bcg the new ceo's guide to transformation may 2015 tcm80 188487
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The New CEOs Guide toTransformationTurning Ambition into Sustainable Results
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The Boston Consulting Group (BCG) is a global
management consulting rm and the worlds
leading advisor on business strategy. We partner
with clients from the private, public, and not-for-
prot sectors in all regions to identify their
highest-value opportunities, address their most
critical challenges, and transform their enterprises.
Our customized approach combines deep insight
into the dynamics of companies and markets with
close collaboration at all levels of the clientorganization. This ensures that our clients achieve
sustainable competitive advantage, build more
capable organizations, and secure lasting results.
Founded in 1963, BCG is a private company with
82 oces in 46 countries. For more information,
please visit bcg.com.
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May
Hans-Paul Brkner, Lars Fste, and Jim Hemerling
The New CEOs Guide toTransformationTurning Ambition into Sustainable Results
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AT A GLANCE
New CEOs have a short window of opportunity to launch a transformation program
aimed at delivering a step-change in performance. With a proven four-step process,
CEOs can turn ambition into sustainable results.
O H D B S: D A
Before taking the top job, new CEOs should assess the companys situation,leadership team, and readiness for changeand dene the ambition.
T F W: Ez Oz
Upon taking the reins, new CEOs must start building momentum by establishing a
compelling case for change, rallying leaders, and engaging with employees.
T F 00 D: P L T
In this step, CEOs should begin leading the transformation, kicking o no-
regret initiatives, setting up governance, and launching a communications plan.
T F 8 M: D T
CEOs must ensure that early measures are hitting their targets and shi to longer-term measures, oen including changes to the strategy and operating models.
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T B C G 3
L when companies are at aninection point, and as a result, new CEOs frequently face immediate pressureto make changes. The challenges are signicant. Companies are being bueted by
rapidly evolving technology and digitization, increasing globalization, blurred
industry boundaries, and regulatory shis, among other factors. As the traditional
sources of competitive advantage disappear, top-performing companies are increas-ing their lead on poor and average performers. (See Exhibit 1.)
To keep up with industry leadersor to remain a leaderit is more important
than ever for companies to undergo transformations. (See Transformation: The Im-
perative to Change, BCG report, November 2014.) We define a transformation as a
profound change in a companys strategy, business model, organization, culture,
people, or processes. A transformation is not an incremental change but a funda-
20
10
0
10
20
30
40Average EBIT margin across industries
1950 1959 1968 1977 1986 1995 2004 2013
Top quartile Bottom quartile
Sources:BCGs Strategy Institute; Compustat.Note:EBIT = earnings before income and taxes. For the years shown, our calculations included all U.S.publicly listed companies whose net sales exceeded $50 million. We computed the per quartile average
for each industry (underweighted) and then determined the average across all industries (weighted by thenumber of companies in each industry for each year). Our calculations excluded company outliers withextremely high or low margin growth and industries with fewer than two data points.
Ex 1 | The Top-Performing Companies Are Increasing Their Leadon Poor Performers
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T N CEO G T
mental reboot that enables a business to achieve a sustainable, quantum improve-
ment in performance, altering the trajectory of its future. Because of the compre-
hensive nature of transformations and the need for companies to implement them
quickly, transformations are complex endeavors, and the majority either fail to fullycapture the potential value or exceed the time allotted to embed new behaviors
and processes. Yet by adopting a clear methodology, companies can flip the odds in
their favor.
Companies with stable management teams can also benefit from transformations,
yet in our experience, a change in leadership offers a critical window of opportuni-
ty for implementation. Stakeholders expectchanges to occur when a new CEO is
hired. In fact, a principal risk for new CEOs is that they may resist taking action too
quicklyor hesitate to make changes that go deep enough. The risk is especially
high for insiders who are being promoted to the top spot or taking the reins along-
side a strong chairperson. Yet through quick and decisive actionseven before tak-
ing the top jobnew CEOs can seize the opportunity and put their company on theright trajectory for success.
The message for incoming leaders is clear: You need to take action immediately. By
laying the groundwork in advance, you can be prepared to lead from the front with
a clear vision, solid objectives, and the tools and processes to succeed.
