Networking is key to value creation.

What is the purpose of this article?

Provide some insights into how networking can support value creation.

You can download a PDF of this article from:  Networking is key to value creation

What is networking?

Let’s focus on business networking.  The are other types of networking, such as finding a new job. The following article uses the example of why a CEO would network.

Business networking is creating and maintaining a group of relationships which can potentially help the success of the company and the CEO’s personal success.  The relationships are potentially of mutual benefit.  The group of relationships as a whole will be key to success, but not every single relationship will turn out to be valuable.  Relationships are based on trust and understanding.

 What are some of the potential networking benefits to the CEO?

Networking can provide value to the CEO, the CEO’s organization, and to society.  This can be part of the CEO’s life-long learning and un-learning.

  • Exchanging ideas and getting fresh ideas.
  • Sharing and gaining new knowledge.
  • Sharing and gaining different perspectives.
  • Figuring out and getting answers to a question.
  • Being able to find other people who can help e.g. if the CEO wants to learn about taking a private company public and wants to find other CEOs who have done this.
  • Benefits to the company e.g. a private company CEO staying in touch with potential strategic buyers.
  • Being broadly known and having a reputation in case the CEO needs to find a new job.
  • Developing a pool of potential board directors, C-Suite candidates, or CEO successors.
  • Meeting their purpose in life and values by helping others when there is no personal or company benefit e.g. mentoring MBA students.

Who might be in the CEO’s network?

This is based on the networking benefits the CEO wished to achieve. Networking members could include:

  • Leaders and advisors from a broad spectrum.
  • Leaders and advisors who have a deep knowledge of the company’s customers, marketplace, and ecosystem.
  • Ecosystem members such as: customers, investors, regulators, competitors, and journalists.
  • If doing MBA mentoring, then other mentors, university leaders involved in mentoring, etc.

What are the benefits to people for being in the CEO’s network?

These benefits are aligned with the benefits to the CEO.

  • Exchanging ideas and getting fresh ideas.
  • Sharing and gaining new knowledge.
  • Sharing and gaining different perspectives.
  • Figuring out and getting answers to a question.
  • Being able to find other people who can help.
  • Benefits to the company e.g. strategic buyers staying in touch with potential acquisition targets.
  • Board directors developing a pool of potential board directors, C-Suite candidates, or CEO successors.
  • Meeting their purpose in life and values by helping others when there is no personal or company financial benefit.

What is the greatest challenge to growing and maintaining your network?

Individuals are overwhelmed with electronic information.  2009 University of California, San Diego study estimated that the average American was receiving 100,000 words a day, about 34 gigabytes of data.1  A McKinsey Global Institute study in 2012 also estimated 100,000 words a day.2

People don’t have the time to:

  • respond to every email, text, LinkedIn msg, etc,
  • read all the articles
  • respond and connect with every connection request
  • have regular coffee or Zoom calls with everyone they know.
  • etc.

How do you maintain your network?

There are many ways to maintain your network of mutually beneficial relationships.

  • When you need some sort of help, advice, or discussion.
  • When you provide some sort of help, advice or discussion.

How do you grow your network?

  • Your network members proactively do introductions.
  • You ask your network members for introductions.
  • You do “cold call” requests for connecting.
  • You respond to “cold call” requests for connecting.

What are some approaches for maintaining your network?

  • One-on-one meetings: face-to-face, Zoom, phone.
  • Individual emails, LinkedIn messages, or texts.
  • Social media updates e.g. LinkedIn.
  • Broader emails, personal newsletter.

Your next steps

  • Define your personal value creation plan.
  • If you are a leader, define your plan to increase your company’s value.
  • Define your plan to increase your value to society.3
  • Determine how networking would impact the above three sets of values.
  • What are the kinds of people you need to network with over the coming years, based on the above value impact?
  • How much time will you allocate to networking?
  • Create a structured process for creating and maintaining a network of relationships. Your process will recognize that people will enter and leave your network and that the degree of closeness and engagement with individuals will change over time.

