We launched the next topic of our knowledge partnership with CNBC this week, transformation, as senior partner Harry Robinson explained how organizations must quickly transform on the path to the next normal—and why so many of these attempts fail.
We spoke to Harry about COVID-19’s impact on the transformation agenda of global organizations, building the capabilities required to truly enable change, and his work with clients as a leader of McKinsey's Transformation practice.
In the CNBC segment, you call transformation an “overused term” with a “terrible track record.” So what does McKinsey mean when we say transformation?
If you look up transformation in the dictionary, it says “change.” So not surprisingly, we frequently see executives set their agenda with a transformation item, whether it’s salesforce efficiency or an organization’s culture. It’s used very loosely—part of industry jargon to put a stamp of gravitas around something.
When we talk about our work in transformation as a practice, I’m talking about “capital T” transformation, which is a meaningful step change in performance that is sustained. If a company wants to make 10 percent improvement on margins, that’s great. But that’s not what we’re talking about here. We’re talking about fundamentally shifting the way your organization plays with competitors.
Give us an example of what transformation work looks like in action.
During the 2008 global financial crisis, I was working with a mining company that was headquartered in London and operated in Australia. Commodity prices had dropped because of the financial collapse, and the company either had to sell or shut down their Australia business—it was performing that badly. We wanted to give the client a third option: to improve the Australia business so significantly that the organization would generate a positive return, even if they had to sell.
We pulled every transformation lever: cost, overhead, working capital, marketing, and more. In the end, the mining company’s Australia operation had improved so much they decided to keep it. Twelve years later, the Australia business is still part of the parent company’s portfolio.
In that case, did you also look at the organization’s people?
One of the most important aspects of any successful transformation has to do with building capabilities, and that’s often one of the most rewarding aspects of this type of work. That was certainly true here. In this case, not only were we able to give this client choices beyond keeping or selling the business, we were able to help their people. We retrained thousands of employees as a part of that project, which energized them and gave them new tools and skills.
How has COVID-19 affected this kind of transformation work? What have we heard from clients?
Some sectors, like retail, were facing challenges before COVID-19, so in those cases, the pandemic has created greater urgency to transform. If unexpected, widespread closure of stores isn’t a good enough reason for retail clients to transform—so they can survive this challenge and come out in a better position—what is? Other clients are starting to realize that whatever situation they’re in now will likely be around for the next few months, so in those cases, we’re helping them plan for The Next Normal; at an existential level, what kind of company will they be in the future?
What makes great transformations successful?
We’ve found there are several elements that must be in place, from the CEO setting a high aspiration and leadership alignment, to ensuring teams feel empowered to drive the change required. Our research is really clear: roughly 70 percent of transformations fail. Sometimes CEOs haven’t set a sufficiently high aspiration, and other times, they haven’t built conviction within the team about the importance of this change. Successful transformations require a change narrative. In other words, your team has to be inspired to take on something that’s hard. They also require a real transformation infrastructure—a deliberate process of engagement, progress review, accountability, and pursuit of impact.
Tell us about your journey at the firm. Why are you personally interested in transformation work?
I’ve spent 15 years in the firm and now lead our Transformation practice. Early on, I traveled a lot and worked mostly with energy and basic materials clients, eventually leading that sector. Then about 10 years ago, I reconnected with an old friend and colleague, Jon Garcia, who was in the works of launching our RTS transformation approach, which continues to be a core part of our overall Transformation practice today. He asked if I had any clients who might be interested in this kind of work. I had an aluminum client who was keen, and the rest is history.
I love it because our Transformation practice work allows for a different way of engaging with clients. It’s a much more agile way of working, with quick experiments and learning. And it’s a real partnership—because of the nature of these projects, which touch every function of the organization and every tenure of employee, we’re working side by side with clients from start to end. We’re in the trenches together.