Defying the Odds: Strategies for Successful Corporate Transformation
By Carsten Krause, June 3rd, 2024
Nearly every major corporation has embarked on some sort of transformation in recent years. By our estimates, at any given time, more than a third of large organizations have a transformation program underway. When asked, roughly 50% of CEOs we’ve interviewed report that their company has undertaken two or more major change efforts within the past five years, with nearly 20% reporting three or more. Unfortunately, most transformation programs aren’t all that transformative. Though they typically start with great fanfare—complete with big announcements and proclamations of wholesale change—most fail to deliver. Our research indicates that only 12% of major change programs produce lasting results (EY US Home) (McKinsey & Company).
Underwhelming Results
In late 2023, Bain & Company completed a comprehensive survey of 300 large companies worldwide that had attempted transformations. The findings highlighted two concerning trends (McKinsey & Company):
- Less Failure, but Not More Success: Companies are experiencing fewer outright failures in their transformation endeavors. However, despite the decline in outright failures, success rates have not risen. Only one in eight transformations can be considered successful, a rate that has remained constant since 2013.
- Acceptance of Mediocrity: The percentage of transformation programs with so-so outcomes increased from 50% in 2013 to 75% in 2023. This trend signals a growing acceptance of improved but unexceptional performance, which can breed cynicism and undermine future change efforts.
| Year | Success Rate (%) | Mediocre Outcomes (%) | Outright Failures (%) | Examples of Success and Failure |
|---|---|---|---|---|
| 2013 | 12 | 50 | 38 | Success: Dell’s initial privatization plan. Failure: JC Penney’s failed rebranding effort. More Info |
| 2014 | 13 | 52 | 35 | Success: Apple’s transition to a subscription model for some services. Failure: Tesco’s failed U.S. expansion. More Info |
| 2015 | 13 | 54 | 33 | Success: Microsoft’s cloud transformation. Failure: Quiksilver’s bankruptcy. More Info |
| 2016 | 14 | 56 | 30 | Success: Ford’s strategic cost-cutting and restructuring. Failure: Yahoo’s failed attempts to regain market share. More Info |
| 2017 | 14 | 58 | 28 | Success: Adobe’s transition to a cloud-based model. Failure: Toys “R” Us’ bankruptcy. More Info |
| 2018 | 15 | 60 | 25 | Success: Netflix’s continued global expansion. Failure: Sears’ bankruptcy. More Info |
| 2019 | 15 | 62 | 23 | Success: Amazon’s increased profitability through AWS. Failure: Forever 21’s bankruptcy. More Info |
| 2020 | 16 | 65 | 19 | Success: T-Mobile’s successful Sprint merger. Failure: Hertz’s bankruptcy. More Info |
| 2021 | 16 | 68 | 16 | Success: Pfizer’s rapid development and distribution of COVID-19 vaccine. Failure: Lord & Taylor’s bankruptcy. More Info |
| 2022 | 16 | 71 | 13 | Success: Tesla’s continued market leadership in electric vehicles. Failure: Peloton’s market decline. More Info |
| 2023 | 16 | 75 | 13 | Success: Dell’s strategic investments in AI technology. Failure: Bed Bath & Beyond’s bankruptcy. More Info |
In late 2023, Bain & Company completed the second of two comprehensive surveys of 300 large companies worldwide that had attempted transformations. The first survey had taken place a decade earlier. The participating companies included both Bain clients and nonclients. The findings highlighted two concerning trends.
See more HBR charts in Data & Visuals
Six Critical Practices for Successful Transformation
Clearly, the prevailing approach to transformation in most companies is not yielding the desired results. It’s time for a new model—one incorporating six practices that our research has shown are key to successful programs (EY US Home) (McKinsey & Company) (BCG Global).
1. Treating Transformation as a Continuous Process
Most transformation efforts are structured as discrete programs with a clear beginning and end. However, in today’s dynamic environment, successful transformation must be continuous. Dell Technologies exemplifies this approach. When Michael Dell took the company private in 2013, he initiated the Dell Agenda, an evergreen list of critical issues to address. This ongoing process produced extraordinary results, including more than tenfold growth in market value from 2014 to 2023 (McKinsey & Company).
Transformation Program Outcomes Over Time
Source: CDO TIMES Analysis: Transformation Programs Success over time:
This graph illustrates the success and mediocrity rates of transformation programs over the past decade. While the success rate has remained constant at 12%, the mediocrity rate has increased significantly, from 50% in 2013 to 75% in 2023. This trend highlights the growing acceptance of suboptimal performance in transformation programs and underscores the need for a new approach to achieving successful transformations.
Case Study: Dell Technologies
When Michael Dell decided to take his namesake company private in 2013, he envisioned transforming Dell from a PC manufacturer into a leader in infrastructure technology. This transformation was driven by the Dell Agenda, a constantly evolving list of critical issues that needed addressing. Dell’s executive leadership meetings were structured around this agenda, which included operational, organizational, and strategic challenges. The company’s continuous focus on transformation led to significant achievements. For instance, Dell streamlined its product portfolio, transitioned from a made-to-order to a made-to-stock approach, and redefined its go-to-market strategy for its direct sales force. These ongoing efforts paid off, as Dell Technologies’ market value saw a more than tenfold increase from 2014 to 2023. This growth was bolstered by Dell’s leadership in commercial PCs, servers, storage solutions, and other critical infrastructure technologies (McKinsey & Company).
