BCG Research Concludes: “If It Ain’t Broke, Still Fix It”
We’ve all heard the saying, “if it ain’t broke, don’t fix it”.
Here’s the problem. In life there is change, and change by definition is destructive at some level. It has to be.
So, if it doesn’t feel broken today, change is going to ensure at some point, it is going to break. Tomorrow, next week, a year from now.
There are two ways to approach this reality. We can wait until things change, break and therefore need repair. Or we can proactively change, proactively “break” things and move to a new position on our own terms.
The problem with waiting until things are broken is we often don’t see the signs until they significantly manifest. Manifestations usually are in categories such as revenue, profit and cashflow performance issues, cultural or people issues, customer satisfaction problems etc. Once these issues arise, the opportunity to be truly proactive has been lost.
So rather than waiting for these manifestations to arise, is it worthwhile taking action before they do? If things are going well, should we proactively change and transform?
Data to support proactive change and transformation
Boston Consulting Group recently released some research that empirically supports the concept of proactively changing and transforming whilst you are at the top of your game, rather than waiting until you have problems. The key points as follows;
“Our analysis shows that in the three years following the start of a transformation, pre-emptive transformers have an annualized TSR that is 3 percentage points higher than that of reactive transformers. Outperformance following a pre-emptive transformation is true not only in aggregate but across most industries, except financial services. (See Exhibit 1.) (In the period of our analysis, the financial sector was still recovering from the crisis and the subsequent regulatory changes, which may have caused anomalies.)”
“As Giuseppe Tomasi di Lampedusa famously wrote in The Leopard, “If we want things to stay as they are, things will have to change.” Our findings suggest that in order to maintain outperformance, companies should pursue preemptive transformation rather than relying on performance momentum to sustain itself. Furthermore, the preemption premium is continuous: the higher the relative performance of a company when it initiates change, the higher its long-term relative performance. In other words, the earlier a transformation is initiated, the better. (See Exhibit 2.)”
|“In addition to having better financial performance, preemptive transformations offer three secondary benefits. (See Exhibit 3.) First, they take less time: preemptive transformations result in consecutive restructuring costs for an average of only 12 months, compared with 14 months for reactive ones. Second (and perhaps partly because of the shorter duration), they are less costly. The costs of restructuring in preemptive transformations total 1.5% of yearly revenues, on average, compared with 1.8% for reactive transformations. Considering that these costs are only a proxy for the total transformation costs (which typically involve other expenditures, such as investment in new capabilities, M&A, and repurposing of assets), the real effect may be even larger.”|
So if you are a high performing company, and you want to stay high performing, start embedding change and transformation processes now. It is cheaper, takes less time and is less disruptive. If you want to learn some new ideas on how to proactively transform without destructive conflict, consider joining Shoham Adizes and myself for some upcoming special events in Brisbane and Sydney where we will delve into the concepts of mutual trust and respect.