The Boston Consulting Group has helped companies execute transformations that
have led to significant financial impact. We have completed more than 500 transfor-
mations, generating a median annual impact of approximately $340 million
through cost cuts, revenue increases, and the application of capital-efficiency levers;
150 transformations are currently under way. This body of work has helped us iden-
tify some clear principles and best practices that can help new CEOsas well asboard chairs and members of the C suitesuccessfully develop and implement a
transformation effort.
This report is a playbook for new CEOs. It lays out how and where to start and pro-
vides a transformation framework. The report then breaks the transformation pro-
cess into four steps: the 100 days before officially starting, the first weeks on the
job, the first 100 days, and the first 18 months. Because the framework applies to all
transformations, while the four steps provide specific actions for new CEOs, there is
some overlap. The report also includes case studies of successful transformations in
various industriesretail, technology, and manufacturing, among othersto show
what the process looks like in the real world.
The Transformation FrameworkOn the basis of our experience helping implement transformations across indus-
tries and regions worldwide, we have developed a proven framework that can help
leaders define the collective transformation ambition for the company. (See Exhibit 2.)
The framework has three critical components:
Funding the Journey. Launch short-term, no-regret moves to establish momentumand to free up capital to fuel new growth engines.
Throgh qic anddeciie action
een before taing theto jobnew CEO
can t theircomany on the right
trajectory for cce.
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Winning in the Medium Term. Develop a business model and operating model toincrease competitive advantage.
Building the Right Team, Organization, and Culture. Set up the organization forsustainable high performance.
A transformation should include all three elements, but the relative importance of
these components changes at various points in the process. In the beginning, fund-
ing the journey is often the most critical aspect , not only to establish momentum
but also to free up capital rapidly. Over time, as a transformation takes root, the pri-orities typically shift toward winning in the medium term. Throughout a transfor-
mation, a focus on building the right team, organization, and culture is vital to en-
suring that a transformation is not short-lived but rather becomes a long-term
endeavor that deliversand sustainsimproved performance.
One Hundred Days Before Starting: Define the AmbitionNew CEOs often have timeas much as 100 daysafter unwinding themselves from
most of the responsibilities of their former job and before they must assume those of
the new position. This period offers a critical opportunity for leaders to take charge
and define the organizations collective transformation ambition. (See Exhibit 3.)
When defining this ambition, it is critically important for CEOswhether hired
from the inside or brought in from the outsideto adopt an investigative and ana-
lytical mind-set: I need to learn more. (For an example of an incoming leader who
defined a bold transformation ambition, see the sidebar A New Retail CEO Hits
the Ground Running.) Incoming leaders should talk with as many critical stake-
holders as possible, both inside and outside the organization, in order to educate
themselves about the company:
Employees, to determine if there is a consensus regarding the changes that are
Launch short-term, no-regret moves tocreate momentum and free up capital
Simplify the organization
Increase capital efficiency
Reduce costs
Establish the strategic direction for growth
Revamp the business model
Develop a new target operating model
Implement end-to-end lean
Ensure that the senior management team is leading from the front
Deploy change management to ensure that people are ready, willing, and able to change
Install a human resources team that can act as a transformation partner
Identify and develop talent to fill the critical roles required to transform
Develop a culture to support high performance
Funding the journey Winning in the medium term
Building the right team, organization, and culture
Source:BCG analysis.
Ex 2 | BCGs Transformation Framework Has Three Components
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6 T N CEO G T
needed; ideally, leaders should speak with 30 to 50 employees from across all
units and at all levels
Customers, to get unvarnished opinions of the companys performance inaddressing their needs
Industry and functional experts, to understand the company and the complexitiesor disruptions in the market
During these conversations, a new CEO should primarily listen, encourage open
and honest discussion, and make sure that all possible dynamic factors and all pos-
sible solutions are being brought to the forefront. Through this process, the CEO
must start to diagnose problems and create hypotheses regarding which aspects of
the company require improvement. This means assessing the urgency of the vari-
ous situationsin terms of both scope and timingand determining whether the
company should seek to transform a specific function, market, or division or
instead undergo a more comprehensive effort that affects multiple areas of the
company.
In both broad and narrow transformation efforts, new CEOs need to start identify-
ing rapid, no-regret moves during this timeinitiatives that are relatively easy toimplement in the first 100 days and that can generate results in 3 to12 months.
