Transformation (Part 1): The Law of EvolutionAdd bookmark
"If the rate of change on the outside exceeds the rate of change on the inside, the end is near," said Jack Welch, years ago.
In these times of AI, RPA, data science, blockchain and virtual agents, this saying is becoming more relevant than ever before.
The only difference is that we have so much technology, at such low costs, that we can’t speak of Jack Welch’s ‘change’ anymore. Given the huge amount of technology and, not to forget, the ever more demanding consumer, the rate of change experienced is so high that companies have to transform.
For a long time, the law of the strongest prevailed. Multinationals seemed undefeatable. But this has been replaced by Darwin’s law of evolution. Speed is crucial: it is the survival of the fastest. If you are not first to market, the potential for future revenue may begin to evaporate.
While cash is still king during the pandemic, digital transformation is so important that globally, companies have spent $1.3 trillion on it this year alone.
So, the money is there. The technology is there. So why is it that, according to McKinsey, 70% of all transformations miss their goals? That translates to $900 billion for this year alone.
Before we examine the answer, let’s reflect: What does this $900 billion mean to you? How much money have you allocated to transformation? If an average of 30% is successful, what are the risk investments? And what does that risk mean for the future of your company?
Back to the main question: With such an abundance of money and technology, why do 70% of transformations still miss their target?
You probably know the answer: people and culture. But why is that so challenging? Sebastiaan Laurijsse, Senior Director IT & Digital Transformation Manager at NXP, offers some explaination: "Transformation is not the singular goal," he says. And he is right. Transformation is a tool to reach your goals. The benefits – whether to increase sales, produce at lower cost, or reduce time to market – those are the goals.
Seen from an internal context: You need to ensure that the new ways of working are adopted so that you can develop at lower cost or need fewer resources. There is always a goal to accomplish.
Goals are often measured in revenue and costs. Experienced shareholders look at the return on investment, however: How much revenue is generated from every CapEx dollar? If you can influence the metrics of the market, you will gain shareholder interest. That means more investors and more liquid assets.
Next week: The crucial role of the CFO
In the next article we will look at the crucial role of the CFO and the skills that CFOs need to improve the success of transformation initiatives.