The Secret Behind Successful Corporate Transformations
Successful enterprise transformation has long been considered the holy grail of the corporate world — continually sought after, but difficult to grasp. More than 25 years ago, John Kotter highlighted the challenge when he made his now-famous assertion that 70% of corporate transformation efforts are doomed to fail.
Is Kotter’s number accurate? And what makes a successful transformation? There have been surprisingly few studies that set out to answer these questions in a quantitative way. So last fall, our three organizations, Copperfield Advisory (Copperfield), Insider, and Revolution Insights Group (RIG) came together as a team to determine what puts some companies on the path to success.
Using a meta-analysis that crunched data on financial performance as well as corporate reputation, we found that:
Transformation is even harder than we thought. Only 22% of companies in our analysis successfully transformed themselves. A 78% failure rate, compared with Kotter’s asserted 70%, quantifiably affirms how tough it is to transform an organization.
How companies engage their employees can be the difference between success and failure. Our findings revealed that companies that successfully transformed themselves shared a common focus on initiatives that prioritized employees, such as DE&I programs and support for women managers’ careers, in addition to competitive pay and access to health care.
Defining Transformation — and Transformative Organizations
Transformation is perhaps one of the most used and abused buzzwords in business today. Thus, an important first step in our study was defining what constitutes a transformation. In consultation with a panel of 60 executives from global companies, we defined “transformation” as a fundamental shift in the way that an organization conducts business, resulting in economic or social impact.
To find companies that fit this description, we identified a range of quantitative indicators that would signal that a company had experienced or was in the midst of a transformation. These included: increased R&D spend, restructuring cost spend, change in operating margin, mergers and acquisitions, name changes, and public announcements of transformation efforts. Using RIG’s database, which includes information on 350 companies, we assembled a list of 128 global companies that had undergone transformation between 2016 and 2020.
At the outset of our research, we reviewed the existing literature on this topic. Surprisingly, we found that only one study — a 2018 report by Martin Reeves (et al.) of the Boston Consulting Group — had performed a quantitative evaluation of corporate transformation. That research focused on financial metrics — that is, total shareholder return — of more than 300 companies, and ultimately found that transforming successfully was most challenging for companies that faced deteriorating market performance.
Our study also assessed financial performance — based on revenue, stock price, and market value. But in addition, we added positive reputation as a criterion for success, using it as a proxy for evaluating the extent to which companies brought all of their stakeholders (not just shareholders) along on their transformation journeys. For this component, we used RIG’s proprietary meta-equity score, which aggregates metrics from the most used and trusted rankings, including RepTrak, BrandZ, Barron’s, Harris’s Reputation Quotient, and Fortune’s Most Admired. Through statistical analysis, we ranked the companies according to their financial and reputational performances.
Read More at https://hbr.org/2021/09/the-secret-behind-successful-corporate-transformations