Enterprise Transformation—What Can We Learn from GE?

The headlines this past week said that GE “dropped a bombshell” in announcing its break-up, but in reality, nothing could have been more predictable.?The dynamics of global ecosystems no longer favor conglomerates, and investors long ago realized they had better ways to diversify their asset base.?So, the real question should be, why did this business model overstay its welcome, and what can we learn from that?

The first lesson is that inertia is a very powerful force, one that strategy wonks consistently undervalue and underestimate.?In the short term, not changing is almost always the best tactic, especially when you are not sure where you should go next or how exactly you would be able to get there.?At the same time, however, from a long-term perspective, not changing as a horrible strategy, something Edward Deming wonderfully brought home in his quote: “Change is not necessary because survival is not mandatory.”?

The second lesson is that this could happen to anyone, even you.?It’s not like the executive team and the board of directors at GE didn’t know change was in the air.?Look at the big swing they took at the Internet of Things with GE Software, an initiative that was well aligned with their brand, and deeply relevant to their customer base.?To really get to scale, however, they would have had to break out of their established ways and undergo a true transformation, and this is where they lost momentum.?As a consequence, GE Software is slated to become part of the energy and power business—a perfectly good fit, but a far cry from being a global leader in IoT.

So, let’s double-click on this word transformation.?Everyone and his or her mother has been using the word for a decade or more, so much so that it has lost much of its meaning.?So, what exactly constitutes a transformation??I think the zone management framework gives a simple operational answer to this statement:?

A transformation is any initiative which, if it is to be successful, must be given priority over meeting the current performance commitments that get reported out on an earnings call.?

That is, when asked the question, do you want me to prioritize the transformation or do you want me to make the number, the correct answer is, prioritize the transformation.?If that choice is simply unacceptable, then don’t start.?

Here’s why.?Once you start a transformation, you sacrifice your inertial momentum.?Worse, you may even be working directly against it.?This puts the very viability of your enterprise at risk.?Moreover, the further you get into the transformation, the greater the impact on your performance results, up and until you get past the tipping point.?Now once you do that, once you develop real momentum on the new path forward, then risk diminishes rapidly, and rewards can take center stage.?But until you reach that tipping point, as long as you are measuring yourself by performance metrics, things are getting darker, not brighter.

Is it any wonder then than management teams wedded to performance metrics never—and I do mean never—succeed in completing a transformation??They can’t.?They’re using the wrong metrics.?Worse, the financial analysts that cover them are too.?Worse still, most of their current investors are in the same boat.?

To manage a transformation through to success you have to prioritize power metrics over performance metrics.?The whole point of a transformation is to move away from a legacy position where you are losing power to catch the next wave that can power you to a new future.?That’s what Microsoft did in its transition from back-office on-prem software to Azure and Office 365.?It is what Netflix did in its transition from DVD to Streaming, and then again from being a distributor of content to being a producer.?These were dangerous undertakings to say the least, but both enterprises were able to keep their eye on the Power Ball and not get distracted by the Performance Ball.

Now, let’s be clear.?The Performance Zone is paying the bills, this quarter, every quarter.?You cannot turn your back on managing performance.?But you can prioritize another outcome above it.?This is not pleasant for anyone involved—not for customers, partners, the workforce, or investors—so you should not do this very often.?But when it is necessary, then it has to be Job 1 for everyone in the boat.?

And that brings us to our final lesson learned.?It is on the CEO to make sure that everyone is rowing in the new direction as hard as they can and to part company with anyone who is not.?And that is really not pleasant.?But the alternative is to join the elephant’s graveyard of iconic companies who could not catch the next wave.?

That’s what I think.?What do you think?

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