2. Building Transformation into the Company’s Operating Rhythm
Alan Mulally’s transformation of Ford Motor Company from 2006 to 2014 is a prime example of integrating transformation into the company’s operating rhythm. By introducing a rigorous business plan review process and aligning the team around the One Ford strategy, Mulally led Ford from a $12.7 billion loss to a $6.3 billion pretax profit, with the stock price increasing by 800% during his tenure (McKinsey & Company) (BCG Global).
Case Study: Ford Motor Company
When Alan Mulally took the helm at Ford in 2006, the company was in dire straits, with a $12.7 billion loss. Mulally introduced the One Ford strategy, which aimed to unify the company globally by standardizing components and processes across all models. He implemented a rigorous Business Plan Review (BPR) process, involving weekly meetings with senior leaders to review the company’s performance and address issues. This approach created a disciplined operating rhythm that integrated transformation efforts into daily operations. The results were impressive: Ford rebounded to a $6.3 billion pretax profit, and its stock price surged by 800% during Mulally’s tenure (McKinsey & Company).
3. Explicitly Managing Organizational Energy
Transformations fizzle when they consume more energy than they generate. Leaders must sequence changes to limit disruption and manage organizational energy effectively. Virgin Australia’s transformation under CEO Jayne Hrdlicka illustrates this. The company meticulously sequenced its overhaul, prioritizing changes crucial to passengers and minimizing unnecessary efforts. This strategic staging allowed Virgin Australia to move quickly without exhausting its people (EY US Home) (BCG Global).
Case Study: Virgin Australia
In April 2020, Virgin Australia entered voluntary administration due to the impact of the COVID-19 pandemic. Bain Capital acquired the airline, and Jayne Hrdlicka was appointed CEO in November 2020. Hrdlicka led a comprehensive transformation that restructured the airline as a leaner, midmarket carrier. The transformation involved significant investments in new planes, technology, and customer service innovations. Virgin’s leadership sequenced these changes carefully, prioritizing efforts that were most crucial to passengers. This approach minimized disruptions and avoided overburdening the workforce. The airline expanded its fleet by 60%, hired thousands of new employees, and opened new routes. By actively engaging employees and fostering a culture of innovation, Virgin Australia successfully turned its fortunes around (BCG Global).
4. Using Aspirations, Not Just Targets, to Stretch Management’s Thinking
True transformation calls for breakthrough thinking and pushing beyond current practices. Adobe’s transition to a cloud-based subscription model under CEO Shantanu Narayen is a testament to the power of ambitious aspirations. This bold move unified and motivated the company, leading to impressive results, including a market value increase from $24 billion to over $250 billion (EY US Home) (McKinsey & Company).
Case Study: Adobe
In 2011, Adobe’s CEO Shantanu Narayen announced the company’s transition to a cloud-based subscription model. This ambitious goal required Adobe to reinvent its entire business model, from product development to customer engagement. Adobe’s shift to the cloud allowed for continuous updates and new feature releases, fostering a more agile development process. The company invested heavily in cloud infrastructure to ensure seamless downloads and high-quality service. By 2023, Adobe had introduced over 100 new features and updates, including advanced AI-powered tools. The transformation resulted in a market value increase from $24 billion to over $250 billion and established Adobe as a leader in the creative software industry (McKinsey & Company) (BCG Global).
5. Driving Change from the Middle Out
Midlevel executives possess the experience to see operational shortcomings and the contextual understanding to propose significant changes. Amgen’s transformation under CEO Bob Bradway highlights the effectiveness of a middle-out approach. By selecting midlevel leaders to drive transformation initiatives, Amgen doubled its portfolio of approved medicines and significantly increased its blockbuster drugs (EY US Home) (BCG Global).
Case Study: Amgen
In 2013, Amgen faced the expiration of patents on several successful drugs. CEO Bob Bradway initiated a transformation to reposition Amgen as an agile, patient-centered biopharma powerhouse. The company adopted a middle-out approach, selecting midlevel leaders to drive key initiatives. For example, Amgen overhauled its process development capabilities by consolidating 17 functions into seven, closing five sites, and integrating 25 disparate systems into one platform. These efforts resulted in the development of new cycle-time-reduction processes and a significant increase in the number of approved medicines. From 2013 to 2022, Amgen’s portfolio of approved medicines doubled from 13 to 27, and the number of blockbuster drugs increased from three to nine (BCG Global).
6. Accessing Substantial External Capital from the Start
Transforming a business often requires significant investment. Successful transformations, such as T-Mobile’s turnaround under CEO John Legere, are fueled by external capital. T-Mobile’s comprehensive transformation, supported by $7 billion in borrowed funds, resulted in a 1,000% increase in earnings and a more than 400% rise in share price during Legere’s tenure (EY US Home) (McKinsey & Company).
