Now, more than ever, we live in a world of massive change. Not surprisingly, “transformation” has become a buzzword throughout our economy and society.
Transformation has been a focus of my work for decades and I’ve learned many lessons along the way. In this post, I want to explore two distinct transformation imperatives as we scale the edge.
Scaling the edge
Those who have been following my work know that I’ve become a strong champion of scaling the edge as a way to drive transformation in large, traditional institutions. This approach is in stark contrast to the more conventional “top down, big bang” approaches that are used to drive change. By seeking to transform the entire core of the institution, these efforts require a lot of money and they will take a long time – you can’t turn around a battleship overnight. As a result, these approaches have a high failure rate because they under-estimate the significant power of the immune system and antibodies that exist in all large institutions. The immune system and antibodies will mobilize aggressively to crush efforts at massive change, especially those that will require a lot of money and take a lot of time.
Scaling the edge can reduce the risk of immune system attack because it doesn’t seek to transform the core of the institution. Instead, it focuses on finding an edge to the existing institution that, given the forces at work in the broader economy and society, has the potential to scale very rapidly to the point where it will become the new core of the institution. To be clear, this is not just an “experiment” or a diversification or growth initiative – the commitment is to make it the new core of the institution and, in the process, drive the transformation that will be required to thrive in a rapidly changing economy and society. I’ve written a lot more about the design principles for successful edge scaling initiatives here.
The two transformation imperatives
But what does transformation really mean? Virtually every large institution today has a “digital transformation” program, but the focus of these programs is to apply digital technology so that existing tasks can be done faster and cheaper. That’s not transformation from my perspective. I use the metaphor of the caterpillar to the butterfly to describe transformation – it has to produce something completely different from before. If we’re just helping the caterpillar to walk faster, that may be helpful to the caterpillar, but please let’s not describe that as transformation.
So, what is transformation in the context of our existing institutions? I believe it will have to occur on two dimensions given the Big Shift that is transforming our global economy and society.
The first dimension involves re-thinking at a fundamental level the value that will be delivered to customers and other stakeholders. The nature of the value being delivered will change at a very basic level.
The second dimension involves re-thinking at a fundamental level what is required to deliver that value to customers and other stakeholders. The approach to delivering value must be redesigned from the ground up.
Let’s explore both of these dimensions more deeply.
Transforming the value delivered
We live in a world of exponential change. In that kind of world, there is a natural tendency to shrink our time horizons and just focus on today’s needs.
That tendency needs to be resisted. Instead, we need to look ahead, far ahead, to anticipate emerging needs that are fundamentally different from the needs we are addressing today. That’s certainly challenging in a rapidly changing world.
That’s why I’ve become a strong champion of a very different approach to strategy that I call “zoom out/zoom in.” I’ve written about that approach extensively here. This approach calls on leadership of institutions to move beyond their comfort zone and to look ahead 10-20 years. The two key questions to address are: What will our relevant market or environment look like 10-20 years from now? What will be the biggest unmet needs of our customers and stakeholders that will provide an opportunity to build an institution that is far bigger and more successful than the one we have now?
If we truly understand the nature of exponential change, we need to be prepared to embrace the fact that the value we are delivering today will become obsolete and that we need to embrace very different forms of value that will address emerging needs and become a key to success in the future.
What would be an example? Take the example of a large fossil fuel company today. Given the changes that are occurring in the energy industry, there may be a need to leverage some of the expertise that this company has developed and focus it in a very different direction. For instance, one of these companies might decide to leverage its expertise in resource extraction to provide extraction services in a wide range of industries that rely on natural resources. Another possibility would be to focus on its expertise in building and managing large-scale distribution networks to provide these services to a wide range of industries. Whatever path these companies take, they are likely to be serving a very different set of customers and delivering a very different form of value.
The zoom out/zoom in approach to strategy has many benefits, but one key benefit is that it can help the leadership of an institution to select an edge to their existing institution that has the potential to scale rapidly to the point where it becomes the new core. And they won’t just select the edge, they will commit to scaling it because it represents a much bigger opportunity than anything they have addressed in the past.
Transforming the delivery of value
But transformation doesn’t stop there. There’s another dimension of transformation that needs to be understood and addressed. This is transformation in how the value is created and delivered to customers and other stakeholders.
What do I mean by this? Large institutions around the world have been pursuing a scalable efficiency model for the past century. For them, the key to success has been becoming more and more efficient at scale – finding ways to do their activities faster and cheaper. They have determined that the best way to do this is to tightly specify every activity that needs to be performed, highly standardize those activities so they are done the same efficient way throughout the organization and tightly integrate those activities, removing all inefficient buffers.
This approach has been highly successful around the world for the past century. The challenge is that the world is rapidly changing and this approach to efficiency is paradoxically becoming more and more inefficient. Workers are confronting more and more “exceptions” – unexpected situations that cannot be addressed by the process manual. They are scrambling inefficiently to find ways to address these unexpected situations.
In this rapidly changing world, we need another dimension of transformation – institutional transformation. We need to shift from a scalable efficiency institutional model to a scalable learning institutional model where the focus is on helping everyone in the organization to learn faster together. This is especially challenging because the learning that is increasingly required is not learning in the form of sharing existing knowledge in training programs but instead learning in the form of creating new knowledge. That doesn’t occur in a training room – it occurs in the workplace when people act together to address new situations and reflect on the impact that they are achieving so that they can evolve their actions to achieve even more impact. I have written about this institutional transformation extensively here.
If we take this seriously, it will require challenging and changing virtually every aspect of how institutions organize and operate today. We’ll need to move from hierarchical, command and control organizations to networked organizations that organize around small, front-line groups of 3-15 workers – I call them impact groups. We’ll need to move from a focus on business process re-engineering to business practice redesign, cultivating practices within the impact groups that help all participants to learn faster. We’ll also have to redesign our work environments to provide all the participants with the tools they need to learn faster. One key objective is to help draw out and cultivate the passion of the explorer in all workers so that they become excited, and truly motivated, by the opportunity to learn faster together.
This dimension of transformation will need to be pursued in parallel with the other dimension of transformation.
If we’re going to unleash the exponential opportunities that are being created by the Big Shift, we need to commit to drive transformation on two intersecting paths – transforming the value that we are delivering to our stakeholders and transforming how that value gets delivered to the stakeholders. This is certainly very challenging – it’s why I urge leaders to focus on scaling the edge as the most effective way to drive transformation. Significant opportunities await those who see the need for both dimensions of transformation and aggressively pursue them on the edge of existing institutions.