Transformation Champions: Turning Opposites into Complements
How Transformation Champions achieve their defined goals
Deloitte conducted a study in cooperation with the University of St. Gallen on management practices that differentiate organizations with breakthrough transformation performance.
As the COVID-19 pandemic drives profound organizational changes, companies have the opportunity to make bold moves and use the chance to reinvent and thrive. Now more than ever, we believe that transformation is the new normal. However, in our daily discussions with business leaders we see that successful transformation is an enduring business issue and anything but a given.
Transformation: an everlasting management challenge
Transformations fail more often than they succeed. Over the past decade, 85% of companies have undergone more than one transformation. However, only 30% of companies have achieved their defined goals.
This low success rate was the starting point for our quest to find the recipe for transformation success: “What can executives learn from companies who beat the odds and have success in their transformations?”
Recipe to transformation success
We engaged with over 150 companies and senior executives in the DACH region to identify management practices that differentiate organizations with breakthrough transformation performance – the Transformation Champions.
We identified seven management practices that can increase the chances of transformation success. In our sample, companies following four or more of the following practices hit a success rate of 87% compared to only 55% percent for those applying only one or none.
1) Goals – Think Customer First
Embrace your customers with empathy AND analytical rigor
“The first rule to transformation success is to feel the pulse of the market – listen to your customers’ demands and adapt accordingly.” - Former CEO of a DAX 30 Company
Engage your customers. 1 in 2 business model transformations is successful if triggered by changing customer needs, as opposed to only 1 in 3, if triggered by shifting product strategy or market threats. Engage directly with your customers to ensure meaningful business model adaptations.
Focus on analytics. With the massive amount of customer data being available today, it’s impossible to understand customer needs, desires, and preferences without making use of customer analytics. Collect detailed data on your customers, analyze it and derive actionable insights.
Embrace empathy. Besides analyzing the data that can be measured, you should also dig into the data that can only be uncovered through empathy: personal stories, experiences, interactions, and emotions that resist quantification and modeling. Leverage methods such as design thinking to do so, experience what it’s like to be a customer by shopping your company’s channels and contacting your call centers, and talk to customer-facing employees to gain their insights. These experiences can help to identify areas for improvement.
2) Scope – Use Both Hands
Reinvent the core AND explore the edges
“We decided to enter the services market to make sure that our core remains state of the art and answers the questions of tomorrow.” - Member of the Executive Committee, Fortune Global Top 100 Company
Address both the core and edge. A company’s core business is what they know best. Edges on the other hand align with fundamental shifts on the market, require minimal investments to initiate and show high growth potential. Simultaneously transforming the edge and the core can improve the transformation performance. If changing the core and the edge in concert would not be possible due to constrained resources, companies should sequence their core and the edge transformations.
Finance the edge from the core. The natural tendency of an edge initiative will be to look back to the core for resources. Taking part of the core business profit and reallocating it to the growth initiatives is a valid lever. Looking towards the core for additional people resources, should however be resisted as it will only raise latent institutional detractors.
Grow the edge to create a new core. If chosen well, edges have the potential to drive significant, sustainable returns for the business. As the edge scales, a “new core” will supersede the old with distinct practices and capabilities.
3) Focus – Get to the Heart of It
Rethink your operating model AND your capital structure
“Merging the capabilities of several departments and transforming into a customer centric service organization was key to success.” - Chief Cybersecurity Office, DAX 30 company
Build a customer-centric operating model and break silos. With customer expectations on the rise, only those companies able to translate expectation into experience will improve their bottom line. This insight outlines the required fundamental changes in the operating model design, overcoming the inability to translate new customer-centric strategies into distinct operational tasks.
Establish financial agility. To capture the value opportunities companies need to adapt their financial allocation processes as well. Thereby, cash flow is key: the transformation leadership needs to aim to reach cash flow breakeven as quickly as possible and to fund growth from within rather than seeking more and more funding. It embraces all the principles of lean startups, incl. minimum viable products, to minimize—and quickly eliminate—the external funding required.
Go further. Companies need to fundamentally change their operating model, but also accomplish a complete shift in mindset and culture. Overall, adopting agile ways of working in operations and culture will help ensure their survival in unstable markets and even allow it to thrive during tough economic times.
