February 1, 2023
By guest authors Olivier Gorter, Lauren Hicks, and Rob Theunissen, all from McKinsey. Olivier Gorter and Rob Theunissen are partners in McKinsey’s Amsterdam office; Lauren Hicks is an associate partner in the London office.
European transformation leaders share fresh perspectives based on their real-world experiences. A unifying principle to drive change and a structured approach to execute and sustain it can boost success.
Transformation leaders and other C-suite executives around the world continue to pursue ambitious transformation programs for reasons that have remained consistent over time: they seek to unlock growth potential, accelerate the rate at which they innovate, improve customer experience, build new capabilities, and compete effectively in the future.
But the past several years have been marked by sustained uncertainty and unprecedented volatility. Today’s transformation practitioners—each on their own journey and timeline—can draw upon the cumulative wisdom of the many leaders who have completed successful transformation programs and offer fresh perspectives for these challenging times.
The most successful transformations are often centred on a unifying principle to motivate the change and ensure a holistic and sustained impact.
A North Star vision
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For some companies, transformation is guided by a North Star vision, often originating with the CEO or chairperson. More than a decade ago, one conglomerate established global sustainability guidelines and standards. Then, about two years ago, led by the chairperson’s vision of transforming the planet, communities, and the workforce, the company sought to establish itself as a true sustainability leader.
The company’s commitment to making a lasting and holistic impact is reflected in its long-term targets and in its alignment of more than 50 sustainability-focused KPIs with business and operational metrics of success. The KPIs—spread out over horizons of one, three, and ten years—inform the company’s top-down strategic outlook. They are also tracked at the corporate and line-of-business levels by 13 “communities of practice,” with individuals deeper down in the organisation accountable for KPI delivery.
A joint mission
Sometimes a company’s transformation vision and strategy expand beyond its own four walls. This is the case for one producer and supplier of packaging used in a wide variety of applications and industries. Sustainability is at the heart of this company’s transformation, guiding not only internal operational changes but also the go-to-market strategy. Because circularity (continually recycling products and materials) is central to the strategy, the company is actively engaging multiple groups of external stakeholders in its transformation journey. This includes educating its business customers with fact-based information on the recyclability of different packaging and providing them with incentives to use recyclable materials and to recycle. It also includes lobbying governments to promote packaging certifications, regulations, and the like. And it includes educating end customers on the implications of their choices.
A catalysing event
Some companies are spurred to holistic transformation out of necessity in response to a catalysing event. For one manufacturer, a change in ownership forced its hand. The company’s products have a key role to play in the energy transition, so its prospects are bright, but the company had fallen on hard times in recent years largely because of disruptions in the global crude-oil markets that it depends on for raw materials. Plagued by operational challenges and financial instability, the company had developed a reactive culture and become almost exclusively focused on the short term. The new owners were demanding an accelerated transformation to turn around the company’s fortunes. But the long-tenured workforce, fatigued and emotionally drained from years of operating in crisis mode, was fearful of and resistant to large-scale change.
Given these circumstances, senior leaders (the CEO, executive team, and board) focused the transformation on winning hearts and minds. Senior leaders sponsored the transformation clearly and visibly while empowering employees with active roles to foster a sense of ownership. They were open and honest with employees about the challenges ahead, enlisted trusted peers to convey meaningful messages, and used engaging media for transparent communication. They also invested in upskilling to demonstrate their commitment to their people, and they targeted resources to building change management skills and creating roles to manage change at varying levels across the organisation. They used rewards and recognition to celebrate demonstrated passion and successful outcomes to reinforce desired behaviours.
Taking a structured approach
Transforming holistically for maximum impact doesn’t happen in a week, a month, or often a single year. Successful transformations require a structured approach to guide the effort, maintain the momentum, and sustain it over the long term. At its best, a transformation doesn’t lead to a new period of stasis but provides the company with new capabilities so that it can continually reinvent.
Continually reassess priorities. Most transformation leaders are familiar with the challenge of working with finite resources. One company’s transformation journey commenced in 2021, when numerous ambitious project requests were generated. Now, months into the execution process, the transformation is constrained by human resources. Several market forces—including a highly competitive labor market in the industry, the energy crisis, and inflation—have caused an uptick in attrition. Meanwhile, the employees who remain, especially workstream leaders and key initiative leaders who are integral to the transformation, are feeling overloaded.
At its best, a transformation doesn’t lead to a new period of stasis but provides the company with new capabilities so that it can continually reinvent.
In moments like this, continuous prioritization is crucial to the transformation process. The use of a transformation performance management platform as the single source of truth for progress and impact tracking helped the company prioritize projects based on complexity, magnitude of impact, and resource intensity.
Establish the cadence. A few years ago, a logistics company launched a digitally enabled transformation to improve customer experience and innovation supported by multiple workstreams. The chief transformation officer (CTO) attributed the effort’s success to factors including leadership engagement and a strong willingness to effect cultural changes with a bias toward modernization. But the CTO also noted that the cadence (the flow or rhythm of events) of the transformation was a critical success factor in the first year, helping to ensure alignment in a fast-moving environment. The cadence included weekly meetings and a stage-gate approach to decision making on investments and projects to launch. Although there were initial concerns of calendar clutter, a rigorous cadence forced the team to reassess calendar priorities, usually making meetings shorter and more effective.
Execute in waves. A manufacturer embarked on a digital-transformation journey in its home country with successive waves, starting with large plants followed by smaller ones, and then expanded into other European countries in which it has operations. The company is now similarly transforming in its other regions globally.
Critical to the effort has been acknowledging the nuances of each site, region, and product and tailoring the change story to fit the context. This company struck a balance, dictating that use case solutions be adopted across regions in some cases and allowing regions to devise their own solutions in others, while ensuring data could be aggregated and exchanged.
Concurrently, the company is clearly differentiating between short-term optimization and long-term innovation. When a business need arises, the company makes the decision to either implement an established “catalog solution” for a quick win or run a 16-week digital-strategy initiative to produce a minimum viable product and, ultimately, add it to the catalog of solutions.
Systematically break down silos. Sometimes the structured approach centers on solving an overarching organisational challenge. One company was motivated to streamline its construction maintenance operations to reduce costs, bolster efficiency, reduce disruptions for residents, and increase worker safety. The structured approach centered on breaking down the organisational silos (with multiple stakeholders and conflicting agendas) that prevented essential maintenance activities from being carried out in a rational and integrated fashion.
Transformation leaders started by creating and sharing a compelling change story with messages targeted to workers at all levels that explained in simple terms why change was needed. They included case studies, appealed to employees’ interests (for example, in sustainability), and sought inspiration and best practices from other industries. Second, they aligned governance, goals, and structures across silos, taking care to position the problem statement and objectives at the highest level and then assembling cross-functional teams to translate them into action. They chose metrics that reflected their multiyear objectives and the need for cohesion. Third, they engaged people throughout the organisation and sought out those working effectively across silos as critical influencers in the change who could help mobilize from the bottom up. An executive-level steering committee helped to maintain the focus, facilitate collaboration, and publicly recognize individuals and accomplishments against the stated goals.
Amid a challenging macroeconomic and geopolitical environment, European leaders continue to pursue transformation programs to achieve their top objectives and create holistic impact. Although their rationales and approaches vary, these leaders agree that executive sponsorship, employee engagement, and a structured approach are crucial for success. Using the transformation as an opportunity to build new capabilities leaves many organisations better prepared to adapt or even reinvent as they proceed into an uncertain future.