These no-regret initiatives should close performance gaps in a few critical areas, re-
duce costs, improve top- and bottom-line performance, and free up cash in order to
fuel longer-term initiatives. (For an example of a leader who launched multiple
measures to build momentum for a transformation, see the sidebar A Technology
Leader Creates Momentum Through Rapid Moves.) As new CEOs establish mo-
mentum with these initiatives, they should also clearly define the companys goals
for improving long-term performanceand how the company will sustain those im-
provements over time.
One hundred daysbefore starting First weeks First 100 days First 18 months
Analyze a companyssituation; talk with internaland external stakeholders
Assess the organizationsmind-set and the urgencyof the various situations
Develop initial hypotheseson value-creatingimprovements and identifypotential no-regret moves
Assess the leadership team
Plan the first 100 days
Establish the case forchange, discussing externaland internal factors
Ensure that the board andsenior leadership are inagreement and can speakwith one voice
Shi to a transformationmind-set, with a clear biasfor action
Engage with employeesabout how ready, willing,and able they are to change
Ensure the delivery ofshort-term results
Plan, develop, and launchbroader initiatives forwinning in the mediumterm
Set new, overall strategyand operating models
Develop the right team,organization, and cultureto deliver sustainableperformance
Develop a roadmap ofno-regret initiatives for thetransformation; includeclear milestones
Create initiative teams,with charters, resources,plans, and processes
Set up governance,including an activist PMO
Launch thecommunications plan
Define the ambition Energize the organization Prepare and launch thetransformation
Drive the transformation
Source:BCG analysis.Note:PMO = program management office.
Ex 3 | The Transformation Process for New CEOs Has Four Stages
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T B C G 7
The First Weeks: Energize the OrganizationIn the second stepthe initial weeks of a new CEOs tenurecommunication be-
comes critical. Leadership transitions and transformations can be stressful periods
for a company, and undergoing both simultaneously can make them doubly so. Yet
success requires large numbers of people to go above and beyond to accelerate thepace of change. As a result, new CEOs must carve out the time to energize the or-
ganization and build momentum for the collective transformation ambition.
Specifically, new CEOs should start building a compelling case for change from their
first day on the job. Initially, new CEOs should make the case to the board of direc-
tors and to the senior management team to achieve consensus so that they all
speak with one voice regarding the transformation. Then, new CEOs should make
the case to the entire organization. The case for change should acknowledge the
companys heritage and the hard work of employees, but it should also discuss exter-
A new CEO wa hired to rn a retailorganization that had been loing
maret hare for eeral year and
that wa tarting to ee rotability
decline. Dring the 100 day before
taing oer, the CEO iited tore,
taled with ctomer, tdied
international bet ractice to bild
on hi own exerience abroad, and
taled with exert in the retail ector.
Throgh that roce, he realized that
the immediate riority wa to identify
raid, no-regret moe that coldincreae to-line ale and reenergize
the organization.
While condcting thi de diligence,
the new CEO alo deeloed a trong
reentation to introdce hi lan to
the organization. A oon a he too
oer, he gae the reentation dring
the rt exectie-committee meet-
ing, orting the lan with the
ctomer feedbac hed generated
rthand, along with hi internationalexerience with retail eer. In thi
reentation, he ed ery direct
langage and imle terminology,
which made the meage owerfl,
credible, and reonant.
Dring hi rt month, the CEO gaeimilar reentation to larger gro
of emloyee and manager, which
roided clarity and redced anxiety
in the organization. He alo traeled
to meet the extended management
team, iited crcial contrie, and
granted interiew to elect media
otletalway with the ame clear
and conitent meage.
Within the rt qarter, the comany
had begn to roll ot eeral no-
regret moe on the bai of hi
international retail exerience and
rthand reearch, inclding a loyalty
camaign, extended oerating hor
for a articlar tore format, and new
romotion. The relt jm-tarted
to-line growth for the rt time in
year, leading to beqent gain in
maret hare. With thoe gain
behind them, emloyee were more
willing to accet the cot ct and
other meare reqired for thecomany to become leaner and
more agile.
A NEW RETAIL CEO HITs THE GROuND RuNNING
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T N CEO G T
nal factors (such as the customer base, competitors, and capital markets), internal
metrics (for example, operational and organizational performance and employee en-
gagement), and the necessary measures the company will soon take in response. (For
an example of a CEO taking dramatic steps to energize a company, see the sidebar
A Consumer Packaged Goods CEO Revamps the Companys Structure and Product
At a global technology comany, the
head of a bine nit realized that
the organization wa not winning the
highly cometitie war for talent. The
comany had droed in the rating
at webite ch a Gladoor.com
and in Fortunemagazine annal
Bet Comanie to Wor For reiew.
