Companies must avoid routine thinking and behaviour and embrace wholesale transformation to ensure they remain at the top of their game, write Michael Bucy, Stephen Hall and Doug Yakola for McKinsey Quarterly.
Your company’s way of doing business might have brought success for 20 years. It might still work today. But one day, whether as a result of a market slowdown, a marginal threat that has suddenly emerged as a major competitor, or one of a myriad of other reasons, it will stop working. Success is not guaranteed to last forever. Routine leads to complacency, and in the world of business, complacency can be deadly.
In order to ensure that your company’s success is sustainable, you must eschew small incremental changes and fundamentally transform its strategy, structure and business practices. You must adapt to survive.
Your company, according to Michael Bucy, Stephen Hall and Doug Yakola, needs transformation with a capital T, “an intense, organisation-wide programme to enhance performance (an earnings improvement of 25% or more, for example) and to boost organisational health”. This transformation will boost growth, productivity, cost efficiency, operational effectiveness, customer satisfaction and sales excellence.
In 2010, spotting that approximately 70% of companies attempting this sort of large-scale change fail, McKinsey set up its Recovery & Transformation Services unit, which over the last six years has observed more than 100 companies in order to produce a five-step guide to transforming your business into a world-class operation.
Change comes from the top, but traditionally business leaders have prioritised stability over revolutionary change. Do not follow their lead.
STEP ONE: IDENTIFY YOUR COMPANY'S FULL POTENTIAL
Before you begin the process of transforming your company, you must ask yourself what is possible – but it is vital that you do not to underestimate your company’s potential.
Here are four way to avoid this common pitfall:
1) Refuse to compromise. Line managers will always attempt to underpromise and overdeliver. If you think a target is achievable, don’t allow anyone to tell you otherwise. McKinsey found that targets two or three times a company’s estimates were achievable in the majority of cases.
2) Demand the facts. Conduct a clear analysis of your company’s potential based not on opinion but on cold, hard facts.
3) Take a step back. Imagine you are a potential investor and take a more objective look at your company.
4) Think big. When it comes to transforming your company into a world-beater one giant leap is better than a series of small steps. Don’t let anyone persuade you to be cautious. It’s all or nothing.
STEP TWO: BUILD A TEAM
New targets are going to require a new way of working. In order to break out of your company’s established day-to-day routine, set up a transformation office (TO) dedicated to the process of transforming your company. Here are three ways to ensure your TO is successful:
1) Divide but rule. Set up work groups dedicated to specific tasks but ensure that senior leaders set tight deadlines and demand regular decisions. Everyone must work quickly in order to maintain momentum.
2) Follow the snake. Provide your TO with an empty circular room and encourage your team to track each stage of its progress on the wall. This tracking method is called “the snake”; by the end of the process, when the TO’s goals have been achieved, the snake should have eaten its tail.
3) Review your progress. Set up a weekly TO meeting in which each work group reviews its progress and sets tasks for the following week. Each work group leader should make a 15-minute presentation. Every level of management should be represented on a rotating basis to establish open channels of communication across the company, and accountability.
STEP THREE: APPOINT A LEADER
Take the transformation of your business seriously and appoint a full-time chief transformation officer (CTO) with responsibility for managing the process. The CTO should not replace the CEO but rather act as a sergeant major, whipping the troops into shape and ensuring the TO team remains focused and the CEO’s vision is realised. Consider hiring a CTO from outside your company – somebody who won’t be afraid to ruffle feathers.
STEP FOUR: THINK DIFFERENT
In order for your company to reach its full potential, you must create an environment in which everybody is working for the benefit of the whole company (the “nation”) rather than just their department (the “tribe”). Empower each individual and unite them in pursuit of a common goal and you will not have to accept excuses for failure.
McKinsey has devised a method for creating such an environment that involves telling a compelling change story, ensuring that members of the senior team have bought into the new mindset and are willing to act as role models, creating mechanisms to reinforce the new mindset and providing your staff with the tools to change their ways of thinking. To begin with, focus on your change story and reinforcement mechanisms.
Your change story
Your staff is not going to buy into the transformation process unless you are able to tell them why it is necessary. Simply stating that the company is not hitting its financial targets will not inspire your staff; you must appeal to their emotions and convince them they are all vital characters in a grand narrative of change that will benefit not just senior management but every employee.
Put your money where your mouth is and provide incentives to your staff. Create an incentives plan that sets a maximum of three clear objectives and promises “outsized payouts for outsized performance”. It is also important to engage with your staff on a human level by offering non-monetary incentives – for example, boost morale by writing personal thank you notes to individual members of staff who have performed well.
STEP FIVE: DON'T STOP
Most transformation processes fade away rather than burn out, with companies putting in a huge amount of effort at the start of the process before reverting to old ways. To ensure that your transformation is permanent you must ensure that the changes made when the TO is in place become ingrained and the old way of doing things is consigned to history.
You must create momentum and ensure that what McKinsey calls an “execution engine” is constantly replenished with the fuel necessary to make it run.
If your transformation process has been successful you should see the following results: every member of staff should feel they have a stake in the company; responsibility should lie with the line and not solely with management; and management should be constantly looking for ways to motivate their team members.
Do not return to unambitious abstract targets.
Commit to change
McKinsey admits that there is nothing complex about its formula for success but that it will only work for you and your company if you are willing to raise ambitions, challenge outdated mindsets, invest in your staff and commit fully to sustainable change.