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In industry after industry, scenarios that once appeared improbable are becoming all too real, prompting boards and CEOs of flagging (or perhaps merely drifting) businesses to embrace the T-word: transformation.
What we’re focused on here is something different: a transformation with a capital T, which we define as an intense, organization-wide program to enhance performance (an earnings improvement of 25 percent or more, for example) and to boost organizational health. When such transformations succeed, they radically improve the important business drivers, such as topline growth, capital productivity, cost efficiency, operational effectiveness, customer satisfaction, and sales excellence. Because such transformations instill the importance of internal alignment around a common vision and strategy, increase the capacity for renewal, and develop superior execution skills, they enable companies to go on improving their results in sustainable ways year after year.
For individual organizations and their leaders, disruption is episodic and sufficiently infrequent that most CEOs and top-management teams are more accomplished at running businesses in stable environments than in changing ones. Odds are that their training and practical experience predominantly take place in times when extensive, deep-rooted, and rapid changes aren’t necessary. For many organizations, this relatively placid experience leads to a “steady state” of stable structures, regular budgeting, incremental targets, quarterly reviews, and modest reward systems. All that makes leaders poorly prepared for the much faster-paced, more bruising work of a transformation.
The most important starting point of a transformation, and the best predictor of success, is a CEO who recognizes that only a new approach will dramatically improve the company’s performance. They must identify the company’s full potential; set a new pace through a transformation office (TO) that is empowered to make decisions; reinforce the executive team with a chief transformation officer (CTO); change employee and managerial mind-sets that are holding the organization back; and embed a new culture of execution throughout the business to sustain the transformation.
CEOs should demand a clear analysis of the company’s full value-creation potential: specific revenue and cost goals backed up by well-grounded facts. We have found it helpful for the CEO and top team to assume the mind-set, independence, and tool kit of an activist investor or private-equity acquirer. To do so, they must step outside the self-imposed constraints and define what’s truly achievable. The message: it’s time to take a single self-confident leap rather than a series of incremental steps that don’t lead very far.
Managing a complex enterprise-wide transformation is a full-time executive-level job. It should be filled by someone with the clear authority to push the organization to its full potential, as well as the skills, experience, and even personality of a seasoned fighter pilot, to use our earlier analogy. The chief transformation officer’s job is to question, push, praise, prod, cajole, and otherwise irritate an organization that needs to think and act differently.
Many companies perform under their full potential not because of structural disadvantages but rather through a combination of poor leadership, a deficient culture and capabilities, and misaligned incentives. In good or even average times, when businesses can get away with trundling along, these barriers may be manageable. But the transformation will reach full potential only if they are addressed early and explicitly.
http://www.mckinsey.com/business-functions/organization/our-insights/the-four-building-blocks--of-change, one proven tool for helping to change such mind-sets, emphasizes telling a compelling change story, role modeling by the senior team, building reinforcement mechanisms, and providing employees with the skills to change. While all four of these interventions are important in a transformation, companies must address the change story and reinforcement mechanisms (particularly incentives) at the outset.
Transformations typically degrade rather than visibly fail. Leaders and their employees summon up a huge initial effort; corporate results improve, sometimes dramatically; and those involved pat themselves on the back and declare victory. Then, slowly but surely, the company slips back into its old ways.
The true test of a transformation, therefore, is what happens when the TO is disbanded and life reverts to a more normal rhythm. What’s critical is that leaders try to bottle the lessons of the transformation as it moves along and to ingrain, within the organization, a repeatable process to deliver better and better results long after it formally ends.
Nothing about our approach to transformations is especially novel or complex. It is not a formula reserved for the most able people and companies, but we know from experience that it works only for the most willing. Our key insight is that to achieve a transformational improvement, companies need to raise their ambitions, develop different skills, challenge existing mind-sets, and commit fully to execution. Doing all this can produce extraordinary and sustainable results.
As more organizations fall prey to complex intangible risks, from unwanted disclosure due to rampant cyber threats to breaches of conduct driven by skewed incentive systems, the aperture of risk management is expanding from protecting the balance sheet to promoting ethical leadership and values-based decision making. Rather than countering complex risk with an even more complex risk-management system, which comes with its own blind spots and brittle places, leaders have to equip the individuals in their charge with common levels of risk awareness, codes of conduct, and value systems.
Values matter most when they are least convenient. In an environment riddled with uncertainty and variability, value systems are meant to be the only constants. However, all too often they are proven to be meaningless words in an annual report. For value statements to be more than empty slogans, they must withstand the trial by fire of tough calls guiding behavior and decision making when it is least convenient.
Bad things happen in the dark. Ethical lapses arise when people take risks but do not bear the downside of their risky behavior. These hazards are most prevalent where they can be most easily hidden. Combating issues like these begins with transparency and accountability. When information is shared quickly and openly across the organization, bad dealings can be rooted out before they spread. It’s leaders’ responsibility to shine a light into any dark organizational corners.
Privacy is a luxury. In the age of pervasive cyber-risk and unwanted disclosure, consistently aligned behavior is the best defense. All it takes is one employee clicking on one sketchy link in one email for an organization or institution to be infiltrated by anyone from a disgruntled employee, to WikiLeaks, to nation state actors. Today, risk lies between the chair and the keyboard. Given that breaches are now seemingly inevitable, risk managers might need to spend less effort trying to prevent the next hack and more time reminding employees not to include embarrassing or sensitive information in easily-breached communications in the first place.
Remoteness breeds indifference. Attitudes toward risk are deeply informed by the tone, tenor, and remoteness of the top. Leaders who practice what they preach, have conviction, and lead by example are better at managing risks than those that merely pay lip service to ethics, value systems, or codes of conduct.
Just as David was able to slay Goliath with a simple sling, complex risks are best addressed with simple measures. Firms should not embrace ethical leadership or risk agility out of fear of failure or mere compliance. Risk agility is a source of lasting competitive advantage.
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You won’t be surprised to learn that blockchain, still five to ten years from mainstream adoption, nears the peak of the Gartner Hype Cycle for Emerging Technologies, 2016. With its ability to store multiple bank transactions in one centralized ledger, accessible by all parties and regulated by a decentralized network, blockchain will have a transformational impact on business.
Transparently immersive experiences
Along with 4D printing, the transparently immersive experiences trend includes virtual reality, gesture control devices and nanotube technologies, and looks to introduce transparency between people, businesses and things. As technology becomes more adaptive, the lines between these three groups will blur and technology will continue to evolve in the work, home and within interactions.
Transparently immersive experiences are of particular interest because 50% of the technologies are at or over the peak, which means they are headed toward the Trough of Disillusionment.
“We can see how the transparently immersive experience technologies such as affective computing, connected home, augmented reality, virtual reality and the growing human augmentation, are pulling the other trends along the Hype Cycle,” said Mike Walker, research director at Gartner.
Perceptual smart machine age
The workplace of the future might look a little different than current setups. With the evolution of the Internet of Things (IoT), smart workspaces can digitize physical things and use programmability of physical environments to create a more efficient work experience. Using this technology, an insurance professional could use a digital pen that interacts directly with back-end processing systems. In the average office, electronic whiteboards and strategically placed beacons and sensors will help deliver personalized information to workers based on proximity.
Platform revolution
What if machines were capable of doing things most people think only humans can do? Neuromorphic hardware will mean that smart machines will become even smarter and more useful by emulating the functions of biological neurons. Machines will be able to tag, contextualize and react to language, content and people’s behaviors. This will allow them to add substantial value to what people do. Neuromorphic hardware represents a technology in the third trend — platform revolution. Emerging technologies are redefining how companies see and use platforms.
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