Dual transformation: Optimizing the core and building new businesses

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Dual transformation: Optimizing the core and building new businesses

By Ari Libarikian et al., | McKinsey & Company | August 23, 2024

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In recent years, the world has experienced significant disruptions to the global economy—with lasting effects. Elevated inflation, though easing in some parts of the world, remains a serious issue, and heightened geopolitical tensions show no signs of dissipating. High interest rates continue for now, and volatile commodity prices also persist. It’s become increasingly clear that these disruptions may not be temporary; rather, they are likely sticking around for the foreseeable future.

At the same time, the market landscape has been shifting in fundamental ways. Corporate longevity is at an all-time low. Five of the top ten largest companies in the world didn’t exist 25 years ago, and the average tenure of a company in the S&P 500 is now less than 20 years, compared with 25 years in 2015. New companies, many of which are digital based, have upended the way business is conducted across all industries, capturing 8 to 25 percent of market share in most industries after five to seven years.

Given these trends, corporate reinvention has become more important than ever, especially for established companies looking to achieve sustained growth in the face of new competition. But successful and enduring transformations are difficult to pull off, and a business transformation by itself may not be enough. Leaders would be wise, therefore, to look for new opportunities by widening their scope beyond the core business.

Indeed, growth can come from a dual transformation that involves reinventing and transforming the core business and building new businesses. This approach can enhance companies’ longevity and open up new avenues for expansion, allowing them to potentially realize significant value and outpace market growth.

Although there can be challenges to executing this well—such as an unclear strategic vision, funding constraints, or operational complexity—adopting a two-pronged approach can broaden the impact of an effective transformation. It can also enhance successful business building, where the synergies created together can exceed the contributions from each alone.

The opportunities organizations could have while following the two-pronged strategy are in by creating quick wins for cash and long-term value generation, building rigor into performance management, reimagining new-business building, and establishing organizational health with best-in-class talent.  To trigger reinvention journey the organizations need to have integrated launch of a core transformation and new business growth, prioritize a core transformation before new-business development, and take business building as a trigger for broader transformation.  In this whole process five principles leaders can follow to help ensure impactful outcomes are: articulate a compelling vision for dual reinvention, establish a clear road map rooted in long-term thinking, strengthen the functional ‘common chassis’ for long-term gains, put people front and center and establish a performance infrastructure.

3 key takeaways from the article

1. In recent years, the world has experienced significant disruptions to the global economy—with lasting effects.  At the same time, the market landscape has been shifting in fundamental ways. Corporate longevity is at an all-time low, for instance.  Given these trends, corporate reinvention has become more important than ever, especially for established companies looking to achieve sustained growth in the face of new competition.
2. Indeed, growth can come from a dual transformation that involves reinventing and transforming the core business and building new businesses.
3. The opportunities organizations could have while following the two-pronged strategy are in by creating quick wins for cash and long-term value generation, building rigor into performance management, reimagining new-business building, and establishing organizational health with best-in-class talent.  To trigger reinvention journey the organizations can have the options of have an integrated launch of a core transformation and new business growth, prioritize a core transformation before new-business development, or take business building as a trigger for broader transformation.  In this whole process five principles leaders can follow to help ensure impactful outcomes are: articulate a compelling vision for dual reinvention, establish a clear road map rooted in long-term thinking, strengthen the functional ‘common chassis’ for long-term gains, put people front and center and establish a performance infrastructure.

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Topics:  Strategy, Business Model, Competitive Advantage, Core, New Businesses, Innovation