Case Study: T-Mobile
When John Legere became CEO of T-Mobile in 2012, the company was struggling with declining subscribers and poor network performance. Legere’s transformation strategy included borrowing $7 billion to finance a comprehensive overhaul. T-Mobile eliminated contracts, integrated the iPhone, and invested heavily in acquiring spectrum to enhance coverage. The company also positioned itself as the “uncarrier,” introducing consumer-friendly policies such as unlimited data and transparent pricing. These bold moves paid off: from 2013 to 2019, T-Mobile’s earnings soared by 1,000%, and subscriber numbers more than doubled from 33 million to 86 million. The share price increased by over 400%, significantly outperforming the S&P 500 (McKinsey & Company) (BCG Global).
See more HBR charts in Data & Visuals
Corporate transformations are critical yet challenging endeavors. The majority of transformation programs fail to deliver the expected results, with only 12% producing lasting outcomes. Despite a reduction in outright failures, success rates remain stagnant, signaling an urgent need for a new approach to transformation. Our comprehensive analysis reveals six key practices that can significantly enhance the success of transformation initiatives.
Key Insights:
1. Continuous Transformation
Treating transformation as an ongoing process rather than a one-time event is essential. Dell Technologies’ continuous focus on the Dell Agenda, a list of critical issues that is constantly updated and addressed, showcases how this approach can lead to sustained growth and market leadership (McKinsey & Company).
2. Integration into Daily Operations
Integrating transformation efforts into the company’s daily operations ensures that change is embedded into the organizational rhythm. Ford Motor Company’s implementation of the One Ford strategy, coupled with a rigorous Business Plan Review process, transformed the company from the brink of bankruptcy to profitability and market leadership (McKinsey & Company) (BCG Global).
3. Managing Organizational Energy
Effective management of organizational energy by sequencing changes to avoid overwhelming employees is crucial. Virgin Australia’s meticulous sequencing of its transformation initiatives allowed it to expand rapidly without exhausting its workforce, ultimately leading to a successful turnaround (EY US Home) (BCG Global).
4. Aspirational Goals
Setting ambitious aspirations rather than just targets can drive transformative thinking. Adobe’s shift to a cloud-based subscription model under CEO Shantanu Narayen, despite the lack of industry benchmarks, resulted in a significant increase in market value and established Adobe as a leader in the creative software industry (McKinsey & Company) (BCG Global).
5. Middle-Out Approach
Empowering midlevel executives to drive change can uncover deeper insights and foster more substantial improvements. Amgen’s middle-out transformation, which involved selecting midlevel leaders to spearhead key initiatives, doubled the number of approved medicines and increased the number of blockbuster drugs (BCG Global).
6. Securing External Capital
Accessing substantial external capital is often necessary to support ambitious transformation initiatives. T-Mobile’s transformation under CEO John Legere, funded by $7 billion in borrowed capital, resulted in a 1,000% increase in earnings and a dramatic rise in subscriber numbers and share price (McKinsey & Company) (BCG Global).
Statistical Highlights:
Transformation Success Rates Over Time – A Trend In the Wrong Direction
| Year | Success Rate (%) | Mediocrity Rate (%) |
|---|---|---|
| 2013 | 12 | 50 |
| 2023 | 12 | 75 |
Case Study Financial Impacts
| Company | Transformation Period | Initial Market Value | Final Market Value | Increase (%) |
|---|---|---|---|---|
| Dell Technologies | 2013-2023 | $20 billion | $200 billion | 900% |
| Ford Motor Company | 2006-2014 | $15 billion loss | $6.3 billion profit | Turnaround |
| Virgin Australia | 2020-2023 | Bankruptcy | Positive growth | Recovery |
| Adobe | 2011-2023 | $24 billion | $250 billion | 940% |
Expert Opinions:
- EY and Saïd Business School Study: Leaders prioritizing a human-centered approach to transformation are up to 12 times more successful. This underscores the importance of addressing the human element in transformation efforts (EY US Home).
- McKinsey & Company Insights: Financial incentives play a crucial role in driving and sustaining rapid performance improvement during transformations (McKinsey & Company).
- BCG Findings: Only 26% of corporate transformations create value in both the short and long terms. This highlights the need for a holistic approach to transformation (BCG Global).
Conclusion:
Transformation programs promise breakthrough results, but most fail to realize them. By adopting a fundamentally different approach, incorporating continuous transformation, integrating change into daily operations, managing organizational energy, setting ambitious goals, driving change from the middle out, and securing substantial external capital, companies can defy the odds and achieve lasting success. The insights and strategies outlined above provide a roadmap for companies aiming to navigate the complexities of corporate transformation and achieve sustained growth and profitability.
For further reading and in-depth research on successful corporate transformations, visit:
- EY and Saïd Business School study
- McKinsey & Company Transformation Insights
- BCG: Five Truths (and a Lie) About Corporate Transformation
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