Business Transformation: It Makes Sense to Adjust

Each company’s strategy for approaching transformation falls into one of three categories. These categories in turn determine the level of transformation — the timing and the magnitude — that the company can support.

1. Reactive. This is the default transformation strategy; it is minimal, and has become second nature to most seasoned executives. A change in circumstances provokes a short-term response, generally an abrupt shift that requires little cross-company coordination or follow-up. In fact, this strategy is an essential management tool when only incremental change from the status quo is required.

However, it is also the most limited and unsustainable. Problems arise when executives try to apply this approach to situations that call for more sweeping and highly detailed transformation. Too often, executives rely on the reactive techniques they know well, even when the situation begs for a more structured, thoughtful plan that will yield more lasting change.

2. Programmatic. This strategy is more comprehensive and is appropriate when major change is required and a company has sufficient lead time. In such circumstances, the company launches a widespread change initiative across the lines of business that are most affected. A cross-functional program office is set up, tactics are identified, milestones are established, executives are assigned to oversight, a communications program is launched, and progress is tracked.

These programs can be effective in dealing with a contained event or threat, such as a new competitor or a new product from a rival, and their potential reward is greater than that of the reactive approach because they are more forward-looking. But as the name of this category implies, the transformation is a program — a systematic, planned sequence of activities designed to achieve specific goals within a specific period of time — and, thus, the outcome takes longer than a reactive transformation.

3. Sense-and-adjust. This is the most long-term and sustainable strategy, but only a few companies have successfully implemented it. Unlike the first two approaches, sense-and-adjust is dynamic, constantly and consistently smoothing out volatility in areas of business subject to swift and dramatic change, such as research and development or frontline operations like manufacturing and logistics.

Sensing is an ongoing effort to gather and analyze data on current and future business conditions and, more important, translate it into likely outcomes. The sensing process should leverage baseline planning information — what’s captured in strategic and operating plans — and synthesize it with key performance data to form a single “dashboard” of actionable information that can be used by business unit heads or corporate leaders in functions like IT, HR, or marketing.

Adjusting is the process of altering business strategies on the basis of sensed outcomes. In this phase, which is done in tandem with sensing, business unit or department heads assess the data to determine possible resource and capability trade-offs. They explore the impact on people, processes, and technology, and then develop a consensus on the plan that is most appropriate for building or maintaining competitive position.

In the case of an unexplained drop in unit prices, the adjustment may be an emphasis on marketing, innovation, or layoffs. And if a company has learned that it could outpace its rivals by implementing a GPS system, a slate of new training programs that teach employees how to use the technology may be just as important as purchasing the equipment itself.

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