The relt of emloyee engagement
rey had been falling for year.
And the nit head new from eron-
al interaction with emloyee thatthey were not hay or motiated to
go aboe and beyond. He wanted a
tranformation that wold increae
emloyee engagement, retore
internal ride, and erade emloy-
ee to go the extra mile.
Bt hi challenge did not to there.
Ctomer feedbac wa ery tro-
bling. For examle, one ctomer
commented: When we loo at yor
rodct, we can ee how yororganization i trctred. Yor
rodct are iloed, with incomatible
comonent and broen interface
which i jt lie yor iloed organiza-
tion. We need integrated oltion
with comonent that wor together
to ole or roblem, and we need
them now. sch feedbac gae the
nit head a econd imet for a
tranformation.
In reone, he dened a boldambition to tranform the nit in
order to win the war for talent,
energize hi engineer, delier the
integrated oltion that ctomer
were demanding, and free reorc-
e to deloy on oortnitie for
growth.
Hi rt te wa to condct a
thorogh analyi of the root cae
of the erformance ie. On the
bai of thi analyi, the nit head
dened the ambition for a te-
change tranformation acromltile dimenion, inclding
growth, innoation, leaderhi
caabilitie, worforce qality,
organizational eciency, emloyee
rodctiity, and cltre.
Within the rt few wee, he elected
the leaderhi team to drie the
tranformation rogram and comm-
nicated the cae for change, initially
among the to 150 leader, and then
acro the bine nit.
In the rt 100 day, the nit head
lanched the fll tranformation
rogram with mltile team, a
rogram management oce,
change-management rocee, and
an emloyee commnication lan.
Oer the next year, the tranformation
deliered ignicant imroement
acro mltile erformance dimen-
ionthe relt of a bine nit
leader condcting a thorogh diag-notic and dening a bold tranfor-
mation ambition.
A TECHNOLOGY LEADER CREATEs MOMENTuMTHROuGH RApID MOvEs
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T B C G 9
Line.) The case for change is typically made to internal stakeholders in various ven-ues, such as workshops and town hall meetings, as well as through communication
channels that allow the CEO to answer important questions on vision, approach, and
tactical next steps.
In addition, leaders should tailor the message and the communication style to the
companys situation. Some companies have well-established ideas about their over-
all direction and sense of purpose; these companies can focus primarily on short-
term performance and delay setting a more visionary agenda. Other companies are
tired of short-term thinking and constant cuts and need a more compelling story
about where the new CEO intends to lead the company. In all cases, it is critical for
the CEO to speak with authenticity and a sense of urgency. (For a case study of a
company that had to take rapid and dramatic steps during a transformation, seethe sidebar A Pharmaceutical Company Transforms Itself and Generates $20 Bil-
lion in Value.)
The First 100 Days: Prepare and Launch the TransformationThe first 100 days of the process are critical in that they set the trajectory for the
overall transformationand indeed for the CEOs tenure. Leaders must put the
foundation in place during this time, balancing a long-term vision with day-to-day
reality. As the transformation starts to take shape and the case for change becomes
A new CEO too oer a global con-
mer acaged good (CpG) coma-
ny that had been langihing owing
to declining ale and a agging toc
rice. Recognizing that the comany
hitoric rot core wa hrining and
that dramatic action wa reqired, the
CEO etablihed a bold iion to
change the hae and direction of the
entire organization.
secically, the CEO lit the coma-ny in two, creating a lower-growth
dometic organization and a raidly
exanding international layer. In
addition, the leat deirable diiion
were old o, which rereented
aroximately 20 ercent of the total
ortfolio. Finally, the CEO made
eeral acqiition, articlarly in
growth area that cold iggybac
on the comany exiting ditrib-
tion channel.
Execting thi tranformation
reqired trong leaderhi, not only
from the CEO bt alo from the entire
enior-management team. senior
leader were aigned to new organi-
zation on the bai of their ill and
exerience in ario maret. In
addition, the new CEO changed the
board to inclde member with amore actiit inetor mind-et who
wold hel hae the comany
growth agenda.
