Transforming into the unknown – understanding the dual business model

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Richard Ullenius, VP of Customer Solutioning & Business Model Transformation at CSG, offers some best practice tips on business transformation.

If you are overseeing an enterprise transformation project, you’re likely familiar with a chorus of doubt coming from analysts, colleagues and even customers. The competition and new disruptors are biting at your heels, the world is changing by the day and the CFO wants to know why transformation projects and shrinking margins seem to go hand-in-hand.

While business transformation has remained a constant throughout most of the 21^st Century, traditional all-or-nothing approaches to digital transformation no longer work. At the same time, COVID-19 has accelerated transformation projects and exasperated the dual business model dilemma. Transformation in today’s world need to enable dynamism to constantly be able to predict and adjust for what comes around the next corner.

The Dual Business Model Dilemma

Regardless of the industry, incumbent companies are trying to defend, protect and optimize their legacy business to offset revenue and margin decline for as long as possible. At the same time, they need to innovate, develop and grow new businesses to drive open new revenue streams and profits as fast as physically possible. Managing these two tasks at once can often feel impossible for the teams in charge of transformation – like how a flight crew might feel if they were asked to change out an engine mid-flight. Defending traditional and innovating new are two fundamentally different business practices and require different mindset, culture, skills and capabilities (including technology).

Perhaps not surprisingly, McKinsey analysts found that 83% percent of transformation projects fail. Often a company tries to transform their traditional models into something entirely new or tries to merge it with a new disruptive model – and finds that it doesn’t work as it blurs the lines and fuels the unfocused transformation model. To be able to do both requires a balancing act and transformative leadership across all the company functions. My company, for example, derives a significant portion of its revenue from its established billing and printed mail businesses. That side of the business will continue to do well for us, but we are also seeing the business moving towards disruptive opportunities in customer experience and with blockchain, AI and cloud native solutions. To be a great partner for our customers, it’s necessary that we invest strategically in these new areas of opportunity while supporting our legacy businesses. That requires us to effectively balance the dual business model transformation challenge.

There are four success criteria to deploying dual business model transformation projects:

Adoption of a dual business model approach

The first step to implementing a successful dual business model approach is that the whole enterprise needs to adopt this way of thinking and working. Every level of the organization needs to understand that managing and investing in new digital opportunities while optimizing established legacy businesses, need to be managed in a structured business model portfolio approach, especially as most companies need to execute transformation under the same roof.

Structured management of legacy and new business models

Managing the dual business model portfolio then needs to be done across the company holistically to ensure connective tissue and that capabilities are lined up to execute. Even within large multinational companies, it’s important for new transformation projects to operate independently. These separate startups are able to develop a nimble, entrepreneurial culture that can course-correct more easily, adjust thinking, and evolve the end goal to match new market challenges or opportunities. Another key driver for keeping transformation projects separate is speed of execution and ensuring a rapid time to market for new technologies. Once successful innovation projects make it to market, and through early pilot tests, they can once again connect with the core business in the future to ensure scalability and widespread availability. This way the company also creates maximum dynamism which is critically important going forward.

The right transformation approach and model

As COVID-19 has illustrated, companies need to pivot quickly to adapt. This means adapting a culture that is nimble enough to cater both to the needs of transforming the legacy business as well as latch onto to the next major disruption in real time. As transformation has evolved from a point in time approach to continuous, I think many companies will adopt a transformation office function driving the overall program, holistically across the business. While dual business model transformation becomes the lens through which leadership thinks about innovation, the process of innovation is more dynamic and continuous – broken up over time to include multiple, smaller transformation projects that are impacted by the market-at-large, evolving customer requirements and that ultimately tie back to the company’s long-term vision and strategy.

Micro-transformation projects can evolve from each other, may be created in response to unforeseen market developments like COVID-19, or they may be run using A/B testing in which companies run two parallel transformation programs simultaneously to see what works best. Unlike the big transformations of yesterday, the goalpost of transformation projects will constantly move, and enterprises will need to adjust their mindsets to prepare for this reality. That is critically important in today’s world to maximize the dynamism in the company.

Talent, infrastructure and technology

The talent, infrastructure and technology required to succeed are fundamentally different under the two models – and should be strictly separated. The legacy business and new transformation projects will have different go-to-market strategies, different ways of competing and different technology requirements for achieving success. Trying to manage the dual business model with the same organization, same people, same commercial models, same sales and same delivery won’t work in most cases. Companies will need to find ways to keep separation between the two while still making sure there is enough connective tissue between the two to grow the mothership.

It’s important to remember that transformation in the digital age is technology-driven, but people-powered. In a post-Covid-19 world, businesses will need to structure themselves for collaboration – even when their employees are spread out between offices, homes and business groups. Successful transformation at the end of the day is all about people and culture and creating collaboration across the ecosystem that empowers companies to look ahead and quickly pivot – even if they don’t know what’s coming.

Richard Ullenius is Vice President & Head of Customer Solutioning at CSG. As the leader of CSG’s Global Customer Solutioning Group, he brings business, technology, consulting and service solutions together. His team helps customers address their biggest challenges and opportunities, from transforming legacy businesses to building new business models and growth initiatives.  He also cofounded an oversees the company’s Global Managed Services division. Prior to joining CSG he has held leadership roles with Amdocs and British Telecom. While at these organizations, he established a global Digital Transformation strategy, launched a $100 million partner channel and built a global outsourcing business worth $1.5 billion. With over 20 years of experience in the communications industry, Richard is a trusted advisor to build new business models, transform business architectures and drive the digital business shift.