The New CEO’s Guide to

Transformation
Turning Ambition into Sustainable Results
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The New CEO’s Guide to
Transformation
Turning Ambition into Sustainable Results

Hans-Paul Bürkner, Lars Fæste, and Jim Hemerling

May 2015
AT A GLANCE

New CEOs have a short window of opportunity to launch a transformation program

aimed at delivering a step-change in performance. With a proven four-step process,
CEOs can turn ambition into sustainable results.

One Hundred Days Before Starting: Define the Ambition

Before taking the top job, new CEOs should assess the company’s situation,
leadership team, and readiness for change—and define the ambition.

The First Weeks: Energize the Organization

Upon taking the reins, new CEOs must start building momentum by establishing a
compelling case for change, rallying leaders, and engaging with employees.

The First 100 Days: Prepare and Launch the Transformation

In this step, CEOs should begin leading the transformation, kicking off no-
regret initiatives, setting up governance, and launching a communications plan.

The First 18 Months: Drive the Transformation

CEOs must ensure that early measures are hitting their targets and shift to longer-
term measures, often including changes to the strategy and operating models.

2 The New CEO’s Guide to Transformation

L eadership transitions increasingly happen when companies are at an
inflection point, and as a result, new CEOs frequently face immediate pressure
to make changes. The challenges are significant. Companies are being buffeted by
rapidly evolving technology and digitization, increasing globalization, blurred
industry boundaries, and regulatory shifts, among other factors. As the traditional
sources of competitive advantage disappear, top-performing companies are increas-
ing their lead on poor and average performers. (See Exhibit 1.)

To keep up with industry leaders—or to remain a leader—it is more important

than ever for companies to undergo transformations. (See Transformation: The Im-
perative to Change, BCG report, November 2014.) We define a transformation as a
profound change in a company’s strategy, business model, organization, culture,
people, or processes. A transformation is not an incremental change but a funda-

Exhibit 1 | The Top-Performing Companies Are Increasing Their Lead

on Poor Performers
Average EBIT margin across industries
40

30

20

10

–10

–20
1950 1959 1968 1977 1986 1995 2004 2013

Top quartile Bottom quartile

Sources: BCG’s Strategy Institute; Compustat.

Note: EBIT = earnings before income and taxes. For the years shown, our calculations included all U.S.
publicly listed companies whose net sales exceeded $50 million. We computed the per quartile average
for each industry (underweighted) and then determined the average across all industries (weighted by the
number of companies in each industry for each year). Our calculations excluded company outliers with
extremely high or low margin growth and industries with fewer than two data points.

The Boston Consulting Group 3

 mental reboot that enables a business to achieve a sustainable, quantum improve-
ment in performance, altering the trajectory of its future. Because of the compre-
hensive nature of transformations and the need for companies to implement them
quickly, transformations are complex endeavors, and the majority either fail to fully
capture the potential value or exceed the time allotted to embed new behaviors
and processes. Yet by adopting a clear methodology, companies can flip the odds in
their favor.

Companies with stable management teams can also benefit from transformations,
yet in our experience, a change in leadership offers a critical window of opportuni-
ty for implementation. Stakeholders expect changes to occur when a new CEO is
hired. In fact, a principal risk for new CEOs is that they may resist taking action too
quickly—or hesitate to make changes that go deep enough. The risk is especially
high for insiders who are being promoted to the top spot or taking the reins along-
side a strong chairperson. Yet through quick and decisive actions—even before tak-
ing the top job—new CEOs can seize the opportunity and put their company on the
right trajectory for success.

The message for incoming leaders is clear: You need to take action immediately. By
laying the groundwork in advance, you can be prepared to lead from the front with
a clear vision, solid objectives, and the tools and processes to succeed.

The Boston Consulting Group has helped companies execute transformations that
have led to significant financial impact. We have completed more than 500 transfor-
mations, generating a median annual impact of approximately $340 million
through cost cuts, revenue increases, and the application of capital-efficiency levers;
150 transformations are currently under way. This body of work has helped us iden-
tify some clear principles and best practices that can help new CEOs—as well as
board chairs and members of the C suite—successfully develop and implement a
transformation effort.