Footnotes:

1 University of California, San Diego  “UC San Diego Experts Calculate How Much Information Americans Consume” Dec 9, 2009

https://qi.ucsd.edu/news-article.php?id=1630

2 Daniel H. Pink ,To sell is human, (New York: Riverhead Books, 2012), page 159

3 Exhibit 6 on page 8 of this McKinsey article raised the questions of “What you can be paid for” and “What the world needs”  These questions apply to you and an individual and to your company.

https://www.mckinsey.com/business-functions/organization/our-insights/seven-essential-elements-of-a-lifelong-learning-mind-set

Further reading

If you’re going to ask someone to do an introduction

https://koorandassociates.org/creating-business-value/if-youre-going-to-ask-someone-to-do-an-introduction/

Transformation success depends upon human behaviour change.

What is the purpose of this article?

Enable founders, the board of directors, CEOs, and other leaders to discuss the role of human behaviour change in achieving transformation success.

You may download  a PDF of this article from: Transformation success depends upon human behaviour change

Why do transformation efforts often fail?

Individuals do not change their behaviour, actions and decision making to support success.  Individuals may resist the transformation and even actively try to make it fail.  These individuals include customers, employees, and other individuals within the company’s ecosystem. The success of digital transformation, outsourcing, and cost reductions ultimately still depends on individuals changing their behaviour.

Most individuals prefer stability to the uncertainty and lack of control associated with change, and see more reasons for “don’t do” rather than “must do”. People look for reasons that activities cannot or should not be done.   People don’t carry out activities or the activities are late.  The quality and intent of the change is not carried out – people focus on being able to “check off” that they did something, while the underlying objective of the change is not achieved.

The failure may be evident only far after implementation is complete.  This is often seen when companies undertake major mergers or acquisitions and the expected revenue increases and cost reductions do not occur, at which point observations are then made that the “company cultures” were not considered, which is fundamentally that the resistance and support of the internal individuals was not assessed and planned for during decision making, planning and implementation.

There are 5 ways individuals will respond to transformation.

  • Active resistance e.g. taking deliberate action to resist the transformation and to cause failure. Spreads destructive rumours and misinformation.
  • Passive resistance e.g voices opposition, allows failures to occur. I call this “malicious compliance”.
  • Apathy, compliance e.g Go along with the transformation. No negative or positive comments regarding the transformation. Show little interest in the transformation.
  • Agreement e.g. agrees with the change, tries to avoid failure, agree with transformation when asked
  • Enthusiastic support e.g. Champions the change, seeks ways to enable success

What determines how individuals respond to transformation?

Individual emotional and intellectual perception of the transformation is driven 5 factors

  • What will be the day-to-day changes to behaviour, decision making, and actions?(e.g. processes/procedures, how to interact and work with others inside or outside the organization).
  • What will change in the individual’s environment changes (e.g. salary, benefits, who they work for, who their colleagues are, the work space, the technology they use, etc.).
  • How is the individual’s perception of their identity, value, or their future is impacted (e.g. career path, chance for promotion, perceived status, value of their knowledge, skills and past experience).
  • How are the individual’s purpose, values, morals, and ethics impacted and the alignment with the company’s purpose, values, morals, and ethics?
  • How consistent is the transformation with the company’s purpose, values, morals, and ethics?

The perception of the personal impact of change is determined by the individual.  A change which company leaders believe is “minor” may be perceived as “massive” by individuals.

What is the one factor that ensures transformation failure?

If individuals do not trust their leaders and do not believe what they are being told, then there is no reason for their emotional and intellectual perception to be positive. The individuals’ personal ecosystem may be providing mis-information and false rumours.

What is the leadership challenge with transformation?

Transformation can be very different from leaders past experience.  Past experience may often have focused on using analysis and logic to enable change.  Formal authority (i.e. the “Manager” tells people to do things differently) may have been the basis for driving change.  Transformation requires a new set of leadership skills e.g. being able to put themselves into the heart and mind of others, understanding what causes emotional reactions, how to behave and communicate in order to manage emotional actions, etc.

