Challenges of business model transformation

Posted by jd
July 20, 2005

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HP and Kodak – two companies in serious trouble for years – have announced massive layoffs as part of their restructuring. While I have not yet come across the term in some of their public documents, what both companies are trying to do is a business model transformation.

HP is trying to survive in a business where American companies can not compete with low cost producers unless they can replicate Dell’s business model. HP has had management problems and the company could never really come up with a cohesive strategy under Fiorina. Like GM, as HP becomes desperate to survive, it is simply laying people off without really making the fundamental changes that it needs to make in order to create a place for itself in the marketplace that has radically changed. (Related article: Cost cutting by GM is not the solution to its problems)

Kodak is trying to reinvent itself after its core business essentially disappeared. Over the years, I have admired how the company has taken several bold decisions to keep pace with the external environment, which is remarkable for a company that has such a strong culture rooted in decades of history. It has not been easy, though, and that simply means that the management will eventually get there because I do see that Kodak is headed in the right direction.

What does it mean for you?

    Business model transformations are painful and take time. So do not give up either because the change hurts or it takes too long before you see results.
    It is tempting to do the obvious (plant shutdowns, layoffs, salary freezes, etc.), but unless these are part of a real transformation, you have not addressed the real problems – you have merely taken short-term, easy measures to solve a long-term problem. You will soon fail.
    Seek outside help. No matter how smart your executives are, only an external agent can provide you with (i) objective advice (ii) insights from other industries/companies.

Recommended article: How to implement a cost reduction program?

Business strategy

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