Is it time to venture outside of the legacy business?

Large corporates are worried about the threats from start-ups and tech companies. However, consistently, the response is defensive, not offensive.

As all professional services company in some way offer digital transformation, the promise of changing traditional companies into a digital company is worth $USD 44 billion globally.

Yet, with all the money being poured into digital transformation, 49% of Executives cite Operating Model or Structure as their top 3 barriers to transformation. 40% cite Legacy Systems and Processes, and 36% cite Talent Deficit.

Source: Deloitte

Executives joked that it’d be easier to just start from scratch. But for many, it’s a joke no more. Over the past five years however, we’ve increasingly seen large corporates trying out the challenger brand play.

Is it time to stop trying to transform and instead start delivering results from a new venture?

The case for starting from scratch

IT

  • Starts with technology that is easier to change, connect and upgrade from the ground up to enable future flexibility (i.e. make choices that prevent you from having ‘legacy IT’ in the future)
  • Builds on a technology architecture that enables the business and IT to develop and deliver at speed (provided the business has the skills operate in the same way)
  • Lets you choose technology with new capabilities to make better products/services

People

  • Creates an edge organisation that can still use capabilities from the core, but given freedom to pursue the new venture’s goal
  • Separates the innovators from the organisations’ immune system (see Singularity Universities description)
  • Organises people in a way that is adaptable and flexible (see Deloitte’s report on adaptable organisations) that can adopt new ways of working by default
  • Creates a north store as the core organisation slowly changes towards how the new venture works

Brand

  • Creates a brand with a better right to play for new customer segments and markets
Example of NEW VENTURES

The case against starting from scratch

IT

  • It is expensive and clunky to manage two sets of IT infrastructure side by side
  • Creates new integration challenges for IT

Revenue

  • Requires a deliberate effort to cannibalise existing revenues
  • Requires a mature portfolio management system to maintain a target percentage of revenue from new propositions

Investments

  • Requires strong leadership and a clear investment framework to determine whether to spend on the core or the new, future business (well explained by Scott Anthony in his book Dual Transformation)
  • New ventures require a long-term commitment. It’s not about running a side experiment. Overtime, real investment is needed

Culture

  • Creates cultural friction between the core and the new
  • Those in the existing organisation feel a range of tension from “Why do they get to do the cool stuff?” to “They do the cute stuff, but we pay the bills.”

How to do it

If you’re going to start from scratch, it’s not just about doing things better, but it’s about doing better things.

1/ Create a unique proposition

Work on creating a new product, experience, and business model — not just one of these in isolation. The new proposition should solve for a different need to your core business or solve for a different customer base. In the language of Dual Transformation by Scott Anthony, you need to change what you do and how you do it.

2/ Strong leadership

The CEO needs to be at the helm of change. Ultimately, the CEO will need to make the hard investment decisions and choices around how much revenue cannibalisation is acceptable. It’s hard for the organisation to accept that we’re deliberately slapping the hand that feeds us: the old business is funding the new business to disrupt the revenues of the old business.

3/ Behave like a start-up but use your existing strengths

Start with a clear set of principles and values for the new business. From the outset, imagine it is not a venture and ask yourself ‘Do we believe in this so much, that we would quit our jobs to work on this ourselves’.

If you’re creating a start-up, behave like one too. Keep teams small and nimble. Value agility and shipped products/services over perfection. Focus as much on culture as any great start-up CEO would.

You want the best of both — start-ups wish they had the backing and resources of large corporates. It’s tempting to work on shoestring budgets like start-ups, but don’t challenge start-ups on an even playing field. You have assets and resources they wish they had, so use these as leverage.

4/ Build it as if you’re going to change it

The reason why you’re starting from scratch is that it’s so hard to change your legacy core. Design for change to avoid recreating the legacy challenge in the future.

Choose modular, scalable IT. Organise using network-based teams. Design products and services for future change.

5/ Understand your organisation’s immune system

The organisation will be resistant to change. Balance who is working on the new and who remains in the existing. The new is required to change faster, while the existing needs to change at its own pace.

References

Making the Digital Maturity Pivot

https://www2.deloitte.com/us/en/insights/focus/digital-maturity/digital-maturity-pivot-model.html

Adaptable Organisation

https://www2.deloitte.com/global/en/pages/human-capital/articles/the-adaptable-organization.html

Using Microservices as a business initiative

Using Microservices as a Business Initiative

Run and Reinvent: Understand your organisation’s immune system

How Big Companies Can Simultaneously Run and Reinvent Their Businesses

Further Reading

Why Challenger Brands Matter in the Age of Disruption

https://adage.com/article/guest-columnists/challenger-brands-matter-age-disruption/306053

Revenge of the Challenger Brands

https://www.business-standard.com/article/management/revenge-of-the-challenger-brands–110091800106_1.html

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