BCG the New CEO's Guide to Transformation May 2015 Tcm80 188487

7/23/2019 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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Hans-Paul Brkner, Lars Fste, and Jim Hemerling

The New CEOs Guide toTransformationTurning Ambition into Sustainable Results


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T N CEO G T

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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T B C G

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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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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T B C G

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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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


17/21

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


18/21

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.


19/21

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 [email protected].

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 [email protected].

Jim Hemerlingi a enior artner and managing director in the rm san Francico oce. Yo

may contact him by e-mail at [email protected].

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.


20/21

To nd the latest BCG content and register to receive e-alerts on this topic or others, please visit bcgperspectives.com.

Follow bcg.perspectives on Facebook and Twitter.

The Boston Consulting Group, Inc. 2015. All rights reserved.

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