SOURCE: The Boston Consulting Group

The Boston Consulting Group

November 22, 2016 13:24 ET

Leaders Need to Adapt to a New Era of "Always On" Transformation; Most Companies Can't Afford to Wait Until Transformation Is a Must

The Imperative for Leaders Is to Raise Their Transformation Ambitions. They Must Start Earlier, Transform All the Time, and Put the 'People' Dimension First, Says New E-Book from BCG

BOSTON, MA--(Marketwired - Nov 22, 2016) - For CEOs, boards, and leadership teams, the imperative to transform is clear. But not all are following the right transformation path.

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.

But while organizations need to transform -- to stay ahead of disruptive technology, globalization, and a volatile marketplace -- they are challenged to launch, deliver, and sustain their initiatives. Some organizations wait too long, until they're in crisis, or they transform only partially and then resort to business as usual. It is not enough 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 25% 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, a 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
"Many companies that are strong because of their past performance still need to 'look around the corner' and transform preemptively," says Faeste. "Successful management teams are the ones that are paranoid. They transform their companies again and again to cope with faster and more profound disruptions. If it ain't broken, they should fix it. Companies should always be willing to change a winning team."

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:

  • Transformation is more productive when it happens before the company gets into trouble. Companies that are in immediate need of end-to-end transformation are typically in poor financial health and operating in industries where conditions are changing rapidly and strategies are unstable. They need to cut costs and free up funds to drive change. 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 are in an era of always-on transformation. The idea of achieving lasting success through a "one off" transformation is now outdated thinking. In the face of unprecedented disruption and market turbulence, successful organizations are now launching more frequent transformations, often of different types, with several underway at any given time. Leaders will have to focus on motivation and inspiration, linking the transformations to a deeper sense of purpose and embedding this in the organization's culture.
  • CEOs, boards, and leadership teams need to follow a holistic approach. It's important to recognize and engage in all three parts of transformation:
    • Pull short-term levers. Free up funding, close performance gaps, look for quick performance improvements, and get stakeholders on board.
    • 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.
    • In parallel, transform the organization to sustain the performance. This holistic approach is essential to strong and sustained value creation.
  • 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," Hemerling 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 at https://www.bcgperspectives.com/transformation-breakthrough-performance.

To arrange an interview with one of the authors, please contact Eric Mosher at +1 212 255 8386 or eric@sommerfield.com.

About the Editors
Lars Fæste is a senior partner in the Copenhagen office of The Boston Consulting Group and the global leader of the Transformation practice. You may contact him by e-mail at faeste.lars@bcg.com.

Jim Hemerling is a senior partner in the firm's San Francisco office. He is a leader of the People & Organization and Transformation practices and a BCG Fellow. You may contact him by e-mail at hemerling.jim@bcg.com.

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 85 offices in 48 countries. For more information, please visit bcg.com.

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