The world around us is constantly evolving. New species arise through a process called “speciation”, which essentially means that new varieties of organisms arise and thrive when they are able to find and exploit an ecological niche. Conversely, species such as dinosaurs, powerful and dominant at one time, can become extinct when they are no longer able to survive in changing conditions or against superior competition.
From species becoming extinct due to a lack of resources, to the effects of capital markets on the economy, to entire industries being disrupted by technological innovations, organizations much like organisms must reinvent themselves or face extinction.
A study published in 2014 by the Turnaround Management Society revealed that most business crises are caused by management continuing with a strategy that was no longer working for the company or that management had lost touch with the market and their customers and did not want to adapt to changes occurring around them.
A transformation can be a market transformation and/or an operational transformation. By gaining access to new markets through innovation, or by transforming its existing core capabilities to achieve higher performance, businesses take on risk but also sustain their competitive edge over rivals who themselves jockey for position in the market space. The ability to innovate or improve and take on risk is an essential part of doing business. Failing to create new capabilities or to compete with existing competencies eventually leads to business failure.
According to the US Census Bureau, 70% of businesses survive at least 2 years, 50% at least 5 years, 33% at least 10 years, and by 15 years, 25% only are still in business. The longer you’ve been in business and the more traditional an industry you are in, the higher your probability of survival. But even that paradigm is being challenged nowadays by disruptive technologies, which bring about new capabilities that bypass outdated value chains and make obsolete the information systems we rely on.
While the speed of technological changes can be daunting, consider the transformation story of General Electric’s 100 year old transportation business from the manufacture of engines, to the provision of smart engines and locomotives. These smart engines are arguably more of a solution and a service than a conventional product. GE as a dominant global producer of goods is transforming itself into an IT driven service and customer focused solution provider.
GE is leveraging cloud computing, big data into Internet of Things (IoT) capabilities for its customers. Michael Porter recently explained in a widely circulated HBR issue how the IoT will soon become the third IT-driven revolution (a revolution of product boundaries). Revolutions become necessary transformations for businesses to maintain competitiveness and survive. Not convinced? The first revolution, Porter says, was automated processes and the second was the internet. Where would your business be without its systems automation or without the connectivity of the internet?
GE again is ahead of the transformation curve when it comes to innovation and IoT. With its smart engines, it is enabling its customer to manage complexity better through increased business intelligence for asset and network management (planning, maintenance, dispatching).
In 2009, before all the hype around the Internet of Things, GE CEO and Chairman Jeff Immelt addressed a crowd of graduating MBA students at the prestigious ESSEC Business School in Paris. He was asked two closing questions by students. His answers were telling. To the first question on what was his advice to graduating students, he answered that after making a significant investment to each obtain their MBAs, they owed it to themselves to take on risk – that is to become entrepreneurs, innovate, and potentially fail but also succeed. To the second question on what will make businesses successful in the future, he simply answered that the ability to manage complexity will be the main differentiator for successful businesses.
By understanding the changes in your competitive landscape, by being transformation ready and thus being able to take on risk and innovate, you can, not only avoid business failure, but thrive for years to come.
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