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To transform your business, you need to go all in

Productivity improvement is only one of five moves that lead to big gains

For much of my career in consulting, I’ve seen business transformations focus on productivity improvements—and usually stop there. It makes sense: finding better, faster, cheaper ways to operate is a proven way to boost performance. The problem is, that’s no longer enough. Various forms of tech-enabled disruption are upending entire industries, forcing incumbent companies not only to become more efficient and agile but to reinvent who and what they are.

Accomplishing such an “all-in” transformation represents a true quantum leap: over a decade, only 1 in 12 companies manage it. But the rewards are big, as my co-authors and I describe in a recent book. Those that reach the top quintile of the Power Curve of economic profit earn 30 times more than the average company.

So how do different types of strategic moves contribute to improving a company’s performance? Recently, I teamed up with colleagues Wesley Walden and Marc de Jong to delve into that question. Our earlier research had found that five big moves contribute the most to upward mobility on the Power Curve: “performance-related” ones cover productivity and differentiation improvements, while “portfolio-related” moves include active resource reallocation, programmatic M&A, and capital programs. These moves must be big relative to competitors, but that does not make them reckless. In fact, we know now that making big moves tends to reduce the risk and adds more to the upside than the downside.

We divided corporate transformers into four categories, and found their efforts produced significantly different results:

  • Static: The largest group, representing almost half the companies, didn’t make any moves that reached the “big” threshold, and had an only 4 percent chance of reaching the top quintile.
  • Performance only: 26 percent made at least one big, performance-oriented move, and nearly doubled their odds of rising to the top.
  • Portfolio only: 15 percent made a major portfolio move, but they didn’t make big performance moves. At 11 percent, they had an even better chance than the performance-only group of vaulting upward.
  • All in: The 12 percent of companies that made at least one big move in both categories were rewarded with the highest odds, at 22 percent. That means that over a decade, companies that follow this path nearly triple their likelihood of reaching the top quintile of the Power Curve relative to the average company.
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You can read more about our research in this recent article. The upshot is that while going all-in isn’t easy, it’s entirely possible for organizations to ramp up their bottom-line performance even as they secure game-changing portfolio wins that redefine what they do. By developing these two complementary sets of muscles, companies can aspire to flex them in a coordinated way, using performance improvements to carry them to the next set of portfolio moves, which in turn creates momentum propelling them to the next level.

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