The New CEO’s Guide to Transformation

Leadership transitions increasingly happen when companies are at an inflection point, and as a result, new CEOs frequently face immediate pressure to make changes. The challenges are significant. Companies are being buffeted by rapidly evolving technology and digitization, increasing globalization, blurred industry boundaries, and regulatory shifts, among other factors. As the traditional sources of competitive advantage disappear, top-performing companies are increasing their lead on poor and average performers. (See Exhibit 1.)

To keep up with industry leaders—or to remain a leader—it is more important than ever for companies to undergo transformations. (See Transformation: The Imperative to Change, BCG report, November 2014.) We define a transformation as a profound change in a company’s strategy, business model, organization, culture, people, or processes. A transformation is not an incremental change but a fundamental reboot that enables a business to achieve a sustainable, quantum improvement in performance, altering the trajectory of its future. Because of the comprehensive nature of transformations and the need for companies to implement them quickly, transformations are complex endeavors, and the majority either fail to fully capture the potential value or exceed the time allotted to embed new behaviors and processes. Yet by adopting a clear methodology, companies can flip the odds in their favor.

Companies with stable management teams can also benefit from transformations, yet in our experience, a change in leadership offers a critical window of opportunity for implementation. Stakeholders expect changes to occur when a new CEO is hired. In fact, a principal risk for new CEOs is that they may resist taking action too quickly—or hesitate to make changes that go deep enough. The risk is especially high for insiders who are being promoted to the top spot or taking the reins alongside a strong chairperson. Yet through quick and decisive actions—even before taking the top job—new CEOs can seize the opportunity and put their company on the right trajectory for success.

The message for incoming leaders is clear: You need to take action immediately. By laying the groundwork in advance, you can be prepared to lead from the front with a clear vision, solid objectives, and the tools and processes to succeed.

The Boston Consulting Group has helped companies execute transformations that have led to significant financial impact. We have completed more than 500 transformations, generating a median annual impact of approximately $340 million through cost cuts, revenue increases, and the application of capital-efficiency levers; 150 transformations are currently under way. This body of work has helped us identify some clear principles and best practices that can help new CEOs—as well as board chairs and members of the C suite—successfully develop and implement a transformation effort.

This report is a playbook for new CEOs. It lays out how and where to start and provides a transformation framework. The report then breaks the transformation process into four steps: the 100 days before officially starting, the first weeks on the job, the first 100 days, and the first 18 months. Because the framework applies to all transformations, while the four steps provide specific actions for new CEOs, there is some overlap. The report also includes case studies of successful transformations in various industries—retail, technology, and manufacturing, among others—to show what the process looks like in the real world.

The Transformation Framework

On the basis of our experience helping implement transformations across industries and regions worldwide, we have developed a proven framework that can help leaders define the collective transformation ambition for the company. (See Exhibit 2.) The framework has three critical components:

  • Funding the Journey. Launch short-term, no-regret moves to establish momentum and to free up capital to fuel new growth engines.
  • Winning in the Medium Term. Develop a business model and operating model to increase competitive advantage.
  • Building the Right Team, Organization, and Culture. Set up the organization for sustainable 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. Over time, as a transformation takes root, the priorities typically shift toward winning in the medium term. Throughout a transformation, a focus on building the right team, organization, and culture is vital to ensuring that a transformation is not short-lived but rather becomes a long-term endeavor that delivers—and sustains—improved performance.

One Hundred Days Before Starting: Define the Ambition

New CEOs often have time—as much as 100 days—after unwinding themselves from most of the responsibilities of their former job and before they must assume those of the new position. This period offers a critical opportunity for leaders to take charge and define the organization’s collective transformation ambition. (See Exhibit 3.)

When defining this ambition, it is critically important for CEOs—whether hired from the inside or brought in from the outside—to adopt an investigative and analytical mind-set: “I need to learn more.” (For an example of an incoming leader who defined a bold transformation ambition, see “A New Retail CEO Hits the Ground Running.”) Incoming leaders should talk with as many critical stakeholders as possible, both inside and outside the organization, in order to educate themselves about the company:

  • Employees, to determine if there is a consensus regarding the changes that are needed; ideally, leaders should speak with 30 to 50 employees from across all units and at all levels
  • Customers, to get unvarnished opinions of the company’s performance in addressing their needs
  • Industry and functional experts, to understand the company and the complexities or disruptions in the market

A NEW RETAIL CEO HITS THE GROUND RUNNING

During these conversations, a new CEO should primarily listen, encourage open and honest discussion, and make sure that all possible dynamic factors and all possible solutions are being brought to the forefront. Through this process, the CEO must start to diagnose problems and create hypotheses regarding which aspects of the company require improvement. This means assessing the urgency of the various situations—in terms of both scope and timing—and determining whether the company should seek to transform a specific function, market, or division or instead undergo a more comprehensive effort that affects multiple areas of the company.

