It is believed that today, almost all companies are engaged in business change. 80% CEOs believe that their business models are evolving into a new approach, and the latest estimates consider that the remaining 20 is not yet aware of this fact, although they are also constantly changing.

However, the vast majority of organizational changes fail. Estimates are not strong, and failure rates range from 60% to 80%. When it comes to digital transformations, recent research suggests that only 5 meets or exceeds expectations satisfactorily.

Globally, organizations waste more than $75 million for every trillion spent on projects and programs, up from $122 million four years ago.

Although the numbers have improved, these losses are mainly due to misinformation of those responsible for carrying out this transformation. Too many transformation programs operate as silos, where small digitalization attempts have been implemented throughout the company, but without a global strategy that links all these efforts.

Bad choices cause failures

Most established companies have a very poor track record in adopting disruptive technologies or dealing with threats. Too often, they misunderstand the environment, misunderstand their options, and play their cards wrong.

Unlike start-ups that are backed by venture capital, established companies are at a key point in embracing disruptive innovations, as they have a lot to lose, as well as a lot to gain.

Needless to say, this means that many management teams avoid placing big bets. However risky it is to make a move, it is riskier to stand still when convergent technological advances are driving not only a new generation of IT infrastructure, but also a number of new operational models and business models.

And the clear examples are the big tech companies, led by Facebook and Google that are displacing traditional media, Netflix is interrupting television, Airbnb in the tourism sector, Uber in transportation, and the giant Amazon in retail.

Meanwhile, mobile software apps are transforming banking, air travel, car navigation and will soon transform healthcare, social services, including agriculture and education.

There is no possibility that some sector of the economy could escape these changes sooner or later. However, despite the multiple news, no one knows exactly when the next wave of changes will arrive on the shores of a company. It all comes down to placing a bet, choosing the best option and succeeding.

You can bet differently

When adopting a disruptive technology, four turning points stand out. Each is associated with a different strategy, resulting in four different strategies that over time have demonstrated the most successful in tackling disruptive innovation.

  • Visionary:

Adopt technology one step ahead of other companies. The return of this bet is differentiation, the objectives are to create a competitive advantage the company and its competitive set and acquire new customers.

This is the bet that catapults new market leaders out of nowhere, as did Charles Schwab and eTrade on personal investment, as H&M and Zara did in retail clothing and as Uber and Lyft are doing in transportation.

This is a high-risk, high-reward proposition. As such, it is usually the option chosen by new companies that have everything to win and not much to lose.

  • Martyr:

In this option, the company adopts these innovations ahead of its competitors, not to gain a competitive advantage but to fight a direct attack by a disruptive challenger. The return of innovation here is neutralization, the goal is to inhibit part of the new player’s appeal while keeping established operations intact.

This won’t win a lot of new customers, but it will keep existing customers. In this way San Francisco taxi companies adopted FlyWheel, a mobile software application that mimics Uber’s ability to summon, track and pay for transportation directly from a smartphone.

The goal is neutralization, not differentiation. Another example is what Android smartphone providers like Samsung did to catch up with Apple’s iPhone, and unfortunately what Motorola and Nokia, the now-missing market leaders, couldn’t do.

The goal is to arrive fast enough to incorporate at least some of the most attractive features of the newcomer, relying on its other virtues to keep the bulk of its customers loyal.

However, in order to do so, strict discipline must be imposed that insists on copying, not inventing, not only because it is faster and cheaper, but because it is about commodifying the successes of competitors, not overcoming them.

  • Pragmatic:

In this case, the company adopts new technologies at the same time as its rivals, neither by competitive advantage nor under duress, but because the productivity gains are there. The return of innovation comes from modernization, the goal is to obtain better costs and exploit new tools without interrupting the momentum of your current business or jeopardizing mission-critical processes.

It is improving its operations on an evolutionary trajectory, not revolutionary, partly because it has time to do so, partly because this is the most profitable path.

Success depends heavily on well-executed change management, which is much easier to achieve in a mid-sized company than in a mega-corporation. Well implemented, it must not only produce productivity returns, but also immunize the company against a future troubled rival

  • Conservative:

This is the fourth option to consider when placing a technology adoption bet: postpone it as long as possible. This is a perfectly reasonable option if the company is not under pressure to adopt, is not particularly comfortable with digital technology in general, and is in a business where digital advances occur relatively slowly.

Finally, when implemented, the return on innovation will come from optimization. Your goal will be to use technology to reduce costs with minimal disruption. In this context, the company will want to work with an experienced managed service provider who can protect you as much as possible from technical deployment, ideally running your system in the cloud. This is a low-risk, low-performance strategy. His last reward is to maintain the status quo.

Those are the four bets, very different from each other, each with its own raison d’em ratio, its own risk-reward relationship and its own critical success factors. Because they are mutually incompatible, it is imperative to choose one of four approaches to design a successful outcome.

What is the best framework for innovation?

Having weighed the pros and cons of the various options, and having made the decision to choose, there remains a critical question to answer: How can a company be organized to succeed? This is a particularly important question for a midsize company that has puts its future at risk.

Transformation changes are exceptionally challenging, and it’s hard to know how to allocate resources between them and the demands of ongoing operations. It is therefore appropriate to follow a framework based on two key principles:

  • Disruptive innovations must be managed in a categorically different way from sustainable innovations.
  • Innovations that have a material impact on current revenues should be managed in a categorically different way from administrative services and experimental initiatives.

The application of these two principles organizes the results into four activity zones, each with its own mission, each with its own management manual.

Source: Vector
Source: Vector

The performance zone and productivity zone are the basis of any established company; The incubation zone is appearing in more and more companies as they realize how impactful digital innovations will be; and the transformation zone remains a work in progress even in the most digitally advanced companies.

That said, it should be noted that each zone has a different playbook: it has a different financing contract, a different set of deliverables, a different set of metrics, and a different leadership style and mandate.

Conclusions

When mid-market companies are faced with disruptive innovations in their business sector, leadership teams need to organize to compete.

While remaining true to their culture, customers and brand. The four bets and the four zones are frameworks to help teams select the best strategy for them and to execute that strategy with a high probability of success.

By using these frameworks, executives can create a common vocabulary to help everyone in the company understand the changes being made and align to support them.