What Transformation Is, and Why It Is Urgent
Corporate velocity, the time it takes to get things done in an organization, has slowed by 22-50% over the past five years. At the same time, the pulse of business and the speed of disruption (new technologies rendering products, businesses, and even industries redundant) are accelerating. These two opposing vectors spell disaster for those not agile enough to adjust. Developing greater agility while simultaneously remaining focused, stable, and consistent requires more than just change. It requires transformation.
Change occurs when organizations introduce new products, processes, technology, or structures. Changes such as these can support transformation initiatives, but on their own they cannot drive renewal and transformation. Transformation is, as Professor Robert Kegan has said, transforming the entire operating system of an organization. In other words, an organization must transform the way it thinks about its core beliefs about business and the world in which it functions. Then, it is easier to align process and structure to the new thinking. Visible, measurable, and sustainable results follow.
Failure of Transformation Initiatives
The challenging paradox is that as urgent as transformation is, less than 30% of organizational transformation initiatives actually succeed. In 2013, this statistic was determined by McKinsey to have been consistent for many years, and more recent research confirms the continuation of this same dismal rate of success. Considering the success with which individuals change their habits—even when confronted with certain death as the alternative—the rate of success for corporations isn’t that bad! Individuals’ rate of success is only 16%.
Our research reveals that the reasons for both failures are the same. In both cases, individuals and organizations fail to transform because they have tried to change behaviors without transforming the way they think. If, for example, an individual wishes to change his or her eating habits, few will succeed with motivation and discipline alone. They need a new way to think about food, health, and nutrition; they need a new world-view, a new philosophy of life. The same applies to a business organization. Organizational behaviors are entrenched in the way an organization and its leaders think about their business, its culture, its values, and its strategy.
Transforming the Operating System
Our success in transforming large companies has resulted from the careful design of a new business philosophy to serve as the foundation for the transformation. The transformation then occurs by activating the new philosophy in every part of the business, from its management and leadership method to its product design and organizational structure. The whole operating system of the business transforms, not just parts of it. A profound business philosophy can be designed with a leadership team in just a couple of days of off-site engagement.
A meaningful business philosophy comprises three parts: i) a purpose-driven strategic philosophy with the customer at its core; ii) a values-centered leadership philosophy; and iii) a vision of stakeholders’ experiences of the company after its transformation.
A Purpose-Driven Strategic Philosophy
The discovery of purpose is valuable, both as a thought process and as an outcome. It compels an organization to think in a focused and strategic way about its customers and how to serve them in a way that is unique and distinct. The process requires the organization to identify its own remarkable capabilities with which it can serve a specific set of customers, or Primary Beneficiaries. Purpose merges tangible and intangible dimensions into a unique offering that addresses some of the deepest needs of its Primary Beneficiaries. In doing so, it creates an offering that is distinguished from those of its peers and is valued universally—far beyond the group of Primary Beneficiaries for whom it was designed.
Purpose is the foundation of a company’s strategic philosophy. Once formulated and clearly articulated, it informs the way leaders think about their strategy. It answers the most difficult questions of all: why are we in this business and what contribution do we really make that is substantively different from contributions others in our field are making or could make? The answer to these questions is deep and penetrates the meaning of work. Purpose inspires people to a cause higher than the mere exchange of labor and skills for money or wealth. It refines strategic focus and clarifies the platform for operational excellence.
A Values-Centered Leadership Philosophy
To successfully activate and embed a new strategic philosophy, companies often need to renew their cultures as well. An organization’s culture empowers it to deliver more than its tangible product or commodity to its customers. A culture that is aligned with the company’s strategic philosophy enables it to also satisfy its customers’ intangible needs. This is where a company can truly distinguish itself from its peers and competitors.
However, culture cannot be artificially designed. When a company’s leaders have agreed on a leadership philosophy and consistently act and make decisions in ways that align with it, a strong culture emerges. A leadership philosophy is custom-designed to support a company’s strategic philosophy, and it articulates how leadership thinks about its own values and those of the company. It explores how different values might be traded off under pressure, and what the ethical stakes in the ground are. It addresses the expectations of leadership from one another and from their employees. For successful implementation of the leadership philosophy, leadership identifies actions that need to stop and others that need to start.
A Vision for Stakeholder Experience
A company typically has three primary stakeholders, or sets of individuals who have vested interests in it: customers, shareholders, and employees. Customers are served, shareholders are rewarded for the risks they have taken, and employees are supported in their efforts to serve customers. As transformation takes shape, the three stakeholder sets will notice an evolution in the ways they experience the enterprise. Vision, therefore, becomes what we expect our stakeholders to experience in 3-5 years’ time if we fully activate and give life to the business philosophy. These evolving experiences can and should be measured; they are the dashboard of leadership’s success at transformation.
The Vital Role of the CHRO
Our most successful transformation initiatives have occurred when we have partnered with CHROs who have the stature and credibility at the C-Suite to be influential. While transformation is fundamentally a CEO’s responsibility, few CEOs have the time and head space to make it their priority. They have what they consider—often rightly—more pressing issues to focus on. Although the CHRO undoubtedly has a fortune on their plate, transformation is their day job.
We have found CHROs to be critically valuable in partnering us in designing the business philosophy, supporting leadership through this process, and in bridging the gap between design and activation. The organization faces a risk after philosophy design that it will remain exactly that—a philosophy. When our activation teams work hand in hand with CHROs and their teams, our clients have successfully embedded their business philosophies in the way they operate throughout all of their divisions and functions. True transformation is the outcome.
Integrated transformation of the kind I have outlined is complex; as a result, most companies don’t engage in it. Instead they dabble with change initiatives that exhaust the organization and erode leadership’s credibility. Integrated transformation is the greatest opportunity for progressive leaders of companies aiming for differentiation and aiming to lead their industries into uncharted competitive spaces. Instead of responding to disruption, these leaders will define it.
 Tom Monahan, CEO of CEB, Inc. (2016)
 Study referenced by Robert Kegan and Lisa Lahey in Immunity to Change, Harvard Business Press, (2009)