Companies that claim to be “transforming” seem to be everywhere. But when you look more deeply into whether those organizations are truly redefining what they are and what they do, stories of successful change efforts are exceptionally rare. In a study of S&P 500 and Global 500 firms, our team found that those leading the most successful transformations, creating new offerings and business models to push into new growth markets, share common characteristics and strategies. Before describing those, let’s look at how we identified the exceptional firms that rose to the top of our ranking, a group we call the Transformation 10.
Whereas most business lists analyze companies by traditional metrics such as revenue or by subjective assessments such as “innovativeness,” our ranking evaluates the ability of leaders to strategically reposition the firm. The team began by identifying 57 companies that have made substantial progress toward transformation. We then narrowed the list to 18 finalists using three sets of metrics:
- New growth. How successful has the company been at creating new products, services, and business models? This was gauged by assessing the percent of revenue outside the core that can be attributed to new growth.
- Core repositioning. How effectively has the company adapted its legacy business to change and disruption, giving it new life?
- Financial performance. How have the firm’s growth, profits, and stock performance compared to a relevant benchmark (NASDAQ for a tech company, for example, or DAX Index for a German firm) during the transformation period?
Our analysis revealed characteristics shared by the winning firm’s leaders as well as common strategies they employed.
Transformational CEOs Tend to be “Insider Outsiders”
The list is topped by companies headed by visionary founders with no prior experience in their industries; Jeff Bezos came from the world of finance, and Reed Hastings from software. As it turned out, having no predetermined way of doing things turned out to be an asset when it came to reinventing retailing and television, and these leaders kept that outsider’s perspective even through waves of growth.
We see an interesting pattern across the professionally managed companies, those whose CEOs were hired by the board. These CEOs are what we call “insider outsiders.” Make no mistake, they have substantial relevant experience. They had 14 years of tenure on average before getting the top job. That knowledge helped them understand how to make change happen inside an organization. Yet these executives also had an outsider role where they worked on an emerging growth business or consciously explored external opportunities, giving them critical distance from the core. After becoming CEO, that insider-outsider perspective helped them explore new paths to growth without being constrained by yesterday’s success formula.
They Strategically Pursue Two Separate Journeys
Many firms that have tried to transform have failed. A common reason why is that leaders approach the change as one monolithic process, during which the old company becomes a new one. That doesn’t work for a host of practical reasons. An organization that grew up producing newspapers, for instance, not only lacks key skills to build a digital content company but also might actively resist embracing the new in order to protect the business it knows and loves. Success requires repositioning the core business while actively investing in the new growth business.
They Use Culture Change to Drive Engagement
Microsoft is a case in point. In the four years since Satya Nadella came on as CEO, he has been credited with transforming Microsoft’s cautious, insular culture. In the old world, large teams would work for years on the next major version of a franchise program like Windows and Word, leading to a risk-averse environment. In the new world of “infrastructure on demand,” dozens of new features and improvements would need to be introduced per month — and no one would fully know ahead of time what they might be. This required a culture of risk taking and exploration.
They Communicate Powerful Narratives About the Future
To change the culture and move into new growth areas, the CEO needs to become “the storyteller in chief,” says Aetna’s Mark Bertolini. That means telling different aspects of the same transformation narrative to all the constituencies and stakeholders in the company. “The CEO’s responsibility is to create a stark reality of what the future holds,” says Bertolini, “and then to build the plans for the organization to meet those realities.”
They Develop a Road Map Before Disruption Takes Hold
Because dual transformations typically take years, we used a 10-year time frame in our analysis. Indeed, transformations often can’t be completed during the average tenure of a CEO. These long time horizons mean that there’s no time to waste in getting started. Many of the most notable disrupted companies — from Blockbuster, to Borders, to Blackberry, to Kodak — ran into their deepest troubles a decade or more after some of the first warning signs appeared. None of their leaders developed effective transformation plans in time to halt the decline.
As all these cases show, transformation is not just about changing an enterprise’s cost structure or turning analog processes into digital ones. Rather, it’s about pursuing a multiphase strategy to reposition today’s business while finding new ways to grow. That’s why we believe the companies that made the Transformation 10 list deserve to be seen as models to help other leaders create the future.
