Page 52 - Harvard Business Review (November-December, 2017)

in a dwindling market. Hit by falling de- But how can you and others on the lead-
mand for paper more than a decade ago, ership team figure out what kind of trans-
the Norwegian company was forced to di- formation to pursue, once growth opportu-
vest unprofitable operations across four nities or declining performance has alerted
continents. Thanks to its profitability im- you to the need for major change of some
provement program, it became so good at kind? That’s the second step in the process—
identifying where to make cuts that it was defining the quest.
praised by BusinessWeek in 2009 for turn-
ing “shrinking into a science.” But although
the company has survived, it has not found THE QUEST: CHOOSING YOUR DIRECTION
a way to rebound. Like many companies in Next the organization must identify the
contracting or commoditizing industries, it specific quest that will lead to greater value
IN BRIEF is stuck in turnaround mode, with its share generation. Executives increasingly use the
price consistently in decline. By contrast, its term “transformation” as shorthand for
THE PROBLEM Swedish-Finnish paper rival Stora Enso also “digital transformation.” But the ongoing
Failed corporate
transformations are went through several rounds of painful re- digital revolution does not itself constitute a
usually attributed to structuring but has since reinvented itself as transformation—it is a means to an end, and
execution—but often a renewable-materials company. you must define what that end should be.
leaders misdiagnose In other cases, reinvestment in growth Studies and analysis that we have con-
what changes need spins out of control. Lego had this prob- ducted show that most corporate trans-
to be made.
lem. The Danish toy maker made two large- formation efforts are either derivatives or
THE COSTS scale attempts to transform itself through combinations of five prototypical quests:
When organizations pursue greater innovation. The first, launched in 1. Global presence: extending market reach
the wrong changes or 2000, delivered a wealth of freewheeling
tackle them in the wrong experimentation that over the next few and becoming more international in
order, existing problems years drove the company to the brink of terms of leadership, innovation, talent
get worse, new ones are bankruptcy. The second, launched in 2006 flows, capabilities, and best practices
created, and employees,
having been burned, (once the company had recovered its fi- 2. Customer focus: understanding your cus-
become wary of future nancial stability), catapulted Lego past the tomers’ needs and providing enhanced
initiatives. two U.S. giants Hasbro and Mattel to be- insights, experiences, or outcomes (inte-
come the world’s most profitable toy com- grated solutions) rather than just products
THE SOLUTION pany by 2014, with margins greater than or services
Before setting their change 30%. Why the big difference? The second
priorities, leaders should 3. Nimbleness: accelerating processes or
analyze three things: the time around, under then CEO Jørgen Vig simplifying how work gets done to be-
catalyst for transformation, Knudstorp, Lego maintained a dual focus come more strategically, operationally,
the underlying quest, and on growth and discipline. The company
the leadership capabilities set up a cross- functional committee (the and culturally agile
needed to pursue it.
Executive Innovation Governance Group) to 4. Innovation: incorporating ideas and
fund, monitor, and strategically coordinate approaches from fresh sources, both
THE CATALYST: PURSUING VALUE innovation activities, ensuring that they re- internal and external, to expand the or-
The trigger for any corporate transformation mained “around the box” rather than drift- ganization’s options for exploiting new
is the pursuit of value. Ideally, that entails ing way outside it. opportunities
both improving efficiency (through stream- This example brings us to a larger point 5. Sustainability: becoming greener and
lining and cost cutting) and reinvesting in about catalysts for change: While you’re more socially responsible in positioning
growth. But many transformation efforts striving for growth, discipline—through gov- and execution
derail because they focus too narrowly on ernance, metrics, and other controls—allows
one or the other. you to stay on track later on, after you have Each quest has its own focus, enablers,
In some cases, attempts to streamline chosen your journey’s direction. Without and derailers, and each requires the com-
the business through productivity improve- such controls in place, your company can eas- pany to do something more or different with
ments, outsourcing, divestments, or restruc- ily lose its way. This often happens through its operating model, customers, partners,
turing undermine growth. The cuts are so the hasty purchase of an overpriced or internal processes, or resources. “Going
deep that they hollow out capabilities, sap tough-to-integrate “transformative acquisi- digital” can support any of the five quests,
morale, and remove the slack that could tion” that is meant to redirect the strategy but and all of them call for discipline. (See the
have fueled new endeavors. just ends up sucking value out of the corpora- exhibit “Understanding the Five Quests.”)
Consider Norske Skog, once the world’s tion. Hewlett-Packard is a notable recidivist Let’s return to the paper giant Stora Enso
largest newsprint producer—now, according in this domain: Recall its ill-fated acquisitions to see how it defined its quest. The catalyst
to Bloomberg, the third largest in Europe, of Compaq, EDS, and Autonomy. for transformation was the plunging demand

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