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Keeping transformations

on target
Operations March 2017

Michael Bucy
Tony Fagan
Benoît Maraite
Cornelia Piaia

Our detailed analysis of these materials has allowed us to draw three main insights that These odds are simply unacceptable. goals and needed an additional round of back- to-the-well idea generation. We therefore reviewed structuring a large-scale transformation program: 18 transformations at 13 organizations that were in the most critical circumstances. But the real work starts once the Nevertheless. the organizations varied in organization sets out to turn the leaders’ targets industry. 2 . Organizations must resist the temptation to spread their most effective Wave’s data repository allowed for a compre. others were simply companies in our sample fell short of their initial seeking a substantial step up in their performance. risk-averse pattern of underpromising and letting us make more nuanced comparisons. While some Be relentless. intended benefits and meet the targets committed to during the program-planning stage. electric power. Annual revenues Keeping hundreds or thousands of initiatives ranged from $2 billion1 to $28 billion. than 30 percent end up actually being used. Any transformation worth the name starts with All the organizations were located in Asia–Pacific: ambitious goals. Reporting must be prioritized as of the programs the initiatives supported. and total on track is a monumental task. Three initiatives were the typical hensive analysis of the factors contributing to burden a leader could shoulder at once. Recent to $4 billion—but we found no direct correlation research reconfirms earlier findings that only between the size of the company and the impact 30 percent of transformations deliver their of its transformation program. and program impact. mining. it needs without overburdening a few high gate reviews. to the structures and timelines performers. The sectors into initiatives that everyone else designs and represented included construction. which could get lost in a focus on only the biggest projects. one that too few transformation impact ranged from $450 million organizations around the world do well. and how quickly owners allows each initiative to get the support initiatives progressed through the various stage. Engaging initiative success—ranging from how impact more of the organization as potential initiative targets were determined. but they program-management platform. most programs try interviews of executives at representative to capture too many metrics—and usually fewer companies included in the data set. including rapidly deteriorating perfor. size. so that organizations learned in making their ambitions real. generates detailed reports tracking the financial and operational impact of individual initiatives. most of the mance or liquidity concerns. overdelivering. From the beginning. smaller initiatives got their due—they accounted Our analysis was enabled by McKinsey’s proprietary for about half of the program’s value. and retail banking. Wave. organizations were facing significant financial and operational should assume that most initiatives will be worth challenges. goods. leaders too thin. consumer implements from the bottom up. We well. that focus ensured greater consistency in the especially for organizations long used to the value-tracking approach and data structure. Keeping transformations on target Analysis of high-stakes transformations reveals a few pragmatic lessons that increase the odds of meeting the organization’s objectives. especially can serve as potential guiding principles when when the stakes are high. oil and gas. Too many milestones in initiative plans can then supplemented our findings with in-depth create unnecessary burdens. And. they had to be Our focus was on the practical lessons these careful about allocating management time. Setting them is hard enough. a lot less than they think. Focus your resources. Moreover. natural resources.

the finance function The stage gates of the pipeline begins at level zero. During actual value appears in the business’s cash flows that stage. supplemented by weekly finance function) and passes into L2. Many initiatives sit at L3 The transformations we examined all followed a during implementation. Exhibit 1 Initiatives move through a structured stage-gate process. once the Exhibit have been1identified of 6 as worth pursuing. Plan and adapt. initiative owners set out to validate and appears reasonably certain to remain. The initiative actions that initiative owners would report on owner then defines a robust set of milestones to between milestones. moving to L4 once all milestones to realize value are completed. Most initiatives were at least data from other stakeholders and additional somewhat delayed in implementation. regardless of feasibility or size (Exhibit 1). the and refine their early value assumptions with initiative passes to the last stage: L5. and provides a monthly schedule of expected value to be captured on Follow the pipeline the bottom line. with the initiative only similar pipeline approach for tracking initiatives. assesses the initiative to ensure that it will deliver or “L0. But analysis. at L3. At that point. Stage gates for each initiative Description Approval to enter stage Initial opportunity with L0 IDEA rough sense of magnitude • Initiative owner Initiative with • Initiative owner L1 IDENTIFIED preliminary sizing • Workstream sponsor Approval of • Workstream sponsor L2 VALIDATED business case • Finance • Human resources Implementation plan with • Workstream sponsor L3 PLANNED refined business case • Finance All steps to realize • Workstream sponsor L4 EXECUTED value completed • Finance Value realized in • Workstream sponsor L5 REALIZED actual cash flows • Finance Source: McKinsey analysis 3 . the initiative is approved (usually by the planning of milestones.” with the collection of as many ideas as value—ideally at the target amount set at L2. Finally. Once a solid business case has been organizations could reduce delays with judicious built. that amount is usually adjusted as the initiative Keeping Our analysistransformations on target then begins at L1. once the initiatives progresses from stage to stage. but CDP 2017 possible. execute the initiative.

