3 Traps That Block Corporate Transformation

The need for transformation has never before been more keenly felt in the corporate world.  Digital-first companies, such as Amazon, Facebook, Google, and Twitter, are amassing market share and capitalization, but only a few brick-and-mortar corporations (think Apple, Nissan, and HCL Technologies) have been able to change fast enough to catch up with their rivals.  Why do companies that lose their relevance find it so tough to recover?

For decades, the success of a business depended on three key pillars: Innovative Ideas + Cheaper/Faster/Better Execution + Powerful Leadership. Ideas were critical, but execution was the source of competitive advantage even during the internet era for companies such as Toyota, GE, and Dell.  They made mediocre ideas look great because of their execution, and a tightfisted, centralized, command-and-control culture dominated such organizations.

But, with the digital era’s dawn, traditional sources of competitive advantage are fading — for three reasons.

One, digital technologies have shortened and simplified execution cycles, and compressed advantages built on physical reach. Two, with the emergence of specialized organizations that can handle manufacturing and logistics, customer support and after-sales services, and IT, entry barriers in many industries have fallen.  And three, the new technologies have made possible more consumer analytics, greater visibility, and scale, forcing a move away from standardization and towards personalized offerings and unique experiences.

As a result, the winning formula has become: Innovative Ideas + Delivering Unique Experiences + Enabling Leadership.  Uber’s rise, for instance, has been propelled by the novel concept of using mobile devices to hail cabs, and a cool customer experience that features seamless credit card payments and driver ratings.  Its managers are committed to transparency and allow employees to constantly scout for new business opportunities.  No wonder Uber, which was founded five years ago, is valued at around $17 billion today.

But what if you’re in an existing business rather than a start-up? Going by my experience at HCL Technologies, where I led the change effort, transformation for large companies involves breaking out of three traps:

The Logic Trap.  Companies often have to consider doing what others believe is impossible; they can’t change radically by thinking within the boundaries of reason.  Could Amazon have come up with the idea of delivery drones, for instance, by thinking within the box?

Smart companies identify gaps, focus on discontinuities, and force the creation of new markets.  Their leaders have to move away from incremental steps, such as cost cutting, and think of giant leaps that will put them on the path of transformation.  That’s what we did at HCL Technologies with the Employees First, Customers Secondidea.  Being illogical can sometimes be a way of achieving the impossible.

The Continuity Trap.  A comet leaves behind a tail long after it has disappeared, but astronomers, knowing that the comet has gone, quickly re-calibrate their telescopes to search for the next one.  By contrast, many business leaders take comfort in the past — essentially staring at the long-gone comet’s tail — rather than getting excited about the uncertainty of the future.

Some argue that uncertainty demotivates employees, leading to increased attrition and corrosion of market value.  However, the opposite is also true; the best talent is usually motivated by challenges and how to tackle them.  An owner may wax eloquent about his beautiful home, but it’s the leak in the bath that excites the plumber.

HCL Technologies was proud of its leaky pipes, so to say, and laid bare those aspects of the organization that weren’t working.  That attracted transformers, who were drawn up by the challenge of fixing big problems.  HCL’s clock speed went up, and its talent and energy focused on tackling future discontinuities.  As a result, the company has seen revenues and market capitalization grow over seven-fold in the last nine years.

The Leadership Trap.  If the source of today’s competitive advantage lies in the interface between employees and customers, the leader’s role must change from being a commander to an enabler of bottom-up innovation.  Customer experience is supreme, so leaders must inspire employees to create and deliver unique experiences by tapping into their insights.

Howard Schultz and Jeff Bezos, the CEOs of Starbucks and Amazon, are proponents of the employee empowerment credo.  Their goal is to inspire employees to be personally accountable for the customer experience.  That’s how more leaders should try to think.

The impact of digital technologies on business and leadership models is the biggest issue facing corporations nowadays. It’s an opportunity for business leaders to stand up, be counted, and convert the threat into an opportunity for transformation without settling for incremental change.  Isn’t it stimulating to do what no one has done before you?

This post is part of a series leading up to the 2014 Global Drucker Forum, taking place November 13-14 in Vienna, Austria. See the rest of the series here.

Originally posted on Vineet Nayar’s Blog site on Harvard Business Review: https://hbr.org/2014/11/3-traps-that-block-corporate-transformation