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The functions of a leader come down to five key components.
- Setting the direction of your organization with a vision
In his highly acclaimed book the Seven Habits of Highly Effective People, Stephen Covey suggests we should always begin with the end in mind. What this means is, a leader needs to gain an understanding of what the future of the business looks like and, clearly communicate this vision to their people. - People skills
The single most significant skill you need to have as a leader is the ability to build effective teams and partnerships. Sales, marketing, service delivery, human resources, operations, production and finance should all have management systems in place for control. However, the one thing that is common to achieving business goals and objectives is, the people you lead. You often hear the expression “people are our single biggest asset!” - Systems and processes
Effective business leaders develop good systems and processes and ensure those systems and processes work. If you put good people in to operate poor systems and processes, you are setting them up to fail. This is because you see the people using the systems as failing, not the flaws in the system itself. As a result, you blame people for the inadequacies and lack of results rather than inadequate systems and processes. On the other hand, no matter how good your systems and processes are, people still need to operate them which means providing them with adequate training and support through exemplary leadership and management skills. - Communication skills
Communication involves asking effective questions along with active listening. It also requires listening for understanding and hearing what’s not being said as well as what was said. - Accountability
When you assume responsibility in a leadership role, you become accountable to some form of authority. This means you are usually measured against a set of key performance indicators. KPI - Key Performance Indicator word cloud with magnifying glass, business conceptYou cannot manage people effectively if, as a leader, you don’t communicate the vision, goals and objectives of the organization. You also can’t manage people if you don’t set performance standards. If a person doesn’t know what to do, when to do it and how to do, it’s not their fault if things go wrong, it is the fault of management. That’s because management either failed to communicate the required standards or, failed to provide adequate training.
EBay’s First Diversity Chief On How To Make Inclusion Matter To Everyone
“This has not become the most fun discussion to have,” says Damien Hooper-Campbell. Here’s his approach to changing that.
[Photo: courtesy of Damien Hooper-Campbell]
The challenge is that even among those we see every day—for hours and hours at a time —we don’t get beyond surface-level conversations. Even among those we know, we choose not to dive deeper when we’re at work.” To change that, Damien Hooper-Campbell, eBay’s first chief diversity officer believes, “We need to do what we very rarely do as human beings when we first meet each other. We need to be okay being politically incorrect for the moment as long as we’ve established an assumption of good intent. That allows us to get our real views out there and gives us permission to call BS when we see it.” Being in the circle of trust is like being in the exit row on a plane. You need verbal confirmation before proceeding.
DEFINE DIVERSITY AND INCLUSION—BUT PARSE THEM FIRST
As Hooper-Campbell sees it, the point of the circle of trust is to quickly create an environment that is conducive and safe for open conversations about diversity and inclusion. And to do that, you first have to define the topic in your own terms: What does diversity actually mean to you?
It doesn’t have to be perfect prose—the process of sharing definitions is what’s powerful. “What I’m not looking for is what it means as defined by the dictionary. Or what it means as defined by what you think people want to hear or what the media says,” says Hooper-Campbell. “What does it actually mean in your world? That’s where I want you want to start.”
In group exercises, Hooper-Campbell suggests asking for volunteers to share their answers to that question. Let there be moments of silence, if they’re needed. As the leader, give your definition, too, but not before a handful of your people do. The answers will vary, but by starting diversity conversations this way, Hooper-Campbell has noticed that, at least conceptually, most us get what diversity means. In reality, “it’s everything,” he says. But often in the workplace, “this conversation narrows to be about only race and gender. While, yes, race and gender are very important aspects, diversity goes well beyond them. It absolutely should include them, but goes even further into hundreds of attributes.”
The next step, he suggests, is to define the other word: inclusion. “What does this word actually mean?” Hooper-Campbell asks his teams. “Again, I don’t want you to do what we typically do, which is just define ‘inclusion.’ Forget Merriam-Webster.” After organizing participants into pairs, he then prompts them to ask each other: “Dial back in your own life to a personal event when you felt excluded—regardless of when or why.”
