| What Is Dual Transformation? |
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| Dual Transformation is a strategic framework developed by Innosight that requires large companies to simultaneously pursue two tracks: Transformation A (repositioning and strengthening the core business) and Transformation B (building a new growth engine separate from the core). The link between them — Component C — is the corporation's existing assets, capabilities, and relationships that give both tracks a competitive edge no pure startup can replicate. |
The basic premise of dual transformation for corporations is simple:
Balance near-term organizational needs to drive revenue growth with the exploration of new capabilities and/or business models to future-proof their organizations.
The framework's structured approach, when executed well by corporate leadership teams, allows large companies to tackle two initiatives ("Transformation A" and "Transformation B") concurrently, both of which benefit from core-business capabilities ("Component C").
The team at Innosight behind this framework put it perfectly:
The goal of dual transformation is to "reposition today's business to maximize its resilience while at the same time creating tomorrow's new growth engine."
As Colin MacDougall on our team said on an Innov8rs webcast, though, "Everyone who's worked on dual transformation efforts knows that there's so much work you have to do in A that B starts to feel abstract and like you might never get there."
(Watch the entire Innov8rs webinar here for more insights from Colin and Matt Brady.)
Common rationale in many corporate C-suites today is that 'exploratory' innovation should be a "lean effort, with minimum resources applied, which means low budgets and low performance expectations, until there is evidence of an investable idea," as Forbes contributor Andrew Binns recently wrote.
But this line of thinking fails to factor in Horizon-3 innovation opportunities that can be addressed while still improving existing business offerings. The good news? There's a way for corporations to tackle both initiatives at the same time while giving them the necessary attention and resources they need to work.
The Three Components of Dual Transformation
Large companies attempting transformation fail more often than not because they treat "transformation" as one initiative. Dual transformation forces a structural split. There are two distinct tracks running simultaneously, held together by a third element that only an established company can offer.
Transformation A: Reposition the Core
The goal of Transformation A is to make the existing business stronger, faster, and more defensible — not by protecting the status quo but by actively improving it. This means integrating AI into existing products and operations, upgrading legacy infrastructure, reworking customer-facing processes, and reorienting core-business metrics around durability rather than just efficiency.
Transformation A is not standard IT modernization or cost-cutting. The difference is intentionality: every improvement to the core should be measured against whether it increases the organization's resilience in the face of disruption, not just its near-term profitability.
Transformation B: Build Tomorrow's Business
Transformation B is the creation of a separate new growth engine. Not an innovation lab, not an internal accelerator — a distinct entity with its own leadership, its own operating cadence, and its own definition of success. It is an entirely different business model, product line, or market that the corporation cannot pursue if it is constrained by the priorities of the core.
The organizational separation is not optional. Without it, Transformation A urgency will always crowd out Transformation B ambiguity. And because Transformation B is longer-dated and harder to measure, it loses every resource allocation debate it is forced to have with the core.
Component C: The Capabilities Link
Component C is what makes dual transformation viable for large companies and nearly impossible to replicate from scratch. It is the set of existing assets — brand equity, customer relationships, distribution channels, regulatory approvals, proprietary data, operational expertise — that the corporation can selectively share with Transformation B.
The capabilities link is the answer to the question: "Why should a new business be born inside or alongside this corporation rather than in a garage?" When Component C is well-defined, Transformation B launches with built-in advantages. When it is left undefined or contested internally, Transformation B behaves like an underfunded startup with a corporate parent — the worst of both worlds.
Tackling Near- and Long-Term Growth Initiatives Through Dual Transformation: A Strategic Imperative
Overhauling legacy technology stacks while onboarding new AI-powered tools to replace dated point solutions. Optimizing workflows by automating and digitizing processes (e.g., procurement, logistics). Shifting IT infrastructure from on-premise to the cloud for scalability and cost-effectiveness.
