Executive Summary:
In 2023, we have reached a tipping point. For the first time in human history, we achieved abundance - and production costs are becoming a secondary factor
As a consequence, we are experiencing a monumental shift in the key drivers of business success
Businesses that are attempting to transform often fail because they make technology, culture, or methodology the core driver of the change
Successful transformations follow a playbook that is predictably successful
Strategic business transformations move the needle from reacting to changing circumstances, to proactively steering the organization into favorable markets
If you'd like to receive some of the leading practices for successful transformations, please send me a message (philipp@gueth.com) and I'll be happy to share them
Systemic Change - And How To Master Transformations
The readers of this Leader's Digest - you - have substantial experience and expertise in business. Because only with experience comes the ability to anticipate needed change.
And they come from different industries, different sizes of organizations, and very different situations and challenges that they find themselves in.
But still, there are unifying elements to all of us.
In order to understand those elements, let’s first look at what’s happening in our world right now.
When we take a step back and look at our world in 2023, then I think it’s safe to say that it’s a great time to be in business. And it has never been that easy to be in business. But at the same time, just in the past half-decade, we have reached several tipping points that fundamentally are changing how business success is achieved today.
In a nutshell: we have reached a point in the Western world, where we have an abundance of products.
Abundance
Leading companies like Amazon have been the first to reach that point. For them, it’s now cheaper for many returned items to simply destroy them and reproduce them than to take a little bit of human effort to check and relist them.
But abundance is also beginning to show in other industries.
For example in automotive.
Tesla was leading the charge. Instead of building what people pay for, they now build fully equipped vehicles and then artificially limit their capabilities with software - if people don’t pay.
Today, many perceive this as normal because we are used to it from purely digital products. But think about that for a second. Today it’s more economical to build every feature into a product and just hand that to people - and then block access to those features if they are unwilling to pay. So you’re still building the entire product. At full cost.
The implication is profound: The production cost has just become a secondary factor.
And this is now being introduced by German car manufacturers as well. BMW is putting seat heating, assisted driving, and some other features into some of their series, but you can't access them unless you subscribe.
Technology
The second big, and obvious driver of change is technology. But in a different way than most people think. Most think in terms of innovation and production efficiency. But these are not the primary drivers of the need for change in organizations. I am looking at this from a market perspective through the lens of transaction cost.
And what I see is, that as tech start-ups keep charging ahead, technology squeezes the markets on two sides:
On the sales side, it puts pressure on any kind of intermediary because it gives customers increasing transparency and access. Both in B2C and in B2B.
And the same this is happening in the talent market. It’s not that people have become arrogant or more demanding today - they just have full transparency of their market value and almost unrestricted access to opportunities globally.
And then there is one big self-imposed challenge for us in Europe, and in Germany in particular:
Regulation
We have severe disadvantages in terms of how rigid our environment is, that most of the rest of the planet doesn't have. And with that comes a multitude of implications. For example, very restricted access to capital. For many global investors, Germany is seen as one of the worst environments to invest in - globally! And amongst other things, of course, regulation slows innovation.
These three drivers combined are what make us feel the global competition.
From the US, from entire Asia, increasingly India, and now even the middle east. Dubai is drawing lots of top talent - they are really hungry for exceptional people.
In regards to change and innovation, there is one final cherry on top in Germany: We are in a particular situation because we find ourselves in a macroeconomic phase at the end of a lifecycle of prosperity. After world war two, we've had decades of remarkable growth. Business didn't just go great. It went phenomenally. This has caused a widespread mindset of “this will work forever”.
Business has been good
...and for many, it is still really decent - and they won't even consider changing anything.
But, that’s always just until abundance, technology, and globalization catch up with them.
We’ve seen plenty of examples over the past few years:
The German automotive industry was seriously challenged over the last decade. They pivoted last minute and invested heavily in electric vehicles and autonomous driving.
German banks are losing their composure right now in the face of digital banks - because they have absolutely nothing in their arsenal to counter their advances.
German retailers were completely unprepared for e-commerce. Many still are. They’re just hoping that customers will come back one day.
Many German manufacturers are seriously struggling with the European Union and globalization in general. Because they can’t compete.
Increasingly, agencies, programmers, and many other office jobs are beginning to feel real pressure of the global access to services from South America, India, and, increasingly, Africa.
