Orignall posted here The ‘how’ of transformation
Authors: Michael Bucy, Adrian Finlayson, Greg Kelly, and Chris Moye
In the consumer sector and in many other industries, transformation programs often fail.Creating a “performance infrastructure” can help ensure that yours won’t.
Disruptive forces abound in today’s business environment.
Technological innovation, regulatory changes, pressure from activist investors, and new entrants are just some of the forces causing disruption, even in historically less volatile business sectors. It’s therefore no surprise that many consumer-goods and retail companies are embarking on transformation efforts, sometimes in response to outside pressure and other times to get ahead of it. Regardless of why, these companies are introducing new ways of working to large numbers of employees, with the goal of producing a step-change, sustainable boost in business results.However, the painful reality is that most transformations fail. Research shows that 70 percent of complex, large-scale change programs don’t reach their stated goals. Common pitfalls include a lack of employee engagement, inadequate management support, poor or nonexistent cross-functional collaboration, and a lack of accountability. Furthermore, sustaining a transformation’s impact typically requires a major reset in mind-sets and behaviors—something that few leaders know how to achieve.
As practitioners in Recovery & Transformation Services (RTS), a McKinsey unit focused on supporting turnarounds and transformations across industries worldwide, we’ve observed that the most difficult part of transforming performance isn’t determining what to do but rather how to do it.
In this article, we discuss an often overlooked component of the “how” of transformation: the establishment of a performance infrastructure, made up of the people, processes, and tools that enable successful execution and sustainability of results.
A holistic approach to performance improvement
For companies in financial distress, transformations tend to focus on immediate and radical cost reduction. But many consumer-focused companies play in relatively healthy and stable product categories. For these organizations, transformation isn’t a fight for survival. Instead, it tends to be about reaching the full potential of the business (going from good to great) or responding to an external challenge or opportunity, such as learning how to win in new channels or shifting away from an historical money-maker.
Our experience suggests that, regardless of the circumstances, real transformation happens only when a leadership team embraces the idea of holistic change in how the business operates—tackling all the factors that create value for an organization, including top line, bottom line, capital expenditures, and working capital. This is easier said than done.
Ordinary approaches to transformation typically deliver ordinary (and often suboptimal) results.
To achieve extraordinary results, we believe a comprehensive, highly disciplined methodology—encompassing both the “what” and the “how”—is needed (exhibit).
The “what” entails the smooth movement of the many specific transformation ideas and initiatives through three phases: from independent diligence to planning to implementation. These phases will sound familiar to the seasoned executive.However, we find that executives tend to focus too much on individual initiatives rather than on how the business must change. Many leaders sense that this is an issue; they express concerns about execution risks and sustainability, knowing instinctively that the initiatives won’t stick unless the business fundamentally changes how it operates. So how does an organization change the way it operates? We break the “how” into two parts: change management and performance infrastructure. Change management is a challenging concept for many organizations and one we will address in detail in a forthcoming article.
Our focus in this article is the performance infrastructure, which helps create effective executive-level alignment, communication, and coordination during a transformation.
Read all at The ‘how’ of transformation | McKinsey & Company