One of the important things I tell CEOs is to embrace, not deny, the impending change that is coming to their industry. Because if they don’t, their business is on a path to failure.
When you think of important business lessons, I’m sure an encyclopedia, cellphone, and circus company wouldn’t be the first things to come to mind. But each of these examples showcase a company that has either succeeded or failed during a radical business transformation.
Case Study: Encyclopedia Britannica
Encyclopedia Britannica looked into the future and saw the digital world approaching. It chose to prepare for it rather than burying its head in the sand.
In 2010, after 244 years, it went out of print. However, the company had already realized it was going out of print whether it liked it or not. In response to the evolution of digital media, the company purposely chose to make the transition to the digital world.
We can’t know the trials and tribulations its CEO went through to convince all the stakeholders that this risky decision was necessary. The chances are they resisted and objected to it. Stakeholders tend to do this when their nice, comfortable world is threatened, as they don’t want to confront an uncertain and radically different future.
The threats to Encyclopedia Britannica were two-fold: the rise of free, up-to-the-minute digital information and the demise of print information. It had to find a way to address both, and it had to transform itself from a business with all print expertise to one that had all digital expertise. This was no small task. Imagine the transformation it had to make in the skill sets of its employees and imagine the fear employees felt at leaving the only work-world they knew for one they didn’t understand.
I have always said that transforming from a low-tech to a high-tech company is never about the technology, which is the easy part. Rather, the most difficult part of the transformation process always concerns people.
In the case of Encyclopedia Britannica, the company not only had to change its technology skill set but it also had to abandon its door-to-door sales approach in place of a direct marketing one. Moreover, it had to change its editorial content creation time from weeks to minutes.
Encyclopedia Britannica is still struggling to find its place in the digital world; thus, its transformation is not yet complete. Two lessons can be learned from this:
- The technology to move the company into the digital world was a simple process, and technology, as stated before, is always the easy part. In Britannica’s case, the hardest part was its market transformation. Because it was late to the digital game, it had a hard time catching up.
Arguably, it still hasn’t. Since it came from the print world, digital markets and consumers have a hard time accepting it. Let’s face it, when you think about where to go for knowledge, you think Google or Wikipedia, not Britannica. This is the uphill market battle they face. - Radical transformation from low to high-tech is a long, arduous journey. It is a metamorphosis, not an overnight event.
Case Study: Nokia — From Paper to Cellphones
Nokia started as a paper mill in the late 1800s. It first morphed itself into a manufacturer of rubber tires and galoshes, then into military electronics, and eventually into cellphones. I cannot imagine a more dramatic rust-belt to high-technology transformation than that.
In the 1990s, it sold its rubber and paper divisions to focus on cellphones. In fact, for 14 years, it sold more cellphones than any other company in the world. While it is still struggling in the smartphone market, its metamorphosis from boots to electronics is worth these four lessons:
- It had a grand and sweeping vision. Not a puny vision to be the best paper and boots company around. Instead, it chose an audacious vision. So should you. Why not imagine the most elegant, expansive, exciting future you can?
- Nokia planned far out into the future. I have to believe it didn’t stumble its way from a paper business to a worldwide cellphone manufacturer.
You don’t just take a couple of rubber engineers and tell them to start working on electronics. No, the expense, organizational resources and planning required had to be enormous. Your transformation plans need to be the same way. You shouldn’t try to shove it all into one year or perhaps even into a decade. - In 1992, Nokia decided to go all in on emerging telecommunication markets. It divested itself of anything it didn’t consider vital to them. This is a decision you will need to make in your transformation journey.
At some point, you will have to divest yourself of the old to make room for expense and organization focus on the new. This will not only be a matter of finding the money for your transformation but also the focus. No organization — no matter how big — can focus on too many things at one time and be successful at all of them. You can’t either, so don’t try. - Be prepared to sell off your next-generation project if it doesn’t continue to be successful. Nokia did this when it sold its entire mobile division to Microsoft. Bear in mind that Nokia’s next-generation idea used to be its mobile division. Like Nokia, you need to recognize when yesterday’s winner becomes today’s loser.
Case Study: Cirque du Soleil
This is one of my favorite case studies. Not only are there lessons here in reinvention but there are also lessons in how to fund an organization transformation by eliminating legacy expense.
In a nutshell, Cirque reinvented the circus — the dying industry that seemed to have no hope for the future. In fact, the premier circus, Barnum & Bailey, ended its 146-year run in 2017. I can’t help but wonder why it didn’t reinvent itself into a Cirque du Soleil?
I know the answer to that. Barnum had its blinders on and mistakenly believed the circus would last forever. It believed it could trade on the strength of its brand forever. Maybe it would have if Cirque hadn’t come along.
Cirque du Soleil examined all the elements of a traditional circus to determine where the value was for the consumer, and more importantly, where it was not. It sounds simple, but then it eliminated the parts consumers really didn’t care about and strengthened the parts consumers loved. Sounds a lot like jettisoning legacy products, doesn’t it?
Surprisingly, the parts consumers didn’t care about were also the most expensive to maintain; in this case, elephants. In fact, it eliminated animals altogether, and nobody missed them!
This is exactly what you should do: eliminate the parts of your product portfolio that are expensive to maintain and that your customers really don’t care about and aren’t willing to pay for if given a choice. That is how you fund your transformation.
Cirque du Soleil invented a higher margin category of entertainment because it attracts audiences with more disposable income than traditional circus goers; at the same time, it eliminated the most expensive parts of the traditional circus. The lesson here is this:
- When you consider what products and customers you want to target in your transformation, go for the least cost and highest disposable income in your markets.
So, you read the case studies and absorbed the lessons — now what? Well, now is the time for action. It’s time to transform your organization, ignite the organization’s Innovational Potential and disrupt your market. It’s going to be hard work, but it’ll be the best decision you will ever make.
