The ability to pull this off — to predict inflection points and manage the portfolio in a proactive way by jumping from the maturity stage of one business to the growth stage of the next — is what separates high performers from those whose time at the top is all too brief.

Clayton Christensen observed that large successful companies are often unable to re-invent themselves because they stick to their old business too long. He called this circumstance the “Innovator’s Dilemma.”

I agree with Clayton Christensen that reinvention is hard – in particular when the company is doing well. But when a company’s leaders act decisively, reinvention is surely possible. It requires two key elements: On the one hand, constant re-invention of the portfolio. On the other hand, the ability to sense the rise of new trends and execute at high speed.

Portfolio reinvention

An outside-in strategic approach to portfolio reinvention begins with the challenging question: “What will the world look like in five to ten years?” This approach pays attention to future competitors – not just current competitors. It challenges current assumptions and looks for ways to disrupt and re-invent our current business.

Three simple principles can guide this approach:

  • First, a constant search for growth markets. It’s dramatically easier to grow a business if it operates in growth markets.
  • Second, being average is obviously not enough. In order to win in a growth market, a company needs the ability to address the “profit pools” within that market. This is largely a question of being able to develop relevant differentiation while maintaining focus.
  • Third, you need to be among the leaders within the market – which means being #1 or #2. This is a question of being ambitious – of having a clear intent and the means to win.  

Organizational reinvention

Making the right portfolio decisions is key to re-invention, but it is not enough by itself. You have to adapt organizational structures, too. 

The conventional organization of conglomerates consists of a matrix of global business areas, regional sales organizations and corporate functions. Complex matrix structures were successful for many decades because they helped manage size. Today, however, they slow companies down and prevent them from adapting quickly.

There’s certainly no standard recipe. Yet, the way Siemens AG answered the question of reinvention may be of interest to others, too. Siemens is one of the most successful industrial conglomerates and has 172 years of history – a longevity unimaginable without adaptation and reinvention.

The company’s Vision 2020+ strategy concept, launched in 2018, gives all Siemens businesses greater entrepreneurial freedom, focus, and responsibility. They can shape their own future in their respective markets – and above all be closer to their customers, sense new trends and execute rapidly.

Siemens will comprise three companies going forward. These companies will have the necessary speed – but also the necessary size – to lead the transformation of their respective businesses. The first company is Siemens’ industrial core, which consists of Digital Industries, Smart Infrastructure and Mobility. The second is the healthcare technology provider Siemens Healthineers. And the third is the future energy company Siemens Energy, which will be spun off and publicly listed in 2020 as an independent company that can shape and drive the energy transition worldwide. All three companies are positioned to lead the digital transformation within their respective industries.

Vision 2020+ aims at creating the conglomerate of the future: dynamic, focused and flexible businesses with the ability to adapt to market conditions and inflection points quickly and on a case-by-case basis – while leveraging the benefits of an open, connected ecosystem.

In the end, reinventing the conglomerate is about adding value – for customers, employees and shareholders as well as for society. Conglomerates that are able to make this leap will stay relevant – and they will regain the “magic power” to shape a more sustainable future.