Do you need to transform you company? V2

The purpose of this article,

Enable board of directors, C-Suite, and founders to understand whether there is a need to transform the company.

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Successful companies rarely have to transform

Customer needs, the competition, technology, the economic and political climate are constantly evolving and changing.  Successful companies understand the outside world and evolve as the world around them changes. Successful companies rarely have to transform.

The company evolves at the same pace as the customers and ecosystem

  • Customer needs evolve. The company is aware of emerging new customer problems and needs and makes changes to meet these problems and needs.
  • Competitors discover that your customers have some unmet needs and that these needs become more important than the needs your company’s solutions were addressing.
  • Technology is regularly evolving and is adopted by the company. E.g. the internet, big data, Artificial Intelligence, etc.
  • New business processes, practices, and models emerge and are adopted by the company.
  • The company monitors external trends (e.g. shareholder objectives, competitors, suppliers, the economy, regulations, workforce demographics, politics/government, industry consolidation, new entrants, etc.) and makes changes before there is a major impact or crisis.

 What are the symptoms of a need for transformation?

The obvious facts demonstrate that the company is in crisis. E.g.

  • Losing customers or losing market share. Net Promotor Scores dropping.  Customer churn increasing and customer retention decreasing. The lifetime value of new customers is exceeding new customer acquisition costs.
  • Benchmarked performance is poor compared to competition.
  • Debt and interest payments are causing major losses and negative free cash flow. The company is profitable with positive free cash flow, if debt and interest payments are not considered.
  • The company is unprofitable with negative free cash flow, even if debt and interest payments are not considered.
  • Employee turnover is unacceptable.
  • Employee ratings of the company are unacceptable.
  • Not being able to meet payroll in the short-term or meet covenant requirements in financing
  • The overall market size is shrinking.

Often the board of directors and C-Suite do not know that their company is in crisis.

  • No ongoing monitoring and analysis of: the number of customers or market share the Net Promoter Score; customer churn and retention; lifetime customer value and customer acquisition costs.
  • No benchmarking relative to the competition.
  • No free cash flow forecasting and related scenario analysis
  • No monitoring and analysis of employee turnover.
  • No monitoring or analysis of employee ratings.
  • No forecasting of long-term ability to meet payroll or meet covenant requirements in financing.
  • No monitoring and analysis of the market size i.e. the number of customers with urgent problems and needs who are willing and able to pay for the company’s solution.

What is driving the need for transformation?

There are four core reasons for transformation:

  • The customers and users don’t perceive that the company’s solution is better than the competition, resulting in the symptoms shown above.
  • The company’s internal operations are no longer profitable or effective.
  • The market size is shrinking.
  • The company’s leadership has decided on strategic transformation. g. Google started new businesses such as phones.

What is the root cause of the need for transformation?

The leadership talent (i.e. the board of directors and C-Suite) is the root cause of the need for transformation.

The leadership talent may not know what skills, experience, and knowledge they personally need in order to:

  • Continuously evolve the company to keep pace with customers, users, and the overall ecosystem.
  • Identify if the company is heading towards crisis, as noted above in the section regarding not knowing if in crisis
  • Avoid decisions which can result in crisis.

The fundamental question is: Do you need to transform your leadership talent?

The leadership of a successful business may decide upon transformation for two reasons.

  • The leadership talent may have decided to launch new businesses e.g. Google.
  • The leadership talent may have decided to be ahead of the ongoing evolution of the ecosystem. This means driving or causing evolution.

Your next steps

  • Ensure you know whether or not your company is in crisis or heading towards crisis.
  • Collect the facts and conduct the analysis noted above in the section “Often the board of directors and C-Suite do not know that their company is in crisis.”

Further reading

  • What is business transformation?

  • Is your company planning to fail?

  • Do you understand your customers?