parallel. This is not unrelated diversification. Rather, Transformations A and B should be connected by a carefully crafted and actively managed “capabilities link” that flips the innovator’s dilemma into an opportunity. After all, while a large company can’t innovate faster than the market, it can innovate better than the market if it combines together unique assets of scale with entrepreneurial energy.
“Dual transformation is the greatest challenge a leadership team will ever face.”
Dual transformation is the greatest challenge a leadership team will ever face. Successfully managed, it reconfigures the essence of a company. Some of the old remains, just as it does when a caterpillar becomes a butterfly or ice turns into steam. But, as in those metaphors, the form or substance of an organization fundamentally changes. Mastering dual transformation requires:
- The courage to choose before signals are clear. The more obvious the need to transform, paradoxically, the harder it is to do it.
- The clarity to focus on tomorrow’s growth opportunities, even if it means saying goodbye to important pieces of yesterday’s business.
- The curiosity to explore in the face of significant uncertainty, and to handle the inevitable false steps, fumbles, and, yes, failures that comes along with moving in new directions.
- The conviction to persevere in the face of dark days, when key executives question the depth of commitment, conflict between today and tomorrow emerges, and fundamental issues of identity threaten to distract or derail progress.
Dual transformation is also the greatest opportunity a leadership team will face. Disruptive change creates a window of opportunity to create massive new markets. It is the moment where the market also-ran can become the market leader. It is the moment when business legacies are created.
To start the journey of becoming the next version of yourself, ask three deceptively simple questions. Who are we today? Who will we become tomorrow? How do we start making the change? Remember that the biggest risk is not the action you take, it is trying fruitlessly to cling to the status quo as the world changes around you
Leaders that catch disruptive changes early and respond appropriately will have the ability to thrive in the years to come. Those that don’t, well, Darwin has a way of taking care of them.
This article first appeared in Dear CEO (Bloomsbury, 2017).