This report is a playbook for new CEOs. It lays out how and where to start and pro-
vides a transformation framework. The report then breaks the transformation pro-
Through quick and cess into four steps: the 100 days before officially starting, the first weeks on the
decisive actions— job, the first 100 days, and the first 18 months. Because the framework applies to all
even before taking the transformations, while the four steps provide specific actions for new CEOs, there is
top job—new CEOs some overlap. The report also includes case studies of successful transformations in
can put their various industries—retail, technology, and manufacturing, among others—to show
company on the right what the process looks like in the real world.
trajectory for success.

The Transformation Framework

On the basis of our experience helping implement transformations across indus-
tries and regions worldwide, we have developed a proven framework that can help
leaders define the collective transformation ambition for the company. (See Exhibit 2.)
The framework has three critical components:

• Funding the Journey. Launch short-term, no-regret moves to establish momentum

and to free up capital to fuel new growth engines.

4 The New CEO’s Guide to Transformation

 Exhibit 2 | BCG’s Transformation Framework Has Three Components

Funding the journey Winning in the medium term

• Launch short-term, no-regret moves to • Establish the strategic direction for growth
create momentum and free up capital • Revamp the business model
• Simplify the organization • Develop a new target operating model
• Increase capital efficiency • Implement end-to-end lean
• Reduce costs

Building the right team, organization, and culture

• Ensure that the senior management team is leading from the front
• Deploy change management to ensure that people are ready, willing, and able to change
• Install a human resources team that can act as a transformation partner
• Identify and develop talent to fill the critical roles required to transform
• Develop a culture to support high performance

Source: BCG analysis.

• Winning in the Medium Term. Develop a business model and operating model to
increase competitive advantage.

• Building the Right Team, Organization, and Culture. Set up the organization for
sustainable high performance.

A transformation should include all three elements, but the relative importance of
these components changes at various points in the process. In the beginning, fund-
ing the journey is often the most critical aspect, not only to establish momentum
but also to free up capital rapidly. Over time, as a transformation takes root, the pri-
orities typically shift toward winning in the medium term. Throughout a transfor-
mation, a focus on building the right team, organization, and culture is vital to en-
suring that a transformation is not short-lived but rather becomes a long-term
endeavor that delivers—and sustains—improved performance.

One Hundred Days Before Starting: Define the Ambition

New CEOs often have time—as much as 100 days—after unwinding themselves from
most of the responsibilities of their former job and before they must assume those of
the new position. This period offers a critical opportunity for leaders to take charge
and define the organization’s collective transformation ambition. (See Exhibit 3.)

When defining this ambition, it is critically important for CEOs—whether hired

from the inside or brought in from the outside—to adopt an investigative and ana-
lytical mind-set: “I need to learn more.” (For an example of an incoming leader who
defined a bold transformation ambition, see the sidebar “A New Retail CEO Hits
the Ground Running.”) Incoming leaders should talk with as many critical stake-
holders as possible, both inside and outside the organization, in order to educate
themselves about the company:

• Employees, to determine if there is a consensus regarding the changes that are

The Boston Consulting Group 5

Exhibit 3 | The Transformation Process for New CEOs Has Four Stages
One hundred days
before starting First weeks First 100 days First 18 months

Define the ambition Energize the organization Prepare and launch the Drive the transformation
transformation

• Analyze a company’s • Establish the case for • Develop a roadmap of • Ensure the delivery of
situation; talk with internal change, discussing external no-regret initiatives for the short-term results
and external stakeholders and internal factors transformation; include
• Plan, develop, and launch
clear milestones
• Assess the organization’s • Ensure that the board and broader initiatives for
mind-set and the urgency senior leadership are in • Create initiative teams, winning in the medium
of the various situations agreement and can “speak with charters, resources, term
with one voice” plans, and processes
• Develop initial hypotheses • Set new, overall strategy
on value-creating • Shi to a transformation • Set up governance, and operating models
improvements and identify mind-set, with a clear bias including an activist PMO
• Develop the right team,
potential no-regret moves for action • Launch the organization, and culture
• Assess the leadership team • Engage with employees communications plan to deliver sustainable
about how ready, willing, performance
• Plan the first 100 days
and able they are to change
Source: BCG analysis.
Note: PMO = program management office.

