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The transformation office as a permanent part of organizational life

REINHARD MESSENBOECK, KRISTY ELLMER, DAVID KIRCHHOFF, MIKE LEWIS, PERRY KEENAN, SIMON STOLBA AND CONNOR CURRIER

Transformations are critical to delivering stakeholder value and competitive advantage — especially in fast-changing industries. Yet Boston Consulting Group’s analysis of data from more than 3,000 transformations shows that the vast majority of transformations (more than 70 percent) fail. While the failure rate has worsened during the pandemic, it has been appallingly high for many years. This is no surprise: transformations are inherently difficult. Their goals typically include significant shifts in operational processes, product offerings, governance, structure, and most importantly in the way people behave. They call for a step-change improvement in performance, which typically requires new ways of working and a deeper understanding of customers.

Because of the pace of change in business and the need for near-constant adaptations, some companies have embraced the idea of the perpetual or “always-on” transformation. This is different in two ways from the continuous improvement initiatives that many companies engage in. First, while continuous improvement initiatives are generally bottom-up, always-on transformations are typically top down. The second difference has to do with ambition. Unlike continuous improvement, an always-on transformation isn’t about incremental changes. It targets the “big rocks” that — once moved — will lead to fundamental improvements in a company’s prospects. Companies that embrace the idea of always-on transformation do so with the intention of creating significant changes on a sustained basis.

The Rhythms of an “Always-On” Transformation

©2021 by Boston Consulting Group. All rights reserved.

Every successful transformation — and certainly any successful always-on transformation — depends on the deft management of three journeys. There is a people journey, which has to do with maximizing employees’ engagement. There is a leader journey, which has to do with the job of setting the initial goals and targets — and then raising the goals and setting new targets as a way to keep the organization advancing. And then there is the program journey — the focus of this article. It is about establishing a framework and a set of processes to maximize transparency, measurement and accountability.

The program journey is especially crucial for companies that are in a state of perpetual transformation. These are typically companies in fast-changing industries, that know each year’s annual plan is going to rely on the achievement of three or four major new initiatives. When so much is riding on your ability to successfully make a few major changes, executional certainty becomes crucial. We believe that the best way to achieve such certainty is through two transformation elements:

1. A well-structured transformation office and

2. A robust stage-gate methodology.

1. What a properly structured transformation office looks like

A successful transformation depends on the collective willingness of people to do things differently. For change to stick and initiatives to be successfully executed, clear goals, consequences and accountability are all necessary. Ensuring that these are in place is the responsibility of the transformation office.

A truly great transformation goes beyond delivering hoped-for business goals and elevates the executional capability of the organization as a whole. In such a transformation, both leaders and everyday workers develop new capabilities.

The reason this is so hard — and that successful transformations are so rare — has to do with the human side of organizations. At an individual level, the very idea of change creates a lot of internal conflict for people. Behavioral scientists have names for these conflicts:

• The intention-action gap — people’s tendency to not do what they say, and sometimes to not even do what they intend to do
• Loss aversion — the phenomenon of fearing failure more than one seeks success
• The status quo bias — people’s tendency to favor the known over the new.

One or another of these behavioral norms exist in all of us to some degree — and they are among the impediments in every transformation. They likely explain one of the most common complaints in transformations, of the leader who isn’t committed or isn’t taking the transformation seriously. Everybody is counting on the leader to deliver something, and it’s not getting done.

On top of the problems of individual adjustment and acceptance, there are often a host of top-down problems in transformations, mostly around two fundamental issues: the desired behaviors not being clearly articulated (so people don’t know what is expected) or the business context in which people operate not reinforcing these desired behaviors.

And of course, there is always the possibility of plain old inertia — of people simply not being able to get started. A framework we call ATAC can help with behavior activation. ATAC includes:

• Anchoring, the discipline of keeping the organization focused on the main objectives and ambitions of the transformation. Anchoring requires some kind of metric — often financial in nature. Good transformation offices continually ask about the achievement of these metrics. That ensures that the rest of the organization gets the message.
• Transparency is essential if desired behaviors, in keeping with the main transformation objectives, are to be encouraged. Transparency implies visibility throughout an organization, including into the organization’s lower levels. Organization-wide transparency can be achieved in many ways, including through dashboards, checklists and personal check-ins.
• Accountability refers to the need to make each individual accountable for their own expected behaviors throughout the transformation.
• Consequences are needed to keep the transformation on track. Consequences include management support and performance coaching when goals are unmet or when a staff member underperforms. Consequences can also be positive — the celebration of success either verbally or through tangible rewards.

The transformation office’s mechanisms for supporting change activities aren’t, on their face, revolutionary. A lot of it consists of meetings, decision-making routines, the use of tracking protocols and an insistence on transparency. But the discipline with which a good transformation office does all of this can create a powerful impetus for new behaviors and can set the stage for success whether a transformation is “one and done” or ongoing.