the initial impact estimate falls by an average of Be relentless about 45 percent (Exhibit 2). That 13 percent. conducting back-to-the. Throughout the process. The TO’s independence and role in in timing and in total value. and our data confirm how little impact survives to realization. Pressed to meet and provide support when initiatives run into program goals that are usually aggressive both trouble. impact leakage. usually fall by about 70 percent by the time they Exhibit 2 Initial impact estimates are invariably optimistic. reviews to monitor initiatives’ progress against Yet any executive will recognize that most initial their milestones. especially naturally tend to overestimate their initiatives’ through rigorous problem-solving sessions and worth. much will leaders need to compensate for leakage of impact over the course of the transformation? We reviewed each organization’s experience across stages L1 to L5 to find out where problems were Our examination of the data confirms that most likely to arise and how organizations worked program managers should expect substantial around them. CDP The 2017challenge for any organization earliest the now-smaller impact estimate falls another Keeping transformations transforming on target itself is to find sources of value. record the value they capture. From L2 to L3. Expected impact leakage by level. 1 % 5 7 8 Value erosion 9 8% Value 31 delivered 34 31% 55 48 Value 100 estimated 100% Cancelled 56 61 initiatives 61% 45 40 L1 L2 L3 L4 L5 1 Figures may not sum to 100%. Just between stages L1 and L2. because of rounding. impact estimates are optimistic. with further drops of 28 percent Exhibit means 2 of 6 fighting attrition. But just how optimistic are they? And how questioning of self-imposed limits. Cumulatively. the result is that L1 estimations attention with care. and allocating leadership L5. between L3 and L4 and 9 percent between L4 and well exercises as needed. initiative owners capturing data allows it to drive action. Source: Analysis of data provided by Wave (a McKinsey Solution) 4 . a transformation office Fight attrition (TO)—typically headed by a chief transformation The top concern for business and program leaders officer—sets an aggressive pace of weekly is for the transformation to meet its impact target.

sand initiatives are allowed them to make up the difference. for example. At this stage. Moreover.reach L5. giving them more of a stake in the transformation’s success.0 percent of total value. And these small initiatives add opportunities to improve the business. the biggest (and often highest-profile) the well and asking their people for more ideas initiatives is risky. One option that several organizations isn’t productive is a moment taken away from used took advantage of data from the program. organizations can quickly generate Some of the organizations we reviewed expanded valuable insights from the people whose day-to. organization. which provided an essential size involves fewer layers of approval and less morale boost that made further improvement coordination. transformations must be especially careful in about two-thirds of a program’s value had already allocating time and effort at every level of the been discovered. 50 percent of millions of dollars at the energy company and the total program value typically comes from hundreds of millions at the consumer player. Finding these later opportunities requires more effort than the first round of idea generation and Focus your resources typically produces somewhat less in total returns.5 and 5. with less than three months remaining everything smaller than 0. we important lessons that led to new value. additional pockets of potential almost always moment an initiative owner spends on work that remain. back-to-the-well exercises illustrate a related lesson as well: that Find a productive spring—and return to the well later the long tail of smaller initiatives matter. And they are often led by frontline possible after the target was met. but each truck by more than 30 minutes. even these preparations may that each represented at least 5. program’s value. as demonstrated by a consumer. executives overseeing Our data analysis found that by the second month. defined “initiative owner” as “the most senior 5 . Organizations will therefore need a Impact: Big slope versus long tail pipeline with a total value that’s more than By opening up idea submission to a much larger three times the initial target. The first. That means focusing only on the But both companies found that going back to boulders. teams were running well short of their targets—by tens of Our data indicate that on average. a mechanic came ideas early in the process. helping generate more impact. The basic reality is that every Still. or that underdelivered helped uncover For comparison among transformations.” before publicly announced deadlines. leaving less to find in later efforts. sand (Exhibit 3).5 percent was “sand. How much is reasonable to ask of initiative owners? delayed. cross section of the organization. to the regular monthly service schedule across disciplined ideation workshops with frontline the entire fleet. though. With time of the essence. Once applied program managers can nevertheless hold broad. and each case. In between 0. analysts and managers. At one Part of the solution is simply to generate more mining company. Conducting Make it easier on initiative owners a root-cause analysis on those that were cancelled. the idea-capture process to vendors and business day work gives them a unique perspective on real partners as well. Each often easier and quicker to execute: their small made its target. We divided initiatives into three groups. this idea added several thousand team leaders and representatives. openness millions of dollars. up to big impact.0 percent of the total not be enough. time up with an idea that reduced maintenance time for may not allow for canvassing all employees. and creativity. By setting out truck working hours per year and was worth rules that encourage full participation. “boulders.” consisted of initiatives In practice. to all ideas (even the most “unrealistic”). management tool to review how much actual value each initiative was generating. “Pebbles” were those representing products manufacturer and an energy company.