Business transformation initiatives can take many forms, but most of them have the same goals:
- Enhance operational efficiency
- Improve the customer experience
- Reduce costs across the business
- Strengthen workforce agility
- Modernize data-governance practices
- Respond to market trends/insights
These goals make complete sense. After all, a focus on capital efficiency, risk eradication, and maintenance of what already exists are the top priorities for corporate leaders today, thanks largely to boardroom pressures.
"Organizations produce the results they are designed for," Elliott Parker wrote in "The Illusion of Innovation." "Or, said differently, you can tell from the produced results what an organization is optimized to do."
The question corporate leaders must ask themselves, though, is if their companies are overly optimized for near-term safety, predictability, and efficiency and not enough for long-term business resilience and durability.
If the answer is "yes," a more forward-thinking approach to transformation is likely required.
Put another way:
Executives and boards must strike a balance between making 'foundational' improvements to existing products, services, and processes and fostering innovation away from the core.
Fail to do so, and corporations risk potentially letting insurgents (startups) with cutting-edge tech take market share away from their businesses. Consider upstarts with innovative AI capabilities that incumbents may lack.
"AI is constantly evolving, putting pressure on businesses to outpace the disruption as they scale their AI-driven transformations across their organization," said KPMG U.S. Vice Chair of AI and Digital Innovation Steve Chase.
Implementation of AI to streamline data analysis, speed up customer-support responses, generate personalized recommendations, and conduct quality control has a tangible, positive impact for today's corporate workforce.
The ripple effects from implementation are stronger customer acquisition, retention, and loyalty.
But as consulting experts recently wrote for Harvard Business Review, history tells us making mostly (or only) incremental upgrades, particularly in an era of rapid technological advancement like today, opens the door for emerging industry players to gain a foothold in their market.
"Thriving during disruption means reimagining your future, not simply improving your present," the consultants noted, adding that enterprises can "simultaneously take the judicious steps needed to strengthen their existing operations and the radical steps required to flourish in the new era."
The dual transformation theory, developed by Innosight strategists Scott Anthony, Clark Gilbert, and Mark Johnson, holds that companies facing market disruption cannot succeed by improving their existing business alone. They must simultaneously pursue two distinct initiatives: Transformation A, which repositions and strengthens the core business for near-term resilience, and Transformation B, which builds an entirely new growth engine. The two are connected by a Capabilities Link (Component C) — existing assets and advantages the corporation can share with the new business. The theory is grounded in the observation that companies consistently fail to navigate disruption not because they lack a strategy but because they fail to run A and B at the same time with adequate resources for both.
The dual transformation framework was created by Innosight, the innovation strategy consultancy founded by Clayton Christensen, and formalized by partners Scott Anthony, Clark Gilbert, and Mark Johnson in their 2017 book "Dual Transformation: How to Reposition Today's Business While Creating the Future." The framework builds on Christensen's earlier work on the innovator's dilemma — specifically, the insight that market leaders consistently lose to disruptors not because they ignore new technology but because they rationally prioritize their existing core businesses at the expense of emerging opportunities.
Dual transformation is a corporate strategy framework that asks organizations to pursue two initiatives simultaneously: Transformation A, which repositions and strengthens the core business for near-term resilience, and Transformation B, which builds a new growth engine separate from the core. Both transformations share a set of existing capabilities (Component C) that give each an inherent advantage. The goal, as the Innosight team behind the framework put it, is to "reposition today's business to maximize its resilience while at the same time creating tomorrow's new growth engine."
The dual transformation framework, developed by Innosight, structures corporate innovation around three components: Transformation A (optimizing and defending the core business), Transformation B (creating a separate, future-oriented growth engine), and Component C (the shared capabilities, assets, or advantages that give both transformations an edge over outside competitors). The framework is designed for large corporations that need to drive near-term operational efficiency without sacrificing long-term business durability. Venture building is one of the most effective mechanisms for executing Transformation B.