If the leaders are unable to transform themselves, then the broader transformation will fail.

Your next steps

  • Determine which individuals in the company’s ecosystem must support the transformation to enable success.
  • Assess how those individuals will respond based on their perceptions of the transformation. You’ll initially make assumptions and then validate by engaging the individuals to understand what they perceive.
  • If the transformation is at risk due to negative perceptions, too much resistance, and too little support, what changes do the leaders need to make?
  • Assess the degree to which employees and the company’s ecosystem trust what leaders say.
  • Is there sufficient trust to enable transformation success? If not, what changes do the leaders need to make to themselves?

Further reading

What is business transformation?

https://koorandassociates.org/business-transformation/what-is-business-transformation/

How do you succeed with transformation?

https://koorandassociates.org/business-transformation/how-do-you-succeed-with-transformation/

Why is trust critical for transformation?

https://koorandassociates.org/business-transformation/why-is-trust-critical-for-transformation/

If you’re going to ask someone for an introduction.

The purpose of this article

Identify some things for you to think about before you ask someone to do an introduction for you.

You may download a PDF of this posting from: https://koorandassociates.files.wordpress.com/2021/04/if-youre-going-to-ask-someone-to-do-an-introduction.pdf

What made me wonder about the introduction process?

  • Recently a friend of mine asked me to do some introductions for his daughter, who has just finished 1st year university and is looking for a summer job. I asked some relevant people I know. Many of whom agreed for me to do an electronic introduction, leaving it to the daughter and the people I know to then connect directly.
  • But that made me wonder. Why did I do the introduction?  No financial benefit to me.  Why did people accept?  Each of them said there were no jobs available for the summer.  No financial benefit to them.

Who are the three people involved in the introduction process?

  • The seeker – the person seeking an introduction e.g. my friend’s daughter.
  • The introducer e.g. me .
  • The introducee e.g. the person or people I know.

Why is the seeker asking for an introduction?

  • Address a short-term financial need. g. need a job, need a sales lead.
  • Address an information need. g. learn how to find a job, learn how law firms recruit lawyers.
  • Build new relationships which might be of value in the future. Each individual relationship will not be of value but the pool will be. A relationship implies long-term communications and interaction.

Why does the introducer agree to do any introduction?

  • Knows the seekers and is will doing to do favour. May also believe that the seeker will then “owe a favour”.
  • Believes the introducee may be able to help the seeker in some way.
  • Believes the introducee might learn something.
  • Knows that the introducee has a current problem or issue for which the seeker might have insights or be able to solve.
  • Believes the introducee might have a future need for someone like the seeker.
  • Some seekers pay for introductions. E.g. sales leads.

Often there is not short-term value to the introducer.

Why does the introduceee agree to the introduction?

  • As a favour to the introducer.
  • Believes may be able to help the seeker in some way.
  • Believes might learn something.
  • Has a current problem or issue for which the seeker might have insights or be able to solve.
  • Might have a future need for someone like the seeker.
  • Some seekers pay for introductions. That is not my model.

Often there is not short-term value to the introducee.

Why will the introducer decline to make an introduction?

  • The relationship with the seeker is seen as too little value to warrant any effort.
  • Too busy.
  • Believes there is no value to the introducer or introducee.
  • Cannot think of a single potential introducee.
  • Does not want to help for a wide range of reasons.

Why will the introducee decline the introduction?

  • Too busy.
  • Believes there is no value to the introducee.
  • Perceives the introduction as a “sales call”.
  • Does not want to help for a wide range of reasons.

What might an introduction process look like?

