KPMG’s research points to three critical factors that make the difference between transformations that realize optimum value and those that come up short—capabilities that enable customer focus, continual innovation, and agility.
Major organizations across the globe are attuned to the urgent need to transform their businesses and operating models, in light of evolving customer behaviors, disruptive technologies, regulatory policies, and globalization. Yet many senior executives feel their organizations are not capable of driving the transformational changes necessary to create higher-performing organizations.
Senior executives are alert to the rapidly unfolding risks and opportunities, but many lack key capabilities to respond effectively. These are among the top conclusions of research conducted by KPMG on business transformation, based on survey responses and interviews with more than 1,600 senior executives across industries in 16 countries.
In fact, KPMG’s research found that 96 percent of organizations are in some phase of transformation, and nearly half have completed at least one transformation initiative in the past 24 months. While this flurry of activity suggests that most organizations are on the right path—by rethinking the fundamentals of their business models and introducing major changes to the way they operate—the KPMG study also reveals widespread doubts among many senior executives that their intensive efforts will bear the necessary results and ultimate value.
“Top executives realize that their organizations must create mechanisms to continually evolve and respond to their external environment,” says Stephen G. Hasty Jr., KPMG’s Global Transformation Leader. “Unfortunately, business leaders are up against serious barriers to reaching these goals, as well as massive disruptions in technology, and customer preferences and demand.”
“The dynamics of the market and the speed at which existing practices are becoming obsolete—and innovative alternatives are entering—have caused an unprecedented need and opportunity for business and operating model innovation, in order to maintain and grow profitably,” says Robert T. Vanderwerf, KPMG’s Global Transformation Strategy Leader.
To succeed in today’s environment, organizations need to improve their ability to capture and analyze an immense amount of data to develop timely customer, competitive, and operational insights. They need to embed innovation within their core business to continually develop new ways of creating and delivering value to customers in the most cost effective way. And finally, they must use the latest technologies as business innovation enablers and create an agile culture, organization, and asset base to thrive in an environment of change.
Focus on the customer
KPMG’s research found that 41 percent of organizations identify changing customer demographics, behaviors, and expectations as the most influential source of insights and trends for their business transformation strategy. While this number reflects a large segment of organizations that are now paying closer attention to their customers, research also revealed that only 16 percent of executives predict that customer behavior changes driven by the generation shift (e.g. Millennials) might disrupt their current business model within the next three years.
Essentially, the task is to continually evaluate and adjust your customer experience, based on the needs of today and tempered with a clear understanding that tomorrow’s customers will have different expectations than today’s. That means continually listening and analyzing what customers want and value, evaluating the leading comparative practices, and then deciding how the organization can evolve its customer value propositions to meet these needs both profitably and competitively.
Embed continual innovation into the business
Business leaders must embed continual innovation into the culture and structure of their organizations in order to build enduring competitive advantages. To do so, they must have insights into what customers today and in the future truly value, and they must follow a “business value first” approach to technology. Such an effort calls for enabling the organization to work smarter and faster so it can create return on investment even as it continues to innovate.
Executives must look at all corners of the marketplace to predict disruptive changes to stay ahead of their competitors. Successful companies will proactively disrupt themselves before a competitor or regulatory change forces disruption upon them, so they can remain competitive and continue to satisfy current and future customer needs. That means transforming the business and operating models with the technology tools, time commitment, and appropriate resources and decision-making authority so that innovations can be created and implemented. Innovation has to become a core capability and a top organizational priority.
Learn to thrive on change
Senior executives need to build agility into their organizations, so that as the business environments in which they operate shift, the organizations are better able to transform and adapt to the innovations generated. Learning to thrive on change means more than merely quick reaction times to market demands. In order to drive value in this dynamic environment, organizations need to take a fresh perspective on transformation, organizational structure, and asset ownership.
Disruptive business models tend to use technologies, knowledge, and channel strategies from more than one sector and then combine them to create new offers and attract new customers. A combination of the complexity, need for speed, and wide range of options means that organizations are starting to realize that they do not have the resources, capabilities, agility, and risk appetite to act alone. In this environment, the ability to collaborate with other organizations to access markets and channels, create compelling offers, and create more engaging relationships with customers will become a far more prevalent strategy.
The three critical factors for business transformation success
KPMG’s study clearly reveals an appetite for bold change among senior business leaders, but it also uncovers a level of uncertainty that they are taking all the necessary steps to achieve the most value. Organizations need to better focus on the customer, and build businesses that are committed to innovation and can act with agility. These are critical factors for organizations to achieve a higher level of transformation that will create value and sustain it in the future.
To learn more, read KPMG’s 2016 Global Transformation Study.