When a company is underperforming, or identifies substantial opportunities for growth in ways outside of its traditional models, decisions are sometimes made to transform an entire organization around new goals.
To be sure, such an approach is not to be taken lightly, and it is a holistic organizational undertaking.
In “The Changeable Organization,” McKinsey starts with some cautionary statistics that should be at the forefront of executive thinking when pondering any major shift in an organization’s business model or objectives.
Such organizational overhauls typically prove unsuccessful. According to McKinsey, 74 percent of organizational transformation efforts fail.
There are abundant reasons why, but most have to do with leaders not communicating or engaging employees sufficiently throughout such a major transformation.
For the 26 percent of companies that do succeed with such mammoth organizational changes, a few common denominators emerge, such as ensuring:
- that the scope of the changes is broad across business units and at all levels of the organization,
- that changes are executed quickly in ways that permit quick victories to “fund longer-term ambitions,”
- that the changes improve the organization’s health and not just its financial standing, and that organizations set ambitious financial objectives for such organizational overhauls (McKinsey suggests an ambitious 75 percent or more improvement in trailing earnings as a stretch goal).
While executive instinct might be to focus on operational improvements, McKinsey states that “growth can be as transformative as cost-cutting, if not more so.”
Their recommendation: “Go for growth.”
Finally, in addition to a focus on growth, two other focuses are paramount to major organizational transformations:
- organizational health, and
- reaching for the extraordinary (“a single self-confident leap outperforms a series of incremental steps”), McKinsey concludes.