needed; ideally, leaders should speak with 30 to 50 employees from across all
units and at all levels

• Customers, to get unvarnished opinions of the company’s performance in

addressing their needs

• Industry and functional experts, to understand the company and the complexities
or disruptions in the market

During these conversations, a new CEO should primarily listen, encourage open
and honest discussion, and make sure that all possible dynamic factors and all pos-
sible solutions are being brought to the forefront. Through this process, the CEO
must start to diagnose problems and create hypotheses regarding which aspects of
the company require improvement. This means assessing the urgency of the vari-
ous situations—in terms of both scope and timing—and determining whether the
company should seek to transform a specific function, market, or division or
instead undergo a more comprehensive effort that affects multiple areas of the
company.

In both broad and narrow transformation efforts, new CEOs need to start identify-
ing rapid, no-regret moves during this time—initiatives that are relatively easy to
implement in the first 100 days and that can generate results in 3 to12 months.
These no-regret initiatives should close performance gaps in a few critical areas, re-
duce costs, improve top- and bottom-line performance, and free up cash in order to
fuel longer-term initiatives. (For an example of a leader who launched multiple
measures to build momentum for a transformation, see the sidebar “A Technology
Leader Creates Momentum Through Rapid Moves.”) As new CEOs establish mo-
mentum with these initiatives, they should also clearly define the company’s goals
for improving long-term performance—and how the company will sustain those im-
provements over time.

6 The New CEO’s Guide to Transformation

 A NEW RETAIL CEO HITs THE GROuND RuNNING
A new CEO was hired to run a retail During his first month, the CEO gave
organization that had been losing similar presentations to larger groups
market share for several years and of employees and managers, which
that was starting to see profitability provided clarity and reduced anxiety
decline. During the 100 days before in the organization. He also traveled
taking over, the CEO visited stores, to meet the extended management
talked with customers, studied team, visited crucial countries, and
international best practices to build granted interviews to select media
on his own experience abroad, and outlets—always with the same clear
talked with experts in the retail sector. and consistent messages.
Through that process, he realized that
the immediate priority was to identify Within the first quarter, the company
rapid, no-regret moves that could had begun to roll out several no-
increase top-line sales and reenergize regret moves on the basis of his
the organization. international retail experience and
firsthand research, including a loyalty
While conducting this due diligence, campaign, extended operating hours
the new CEO also developed a strong for a particular store format, and new
presentation to introduce his plan to promotions. The results jump-started
the organization. As soon as he took top-line growth for the first time in
over, he gave the presentation during years, leading to subsequent gains in
the first executive-committee meet- market share. With those gains
ing, supporting the plan with the behind them, employees were more
customer feedback he’d generated willing to accept the cost cuts and
firsthand, along with his international other measures required for the
experience with retail peers. In this company to become leaner and
presentation, he used very direct more agile.
language and simple terminology,
which made the messages powerful,
credible, and resonant.

The First Weeks: Energize the Organization

In the second step—the initial weeks of a new CEO’s tenure—communication be-
comes critical. Leadership transitions and transformations can be stressful periods
for a company, and undergoing both simultaneously can make them doubly so. Yet
success requires large numbers of people to go above and beyond to accelerate the
pace of change. As a result, new CEOs must carve out the time to energize the or-
ganization and build momentum for the collective transformation ambition.

