In fact, transforming for growth often involves a higher level of investment—and investments in R&D and digital for new business models, in particular, create more value: our findings suggest that such investments increase the likelihood of success by up to 29 percentage points. On the other hand, transformations accompanied by high (when compared with the industry average) capital expenditure spending only boost the chances of success by 11 percentage points. Why? Capex investment generally suggests that a company has the intention of exploiting existing opportunities by expanding capacity—that is, doing more of the same. In contrast, investments in R&D and digital capabilities help companies redesign their business models, tap into new markets, rethink product and service offerings, and engage more directly with end users—leading to a greater likelihood of transformative impact.
They are able to think like a new CEO. New CEOs perform better in transformations. In fact, a new CEO can boost the odds of a successful transformation by 7 percentage points, on average. Why do new CEOs perform better? Because they take an outsider’s view of the business, with no legacy bias, and they are willing to take bold steps to shake up established ways of thinking.
Incumbent CEOs and management teams, therefore, cannot afford to be complacent and maintain the status quo. Instead, they must be somewhat paranoid and continuously take a fresh look at the business. Or, as we say, “If it ain’t broke, fix it anyway.”
Once a management team is in place, it is critical to maintain the team for the duration of the transformation. We found that only 7% of companies changed their CEO during a transformation. Changes in top management not only heighten uncertainty for people within the company, decreasing the buy-in, but also send a negative message to investors, leading to increased skepticism about the company’s ability to deliver results.
They understand that transformation is a race without a finish line. We live in an era of persistent disruptions, and for some businesses it will feel like a permanent crisis. Given the nature of transformations and the tendency to be distracted by external events, companies need a North Star to keep them oriented on their long-term objectives.
Our analysis revealed that companies with an above- average long-term strategic orientation for their transformations outperformed those with a below-average orientation by almost 5 percentage points. This finding was even more pronounced when such companies were operating in turbulent environments: in those cases, long-term orientation correlated with an increase in TSR of 7 percentage points.
Similarly, companies running their programs for at least five consecutive years (either as one continuous program or as an unbroken series of overlapping programs) were especially effective at transforming in turbulent environments.
Transformation can no longer be thought of as a project with an end date. Transformative CEOs know that, in order to succeed, they will have to keep stretching the goals, act more boldly than ever, and identify ways to renew the organization.