BCG on Transformation: Delivering and Sustaining Breakthrough Performance

As the pace of change accelerates, transformation has become an imperative for organizations. Whether the intent is to respond to disruption, create strong and sustainable value, or fulfill the organization’s purpose, transformation—a large-scale change aimed at delivering sustainable improvement in performance—is now an essential part of doing business.

The stakes are high. According to research from The Boston Consulting Group (BCG), public companies traded in the US now have a 1-in-3 chance of failing in the next five years—up from 1 in 20 just 50 years ago.

Leading companies understand the urgency. BCG research shows that a third of companies that committed to transformation between 2003 and 2013 were leaders facing declining performance. Those that succeeded—profoundly changing their strategy, business model, organization, people, and processes—reaped benefits. They realized a significant positive financial impact, leaving laggards in the dust.

However, transformation comes at a price as companies are challenged to launch, deliver, and sustain their initiatives. Some organizations wait too long, until they are in crisis. Others carry out only partial transformations and then resort to business as usual. It is not sufficient to make partial changes—nothing less than a fundamental transformation of the business is needed if an organization is to achieve positive change over time. BCG research indicates that transformation is extremely difficult and that only a quarter of companies that attempt it are able to capture short and long-term performance gains compared with their sector average.

The most successful companies have “transformed their approach to transformation.” They have pursued transformation on an “always on” basis with several types of transformations underway at various stages, each building upon the others. And they recognize that it demands a different leadership style. In traditional, one-off, cost-cutting transformations, leaders can be directive, setting clear goals and driving toward results. But to deliver and sustain breakthrough performance, leaders must also be inclusive. They must mobilize, energize, and empower the teams that carry out the change; in short, they must put people first.

These are among the insights in Transformation: Delivering and Sustaining Breakthrough Performance, the new e-book published by BCG. Edited by Lars Fæste and Jim Hemerling, the book draws on the firm’s work in more than 400 transformations that have—through cost cuts, revenue increases, the application of capital-efficiency levers, and improvements in organizational performance—generated a median annual impact exceeding $340 million.

Transformation Pitfalls and Opportunities

“CEOs, boards, and leadership teams are extremely capable, but they often still struggle to assess and define the right transformation ambition,” says Lars. “It’s easy for them to get caught up in the specific needs of their organization and miss big-picture trends and best practices. In addition, they face the natural resistance to change that comes up in any company. Failure to act, though, is not an option.”

Aiming to spark more-successful transformations, the book provides insights into the conditions in which transformation is needed and the best practices for achieving it:

• The ideal time to transform is before your company gets into trouble. Companies that need an immediate, end-to-end transformation are typically in poor financial health and operating in industries with rapidly changing market conditions, where strategies can be unstable. They need to cut costs and free up funds to drive change. Yet companies that are in better financial health or in more stable industries (or both) can transform more deliberately and improve their odds of success.
• We have entered a new era of“always-on” transformation.  In the face of unprecedented disruption and market turbulence, it’s not realistic to achieve lasting success through a single transformation. Instead, leading organizations launch more frequent transformations, often of different types, with several programs underway at any given time. In this new era, leaders need to deliver and sustain the value from each transformation while looking ahead and around the next corner for what comes next.

• CEOs, boards, and leadership teams need to follow a holistic approach. It’s important to plan for and engage in three parts of a transformation:
  • Funding the journey. Identify short-term sources of funds, look for quick performance improvements, launch rigorous program to fund the journey
  • Winning in the medium term. Work to enable a new competitive position, setting growth targets, entering new markets and abandoning old ones, and changing the business model.
  • Organizing for sustained performance. In parallel, transform the organization to sustain the performance. This holistic approach is essential to strong and sustained value creation.
• Leaders need to focus on putting people first. Organizations enable people to contribute, learn, and grow. The best organizations help people find meaning in their work. As organizations transform, leaders need to ensure that they are truly motivating and enabling their people throughout the transformation journey and beyond. To do that, leaders need to stop treating people as a means to an end—or, worse, as collateral damage—and instead start putting people first.
• Successful leaders approach transformation as a journey. Taking the journey requires thoughtful attention to three key success factors: leading the transformation through all its stages; managing change to ensure that the organization is ready, willing, and able to change; and building capabilities for transformation that lasts.

The e-book also takes a hard look at situations in which transformations don’t work. “There are many ways that transformation efforts can go astray,” Jim says. “Leaders can misstep by failing to link the transformation to the purpose of the organization. They can set the ambition too low or too high or declare victory too early. Other missteps are focusing too much on efficiency ahead of other measures or failing to sustain the transformation by building the required organization. And transformations can suffer if leaders make the mistake of treating people as a means to an end—or, worse, as collateral damage. But leaders who commit to transformation and pursue it systematically are more likely to deliver and sustain breakthrough performance.”

Transformation: Delivering and Sustaining Breakthrough Performance is available for download.

Watch New TED Talks from TED@BCG 2016 for Lessons on Transformation

The future is built be those who see opportunities for change and act on them. Under the theme "To Boldly Transform," these new TED Talks from TED@BCG 2016 feature an expert line-up of 18 speakers and performers, including two leaders of the Transformation practice.