Specifically, new CEOs should start building a compelling case for change from their
first day on the job. Initially, new CEOs should make the case to the board of direc-
tors and to the senior management team to achieve consensus so that they all
“speak with one voice” regarding the transformation. Then, new CEOs should make
the case to the entire organization. The case for change should acknowledge the
company’s heritage and the hard work of employees, but it should also discuss exter-

The Boston Consulting Group 7

 A TECHNOLOGY LEADER CREATEs MOMENTuM
THROuGH RApID MOvEs
At a global technology company, the energize his engineers, deliver the
head of a business unit realized that integrated solutions that customers
the organization was not winning the were demanding, and free up resourc-
highly competitive war for talent. The es to deploy on opportunities for
company had dropped in the ratings growth.
at websites such as Glassdoor.com
and in Fortune magazine’s annual His first step was to conduct a
“Best Companies to Work For” review. thorough analysis of the root causes
The results of employee engagement of the performance issues. On the
surveys had been falling for years. basis of this analysis, the unit head
And the unit head knew from person- defined the ambition for a step-
al interactions with employees that change transformation across
they were not happy or motivated to multiple dimensions, including
go above and beyond. He wanted a growth, innovation, leadership
transformation that would increase capabilities, workforce quality,
employee engagement, restore organizational efficiency, employee
internal pride, and persuade employ- productivity, and culture.
ees to go the extra mile.
Within the first few weeks, he selected
But his challenges did not stop there. the leadership team to drive the
Customer feedback was very trou- transformation program and commu-
bling. For example, one customer nicated the case for change, initially
commented: “When we look at your among the top 150 leaders, and then
products, we can see how your across the business unit.
organization is structured. Your
products are siloed, with incompatible In the first 100 days, the unit head
components and broken interfaces— launched the full transformation
which is just like your siloed organiza- program with multiple teams, a
tion. We need integrated solutions program management office,
with components that work together change-management processes, and
to solve our problems, and we need an employee communications plan.
them now.” such feedback gave the Over the next year, the transformation
unit head a second impetus for a delivered significant improvements
transformation. across multiple performance dimen-
sions—the result of a business unit
In response, he defined a bold leader conducting a thorough diag-
ambition to transform the unit in nostic and defining a bold transfor-
order to win the war for talent, mation ambition.

nal factors (such as the customer base, competitors, and capital markets), internal
metrics (for example, operational and organizational performance and employee en-
gagement), and the necessary measures the company will soon take in response. (For
an example of a CEO taking dramatic steps to energize a company, see the sidebar
“A Consumer Packaged Goods CEO Revamps the Company’s Structure and Product

8 The New CEO’s Guide to Transformation

 A CONsuMER pACkAGED GOODs CEO REvAMps
THE COMpANY’s sTRuCTuRE AND pRODuCT LINE
A new CEO took over a global con- on the company’s existing distribu-
sumer packaged goods (CpG) compa- tion channels.
ny that had been languishing owing
to declining sales and a sagging stock Executing this transformation
price. Recognizing that the company’s required strong leadership, not only
historic profit core was shrinking and from the CEO but also from the entire
that dramatic action was required, the senior-management team. senior
CEO established a bold vision to leaders were assigned to new organi-
change the shape and direction of the zations on the basis of their skills and
entire organization. experience in various markets. In
addition, the new CEO changed the
specifically, the CEO split the compa- board to include members with a
ny in two, creating a slower-growth more activist investor mind-set who
domestic organization and a rapidly would help shape the company’s
expanding international player. In growth agenda.
addition, the least desirable divisions
were sold off, which represented Collectively, these measures more
approximately 20 percent of the total than doubled the company’s market
portfolio. Finally, the CEO made value and moved its total shareholder
several acquisitions, particularly in return into the top quartile of the
growth areas that could piggyback CpG sector.

Line.”) The case for change is typically made to internal stakeholders in various ven-
ues, such as workshops and town hall meetings, as well as through communication
channels that allow the CEO to answer important questions on vision, approach, and
tactical next steps.

In addition, leaders should tailor the message and the communication style to the
company’s situation. Some companies have well-established ideas about their over-
all direction and sense of purpose; these companies can focus primarily on short-
term performance and delay setting a more visionary agenda. Other companies are
tired of short-term thinking and constant cuts and need a more compelling story
about where the new CEO intends to lead the company. In all cases, it is critical for
the CEO to speak with authenticity and a sense of urgency. (For a case study of a
company that had to take rapid and dramatic steps during a transformation, see
the sidebar “A Pharmaceutical Company Transforms Itself and Generates $20 Bil-
lion in Value.”)