Routines and tracking. Transformations are never glitch-free. Even in a well-run program, 20 percent of initiatives won’t achieve their desired impact; even more initiatives (30 percent) will typically be at risk. In fact, if too many initiatives in a transformation are seen as easily achieved, leadership probably hasn’t been ambitious enough in setting goals.

Rigorously defined milestones and metrics are a cornerstone of any transformation. In regularly scheduled meetings — once a week, or once every two weeks — the transformation office brings together each operating unit or function to discuss the status of its initiatives, projects, and milestones. This creates opportunities for agile problem solving and for pivots that are critical for maintaining momentum and reaching key targets.

As the head of this crucial group, the job of the chief transformation officer (CTO) is to break down silos and get the organization to work together. This happens in meetings in which people from operations, finance, production, marketing and other departments are brought together. Finally, the transformation office hosts weekly meetings of the steering committee (SteerCo), which is the group that oversees the program’s progress and makes decisions that no other body can make. It is critical that the ultimate owner or “sponsor” of the program (usually the CEO, CFO, or other top leader) attend the weekly Steerco meetings. By doing so, he or she sends a message about the importance of the transformation and of all transformation-related activities.

During a typical week, the transformation office maintains an intense meeting cadence — and that‘s by design. A transformation isn’t business as usual and shouldn’t feel like business as usual. The degree of transparency, accountability and cross-functional cooperation that transformations require is not how organizations function naturally. At least initially, the program should make the people involved feel a little uncomfortable. Initiative owners and milestone owners need to know they’re being counted on to make progress every day and they should also know, when one week‘s meeting ends, what they need to achieve before the next week’s meeting. At the same time, the meetings are a chance to identify and remove roadblocks. This often means decisions and follow-up actions for higher-level executives. Indeed, transformations often “flip the pyramid,” forcing executives to solve problems for people one, two, or three levels down from them. “Nowhere to run, nowhere to hide, and no one to blame but yourself,“ is the way one executive put it to us, at a point where he was just starting to understand what his company’s transformation would require of him.

It’s a little bit like what happens when you sign on with a personal trainer for the first time. Initially, the workouts seem beyond your ability and it’s frustrating. With progress, however, comes confidence and greater trust in the process.

Effective transformation offices follow three meeting best practices:

• They focus on cross-department problem-solving. In a transformation, the top opportunities inevitably require cooperation across functional boundaries. A good transformation office helps different functions understand what they have to gain by collaborating. This emphasis on what’s optimal for all increases managers’ trust in the transformation office and allows the CTO to emerge as one of the leaders of the organization.
• They have a bias toward working sessions. “They’re killing us with all these meetings” is a common complaint in organizations, and the risk that people will feel this way increases during transformations with all the new touchpoints that are required. A transformation office can eliminate some of this feeling by making it clear that the centerpiece of most meetings will be a centralized data system, containing the status of milestones and other important data — not newly created PowerPoint decks. Indeed, what the weekly meetings will consist of should be the topic of an initial meeting, prior to each meeting series, that allows the transformation’s special terminology and likely rhythms to be discussed.
• They create time for “uplift.” The transformation office should devote portions of some of its meetings to more personal interactions. An example of this is a daily “uplift” or moment to recognize a key accomplishment that has been driven either organizationally or by a specific member of a project team. The uplift moment can be short and simple, done with the understanding of the many ways that the celebration of small successes can inspire.

2. Creating a robust stage-gate methodology in perpetual transformations

From idea to execution — that’s the path that every transformation follows. But no transformation has just one idea and one execution challenge. Instead, each transformation (and certainly every perpetual transformation) contains a constantly expanding set of ideas. The only way to manage them all is to systematize the effort. This is where stage gates come in.

Companies often downplay the value of stage gates, thinking they’re a bureaucratic imposition that slows things down. In fact, a good stage-gate process (as in the diagram below) speeds things up and keeps them on course.

To show how stage gate works, we’ll use the example of a household goods company whose transformation is aimed at increasing profit through digitization and customer centricity. One of the company’s initiatives is to handle the sale of frequently reordered supplies exclusively through its online channel. To help deliver this initiative, the company has launched a project to ramp up its online pricing capability and offer discounts on online supplies during a transition period when both online and offline sales channels are still being used.

The Elements of a Stage Gate Approach

©2021 by Boston Consulting Group. All rights reserved.

There’s a core project team consisting of a product manager, the director of marketing, a regional retail liaison, an analyst from finance and a VP of web development. At the idea generation stage, the team would outline the idea and describe its benefits in a project charter — a short description of the goal and how it will be achieved. Stage 1 would be about validating the business case — namely, the ROI of the project itself and the eventual increase in per-unit profitability. If the project charter and business case withstand scrutiny, then the key milestones of the project plan (Stage 2) are developed including the location, length and goals of any pilot. If the project passes muster in Stages 1 and 2, it enters Stage 3 — execution. In Stage 4, the project is reviewed to determine if all its goals have been achieved.

Each stage plays an important role in strengthening the project. By the time it gets to Stage 3, a project that started out as a loose idea ideally should be reborn as an airtight plan.