Collectiely, thee meare more
than dobled the comany maret
ale and moed it total hareholder
retrn into the to qartile of the
CpG ector.
A CONsuMER pACkAGED GOODs CEO REvAMpsTHE COMpANYs sTRuCTuRE AND pRODuCT LINE
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clear, the CEO must shift gears from planning the transformation to actually lead-
ing it . This means immediately kicking off the rapid, no-regret moves that will de-
liver impact within 3 to 12 months, creating and enabling initiative teams, setting
up the overall governance and change-management program for the transforma-
tion, and launching the communications plan.
These no-regret initiatives build momentum for the larger effort, win over internal
skeptics who may doubt that change is actually happening, generate credibility for
the new leadership team, and often free up capital that can be used to fund subse-quent measures. As a result, these initiatives further help energize the organization.
The four primary levers for funding the journey are revenue, organizational sim-
plicity (delayering), capital efficiency, and cost reduction. (See Exhibit 4.) In choos-
ing where to start, many companies understandably opt for the two obvious solu-
tions: cost cutting and organizational simplicity. This approach works, but revenue
and capital efficiency can often generate a significant impact as well. (For a case
study of a company that launched strong early stage initiatives, see the sidebar A
Manufacturer Lays the Groundwork for an Ambitious Transformation.)
A global harmacetical comany
had been extremely ccefl
conitently growing earning by
15 ercent a year and reineting all
remaining exce caital. Howeer,
management challenged itelf to
imroe erformance throgh a
comrehenie tranformation of the
comany. The inetor commnity
alo indicated that the comany
cold create more ale by accelerat-
ing earning growth. A the comanybegan to conider a tranformation, it
faced an additional challengea
hotile tae-oer attemt.
In reone, the comany lanched
an extremely raid initiatie to ct
actiitie that generated a low retrn
on inetment and retrctred to
qicly increae earning. The roject
team analyzed and redeigned the
entire comany in only three month
and then imlemented the newdeign. Deite the raid lanch,
irtally all fnction and bine
nit were inclded in the coe.
Notably, the comany imlemented
the tranformation throgh both
enior leader and manager who
were eeral leel down in the
organization hierarchy. Thi aroach
led to ery ecic, ragmatic
oltion, and it bilt momentm for
the initiatie throghot the coma-
ny worforce.
Throgh thi tranformation, the com-
any ct it annal cot by more
than $500 million and increaed it
earning growth rate from 15 ercent
to more than 20 ercent. Thee
change yielded an imroement in
comany ale of aroximately
$20 billion. The tranformation alo
rereented a ale-creating alterna-
tie to the hotile taeoer and
enabled management to trie a deal
with a dierent acqirer on morefaorable term.
A pHARMACEuTICAL COMpANY TRANsFORMsITsELF AND GENERATEs $20 BILLION IN vALuE
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Once measures are under way, there is a real risk of prematurely declaring victory
and moving on to other priorities, which all but assures that the transformation ef-
fort will fail. Instead, it is critical to maintain focus and ensure that initiative teams
are on track to achieve results. Assuming that some form of project tracking has
been put in place, now is the time to ensure that leaders have full transparency into
the progress of each initiative. Regular review sessions, facilitated by the program
management office (PMO), should provide sufficient information for leaders to
know whetherand howthey need to intervene.
