Great leaders understand the importance of transforming their businesses for vitality and growth. However, knowing when change needs to happen isn’t always cut and dry. In many cases, the fulcrum, or the key driver for the transformation, will be external and is overlooked by leaders who fail to act. Recognizing the opportunity for transformation and having a clear vision for the future state of the business is often the hardest part.
For nearly three decades, I’ve helped companies navigate business transformation and manage change. A variety of events and circumstances can trigger an organizational transformation, but these are the most common:
- A shift in the competitive landscape. As new competitors enter the market, it changes the general business landscape. This can shake up the status quo as organizations that coexisted peacefully may now become competitors. As this occurs, other businesses may thrive and make leaps forward and ultimately, threaten your market share.
- A strategic inflection point. A strategy that served your organization well over the years may need to be adapted to weather changing conditions or demand. This strategic inflection point occurs when an organization must preempt a major disruptive change in the industry to avoid being caught in a no man’s land, where its product or service no longer has a burgeoning market. An example of this is the increasing concern over non-recyclable packaging materials. With consumer demand for eco-friendly packaging, companies are recognizing that they must focus attention on the issue, or they will become part of the problem.
- A business expansion (or contraction). Organic growth, business mergers, takeovers, or buying out another company are all opportunities for transformation. Diversification, such as adding new products or opening operations in new geographic regions, is another way your business might expand. On the other hand, contraction can happen when your business becomes overextended into noncore sectors that inefficiently consume resources.
- A response to economic conditions. Economic conditions, such as changing regulations or tariffs, can also create the need for a transformation. The unintended consequence of regulators pushing to have ethanol added to gasoline around 2007 is an interesting example. The resulting bills, designed to help farmers and the environment, resulted in a spike in the price of corn, which is used to produce ethanol. This impacted food producers that use corn as a raw material. In response, Kellogg’s saw an opportunity to transform and improve the performance of its supply chain to absorb the increased cost of its main ingredient, corn, by working to become more efficient and effective.
- Failing to Act on Benchmarks. Comparing your company to the competition is a valuable way to gauge where your business stands. You can learn a lot from understanding which competitors are doing better and worse than your company. However, if you don’t examine the benchmarks closely you could miss an indication that transformation would better position your business. While you may be ahead of the competition, you may also notice a sharp growth or spot trends in the industry that indicate other businesses are making changes. If your business is not adapting but your competitors are, you could run into problems.
Sometimes transformation is needed to survive and other times it’s an opportunity for growth but it always requires a strong leader with the drive to help the business reach its full potential. By understanding the various triggers for transformation and being aware of them when they occur, you’ll be well on your way to success.
You can find more about successfully leading transformation in my recently published book, 6,000 Dreams: The Leader’s Guide to a Successful Business Transformation Journey.