Tipping point: Launching a Major Enterprise Transformation

In more settled times, business leaders could take comfort in the notion that an incremental approach to change made sense: The division between developed and emerging markets was clear-cut, industries were stable and well defined, the economic environment was more forgiving and capital was comparatively plentiful.

In what seems today like a bygone era, pursuing an “edge-out” response to business or economic shifts could work because the competitive dynamics in many industries, while intense, were relatively predictable. Customer needs were often manageable; disruptions tended to hit one at a time. As a result, companies could afford to make deliberate, localized changes, which often affected only a specific segment of the business.

In today’s business reality, these ideas seem downright quaint. Attractive new opportunities now come and go in a flash. Industry borders collide and blur. Customers are fickle. And change itself often comes in brief, brutal bursts. Evidence of the cascade of challenges is not difficult to find.

In the retail sector, for instance, once-cohesive markets are fracturing into bipolar affluent and basic segments as the formerly sizable mass market between them dissolves. At the same time, digitally savvy consumers demand seamless buying experiences across formats and channels. Or take the insurance industry, which must simultaneously deal with changing customer performance expectations and the increasing frequency of major disasters and their associated costs. Insurers also face new and more stringent regulations, elevated cost pressures, increasing industry consolidation and the complexities inherent in digitizing a value chain.

Likewise, players in the high-tech world are feeling the squeeze from multiple major disruptions, including the convergence of formerly separate communications and connectivity technologies and the emergence of new business and delivery models.

The Big Changes
Changing a business function by function still has its place. But for many industries, this approach is simply too disjointed, localized and slow to keep firms competitive. The big changes required today mandate an equally large transformative response—one that will likely affect every part of the business. Without the necessary coordination between initiatives, however, business leaders are gambling that all the pieces will somehow fall into place on their own, which often turns out to be a high-risk wager. Instead, they need the major step change in business performance that only a full-scale enterprise transformation can deliver.

Transformation is not a new concept, of course. The term is commonly used to describe functional or operational cost reduction efforts; such projects usually attract the interest of a functional leader—the supply chain manager, for example, or the CIO for technical issues. But what we’re talking about is dramatically different: a complete, business-driven reconsideration of how a company structures itself and goes to market.

A true enterprise transformation looks at cost, to be sure. But it puts an equally strong focus on generating revenue, thus enabling companies to grow their top- and bottom-line results simultaneously. It affects customers by redefining the company’s value proposition in terms of products and services. It also fundamentally changes how the entire business—not just a single function—operates to deliver value. Other hallmarks of a successful enterprise transformation include committed, involved senior leadership; strong alignment with the company’s overall strategic priorities; and funding plans that reach across business and organizational boundaries.

Today’s volatile business and economic environment drives another important aspect of a successful enterprise transformation, the notion of “continuous reconfiguration,” where leaders strive to create an agile, flexible organization with the ability to modify and adapt to changing circumstances and fresh opportunities. Success requires an understanding of what parts of the organization should remain stable and what areas need to be more flexible.

Transformation triggers
Sometimes, the need for an enterprise transformation is crystal clear to everyone, from the CEO to the front line. More often, however, the need for major change is less evident. In such cases, leaders need to understand what triggers a transformation and how it can affect a business or industry.

Because a transformation implies significant, integrated change, it follows that the trigger for such an event will likely shake the very core of all or part of a company’s business model, its operating model, or its market and partnership strategy. Experience suggests that a transformation can have any (or all) of three broad triggers.

Growth-triggered transformation happens when a business has very aggressive expansion targets but lacks the capabilities to hit them. It could result from a number of factors, including the emergence of a new customer segment in the market or a new revenue target set by leadership. A growth-triggered transformation will focus on identifying ways to drive revenue now and in the future, enabling growth via new operating structures and partnerships.

A market-triggered transformation occurs when an external disruption—for example, digital transformation, sustainability imperatives, new regulations, industry convergence, an innovative new product or service, or changing customer needs—makes the existing business or operating model less viable.

A performance-triggered transformation is caused by missed internal performance benchmarks. A company that requires a performance-based transformation typically underperforms its own objectives or experiences severe performance erosion and is unable to address these problems through individual point solutions or programs.

It all sounds familiar, right? But even when companies recognize the signs, they can make the mistake of responding incrementally when only a full-scale transformation will completely address the underlying business issues. Accenture believes that leaders should use these disruptions to take a broader view of the business and determine how to transform it to respond effectively.