In particular, CEOs should avoid a number of common pitfalls during this phase, in-
cluding the following:
Insucient accountability among the owners and sponsors of the initiatives
Failure to have in place clear plans and roadmaps, backed with specic actionsand milestones that are linked to nancial objectives
A lack of resources and expertise on initiative teams
Primary levers Categories Common tools Typical impact
Trim the number of layers and increase the spansof control
Shrinks indirect labor costs by15 to 30 percent; improvesaccountability, decision making,and operational agility
Delayering
Revamp pricing model, reduce discounts,and develop new pricing capabilities
Raises revenue by 2 to 8 percentPricing
Improve customer targeting and enable thesales team
Increases revenue and profit by10 to 15 percent
Sales forceeffectiveness
Optimize spending and implement data analyticsReduces marketing costs by10 to 20 percent; boosts salesvolume by 3 to 8 percent
Marketing
Reduce inventory and handle payables andreceivables more efficiently
Decreases working capital by20 to 40 percent
Net-working-capitalimprovement
Sell assets, outsource functions, and increaseoverall equipment effectiveness
Lowers capital expenses by20 to 30 percent; increasesEBITDA by 2 to 8 percent
Fixed-assetproductivity
Analyze net present value, prioritize projects,and eliminate failed projects
Improves relative TSR by20 to 40 percent
Project portfoliooptimization
Decrease spending on promotions, better managecategories and suppliers, and improve procurement
Cuts COGS by 2 to 3 percentand procurement costs by5 to 20 percent
COGS andprocurement
Improve logistics, optimize the network,and streamline the product portfolio
Reduces operating expenses by10 to 30 percent
Supply chain
Increase offshoring or outsourcing and reducehead count
Trims labor costs by20 to 40 percent
Personnel cost
Cut spending on travel, utilities, facilities, IT,and services
Lowers overhead costs by20 percent
Nonpersonnel cost
Organizationalsimplicity
Revenue
Capitalefficiency
Costreduction
Source:BCG analysis.Notes:EBITDA = earnings before interest, taxes, depreciation, and amortization; TSR = total shareholder return; COGS = cost of goods sold.
Ex 4 | Four Primary Levers Can Help Fund the Journey
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T N CEO G T
Management incentives that do not support the objectives of the transformation
Failure to engage stakeholders and overcome institutional resistance
The First 18 Months: Drive the TransformationAs the broader transformation begins to gain momentum and initial fund-the-
journey efforts begin to take hold, CEOs must launch broader initiatives to win in
the medium term, set the new strategy and operating model, and build sustainable
performance.
Winning in the Medium Term.This phase requires delivering on transformation
objectives that go beyond the short-term goals of earlier, fund-the-journey eorts.
The specic objectives will vary by company, but common to all transformations is
The u.s. hoing indtry ered a
tee correction following the 2008
global nancial crii. The CEO of a
manfactring comany reonded
with a nmber of meare that did
not imroe it nancial erformance.
Realizing that tronger meare
were called for, the CEO decided to
lanch a more ambitio tranforma-
tion rogram, with the goal of increa-
ing earning before interet and taxe(EBIT) in one year, indeendent of
maret growth or rice change.
To reare for the tranformation,
een teamfor comoed of
emloyee from bine nit and
three made of emloyee from
major fnction areadeeloed a
roadma of initiatie arond growth,
ricing, cot redction, and oera-
tional rodctiity imroement.
Each initiatie ecied the targetEBIT imroement, reqired action,
miletone, and reorce. The
comany alo enabled the team to
meet thee aggreie goal by roid-
ing them with new analytical frame-
wor and roblem-oling methodol-
ogie and tool.
To enre the oerall rogram
deliered on the EBIT ambition, the
comany et a teering committee
comoed of enior exectie and a
rogram management oce (pMO) to
roide goernance and drie the
ace of the tranformation.
The pMO roided rigoro rogrammanagement, inclding the monthly
tracing of imroement. The
reort highlighted any initiatie that
were exceeding or falling hort of
their target. Thi gae management
a clear iew of oerall erformance
and agged itation that reqired
interention.
A a relt, the comany wa able to
delier on the ambitio EBIT target
et by the CEO. In addition, thebine nit adoted a contino-
imroement aroach to catre
gain aer the formal tranformation
rogram ended.
A MANuFACTuRER LAYs THE GROuNDWORk FORAN AMBITIOus TRANsFORMATION
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T B C G 3
the need to establish a fundamentally dierent competitive position, leading to a
medium-term step-change in performance. Winning in the medium term could
entail a wide range of initiatives to transform, including driving growth, launching a
new business model, revamping commercial processes or operations, buildingdigital capabilities and ventures, and transforming internal support functions, such
as R&D, IT, or human resources (HR), among others. (See Exhibit 5.)
Compared with funding-the-journey measures, initiatives to win in the medium
term are usually more difficult to conceptualize, as they require breakthrough
thinking, usually in areas that are less familiar for the organization. These initia-
tives are also harder to staff and implement, and they call for managing interdepen-
dencies across functions and business units. (For an example of a CEO-led transfor-
mation that delivered sustainable gains, see the sidebar A Global Insurer
Implements a Value-Based Transformation.)
