BCG Research Concludes, “If It Ain’t Broke, Still Fix It!”
We’ve all heard the saying, “If it ain’t broke, don’t fix it.”
Here’s the problem: in life, there is change. Change, by definition, is destructive. It has to be. Even if things don’t feel broken today, change will ensure that they will break at some point. It could be tomorrow, next week, or years from now.
There are two ways to approach this reality. Either we can wait for time to break things down, or we can break them and fix them ourselves. We can proactively change and keep moving.
The problem with waiting until things break is that we often don’t notice until it’s too late. Problems may manifest in poor revenue, profit, and cash flow performance; dysfunctional culture; and low customer satisfaction.
Rather than wait for these manifestations to arise, it is better to proactively take action before they do.
Boston Consulting Group recently released research that empirically supports the value of proactively changing and transforming when you are at the top of your game rather than waiting until problems appear. Here are some key findings from BCG’s report:
“Our analysis shows that in the three years following the start of a transformation, pre-emptive transformers have an annualized TSR that is 3 percentage points higher than that of reactive transformers. Outperformance following a pre-emptive transformation is true not only in aggregate but across most industries, except financial services. (See Exhibit 1.) (In the period of our analysis, the financial sector was still recovering from the crisis and the subsequent regulatory changes, which may have caused anomalies.)”
“As Giuseppe Tomasi di Lampedusa famously wrote in The Leopard, “If we want things to stay as they are, things will have to change.” Our findings suggest that in order to maintain outperformance, companies should pursue pre-emptive transformation rather than relying on performance momentum to sustain itself.
Furthermore, the preemption premium is continuous: the higher the relative performance of a company when it initiates change, the higher its long-term relative performance. In other words, the earlier a transformation is initiated, the better. (See Exhibit 2.)”
“In addition to having better financial performance, preemptive transformations offer three secondary benefits. (See Exhibit 3.) First, they take less time: preemptive transformations result in consecutive restructuring costs for an average of only 12 months, compared with 14 months for reactive ones. Second (and perhaps partly because of the shorter duration), they are less costly. The costs of restructuring in preemptive transformations total 1.5% of yearly revenues, on average, compared with 1.8% for reactive transformations. Finally, considering that these costs are only a proxy for the total transformation costs (which typically involve other expenditures, such as investment in new capabilities, M&A, and repurposing of assets), the real effect may be even larger.”
Thus, if you are a high-performance company and you want to remain that way, start implementing change and transformation processes now. It is less expensive, less time-consuming, and less disruptive.
The Adizes Institute specializes in this very field: helping high-performance organizations remain high-performing now and into the future. We help organizations create a culture of mutual trust and respect so that they can transform and rejuvenate themselves year after year. By equipping organizations with the ability to proactively identify and address problems before they manifest, the methodology helps organizations stay well ahead of the competition and maintain their competitive advantage.
Click here to watch a short video of Dr. Adizes discussing the correct sequence for organizational transformation and the steps to maintain a high-performance culture of mutual trust and respect.