# 243. A road map to successful transformation

- **Show:** Inside the Strategy Room
- **Published:** 20 Mar 2025
- **Source:** https://omny.fm/shows/inside-the-strategy-room/243-a-road-map-to-successful-transformation
- **Transcript:** https://podcasts.opennash.com/shows/inside-the-strategy-room/243-a-road-map-to-successful-transformation-04af9e/
- **Provider:** OpenNash Podcasts (machine-generated)

## In brief

Successful business transformation is no longer a cost-cutting drive. The three McKinsey partners argue it works best as a company-wide reinvention built around a bold "true north" ambition. It covers growth, people, technology and cost. Cost savings are used to fund the other three. It needs a committed CEO and broad employee involvement, and it has to become part of how the business runs every day.

The main tension is between speed and durability. Quick wins in the first three to six months build credibility. But the bigger growth moves take a year or more, and the full effort runs two to three years. Companies tend to move too slowly, yet they also lose the gains if the effort stays separate from daily operations or leaves employees on the sidelines.

## Key insights

1. **Transformation has shifted from cost-cutting to growth** Rob Montgomery says nearly half of the impact in McKinsey's client transformations now comes from growth, a big increase over 15 years. Growth takes longer to deliver, so the old 12-18 month model no longer fits.
2. **Cost savings should fund growth, not just margin** Louisa Greco says companies often reinvest about half of captured cost savings into growth. Kevin Carmody adds that cost is the pillar that generates cash to fund team, technology and growth.
3. **Broad employee involvement beats top-down mandates** Kevin describes a client that kept losing cost savings until it activated hundreds of people below the top ten, after which the cuts stuck. Louisa cites research that engaging more employees raises the odds of success more than threefold.
4. **CEO ownership separates winners from losers** Louisa says companies in the top quartile for delivering their committed plan return about six and a half times more to shareholders than those in the bottom quartile. She adds that handing the effort off, even to a chief transformation officer, sharply reduces the chance of success.
5. **Transformation must merge into business as usual** Louisa warns that a company can hit its savings target and still leak the advantage if daily operations suffer. Kevin says the transformation should act as an incubator whose new ways of working become the normal operating model.

## Questions this episode answers

### How is modern business transformation different from the old cost-cutting kind?

The speakers say older programs were short, reactive and focused on cost and cash. Today's versions are strategy-led and span growth, people, technology and cost, and they are ongoing rather than a one-off project with a catchy name.

### How long does a transformation take to show results?

Rob Montgomery says the first quick wins come in about three to six months, while growth moves can take six to twelve months or more to show up. A full holistic effort is a two to three year undertaking.

### What is a chief transformation officer and why do they need the CEO's backing?

This is a senior leader who runs the transformation effort. Kevin Carmody says they usually have no direct profit-and-loss or business-unit authority, so they need the CEO's support to push decisions through.

### Should a company promise employees there won't be layoffs?

Louisa Greco says leaders should not make promises they can't keep. If layoffs are possible, it is better to say honestly that you don't know and will do what's right for the business.

### What does TRS mean and why do the speakers keep citing it?

TRS is total returns to shareholders, meaning share-price gains plus dividends. The speakers use it to show that strong growth focus, plan execution and capability building are linked to higher shareholder returns.