  • The seeker determines why they are looking for an introduction, the type of introduction, the characteristics of a potential introduce, the potential value to the introducee, and potential introducers.
  • The seeker asks a potential introducer to make one introduction. It’s only one, in order to minimize the effort of the introducer.
  • The seeker prepares for the introducer, perhaps in an email:
    1. Why seeking an introduction and with whom;
    2. A few sentences about the seeker.
    3. A link to the seeker’s LinkedIn profile.
  • The introducer asks one introducee they know if open to an introduction. The information is point 3 above is shared with the introducee.
  • The introducer then sends one email to the seeker and introduce, thus allowing them to connect directly with no further effort on the part of the introducer. The introducer should include a sentence or two about the introducee.
  • The seeker needs to thank the introducer.

Not every introducer will make an introduction for you.  Not every potential introduce will tell the introducer that it’s ok for an introduction.

Your next steps.

Prepare your own introduction process.

Why is trust critical for transformation success? V2

What is the purpose of this article?

Illustrate some of the reasons why trust is critical for transformation success.  This article is appropriate for any size company undergoing major change.

You may download a PDF of this article from: Why is trust critical for transformation success V2

What does successful transformation require?

People within the company and its ecosystem need to change. These changes can include:

  • Learning new skills and unlearning old ones;
  • Gaining new knowledge and unlearning old knowledge and experience;
  • Learning new processes and techniques and unlearning old ones;
  • Learning new behaviours and unlearning old behaviours; and
  • Potentially new values and culture and dropping old values and culture.

Successful transformation requires individuals to transform themselves.

People may transform themselves when they:

  • Believe there is personal value to them and/or to those they care about;
  • Understand why the current situation is not viable in the long-term;
  • Understand what the future looks like and the path to the future;
  • Feel some sense of control over their future;
  • Believe the leaders have heard and understand individual concerns;

Why does transformation fail?

  • Individuals see no reason to transform because they don’t trust what their leaders are telling them.
  • Individuals don’t transform because they emotionally resist being told what to do without understanding.

Going from a slowly-changing business to transformation makes visible:

  • All the issues with lack of trust in management; and
  • Management’s inability to deal with all the emotional factors of trust and resistance to change.

Your next steps

  • Determine the degree to which your employees and others in your companies ecosystem trust and believe what you say.
  • Define what changes in you values, moral, ethics, behaviours, and actions are required to improve trust.

Further reading

Society’s trust in corporate leadership and political leadership is low.

https://koorandassociates.org/values-morals-and-ethics/societys-trust-in-corporate-leadership-and-political-leadership-is-low/

What is business transformation? V2

https://koorandassociates.org/business-transformation/what-is-business-transformation/

How do you succeed with transformation? V2

https://koorandassociates.org/business-transformation/how-do-you-succeed-with-transformation/

 

How do you succeed with transformation? V2

The purpose of this article

The purpose of this article is to outline an overall framework to consider in any type of transformation.  This article does not discuss the details of each specific type of transformation.

You may download a PDF of this article from:

Click to access how-do-you-succeed-with-transformation-v2.pdf

What is the structure of this article?

  • What is business transformation?
  • What are the symptoms of a need for transformation?
  • What is driving the need for transformation?
  • Transformation usually fails.
  • What needs to be considered when setting the targets and outcomes of transformation?
  • What are some general transformation principles?

 What is business transformation?

Transformation is described in terms of the changes to the company’s business model. The business model describes how a company creates value for itself while delivering products or services to C&U (Customers and Users).

 There are five types of transformation. Each type of transformation will have its own specific approach and objectives, reflecting the need to address both symptoms and the underlying driving factors.

#1 Restructuring

#2 Turnaround

#3 Operational Transformation

#4 Business Model Transformation

#5 Strategic Transformation

Your corporation may need components from different types of transformation.

Startups often pivot, which may be a business model transformation or a strategic transformation.

Further reading:

What is business transformation?

https://koorandassociates.org/business-transformation/what-is-business-transformation/

What is a business model canvas?

https://koorandassociates.org/the-startup-journey/what-is-a-business-model/

 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 or meet covenant requirements in financing.
  • The overall market size is shrinking.

What is driving the need for transformation?