A fundamental disruption
An enterprise transformation addresses three closely linked, highly integrated elements of a company’s go-to-market strategy: its market and partnership strategy, which defines the firm’s role and the ways it interacts in the business ecosystem; its business model strategy, or how, in terms of customers, offerings, channels and commercial plays, it makes money in a given market; and its operating model strategy, which describes the internal capabilities (including people, processes, technologies and governance) it can marshal to capture value via the business models. The goal: transform the company’s strategy across all three elements to deliver significantly greater growth and lower costs.

A true enterprisewide transformation will fundamentally disrupt a company’s business and operating models. It represents a multiyear journey that’s linked directly to a clear management value agenda and business case, and typically includes a roadmap that identifies both short- and long-term objectives. Convincing the organization to make such a complicated and time-consuming journey takes a deliberate, regimented approach focused on proving and targeting real value.

With the goal of targeting substantial economic value, a successful transformation enables leaders to identify and explore the change journey ahead and develop leadership consensus regarding the best end-state solution. Teams create a detailed “blueprint” that includes specific tactical changes, then implement the solution and monitor its progress in creating value.
The typical enterprise transformation occurs in five core phases.

Phase 0: Commit to an enterprise transformation
During this phase, company leaders estimate the size and value of the opportunity. They determine whether the change required is evolutionary or transformational, and, if an enterprise transformation is necessary, how committed their fellow top executives are to embarking on such a journey. Buy-in and support of company officers is critical.

Phase 1: Design the strategic value agenda
Teams focus on defining the company’s “strategic value agenda,” which should consist of the top cross-business initiatives the firm must pursue to reach its strategic goals. Leaders focus on what drives value and identify opportunities to rationalize ongoing projects to free up cash to fund the transformation.

Developing this agenda requires leaders to conduct a strategic redesign that identifies opportunities across the business, and to make core design decisions that can enable more detailed investigations (for example, centering the business on products or geographies, or choosing which areas will be profit or cost centers). Teams also work up a robust business case to define the investments needed and estimate the size and timing of expected benefits.

Phase 2: Develop detailed blueprinting
The blueprinting phase focuses on the business and operational decisions that make the strategic design developed in Phase 1 actionable (sales coverage, for example, profit center ownership, and customer segmentation and handling models). Teams push the new go-to-market approach to the next level of detail, including the unique business models required to achieve the strategy, the operating model that will enable those business models, and where and how the business will use partners to extend its capabilities.

Companies need a strong transformation governance structure and a capable “architecture” team to drive this phase. For instance, an effective transformation architect will develop and manage an end-to-end enterprise blueprint that lays out each business solution, and is responsible for orchestrating change across workstreams to capture value.
Blueprinting is complete when teams have made the necessary decisions about technology, process and organizational structure. In reality, different parts of the organization will complete and implement this step at different times, so transformation leaders need to maintain flexible expectations.

Phase 3: Execute
The company implements the blueprint and transformation strategy during this phase. That means identifying and acquiring the talent needed to run the transformed enterprise; implementing the systems and processes required to support the new business; and identifying, pursuing and integrating the partners that can help deliver market outcomes and internal operating efficiencies. Often, the early phases of execution will involve major investments before results become fully apparent.

To maintain momentum, leaders need to focus on quick wins and have a strategic funding plan to overcome any hesitancy in the organization. In making fundamental changes to the structure of the business, this phase also affects the organization’s culture and mode of thinking (for example, using partners to operate non-core elements of the business). As a result, senior leaders should be visibly engaged in the process as they build buy-in for the changes.

Phase 4: Operate
With design and execution complete, the company now makes the transition to operating the new enterprise. During this phase, the focus of leadership shifts to managing the transformed business. Tasks include tracking and measuring progress; continually reevaluating potential new opportunities across the business model, operating model and partnering strategy; and making adjustments to capture those openings.

Business today is more complex than ever, with leaders under intense pressure to deliver on long-term strategies while driving short-term results. Meeting these obligations requires a more holistic, tougher approach that’s capable of responding aggressively to today’s market shifts and performance shortfalls.

Leaders need to understand and make strategic choices regarding their role in the business ecosystem, their business model and their operating model. These decisions and changes can’t be tackled one by one; instead, they require the kind of coordinated effort that only an enterprise transformation can deliver.

About the authors
Michael V. Peterson is the global lead for the Accenture Enterprise Transformation Strategy group. He is based in Chicago.

Johnathan M. Bray is the North America lead for the Accenture Enterprise Transformation Strategy group. He is based in New York.