CDP 2017we found that initiative owners manage others and following up on their progress. CDP 2017 Keeping transformations on target Exhibit 3 of 6 Exhibit 3 Focusing only on ‘boulders’ can be risky. 20% of owners Impact. % manage 80% of total impact 80 Source: Analysis of data provided by Wave (a McKinsey Solution) 6 .0% 41 of pipeline 32 32 27 Sand 21 <0. % On average.” On good at delegating the underlying milestones to average. Ownership. “It’s a Our evidence shows that about 80 percent rare exception for an owner to successfully manage of total impact is managed by 20 percent of more than three initiatives.0% 53 60 83 of pipeline 64 38 56 Pebbles 50 0. That’s often Exhibit 4 Heavy reliance on a few initiative owners could create burnout risk.” three initiatives each. Recurring impact on selected companies by initiative size. As one leader Keeping transformations on working target with aExhibit consumer-products 4 of 6 company explained. They have to be really initiative owners (Exhibit 4).5–5.5% of pipeline Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Average Source: Analysis of data provided by Wave (a McKinsey Solution) person who actually does the day-to-day work. % share 41 15 13 6 0 0 0 0 5 59 44 36 17 62 45 Boulders >5. while ‘pebbles’ and ‘sand’ can add up to big impact.

By contrast. “high plan that’s before measuring and tracking granularity came with a lot of pushback from nonfinancial metrics. milestones 29 percent of the metrics organizations claim spaced too far apart in time reduced the to follow are actively used during the length program leaders’ ability to identify delayed of the project (Exhibit 5). but not so many as to get in the way of implementation. and one-time impact or between hard savings and cost avoidance. Most but also helps build momentum and commonly. and worried about the time required to update or create milestones. potential problems. On the other hand. for example. that several of his allocate the savings from their initiatives.because ownership of big-value initiatives company’s execution plans ended up (such as major contract renegotiations) is in avoidable delays when the milestones concentrated in the hands of a few very that initiative owners scheduled failed senior or high-potential individuals. the initiative. small-value initiatives are often more limited in scope and are owned Make metrics meaningful by frontline analysts and managers who The decisions on which metrics to track are don’t have the time or capacity for a larger typically made during the planning phase of set of initiatives. Keep reporting manageable But even a relatively straightforward set of But complexity can quickly rear its head metrics can quickly become complicated in the reporting of initiatives’ status. such as for compliance reviews But it comes at a cost: the potential for or proxy votes. to align with important stakeholder approvals. compared with nonfinancial metrics. and so on. Adding further permutations. burnout. And consumer-goods company. financial metrics are used for buy-in for the program as a whole. For the the complexity for initiative owners. The rest become or at-risk deliverables until it was too late statistical noise and a source of confusion for for effective course corrections. 7 . The involvement of a the program. as leaders decide what is in and larger number of people not only relieves out of scope. what types of spending should the owners of higher-profile initiatives be targeted for savings. One of our interviewees said that his organization lost several leaders Our data show that an average of four because they simply couldn’t keep up with milestones was typically the right balance— the demands of overseeing too many enough to provide early warning about initiatives at once. These transformation programs because of their considerations typically outweigh the strategic importance. who felt micromanaged redeployment for different personnel types.” one executive Evidence from our data shows that only told us. distracting to initiative owners at such as distinguishing between recurring negligible additional value. if additional layers are added. compounds Either extreme creates problems. One leader initiative owners trying to decide where to noted. the availability of the disadvantage of the added complexity of required data. such as head-count initiative owners. A finance The ideal initiative execution plan contains department may ask for the metrics to all the milestones necessary to carry out mirror individual accounting line items. while avoiding so much slicing and dicing the data into dozens detail that the milestones become of submetrics. and the ease of tracking them having to manage a high number of owners.