In practice, dual transformation strategy requires separating the resources, leadership, and incentives for core-business improvement (Transformation A) from those dedicated to new venture creation (Transformation B). Without this separation, Transformation A work — which is more urgent and measurable — consumes all available attention and Transformation B never gets traction. Corporations executing dual transformation effectively typically establish a distinct innovation team or partner with an external venture builder to run Transformation B, while keeping core operations under existing leadership.
Standard business transformation focuses on improving what already exists: upgrading technology stacks, automating workflows, modernizing data infrastructure. Dual transformation does not replace this work — it adds a second, parallel track. The difference is that dual transformation explicitly allocates resources and organizational attention to building something new, not just improving something existing. Standard transformation optimizes for today; dual transformation simultaneously builds for tomorrow. Companies that only pursue standard transformation risk being outpaced by startups and new entrants that are not constrained by legacy operations.
Venture building is a primary mechanism for executing Transformation B. Rather than waiting for internal ideas to surface or acquiring external startups, venture building lets corporations systematically create new companies that address unmet market needs — while leveraging the corporation's existing assets, customer relationships, and domain expertise as Component C advantages. An external venture builder like Alloy Partners brings the startup creation playbook, while the corporation brings scale, market access, and strategic context. The result is new ventures with inherent advantages that pure startups cannot replicate.
Building and Engaging with Startups While Maintaining a Focus on Core Operations: A Balancing Act
The reality is it's not 'incumbents vs. insurgents,' when it comes to business success. (Or at least it shouldn't be.)
Rather, corporations that recognize business transformation isn't enough to withstand eventual market 'shake-ups' due to TBD external factors (not just new startups, but also black-swan events like COVID-19) must also recognize the power of corporate-startup engagements — the other side of the dual-transformation coin.
"For many corporations, deep and deliberate engagement with startups will be the only way to realize the transformation they seek and regain a competency for innovation that has been lost," Elliott said in his book.
Corporate venture capital firms and funds already build and manage portfolios through targeted investment in promising startups of strategic relevance and importance to their business. But successful startup engagement today goes beyond solely backing early-stage ventures with strong product-market fit and interesting AI.
A holistic venture strategy also entails startup creation.
Increasingly, large corporations understand how external venture building can help solve intractable problems facing their businesses that limit progress against their overarching corporate strategy.
Yet some of these scaled enterprises still undervalue its potential as a growth lever.
The real unlock of venture building, per Matt and Colin, is knowing how eventually launched startups can provide advantage to the core business and how the corporation can bring advantage to the startups:
- Corporations have a wealth of resources and insights that, when shared with startups they build, can give them valuable intel to drive experimentation and inform product roadmap development.
- Corporations can also become first customers and investors of their startups, ensuring a strong financial start for the ventures and breathing room to explore other new business partnerships.
- Startups, meanwhile, operate with a level of speed and nimbleness corporations often can't, due to various internal innovation 'antibodies,' enabling them to act on ideas and innovate more quickly and, in turn, generate new insights to bring back to the corporation.
This symbiotic relationship "creates something of a virtuous cycle between a corporation and a startup with deeply aligned incentives and deeply aligned insights between the corporations and startups," Matt said.
Before committing to venture building and engagement with startups, though, corporate leaders must ask:
- What they want to get out of venture building (i.e., specific business, strategy, customer, and/or market problems they want to solve sooner than later)
- How they'd engage an outside partner to aid them with new startup development
- What structural changes must happen in-house to facilitate new venture creation
"'Are we ready to take a step forward into venture building?,' " said Matt. "'If we were, where would we build? Where would we invest?' ... 'How would we do this in a programmatic way so that we are making multiple shots on goal and helping to solve as many problems within our business as possible?'"
Answers to these questions ultimately ladder back up to one's corporate strategy.
In some instances, it may make sense to build new businesses internally.
Matt stated this avenue enables C-level decision-makers (and, in many cases, board members) to dictate the direction they take with ventures they could spin out from, acquire, or merge into the corporation in time.