The “gates” also contribute to the improvement process. At each gate, a group with a clear stake in the outcome looks at the work that the project team is doing and decides if the project is ready to move to the next stage. The first person with go/no-go authority at a gate is the business unit leader. There is also often another functional executive weighing in (maybe the head of sales in this example). The transformation office plays a key role in facilitating the movement of projects and initiatives across stages and ensuring that the transformation machinery is working efficiently.

While setting up a stage-gate program involves significant early work, it provides multiple benefits that ultimately allow the overall transformation to run smoothly and deliver full value. Among the benefits:

• Stage gate puts all ideas on a level playing field. The vetting process ensures prioritization of initiatives, ROI rigor and smart execution plans with clear milestones before projects and initiatives move into execution.
• The execution phase (Stage 3) puts projects into active weekly tracking and monitoring which creates transparency and focus.
• Having an explicit phase for measuring value delivery (Stage 4) ensures discipline on achieving outcomes at the project, initiative and overall program level.
• The common language and process enables comparisons across the portfolio.

Some stage-gate best practices

A couple of best practices can make the stage-gate methodology more effective. In our experience, successful projects have well thought out milestones (Stage 3). To help ensure this, many of the clients we work with make use of something we call a rigor test, which is basically a discussion right before the execution stage that involves all of a project’s key stakeholders. Those doing the rigor test take a fresh look at the project: at the achievability of its goals and milestones and how well understood its risks and interdependencies are. Rigor-test discussions are generally short — no more than an hour — but it is amazing how often they expose some critical flaw: a milestone that has not been assigned or a dependency that no one has considered. The rigor tests make it more likely that flaws will be addressed, allowing projects to move into the execution and other stages with much higher likelihoods of success.

Another best practice is not to allow projects to proceed without the finance department’s explicit approval of the business case (Stage 2). Finance’s job is to assess the project’s profit, loss, one-time cost and cash impact, and to make sure the project aligns with broader corporate financial requirements. BCG experience and research (including the ongoing benchmarking study we run, called “The Transformation Check”⁵⁷) shows that there is a strong correlation between validating a project’s business case and the project’s eventual success. Indeed, when such validation is done, the chances of a project or initiative succeeding is 40 percentage points higher than if it’s not done.

During the stage-gate work, successful transformation leaders assess the key success factors of their projects. The process that allows them to do this (which we call “DICE” — Duration, Integrity, Commitment and Effort) zeroes in on four factors: the “duration” between crucial milestones (similar to the aforementioned rigor test); the “integrity” of the project team (including the extent to which the project team has the needed skills mix); the “commitment” of senior management and the broader team; and the amount of “effort,” over and above team members’ current commitments, that the project requires. Projects score on a continuum that ranges from “set up for success” to “in danger of failing.” The DICE assessment can be used at any point that it seems useful to the chief transformation officer, to a business unit leader, or to the SteerCo to help determine if a given project/initiative is being set up for success and to intervene if not.

The use of stage gates should not be dreaded as a rigid methodology. In fact, companies can cut down on the number of stages as long as they make sure of three things, in this order:

• That each business idea or project is thoroughly vetted
• That the development of the new service or organizational change is effectively planned and managed; and
• That milestones and metrics are used to measure the project’s success and identify emerging risks.

The COVID-19 pandemic has forced organizations to make dramatic adaptations in the last 18 months. It has also made organizations more aware of the inevitability of change. Some of the change triggers — like automation and climate change — are clear in origin. Others aren’t and are perhaps beyond our ability to imagine today. To address the coming changes, known and not, organizations must develop a capability for reinvention.

Indeed, there may well be an advantage in the future to companies that operate according to the rigors of perpetual, always-on, transformation. You’ll know these companies by their permanent transformation offices and by the appearance of their CTOs in financial filings alongside of CEOs, chief financial officers, and chief technology officers. The transformation office and the CTO will be key to getting leaders and everyday employees to carry out their own transformation journeys and to putting in place the program journey that will keep the destination always in sight.

About the authors

Reinhard Messenboeck is a Managing Director and Senior Partner at BCG and leads the Change Management topic globally.

Kristy Ellmer is a Managing Director and Partner at BCG and leads the Change Management topic in North America.

David Kirchhoff is a Managing Director and Partner at BCG and core member of BCG TURN, the firms’ accelerated transformation and turnaround unit.

Mike Lewis is a Managing Director and Partner at BCG and is globally leading KEY by BCG, the firms’ digital performance platform for transformations.

Perry Keenan is a Managing Director and Senior Partner at BCG and former global leader of the Change Management topic.

Simon Stolba is a Consultant at BCG specializing in Change Management and transformations.

Connor Currier is a Knowledge Expert at BCG and is leading BCG’s Change Management knowledge team globally.

Footnotes

57   Organizations interested in seeing how their transformations stack up can access BCG’s benchmarking study at https://www.113.vovici.net/se/13B2588B4D5FD030.