Idea in Brief
The Problem
No business survives over the long term without reinventing itself. But knowing when it is time to transform is difficult.
The Solution
Five interrelated “fault lines” can indicate that the ground beneath a company is unstable. Executives who are able to detect those fault lines have early warning of impending industry upheaval and are better able to prepare and adapt.
The Principles
The fault lines focus on the fundamentals: whether the business serves the right customers, uses the right performance metrics, is positioned properly in its industry, deploys the right business model, and has employees and partners who possess the required capabilities.
No business survives over the long term without reinventing itself. But knowing when to undertake deliberate strategic transformation—when to change a company’s core products or business model—may be the hardest decision a leader faces. This kind of change requires overcoming big obstacles: Employees feel threatened, customers can become confused, investors don’t like unproven strategies. And the risk of failure is high—research conducted by two of us suggests that although more than 80% of executives at large enterprises recognize the need for transformation, only about a third are confident that they can get the job done in five to 10 years. The decision to reinvent is even more difficult when company performance is strong and Wall Street is happy; it’s tempting to take a wait-and-see approach unless evidence clearly shows that industry disruption is imminent. But by then it may be too late, as demonstrated all too well by cautionary cases from Borders and Blockbuster to Compaq and Kodak.