Setting the New Strategy and Operating Model.While driving short-term andmedium-term initiatives, companies benet from stepping back and looking at their
overall strategy and operating model. This does not need to be a broad strategy-
Growth Developing the strategy and the operating model to position the company for stronger growth
New business modelDramatically shiing the business model, including the markets served and the valueproposition for customers
OrganizationImproving the effectiveness and efficiency of decision making and work processes throughoutthe organization
CommercialReshaping sales and marketing by focusing on new markets and increasing the efficiency andeffectiveness of spending
OperationalBoosting a companys profitability and cost position across the manufacturing, supply chain,and service operations
GlobalRepositioning a company in a complex global world to take advantage of proper growthopportunities in emerging and developed nations
Innovation and R&D Increasing the quality and the number of innovations by improving the effectiveness of R&D
ITOverhauling the core IT infrastructure to enable faster decision making, powerful analytics,efficient processes, and improved operations
Support functionsRevamping vital support functionssuch as finance, legal, and human resourcesto reducecosts and improve performance
Digitizing the entire value chainand the companys competitive DNAby adopting newtechnologies and rethinking the business strategy
Digital
Source:BCG analysis.
Ex 5 | There Are Numerous Types of Transformations
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T N CEO G T
A new CEO too oer at a global
inrance comany that had mltile
line of bine. The CEO condcted
an otide-in analyi to ae the
comany crrent itation, along
with it caabilitie, it cometitie
oition both globally and in indiid-
al maret, and indtry analyt
ercetion.
Thi roce identied ome clear
challenge. The comany retrn oncaital wa low, and it caital
oition wa wea. The comany alo
laced a rigoro roce for allocat-
ing caital and had inecient cot
trctre and an nfoced ortfolio
of bine nit, whoe erformance
aried widely.
Throgh thi analyi, the CEO
dened the ambition for a tranfor-
mation and etablihed exlicit
nancial target. Once he too oerthe to job, he bilt momentm for
the eort in a erie of meeting with
the board of director and the
exectie committee.
A art of the tranformation, the
CEO looed at ecic inrance
egment and retrctred the
comany into 40 cell. Each cell
rereented binee and maret
with imilar nderlying characteritic
(for examle, ehicle inrance in theuk, enion inrance in poland, and
cororate inrance for large coma-
nie in the u.s.). The CEO then
aeed the erformance of the
indiidal cell acro eeral
dimenion throgh nancial analy-
e and the ealation of maret
roect.
On the bai of the relt, the
comany groed it binee
into three clter: grow (the to
25 ercent), trnarond (the middle
50 ercent), and diet (the bottom
25 ercent).
Within the rt 100 day, and baced
by the enior management team, the
CEO had begn commnicating a
new 18-month initiatie to the entire
organization.
The tranformation wold inclde
ecic correctie action to imroe
the cah ow erformance of the
trnarond nit. In addition, the
rogram wold redce cot throgh-
ot the comany and trengthen the
caital management roce, with
more integrated lanning and a
better erformance-management
cycle.
In all, the eort generated more than
$400 million in aing in it rt
yeara aing that inclded a
redction of 25 ercent in the head
cont of enior management.
That cce temmed from eeral
factor. Firt, the comany too a
trictly fact-baed aroach to
analyzing bine erformance, in
art by eliciting an otide-in ae-
ment from the inetor and analytcommnitie. second, the CEO
enred that all exectie committee
member had accontability for
ecic initiatie. And third, the
imlementation lan wa clear from
the tart, than to trong commni-
cation and fll by-in from the
management team.
A GLOBAL INsuRER IMpLEMENTs A vALuEBAsEDTRANsFORMATION
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T B C G
planning exercise. In fact, we nd that a targeted workshop-based approach with
the senior leadership teamand the appropriate data and analysiscan lead to a
strong outcome and do so in a highly ecient manner that doesnt distract the
leadership team from driving the overall transformation. This approach ensuresthat there is buy-in from the top team and that the strategy leads to immediate
operational adjustments. (For an example of a company that implemented strategic
changes as part of its transformation, see the sidebar A Banks Transformation
Boosts Customer Satisfaction and Financial Performance.)
Building Sustainable Performance.Many organizations that deliver results during
the transformation have a tough time sustaining their hard-won performance
improvements. The goal of every CEO should be to achieve success during the rst
18 months of the transformation program and then maintain it well beyond that
point. This is what separates the most transformative CEOs from the rest of the
pack. It is imperative for a CEO to own this phase and closely involve the chief
human-resources ocer and other inuential leaders across the company.
