- October 31, 2019
- Posted by: Ramkumar
- Category: Strategy
Why Strategic Transformation is important?
As companies mature, growth slows even more, eventually flattening out.Yet we see operational expenses climbing as companies strive to compete with new players in the market. Finally unable to keep up with bloated budgets, companies spiral into negative growth, marked by layoffs, high burn rates and eventual bankruptcy. The key to enduring growth is strategic transformation when a company forgoes the good life of maturity growth, market leadership and is willing to take on the risk of transformation in the face of existential risks.
Companies that are able to radically change their existing way of doing things and then reclaim leadership positions are the ones that achieve successful Strategic transformation. This is because few companies make the transformation from their old model to new one willingly.
Importance of Strategic Transformation
- Having a right strategic diligence process is essential to accelerate strategic transformation.This is because when we incorporate strategy early in the transformation process, the probability of making a wrong plan or setting up a wrong forecast is reduced.
- Companies tendency to generate economic profit is dependent on the trends driven in its industries and the geographies where it operates.Hence when companies incorporate their strategy, they should take into account the important trends in its industries and on the geographies where it operates.This means that there needs to be a localization strategy based on the regions where the company is operating. When the strategy fails to address these elements upfront, it can lead to blind spots that can inturn derail a successful transformation.
- The strategic diligence process needs to be incorporated very early in the transformation using four lenses – 1)A Financial Lens 2)A Market Lens 3)A Competitive Advantage Lens and 4)Operating Model Lens.
- When the strategic diligence is focused on the above four lenses, the company can determine the strategic moves that it needs to include in its transformation roadmap to maximize value creation and sustain it for a longer period of time.
- Once the strategic diligence is completed, the next step is to focus on detailed design and planning.The high level strategic map is taken as a benchmark and the firm should build a more detailed plan around this.
Strategic Transformation vs Performance Transformation
- There is a difference in planning when we undertake a strategic transformation as against Performance transformation. In case of a strategic transformation, some of the initiatives will be less defined and more ambiguous.
- When a company does a performance transformation exercise, then it primarily focuses on achieving cost savings either by improving productivity, automating the processes to improve operational efficiency or by outsourcing its non core functions to a third party service provider.
- When the company does a strategic transformation, then it is focusing on building a new product or entering a new market from the scratch.When the focus is on building a new product or expanding to a new market, there will be a different level of granularity in the planning.
- A strategic transformation would also require a top down approach in order for the senior management to define initiatives in detailed manner so that the teams can execute these initiatives.
- For instance, when M&A is a part of a strategic roadmap then the firm would have shortlisted certain target companies that it want to acquire based on their corporate strategy.When these target companies are not for sale, then there needs to be a pivot.Hence in this case the road map needs to be dynamic.
- When the roadmap is dynamic, the type of skill sets required would also be different.The leaders in the strategic transformation have to be able to think through ambiguity and execute a dynamic plan.
Companies that were winners at one time have experienced the threat of decline and extinction at the end. We have abundant examples from Kodak to BlackBerry. Successful companies are willing to take on a risk of strategic transformation in spite of having good growth and market share to achieve new levels of growth and extend its horizon.