The Power of Transformation in Uncertain Times

It may seem counterintuitive, but times of economic uncertainty are exactly when companies should be exploring the power of transformation to strengthen their capabilities and performance. BCG managing director and partner Kristy Ellmer discusses North American companies’ challenges in building operational resilience.

Kristy Ellmer

Managing Director & Partner

Boston

Coming out of a global pandemic into a period of reborn inflation and economic uncertainty seems a questionable time to undertake a major change program like a transformation. What’s your view?

I would argue the opposite. We know that in a downturn, the gap between winners and losers grows wider. And with the level of change we are experiencing today, that gap is exponential compared with what it would've been 10 or 15 years ago. So hunkering down isn’t an option. Even if you don't take on a full transformation, try to identify the areas where you can keep moving forward. Can we do a cost transformation? Or operations? If you don’t, history shows you will fall further behind the companies that are well positioned to accelerate.

You should also consider what a transformation does for you. First, just being organized. A transformation creates one way of working, one vernacular, a set of rules that the whole enterprise is playing by. You can build a plan that you can look at every single week and know specifically what is happening across the company. You create the agility to pivot if something happens or if something falls behind. Many people think about this as bureaucracy or “admin,” but the reality is you are embracing great process, creating muscles of consistency and discipline that ultimately create capacity in an organization. As teams and individuals begin to speak the same language, have expected clarity on cadence and governance along with visibility to leadership, decisions are made faster, and work is completed in a more rapid fashion.

Second, it helps teams deal with the uncertainty. I know what I'm doing this week, I know what I'm doing next week. This helps keep engagement up and keep people more motivated during a time that people are fatigued.

Third, upskilling. When you're working with a transformation office that’s constantly questioning the way work is getting done, people begin to think more critically and to challenge their way of working. You're training them to be more resilient, to deal with setbacks and figure out how to pull something forward or to solve the problem. These skills help them as individuals and teams in uncertain times, as well provide needed skills for leaders and managers.

How do you know the transformation is working?

When a transformation is done right, we are flipping the pyramid. The people who are doing the work are the ones that are elevated. Leadership is working for them and asking, What do you need to drive your project forward, what roadblocks do you have? You're creating agency in the organization, and that improves culture and engagement scores.

In one organization we worked with, the executive leaders came to each transformation office meeting with a page that had two questions on it. It said, "What decisions can I make today that will enable your work to move forward?” and “What actions do you need from me to remove any challenges you are facing?” After a few weeks, teams began to come with decisions and actions for the leaders. Decisions were made and documented live. In the following meetings, progress against the leaders’ action list was reviewed with the group. The results for that transformation showed a 25% over-delivery in financials against targets, as well as increased engagement scores, particularly on the dimensions of trust in leadership and employees feeling their leadership cared and enabled them.

When organizations create the right environment for transformation and spend time helping the doers, results follow in the financials—and in improving the culture, employee engagement, and in upskilling people.

What about the companies that started a transformation under one set of circumstances, and all of a sudden the world changed?

Each situation will be different, but it’s likely a reset is required. If you're in the position where the transformation isn’t delivering or isn’t achieving the momentum expected, the first thing to do is to assess what needs to change. What needs to accelerate? Do we have the right workstreams in place? Assess where you are in the transformation and what is the right sequencing. Look at the processes and governance and how effective they are. Do they follow best practices? What did we do to engage the organization and the teams?

This is where kicking off a new year helps, but changes in the operating environment (such as rising inflation), or even milestones in the organization life cycle (such as investor conferences), can serve a similar purpose. Bring the organization together to say, “We've done great work, we've made progress, but given the environment we’re now in, we're going to have to change how we're doing our transformation.” Highlight the wins and share transparently where leadership made mistakes. Doing so will create deeper buy-in for more intense change. Make this a big moment for people so that it does feel like something is shifting. If you don’t, you won’t get the shift in behavior you need to move the transformation forward with the pace you need.

What are the big hurdles companies face in executing a successful transformation?

The level of uncertainty in the macro-environment today coupled with the pace of change required make driving change more difficult. The work itself is harder. If you look back, 10 or 15 years ago, companies led much of their transformations within verticals or functions (such as operations, IT, or finance). But today, in the world of matrix organizations, customer-centric approaches, and digitization, the work now depends on many people across the organization. Many leaders are not experienced in this operating model, and often organizational structures are built on traditional models and teams are incentivized on what they directly lead. It is important to consider the cross-functional nature of the work and invest in building structure and teams to achieve it, but also training them and incentivizing to support this new model.

There are also a lot more demands on an organization today. With the increased pressure from the investor community to move with speed, achieve higher returns, and boards are not willing to wait for five- or ten-year types of transformations. Our clients are feeling a lot more pressure to go fast. Add to that the pace of technology innovation and the societal cultural dynamic of being less patient than we used to be, and you have an environment of high pressure and drive to move with speed.

We also have reached the highest level of reported burnout ever. Some 40% of people globally are saying, “We are burnt out.” So, you’ve got this additional challenge that the people who need to do the work have high change fatigue after the last three years.

Those are serious challenges. How can they be overcome?

It can be tough: our research shows that only about 30% of transformations meet their goals. Success often comes down to leadership commitment, focusing on culture, and of course, executional excellence.

Good leaders set the transformation goals and targets, move toward data-based decision making, and consistently communicate progress. They pay particular attention to managing the transformation’s impact on employees and maximizing their engagement. They commit to following through on the change and the role model behavior change themselves.

Focus on culture. The research is clear: if you don’t focus on improving the culture, changing the ways of working and actively breaking organizational behaviors that don’t enable the future of the company, the results you achieve will not be sustained. Employees also become more engaged and motivated when a transformation isn’t just about delivering financial value but is genuinely focused on improving the company overall.

Creating a transformation office and appointing a chief transformation officer are critical for execution, especially in the environment we are in today. The discipline with which a good transformation office performs its functions can create a powerful impetus for new behaviors. Good chief transformation officers combine persistence, hypervigilance, and flexibility, and they are role models for change. Not surprising that they are hard to find. I recently saw data that showed an increase of 20% in demand for heads of transformations year over year, and the talent pool is very limited.

A lot of companies have been thinking about transformation in the context of their sustainability goals or net-zero commitments. How do they balance the priorities of, say, financial stability and supply chain resilience with getting to net zero?

I don't think there's one answer. It's what's going to be best for the organization. There's this assumption that there must be a tradeoff, but in my experience, most transformations that follow best practices will over-deliver 20% to 30% in terms of value and timeline. If you can do that, you build capacity, as I said, and your ability to take on other things or keep things going improves, which can allow you to include priorities on sustainability.