A Leader’s Guide to “Always-On” Transformation

A Leader’s Guide to “Always-On” Transformation

          
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A Leader’s Guide to “Always-On” Transformation

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    Six Key Imperatives

    Companies that are not just surviving but thriving in the era of always-on transformation focus on six specific imperatives. (See Exhibit 2.) We identified these six by reflecting on the many transformations that BCG has been involved with over the past decade—particularly multiple transformations within the same company. All six have one unifying trait: they are aimed at putting people first.

    exhibit

    Management teams that focus on these six imperatives can create a new type of organization in which transformation is not a temporary, bolt-on approach to delivering one-off, short-term results but rather an ongoing and integral means of delivering superior performance. Although we have observed some companies that have successfully integrated some of these elements, very few have ingrained all six. Those companies that do so are positioning themselves to thrive in the era of always-on transformation.

    Inspire through purpose. Most transformations focus on financial or operational goals (for example, increasing revenue or improving operating efficiency). While such goals are extremely important—and motivating to the board, investors, and senior management—they tend to be an underwhelming motivator for the majority of employees.

    In order to get employees to buy into a transformation, its goals must be tied to the deeper and more inspiring purpose of the company (which transcends any given transformation). BrightHouse, an independent division of BCG that helps companies embrace a more purpose-driven culture, has found that when organizations can clearly define and communicate their purpose to employees—that is, the “why”—these employees feel that they are part of something bigger. And when employees believe in the company’s purpose, they are intrinsically motivated to go above and beyond. (See the sidebar “A Retailer Uses Purpose to Inspire Employees and Improve Business Results.”)

    A RETAILER USES PURPOSE TO INSPIRE EMPLOYEES AND IMPROVE BUSINESS RESULTS

    A North American retailer had a successful history of increasing sales through aggressive pricing and maintaining margins by keeping costs low. However, it faced increasing pressure from competitors, and it was struggling to motivate retail sales associates and engage with customers in a meaningful way. In response, it launched a transformation with a strong emphasis on purpose.

    The company’s leaders conducted deep qualitative and quantitative research to determine the most salient ways to connect with customers and in-store associates on a more emotional level. They also explored the company’s corporate history and organizational strengths in order to understand its values and heritage. As a result of this process, the management team defined a new purpose and launched a comprehensive transformation of its stores—with that purpose as its foundation—aimed at improving everything from customer interactions to merchandising. It tested the new approach in 20 pilot stores and then in a full division. Based on compelling test results, the company has begun rolling out the new approach to the rest of its locations.

    With this purpose as a guiding principle, the transformation has been highly successful. Customer-experience and associate-engagement scores have improved significantly, as have key financial metrics such as same-store sales and market share.

    Once a company has formulated and articulated its clear overarching purpose, all subsequent transformations should link directly to it. Moreover, all employees should be able to see how their contributions help the company succeed in those transformations—and better fulfill the company’s broader purpose. All three elements are crucial: a well-defined and shared purpose for the company, a specific link to the transformation at hand, and a clear connection between employees’ actions and contributions to the company’s objectives.

    Some practical actions that companies can take to embed a clear purpose in their transformation efforts include the following:

    • Ensuring that the company has a clearly defined and articulated purpose that captures the “why” underlying how it functions
    • Translating the transformation’s purpose into language and objectives that hold meaning for individual employees (beyond making money for shareholders)
    • Communicating the company’s objectives consistently throughout the transformation effort—starting with senior management down through peer-level employees
    • Using creative methods—such as inspiring videos and staff events—to engage employees so that they clearly understand the purpose of the transformation and how they can contribute to it

    Sustain employees’ energy. In an environment of always-on transformation, companies need to treat transformation as if it were a triathlon, not a sprint. Transformations are typically intense efforts that require employees to go beyond their normal baseline workload. An all-out sprint may work for the first few months, but eventually fatigue will set in and employees will be less able to contribute—particularly when another transformation is likely right around the corner.

    A better way is to think like triathletes, who have to swim, bike, and run. Triathletes learn to pace themselves so that they can excel in all three disciplines. Rather than asking employees to maintain a high level of engagement nonstop, companies need to intersperse commitments to high-demand transformation projects with time for true recovery. With the right pacing, employees will be able to engage enthusiastically on each new assignment asked of them, without losing energy. (Notably, there is one group that simply cannot take a break: the senior leadership team.)