with sound reasoning and the inevitable unforeseen obstacles. 56 percent of initiatives where needed to keep initiatives—and whole still miss their planned L3 date (the date programs—on track. However. so too of detail while also enabling initiative owners is the promised timing. Plan and adapt The impact of date changes can be mitigated Once the program is under way. organizations must strike Plan for delays a balance between ensuring the finance Much as the initial value estimate of an function can report at an acceptable level initiative tends to be optimistic. at which the plan is approved) by more 8 . approximately 31 percent that several organizations used successfully of initiatives will have their execution was to eliminate any metric that was likely end date (the date at which stage L3 ends) to carry less than 0. and 19 percent three times. CDP 2017 Keeping transformations on target Exhibit 5 of 6 Exhibit 5 Only 29 percent of metrics are actually used actively during the length of the program—the rest are just noise and confusion. Careful approval of the TO. Metric availability and usage by company. the organization if they are made early in an initiative’s will need to adapt quickly and nimbly to life cycle. happen twice. number % 119 96 104 100 97 80 71 87 75 35 93 67 Metrics unused 39 40 19 22 20 29 24 26 18 23 16 20 Metrics used 10 4 4 Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Average Source: Analysis of data provided by Wave (a McKinsey Solution) Accordingly. A rule of thumb that on average. About 28 percent will see it metrics instead.01 percent of total changed at least once throughout their program impact and fold it into other life cycle. Our data show to allocate impact easily. our data planning and well-structured review cycles show that despite the high frequency of helped the executives we interviewed intervene due-date changes.

this analysis that can impede an initiative’s progress. A chief2017 CDP transformation officer who comes from Keepingoutside the organization can transformations on often target be in a better Exhibit 6 of 6 position to break through cultural norms and other constraints For high-stakes transformations. 80 percent of the initiatives across a program and the level of approval required to move to be updated with specific actions every an initiative from one stage gate to the next. initiative complete) by more than a week. including the overall agility of the company. By asking for brief updates the set deadline (Exhibit 6). and about half miss their Commit to weekly actions L4 date (the date at which execution is Even when delays are unavoidable. whose discipline almost every initiative can be improved is essential in ensuring performance. days L3 gate L4 gate L2 L3 Planned 105 days L4 L2 L3 Planned 105 days L4 17 days late starting L2 L3 Planned 105 days L4 11 days late ending L2 L3 Actual 116 days L4 L3 gate L4 gate Source: Analysis of data provided by Wave (a McKinsey Solution) 9 . underscores the importance of balancing Exhibit 6 On average. Timeline L3 start to L3 end. regardless of whether there’s a executed approximately four weeks after milestone or not. While that may seem high. and they are fully week. helping owners meet their found that with five minutes of planning. L3 initiatives start 17 days later than planned and are fully executed approximately four weeks after the set deadline. leaders What can organizations do? The amount can encourage owners to report on potential of time that initiatives spend in the issues early so that they can be solved implementation stage will inevitably with minimal effort. on these actions during the regular cadence of meetings and offering support. owners can reduce the impact by ensuring initiatives start L3 two-and-a-half weeks that each initiative moves forward every later than planned. week. the As a rule of thumb. or accelerated each and every week. deadlines is the role of the TO. leaders should expect urgency of the transformation program. than a week. depend on a range of factors. we have But ultimately. On average.

Tony Fagan is the Asia–Pacific general problems that arise when people are trying to manager for Wave and is based in the Singapore office. and Erwin Sie for their contributions to this article. converted as of the study’s understanding of what individuals and conclusion in May 2016. organizations can achieve. By minimizing avoidable and Cornelia Piaia is a Wave business and strategy waste in the transformation process itself. By keeping a few basic constraints in mind. Matteo Iachino. in a very short time. the program is complete. manager in the Paris office. transformation Michael Bucy is a partner in McKinsey’s Charlotte leaders can mitigate some of the inevitable office. high aspirations against a pragmatic 1 All amounts in US dollars. Simon a foundation for it to keep improving once Herrmann. Benoît Maraite is Wave’s head of client achieve dramatic performance improvement service and is based in the Louvain-la-Neuve office. 10 . Nicolas Maya Medina. the organization is much more likely to meet (or even exceed) its goals—and build The authors wish to thank Barr Blanton.

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