For years now, transformation has been a catchall term for how organizations make the right moves to achieve their full potential. Companies usually aim to deliver healthy financial performance and organizational effectiveness before focusing on higher growth, new strategies, and tech-enabled solutions.
But the pace of change means that waiting to “earn the right to grow” is no longer the best strategic or financial option. Just a few trends tell the story: new digital entrants are disrupting industries, with many capturing more value and significantly higher equity valuations than incumbents; ecosystem-based strategies are gaining ground; companies committed to environmental, social, and governance (ESG) criteria are increasingly standing out; and talent is a bigger priority than ever in the C-suite, as leaders try to ramp up the right capabilities to create value.
In such a dynamic business environment, focusing on new ways of working, new capabilities, and new technologies is the way forward. Yet transformations are not easy to get right. Research by McKinsey has long documented that enterprise-wide transformation is difficult, with less than a third of transformations reaching their goals to improve organizational performance and sustain these improvements over time.
Here’s what years of research have taught us about how to launch a holistic and enduring business transformation.
Learn more about McKinsey’s Transformation Practice.
Why begin a transformation program?
Many companies turn to transformation because their leaders seek to capture untapped potential or to realize gains in growth or efficiencies.
While the most successful transformations address most of an organization’s value creation opportunities, some transformations focus on a particular theme (for example, a workforce transformation to adopt agile working methods).
Almost all transformations are “digital transformations” because they require new investments in technology and tech-enabled processes. But some digital-transformation initiatives are so significant that they are large, stand-alone efforts.
Companies undertake transformation in pursuit of a number of goals, including tackling urgent external challenges (disruptive, new market entrants), industry discontinuities (technology is changing consumer behavior), or macroeconomic pressures such as supply chain woes.
Many organizations adopt transformation methodologies to achieve broader strategic goals, such as creating value from ESG; making big M&A and portfolio moves; and prioritizing diversity, equity, and inclusion principles for greater impact.
Who’s involved in a transformation?
The CEO helps a transformation succeed by communicating its significance, modeling the desired changes, building a strong top team, and getting personally involved.
The chief transformation