Many Companies Follow Their Gut Rather Than Seek Evidence of What Works, According to BCG Research Published in MIT Sloan Management Review
BOSTON—Despite the frequent need for transformation—and the growing risk of failure—too many company transformations are guided by intuition, not by empirical evidence.
Research underpinning the design and execution of turnarounds and transformations is surprisingly thin, leading companies to commit to high-cost, high-risk initiatives without a clear understanding of the actions that will lead to lasting results. But a study by The Boston Consulting Group (BCG) and the BCG Henderson Institute has found several factors that increase the chances of success. The findings are published on the MIT Sloan Management Review website.
“Corporate transformations are often guided by beliefs, that, while seemingly plausible, are more anecdotal than empirical in nature,” said report coauthor Martin Reeves, a Senior Partner at BCG and Director of the BCG Henderson Institute. “It’s time for a more evidence-based approach.”
BCG studied US public companies and focused in on more than 300 with over $10 billion in market capitalization and with an urgent need to transform: their total shareholder return (TSR) had fallen 10 percentage points or more relative to their peers’ over a two-year period. The research covers the period 2004-2016.
The article points out that:
Five factors have proven to increase the odds of successful transformations, especially if used in combination
While each of these steps led to positive performance, the companies that did best were the ones that took several of them, not just one. For example, companies that changed CEOs and also had formal transformation programs gained 7.7 percentage points in TSR, compared to just 1.4 percentage points when they had formal programs but kept their incumbent leaders. “When these success factors are used jointly, they have an additive impact, greater than the sum of its parts,” Reeves said. “Companies that used at least four of the success factors in their transformations achieved the largest increase in TSR: a gain of 17.4 percentage points over five years.”
“Not every factor will be relevant in every transformation,” Reeves explained. “But given the stakes, leaders need and deserve evidence-based recommendations. Empirical evidence shows the significant factors in transformation success and the advantages of combining them. Companies can’t afford to ignore it.”
To read the article, visit https://sloanreview.mit.edu/article/the-truth-about-corporate-transformation/.
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