Should organisations keep ‘running’ and ‘changing’ their business separately?

Insights | 11 May 2020

The modern business environment demands that any organisation seeking to gain a competitive edge must first maximise its own value. Such value can come from a variety of sources – e.g. developing new products and services, adopting more efficient business models, entering new sectors – and depends entirely on your industry and market intentions.

Whatever the case, there is a growing acceptance that organisations must be in a constant state of evolution (or at the very least improvement) in order to survive. But does that mean our traditional models of change must evolve as well?

Evolving Business

Running and changing: The traditional approach to business evolution

In recent decades, businesses have embraced the concept of separating their strategies for running the organisation (RTO) and changing the organisation (CTO). On the ground, this tends to involve the RTO side of the business maintaining its current services (perhaps with minor operational or service improvements) while the CTO element is tasked with transforming how the business operates or the products it sells.

The benefit of this partitioned approach is that the CTO element can step away from the day-to-day operations, instead focusing all their time and energy into transforming the organisation for the better. This separation also allows for clearer thinking, unhampered by traditional ways of working and legacy systems. In the meantime, the RTO team is able to maintain business-as-usual activities without getting distracted by new ideas that may never come to fruition.

Innovation labs are the perfect example of the CTO set-up. Isolated from the regular business and made up of the organisation’s most creative individuals, the endgame is to ultimately deliver transformational change. In an ideal world, this change can be easily adopted by the main RTO business while the CTO element moves onto its next transformation initiative.

Some organisations have even gone so far as setting up (or acquiring) startups with the aim of disrupting the main organisation.

The problem with innovation labs

Although separation of the CTO element offers a wealth of benefits, it can just as easily create headaches – and, in the worst cases, irrevocably change the organisation for the worse.

Perhaps the biggest concern for business owners is one that Piyush Gupta, CEO of DBS, succinctly sums up: “I realised then that a lack of ownership at the core of a company is a hurdle. There were too many detractors, people on the sidelines, taking potshots.”

In short, forcing the team tasked with changing the organisation to sit at the periphery makes it extremely difficult for it to be effective. Moreover, it creates friction between the RTO and CTO functions.

Such separation also runs the risk of strategic misalignment. The role of the CTO function is fundamental to the organisation’s long-term success, so by removing them from the day-to-day operations they can easily end up running in a whole different direction. This is compounded when the RTO function makes strategic decisions that are fundamentally at odds with the direction the CTO team is taking.

Finally, separated units tend to focus on the technology element rather than any process or cultural change. It’s an easy trap to fall into, especially if your competitors are constantly developing new products. Yet it is just as important (and almost certainly harder) for organisations to transform their culture and mindset first.

A holistic approach to transformation

What we’ve discussed above is the worst-case scenario, but it’s necessary to highlight the importance of taking an integrated approach to transformation.

The kind of transformational change that organisations want to achieve requires a fundamental shift in how they think, how they operate and how they evolve. For this to succeed, however, there must be total buy-in from the organisation – otherwise you are simply making a difficult task even harder. Strategic alignment from the top down with open communication and a healthy feedback loop is the only effective way for real change to occur.

Despite the criticisms, it’s also worth noting that innovation labs do have a place in this structure. However, they must be well aligned to the rest of the organisation, be in constant consultation with management, and ensure their creation is not at the expense of the RTO element.

When RTO and CTO are viewed as separate entities of the same organisation, then the business itself can never fully realise the benefits and value of transformation. Instead, combining the two has the potential to help the organisation succeed over the long term.

RTO and CTO: To combine or not to combine?

Although taking a combined approach to running and changing the organisation (with only some degree of separation) is the ideal strategy, achieving it is no easy task.

A transformational shift requires effort from the entire organisation and must cover technology, people, culture, processes and structural change – to name just a few critical pillars. There is no template for success, and once change has occurred it’s time to start the next phase of evolution in order to remain competitive.

The key takeaway? Organisations should never remain static; change is a necessary constant.

Change is inevitable for any organisation that wants to succeed, but transformation comes in all shapes and sizes. Speak to the experts at PM-Partners today about how we can help your business change and run at the same time.

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