Transformation success is the exception, not the rule. Our latest global survey confirms this stubborn reality: Less than one third of respondents said their companies' transformations have been successful. Yet, even successful transformations often leave significant value on the table—33 percent of the maximum financial benefit, on average.
Nearly one half of value loss occurs early in the transformation, during the target setting and planning phases. The good news is that our research points to specific indicators that are especially predictive of value capture—and many of these can be applied before day one. Here are three actions that leaders should prioritize during the initial stages of a transformation.
Understand the value at stake. Companies often underestimate the true potential of their transformation. To avoid this mistake, leaders should complete a comprehensive, fact-based assessment of the business across all sources of value—from strategy to operations, talent, capital, growth, and organizational health. This due diligence enables leaders to confidently set an ambitious yet realistic target that reflects the full value potential.
Set a bold target. When companies set high expectations, people tend to meet them. In an in-depth review of 15 transformations, we found that organizations on average delivered 2.7 times more value than their senior executives thought possible at the start. In fact, the most successful transformations (based on TRS performance) set financial targets at 75 percent or higher of trailing earnings.
An aspirational target signals a meaningful step change in performance across the organization and sets the tone for what is possible. After completing a rigorous assessment of the business, one CEO set a transformation goal of 150 percent of the initial opportunity range. In his words, "When you set a very aggressive goal, it forces you out of our comfort zone. You can't do things the way [you've] always done them and achieve those kind of results." This stretch target communicated a clear departure from the status quo and energized the company to go all-in on the transformation.
Make goals tangible. An ambitious target alone is not enough to motivate and inspire employees. People need to understand what this means for their day-to-day roles and what they are expected to do differently. In other words, broader goals need to be broken down into bite-sized pieces that are adapted to different employee roles and functions. For example, one organization set an operational goal of substantially lowering its cost per unit in order to stay competitive in a shifting global landscape. After engaging with the transformation leads, one maintenance supervisor understood that minimizing down-time on her line would translate to more units produced and a lower cost per unit. She rallied her maintenance team around this tangible goal and made it clear how their work tied to the overall transformation objective of becoming the most efficient producer in the world.
Our survey results suggest a perception gap between the C-suite and the rest of the organization: Senior leaders are nearly 20 percent more likely than others to believe that their transformation's goals have been adapted for employees across the organization. To bridge this gap, leaders must plan and deliver a tailored communications campaign across multiple channels to engage wide-ranging groups of employees.
There are no shortcuts to transformation success. Our research reveals that the strongest indicators for value capture include a rigorous assessment of the current state, an ambitious financial target, and the ability to make broader goals meaningful to employees. By investing in these priorities early on, leaders give their organizations the best chance to achieve the full potential of their transformation.
The authors would like to thank AD Bhatia and Dominic Skerritt for their contributions to this blog post.
This blog post is part of a three-part series on the science behind successful transformations, with a focus on where value is lost and what companies can do to preserve it. In each post, we discuss how leaders can capture the value at stake in each phase of the transformation life cycle: target setting and planning, implementation, and post-implementation.