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January 19

Building Blocks of Transformation

How adaptating to an ever-changing world separates successful organizations from the pack

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Transform!

Understanding business transformation as the key to sustained success in the market.

We live in a world of uncertainty, but one universal truth exists: the world is constantly changing. This is not anew concept; it’s one that can be traced back to the Greek philosopher Heraclitus and his belief that the world is in constant flux. 

The implication of this fact is also not new. An organization’s long-term sustainability is directly tied to how well it continually transforms to deliver new and growing value to its customers. Organizations that anticipate the need for change and prepare accordingly reap rewards, while those that fail to do so are left behind.   

Why, then, do some organizations fail to transform where others rise to the occasion? What do successful organizations have in common? And, where can leaders begin as they look to position their own organizations for future success? These are the three key questions we answer based on our own experience helping clients transform their businesses over the past 20 years. But first, some insights into the need for transformation.

"Change is the Only Constant"

-Heraclitus

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Nothing Endures But Change.

Visualizing the impact of change through the Fortune 500 List.

It is helpful to visualize the impact of ongoing change to an organization’s success. A useful starting point is looking at movement and turnover of companies on the Fortune 500 list in Figure 1 below:

Figure 1

Analysis of this data over the last 66 years (the list debuted in 1955) shows that only about 10% of companies on the original list are still on the list today.

Figure 2: F500 Turnover

In total over 2,300 companies have made the list, and there is an average turnover of 25 companies each year. Average tenure on the list is just under 14 years, with notable companies that remain on the list for consecutive years move an average of 19 positions either up or down.

Finally, there is evidence that the rate of change is also accelerating with the likelihood that companies remain on the Fortune 500 list 10 years after breaking its ranks has declining over time, as seen in Figure 3:

Figure 3: F500 Longevity

Seventy percent of companies added to the list in the 1950s remained on the list 10 years later. By comparison, companies added to the list between the years of 2000 and 2009 only had a 36% chance of remaining there 10 years later. Additionally, while average annual turnover is 25 companies, this trend line has been increasing over time. Average annual turnover increases to 30 companies if we just look at the past decade.

It is clear that organizations must continually evolve in order to sustain their success over the long-run.But, if this is true, then why do some organizations fail to transform where others rise to the occasion?

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What Sets Successful Organizations Apart

Key Question: Why do some organizations fail to transform where others rise to the occasion?

It is inaccurate to say that the need for change is not understood. Sources shows that business leaders routinely identify the need for change as a top priority. Beyond this, many organizations even report a willingness and readiness for changeonetheless, 74% of executive leaders say transformation efforts fail. This suggests the root cause of the problem rests in an organization’s inability to bring about business transformation. There are several reasons why: 

First, organizations must understand what change is required. A recognition of the need for change and a willingness to pursue it does not mean there is an understanding of what that change looks like or how to do it. For example, recognizing blockchain as a disruptive trend does not necessarily mean you know how it applies to your industry, customers, and internal organization. It also does not mean you know where to begin.

Transformation is also hard because most of the time change is incremental, not a big bang. Although the COVID-19 pandemic illustrates that rapid change is very real and not to be ignored, leaders on the lookout for change often struggle to see what is hiding in plain sight. Most organizations have many opportunities to continually improve existing operational activities. Often the most successful path to transformation is through the stacking of small, incremental changes.

Finally, transformation is hard because it takes organizational commitment. In order for change initiatives to take hold, organizations must build alignment and buy-in across teams. Leadership is key, as is having a consistent, data-driven narrative that articulates the value of transformation to customers and to the organization.

What, then, do successful organizations have in common?

74% of executive leaders say transformation efforts fail.

Harvard Business Review

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The building blocks of transformation.

Key Question: How do you ensure your organization is counted among the winners and recognizes future change as an opportunity to seize versus a threat to fear? 

From our experience, organizations that are best able to transform have three common behaviors in their DNA. First, they actively foster and embed a mindset that embraces change. Second, they organize and set up in ways that empower change to happen. Third, they develop and optimize ways of working that facilitate and encourage adoption. 

A Learning Mindset

Mindset matters when it comes to transformation. Leaders must create an environment where change is sought, celebrated, and rewarded. This also means that leaders need to create an environment where failure is okay. Too often change is resisted because it is seen as high-risk. Leaders must not only give their team teams permission to learn through experimentation, they must also communicate that this is the expectation.

Additionally, leaders must back up their words with actions. This means creating an environment where experimentation is possible, and the downside risk of failure is limited.Small-scale and pilot-based experimentations enable teams to quickly stop tests that fail to deliver expected results. These types of experiments also position teams to quickly scale tests that perform well.

A common phrase heard today is, “We should celebrate failure.” While the intent of this is most certainly right, itis more accurate to say that we should celebrate what we learn from our failures. A learning mindset is key and doing so in a low risk environment is what makes this possible and sustainable.

Organizing for Success

Beyond having the right mindset, an organization must also setup for success. This looks differently for each organization; however, there are common starting points every organization should consider. For example, it is useful to define individuals’ roles and responsibilities when it comes to transformation. This can be formally articulating roles and responsibilities within individual’s job descriptions.It can also cover articulating roles and responsibilities for more informal roles within a specific project team (e.g., change champions).

An organization should also focus on its decision-making processes. Transformation initiatives are empowered when it is clear how decisions are made and who is able to make decisions. Again, clearly defined expectations are key. Generally speaking, organizations benefit from opening these processes and enabling greater levels of decision-making autonomy at lower levels. Of course, this also means making sure individuals are comfortable making decisions and that they have the training and trust todo so.

Agile Ways of Working

Finally, organizations need ways of working that facilitate and encourage adoption. Organizations should consider how they can use cross-functional teams to tap into knowledge spread across teams and incorporate a broad set of perspectives.  

Speed is also key. From our experience, this is best accomplished by focusing on time-bound and bite-sized actions. Our concept of micro-actions addresses this. Micro-actions also have the benefit of helping organizations build momentum through a series of small wins. This is key to sustaining success.

 

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Discover Your Own Transformation

Key Question: Where to begin as you look to position your own organizations for future success?

The most important takeaway for organizations is that they do start. Our four solution areas are focused on how we bring transformation to life in tangible ways: Partnering with you and enabling you to develop the mindset, organization, and ways of working that facilitate sustained success over the long-term.

Interested in starting your own transformation?

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