Everyone’s talking about business transformation these days. But achieving transformation is no easier than it sounds. Defining what transformation means is a challenge in itself, and a much bigger one is motivating people in powerful ways that can help them to persist and overcome the resistance to change that exists in every large, traditional institution. Traditional approaches to transformation rarely succeed in providing that motivation.
Fortunately, a new approach is emerging, promising to give leaders the ability to motivate people in more effective ways. Organizations may now have the potential to move from talking about transformation to achieving it.
Let’s start by clarifying what transformation means-and why transformation is so essential in the rapidly changing global economy. We will then explore why conventional approaches to transformation are both challenging and often ineffective. That will set the stage for discussing an alternative approach to transformation-scaling the edge-and why it can help address the challenges of transformation by tapping into two powerful forms of motivation: economicsand emotions.
What is transformation?
Transformation is one of the most overused words in the business world today. Virtually every company seems to have a “digital transformation program” underway, but look closely, and it turns out that those programs are often about applying digital technology to do what we’ve always done, only faster and cheaper.
Internal branding notwithstanding, does that qualify as transformation? Real transformation is much more fundamental, involving challenging and rethinking all aspects of the business, starting with the most fundamental question of all: What business should we really be in? In the end, every aspect of the business will need to be redesigned: our business models, how we organize, how we operate, how we connect with others beyond our organization, and how we motivate participants.
In the end, every aspect of the business will need to be redesigned: our business models, how we organize, how we operate, how we connect with others beyond our organization, and how we motivate participants.
Why is transformation necessary?
Everyone is talking about transformation today because there’s a growing sense that the world is changing in profound ways and that the old ways of doing business are more and more vulnerable to disruption. Our research on the Big Shift suggests that long-term forces are reshaping the global economy and will require very different approaches to creating and delivering value; we provide evidence that traditional approaches are rapidly eroding performance. And that erosion challenges the economics of the business and shapes its participants’ emotions.
But the paradox is that these same forces are creating expanding opportunity. There is now a potential to create far more value than ever before and to deliver that value to the market more quickly-for less investment than such a transformation would have once cost. But addressing that opportunity will require us to transform our businesses.
The challenge of transformation
How do we achieve transformation? The traditional approach is a top-down, big-bang approach-a program that seeks to change everything in the business by mobilizing large amounts of money over long periods of time. These massive transformation programs face many obstacles. Most notably, large, traditional organizations have powerful immune systems and antibodies that mobilize at the first sign of an attempt to change and are generally effective at undermining those efforts.
What’s driving those immune systems and antibodies? Well-intentioned people who are seeking to do what’s right for the business.
Their opposition often begins with fear. Many business leaders feed the fear when they frame the need for transformation in terms of threats: If we don’t change, we’re going to die. These appeals are designed to create a sense of urgency and motivate people to move quickly and aggressively, but they can have the opposite effect. Under threat, a natural response is to become more risk-averse. When stakes rise, we cling more tightly to what we know has driven success in the past.
The competition for funding reinforces resistance to change. Traditional transformation programs typically require significant funding-funding that must be taken from existing activities and programs and redeployed to the transformation effort. Many people’s natural reaction is to protect their own budgets, resisting any effort to take money from programs seen as necessary to support the existing business.
The time frame further elicits resistance. Traditional transformation programs are often framed as long-term initiatives, with results not materializing for years. People who are feeling fear generally shrink their time horizons-when their focus needs to be on surviving the next quarter, they view long-term programs as a dangerous distraction.
People who are feeling fear generally shrink their time horizons-when their focus needs to be on surviving the next quarter, they view long-term programs as a dangerous distraction.
Viewed in this light, it should not be surprising that people actively resist and undermine initiatives that they view as undermining current imperatives in pursuit of a high-risk and expensive program of change.
An alternative approach
So is there an alternative that can help to overcome the unhelpful albeit understandable immune reactions that slow or even kill needed transformation? Our research suggests that there is: an approach that we call scaling the edge.
This approach doesn’t try to transform the existing core of a business. Instead, it focuses on identifying an “edge” of the existing business, one with the potential to scale so rapidly, and to such an extent, that it can become the new core of the business. That’s a high bar-more than just innovation, growth, or diversification, it’s a commitment to build something so big that it will ultimately generate the bulk of the company’s revenue and profits.
The goal is to drive the transformation agenda in this growing edge. All the new business models, ways of organizing and operating the business, how we connect with others, and how we motivate participants will be launched and grown here, where ways of doing business are just beginning to take shape. Since the edge is largely a greenfield effort, there is much less potential for internal resistance.
The idea of launching on the edge is not new: Many companies have attempted to provide space for initiatives to gain critical mass and momentum by launching them on the edge of the current business. But the intent is often to quickly push those edge initiatives back into the core-to make those edge initiatives become catalysts for change within the core. The problem is that as soon as you try to integrate back into the core, the same powerful immune system and antibodies mobilize to crush these perceived threats to the established business.