There are four core factors driving the need 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.

Leadership failings (at both the board of directors and C-Suite) often are the underlying foundation driving the need for transformation.

Further reading:

Do you need to transform your company?

https://koorandassociates.org/business-transformation/do-you-need-to-transform-you-company/

 Transformation usually fails.

  • Major changes almost always fail. 12% of change programs succeed; 38% produced less than half the expected results; 50% diluted the value of the company.1
  • Efforts to recover a poor business (i.e. transformation) typically fail. Fortune 500 (1998-2013). 33% of the companies grew; 35% went bankrupt or were acquired; 32% stalled.  Only 10% of the stalled companies recovered.  Of the recovered companies, 75% returned to the core business and 25% redefined their business model.2
  • More than half of M&A deals destroy value for investors.3

Further reading:

Is your company planning to fail?

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

What needs to be considered when setting the targets and outcomes of transformation?

The targets and outcomes of transformation should position the company for successful long-term value creation in a changing and competitive environment. There may be conflicting problems, needs, and objectives which need to be reconciled. Decision making must consider the following 8 factors:

#1 What are you company values?

The values guide decision making and behaviour of the entire company including the board of directors.  The values may encompass morals and ethics.

Further reading:

Why are values, morals, and ethics important?

https://koorandassociates.org/values-morals-and-ethics/why-are-values-morals-and-ethics-important/

#2 What is the purpose of your company?

Why does the company exist?  What needs of society (other than selling to customers and providing a return to shareholders) does the company meet?

Neither Larry Fink (CEO of Blackrock, which has close to $9 trillion of assets under management), nor the 1981 US Business Roundtable, believe that the board of directors and CEO’s overriding objective is to maximize profit and shareholder value.

Larry Fink, in his 2018 letter to CEOs, said “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate…..Without a sense of purpose, no company, either public or private, can achieve its full potential…..And ultimately, that company will provide subpar returns to the investors.”4

In 1981 the US Business Roundtable published a corporate governance report with stated: “Corporations have a responsibility, first of all, to make available to the public quality goods and services at fair prices, thereby earning a profit that attracts investment to continue and enhance the enterprise, provide jobs, and build the economy.” “Business and society have a symbiotic relationship: The long-term viability of the corporation depends upon its responsibility to the society of which it is a part.  The well-being of society also depends upon profitable and responsible business enterprises”.5

Further reading:

https://www.bcg.com/en-ca/publications/2017/transformation-behavior-culture-purpose-power-transform-organization

#3 What are the current problems and needs of the stakeholders you’re considering?

Stakeholders may include:

  • Customers
  • Employees
  • Suppliers, partners
  • The community

#4 What are the current and future needs of customers who are both willing and able to pay?

  • Understand the current and future market size.
  • Understand how the current customers perceive the value they achieve from your solutions relative to the competition.
  • Consider the example of Blackberry. The number of customers who had problems and needs that could be addressed by a keyboard-based phone shrank dramatically.  Any transformation that ignores shrinking demand may lead the company to extinction

Further reading:

Do you understand your customers?

https://koorandassociates.org/understanding-customers/do-you-understand-your-customers/

#5 What are the current and future actions and capabilities of your competitors?

  • Competitors will continue to change and improve.
  • New competitors will arise.
  • Competitors will respond to your actions.

#6 What are the external trends?

Trends may include:

  • Technology
  • Demographics
  • Competitor actions
  • Changing expectations, of stakeholders

#7 What are the future scenarios?

External trends, the competition, and the changing problems, needs, and expectations of stakeholders all results in a variety of future scenarios.

#8 Will the transformation targets and outcomes result in long-term value creation in all future scenarios?

What are some general transformation principles?

#1 Assess how the board of directors provided value during the journey leading up to the need for transformation.