The First 100 Days: Prepare and Launch the Transformation

The first 100 days of the process are critical in that they set the trajectory for the
overall transformation—and indeed for the CEO’s tenure. Leaders must put the
foundation in place during this time, balancing a long-term vision with day-to-day
reality. As the transformation starts to take shape and the case for change becomes

The Boston Consulting Group 9

 A pHARMACEuTICAL COMpANY TRANsFORMs
ITsELF AND GENERATEs $20 BILLION IN vALuE
A global pharmaceutical company virtually all functions and business
had been extremely successful— units were included in the scope.
consistently growing earnings by Notably, the company implemented
15 percent a year and reinvesting all the transformation through both
remaining excess capital. However, senior leaders and managers who
management challenged itself to were several levels down in the
improve performance through a organization hierarchy. This approach
comprehensive transformation of the led to very specific, pragmatic
company. The investor community solutions, and it built momentum for
also indicated that the company the initiative throughout the compa-
could create more value by accelerat- ny’s workforce.
ing earnings growth. As the company
began to consider a transformation, it Through this transformation, the com-
faced an additional challenge—a pany cut its annual costs by more
hostile take-over attempt. than $500 million and increased its
earnings growth rate from 15 percent
In response, the company launched to more than 20 percent. These
an extremely rapid initiative to cut changes yielded an improvement in
activities that generated a low return company value of approximately
on investment and restructured to $20 billion. The transformation also
quickly increase earnings. The project represented a value-creating alterna-
team analyzed and redesigned the tive to the hostile takeover and
entire company in only three months enabled management to strike a deal
and then implemented the new with a different acquirer on more
design. Despite the rapid launch, favorable terms.

clear, the CEO must shift gears from planning the transformation to actually lead-
ing it. This means immediately kicking off the rapid, no-regret moves that will de-
liver impact within 3 to 12 months, creating and enabling initiative teams, setting
up the overall governance and change-management program for the transforma-
tion, and launching the communications plan.

These no-regret initiatives build momentum for the larger effort, win over internal
skeptics who may doubt that change is actually happening, generate credibility for
the new leadership team, and often free up capital that can be used to fund subse-
quent measures. As a result, these initiatives further help energize the organization.

The four primary levers for funding the journey are revenue, organizational sim-
plicity (delayering), capital efficiency, and cost reduction. (See Exhibit 4.) In choos-
ing where to start, many companies understandably opt for the two obvious solu-
tions: cost cutting and organizational simplicity. This approach works, but revenue
and capital efficiency can often generate a significant impact as well. (For a case
study of a company that launched strong early stage initiatives, see the sidebar “A
Manufacturer Lays the Groundwork for an Ambitious Transformation.”)

10 The New CEO’s Guide to Transformation

 Exhibit 4 | Four Primary Levers Can Help Fund the Journey

Primary levers Categories Common tools Typical impact

Revamp pricing model, reduce discounts, Raises revenue by 2 to 8 percent

Pricing and develop new pricing capabilities
Sales force Improve customer targeting and enable the Increases revenue and profit by
Revenue effectiveness sales team 10 to 15 percent
Reduces marketing costs by
Marketing Optimize spending and implement data analytics 10 to 20 percent; boosts sales
volume by 3 to 8 percent

Shrinks indirect labor costs by

Organizational Delayering Trim the number of layers and increase the spans 15 to 30 percent; improves
simplicity of control accountability, decision making,
and operational agility

Net-working-capital Reduce inventory and handle payables and Decreases working capital by
improvement receivables more efficiently 20 to 40 percent
Capital Lowers capital expenses by
Fixed-asset Sell assets, outsource functions, and increase 20 to 30 percent; increases
efficiency productivity overall equipment effectiveness
EBITDA by 2 to 8 percent
Project portfolio Analyze net present value, prioritize projects, Improves relative TSR by
optimization and eliminate failed projects 20 to 40 percent

Cuts COGS by 2 to 3 percent

COGS and Decrease spending on promotions, better manage
categories and suppliers, and improve procurement and procurement costs by
procurement 5 to 20 percent
Improve logistics, optimize the network, Reduces operating expenses by
Cost Supply chain and streamline the product portfolio 10 to 30 percent
reduction
Increase offshoring or outsourcing and reduce Trims labor costs by
Personnel cost head count 20 to 40 percent
Cut spending on travel, utilities, facilities, IT, Lowers overhead costs by
Nonpersonnel cost and services 20 percent

Source: BCG analysis.

