BCG has helped leaders of companies—and other types of institutions—execute hundreds of transformations that have led to significant operational and financial impact. Based on our experience across industries and regions worldwide, we have developed a proven framework that consists of three critical components:
Initiatives to generate funding are a critical element of virtually all transformations. Typically, completing a transformation takes several years, depending on the size of the enterprise and the scope of the changes required. During that time, senior leaders face constant pressure—from the board, employees, shareholders, and other stakeholders—to show momentum and deliver immediate results, often at a time when financial resources are scarce.
To succeed, they need to introduce a number of short-term initiatives that will achieve early, tangible wins to send cash to the bottom line, whether through cost cutting, revenue enhancement, or both. These “quick wins” will energize the organization, building momentum and freeing up capital for the larger transformation effort. They will generate buy-in, winning over internal skeptics who may doubt that change is actually happening. And they will build the confidence of managers and employees, establishing credibility for the new leadership team.
In addition, leaders must put in place a number of longer-term initiatives to continue the momentum over the life of the transformation. Both these and the organization’s short-term efforts will generate cash to sustain ongoing operations and to fund the larger transformation effort, which will require substantial investment over the length of the journey. Leaders should make sure that employees and stakeholders know that part of the savings realized will be used to fund the future; that understanding will further help to energize the transforming organization.
Funding the journey is necessary but not sufficient. Although the levers applied for that purpose can be very powerful, they often lack the scope to fundamentally change the business and create sustainable competitive advantage.
Winning in the medium term requires going beyond the short-term goals of funding the journey and dramatically rethinking the company’s operating and business models. The specific objectives will vary by company, but common to all transformations is the need to establish a fundamentally different competitive position, leading to a medium-term step change in performance.
A critical component of winning in the medium term is rethinking the operating model and essentially rewiring the way the company delivers products and services to its customers. This can involve revamping commercial processes or operations, building digital capabilities and ventures, and transforming internal support functions such as R&D, IT, and HR.
In many transformations, companies must also rethink their core business model and reevaluate the value propositions they offer: identifying the right target segments to serve, the products and services to offer, and the model that can maximize revenue and profit from those products and services. The new business model may include an innovative go-to-market approach, a new digital business to complement or compete with legacy operations, or the launch of new tech or digital ventures.
Compared with funding-the-journey measures, initiatives to win in the medium term are typically more difficult to conceptualize, because they require breakthrough thinking, usually in areas that are less familiar to the organization. It takes longer to deliver results from these initiatives, which are also harder to staff and implement. They call for managing interdependencies across functions and business units.
The third key element of a transformation is the people needed to sustain it, including the context in which they work. Without a strong focus on the company’s team, organization, and culture, the transformation will fail. Organizing for sustained performance means putting people first and creating an environment in which they can thrive.
We spend the majority of our waking hours working in organizations. Organizations enable us to contribute to society through the products and services we create. They help us learn, grow, realize our potential, develop relationships, and find sources of affiliation. The best organizations also enable us to find meaning in our work.
That said, transformations are extraordinarily demanding efforts in which people need to go above and beyond the call of duty to deliver and sustain improved performance. And in the era of always-on transformation, where organizations constantly need to adapt, the demands can be even greater. Rather than feeling inspired and energized, people involved in transformations instead feel exhausted. This need not be the case and surely will not yield the kind of sustainable results that leaders seek.
As organizations transform, therefore, leaders need to ensure that they are truly enabling the people working within them to contribute, grow, find meaning, and be more productive. Senior executives need to commit to the initiative and lead from the front. HR needs to serve as a partner in the transformation, in part by identifying critical roles needed and developing the talent to fill those roles.
Change management tools can help implement specific changes and track progress on the overall effort. And the company needs to develop the right culture to support high performance.
A transformation should include all three elements, but the relative importance of these components changes at various points in the process.
In the beginning, funding the journey is often the most critical aspect, not only to establish momentum but also to free up capital rapidly so as to fuel subsequent efforts in the overall transformation program.
Over time, as the effort takes root, the priorities typically shift toward winning in the medium term.
Throughout a transformation, a focus on organizing for sustained performance—with the right team, structure, operating systems, and culture—is vital to ensuring that a transformation is not short-lived but rather a long-term endeavor that delivers, and sustains, improved performance.