  • Does the company have a competitively differentiated board of directors, in terms of their ability to enable long-term value creation?
  • How has each individual board director provided value in the years leading up to the need for transformation?
  • Does each board director have the relevant current experience and capabilities to provide value?
  • How did the board regularly assess whether or not the appropriate CEO was in place?
  • How did the directors ensure that there was a relevant pool of internal and external CEO successors, as well as a successor development process?
  • How did the directors ensure that there was a relevant pool of internal and external director successors, as well as a successor development process?
  • Is each director able to transform themselves with new and relevant experience or are replacements required.?

Further reading:

How can the board of directors provide value?

https://koorandassociates.org/corporate-governance/how-can-the-board-of-directors-create-value/

“Does your board really add value to strategy?”, Professor Didier Cossin and Estelle Metayer, IMD Global Board Center

https://www.imd.org/research-knowledge/articles/board-strategy/

“Corporate Boards need a facelift”, Eric Kutcher, McKinsey, May 04, 2018

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-strategy-and-corporate-finance-blog/corporate-boards-need-a-facelift

#2 Transparent Communications and Trust:

  • People need to understand why they must personally change and why the status quo is not an option. The urgency is based upon the facts of the current situation and a rationale regarding the scope and type of transformation.
  • Two-way communications are critical. People must see that management is listening to them.  If management doesn’t’ listen, it’s quite likely that people won’t listen to what they’ve been told.
  • The communications are focused on, and relevant to, the target audiences. For example, telling the call centre staff that the only reason the call centre is moving offshore is to improve profits will likely increase change resistance and decrease trust with the leadership.
  • Explain the need for transformation, and its related changes, in terms of the company values and purpose.

Further reading:

Why is trust critical for transformation success?

https://koorandassociates.org/business-transformation/why-is-trust-critical-for-transformation/

#3 Accountability

Be clear on who is accountable for achieving outcomes and benefits.

#4 Integrate transformation into the business

  • Existing planning and management processes and policies may need to be revised to reflect the transformation.
  • A transformation office may necessary in the short-term to make these changes.
  • A transformation office that works outside of existing planning and management processes for the long-term will create resistance to change and will not produce sustainable change.

Your next steps

  • Define the transformation plan, including scope, objectives, and outcomes.
  • In a parallel activity, define the overall framework as described above Collect the current facts and assumptions. Facts are often out of date.  Often there is confusion between facts and assumptions. Information may need to be collected directly from stakeholders.  g. how do employees and customers perceive values and company purpose?  To what extent do board decisions and actions reflect values and purpose?  These may be quite different from formal values and purpose documentation.
  • Analyze the transformation in the context of the overall framework. This analysis could take place as the transformation is being implemented.
  • Don’t wait until you are forced into transformation. It may be too late by then.  Conduct your framework analysis before there is a need for transformation.

Footnotes:

1 “It’s 8-1 against your change program”, Bain website, Managing Change Blog, 2017 June 23

https://www.bain.com/insights/its-8-to-1-against-your-change-program-how-to-beat-the-odds/

2 “The Founder’s Mentality”, by Chris Zook and James Allen, 2016, page 105

3 “The real deal on M&A, synergies, and value”, Boston Consulting Group, BCG perspectives, 2016

https://www.bcg.com/en-ca/publications/2016/merger-acquisitions-corporate-finance-real-deal-m-a-synergies-value

4 https://www.blackrock.com/corporate/investor-relations/2018-larry-fink-ceo-letter

5 Ralph Gomory and Richard Sylla, “The American Corporation”, April 2013, page 6, The Wall Street Journal http://online.wsj.com/public/resources/documents/50b74ca9c91e6TheAmericanCorporation11292012.doc.pdf

 

Do you need to transform your 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.

You may download a PDF of this article from:  https://koorandassociates.files.wordpress.com/2020/11/do-you-need-to-transform-your-company-v2-1.pdf 

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?

https://koorandassociates.org/business-transformation/what-is-business-transformation/

  • Is your company planning to fail?

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

  • Do you understand your customers?

https://koorandassociates.org/understanding-customers/do-you-understand-your-customers/

 

What is business transformation? V2

How do we describe transformation?

