Nothing ventured, nothing gained or better safe than sorry – framed within today’s complex business parameters, which approach is most pragmatic? Executives often find themselves in this quandary when challenged with budgeting for business as usual while also exploring new, transformational ventures – thus, the leadership yin-yang.
Certainly, run-the-business activities are necessary to maintain performance, but change initiatives are essential to ensure an organization’s long-term vitality.
Running the business
Business-as-usual (BAU) operations consistently mitigate risk and enhance effectiveness by streamlining processes and focusing on continuous improvement.
A significant shift away from run-the-business investments may stir unrest – internally among employees and externally among shareholders – by signaling a lack of management confidence in the firm’s current performance and business model.
It is important for organizations to protect their existing turf, especially in the face of competition, by investing in BAU activities. Consider India’s well-established automobile industry in which manufacturers are now investing in hybrid/electric vehicles. This line of expansion makes sense in light of environmental concerns. However, efficient charging stations are few and far between in India, which hinders enthusiastic consumer adoption. Therefore, manufacturers must carefully balance traditional products while gradually phasing in future-focused vehicles aligned with infrastructure upgrades.
Most new initiatives require an organization’s most select resources, which diverts high contributors from the existing business. A swing from a firm’s core strength and competitive advantage may spur delivery risk and financial loss.
Take the case of National Semiconductor which, before being acquired by Texas Instruments, was a pioneering Silicon Valley device manufacturer that diversified to make consumer electronics. Unsuited for retail manufacturing and marketing, the analog component giant was eventually driven out of the marketplace after suffering losses that overshadowed its semiconductor success.
Investing in change
New initiatives and projects are launched every day to boost profits, competitive advantage, productivity, and performance. Within today’s climate companies cannot afford a nonchalant if-it-ain’t-broke-don’t-fix-it approach. The rabid popularity of smartphones and global connectivity have changed the way users interact with technology.
For example, Netflix and similar online and mobile streaming services forced legacy media businesses to reconsider their customer approach. The demise of the video-rental chain Blockbuster illustrates what can happen when companies don’t consider the cannibalizing impact of new, tech-driven offerings and services. Blockbuster may have aided its demise by running its stores like a convenience chain selling products that were no longer so convenient.
Disruption within the financial services sector also demonstrates why incumbent businesses must consider innovative change. For years, banks enjoyed a monopoly over the way individuals and corporations conducted financial transactions. But, now, new-age disruptors offer convenient omnichannel approaches to moving money via the internet and cloud. As Bill Gates predicted more than 20 years ago, “Banking is necessary. Banks are not.”
Today, UK-based TransferWise lets users swap various currencies on its platform, while Toast, a cross-border money-transfer app created by Singapore entrepreneurs, allows remittances to be sent over the internet and collected in person, and the Alipay and WeChat Pay platforms are changing the way consumers in China purchase goods and services.
Why do companies change their business model?
- Markets are becoming saturated
- They have reached the end of their product(s) lifecycle, and a slowdown is imminent
- Their capital efficiency is declining
- Their existing business has lost strategic assets
Benefits of business model diversification
A change-the-business approach allows firms to experiment and is often necessary for long-term survival. It also helps to:
- Build competency and capacity
- Help employees work differently to optimize efficiency
- Spread risk over diverse business units
So, how to decide?
On average, companies spend 66% of their IT budgets to run the business (maintain IT systems) and spend the rest on growth or transformation projects, according to a 2016 Gartner report. The ideal is a 50/50 split, the report said, but achieving it isn’t easy.
Cutting run-the-business activities could introduce operational risks such as a server failure or a security breach. At the same time, it’s hard to innovate when most of your money goes to keeping the lights on.
Executives must address potential run-the-business bias over strategic change efforts to balance resources as per the following three steps:
- Based on the strategic intent and affordability, allocate change and innovation funds as part of the annual budget process
- Assign non-financial resources to ensure that the budget is complemented to change the business in its true sense. This will include leadership attention and coaching
- Manage these innovations as a portfolio of ideas filtered through a highly-disciplined fail-fast mentality to keep the cost of failure low
One way to avoid bias is to set up an advisory board of executives from diverse backgrounds (internal/external, cross-functional, cross value-chain) that consists of peers empowered to stay objective and focus on the end goal. This is the stage when cognitive diversity of the advisory board becomes critical in having the right debates before ideas are rejected, selected or pivoted for further evolution.
To have a discussion on the topic, feel free to get in touch with me on social media.
The author would like to thank Divyanshi Bhansali, Sharodiya Roy, and Tamara Berry for their contributions to this article
 Washington Business Journal, “Diversification can be deadly,” Peter Bloom, June 21, 2011, https://www.bizjournals.com/washington/blog/fedbiz_daily/2011/06/diversification-can-be-deadly.html
 American Banker, “It’s the end of banking as we know it, but that’s not a bad thing,” Rakefet Russak-Aminoach, May 02, 2017, https://www.americanbanker.com/opinion/its-the-end-of-banking-as-we-know-it-but-thats-not-a-bad-thing
 CNBC, “Why companies must invest in new technologies, even if it eats their own lunch,” Saheli Roy Choudhury, June 29, 2017, https://in.finance.yahoo.com/news/why-companies-must-invest-technologies-061243005.html?guccounter=1
 Laserfiche blog via website, “Using ‘Run-Grow-Transform’ to Change Your Business,” https://www.laserfiche.com/ecmblog/using-run-grow-transform-to-change-your-business, accessed December 2018
 Capgemini, “Diversity Leads to Prosperity”, Amit Choudhary, November 5, 2018, https://www.capgemini.com/2018/11/diversity-leads-to-prosperity/