Executive Summary

No business survives over the long term without reinventing itself.

But knowing exactly when the right time to undergo deliberate, strategic business transformation—that is, when to change a company or organization’s core product, service offerings or business model—is where the difficulty often lies. That is often because business transformation typically requires overcoming big obstacles: Employees may feel threatened, customers can become confused, investors might not like unproven strategies.

Furthermore, the risk of it not succeeding is somewhat daunting: research contained in this article indicates that, even though more than four out of five executives at enterprise-level organizations recognize the need for transformation, only one third are confident that they can complete the job in less than 10 years.

Despite this, business transformation remains an integral component of an effective business growth strategy. So how can leaders know that it’s time to transform a company and make the case for change? That is the question that Mark Bertolini, David Duncan, and Andrew Waldeck tackle head on in this piece for Harvard Business Review, entitled “Knowing When to Reinvent.”

Five interrelated “fault lines” can indicate that the ground beneath a company is unstable—and provide executives who know how to detect them with early warning signs of industry upheaval, allowing them to prepare and adapt. By detecting fault lines at Aetna, CEO Mark Bertolini and the board of directors were able to make the choice to transform the company beyond a traditional health insurer – even as its profits were soaring. Similarly, Adobe, Nestle and other leading companies have preempted disruption by spotting fault lines early.

This piece by Bertolini, Duncan, and Waldeck details these fault lines, how they were applied successfully at Aetna and other companies, and how you can adapt them to get ahead of growth strategy and industry upheaval through strategic business transformation within your own organization. 

The fault lines each focus on the fundamentals: whether the business is serving the right customers, using the right performance metrics, positioning itself properly in the industry, deploying the right business model, and hiring and keeping the most capable employees and partners. They are as follows:

  1. Industry Position: Are other companies moving into your space, and are they doing so at a lower cost? Is your niche in the industry secure? Aetna experienced this kind of disruption when the Affordable Care Act was passed, as well as when hospital groups and other providers began taking on many of Aetna’s core responsibilities. Are external forces diminishing the value of your role in the industry?
  2. Customer Needs: At Aetna, Bertolini discovered that the company had been incorrectly targeting the needs of the wrong people. While the health care company’s primary customers were the benefits managers, the needs of the insured were more urgent, and as such catering to the former demographic had been ineffective. This section details how Bertolini went about rectifying that problem, and the steps you need to take as an organization to diagnose this particular fault line.
  3. Performance Metrics: Every industry evolves, and as such, old metrics can be misleading—and perhaps even dangerous. While they may have once been effective ways of measuring success, they may be outdated or simply inadequate for a new business landscape. Aetna’s top performance metric had once been in acquiring new customers through a wide range of policies. However, as laws changed and their target customer shifted, they realized that the metric of customer retention was equally or more important. Do we understand what our customers really value? This and other questions will help you analyze and diagnose a performance metric fault line.
  4. Business Model: Just because your current business model is working, does not mean that it will serve you well in the future. A key part of a successful business transformation is realizing when a business model needs to be adjusted or altered completely. This section details how Aetna identified and implemented two major business model initiatives, and how you can do the same for your company.
  5. Talent and Capabilities: The fifth fault line is so placed for a reason: you must first detect and address the other fault lines before this one will become apparent. As you undergo changes, the inadequacies of—or misalignment within—your organization’s current personnel will reveal themselves.

Preemptive change is challenging under any circumstances, but it’s even more difficult when the journey will be long-term. Whether a complete business transformation is needed, or simply a shift in one or two areas, the fault line framework and related diagnostic questions can help executives frame the challenge, build confidence, and align stakeholders before it’s too late. Click the link to receive a free download of the full HBR article and figure out if and when you should start your business transformation.