Embarking on a transformation is more than just deciding to do something different or expanding into adjacent markets. It requires business agility, sustained innovation, and operational excellence.
Companies that have mastered these three fundamentals are prepared for whatever the marketplace brings. This process, what I call the transformation triangle, enables enterprises to recognize the changes they need to undergo and manage their own makeovers.
Agility is the ability to sense changes in economic conditions and the competitive landscape, and to proactively implement a response.
Agile organizations are like veteran athletes, aware of what is happening around them and understanding of how information, events, and their own actions will impact their goals and objectives, both now and in the near future. They position themselves to observe what's happening and have the wherewithal to act upon intelligence.
Long known as the cheap drive-through choice of late-night savory snack seekers, Taco Bell is transforming itself into a chain for more health-conscious types in search of a quick meal. Taco Bell's new Cantina Bell sub-brand, created by Top Chef Master competitor Lorena Garcia, aims to rival Chipotle Mexican Grill, known for its commitment to organic and natural ingredients. Founded in 1993, Chipotle has quickly proved there was a mass market for higher-end Mexican-inspired fast food.
Taco Bell has flexed a new muscle to grab a share of the growing market. Imitation may be behind the shift in strategy, but Taco Bell's agility gives the chain—founded as single store in 1962 and transformed two years later into a franchise—a new image and audience amid changing consumer appetites. Outspoken and widely observed hedge fund manager David Einhorn shorted Chipotle stock, noting that Taco Bell's new upscale menu would steal away customers from its more expensive competitor.
(For further thoughts on agility, read What Zara, P&G, And Berlitz Know About Agility)
Sustained innovation is the ability to develop new products, services and methodologies that advance beyond the competition, through repeatable processes.
Systemic innovators produce far more breakthroughs than garage inventors. The Dyson vacuum cleaner, Dean Kamen's Segway, and the Apple iPhone are all considered great innovative breakthroughs, but they were developed over time by repeatable processes. The true test of sustained innovation isn't the invention itself, but the net benefit produced by the innovation for the business.
The glass manufacturer that developed the bulb for Thomas Edison in 1879 has been innovating ever since—and it's paid off. Corning, also behind the iconic Pyrex line of bakeware (which spun off from the company in 1998), created Gorilla Glass, a scratch-resistant, ultra-durable glass used in mobile devices, including the Apple iPhone.
Corning has revolutionized myriad industries with its innovations: In 1947 they mass produced TV tubes, making televisions affordable for the average American family, and in 1982, they helped develop the "fusion" process to make glass for LCD screens. The manufacturer has literally gone through the atmosphere, manufacturing heat-resistant windows for the Mercury spacecraft in 1961 and producing mirrors for the Hubble Telescope in 1990.
More than a century of sustained innovation across industries has enabled Corning to withstand unforeseen market conditions, including the financial crisis. Since 2007, Corning has grown its revenue by 34% and its operating cash flow by more than 50%.
(For further thoughts on innovation, read When The Going Gets Tough, Tough Companies Innovate)
Operational excellence is the ability to consistently deliver cost-effective services at defined performance levels.
Operational excellence provides organizations with a sustainable advantage by giving them the ability to continuously improve their service delivery and talent development, as well as investment and asset performance.
It's not only corporations that exhibit operational excellence. It can be as simple—and wonderful—as lunch. That's the case at Café Oo La La, my local eatery in Stamford, Conn. Combining quality product and exemplary service, the café is a model of repeatable standards and genuine value. The bustle of patrons is constant thanks to owner-chef Faina Yelensky remaining true to her original vision: top-notch, globally inspired foods at affordable prices.
If business agility enables rapid adjustments and sustained innovation stays ahead of the competition, then operational excellence optimizes fiscal discipline, maximizes the use of resources, and assures revenue sustainability—ultimately leading to profitability. These techniques can be used independently or in concert, depending on the organization.
As economic conditions change and products reach market saturation, transformation is the only option. The difference between successful and extinct companies is the recognition and successful execution of this transformative process.
Consider the following examples:
Raytheon started as a consumer appliance company that made radio tubes. Today, it's the world's largest producer of guided missiles.
What began as Southwestern Bell Corporation, one of seven Regional Bell Operating Companies, is now AT&T, the 20th largest mobile telecom operator in the world. Evolving markets and regulatory mandates forced it to radically transform its business.
Sony started as an electronics shop in a bomb-damaged department store building in Tokyo and evolved into a multinational conglomerate.
Founded through a merger of two rivals, American multinational conglomerate General Electric has continually challenged itself to innovate and has produced everything from light bulbs to jet engines to become the 6th largest U.S. company by gross revenue.
Most organizations are not set up to meet the challenges, or opportunities, that these behaviors often present. Once-successful, now fossilized habits can sabotage companies in the face of disruptive innovation. A new business model, one that incorporates agility, innovation, and efficiency is required to transform in order to survive and thrive.
Business agility, sustained innovation and operational excellence—the three sides of the triangle—are designed to guide enterprise management through the process and provide measures for performance.
Enterprises looking to engage a transformative process should prepare themselves by considering the following five steps:
1. Establish the business purpose of each investment. Is it to enable growth, maintain operations, or manage risk?
2. Determine whether the metrics you use have changed along with modifications in business processes and technology.
3. Agree upon metrics that show agility, innovation, and operational excellence.
4. Understand changes in the environment—and adjust strategy as necessary. This often requires real-time adjustments in operations, placing greater onus upon executives to have a well-oiled system to gather information and present business alternatives.
5. Translate strategy into tactical executable plans. Executives must communicate initiatives that can add long-term financial value. Employees must be made aware of how these opportunities relate to their jobs.
Transformation is not a singular event. A one-time makeover will not cut it. Most successful, sustained enterprises continually transform themselves holistically. Others segment themselves to enable overlapping transformative initiatives, growing their revenues and insulating their core business from economic disruptions. This requires new organizational structures, the creation and sharing of new kinds of information, and new decision-making processes. Only in this way can growth become repeatable.
[Image: Flickr user JD Hancock]