What Is Transformation? And Why Is It Now a Global Imperative?
Transformations are comprehensive changes in strategy, operating model, organization, people, and processes. They aim to achieve a dramatic improvement in performance and alter a company's future trajectory.
Across industries and regions, the need for business transformation is enormous and growing. In today’s unpredictable business environment, disruption arises from all angles. This reality leaves public companies with a 1-in-3 chance of ceasing to exist in their current form over the next 5 years, up from a 1-in-20 chance 50 years ago. In addition, CEOs and senior leaders are under increasing pressure as activist investors and boards push them to do more—faster.
Transformation is a tool that all companies can use to improve their value to shareholders, whether they are trying to catch up quickly or retooling to stay ahead.
Why Is Transformation Challenging? How Can You Improve the Odds of Success?
Transformations represent a fundamental and risk-laden reboot of a company. Successful transformation requires rapid, short-term improvements to the bottom line to establish traction and fund the journey. At the same time, the company must also make more profound changes to its business model, organization, and culture to achieve sustainable long-term success.
All of these aspects must happen in parallel. Therefore, it is not surprising that many transformations fail: some 75% fall short of their targets in terms of value generated, timing, or both.
But there are ways to manage transformation to success. 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 flips the odds in the company´s favor.
“Transformation” may be the most overused word in today’s business lexicon. It is spread breathlessly throughout annual reports and press releases, leaving its true meaning has been muted amid the cacophony of buzzwords.
Furthermore, research underpinning the design and execution of corporate transformations is surprisingly thin. As a result, transformations are often guided by beliefs that, while seemingly plausible, are more anecdotal than empirical in nature.
To study corporate transformation and its success factors, the BCG Henderson Institute—in collaboration BCG TURN and BCG´s Transformation practice—have analyzed hundreds of companies across different industries over more than a decade. The research shows several predictable factors separate winners from losers in transformations.
Transformation as Preemptive Self-disruption
In the past, a transformation effort was seen as a radical solution—a sure sign that a company had broad, systemic problems and no choice but to change. We refer to these types of transformations as turnaround and restructuring efforts.
But in fact, more than 25% of companies that have undergone a transformation effort over the past decade have done so from a position of strength. These preemptive change programs frequently enable companies to “self-disrupt” and continue to generate value.
We see transformation as an imperative in today’s business landscape even for companies dominating their market. Operating in a default state of self-imposed disruption is now the only valid response to unpredictable forces, such as the emergence of digital technologies and market volatility.
All companies should focus on transformation as an “always-on” process of evolution to maintain their competitive advantage as market conditions change.