This article will give you insight on 3 essential success factors to increase your chances of success in your transformation. With serial transformations becoming the norm, a key strategic question for any corporate leader is, How can we make our next transformation flourish? The full version with examples of successful transformations and failures can be found at HBR
Corporate transformations still have a miserable success rate, even though scholars and consultants have significantly improved our understanding of how they work. Studies consistently report that about three-quarters of change efforts flop—either they fail to deliver the anticipated benefits or they are abandoned entirely.
Because flawed implementation is most often blamed for such failures, organizations have focused on improving execution. They have embraced the idea that transformation is a process with key stages that must be carefully managed and levers that must be pulled—indeed, expressions such as “burning platform,” “guiding coalition,” and “quick wins” are now common in the change management lexicon. But poor execution is only part of the problem; our analysis suggests that misdiagnosis is equally to blame. Often organizations pursue the wrong changes—especially in complex and fast-moving environments, where decisions about what to transform in order to remain competitive can be hasty or misguided.
Before worrying about how to change, executive teams need to figure out what to change—in particular, what to change first. That’s the challenge we set out to investigate in our four-year study of 62 corporate transformations.
When companies don’t choose their transformation battles wisely, their efforts have a negative effect on performance. Many other companies have learned, the costs of setting off on the wrong transformation journey are significant: First, underlying problems will persist and worsen as attention is invested elsewhere. Second, new problems may emerge. And third, the executive team risks undermining employee commitment to future initiatives.
So how can leaders decide which changes to prioritize at the moment? By fully understanding three things: the catalyst for transformation, the organization’s underlying quest, and the leadership capabilities needed to see it through. Our analysis of stalled transformations suggests that failing to examine and align these factors drastically reduces the odds of producing lasting change. In this article we illustrate this dynamic with several classic case studies that provide enough distance to observe and compare clear, verifiable outcomes. We also offer tools to help diagnose what’s needed in your company’s transformation efforts.
The Catalyst: Pursuing Value
The trigger for any corporate transformation is the pursuit of value. Ideally, that entails both improving efficiency (through streamlining and cost cutting) and reinvesting in growth. But many transformation efforts derail because they focus too narrowly on one or the other.
In some cases, attempts to streamline the business through productivity improvements, outsourcing, divestments, or restructuring undermine growth. The cuts are so deep that they hollow out capabilities, sap morale, and remove the slack that could have fueled new endeavors. In other cases, reinvestment in growth spins out of control.
While you’re striving for growth, discipline—through governance, metrics, and other controls—allows you to stay on track later on, after you have chosen your journey’s direction. Without such controls in place, your company can easily lose its way. This often happens through the hasty purchase of an overpriced or tough-to-integrate “transformative acquisition” that is meant to redirect the strategy but just ends up sucking value out of the corporation.
But how can you and others on the leadership team figure out what kind of transformation to pursue, once growth opportunities or declining performance has alerted you to the need for major change of some kind? That’s the second step in the process—defining the quest.
The Quest: Choosing Your Direction
Next the organization must identify the specific quest that will lead to greater value generation. Executives increasingly use the term “transformation” as shorthand for “digital transformation.” But the ongoing digital revolution does not itself constitute a transformation—it is a means to an end, and you must define what that end should be.
Studies and analysis that we have conducted show that most corporate transformation efforts are either derivatives or combinations of five prototypical quests:
- Global presence: extending market reach and becoming more international in terms of leadership, innovation, talent flows, capabilities, and best practices
- Customer focus: understanding your customers’ needs and providing enhanced insights, experiences, or outcomes (integrated solutions) rather than just products or services
- Nimbleness: accelerating processes or simplifying how work gets done to become more strategically, operationally, and culturally agile
- Innovation: incorporating ideas and approaches from fresh sources, both internal and external, to expand the organization’s options for exploiting new opportunities
- Sustainability: becoming greener and more socially responsible in positioning and execution
Each quest has its own focus, enablers, and derailers, and each requires the company to do something more or different with its operating model, customers, partners, internal processes, or resources. “Going digital” can support any of the five quests, and all of them call for discipline.