BCG The New CEO's Guide To Transformation May 2015 Tcm80 188487
BCG The New CEO's Guide To Transformation May 2015 Tcm80 188487
BCG The New CEO's Guide To Transformation May 2015 Tcm80 188487
Transformation
Turning Ambition into Sustainable Results
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.
One Hundred Days Before Starting: Define the Ambition
Before taking the top job, new CEOs should assess the companys situation,
leadership team, and readiness for changeand define the ambition.
The First Weeks: Energize the Organization
Upon taking the reins, new CEOs must start building momentum by establishing a
compelling case for change, rallying leaders, and engaging with employees.
The First 100 Days: Prepare and Launch the Transformation
In this step, CEOs should begin leading the transformation, kicking off noregret initiatives, setting up governance, and launching a communications plan.
The First 18 Months: Drive the Transformation
CEOs must ensure that early measures are hitting their targets and shift to longerterm measures, often including changes to the strategy and operating models.
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40
30
20
10
0
10
20
1950
1959
1968
Top quartile
1977
1986
1995
2004
2013
Bottom quartile
mental reboot that enables a business to achieve a sustainable, quantum improvement in performance, altering the trajectory of its future. Because of the comprehensive nature of transformations and the need for companies to implement them
quickly, transformations are complex endeavors, and the majority either fail to fully
capture 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 opportunity for implementation. Stakeholders expect changes 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 alongside a strong chairperson. Yet through quick and decisive actionseven before taking the top jobnew CEOs can seize the opportunity and put their company on the
right 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 transformations, 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 identify some clear principles and best practices that can help new CEOsas well as
board 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 provides a transformation framework. The report then breaks the transformation process 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.
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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
Winning in the Medium Term. Develop a business model and operating model to
increase competitive advantage.
Building the Right Team, Organization, and Culture. Set up the organization for
sustainable 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, funding 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 priorities typically shift toward winning in the medium term. Throughout a transformation, a focus on building the right team, organization, and culture is vital to ensuring that a transformation is not short-lived but rather becomes a long-term
endeavor that deliversand sustainsimproved performance.
Exhibit 3 | The Transformation Process for New CEOs Has Four Stages
One hundred days
before starting
First weeks
First 18 months
Analyze a companys
situation; talk with internal
and external stakeholders
Develop a roadmap of
no-regret initiatives for the
transformation; include
clear milestones
Shi to a transformation
mind-set, with a clear bias
for action
Engage with employees
about how ready, willing,
and able they are to change
needed; ideally, leaders should speak with 30 to 50 employees from across all
units and at all levels
Industry and functional experts, to understand the company and the complexities
or 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 possible 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 various 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 identifying rapid, no-regret moves during this timeinitiatives that are relatively easy to
implement 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, reduce 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 momentum with these initiatives, they should also clearly define the companys goals
for improving long-term performanceand how the company will sustain those improvements overtime.
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nal factors (such as the customer base, competitors, and capital markets), internal
metrics (for example, operational and organizational performance and employee engagement), 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
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Line.) The case for change is typically made to internal stakeholders in various venues, 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 overall direction and sense of purpose; these companies can focus primarily on shortterm 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, see
the sidebar A Pharmaceutical Company Transforms Itself and Generates $20 Billion in Value.)
clear, the CEO must shift gears from planning the transformation to actually leading it. This means immediately kicking off the rapid, no-regret moves that will deliver impact within 3 to 12 months, creating and enabling initiative teams, setting
up the overall governance and change-management program for the transformation, 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 subsequent measures. As a result, these initiatives further help energize the organization.
The four primary levers for funding the journey are revenue, organizational simplicity (delayering), capital efficiency, and cost reduction. (See Exhibit 4.) In choosing where to start, many companies understandably opt for the two obvious solutions: 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.)
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Categories
Common tools
Typical impact
Sales force
effectiveness
Marketing
Organizational Delayering
simplicity
Net-working-capital
improvement
Fixed-asset
productivity
Project portfolio
optimization
COGS and
procurement
Supply chain
Personnel cost
Nonpersonnel cost
Pricing
Revenue
Capital
efficiency
Cost
reduction
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 effort 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, including the following:
Failure to have in place clear plans and roadmaps, backed with specific actions
and milestones that are linked to financial objectives
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Developing the strategy and the operating model to position the company for stronger growth
Dramatically shiing the business model, including the markets served and the value
proposition for customers
Organization
Improving the effectiveness and efficiency of decision making and work processes throughout
the organization
Commercial
Reshaping sales and marketing by focusing on new markets and increasing the efficiency and
effectiveness of spending
Operational
Boosting a companys profitability and cost position across the manufacturing, supply chain,
and service operations
Digital
Digitizing the entire value chainand the companys competitive DNAby adopting new
technologies and rethinking the business strategy
Global
Increasing the quality and the number of innovations by improving the effectiveness of R&D
IT
Overhauling the core IT infrastructure to enable faster decision making, powerful analytics,
efficient processes, and improved operations
Support functions
Revamping vital support functionssuch as finance, legal, and human resourcesto reduce
costs and improve performance
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Ensure the commitment and change capabilities of the executive team, including their ability to set the right priorities, mobilize and energize initiative teams,
and hold themselves accountable for the results.
Build a talent pipeline that can help fill 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 conjunction with the new strategy. Usually this entails eliminating waste and low-value
work, trimming bureaucracy, implementing shared services, automating processes, and enabling the organization to continue taking these steps on an
ongoing basis.
or most new CEOs, the imperative to change is a given; how CEOs respond to
this imperative is not. Those who stand out from the pack quickly define a bold
transformation ambitionideally before taking the reinsand then move forward
to 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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Acknowledgments
The authors thank Maya Gavrilova, Jonas Lumby Jensen, Paul Millerd, Louise Herrup Nielsen, MaiBritt Poulsen, and Fredrik Vogel for their contributions to this report. The authors also are grateful
to Jeff Garigliano for his assistance in writing this report and Katherine Andrews, Gary Callahan,
Kim Friedman, Abby Garland, Trudy Neuhaus, and Sara Strassenreiter for their contributions to the
editing, design, and production.
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The Boston Consulting Group, Inc. 2015. All rights reserved.
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