The scaling the edge approach to transformation instead focuses on continuing to scale the chosen edge, so that its momentum and attractiveness as a growth opportunity can pull more and more people and resources from the core to the edge, until eventually it becomes the new core.
We go into more detail on the approach elsewhere, including laying out 12 key design principles. For this article, we will highlight some of the elements of the approach that are designed to reduce the resistance driven by economics and emotion.
Reduce resistance rooted in economics
The effort to bypass the immune system begins by choosing an appropriate edge to scale. First, leaders should understand that exponential forces in the economy can help to scale this edge at a rapid rate. These could be technology forces that also involve the potential growth of unmet needs in rapidly expanding parts of the market. Second, the edge should generate revenue and profits that are additive to the business rather than cannibalizing the core. Doing the latter can rapidly draw out the immune system seeking to protect its existing revenues. Finally, to avoid triggering those forces, edge projects should not require significant upfront investment or lengthy lead times before they can generate impact in the market.
The edge should generate revenue and profits that are additive to the business rather than cannibalizing the core. Doing the latter can rapidly draw out the immune system seeking to protect its existing revenues.
Once the edge has been selected, a number of design principles can help to reduce the perceived cost of the initiative and thereby reduce potential resistance from the immune system. A key design principle-one that is counterintuitive-is to starve the edge. If we believe that an edge will be the future of our company, our every instinct is to pour as much money as we can into those initiatives to ensure their success. Resist that temptation. The more money that the organization diverts to the edge in the early days, before any tangible impact is delivered, the more vulnerable those projects will likely be to efforts from the immune system to retrieve that money.
By starving the edge, we don’t mean underfunding it. Our recommendation is to approach the edge as any venture capitalist would. The key question from VCs to entrepreneurs is: What is the least amount of funding I can provide to you that will enable you to reach the first tangible milestone of impact? Once edge initiatives achieve that milestone, leaders can discuss another round of funding to get to the next milestone.
Another design principle that keeps investment costs down is to look externally, not internally. What we mean here is to be relentless in seeking leverage from third parties rather than trying to build everything internally or relying on the core to provide the capabilities. Of course, the edge leadership team needs to build some internal capability, since leaders need to ensure that they have some distinctive advantage that will help them to motivate third parties to provide leverage in their effort to scale. Also, the edge will need to leverage some capability from the core to justify why it should be part of the company rather than an independent startup.
A key point here is to minimize dependence on the core, in terms of either funding or access to resources. The more dependent the edge is on the core, the more vulnerable it becomes to the immune system.
Motivation that matters
So far, we’ve been discussing how to reduce the immune system’s resistance to efforts to transform the business. While important, the other, possibly more important side of driving transformation has to do with motivation. That’s the real power of the scaling the edge approach in driving transformation, and it’s something we did not sufficiently explore in our original research report.
Ultimately, transformation depends on positive motivation. If people are not significantly motivated to drive the transformation and participate in it, the effort is likely to wither on the vine.
The power of this approach hinges on two dimensions that are not often explicitly linked-economics and emotions. On both fronts, leaders have an opportunity to build commitment capable of confronting any and all obstacles in order to achieve the desired outcome. Bringing these two together can make the initiative irresistible to a growing number of participants.
Let’s start with economics. A conventional transformation program calls for massive investment over a period of many years to achieve the desired outcome. Under the best of circumstances, that is a challenging case to make, especially in times of mounting performance pressure. Anything that requires large funding over extended periods is likely to receive lukewarm support at best.
Scaling the edge has a fundamentally different economic model. It starts with modest funding and a commitment to deliver tangible impact on metrics that matter within a short period-six to 12 months at most. From the outset, the goal is to mobilize third parties in ways that can leverage the modest investment from within. Cash flow is key: The edge leadership team needs to aim to reach cash flow breakeven as quickly as possible and to fund growth from within rather than seeking more and more funding. It embraces all the principles of lean startups, including minimum viable products, to minimize-and quickly eliminate-the external funding required.
Cash flow is key: The edge leadership team needs to aim to reach cash flow breakeven as quickly as possible and to fund growth from within rather than seeking more and more funding.
There’s more. The scaling the edge approach also focuses on accelerating growth so that the edge initiative generates rapidly growing revenue and profits. The determination to accelerate growth is a key driver of the effort to mobilize a growing number of third parties, so that the edge can tap into the network effects and increasing returns that can be generated from expanding ecosystems. More fundamentally, these edge initiatives focus on harnessing the exponential forces that are transforming the global economy so that the businesses they are building can ride these forces to address larger and larger markets.
In short, scaling the edge is all about focusing minimal upfront investment on opportunities that have the potential to scale rapidly and, wherever possible, leveraging available resources. The economic proposition is compelling: limited investment for expanding revenue and profits.
