Strategy

Transformation with a capital 'T'

To pull off a successful transformation project companies need to raise their ambitions, develop different skills, challenge existing mind-sets, and commit fully to execution. That’s according to new research from McKinsey & Company.

“Often, companies apply it loosely—too loosely—to any form of change, however minor or routine. There are organisational transformations (otherwise known as org redesigns), when businesses redraw organisational roles and accountabilities. Strategic transformations imply a change in the business model. The term transformation is also increasingly used for a digital reinvention: companies fundamentally reworking the way they’re wired and, in particular, how they go to market,” the authors wrote.

McKinsey & Company argues that many businesses are in need of a different kind of transformation — transformation with a capital T. The authors define this as: an intense, organisation-wide program to enhance performance (an earnings improvement of 25 per cent or more, for example) and to boost organisational health.

The reported failure rate of large-scale change programs has hovered around 70 per cent over many years, according to McKinsey & Company.

Why they fail

“Our most fundamental lesson from the past half-dozen years is that average companies rarely have the combination of skills, mind-sets, and ongoing commitment needed to pull off a large-scale transformation,” the authors wrote.

Transformation takes a large amount of leadership focus and energy which is a challenge for CEOs and management who are naturally more adept at running a business in times of stability than disruption. Executives struggle to change gears and “leaders are poorly prepared for the much faster-paced, more bruising work of a transformation.”

How to tip the scale in favour of success

“The most important starting point of a transformation, and the best predictor of success, is a CEO who recognises that only a new approach will dramatically improve the company’s performance.”

But success doesn’t begin and end with the CEO. The report lays out a further five other key initiatives companies need to get right:

  • Identify the company’s full potential. To counter the natural tendency to “under promise and over deliver” CEOs should demand a clear analysis of the company’s full value-creation potential: specific revenue and cost goals backed up by well-grounded facts. “In our experience, targets that are two to three times a company’s initial estimates of its potential are routinely achievable—not the exception.”
  • Set a new pace through a transformation office (TO) that is empowered to make decisions.
  • Reinforce the executive team with a chief transformation officer (CTO). McKinsey & Company argues enterprise-wide transformation is a full-time executive-level job. “The chief transformation officer’s job is to question, push, praise, prod, cajole and otherwise irritate an organisation that needs to think and act differently.”
  • Change employee and managerial mind-sets that are holding the organisation back by removing barriers and introducing incentives.
  • Embed a new culture of execution throughout the business to sustain the transformation. Most transformations fizzle out rather than fail so McKinsey & Company urged leaders “try to bottle the lessons of the transformation as it moves along and to ingrain, within the organisation, a repeatable process to deliver better and better results long after it formally ends.”

By Tess Bennett, editor of Which-50.