    Among the practical actions companies can take to sustain the energy of their workforce are the following:

    • Recruiting employees who thrive in a transformation environment
    • Addressing resistance openly and overcoming resistance through candid conversations
    • Structuring initiatives and employees’ roles so as to contribute to personal growth and development
    • Allowing employees to recover from energy-intensive transformation efforts before assigning them to the next one

    Build pivotal capabilities. Companies are increasingly embarking on transformations that rewire the way they operate—including new business models, digitization, and fundamental changes to the roles of business units and functions. As a result, companies invariably need to build new capabilities, such as processes, knowledge, skills, tools, and behaviors. Knowing how to identify and develop these capabilities in any given transformation is pivotal to success. (See the sidebar “A Software Company Builds New Capabilities as Part of a Transformation.”)

    A SOFTWARE COMPANY BUILDS NEW CAPABILITIES AS PART OF A TRANSFORMATION

    A leading software and services company recently launched a transformation to change its business model from on-premises licensed software to cloud-hosted software as a service (SaaS). Transforming the company to support the new business model necessitated changes to the organization’s design, culture, and leadership. The transformation also required building new capabilities that are essential to succeeding with SaaS.

    For example, under the old model, the company responded to customer problems in a highly reactive manner because it had no way of knowing that customers were experiencing issues until they reported them. However, as part of the SaaS approach, the company rolled out real-time usage dashboards that allowed it to be proactive in anticipating problems. The dashboards helped the company to spot usage patterns, predict customer needs, and address them rapidly—which it bundles into a new capability known as “customer success.” The company has also committed to creating new processes and developing new skills required to deliver against these metrics.

    Integrating this new capability has also required rethinking the organization design—considering where best to place the new capability—along with changes to the company’s culture in order to improve its performance over time. For example, by giving the customer success capability a higher profile within the organization, the company was able to attract higher-skilled employees and give them greater say in how the SaaS model functions for specific clients.

    For example, a company seeking to become better at innovation may need additional capabilities in primary research, product development, assessing the market potential of new ideas, building a business case, and getting new products to market quickly. To build these capabilities, the company will need to improve its understanding of changes in customer behavior. It may need to develop skills in rapid prototyping and design-to-value methodologies. At the employee level, required changes could well include revamping recruiting strategies and approaches to training, coaching, and development, along with redefining roles and upgrading performance management.

    Companies can take the following practical actions to build pivotal capabilities:

    • Assessing which capabilities are critical to the success of the transformation by talking to experts and analyzing competitors
    • Understanding the root causes of capability gaps—including behavioral and technical issues
    • Developing plans to close capability gaps and committing the necessary resources—usually requiring a combination of changes to processes, upgraded skills, new tools, and actions to reinforce new ways of working
    • Deciding when to build these capabilities organically and when to accelerate the process through acquisitions, partnerships, or outsourcing

    Establish an agile culture. In a business landscape characterized by constant and broad-ranging disruption, the ability to rapidly change course in response to market shifts and to enable employees to adapt the way they work becomes critical. Truly agile organizations don’t just accommodate change and mandate speed—they ingrain these elements into the company’s culture and ways of working. (See the sidebar “A Manufacturer Creates a Playbook for Responding to Market Corrections.”)

    A MANUFACTURER CREATES A PLAYBOOK FOR RESPONDING TO MARKET CORRECTIONS

    Facing a downturn in demand during the 2008 recession, a large North American manufacturer undertook a major transformation in order to reduce costs. The company’s situation was dire; sales volume had fallen by more than 50 percent, even as prices dropped sharply. The initial transformation was successful—delivering $2 billion in value over three years with a significant jump in market share—yet management realized that was only the first step. The company would need to be agile enough to respond to similar market disruptions in the future.

    To meet this need, the manufacturer created a cost-cutting playbook with three tiers for different situations (normal economy, slight downturn, and severe downturn). In a normal economy, the playbook specifies the baseline level of fixed costs. In the event of a slight downturn or a severe downturn, the playbook specifies which costs should be cut first. For example, in a severe downturn in which demand falls dramatically, it makes little sense to spend on selling or marketing at trade shows, so those costs get cut.

    With the playbook, business leaders know where their line of business stands in the company’s order of priorities, so they are less likely to try “protecting their turf” by obstructing crucial cost reductions. This awareness increases the company’s responsiveness and agility by removing long deliberations and politics from the cost-cutting process. In addition, the playbook is flexible in that the company can adjust its priorities for the different tiers should there be long-term shifts in the market.

