Do companies need a financial trauma to provoke them into change, or can they adopt new ways of doing things when not under pressure? The history of successful organizations shows us that decline, while perhaps not inevitable, is at least likely. And yet few companies opt willingly to change strategy without being forced to. There are some companies, however, that do – and we can learn a lot from them as this Idea shows.
It is a rare company that is able to anticipate a new set of requirements, mobilize resources to meet them, radically change their ways and reclaim leading positions in their industries. Examining these rare examples can help us understand how their successes can be replicated.
In order to look at how these companies achieve successful strategic transformation, the research cited here studied 215 of the largest British public companies over the period 1984–2003. Comparing the financial performance of each company with its domestic and international industry peers, they used measures of performance that included profit margin, return on capital employed and cash flow to operating revenues.
Ultimately, they focused on three companies that had made successful strategic transformations, comparing them with three companies from similar industries that were also successful but hadn’t been required to make a dramatic shift. The ‘pairs’ were as follows:
The three companies that made successful transformations had three fundamental advantages over their peers: they were able to build alternative coalitions with management, create a tradition of constructively challenging ‘business as usual’ and exploit ‘happy accidents’ to make strategic changes. Together, these advantages helped them establish the virtuous cycle of strategic transformation that their counterparts could not.
This can be called the ‘cycle of strategic transformation’:
If companies are to transform their strategies and sustain high performance they must foster alternative management coalitions, value constructive tension and challenge the status quo. Here are eight detailed ways in which to accelerate these changes:
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