Academic journal article The McKinsey Quarterly

Memo to a CEO: Leading Organizational Transformations

Academic journal article The McKinsey Quarterly

Memo to a CEO: Leading Organizational Transformations

Article excerpt

Many senior managers today are aggressively trying to transform their companies, seeking radically to improve performance by changing behavior and capabilities throughout the organization. Unfortunately, most leadership groups lack a proven way of thinking about the challenge.

Ask your management team what a good business plan looks like, and you will probably find close agreement. But ask them -- especially in the middle of a major change effort -- what a good change plan should include, and opinions will vary all over the map. A CFO will insist on creating new financial measures; an operations VP, on installing a quality program; an HR specialist, on revising compensation and training; a marketing executive, on getting everyone to be more customer focused. And all these managers will have handfuls of articles to wave -- and mantras of buzzwords to invoke -- to defend their choices.

The chaos of opinion created by hype and buzzwords is doubly unfortunate. Most obviously, if left unresolved, it can easily turn a desire for bold, systemic change into a rag-tag collection of discrete, ad hoc initiatives. Less obviously, but perhaps more troublingly, it can also prevent the kind of meaningful discussion that keeps a management group pulling together toward a common end. The CEO of a company facing transformational change must be, by definition, the driver and facilitator of just this sort of top-level "conversation." Without it, no change program will stay focused, integrated, and in balance. And without balance, integration, and focus, no disjointed set of initiatives will lead to significant performance-enhancing change.

Today, however, generating and capturing such quantum leaps in performance lie at the heart of many CEOs' jobs. "To meet our performance goals -- or to stay ahead of the competition -- we need to reinvent ourselves," they acknowledge. "Virtually everything about the way we do business must change." But if leaders are unable to translate these beliefs into a coherent basis for conversation and learning with their leadership group, then the chances of developing an effective, tangible, and manageable program of change are much reduced.

For that, the right kind of conversation is essential. Which, in turn, means having in place a shared framework for structuring activities and responsibilities, a road map for laying out their proper sequence, and a background set of guiding principles about the "natural laws" that govern organizational transformations. All three of these -- framework, road map, and guiding principles -- are necessary for a successful conversation, because all three have a critical role to play in giving CEOs the practical means to shepherd through a balanced, integrated change program.

Axes of change

Our experience indicates that no single type of change initiative is sufficient to bring about acceptable levels of performance improvement. Though companies spend a lot of time, money, and energy on a broadscale quality program, or a training program, or a program to refocus their organization's culture, measurable downstream benefits -- in, say, customer satisfaction or on-time delivery or cost reduction -- fall well short of expectations. The inevitable result: frustration, an exhausted and increasingly cynical organization, and a deteriorating competitive position.

Examples of the failure of single-initiative "magic pills" abound. Recent work indicates that nearly two out of three companies launching quality programs to increase worker involvement are dissatisfied with their progress. Other equally well-intentioned initiatives face similar difficulties.

One industrial firm began its aggressive efforts in the mid-1980s by cascading, top down, a well-crafted vision of change throughout the company. Each mill and factory took the corporate vision and developed its own companion vision. Senior executives traveled the country describing their objectives and signaling their personal commitment. …

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