Notes: EBITDA = earnings before interest, taxes, depreciation, and amortization; TSR = total shareholder return; COGS = cost of goods sold.

Once measures are under way, there is a real risk of prematurely declaring victory
and moving on to other priorities, which all but assures that the transformation ef-
fort will fail. Instead, it is critical to maintain focus and ensure that initiative teams
are on track to achieve results. Assuming that some form of project tracking has
been put in place, now is the time to ensure that leaders have full transparency into
the progress of each initiative. Regular review sessions, facilitated by the program
management office (PMO), should provide sufficient information for leaders to
know whether—and how—they need to intervene.

In particular, CEOs should avoid a number of common pitfalls during this phase, in-
cluding the following:

• Insufficient accountability among the owners and sponsors of the initiatives

• Failure to have in place clear plans and roadmaps, backed with specific actions
and milestones that are linked to financial objectives

• A lack of resources and expertise on initiative teams

The Boston Consulting Group 11

 A MANuFACTuRER LAYs THE GROuNDWORk FOR
AN AMBITIOus TRANsFORMATION
The u.s. housing industry suffered a works and problem-solving methodol-
steep correction following the 2008 ogies and tools.
global financial crisis. The CEO of a
manufacturing company responded To ensure the overall program
with a number of measures that did delivered on the EBIT ambition, the
not improve its financial performance. company set up a steering committee
composed of senior executives and a
Realizing that stronger measures program management office (pMO) to
were called for, the CEO decided to provide governance and drive the
launch a more ambitious transforma- pace of the transformation.
tion program, with the goal of increas-
ing earnings before interest and taxes The pMO provided rigorous program
(EBIT) in one year, independent of management, including the monthly
market growth or price changes. tracking of improvements. The
reports highlighted any initiatives that
To prepare for the transformation, were exceeding or falling short of
seven teams—four composed of their targets. This gave management
employees from business units and a clear view of overall performance
three made up of employees from and flagged situations that required
major function areas—developed a interventions.
roadmap of initiatives around growth,
pricing, cost reductions, and opera- As a result, the company was able to
tional productivity improvements. deliver on the ambitious EBIT target
Each initiative specified the target set by the CEO. In addition, the
EBIT improvement, required actions, business units adopted a continuous-
milestones, and resources. The improvement approach to capture
company also enabled the teams to gains after the formal transformation
meet these aggressive goals by provid- program ended.
ing them with new analytical frame-

• Management incentives that do not support the objectives of the transformation

• Failure to engage stakeholders and overcome institutional resistance

The First 18 Months: Drive the Transformation

As the broader transformation begins to gain momentum and initial fund-the-
journey efforts begin to take hold, CEOs must launch broader initiatives to win in
the medium term, set the new strategy and operating model, and build sustainable
performance.

Winning in the Medium Term. This phase requires delivering on transformation

objectives that go beyond the short-term goals of earlier, fund-the-journey efforts.
The specific objectives will vary by company, but common to all transformations is

12 The New CEO’s Guide to Transformation

the need to establish a fundamentally different competitive position, leading to a
medium-term step-change in performance. Winning in the medium term could
entail a wide range of initiatives to transform, including driving growth, launching a
new business model, revamping commercial processes or operations, building
digital capabilities and ventures, and transforming internal support functions, such
as R&D, IT, or human resources (HR), among others. (See Exhibit 5.)

Compared with funding-the-journey measures, initiatives to win in the medium

term are usually more difficult to conceptualize, as they require breakthrough
thinking, usually in areas that are less familiar for the organization. These initia-
tives are also harder to staff and implement, and they call for managing interdepen-
dencies across functions and business units. (For an example of a CEO-led transfor-
mation that delivered sustainable gains, see the sidebar “A Global Insurer
Implements a Value-Based Transformation.”)