But that’s not all. This is about emotions as well as economics. And this is where scaling the edge can become even more compelling, especially throughout the organization, beyond the leadership team.
Opportunity vs. fear
Again, many efforts to drive organizational transformation aim to tap into fear: Change or die. And it’s true that fear can motivate action. But more often it tends to motivate actions designed to protect what already exists rather than building commitment to evolve into something new.
Scaling the edge comes at it from a different angle, one that’s designed to cultivate hope and excitement rather than fear. Rather than focusing on the threat to the existing core, successful edge initiatives focus on the opportunity that exists beyond the core.
At the outset, leaders can work to instill a high-level sense of the opportunity that is the reason for launching the edge initiative while being careful to not over-promote the opportunity, to avoid the risk of being perceived as reaching too far. The focus should be on identifying early milestones that can quickly create a sense of accomplishment, even though the impact may be modest in comparison with the core’s size and impact. The point is to energize and motivate the edge leadership team, to give them a sense that they can in fact scale the edge initiative. More broadly, it begins to build some credibility within the broader workforce that this is not just a fantasy or talk-that there is action and impact.
As the edge initiative’s impact accelerates, it can overcome the fear that anything new is likely to fail and instead cultivate a sense of hope and excitement. Small moves can generate significant impact, as a project that initially seemed like a distraction and fantasy begins to take shape.
As the edge initiative’s impact accelerates, it can overcome the fear that anything new is likely to fail and instead cultivate a sense of hope and excitement.
It’s at this point that leaders can draw more attention to the longer-term opportunity that drove the selection of the edge initiative in the first place. With more evidence of short-term impact, that longer-term opportunity will become more credible and exciting. The skepticism that naturally emerges when something quite different is proposed can quickly give way to growing interest and, eventually, a desire to be a part of something that is growing rapidly. The hope and excitement that drove the initial edge leadership team to sign up for this adventure can quickly spread to others within the organization, ultimately capturing those who otherwise would be active participants in the immune system.
In the end, scaling the edge seeks to draw out hope and excitement from participants and helps them to overcome the fear that increasingly seems to grip us as we confront a rapidly changing world. Yes, there will be significant challenges and roadblocks along the way, but pursuing the emerging opportunity will be worth the effort.
Now, this doesn’t mean that the fear dissipates altogether. It remains in the background, but as people become more comfortable at the edge, they are increasingly motivated to overcome the fear, driven by hope and excitement.
There are also the network effects that affect our emotional states. Being surrounded by people who are driven by fear makes it hard to maintain hope and excitement and not to feel fear as well. If we are surrounded by people who are manifesting hope and excitement, it’s hard to keep that fear front and center.
The scaling the edge approach starts with a small team of people selected to lead the edge initiative precisely because they are driven by a sense of opportunity and willing to take significant risk in the quest to achieve that opportunity. In fact, one of our design principles for scaling the edge is to “staff for passion before skills.” This is driven by our research into a very specific form of passion-what we call the passion of the explorer-which is broadly found in environments where there is sustained extreme performance improvement. People with this passion overcome their fear by becoming excited about the opportunity to achieve increasing impact-they are constantly seeking new challenges to help them grow and achieve more impact.
The members of this edge team will be outliers at the outset but, as they are driven to achieve growing impact, they can begin to infect others with their enthusiasm and energy, drawing out more of the passion of the explorer in others. The key is to demonstrate impact both to reinforce their own initial excitement and to pull others into experiencing a similar excitement.
As a critical mass of participants experiences this excitement, the emotions can begin to spread exponentially and draw more and more into their orbit. Of course, the edge initiative must create the right environment for a growing number of participants who have this passion of the explorer; the environments that exist in most of our institutions today are hostile to this form of passion, which is why it is so rare in large institutions. It is this passion that will ultimately drive the transformation on the edge.
As a critical mass of participants experiences this excitement, the emotions can begin to spread exponentially and draw more and more into their orbit.
The bottom line
Economics and emotions can be powerful motivators on their own, but together they can amplify each other. Think about it. If an initiative is generating rapidly expanding returns with a relatively modest investment, how could one not begin to feel growing hope and excitement? And if one is able to overcome fear and feel more hope and excitement, imagine what kind of bold moves people might be motivated to make in pursuit of an opportunity that yields more and more value? In the end, a virtuous cycle is unleashed: The more favorable the economics are, the more hope and excitement are likely to be experienced.
That’s ultimately the power of scaling the edge approaches to transformation. They harness powerful economics and cultivate emotions that motivate a growing number of people to go above and beyond in their quest for opportunities that would have been unimaginable in the past. Small moves, smartly made, can indeed set big things in motion. Transformation-true transformation-becomes something that people will be driven to do whatever is necessary to achieve.
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