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 / Summer 2010 / Issue 59(originally published by Booz & Company)


It Makes Sense to Adjust

Business transformation is now a continuous process that most companies haven’t mastered. Here’s a formula for managing ongoing change.

It used to be that a business transformation was a once-in-a-lifetime event, the sort of fundamental reset prompted by a rare, short-lived disruption such as a new technology, a devastating scandal, or a dramatic shift in costs. But if the recent economic upheaval reveals anything, it is that companies of all sizes, in all industries, are operating in a more volatile, less predictable environment, and that change has become a way of life. To navigate such a rocky landscape, companies must be ready to repeatedly transform themselves — indeed, to institutionalize the capacity to alter strategies again and again — as business conditions require.

But few companies are competent at doing this, although not for lack of trying. A review of businesses faced with “burning platforms” (which are enterprise-threatening events) would reveal that most have failed to make the transformation the situations demanded. For example, Circuit City, once a hugely successful electronics big-box store, attempted to remake itself numerous times as it faced competition from newcomers like Best Buy in physical stores and Amazon and others on the Internet. But there was a limit to the company’s capacity to respond to new challenges with a broad-based, enduring plan that could involve, for example, simultaneously targeting gamers aggressively, carrying a deeper inventory of product lines, renegotiating leases in out-of-the-way locations, improving customer service, and promoting a robust and attractive website.

The problem is that most companies don’t have an adequately proactive road map for transformation. Instead, they attempt change on the fly, reacting to business disruption with equally explosive responses that may not be useful six months down the road or even sooner. A more carefully crafted strategy to manage internal or external change may seem beyond a company when it is actually facing a new obstacle or crisis, but if an organization prepares for transformation (perhaps when it is not occurring), steering through it is far less difficult.

Each company’s strategy for approaching transformation falls into one of three categories. These categories in turn determine the level of transformation — the timing and the magnitude — that the company can support.

1. Reactive. This is the default transformation strategy; it is minimal, and has become second nature to most seasoned executives. A change in circumstances provokes a short-term response, generally an abrupt shift that requires little cross-company coordination or follow-up. In fact, this strategy is an essential management tool when only incremental change from the status quo is required. However, it is also the most limited and unsustainable. Problems arise when executives try to apply this approach to situations that call for more sweeping and highly detailed transformation. Too often, executives rely on the reactive techniques they know well, even when the situation begs for a more structured, thoughtful plan that will yield more lasting change.

2. Programmatic. This strategy is more comprehensive and is appropriate when major change is required and a company has sufficient lead time. In such circumstances, the company launches a widespread change initiative across the lines of business that are most affected. A cross-functional program office is set up, tactics are identified, milestones are established, executives are assigned to oversight, a communications program is launched, and progress is tracked.

These programs can be effective in dealing with a contained event or threat, such as a new competitor or a new product from a rival, and their potential reward is greater than that of the reactive approach because they are more forward-looking. But as the name of this category implies, the transformation is a program — a systematic, planned sequence of activities designed to achieve specific goals within a specific period of time — and, thus, the outcome takes longer than a reactive transformation.

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