Companies that succeed in their transformations shift the way they operate. In this video, McKinsey associate partners Chris Angevine and Darius Bates discuss how companies can learn new, more effective strategies to tackle challenging initiatives.
Darius: When we talk about transformations, we’re talking about large-scale, enterprise-wide efforts to transform the performance and health of an organization. These efforts are designed to provide a step change in both the efficiency and the growth of a company.
Chris: Companies that succeed in their transformations shift the way they operate. For example, in normal business operations, you set a target as part of an annual budget-planning process. Then, within the silos of your organization, you figure out a couple of initiatives that will help you get to that target.
In a transformation, we tackle a series of interdependent initiatives that span many functions across an enterprise. It takes more time to design a plan like this and change the way that the organization operates moving forward.
Darius: To make that happen, we’ve structured our transformation approach into three phases. The first is an independent diligence process, where we provide our perspective on the full potential of a business.
Chris: When we start the diligence process, we bring a set of data that serves as a benchmark. We can assess the company’s realistic achievable potential based on what we’ve seen with other organizations, as well as by spending time with that company. As the company moves from diligence into the roadmapping process of planning, the company sets targets that they’re going to own going forward.
Darius: It’s important to note that at some point there’s a pivotal shift from our team owning the process to the organization and its leaders assuming that ownership.
Putting a stake in the ground
Chris: After this diligence and roadmapping, there’s no longer any question about the opportunity that the company can realistically achieve. The company puts a stake in the ground and declares what it will go after.
Darius: That’s the point in time when we challenge the business to build the initiatives that are going to capture that full potential.
Chris: Over the next several months, they have to figure out a series of hard questions: “How are we going to get that value?” “How will everyone in the organization understand the steps that are needed?” “Who will implement specific initiatives?”
Darius: The road map needs to be very specific for each initiative. You need a defined business case that calculates how much value an initiative will generate and the time frame needed to complete that initiative. The organization then needs to define the actual milestone steps to execute the initiative and capture the value.
The first bucket we refer to as quick wins. These initiatives are “no regrets.” They don’t require a lot of capital and they usually aren’t that risky. We tell companies, “You should just run after them and realize the value.” And these initiatives can usually be achieved in 90 to 180 days. These initiatives are important because their impact quickly hits the bottom line, giving you fuel for some of your more challenging initiatives that fall in the other two buckets. These quick wins also build confidence within your organization it can achieve its full targeted potential.
The second bucket is for near-term initiatives that tend to be foundational or modernizing. Usually, these initiatives will help the organization catch up to industry standards and will require changes in the way the organization operates. Those initiatives may take a year to 18 months to fully reach their targets.
Making big bets for the future
Finally, you have your third bucket, which is for the more long-term transformational initiatives. These are the big bets the organization is making about its future. For example, it may need to compete in a different space or stop offering a service that it has provided for years.
There’s a lot more risk in these initiatives. Typically, the organization should take more time to think about these initiatives. To help them do this, we’ll often show the organization how to adopt what we call agile ways of working that strengthen the business case before the organization makes a big investment. By that I mean the organization may run a pilot project for a new sales-transformation program. Then, if we’re achieving the anticipated benefits, we can scale that program throughout the organization. The process involves some rapid test-and-learn exercises followed by some refinement before we fully commit to a major, long-term initiative.
Chris: I want to talk a little bit more about those long-term transformational initiatives. These initiatives in the third bucket are more speculative because we don’t know, at the start, how they’re going to play out. It can be easy in the middle of a transformation to be focused mostly on capturing all the near-term value, particularly in light of the pressures that come with running a business unit, tracking profit and loss, or running a public company.
These longer-term initiatives will change your company’s position in the market and let you skate to where the puck is.
When we come to the end of a roadmapping phase, we have what we call a bankable plan. This plan shows the potential value in an organization and how to achieve it. This is a detailed plan or road map you can use to move forward and make your organization’s potential a reality.