The transformation of a business involves substantial change, which comes with inherent risks. Without a clear understanding of what is required for success, a transformation can become fragmented, leading to inefficiencies, missed opportunities, and failure to realize the intended impact.
Recognizing the challenges faced by companies during business transformations, both big and small, we attended a recent McKinsey & Company webcast, "How to sustain transformation success."
Our key takeaways were the following:
The Evolution of McKinsey's Transformation Approach
The establishment of McKinsey’s Transformation Office in 2010 redefined the consulting landscape. There was a shift from traditional advisory roles to partnering for results delivery. This evolution marked a significant departure from the conventional time-and-materials (T&M) models, embracing a commitment to driving bottom-line impact. This fundamental change not only established new standards for the consulting profession but also changed the way it set up professional arrangements.
The Challenge of Low Aspirations
A recurring challenge for many organizations is the tendency to set low aspirations, resulting in successes that fall short of true potential. Many organizations can’t find the “execution edge.” The issue isn't about aiming too high and failing but more about aiming too low and succeeding. Finding the right aspiration level is crucial. Organizations often err by focusing solely on cost-cutting measures rather than striving for holistic impact, leading to missed opportunities for transformative change.
Shifting the Focus: The Importance of Cadence and Methodology
Successful transformations require more than just a focus on what needs to change. They necessitate a clear understanding of who drives the change, how it is driven, and why it is necessary – not just the what. McKinsey has observed that many clients lack both the methodology and the leadership needed to effectively manage transformations. Executive teams worry that line leaders will get distracted so they run the transformation on the side. This results in a “siloed” approach where transformation efforts are separate from day-to-day operations, leading to friction and inefficiency as the transformation progresses.
Embedding Transformation into Day-to-Day Operations
A key insight from McKinsey's 2016 article "Transformation with a Capital T" is the critical need to embed transformation processes and approaches into everyday business activities from the outset. Failing to integrate these efforts can lead to a range of issues, including confusion over where problems arise and a lack of visibility into the impact of transformation efforts on the P&L. When transformation initiatives are siloed from core operations, they often overemphasize short-term financial metrics at the expense of long-term, sustainable change. This disconnection can result in duplicative efforts, frustration, and eventual transformation fatigue.
The Risks of Siloed Approaches
When organizations separate transformation from core business operations, they face two major risks. First, within the transformation, the impact on the P&L is often unclear, leading to skepticism about the effectiveness of the transformation. Second, within the core business, the biggest fear is that day-to-day underperformance will erode any gains made by the transformation efforts. This fear can be mitigated by applying execution rigor to core operations, ensuring that transformation and day-to-day business activities are aligned.
Building a Common Operating Backbone
To achieve lasting organizational change, McKinsey emphasizes the need for a common operating backbone that aligns day-to-day operations with transformation efforts. This backbone consists of five interlocked elements:
1. The What: Identify the 6-8 key operating metrics and targets that matter most to the organization.
2. The Who: Clearly define roles and accountabilities for delivering on these targets.
3. The When and How: Develop glide paths or roadmaps that outline how these targets will be achieved, considering historical performance and external benchmarks.
4. Incentive Structures: Establish both financial and non-financial incentives to motivate the organization to meet its targets, with a focus on effective communication and role modeling of the executive team and CEO.
5. Visualizations of Progress and Opportunities: Use compelling dashboards and reports to monitor performance against targets and drive continuous improvement.
Sustaining Transformation through Organizational Health
For a transformation to be successful and sustainable, there must be a strong alignment between the transformation office and line leadership. The transformation office should serve as an enabler, injecting ideas and driving outcomes, while accountability for results remains firmly with the business leaders. Close collaboration between these entities is essential to avoid confusion and ensure that transformation efforts are effectively integrated into the organization's culture and operations.
Ultimately, the success of a transformation is closely tied to the overall health and culture of the organization. A well-defined operating model, robust performance infrastructure, and clear KPIs are all critical components. However, these must be complemented by a focus on execution and the cultivation of a mindset that embraces change. By embedding these principles into everyday activities, organizations can achieve sustainable results and drive long-term growth.
The discussion was moderated by Sean Brown (McKinsey) and included the following panelists: Michael Bucy (Senior Partner, McKinsey); Stephan Gorner (Senior Partner, McKinsey); and Rachel McKlindon (Associate Partner, McKinsey).
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