There are 3 questions that I get from GLC leaders – almost without fail:
a. What is transformation?
b. What do I do with the deadwood?
c. Can they not renew my contract?
This post will deal with Transformation.
a. What is transformation?
Simply said one type of transformation is where a business consciously decides to change its business. The clearest examples of companies that have transformed are IBM, Nokia, Kimberly Clark, Intel, AT&T (Ma Bell). If you were to examine the history of these companies, what they started as and what they are today are completely different. IBM was selling mainframes and today they are almost out of selling boxes and fully into becoming a service company. Like wise Nokia from Pulp and Paper to hand phones.
The second type of transformation is where a business changes the rules of the game. Example here of companies that have changed the rules of the game are WALMART, Federal Express, Lexus, Swatch and Rolls Royce (power by the hour), Dell
In the first case where they changed their business, it was because they saw little or no future in their current business and / or new emerging opportunities that they could latch on.
In the second case where they re-wrote the rules, they have done it by solving contradictions. Wal mart: Hyper – rural – low cost, Fed Ex: on time – overnight, Lexus: Luxury – affordable, Swatch: unique – affordable.
So transformations are very extensive strategies that impact everything as we know it and takes us into the unknown.
A level of organization change that precedes transformation is reengineering. Reengineering is concerned with shifting a business from being turf driven to value driven. Turf is concerned with maximizing the functional silo’s while value is about maximizing the whole. The goal of any company that is reengineering is to be able to compete and clearly differentiate itself based on its value disciplines.
Western companies re-engineer, Japanese companies don’t. Using Toyota as an example, it is such a fanatic at continuous improvement that it can be said it is continuously reengineering itself. After all it has in 50 years gone from a nobody to the No 2 car company is the world in terms of volume but no 1 in terms of profitability.
Western management philosophies have never embraced continuous improvement hence reengineering was a process designed to help companies leap frog into the 21st century. In reengineering there is no stone left unturned nor are people spared. VSS / MSS / Right sizing / down sizing is all part and parcel.
To embark on either re-engineering or a transformation program presupposes 2 things:
A: that your existing process and people are already very strong and capable.
B: you concern is long term value growth
A lot of times, the philosophies of investment portfolios are in direct conflict with that of transformation or re-engineering. In portfolio management, the goal is to use financial tools and measures to rapidly grow value and often times in excess of intrinsic value. After all the best time to sell is when the market value exceeds the intrinsic value. This is not reengineering or transformation. This is profit maximization – for the portfolio manager. This is why Warren Buffet – the single most successful investor stresses, if you want to grow real long term value, take the company private and put in capable management. Warren Buffet who if nothing is a god to the capital markets believes that it is short sighted and foolish to be driven by share price and market sentiment.
Next: What are we going to do with deadwood.