Setting the New Strategy and Operating Model. While driving short-term and
medium-term initiatives, companies benefit from stepping back and looking at their
overall strategy and operating model. This does not need to be a broad strategy-

Exhibit 5 | There Are Numerous Types of Transformations

Growth Developing the strategy and the operating model to position the company for stronger growth

Dramatically shiing the business model, including the markets served and the value
New business model proposition for customers

Improving the effectiveness and efficiency of decision making and work processes throughout
Organization the organization

Reshaping sales and marketing by focusing on new markets and increasing the efficiency and
Commercial effectiveness of spending

Boosting a company’s profitability and cost position across the manufacturing, supply chain,
Operational and service operations

Digitizing the entire value chain—and the company’s competitive DNA—by adopting new
Digital technologies and rethinking the business strategy

Repositioning a company in a complex global world to take advantage of proper growth

Global opportunities in emerging and developed nations

Innovation and R&D Increasing the quality and the number of innovations by improving the effectiveness of R&D

Overhauling the core IT infrastructure to enable faster decision making, powerful analytics,
IT efficient processes, and improved operations

Revamping vital support functions—such as finance, legal, and human resources—to reduce
Support functions costs and improve performance

Source: BCG analysis.

The Boston Consulting Group 13

 A GLOBAL INsuRER IMpLEMENTs A vALuE-BAsED
TRANsFORMATION
A new CEO took over at a global On the basis of the results, the
insurance company that had multiple company grouped its businesses
lines of business. The CEO conducted into three clusters: “grow” (the top
an outside-in analysis to assess the 25 percent), “turnaround” (the middle
company’s current situation, along 50 percent), and “divest” (the bottom
with its capabilities, its competitive 25 percent).
position both globally and in individ-
ual markets, and industry analysts’ Within the first 100 days, and backed
perceptions. by the senior management team, the
CEO had begun communicating a
This process identified some clear new 18-month initiative to the entire
challenges. The company’s return on organization.
capital was low, and its capital
position was weak. The company also The transformation would include
lacked a rigorous process for allocat- specific corrective actions to improve
ing capital and had inefficient cost the cash flow performance of the
structures and an unfocused portfolio turnaround units. In addition, the
of business units, whose performance program would reduce costs through-
varied widely. out the company and strengthen the
capital management process, with
Through this analysis, the CEO more integrated planning and a
defined the ambition for a transfor- better performance-management
mation and established explicit cycle.
financial targets. Once he took over
the top job, he built momentum for In all, the effort generated more than
the effort in a series of meetings with $400 million in savings in its first
the board of directors and the year—a savings that included a
executive committee. reduction of 25 percent in the head
count of senior management.
As part of the transformation, the
CEO looked at specific insurance That success stemmed from several
segments and restructured the factors. First, the company took a
company into 40 “cells.” Each cell strictly fact-based approach to
represented businesses and markets analyzing business performance, in
with similar underlying characteristics part by eliciting an outside-in assess-
(for example, vehicle insurance in the ment from the investor and analyst
uk, pension insurance in poland, and communities. second, the CEO
corporate insurance for large compa- ensured that all executive committee
nies in the u.s.). The CEO then members had accountability for
assessed the performance of the specific initiatives. And third, the
individual cells across several implementation plan was clear from
dimensions through financial analy- the start, thanks to strong communi-
ses and the evaluation of market cation and full buy-in from the
prospects. management team.

14 The New CEO’s Guide to Transformation

planning exercise. In fact, we find that a targeted workshop-based approach with
the senior leadership team—and the appropriate data and analysis—can lead to a
strong outcome and do so in a highly efficient manner that doesn’t distract the
leadership team from driving the overall transformation. This approach ensures
that there is buy-in from the top team and that the strategy leads to immediate
operational adjustments. (For an example of a company that implemented strategic
changes as part of its transformation, see the sidebar “A Bank’s Transformation
Boosts Customer Satisfaction and Financial Performance.”)

Building Sustainable Performance. Many organizations that deliver results during

the transformation have a tough time sustaining their hard-won performance
improvements. The goal of every CEO should be to achieve success during the first
18 months of the transformation program and then maintain it well beyond that
point. This is what separates the most transformative CEOs from the rest of the
pack. It is imperative for a CEO to own this phase and closely involve the chief
human-resources officer and other influential leaders across the company.

