In an increasingly turbulent world, the need for and the challenges of corporate change remain remarkably persistent. Empirical insights reveal how change leaders can beat the odds.
This brief is based on the article “Five Truths (and One Lie) About Corporate Transformation.”
Change can be daunting for any business. It can even be painful. But when change fails to deliver short- and long-term value for a company, it can land a CEO in the unenviable position of having led a failed transformation.
The odds are certainly stacked against success. A new BCG global analysis shows that only 1 in 4 transformations deliver value-creating, enduring change.
A 75% failure rate is sobering for any CEO mulling a transformation path. But BCG’s analysis has brought to light five truths CEOs can embrace to improve their chances of leading a successful transformation, as well as a common lie they should never tell themselves.
Five Truths
1. CEOs can (and should) fix things before they break. Starting a transformation when a company’s total shareholder returns (TSR) are level pegging or ahead of industry averages delivers significantly more value (2.7 percentage points higher TSR over three years) compared to change efforts launched after a company has fallen behind its peers.
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CEOアジェンダに関するBCGの論考などが、将来を読み解き、自信をもって組織をリードする助けとなれば幸いです。
2. Leadership will make or break the transformation. Success often pivots on whether a company’s leadership fully demonstrates their willingness and commitment to change. Sometimes, this necessitates an organizational restructuring. BCG data shows that launching a leadership change during a transformation can deliver 4.1 percentage points greater TSR performance over a five-year arc (compared to a previous downturn period). The impact on TSR can nearly double that if the new leadership comes from outside the company.
3. CEOs cannot cut their way to greatness. One year into a transformation launch, investor expectations drive over 70% of TSR outperformance (compared to peers), while efficiency improvements account for only 13%. This disparity underscores the need for CEOs to craft a compelling transformation plan and shareholder narrative at the start of their efforts. Five years into a transformation, cost reductions do play a bigger role, driving more than 30% of TSR outperformance. But even that share is eclipsed by revenue growth, which accounts for more than 40%—indicating that when it comes to long-term transformation success, execution is key.
4. Transformations require a long-term orientation. Transformations with a long-term strategic orientation are associated with 12.5 percentage points higher TSR over five years, BCG analysis shows. Organizations that strike a forward-looking stance often have an entrepreneurial culture that continuously develops new ideas and is unafraid to try unproven models. To support this bold, innovative orientation, companies can complement traditional, backward-looking performance metrics with more forward-focused ones.
5. CEOs cannot make things up as they go. Establishing a formal transformation program is associated with 5.9 percentage points greater TSR over a five-year change effort. In the same vein, CEOs who put their money where mouth is can also unlock greater transformation value. According to BCG’s analysis, a higher-than-industry average restructuring investment is associated with 5.7 percentage points greater TSR in the long run.
One Lie to Avoid
Thinking these truths don’t apply to everyone. At any point over the past two decades, roughly a third of companies were significantly underperforming their peers. Some lagged for years. Transformation is often necessary to improve performance, but it is very tough to get right. CEOs who realize they are probably not the exception to the five truths and instead internalize and act on them fully are more likely to ascend to the ranks of the one quarter of corporate chiefs who actually get change right.
Five Truths (and One Lie) About Corporate Transformation
In an increasingly turbulent world, the need for and the challenges of corporate change remain remarkably persistent. Empirical insights reveal how change leaders can beat the odds.
Explore the article that informed this brief
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