Here is a brief excerpt from an article written by Clark G. Gilbert, Matthew J. Eyring, and Richard N. Foster for Harvard Business Review and the HBR Blog Network. If you read this article, you will learn how to develop and manage two separate transformation efforts:
o The five-step process to establishing a “capabilities exchange,” which allows both efforts to share resources without interfering with the mission or operations of either
o Real-life dual transformation stories from three companies that were facing massive disruption: the Deseret News, Xerox, and Barnes & Nobles
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Photography: Aurélien Mole
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Sooner or later, most companies will need to reinvent themselves in response to disruptive market shifts, technologies, or start-ups. But can a new business model quickly replace all the revenue an incumbent has lost to market upheaval? Only in rare instances, say the authors. That’s why they propose that companies under assault pursue two distinct but parallel efforts: “Transformation A” should reposition the core business, adapting it to the altered environment. “Transformation B” should launch a separate, disruptive business that will be the source of future growth. That approach allows the company to realize the most value from its current assets and advantages, while giving the new initiative the time it needs to grow.
This article walks readers through the dual transformations of three companies that were facing massive disruption: the Deseret News, which was losing advertising to online upstarts; Xerox, whose copier business had been eroded by Asian rivals; and Barnes & Noble, which was threatened by e-books. In each instance, a key to making the dual transformations work was the establishment of a “capabilities exchange,” which allowed both efforts to share resources without interfering with the mission or operations of either. The results to date are promising: At all three firms, the core business is back on track, and the innovative initiative is demonstrating strong growth.
We propose an approach that’s both more practical to implement and more sustainable. It rests on two insights:
First, major transformations need to be two different efforts happening in parallel. “Transformation A” should reposition the core business, adapting its current business model to the altered marketplace. “Transformation B” should create a separate, disruptive business to develop the innovations that will become the source of future growth.
Second, the key to making both transformations work is to establish a new organizational process we call a “capabilities exchange,” through which the parallel efforts can share select resources without changing the mission or operations of either.
Dividing the effort in two allows leaders to develop a new strategy for the core that doesn’t need to make up for all the business lost to disruption. It also gives the innovative new operation the time it needs to grow. What one transformation effort could rarely accomplish alone, two together have a better chance of achieving.
IBM and Apple both took this dual-transformation approach. In the mid-1990s, IBM reconceived its mainframe business, shifting from proprietary systems to servers running software based on open standards. At the same time, it built a separate Global Services organization that became the source of its future growth. In the late 1990s, Apple repositioned its struggling PC business, trimming offerings and focusing on design. Shortly afterward, it launched the iPod and opened the iTunes store, which led to phenomenal growth.
More recently, we’ve seen the dual-track process unfolding at Barnes & Noble as the retailer reacted to the severe disruption of e-books, and at Xerox in response to the slow erosion of its core copier business. We will touch on the lessons Xerox and B&N have learned as we describe how the process works. But we’ll focus primarily on the case in which one of our authors (Clark Gilbert) developed and tested our approach: the Deseret News, which embarked on a dual transformation in response to the upheaval caused by the Internet.
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To read the complete article, please click here.
Clark Gilbert is the CEO of Deseret News Publishing and Deseret Digital Media. Matthew Eyring is the managing partner of the strategy and innovation consulting firm Innosight. Richard N. Foster is a senior faculty fellow at the Yale School of Management.