    Agile companies are not burdened by excessive layers of management or bureaucracy. Employees have a wide degree of autonomy and are trusted to resolve many of the issues they face without direct oversight. They are able to take on new roles and responsibilities and to swiftly adapt to new ways of working. They are quick to acquire knowledge of new topics, with the understanding that another change is almost certainly coming soon. In addition, agile companies encourage experimentation, and they don’t fear uncertainty. Managers at these companies celebrate and reward risk taking, and they don’t punish failure (only the failure to experiment).

    Companies can build agility by making some of the following changes, which we have observed in practice helping companies implement transformations:

    • Stripping out bureaucracy—removing organizational layers, simplifying rules and policies, and identifying and eliminating noncritical work
    • Hiring people and empowering employees who are excited by dynamic workplaces and taking steps to foster this attitude in other employees
    • Publicly celebrating employees who successfully adapt to new roles and behaviors
    • Developing mobility programs to help employees gain experience in different roles and learn new ways of thinking, so that they understand how various departments function and what they require to succeed

    Instill a learning mind-set. Companies that wish to lay the groundwork for future transformations need to foster a learning mind-set across the entire organization. Such an organizational mind-set entails spurring people to seek out new knowledge, experiment with it, share it, and ultimately use it to improve the company’s performance. For that reason, employees at organizations with a learning mind-set are encouraged to follow their curiosity and challenge conventional thinking. They develop creative ways to improve processes and find better ways to do things. This kind of learning culture requires a free exchange of ideas, an acknowledgment that many new ideas will fail, and an understanding that such failures are an inevitable part of progress. (See the sidebar “A Technology Company Focuses on Learning Across the Entire Organization.”)

    A TECHNOLOGY COMPANY FOCUSES ON LEARNING ACROSS THE ENTIRE ORGANIZATION

    A large technology company has firmly embedded “learning” throughout its entire organization. State-of-the-art knowledge-management software helps the company share ideas and give real-time feedback on projects. The company also invests heavily in individual learning, through an internal library of courses and tuition reimbursement for college-level programs. The organization’s strong HR-analytics function helps managers make smarter hires and better align talent with the company’s strategic goals. For example, the company captures interview data during the hiring process and uses profiles of employees to determine which characteristics lead to success. The company also studied the factors behind female attrition and revamped its benefits package for new mothers. And when it realized that the top-performing employees delivered significantly greater value than employees who perform in the middle range, the company revamped its compensation structure to provide larger rewards for top performers.

    Transformations can be ideal environments in which to promote learning because they demand creative problem solving and new ideas. To encourage the behaviors associated with learning, companies can take the following actions:

    • Establishing a central knowledge-management function that codifies learning and creates networks of experts on specific topics
    • Encouraging employees to approach problems in unconventional ways
    • Getting business units and functions to collaborate and share knowledge across organizational borders
    • Celebrating creative and innovative teams
    • Setting up regular meetings in which employees from multiple teams, business units, and functions share ideas and experiences

    Embed change management. As mentioned earlier, one of the key challenges in transformation is that companies tend to see each initiative as a temporary, one-off event. As a result, companies consider change management as part of the temporary scaffolding of a given transformation effort. Instead, companies need to build change-management skills, make tools available across the broader organization, and consider change management to be a core competency among the extended leadership team. (See Changing Change Management: A Blueprint That Takes Hold, BCG report, December 2012.)

    Rather than rolling out each new transformation initiative from scratch—and moving temporary scaffolding around the organization for each one—companies should consider setting up an internal transformation office so as to embed change management in the organization. Companies with a permanent transformation office have dedicated resources to, and institutional expertise in, all aspects of change management, which they can deploy as needed. Properly structured, a transformation office can provide oversight over all transformation efforts, help prioritize and sequence transformations, design individual transformation initiatives, and track progress. The transformation office can also serve as a repository of change-management capabilities in the company. (Some companies have also found it helpful to include related activities—such as lean initiatives and continuous improvement—under the overall mandate of the transformation office in order to ensure the coordination and alignment of all performance-improvement programs.)

    Some practical actions companies can take to ingrain change management include the following:

    • Making transformation-focused positions attractive to employees—for example, by creating a competitive application process and emphasizing the opportunity to develop relationships with top management
    • Establishing strong change-management processes that help transformation leaders plan and roll out change initiatives—including building a case for change, securing stakeholder engagement, designing roadmaps, and implementing rigor testing
    • Learning by doing—making the development of internal change-management capabilities an important part of each change initiative