In both broad and narrow transformation efforts, new CEOs need to start identifying rapid, no-regret moves during this time—initiatives that are relatively easy to implement in the first 100 days and that can generate results in 3 to12 months. These no-regret initiatives should close performance gaps in a few critical areas, reduce costs, improve top- and bottom-line performance, and free up cash in order to fuel longer-term initiatives. (For an example of a leader who launched multiple measures to build momentum for a transformation, see “A Technology Leader Creates Momentum Through Rapid Moves.”) As new CEOs establish momentum with these initiatives, they should also clearly define the company’s goals for improving long-term performance—and how the company will sustain those improvements over time.

A TECHNOLOGY LEADER CREATES MOMENTUM THROUGH RAPID MOVES

The First Weeks: Energize the Organization

In the second step—the initial weeks of a new CEO’s tenure—communication becomes critical. Leadership transitions and transformations can be stressful periods for a company, and undergoing both simultaneously can make them doubly so. Yet success requires large numbers of people to go above and beyond to accelerate the pace of change. As a result, new CEOs must carve out the time to energize the organization and build momentum for the collective transformation ambition.

Specifically, new CEOs should start building a compelling case for change from their first day on the job. Initially, new CEOs should make the case to the board of directors and to the senior management team to achieve consensus so that they all “speak with one voice” regarding the transformation. Then, new CEOs should make the case to the entire organization. The case for change should acknowledge the company’s heritage and the hard work of employees, but it should also discuss external factors (such as the customer base, competitors, and capital markets), internal metrics (for example, operational and organizational performance and employee engagement), and the necessary measures the company will soon take in response. (For an example of a CEO taking dramatic steps to energize a company, see “A Consumer Packaged Goods CEO Revamps the Company’s Structure and Product Line.”) The case for change is typically made to internal stakeholders in various venues, such as workshops and town hall meetings, as well as through communication channels that allow the CEO to answer important questions on vision, approach, and tactical next steps.

A CONSUMER PACKAGED GOODS CEO REVAMPS THE COMPANY’S STRUCTURE AND PRODUCT LINE

In addition, leaders should tailor the message and the communication style to the company’s situation. Some companies have well-established ideas about their overall direction and sense of purpose; these companies can focus primarily on short-term performance and delay setting a more visionary agenda. Other companies are tired of short-term thinking and constant cuts and need a more compelling story about where the new CEO intends to lead the company. In all cases, it is critical for the CEO to speak with authenticity and a sense of urgency. (For a case study of a company that had to take rapid and dramatic steps during a transformation, see “A Pharmaceutical Company Transforms Itself and Generates $20 Billion in Value.”)

A PHARMACEUTICAL COMPANY TRANSFORMS ITSELF AND GENERATES $20 BILLION IN VALUE

The First 100 Days: Prepare and Launch the Transformation

The first 100 days of the process are critical in that they set the trajectory for the overall transformation—and indeed for the CEO’s tenure. Leaders must put the foundation in place during this time, balancing a long-term vision with day-to-day reality. As the transformation starts to take shape and the case for change becomes clear, the CEO must shift gears from planning the transformation to actually leading it. This means immediately kicking off the rapid, no-regret moves that will deliver impact within 3 to 12 months, creating and enabling initiative teams, setting up the overall governance and change-management program for the transformation, and launching the communications plan.

These no-regret initiatives build momentum for the larger effort, win over internal skeptics who may doubt that change is actually happening, generate credibility for the new leadership team, and often free up capital that can be used to fund subsequent measures. As a result, these initiatives further help energize the organization.

The four primary levers for funding the journey are revenue, organizational simplicity (delayering), capital efficiency, and cost reduction. (See Exhibit 4.) In choosing where to start, many companies understandably opt for the two obvious solutions: cost cutting and organizational simplicity. This approach works, but revenue and capital efficiency can often generate a significant impact as well. (For a case study of a company that launched strong early stage initiatives, see “A Manufacturer Lays the Groundwork for an Ambitious Transformation.”)

A MANUFACTURER LAYS THE GROUNDWORK FOR AN AMBITIOUS TRANSFORMATION

Once measures are under way, there is a real risk of prematurely declaring victory and moving on to other priorities, which all but assures that the transformation effort will fail. Instead, it is critical to maintain focus and ensure that initiative teams are on track to achieve results. Assuming that some form of project tracking has been put in place, now is the time to ensure that leaders have full transparency into the progress of each initiative. Regular review sessions, facilitated by the program management office (PMO), should provide sufficient information for leaders to know whether—and how—they need to intervene.