There are five important aspects to developing the right people and organization

A BANk’s TRANsFORMATION BOOsTs CusTOMER

sATIsFACTION AND FINANCIAL pERFORMANCE

In the wake of the financial crisis, a functions, and it rewired processes to

large bank was struggling to resume a foster greater collaboration across
growth trajectory. It suffered from departments. At the same time, the
poor profitability and process ineffi- company revamped its leadership
ciency, compared with its peers. The team, making some new hires and
bank also had severe liquidity issues giving some current leaders new
and high write-downs on loans in roles.
both core and distant markets. More
fundamentally, it had an unclear The second step was developing a
value proposition for customers and new strategy—new business leaders
little organizational focus on perfor- were tasked with defining the
mance and collaboration among strategy for their units. Those
employees. individual strategies were grouped
into one major transformation effort
In response, the CEO and leadership that was owned by the CEO and had
team launched a three-step transfor- three specific objectives: better
mation aimed at improving customer customer satisfaction, greater
satisfaction and financial results. efficiency, and a performance-based
culture.
The first step was to reorganize the
company around the customer In the third step—currently under
experience rather than around way—the CEO and leadership team
divisions and functions, which was are putting their full focus on execut-
the current, silo-based approach. That ing the new strategy.
process clarified the roles for specific

The Boston Consulting Group 15

required to support a successful, sustainable transformation:

• Ensure the commitment and change capabilities of the executive team, includ-
ing their ability to set the right priorities, mobilize and energize initiative teams,
and hold themselves accountable for the results.

• Deploy change-management tools and processes (such as an activist PMO,

roadmaps, and rigor testing) to engage stakeholders and deliver results. (For
more on rigor testing, see “The Hard Side of Change Management,” Harvard
Business Review, October 2005.)

• Install an HR team that can act as a transformation partner, anticipating talent

and leadership needs, rather than as a mere service provider.

• Build a talent pipeline that can help fill crucial roles, and develop capabilities in
areas critical for the transformation, such as go-to-market strategies, pricing,
sourcing, lean methods, digitization, innovation, and HR.

• Simplify the organization and culture to sustain high performance in conjunc-

tion with the new strategy. Usually this entails eliminating waste and low-value
work, trimming bureaucracy, implementing shared services, automating pro-
cesses, and enabling the organization to continue taking these steps on an
ongoing basis.

F or most new CEOs, the imperative to change is a given; how CEOs respond to
this imperative is not. Those who stand out from the pack quickly define a bold
transformation ambition—ideally before taking the reins—and then move forward
to energize the organization, prepare the program, and drive the transformation.
Through quick and decisive actions—while time, the board, and investors are still
on their side—new CEOs can seize the opportunity to lead a transformation and
put their company on the right trajectory for success.

16 The New CEO’s Guide to Transformation

About the Authors
Hans-Paul Bürkner is chairman of The Boston Consulting Group; he is in the firm’s Frankfurt
office. You may contact him by e-mail at buerkner.hans-paul@bcg.com.

Lars Fæste is a senior partner and managing director in BCG’s Copenhagen office and the global
leader of BCG’s Transformation practice. You may contact him by e-mail at faeste.lars@bcg.com.

Jim Hemerling is a senior partner and managing director in the firm’s san Francisco office. You
may contact him by e-mail at hemerling.jim@bcg.com.

Acknowledgments
The authors thank Maya Gavrilova, Jonas Lumby Jensen, paul Millerd, Louise Herrup Nielsen, Mai-
Britt poulsen, and Fredrik vogel for their contributions to this report. The authors also are grateful
to Jeff Garigliano for his assistance in writing this report and katherine Andrews, Gary Callahan,
kim Friedman, Abby Garland, Trudy Neuhaus, and sara strassenreiter for their contributions to the
editing, design, and production.

For Further Contact

If you would like to discuss this report, please contact one of the authors.

The Boston Consulting Group 17

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© The Boston Consulting Group, Inc. 2015. All rights reserved.

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