Of the Fortune 500 companies that were in business in 1955, guess how many made it successfully through to the end of 2016?
The answer is just 12%.
The roll-call of big, apparently successful businesses that failed to keep up with the changing business and social environment is staggering. These were businesses that looked robust and well managed. Yet 88% of them either went bust, declined so they were no longer in the top 500, or were taken over by competitors.
Why don’t businesses see the need to transform?
For many management teams in these businesses, there was a simple failure to acknowledge the scale of change that was needed. To survive, they would have needed to transform the business, think the unthinkable and turn everything they thought they knew on its head. But through complacency, fear of the unknown or failure to transform quickly enough, they missed their chance at transformation and lost the business.
The economist Joseph Schumpeter, gave this process a name - “creative destruction”. Put brutally, it’s the way capitalism deals with businesses and organisations that are no longer useful; it destroys them so that the capital they are tying up can be put to better use elsewhere. This is seen as a great strength of the system but it can be pretty bruising to experience it. Ask Kodak or Blockbuster.
Minor change won’t hack it, nor will an in-house team
Some businesses try tinkering at the edges but this approach is often too little, too late. It tends to be a symptom of the lack of radical vision that is required to bring about successful transformation. Other organisations get consultants in, take their advice and launch a transformation project, then get nervous and try to micromanage the process in the ways they are familiar with. This won’t work.
Nor will trying to run the transformation in-house. There are too many vested interests and the key people who are going to face changes - the IT department is typically one such group - will end up being the people implementing it. Unfortunately, this is a recipe for an unsuccessful transformation, bedevilled by backsliding and passive resistance.
This kind of major shift in the way a business does things, needs objective leadership from outside the organisation. Businesses transform themselves very rarely; no one internally will have the appropriate experience. Whereas a Transformation Manager with a track record can help deliver the process far more effectively.
Why transformations fail
John Kotter is famous for writing about business change and he spent ten years studying 100 companies that had tried to bring about business transformation. He analysed why transformations were unsuccessful and among other factors, he pinpointed a lack of urgency - that’s the complacency referred to earlier. The business needs a clear vision as to what the end result is going to be and it needs to communicate that vision frequently. It needs to remove those obstacles (and this could include people) that will stand in the way of success.
And while Kotter recommends that short-term wins are valuable, he also says that victory can’t be declared until the changes are embedded in the culture of the business or organisation. His advice is that transformation takes a long time and that recognising this at the outset can improve the chances of success.
Today, we have unprecedented change and highly disruptive new technologies that bring opportunities but can also rapidly undermine an existing business model. There are the challenges of competition from emerging economies and changing consumer expectations. Changing a few business processes is unlikely to be sufficient to ensure the survival of the business. That’s when a radical transformation may be required if the business is going to make it into the 12% who are able to adapt in the long term.