Scaling New Heights: The Secret to Sustained Growth through Dual Transformation

In a fast-changing business environment characterized by economic upheavals, technological progress, and evolving consumer preferences, companies must continually adapt to survive and succeed. Insights from McKinsey on dual transformation suggest that organizations can effectively manage these shifts by implementing a dual approach that enhances their existing operations while also developing new ventures. This strategic framework—"dual transformation"—not only aids in survival but also promotes ongoing growth and long-term value creation.

This article examines the idea of dual transformation, highlighting its competitive benefits, key principles for success, and practical steps that companies can take to initiate this transformative process. The insights shared here draw from McKinsey’s research, which provides a foundation for understanding how businesses can reach new heights by embracing dual transformation.

1. Introduction to Dual Transformation

In the current unpredictable market landscape, companies face the challenge of navigating a complex and constantly shifting environment. Factors such as geopolitical tensions, inflation, technological innovations, and supply chain disruptions have changed how businesses function. McKinsey’s research indicates that many of the world’s largest and most successful companies have thrived by reinventing themselves through dual transformation. This strategy allows businesses to extract maximum value from their core operations while pursuing new avenues for growth.

Dual transformation involves a dual focus on two key objectives:

• Transformation A: Enhancing and reinventing their core business to respond to evolving market dynamics.
• Transformation B: Developing and expanding new businesses that leverage emerging opportunities and future trends.

By executing both transformations simultaneously, companies can enhance their resilience, stay relevant, and promote growth even during challenging times.

2. Reinventing the Core Business for Longevity

For many organizations, the key to success is rooted in their core business. This core often serves as the main source of revenue defines the brand identity, and provides a competitive advantage. However, as market conditions change, even the most established companies risk falling behind unless they adapt continuously.

Re-imagining the Core for Efficiency and Value:

?Transformation A—reinventing the core business—focuses on revitalizing operations to enhance efficiency, cut costs, and boost overall performance. This typically includes:

????????? Process optimization: Streamlining operational workflows to increase productivity.

????????? Technology integration: Utilizing digital tools like artificial intelligence (AI), automation, and data analytics to improve decision-making and elevate customer experiences.

????????? Cost-cutting initiatives: Pinpointing areas of unnecessary spending and reallocating resources to more profitable endeavors.

Companies that pursue core transformations can realize immediate benefits by enhancing cash flow and optimizing resources. This newfound agility can then be reinvested into the business or used to support the creation of new initiatives.

Example of Core Reinvention

Consider the case of a Latin American bank discussed by McKinsey. Confronted with sluggish innovation and decreasing customer satisfaction, the bank embarked on a thorough transformation. By embracing a digital-first approach, adopting enterprise agility, and utilizing data analytics, the bank not only enhanced its core operations but also set the stage for future growth. This transformation enabled the bank to reclaim its competitive advantage and prepare for emerging opportunities in the digital banking sector.

3. Building New Businesses for Sustainable Growth

While reinventing the core is important, real growth comes from venturing into new areas. Transformation B—building new businesses—offers companies the chance to tap into emerging markets, disruptive technologies, and changing consumer demands. These new initiatives act as engines for future growth, enabling companies to diversify their revenue sources and lessen reliance on traditional businesses.

Embracing Innovation for Business Creation:

?Creating new businesses involves spotting unmet market needs and developing solutions to fulfill them. Successful business creation hinges on:

? Strategic innovation: Recognizing emerging trends, customer challenges, and market gaps where new products or services can be launched.

? Minimum viable products (MVPs): Crafting and introducing MVPs to test new business concepts before investing heavily.

? Agile development: Quickly iterating based on customer feedback, refining products or services as needed, and scaling once a product-market fit is established.

New business initiatives that utilize the existing infrastructure, resources, and expertise of the parent company tend to have a greater chance of success compared to independent start-ups. Research from McKinsey indicates that new businesses backed by their parent companies are over eight times more likely to scale than high-potential start-ups.

Serial Business Builders as Market Leaders

According to McKinsey’s 2022 Global Survey on new-business building, companies that focus on creating new businesses outpace the market. Those that have successfully launched more than five new ventures generate 1.4 times the average revenue and achieve twice the return on investment (ROI) compared to their non-serial building counterparts.

These serial business builders have demonstrated that creating new businesses is not merely about seizing opportunities; it’s a vital strategy for securing long-term growth.

4. Achieving Synergies between Core and New Businesses

?A key advantage of dual transformation is the synergy that emerges between the core and new businesses. When executed well, these transformations enhance each other, leading to increased value and efficiency.

Leveraging Shared Resources

Transforming the core business often establishes an execution engine—a performance management system that enhances governance, accountability, and decision-making. This same engine can also facilitate new business development by:

• Utilizing shared resources: Core capabilities like IT platforms, supply chains, and contracting expertise can support the new business with minimal additional investment.
• Boosting performance management: The rigorous decision-making and execution processes refined during the core transformation can assist in navigating the challenges of building and scaling new ventures.

5. The Cultural Shift: Empowering Talent for Dual Transformation

Dual transformation necessitates a cultural shift within the organization. Leadership must foster a culture that promotes innovation, agility, and ownership at every level. This cultural change encourages collaboration between the core and new business units, allowing them to operate together effectively.

Upskilling and Reskilling

Talent To propel dual transformation, companies need to invest in their workforce. This involves:

• Upskilling current employees: Offering them the training and resources they require to excel in the evolving digital landscape.
• Reskilling for new roles: Preparing employees with the skills needed to take on responsibilities in new business initiatives.

Upskilling initiatives create a talent pipeline that bolsters the new business while reinforcing the core. Employees become more adaptable, empowered, and motivated, contributing to the success of both transformations.

Nurturing New Leadership

New business ventures often act as a testing ground for emerging leaders. By bringing together cross-functional teams with varied expertise and placing them in charge of new initiatives, companies can cultivate an entrepreneurial culture. This approach injects fresh energy into the organization and sets the stage for long-term success.

6. Five Key Principles for Successful Dual Transformation

To ensure the success of dual transformation, companies should follow these key principles:

1. Articulate a compelling vision: Leaders need to inspire the entire organization by clearly conveying a vision that combines core reinvention with ambitious new business development.
2. Establish a clear road map: A well-structured road map is essential for prioritizing resources, setting milestones, and monitoring progress across both transformations.
3. Leverage shared resources: Utilizing shared capabilities from the core business in new ventures can lower costs and speed up growth.
4. Empower talent: Focusing on talent development is vital for nurturing a culture of innovation and driving transformation at every level.
5. Create a performance infrastructure: Implement a governance structure that promotes accountability, ownership, and swift decision-making.

Conclusion

Dual transformation is a robust strategy for companies aiming to reach new heights and achieve lasting growth. By reinventing the core business while simultaneously developing new ventures, organizations can adapt to a constantly evolving marketplace and uncover new sources of value. Research from McKinsey shows that companies adopting this dual approach are better equipped to not just survive but thrive in a competitive and dynamic business landscape. Leaders who communicate a clear vision, empower their teams, and harness synergies across the organization will lead the way for future growth.

This article relies significantly on McKinsey’s in-depth analysis of dual transformation and offers a guide for businesses looking to start their transformation journey. For additional insights, you can check out McKinsey’s original publication here.

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