4) Leadership – Lead with Purpose
Build a coalition of new AND existing leaders to guide the change
“Selecting the right leaders to guide us through the transformation was the most important factor.” - Chief Cybersecurity Office, DAX 30 company
Change of guard. Use the momentum of a new leader: New CEOs benefit from their unbiased position as they have no inherited dependencies and are distinguished by challenging and comprehensively changing the status quo. This enables companies to take advantage of the dynamics of change and benefit from the impetus provided by their new leader. Nevertheless, such conducive leadership momentum can also be achieved with incumbent CEOs, if they take great care to continuously absorb new ideas and impulses.
… but stay with your leading team. However, a CEO succession is beneficial only if stability is ensured in the management team. CEOs must be careful not to hold on to the next management level for too long. In fact, CEOs need to build a coalition of existing leaders by seeking advocates who show the potential to support the transformation. Repositioning management is therefore essential but should be done thoroughly by pre-evaluating the management team to separate those who reject or hinder change.
5) Steering – Establish a Strong Nerve Center
Empower decentral units to act independently AND build strong central TMO
“Our strategy evolves from bottom-up ideas that are discussed and prioritized by our top management team and board.” - Chief Strategy Officer of a Global Manufacturing Company
Empower decentral units. A recurring topic in the executive interviews was the importance to enable the entire organization to provide their share to transformation success. By breaking down the strategic objectives and defining both, joint initiatives and individual contributions for each department, it is possible to provide a sense of responsibility to everyone.
Build a strong central TMO. While empowering decentral units is essential for transformation success, we have found that involving the middle managers too extensively could hinder performance. The interest and motivation of the middle management tend to naturally decrease throughout the transformation journey as the excitement of change is often replaced by the tiredness of increased daily workload. Therefore, establishing a central TMO, mandated by the CEO to steer the transformation is crucial. The role of a TMO is three-fold: correctly implement strategic decisions, efficiently monitor progress, engage and align with stakeholders. Further, implementing systematic monitoring and giving TMOs a strong decision authority leads to a higher performance.
6) Change – Own the Narrative
Engage all stakeholder groups throughout the transformation journey
“If you lose control of the narrative, you are lost. It is important to keep the narrative fresh.” - Former CEO of a DAX 30 Company
Communicate regularly with shareholders, analysts and customers. Change management often focuses solely on the organization and its employees, but transformation leaders also have to consider their broader ecosystem. The difference of frequent communication to shareholders, analysts, partners and customers between the transformation champions and laggards is drastic.
Create your narrative. Proactively design a communication plan determining what key messages you need to send to each of your stakeholders along every step of the transformation. A new strategic trend found in many corporations is the practice of labeling key strategic themes such as transformation programs. Labels clearly mark priority and direction of the initiative and enhance stakeholders’ understanding and acceptance of your transformation activities.
Control your narrative. The narrative is also a powerful tool to manage the so called valley of death. The drain in commitment, which is likely to set in after 12 18 months into the transformation process, can be overcome by aligning all stakeholders and rallying them behind a compelling narrative.
7) Capabilities – Stay on Your Toes
Stay flexible in your transformation strategy AND firm in your routines
“Adaptation in scope and speed was crucial for our transformation success.” - Chairman of the Supervisory Board of a Global Retail Group
Stay flexible. The ability to adapt is a key transformation capability. Make sure to regularly adapt your scope and priority of your strategic initiatives as well as your ambition and case for change in order to incorporate lessons learned and reflect changes in external factors. A flexible allocation of financial and non-financial resources among initiatives helps to create the highest impact in any given phase of your transformation journey.
Be stable in your structures and routines. Define structures in such a way that they break down the strategic objectives for the organization and ensure a clear understanding of the expected individual contributions. In addition, make sure that your routines are in line with the organization’s heartbeat, taking into account major milestones such as reporting and supervisory board meetings.
Benefit from digital tools. Particularly in times of upheaval, it is important to promote continuity as well as progress and at the same time absorb new ideas - digital tools can help. Our data show that companies using digital tools tend to adapt more, and also show higher performance in their transformation.