Transformation is described in terms of the changes to the company’s business model. The business model describes how a company creates value for itself while delivering products or services to C&U (Customers and Users). 

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There are 9 components to the business model:

  1. Target C&U segments
  2. C&U value proposition
  3. C&U relationships
  4. Channel
  5. Key partners
  6. Key resources
  7. Key activities
  8. Cost structure
  9. Revenue streams

Each type of transformation is described in terms of changes to the three critical customer components of the business model and other business model changes.

  1. Who are the target C&U segments?  Who exactly is the company creating value for? What are the geographic, social, and demographic characteristics of each C&U segment? What is the market size?
  2. What is the value proposition of each target C&U segment?  A value proposition is the C&U perception of value i.e. All of the C&U perception of achieved benefits vs all of the C&U perception of incurred costs.  Benefits may include: financial and non-financial e.g. time savings, convenience, status, etc.  Costs may include financial (purchase costs, costs to switch, other adoption costs, ongoing costs) and non-financial (e.g. time, inconvenience, loss of status, etc.)
  3. C&U relationships.  What type of relationships do C&U expect to have with the company?

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.

Transformation becomes an issue when the company’s leadership no longer understands the outside world, makes decisions in this isolation, and then has a crisis.

There are five types of transformation. A company may be undergoing more than one type of transformation at the same time.

#1 Restructuring

  1. Target CU& segments: The company remains focused on the same (or subset) of target C&U with the same set of problems and needs.
  2. C&U value proposition: The value proposition perceived by C&U is little changed.
  3. C&U relationships:  Limited changes to C&U relationships
  4. Other business model changes: The actions taken have a financial focus: reducing debt, selling assets, reducing the number of C&U (Customers and Users), reducing unprofitable C&U, reviewing all components of the business model to reduce debt and costs, selling pieces of the company, etc.

#2 Turnaround

  1. Target C&U segments: The company remains focused on the same (or subset) of target C&U with the same set of problems and needs.
  2. C&U value proposition: Focus on fast major improvements to the perceived value proposition.
  3. C&U relationships: Focus on fast major improvements to the C&U relationships.
  4. Other business model changes: Changes necessary to support the value proposition and relationship changes.

#3 Operational Transformation

  1. Target C&U segments: Focused on the same (or subset) of target C&U with the same set of problems and needs.
  2. C&U value proposition: The value proposition perceived by C&U is little changed.
  3. C&U relationships: The C&U may expect major changes to their relationships with the company e.g. move from in-person to mobile app.
  4. Other business model changes: Components of the business model are improved by a large factor e.g. 10 times.

#4 Business Model Transformation

  1. Target C&U segments: The focus is still on the same C&U, but their problems and needs have fundamentally changed.
  2. C&U value proposition: The solution perceived by the C&U requires fundamental change.
  3. C&U relationships; The C&U expect fundamental change in their relationships with the company.
  4. Other business model changes: Most or all components of the business model require fundamental change. 

#5 Strategic Transformation

  1. Target C&U segments: There are new C&U with new problems and needs requiring a new business model.  Think of Google.  It started out to be the best search engine.  Now Google produces the Android operating system, smart phones and has been working on driverless cars.
  2. C&U value proposition: These new C&U will have different value propositions than those for existing C&U.
  3. C&U relationships: A strategic transformation is basically creating a new company.
  4. Other business model changes:

Startups often pivot, which may be a business model transformation or a strategic transformation.

Other components of the business framework my need to change to enable transformation success.

The business model is one component of the overall business framework.  The other components include:

  1. What can only the CEO do?
  2. Company purpose.
  3. What are the company’s values, morals, and ethics?
  4. Talent management.
  5. Capital and cash management.
  6. Investor management.
  7. Exit management.
  8. Governance.

Further reading

“What Do You Really Mean by Business Transformation?” Harvard Business Review, 2016 February 29

https://hbr.org/2016/02/what-do-you-really-mean-by-business-transformation