For leaders in large corporations, business today often feels like being on a steep treadmill with the speed control set to max. Three months ago, the company may have finished a cost-reduction transformation to remove management layers and streamline operations. Before it is even clear that the changes have taken root, a disruption in Asia requires implementing a new go-to-market model for several countries. And right around the corner is another large-scale transformation effort, using new digital technology to improve the delivery of services and tap new revenue streams.
Welcome to the era of “always-on” transformation. Across virtually all industries, unprecedented disruption and market turbulence—due to globalization, technological innovation, changing regulations, and other factors—are challenging established business models and practices, and requiring organizations to launch more frequent transformations in response. To keep up, companies need to undertake many different types of transformation. (See Exhibit 1.) Any one of these, or several, can be under way at a company at any given time. BCG’s research shows that 85 percent of companies that have undertaken transformations over the past decade have pursued more than one type, with the most common being organizational, operational, and rapid financial improvements.
We define a transformation as a profound change in a company’s strategy, business model, organization, culture, people, or processes—either enterprise-wide or within a specific business unit, function, or market. A transformation is not an incremental shift in some aspect of the business but a fundamental change aimed at achieving a sustainable, quantum improvement in performance and, ultimately, shareholder value. (For an explanation of BCG’s transformation framework, see Transformation: The Imperative to Change, BCG report, November 2014.) Unlike continuous improvement—which focuses on small-scale changes that start with employees and percolate up through the organization—always-on transformation requires a series of much larger, interdependent initiatives that are driven by top management.
In this new era, the ability to implement transformation has become a competitive differentiator. Yet most companies are not reaping rewards from transformation efforts. According to BCG’s analysis, only 24 percent of companies that complete transformations outperform competitors in their industries in both the short and long term.
Whether the objective is rapid bottom-line improvements or more fundamental changes to business and operating models, company leaders need a more effective approach. Rather than focusing on short-term targets alone (for example, a 20 percent improvement in operating efficiency), companies need to go much deeper in order to sustainably improve performance through individual transformations and to ingrain the ability to transform so as to meet future needs.
In this report, we discuss the main reasons that the current approach to transformation falls short, and we describe specific changes that organizations can make to achieve better results. Specifically, we discuss six organizational imperatives that companies need to focus on—along with new roles for HR and leadership—in order to thrive in the era of always-on transformation.