By Scott Edinger – Originally posted 12/31/19 on forbes.com
“Transformation” may be the most overused term in business today. It has become corporate speak for anything involving change, yet a majority of so-called transformative initiatives are actually subtle changes or simply cost reductions masquerading as revolution.
The intent of a true transformation effort is to reshape the organization, usually to drive top and bottom-line improvements. Valuable transformation occurs in two ways:
- Customers buy something from a company that is fundamentally different or of greater value from what has been sold before and are willing to pay a premium (or at least a higher margin) for it; or
- Customers buy the same things they’ve always bought, but with significantly easier acquisition efficiency and lower costs.
In both cases, the customer experience changes significantly. If the customer doesn’t notice any difference as a result of the initiative, then it hardly counts as “transformative.”
A good illustration of a profitable business transformation occurred at a client of mine called Vology (formerly Network Liquidators). Until 2010, Network Liquidators sold refurbished IT equipment to brokers and resellers. The pre-owned products provided a low-cost alternative to price sensitive buyers of IT equipment. Tightening margins and market shifts made it clear to CEO, Barry Shevlin, and the leadership team that the company needed to move in a completely different direction if they wanted to thrive. They decided to shift from being a low-cost provider of used equipment to providing premium products and adding a wide range of services to support customer needs. Network Liquidators went from a discounted product approach, competing largely (though not entirely) on price, to become Vology, a company providing managed IT services focused on all facets of customer technology needs, from data centers to security and support. The result has been the percentage of revenues generated from services growing from 0% to an expected 50% in 2020, with EBITDA margins doubling in the same time period. That is truly transformative!
Unless your aim is to become the lowest cost provider (option 2 above), yourtransformation ought to be focused on creating greater value for customers as a means to improve your financial performance. Maintaining this focus is key – otherwise, you may find your transformation effort devolving into dozens (or even hundreds) of individual plans for change (or “workstreams” as they’re often called by consulting firms), that only address minor operational improvements that will never be noticed by a customer.
Executives who truly want to transform their business should adhere to these three principles:Today In: Leadership
- Be precise when formulating and communicating your transformation vision and strategy. The language you use when describing the transformation matters – avoid meaningless corporate speak. For example: “We are going to become a global value-added solutions provider that integrates multiple platforms and best-in-class tools” is full of generalities that will not produce results. The vision for Network Liquidator’s transformation into Vology was simple and clear. They would shift from selling pre-owned IT equipment to providing Managed IT Services. Furthermore, their strategy specified that over half the revenue for the company would come from the new suite of services (to be built or acquired) within 5 years following the transformation. It took 3 years longer than expected, but their vision was successfully implemented because it laid out a precise plan that was easily understood by every employee at the company.
- Transform your business one new customer or new project at a time. The actions that produce transformation happen in the field rather than the boardroom. Which means your customer-facing personnel must be able design and deliver a different kind of sales or customer experience. Every interaction with a prospect or customer reflects an opportunity to execute your transformation strategy. The transformation won’t happen solely from selling different things – it will require your organization to sell differently. Ultimately your transformation has to show up at the point of the customer interaction, either by creating a different experience for existing customers or helping acquire new ones.I’ve written before about getting your sales team to execute your strategy, but the fundamentals are often lost during complex transformations. Transformation happens when you sell new solutions or unique combinations of offerings. It can also occur through the sales process as your people provide greater value through their insights, expertise, and perspectives, helping clients see issues in a different way or identify solutions they hadn’t anticipated. Every time your employees provide more value to customers, your company transforms a little bit. Through hundreds, or even thousands of customer interactions that occur each day, month after month, transformation starts to take hold.
- Pay attention to the unintended consequences of cost cutting. Of course, it’s vital to optimize your cost structure by eliminating as much non-value cost as you can. But do it carefully and remember, if you have to keep repeating the cost cutting process regularly, you are admitting you didn’t do it well the last time.You’ve heard the phrase “cutting to the bone” in reference to cost cutting efforts. But cutting to the bone implies cutting through a lot of muscle to get there. If you are eliminating headcount in a call center that has high call wait times or reducing support when NPS scores are a concern, you may want to reconsider whether particular cuts are helping or hurting the success of your transformation vision. If cuts are only improving a short-term financial metric, your actions will likely hurt the company in the short and long term. You want to avoid what a client of mine referred to as the “Cut-and-Shrink-Death-Spiral” to achieve true transformation.
Transforming your organization requires a Herculean effort for leaders. It’s a multi-faceted process and it involves everyone in the company. Doing the difficult work of clarifying your strategy so that everyone can understand their part in its execution, smart cost cutting, and keeping the customer at the center of your efforts will accelerate your company’s metamorphosis.