Monday, December 8, 2014

Jettison Your Legacy Investment ... or Not?

When should a legacy investment be written off in order to enable a new capability?

If you’re asking this question, you are motivated by threats and/or opportunities that cause you to suspect that new options will be better than the status quo. You may be exploring ways to fundamentally change how you organize, operate, and source a business service.

Perhaps your legacy is a service provider relationship.  Perhaps it takes the form of a technology platform.  Maybe it's an organization/operating facility.  Often, it's all of the above.

I had the personal experience recently to drive the retirement of a functional CRM platform in favor of a competing alternative that conformed more directly to the principles of an “As a Service” operating model.

The CEO expected material improvement in sales effectiveness; the CFO swallowed hard. We decided to spend more as a means of achieving a step change in business performance.

In today’s complex organizations, most decisions favor the status quo: do nothing or stay the course.

The Queen is the story of England's Queen Elizabeth II as she and her family dealt with the death of the former Princess Diana on August 31, 1997, and for the next several days thereafter. It also depicts how we all tend to cling to the past and resist change when new circumstances seem to dictate that a different direction is warranted.

It is easy to condemn the inactions of the monarch. As Tony Blair states in the movie, "How do we save her from herself?" But the Queen's actions are a microcosm of the reaction of many of us when faced with events that would seem to demand a change in the status quo.

I have used this sort of criteria to help companies think through the legacy-vs-new tradeoffs:

1)    Time: Have you allowed yourself enough runway to launch the new capability, or is it already too late to change your fate?  Not many of us are skilled enough reclaim time that is lost.  Non-linear thinking about how to effect change is often required.

2)    Competitive Upside: Is there a material advantage earned over your current market position as a result of this change? I point to the HR Outsourcing market and the litany of failed technology deployments that almost submarined this segment. Today, many of the HRO providers jettisoned their proprietary platforms in favor of viable commercial alternatives; these providers are tending to be the winners.  Corollary: are you certain that you know who you’re competing against?

3)    Financial Dustbin: Do you know where you can park the financial overhang of yesterday’s decisions, and is that container able to hold the residue long enough? It’s a tough decision to swallow, and one that needs to be shared among many, but it’s necessary. For example, can you use balance sheet actions or staff redundancies to cover the costs? 

4)    Fit for Purpose: The allure of a shiny new capability can sometimes obscure the tangential and related implications of factors such as trading partners, skilled staff, regulatory reporting, channels to market, and the like.  Have you worked through the details on all aspects of what the “new world” operations will entail?

5)    Transition to Win: At the risk of generalizing, I believe that such moves from “old” to “new” are best affected quickly. Tendencies to implement in phases, run operations in parallel, and minimize risk … often carry greater costs, stretch the skill base, and erode the perceived commitment.  Are you adequately loosening the constraints to innovation that often strangle such challenges to the status quo?

So, whether the desire is motivated by a fear of losing or the opportunity to dominate … making a decision to retire a legacy way of doing business in favor of a disruptive new approach is a big bet. These bets are being made more often now than at almost any time in our history. Executives are less interested in “how we got here” than they are in “how we will reinvent ourselves to win in the economy ahead.”

Peter Allen is a Boston-based Managing Director at Alvarez & Marsal.

Image: Bev Goodwin/Flickr

No comments:

Post a Comment