Article by Christian Rangen
1. Declining Profits
With profits steadily on the decline, and limited opportunities to turn that around, being locked in a declining core business model is a recipe for disaster. You may be locked in the newspaper business, or oil and gas, or maybe an outdated software business. If your declining profits can’t be solved, the need for transformation is imminent. If it’s not already too late, and you end up in a “shock” type of scenario.
2. Structural Industry Change
Deep, structural changes to how an industry operates and how value is created and captured. These structural changes may take decades to play out, but you can’t fight against them. It is like the surf and the tide, you can try to compete it, swim against it, but deep structural changes will play out, no matter how you position your business. An example of this would be the gradual shift from oil & gas to renewables. Most executives today would say that, “over a timeline long enough, we will transition. It is just a question of when,”.
3. Rapid Technology Shifts
Swift and rapid technology shifts are similar to structural industry change, but happens at a much faster pace. They’re much more dynamic and much quicker. Expect to see a significant number of startups, scale ups and investors operate in this space.
You can already see examples of this playing out in the mobility space with ride-sharing, micro-mobility, scooters, and in tourism with the sharing economy like Airbnb.
4. Financially Under performing
Companies financially underperforming on the stock market will often be pushed to transform – even against their own will. Activist investors, PE fund and other investors may acquire enough leverage to force through a radically new direction.
Example of this abound, but are often less known from the outside. Starboard’s transformation of Darden Restaurants is a great example how an active investor came in, sacked the board, changed management and led a transformation. While Blockbuster is another example where an activist investor actually blocked a transformation into streaming (you can learn more about this in the online program).
5. Strategic Preemptive
Often led by an internal strategy review or a new CEO, the strategic preemptive route is often driven by foresight, some level of anxiety about a shifting landscape and a desire to transform before it is required.
Often, a new CEO will have the momentum and opportunity to lead this reinvention easier than an established, internal CEO will.
6. Markets Fallen Off a Cliff
In times of economic shocks and crisis, markets may vanish virtually overnight. The oil and gas crisis back in 2014, the financial crisis back in 2008, 2009, and today in 2020, the economy fallout thanks to COVID-19. These economic shocks happen, and when they do, companies go through three phases – they start with “shock”, they cut, and for those that make it, they transform. From hospitality to oil & gas crisis, these moments will push many firms into bankruptcy, while others are able to use the crisis to generate a compelling case for swift transformation. Very challenging.
So those are the top six reasons that we find. Again, these are just based on our own findings. I would love your insights and would be very happy to discuss this further with you.
One of the many conversations we had in our early findings was this question:
“is it only just the one reason, or can it be multiple?”
So we did a little bit of research, and what we found was that very often, there are several reasons that come together at the same time. For example, a company could be seeing declining profits over time, experiencing structural industry change, and also on top of that, going through some more rapid technology shifts. Of course, if you are going through all of these, it is a very challenging environment to manage a transformation in.
Another example, one that is more crisis-driven, would be a company (like many today in the wake of COVID-19) facing markets that have fallen off a cliff, and rapidly declining profits.
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