There are five important aspects to developing the right people and organization
In the wae of the nancial crii, a
large ban wa trggling to reme a
growth trajectory. It ered from
oor rotability and roce ine-
ciency, comared with it eer. Theban alo had eere liqidity ie
and high write-down on loan in
both core and ditant maret. More
fndamentally, it had an nclear
ale rooition for ctomer and
little organizational foc on erfor-
mance and collaboration among
emloyee.
In reone, the CEO and leaderhi
team lanched a three-te tranfor-
mation aimed at imroing ctomeratifaction and nancial relt.
The rt te wa to reorganize the
comany arond the ctomer
exerience rather than arond
diiion and fnction, which wa
the crrent, ilo-baed aroach. That
roce claried the role for ecic
fnction, and it rewired rocee to
foter greater collaboration acro
deartment. At the ame time, the
comany reamed it leaderhi
team, maing ome new hire andgiing ome crrent leader new
role.
The econd te wa deeloing a
new trategynew bine leader
were taed with dening the
trategy for their nit. Thoe
indiidal trategie were groed
into one major tranformation eort
that wa owned by the CEO and had
three ecic objectie: better
ctomer atifaction, greatereciency, and a erformance-baed
cltre.
In the third tecrrently nder
waythe CEO and leaderhi team
are tting their fll foc on exect-
ing the new trategy.
A BANks TRANsFORMATION BOOsTs CusTOMERsATIsFACTION AND FINANCIAL pERFORMANCE
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6 T N CEO G T
required to support a successful, sustainable transformation:
Ensure the commitment and change capabilities of the executive team, includ-
ing their ability to set the right priorities, mobilize and energize initiative teams,and hold themselves accountable for the results.
Deploy change-management tools and processes (such as an activist PMO,roadmaps, and rigor testing) to engage stakeholders and deliver results. (For
more on rigor testing, see The Hard Side of Change Management,Harvard
Business Review, October 2005.)
Install an HR team that can act as a transformation partner, anticipating talentand leadership needs, rather than as a mere service provider.
Build a talent pipeline that can help ll crucial roles, and develop capabilities in
areas critical for the transformation, such as go-to-market strategies, pricing,sourcing, lean methods, digitization, innovation, and HR.
Simplify the organization and culture to sustain high performance in conjunc-tion with the new strategy. Usually this entails eliminating waste and low-value
work, trimming bureaucracy, implementing shared services, automating pro-
cesses, and enabling the organization to continue taking these steps on an
ongoing basis.
F CEOs, the imperative to change is a given; how CEOs respond tothis imperative is not. Those who stand out from the pack quickly define a boldtransformation ambitionideally before taking the reinsand then move forwardto energize the organization, prepare the program, and drive the transformation.
Through quick and decisive actionswhile time, the board, and investors are still
on their sidenew CEOs can seize the opportunity to lead a transformation and
put their company on the right trajectory for success.
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T B C G 7
About the AuthorsHans-Paul Brkner i chairman of The Boton Conlting Gro; he i in the rm Franfrt
oce. Yo may contact him by e-mail at berner.han-al@bcg.com.
Lars Fstei a enior artner and managing director in BCG Coenhagen oce and the globalleader of BCG Tranformation ractice. Yo may contact him by e-mail at faete.lar@bcg.com.
Jim Hemerlingi a enior artner and managing director in the rm san Francico oce. Yo
may contact him by e-mail at hemerling.jim@bcg.com.
AcknowledgmentsThe athor than Maya Gariloa, Jona Lmby Jenen, pal Millerd, Loie Herr Nielen, Mai-
Britt polen, and Fredri vogel for their contribtion to thi reort. The athor alo are gratefl
to Je Garigliano for hi aitance in writing thi reort and katherine Andrew, Gary Callahan,
kim Friedman, Abby Garland, Trdy Neha, and sara straenreiter for their contribtion to the
editing, deign, and rodction.
For Further ContactIf yo wold lie to dic thi reort, leae contact one of the athor.
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To nd the latest BCG content and register to receive e-alerts on this topic or others, please visit bcgperspectives.com.
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The Boston Consulting Group, Inc. 2015. All rights reserved.
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