When you speak with the leadership of organizations, and you ask them what they’ll do about all of this, and what their strategic objectives are, then you often will hear something along the following lines:
“Grow Revenue by 60%”
“Hire 350 additional staff”
“Increase Operating Margin to 15%”
Spoiler alert: Those are not strategic goals. Those are simple targets.
And if they're somehow “transforming” to reach these goals, then there is very little chance that this transformation will succeed.
In fact, what they call transformation is mostly not transforming anything. These initiatives are typically process changes. Or minor updates to some cost- or pricing models or their sales channels.
This is one of two primary reasons that transformations fail.
The second one works even worse: Changes, or transformations, that happen just for the sake of transforming. Transformations that have no actual reason to happen.
I’m sure you have seen them: These digital transformations for which, when you ask the leadership WHY they are transforming they say “Well, we want (or need) to be more digital”.
What usually happens next is, that there are some half-hearted initiatives somewhere in the organization. There are slogans like “agile working”, you sometimes see a discussion around values, around purpose, or a mission, but they quickly die and you never hear of them again.
There are new tools that are being introduced - but no one uses them. There is no adoption.
So initiative after initiative fails, and at some point, the conclusion is, that “this simply doesn’t work for us”:
And that’s not only true for digital transformations but for technology-, culture, and methodology transformations in general. And there’s a very specific reason for it.
Now, I have to warn you. Once you see it, you won’t be able to un-see it.
What I just described follows one of the three (or something very similar) logical sequences:
Technology ⇒ Strategy
Culture ⇒ Strategy
Methodology ⇒ Strategy
In these kinds of transformations, business strategy is positioned as a derivative of the requirements of the transformation. In other words: Strategy follows technology, culture, or methodology.
And it’s natural that this causal relationship is what’s often being assumed because the narrative around business transformation is spread by large agencies that implement technology, drive cultural change, that preach methodologies like Agile. That’s how they make their living and they like to position their field of expertise as being at the center of change. But it’s not. Technology is a commodity. Culture is not an end in itself. And the methodology is meaningless if it’s not applied for the right purpose.
With that in mind: I have good news for you!
Successful transformations - and systemic change in general - follow a playbook that is actually very predictably successful.
With an intentional, strategic transformation you take whatever circumstance you find yourself in, and move from a reactive, passive state into a proactive, hands-on state.
And that’s a game-changer!
In team sports such as soccer, basketball, or rugby there is one foundational understanding that comes very naturally:
If you play defense, it’s very difficult to win games. Because you don’t score. In order to score, you need to play offense.
And it’s the same in business.
In business, playing offense always solves your problems as long as your defense is not a complete disaster.
In other words: To achieve a successful strategic transformation, you need to be on offense. There are 4 steps that need to be executed in the right order. Most transformations start with initiatives that train certain people in the organization. In a new technology, a new way of working, a new methodology. And then there is the hope that somehow this "grassroots movement" somehow leads to a successful business transformation.
But that's putting the cart before the horse and it predictably fails. Instead, here are the...
Four steps for successful transformations:
Develop strategic foresight. Gain an objective view of the market and the disruptive forces that drive the external change
Define a clear and crisp, strategic winning aspiration
Derive the required capabilities and craft the to-be organizational design
Lead and steer the change by strategically communicating and enabling parts of the organization for the change
However, there is one central element missing in these four steps. The one deciding factor is the head of the enterprise.
A striking example of just how relevant the CEO's role is in business transformations is:
The Microsoft story
The following three graphs show the three major episodes in Microsoft's history. Each shows the stock price over a timespan of more than a decade.
The first graph shows how Microsoft developed under Bill Gates: Innovation. Exponential growth. Market leadership.
The second graph shows the Steve Ballmer era. An era, that long-term Microsoft employees often call the "lost decade". The stock price stagnated for almost 14 years. When Ballmer took the helm, he went on to destroy Microsoft's culture of innovation and progress within a matter of months. By the time he stepped down as CEO, Microsoft faced liquidation.
The third graph shows the Satya Nadella era. Again, within a matter of months, he swung the corporation around and set it on a path of sustained, long-term exponential growth and market leadership through strategic foresight and innovation.
One question might creep up:
How can the leadership come up with their strategic objectives?
It requires dedicated time. It requires a retreat once or twice a year. It requires asking fundamental, open-ended questions.
The essence of those questions is:
“Where could we take the business next?”.