“Now these conversations don’t have to be about race or gender or age or sexual orientation, but they absolutely can be—no judgment here,” says Hooper-Campbell. “This could be from when you were 4 years old and you didn’t get picked for the kickball team. This could be from earlier today when you realized that people at your company held a meeting and didn’t invite you. It doesn’t matter what it is. I just want you to talk openly and candidly with the person across from you about a time in your life when you felt excluded.” He adds, “Before you finish, come up with a couple of adjectives that describe how you felt at that moment. Go!”
WHAT’S BEING SHARED, WHAT’S BEING SAID
The experiences shared through these exercises can bring teams together, says Hooper-Campbell. And in the process, they can make diversity and inclusion feel personal—not like an impersonal corporate initiative. Suddenly the stories that get voiced belong to the people you see often. It’s a step toward truly knowing them—and making them feel welcome.
But Hooper-Campbell also notes that it’s a crucial step toward getting more people involved in the conversation on, and commitment to, diversity and inclusion. While an experience of being overweight may never be the same experience as being excluded because of your skin color or your gender, it should help all of us get a bit closer to making “inclusion” less of a buzzword and more of a human experience.
“The point of this is there are people who are working for you right now, or are trying to work for your company, who feel this way,” says Hooper-Campbell. “If you ask for a show of hands of those who have ever felt excluded, you’ll see many, many more. Nearly every person has felt excluded at least once in their life.”
Then, after this exercise, Hooper-Campbell asks a final question: “How many of you have ever been responsible—intentionally or unintentionally—for excluding someone else? If people are really in the circle of trust, you’ll see just as many hands go up.”
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Two styles of thinking: vertical and lateral
The term lateral thinking was coined by Edward de Bono in the 1960s to differentiate it from conventional or vertical thinking, the type of thinking based on experiences, assumptions, and deductions. Using memory and vertical thinking means applying a higher dose of the same solution to a problem. In other words, they lead us to dig deeper into the same well.
Instead, with lateral thinking we dig a well in another place. And if it doesn’t work, we try another, or instead of a well we dig a tunnel, or rethink the basic approach. Because in addition to a type of mental processing, lateral thinking is a method for using information that considers that there are always several possibilities to approach a situation. Different from vertical thinking which assumes there’s only one correct way.
The aim of lateral thinking is not to come up with correct ideas, but to generate a great number of them. Then, at a later stage, you can apply vertical thinking to analyze the ideas you came up with, improve them, discard the invalid ones, choose the best ones and test them.
According to Edward De Bono there are three types of problems:
1Those that require more information. They are solved by vertical thinking, such as mathematical problems and police puzzles, which involve a logical sequence that increases with new data. Its a linear approach to a single possible solution.
2Those that do not require more information, but a reorganization or restructure of the available information. They are resolved through the use we make of data, new associations or connections, imagination and even questioning our vertical thinking. These problems are usually are based on a new perspective, a new mental process, a discovery or a series of partial ideas that bring us closer to the best
3Those that are not recognized as a problem. They have to do with perception and can’t be resolved until they are detected. They may also require a change of perspective, as in the previous case. Here we don’t even realize that we have a problem to solve. In this case, you need an increase of focus and sensitivity to the unexpected in order to perceive what you don’t know.
5 techniques to develop creativity
Lateral thinking can be trained by practicing specific techniques to develop your creativity.
Some of them are:
- Search for alternatives
- Assumptions review: lateral thinking does not accept or reject the validity of assumptions about a topic, its objective is to question and restructure them as often as necessary.
- Redefining the dominant idea: a dominant idea is the theme or principle around which a situation or problem revolves. If it is not grasped, it will influence the thinking that will limit possible solutions. It is easier to escape the influence of something that is known than that which is ignored.
- Dividing technique: if a situation is divided into parts that constitute it, it is possible to restructure the situation by reordering the parts. It is important not try to find preexisting elements, but to create parts, breaking up the situation in an artificial way. This also facilitates the generation of new models, applicable to future (not necessarily similar) situations.
- Inversion method: this technique is more lateral in nature than the previous one. The problem is considered in its real structure and is inverted in one direction or another, from top to bottom, from outside to inside, causing a forced rearrangement of information.
We can always overcome the apparent limitations of each problem by learning to think creatively.
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