Organizational Transformation: Six Critical Practices for Success

Although companies frequently engage in transformation initiatives, few are genuinely transformative. Research indicates that only 12% of major change programs produce lasting results.

Why It Happens? Leaders are increasingly content with incremental improvements. As a result, they experience fewer outright failures but equally fewer real transformations.

The Solution:To deliver, change programs must treat transformation as a continuous process, build it into the company’s operating rhythm, explicitly manage organizational energy, set aspirations rather than targets, drive change from the middle out, and be funded by serious capital investments.

Are companies not trying to transform? Quite the contrary, nearly every major corporation has embarked on some sort of transformation in the past 5 years. Some even have 2 or 3 transformation projects underway. However only 12% of those programs reach 100% of their targets. While some improvement is achieved, most companies reach just between 50-75% of their goals. Settling with those results often signals to employees that mediocrity is good enough, the status quo will be restored. Worse, it breeds cynicism that undermines the success of future change efforts.

Six Critical Practices

Clearly, the prevailing approach to transformation in most companies is not yielding the desired results. It’s time for companies to try a new model—one incorporating six practices that have been proven to yield successful programs.

1. Treating Transformation as a Continuous Process

Most transformation efforts are structured as discrete programs—with a clear beginning and end. Top management sets an ambitious goal, defines a series of initiatives designed to meet it, assigns leaders to manage the change, and then monitors performance until the program is complete.

Most companies are (or should be) in a state of constant transformation. It’s simply no longer possible to freeze and step aside. The most successful efforts recognize that transformation must be continuous and orchestrate their programs accordingly.

Case Study:

Case Study: Adobe

Adobe’s transformation from a traditional software vendor to a cloud-based subscription model in 2011 is a prime example of treating transformation as a continuous process. Adobe continuously adapted and iterated on its product offerings and operational strategies, ensuring that transformation was built into its daily operations and long-term strategy.

2. Building Transformation into the Company’s Operating Rhythm

Too often transformation efforts are handled as separate from company operations. In most instances, however, they should be considered part of every manager’s day job. Consider the approach Satya Nadella took for Microsoft. Nadella’s leadership saw the company undergo a significant cultural shift. He embedded transformation goals into every aspect of the company’s operations, ensuring that change initiatives were aligned with the daily work of employees.

3. Explicitly Managing Organizational Energy

Transformations fizzle when they consume more energy than they generate. That’s why their tendency to continually disrupt the work routines of the same group of individuals is problematic. Over time that group may start to ignore further requests for change or even actively resist them. Our research shows that if an organization tries to change more than two primary routines simultaneously, the odds of failure increase dramatically.

Case Study: Netflix

Netflix transformed its business model from a DVD rental service to a streaming giant and later to a content creator. Each transformation phase was carefully sequenced to limit disruption and prevent widespread organizational fatigue. Leadership explicitly managed energy levels and consciously scheduled changes to maintain enthusiasm and momentum.

4. Using Aspirations, Not Just Targets, to Stretch Management’s Thinking

In typical transformation efforts, especially turnarounds and restructurings, the initial step involves examining external benchmarks. These are then used to set top-down targets for cost and headcount reductions, and the organization is tasked with figuring out how to meet them. While that approach may appear rigorous and data-driven, it seldom sparks transformative thinking. Relying on benchmarks tends to confine “the art of the possible” to what others have already achieved, effectively setting the bar too low.

Case Study: Spotify

Spotify’s leadership consistently aimed higher than industry benchmarks. By setting ambitious goals for growth and innovation, Spotify was able to push beyond existing market standards and drive significant advancements in music streaming technology and user experience.

5. Driving Change from the Middle Out

Most transformation programs are top-down. Upper management sets targets and relies on lower organizational levels to figure out how to meet them. Initiatives are then typically executed from the bottom up. While this approach can yield effective ways to cut waste, it rarely produces lasting results. Why? Because enduring improvement requires changes in both the work being done and how it is accomplished. Cross-company intelligence and deep experience are needed to identify the changes, and that calls for a “middle-out” approach.

Case Study: Unilever

Unilever’s transformation involved engaging middle management in the design and implementation of change initiatives. This middle-out approach ensured that changes were both practical and sustainable, leveraging the insights and experience of those closest to the company’s operations.

6. Accessing Substantial External Capital

Nearly all failed transformations were underfunded. Many leaders tried to finance them through cost-cutting measures. That strategy typically falls short. Efficiency gains and waste reduction alone can’t provide enough financial resources. In contrast, nearly all successful transformations tapped into external capital.

Case Study: Tesla

Tesla’s ongoing transformation efforts have been significantly supported by substantial external funding. This financial backing has enabled Tesla to invest heavily in research and development, scale production capabilities, and continuously innovate in the electric vehicle and energy storage markets.

In summary, successful transformations employ a continuous strategy—adapting to ever-changing conditions and integrating transformation goals into the company’s daily operations. Leaders must manage organizational energy effectively, aim high with aspirations, drive change from the middle out, and secure substantial funding. These practices are essential for companies aiming for enduring success in today’s dynamic world.