It’s a deliberate format in which nothing is off the table. The goal is to evaluate all possibilities and then select the ones that actually fit within the strategy - or revisit the strategy.
And this is an important piece of the puzzle. Because often the systemic changes that are initiated happen last-minute and are then constrained by the one resource that you can’t buy or borrow: time.
If you want to take just one thing from the above, then it should be this:
When business is going well, a transformation does not mean, that you have to give up any of your current business. The opposite! It means transforming the organization to avoid reaching a glass ceiling - or worse, a dead end.
It is crucial to prepare the organization so that it can handle sustained growth. You want to make sure that what you’re successful with today, is what you’re successful with tomorrow - without neglecting the day after tomorrow.
And when business is not going well, a transformation is not a nice-to-have. A strategic transformation often is the only lifeline you have left. Playing dead and hoping that the tides will turn is a surefire way to disappear from the market.
Now, that is enough for strategy. With all that in mind, I’d say 2023 overall is a great time to be in business. In fact, the opportunities have never been greater.
But: They are great for everyone. Today it’s easier than ever to jump-start a business in basically a couple of clicks. In Germany it still takes weeks, but in most of the rest of the world, you can be up and running in 72 hours. And with the increasing pace of technological development, that pace in business is picking up. I have dozens of former colleagues that decided to leave a well-paid job in consulting because by now it is just too easy to found your own business.
This is not a message to scare you. Well, that too.
But mainly it’s a call to action to use the opportunities in your business. It’s easier than ever to empower and enable those in your organization that are capable to build new business lines.
One key to that is your ability to articulate what you truly stand for as a business.
Your purpose.
Your vision.
Your mission.
Those are the cornerstones of your strategy. And it’s more essential than ever to empower your people to act within your strategy.
Just because there are a gazillion so-called business coaches out there that turned "mission", "vision" and "purpose" into meaningless buzzwords does not mean that they don’t work.
When you put a strategic framework around them and see the steps through from strategy to execution, they will work better than you could ever dream of.
Make strategy a part of your agenda as a leader!
The blueprints are clear. What’s also clear if things don’t work out is, that it’s not the people in the organization - see Microsoft that went from exceptional to catastrophic to phenomenal without switching their employees between the transitions.
Whether transformations are successful or not depends entirely on the head of the organization and its leadership. They are in full control to turn the tide they are the only ones in control. If Microsoft did it with hundreds of thousands of employees for the worse and for the better - so can you!
I am a strong believer that we live in an abundant world
And I made it my mission to help leaders to apply the right frameworks and playbooks for building market-leading organizations.
If you need anything in terms of which methods to apply or how to get to the right objectives, I am more than happy to share some of the leading practices with you.
If you’re interested in the frameworks and methods, please just send me a short message and let me know what challenges you face and what you struggle with so I can share the materials with you.
Now, with all of that in mind, I have one final thought for you. You could almost see it as a mindset to take home.
I’ve stated a couple of times: We live in a world of abundance. I really believe that.
And there is proof everywhere. You just have to look at the messaging of companies today.
Again, I have to warn you: Once you start seeing what I am about to show you, you won't be able to un-see it.
A hundred years ago, if you were a shoemaker making shoes, you didn’t have to explain to anyone why they should buy them. People needed shoes. Yes, there was competition. But for a long time, supply and demand were in (sort of) a balance.
This has shifted. As a species, we have gotten more and more productive.
When you’re going online to look for white shoes and you take a step back from the screen: From more than 2 meters away, they all look the same.
And for all practical purposes, the products from different brands - they are all the same!
You can walk in them. And very comfortably. The difference is marginal to non-existent.
A yellow swoosh here. A few blue sprinkles there.
The only differentiator that is left is, what the company, that is producing them, stands for.
And the same is increasingly true for companies when they’re trying to convince people to work for them. Even this statement: "To work for a company” is about to feel alien to people. That’s not how the world works anymore.
Today, if you’re going for top talent, you need to convince people to contribute to your mission. You need to explain to them what you stand for. It’s not what they do at work that motivates them, it’s why they do it.
What does that have to do with systemic change?
Nothing. And everything.
Systemic change today is all about the ability to forge complexity into targeted, concise statements that serve as a unifying message for the people of your organization.
If you achieve this - your transformation will succeed.
If you'd like to receive any materials on successful transformations - I'd be excited to share them. Drop me an e-mail or schedule a quick call.
Philipp
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