But if a corporation's strategic ambitions involve wanting to better see around corners (i.e., forecasting the future in their space), gaining a share of adjacent markets, reshaping their company narrative publicly, and/or building a stronger business legacy, external venture building offers a wealth of advantages.
Dual Transformation in Practice: Three Corporate Examples
The framework is clearest in hindsight. These three companies ran A and B simultaneously — not sequentially — and the capabilities link was decisive in each case.
Adobe: From Boxed Software to Creative Cloud
Transformation A: Adobe continued selling and improving its Creative Suite licenses to existing enterprise and professional customers — the revenue engine it had built over two decades. Transformation B: Adobe simultaneously built Creative Cloud, a subscription-based model that required fundamentally different pricing, delivery infrastructure, and customer success operations. The capabilities link (Component C) was Adobe's brand authority with creative professionals and its established product quality. Creative Cloud launched with a built-in installed base and trust that a new SaaS entrant could not have accessed. By 2013, Creative Cloud was outpacing perpetual license sales. By 2020, subscription revenue accounted for nearly all of Adobe's $12.9B annual revenue.
Netflix: DVDs and Streaming
Netflix ran A and B simultaneously for nearly a decade before the transition completed. Transformation A: Netflix optimized and scaled its DVD-by-mail business, the cash engine that funded everything else and kept the company solvent through the early streaming years. Transformation B: Netflix launched its streaming platform in 2007, when streaming was a marginal product with limited content rights and unpredictable technology costs. Component C: Netflix's existing subscriber relationships, viewing data, and logistics infrastructure informed the streaming product from day one. By the time DVD revenue declined, streaming was the dominant business — and the data advantage Netflix had built during the DVD era made its recommendation engine impossible for new entrants to replicate quickly.
Amazon: Retail and AWS
Amazon Web Services is the most studied example of Transformation B becoming larger than the core. Transformation A: Amazon continued to scale and optimize its retail operations, logistics network, and supply chain through the early 2000s. Transformation B: Amazon built AWS starting in 2003 as internal infrastructure, then as an external product — a completely different business model with no precedent in Amazon's retail operations. Component C: Amazon's existing technical infrastructure, engineering scale, and relentless focus on operational cost gave AWS a reliability and price point that no startup could have matched at launch. AWS generated $90.8B in revenue in 2023 and carries margins far exceeding the retail core.
Why Dual Transformation Stalls — and How to Prevent It
The framework is clear. The execution is not.
As Colin MacDougall, who has worked on dual transformation efforts directly with corporations, put it: "Everyone who's worked on dual transformation efforts knows that there's so much work you have to do in A that B starts to feel abstract and like you might never get there."
This is the most common failure mode — and it plays out in four predictable patterns:
Resource allocation defaults to A. Core business urgency is always measurable and immediate. Transformation B ROI is always uncertain and long-dated. Without protected budget and headcount explicitly assigned to B, A wins every resource debate by default. Most dual transformation efforts fail not because the strategy was wrong but because Transformation B was never adequately funded to find out.
Component C never gets operationalized. The capabilities link sounds straightforward in a presentation and turns out to be deeply contested in practice. When the core business team is asked to share customer relationships, proprietary data, or distribution access with a new venture they do not control, the answer is usually no. Defining C on paper is not the same as governing it in reality.
Transformation B reports to the wrong executive. When B leadership reports to the same person running A, B's priorities will always be subordinated to A's near-term targets. Effective dual transformation requires either a separate innovation P&L with independent board oversight or an external partner operating at arm's length from core-business politics.
The new venture gets measured against old metrics. Applying core-business revenue, margin, or payback expectations to an early-stage Transformation B venture guarantees it gets killed before it has a chance to scale. Transformation B needs different success metrics — market learning, partnership depth, capability validation — that most corporate finance teams are not set up to evaluate.
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