FINEX Folio
By Reynaldo C. Lugtu, Jr.
Dual transformation: Now is the right time
The coronavirus pandemic has forced companies to adopt digital transformation and change how they create, deliver, and capture value to their customers.
Take, for example, Philippine fastfood giant Jollibee Foods Corp. The Nikkei Asian Review reported that the company recently announced “it will spend P7 billion ($138 million) to build discreet ‘cloud kitchens’ and a stronger delivery service as part of a global restructuring plan” to offset the impact of the pandemic. These kitchens would be in discreet, low-rent sites and not include dine-in facilities.
Global experts believe that companies and organizations will accelerate their migration to digital applications and platforms. “What organizations resisted for a decade is now core to survival and innovation,” Michael Hendrix, partner at Ideo, told Fast Company.
But the economic crunch businesses are facing today is driving CEOs and the board to transform their organization for the long haul while reaping the benefits of digital transformation today.
This is where dual transformation, a concept propounded by Clark Gilbert, Mark W. Johnson, and Scott D. Anthony in their book Dual Transformation: How to Reposition Today’s Business While Creating the Future.
Dual transformation is a strategic approach to reposition today’s business to maximize its resilience, especially during this time of pandemic, while at the same time creating tomorrow’s new growth engine when economies bounce back.
From the term itself, dual transformation has two streams — Transformation A, which is finding new possibilities for addressing existing markets, and Transformation B, which is about creating a powerful new growth engine for the future.
Many successful businesses face a growth challenge during this pandemic in the core markets they currently dominate. Consumers and business buyers have quickly shifted to digital platforms. Hence, many companies have adopted Transformation A, by identifying the shift in behaviors of your current customers, innovating your business model against this shift, determining and monitoring new metrics, and aggressively implementing the transformation. This is exactly what Jollibee did and other organizations by quickly pivoting their business models to serve current customers that shifted to digital.
But this is not enough. When the global economy bounces back, organizations need to expand their businesses to other untapped and constrained markets to create the growth engine of the future. For successful companies, future growth often has to be found outside their core markets. But looking to new markets, new customers, and new business models is a big strategy. Hence, pursuing Transformation B is a sound strategic approach.
It involves identify constrained markets, a new problem that a significant group of customers wants to solve but can’t, because of a lack of specialized skills, iteratively developing the new business models to serve the new market and power the future, and using partnerships, acquisitions, and new hires to succeed against a new competitive set.
But the most challenging part of dual transformation is what resources and assets will an organization use to make the two-transformation seamless and efficient. This is where the “capabilities link” serve as a bridge from the organization of today to the growth leader of tomorrow. it involves identifying and using unique capabilities of the organization and developing systems and creating formal exchange teams to manage dual transformation. The company’s top leadership needs to actively arbitrate the interface between A and B, with a bias to protecting transformation B.
One successful execution of dual transformation cited by the authors is Adobe. Transformation A for Adobe involved introducing Creative Cloud, a new subscription-based business model that offered greater revenue predictability, with lower production cost. The company stopped shipping physical media in 2013; cloud-based products comprised roughly one-third of revenue by 2014.
Transformation B for Adobe involved launching a targeted suite of digital marketing solutions — breaking an under-served market wide open. The company acquired several leading web analytics businesses — e.g., Omniture, Day Software and Efficient Frontier to build new business in markets it was not serving.
Adobe leveraged on its brand strength, talent pool, and established distribution network as its capabilities link.
Dual transformation is a journey that CEOs and the board need to understand and prepare for. It also entails transformation the organization’s mindset and culture. Adobe and other companies too it. It took seven year for digital marketing at Adobe to become one-third as big as its traditional business.
Reynaldo C. Lugtu, Jr. is CEO of Hungry Workhorse Consulting, a digital and culture transformation consulting firm. He is the Chairman of the Information and Communications Technology Committee of the Financial executives Institute of the Philippines (FINEX). He is Fellow at the US-based Institute for Digital Transformation and the Country Representative of the Institute of Change and Transformation Professionals Asia (ICTPA). He teaches strategic management in the MBA Program of De La Salle University.
