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.”
Image: Bev Goodwin/Flickr
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