In particular, CEOs should avoid a number of common pitfalls during this phase, including the following:

  • Insufficient accountability among the owners and sponsors of the initiatives
  • Failure to have in place clear plans and roadmaps, backed with specific actions and milestones that are linked to financial objectives
  • A lack of resources and expertise on initiative teams
  • Management incentives that do not support the objectives of the transformation
  • Failure to engage stakeholders and overcome institutional resistance

The First 18 Months: Drive the Transformation

As the broader transformation begins to gain momentum and initial fund-the-journey efforts begin to take hold, CEOs must launch broader initiatives to win in the medium term, set the new strategy and operating model, and build sustainable performance.

Winning in the Medium Term. This phase requires delivering on transformation objectives that go beyond the short-term goals of earlier, fund-the-journey efforts. 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. Winning in the medium term could entail a wide range of initiatives to transform, including driving growth, launching a new business model, revamping commercial processes or operations, building digital capabilities and ventures, and transforming internal support functions, such as R&D, IT, or human resources (HR), among others. (See Exhibit 5.)

Compared with funding-the-journey measures, initiatives to win in the medium term are usually more difficult to conceptualize, as they require breakthrough thinking, usually in areas that are less familiar for the organization. These initiatives are also harder to staff and implement, and they call for managing interdependencies across functions and business units. (For an example of a CEO-led transformation that delivered sustainable gains, see “A Global Insurer Implements a Value-Based Transformation.”)

A GLOBAL INSURER IMPLEMENTS A VALUE-BASED TRANSFORMATION

Setting the New Strategy and Operating Model. While driving short-term and medium-term initiatives, companies benefit from stepping back and looking at their overall strategy and operating model. This does not need to be a broad strategy- planning exercise. In fact, we find that a targeted workshop-based approach with the senior leadership team—and the appropriate data and analysis—can lead to a strong outcome and do so in a highly efficient manner that doesn’t distract the leadership team from driving the overall transformation. This approach ensures that there is buy-in from the top team and that the strategy leads to immediate operational adjustments. (For an example of a company that implemented strategic changes as part of its transformation, see “A Bank’s Transformation Boosts Customer Satisfaction and Financial Performance.”)

A BANK’S TRANSFORMATION BOOSTS CUSTOMER SATISFACTION AND FINANCIAL PERFORMANCE

Building Sustainable Performance. Many organizations that deliver results during the transformation have a tough time sustaining their hard-won performance improvements. The goal of every CEO should be to achieve success during the first 18 months of the transformation program and then maintain it well beyond that point. This is what separates the most transformative CEOs from the rest of the pack. It is imperative for a CEO to own this phase and closely involve the chief human-resources officer and other influential leaders across the company.

There are five important aspects to developing the right people and organization required to support a successful, sustainable transformation:

  • Ensure the commitment and change capabilities of the executive team, including their ability to set the right priorities, mobilize and energize initiative teams, and hold themselves accountable for the results.
  • Deploy change-management tools and processes (such as an activist PMO, roadmaps, and rigor testing) to engage stakeholders and deliver results. (For more on rigor testing, see “The Hard Side of Change Management,” Harvard Business Review, October 2005.)
  • Install an HR team that can act as a transformation partner, anticipating talent and leadership needs, rather than as a mere service provider.
  • Build a talent pipeline that can help fill crucial roles, and develop capabilities in areas critical for the transformation, such as go-to-market strategies, pricing, sourcing, lean methods, digitization, innovation, and HR.
  • Simplify the organization and culture to sustain high performance in conjunction with the new strategy. Usually this entails eliminating waste and low-value work, trimming bureaucracy, implementing shared services, automating processes, and enabling the organization to continue taking these steps on an ongoing basis.


For most new CEOs, the imperative to change is a given; how CEOs respond to this imperative is not. Those who stand out from the pack quickly define a bold transformation ambition—ideally before taking the reins—and then move forward to energize the organization, prepare the program, and drive the transformation. Through quick and decisive actions—while time, the board, and investors are still on their side—new CEOs can seize the opportunity to lead a transformation and put their company on the right trajectory for success.

Acknowledgments

The authors thank Maya Gavrilova, Jonas Lumby Jensen, Paul Millerd, Louise Herrup Nielsen, Mai-Britt Poulsen, and Fredrik Vogel for their contributions to this report. The authors also are grateful to Jeff Garigliano for his assistance in writing this report and Katherine Andrews, Gary Callahan, Kim Friedman, Abby Garland, Trudy Neuhaus, and Sara Strassenreiter for their contributions to the editing, design, and production.

The New CEO’s Guide to Transformation

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