Few companies decide to adopt new strategies without being forced to by financial trauma. What can we learn from those rare companies that achieve both successful major change and superior long-term financial performance?
Companies that are able to radically change their entrenched ways of doing things and then reclaim leading positions in their industries are the exception rather than the rule. Even less common are companies able to anticipate a new set of requirements and mobilize the internal and external resources necessary to meet them. Few companies make the transformation from their old model to a new one willingly. Typically, they begin to search for a new way forward only when they are pushed.
This raises two important questions for corporate managers: (1) Is decline inevitable? (2) Do companies really need a financial downturn to galvanize change, or can they adopt new ways of doing things when not under pressure? Management theorists have observed that decline, while perhaps not inevitable, is at least very likely after a period of time. For this reason, the authors argue, it’s important for organizations to develop new dynamic capabilities deliberately rather than relying entirely on their historic capabilities.
In their attempt to understand what makes for successful organizational transformations, the authors studied 215 of the United Kingdom’s largest public companies.
The article focuses on three companies that transformed themselves – Cadbury Schweppes in packaged goods, Tesco in grocery retail and Smith & Nephew in medical devices. It compares them with three other companies from similar industries that were also successful but hadn’t been required to make a dramatic shift. The authors found that the companies that transformed themselves had three fundamental advantages over their peers. First, they were able to build alternative coalitions with management. Second, they were able to create a tradition of constructively challenging business as usual. And third, they were able to exploit “happy accidents” to make strategic changes. Together these advantages helped them establish a virtuous cycle of strategic transformation.