Minimum Viable Transformation

Scaling the edge to create new business value

To succeed in today’s networked economy, businesses must participate in dynamic, evolving networks of diverse organizations. And while such networks can be difficult to navigate, they offer companies the opportunity to evolve their business models, deepen skills and knowledge, expand into new markets, and scale operations.

To stay viable amid accelerating change, businesses themselves must change more frequently—and in ways that use their business ecosystems as fertile ground for collaboration and transformation. This is not a new concept, though it is more crucial today than ever. Two decades ago, Charles Schwab transformed itself from a phone-based discount brokerage to a full-service online financial institution by leveraging its ecosystem. The company integrated an array of third-party analytic tools and investment databases into an online platform, supported by a network of third-party advisors. The result: Schwab became a provider of “anytime, anywhere” investment services, while strengthening its ecosystem as a whole.

Bet the farm or scale the edge?

In terms of business transformation, large-scale, big-bet changes get the most press. Most are driven from the top, where a large investment and public announcement signals commitment. Yet changing an entire organization by fiat can be risky—and intensely political. Less than a third of such ambitious, high-dollar change initiatives succeed.

However, there is another approach—one that can reduce risk and still retain the potential to transform an entire organization. Focused on “scaling edges,” it identifies a promising “edge” business for the organization, then grows that edge until it becomes a viable new core or complementary line of business. Such an approach can make it possible for businesses to reinvent themselves while minimizing potential risks—and maximizing impact.

An edge is a growth opportunity that has the potential to scale—so much so that it can catalyze change, eventually becoming effective enough to replace the core of the business. A true edge should align with larger trends disrupting the industry. Edges involve fundamentally different business models and practices from those of the core. Established retailers, for example, could find a potential “edge” in becoming an “experience bazaar” for consumers, serving as a B2B infrastructure for fragmented niche retailers, or becoming a trusted consumer agent.

Minimum viable transformation

One method used to scale edges is minimum viable transformation. Here, a company pulls together the essential elements of a new business model into a barely working construct, one specifically designed to test key risks. Minimum viable products, for example, are like prototypes—except that instead of being tinkered with internally, they’re immediately thrown at the market and subjected to trial by fire.

So why would a company do such a thing? The minimum viable product is all about identifying flaws and working to improve them as rapidly as possible. It’s designed not as proof of concept, but to test hypotheses and unearth unknowns that could sink a new offering.

For companies seeking to reinvent not only their products but their business models, minimum viable transformation allows for rapid iteration on the unknowns of a new business model—anything from minute changes to operational processes to full restructuring of the go-to-market strategy. At its core, it’s a strategy for gathering validated learning about individual business model elements, then assessing how those elements interact and combine to form one cohesive strategy.

Five guidelines for transformation on the edge

Today corporate transformations must be designed and executed quickly and routinely—not as once-a-decade events. Management teams are looking for best practices that increase speed and reduce the risk of pursuing business model innovation and change. That’s where minimum viable transformation comes into play. Before diving in, management teams should consider these five principles:

1. Learn how to learn. The central goal of minimum viable transformation is to learn from a true field experiment. First identify what must be changed or put in place before the envisioned business model can scale successfully. Business theorist Chris Argyris has called the associated data gathering and analytics “double-loop learning.” Rather than just “detecting error” against a predefined plan, double-loop learning allows the underlying plan (or transformative strategy) itself to be questioned.

2. Pick up speed. There’s a reason this approach starts with the word “minimum”: The learning has to happen fast. As soon as a company executes the idea it’s pursuing, it shows its hand to competitors— who will quickly respond with their own strategies.

3. Embrace constraints. Much has been written about the counter-intuitive effect of constraints—they don’t foil creativity, but fuel it. It’s worth noting that the very constraints we’ve been talking about here—few bells and whistles and scarce time—take real creativity to address. At the very least, they compel a focus on the goal—the need to learn and reduce risk around the key objective.

4. Have a hypothesis. To succeed, transformation initiatives must clearly articulate both the need for change and its direction. Such a statement of direction helps identify key assumptions driving the change effort (assumptions that will need to be tested and refined along the way). Leaders will also need to develop metrics that measure short-term progress.

5. Start at the edge. Find an “edge” of the current business—a promising arena that can showcase the potential of a fundamentally different, highly scalable business model that could even become a new core. Starting at the edge gives the transformation team far more freedom to test and experiment, and more ability to learn and react quickly.

In short, these five key principles can help bypass traditional barriers to transformation, ultimately supporting more effective response to mounting performance pressures.

Learn more about minimum viable transformation in the full "Business ecosystems come of age" report.

Please join me in a conversation by commenting below to explore:

• What edges are ripe for scaling in your company or industry?

• In what areas has your company used minimum viable transformation?

• Where do you see using minimum viable transformation in the future?