## Facts

- **Sean Brown** [0:01:56]: "So Kevin, you helped start our transformation practice more than 15 years ago."
- **Rob Montgomery** [0:04:00]: "We've partnered with clients on nearly 1,200 transformations in 30 different sectors, 90 different countries."
- **Rob Montgomery** [0:04:41]: "a world where half of the ten largest companies today didn't exist 25 years ago"
- **Kevin Carmody** [0:07:22]: "when I started my career at Chrysler Corporation, it's the difference of somebody going into a plant and and clocking in and clocking out"
- **Louisa Greco** [0:09:00]: "Companies might have embarked on transformation previously in response to an event, that might have been competitive entry, it might have been an acquisition, it might have been an activist investor."
- **Louisa Greco** [0:09:00]: "they invariably had a discrete beginning and a discrete end, often with a fancy name."
- **Louisa Greco** [0:10:28]: "organizations that focus on growth deliver five times higher profitability, and we see organizations that exceed sub-sector median growth deliver twelve times TRS versus those that don't."
- **Louisa Greco** [0:11:07]: "We know that when we engage a broader set of employees in the ambition, the odds of success increase by more than three times."
- **Louisa Greco** [0:12:16]: "we'll invest a portion of that, often half, back into the business for growth, and the rest of it will drop to bottom line."
- **Kevin Carmody** [0:14:57]: "cost optimization really is an opportunity to reset the organization, but to drive cash generation to basically fund the other three performance pillars"
- **Kevin Carmody** [0:16:55]: "But we had a very deliberate plan to activate the organization hundreds of people, not just the top ten, to help them build the capabilities"
- **Louisa Greco** [0:18:58]: "Those companies in top quartile of execution of their bankable plan commitments deliver TRS of six and a half times those in the bottom quartile."
- **Rob Montgomery** [0:25:18]: "I think there was a perspective for many years that transformations were one and done, twelve, eighteen month process."
- **Rob Montgomery** [0:25:52]: "nearly 50 of the impact that we have seen in our client transformations comes from growth, top line"
- **Rob Montgomery** [0:26:22]: "having sort of spent the first half of my career in turnaround"
- **Rob Montgomery** [0:26:54]: "We like to think about, you know, three to six-ish months, as you know, the initial window where we're really focused on those quick wins"
- **Rob Montgomery** [0:30:51]: "we did a roadshow through, I think, nine or ten different major hubs to sort of try and convey the essence of why and what we were trying to achieve"
- **Louisa Greco** [0:33:17]: "One was a life sciences organization where there was an in intense opportunity to actually serve more patients."
- **Kevin Carmody** [0:37:37]: "There was something like 40 production, uh, lines in that plant, and that was the 1st time she was asked her opinion, right?"
- **Louisa Greco** [0:38:14]: "when the response is we're not expecting any or no, it's just not a commitment you can keep."
- **Kevin Carmody** [0:41:58]: "68 of the initiatives in our transformations are smaller, 250,000, uh, dollars or less, not 10 million."
- **Kevin Carmody** [0:42:30]: "If you look at ways of working, if you actually have a plan to build those capabilities and you follow through, so you're teaching people to do something differently, it's a twox bump to your TRS."
- **Kevin Carmody** [0:42:56]: "the CTO typically is someone that does not have direct P L or business unit authority."
- **Rob Montgomery** [0:28:23]: "generally, most companies, um, I think, left to their own devices, aren't gonna move fast enough"

## Transcript

**[0:00:03] Kevin Carmody:** There is an opportunity, not all the time, but there's an opportunity to do these transformations institutionally wide. And I know there there are reasons why you might wanna just do it in procurement or maybe in a business unit. But we like to say, let's set that aspiration in a bold way right now. If you had to do it across an entire company and you wanted to be an institutional or industry leader, what would it take?

**[0:00:25] Sean Brown:** From McKinsey and Company, I'm Sean Brown and welcome to inside the strategy room. You just heard Kevin Carmody, one of our guests today, talking about the rationale for companies undertaking an organization-wide transformation as a means of getting and staying ahead of competitors and disruptive change. Kevin is the co-author of a McKinsey com article titled Defining Your True North A Roadmap to Successful Transformation, and we've included a link to the article in the show notes today. The article focuses on how transformation has evolved from what was commonly considered a cost-cutting exercise to a holistic method of enabling organizations to move faster and continually adapt to change.

**[0:01:12] Sean Brown:** Now I'd like to introduce our guests, all leaders in our transformation practice. Kevin is a senior partner based in our Chicago office and works with management teams, boards of directors, and other stakeholders on complex performance transformations, strategy, change management programs, and corporate finance. Kevin, welcome to the podcast.

**[0:01:33] Kevin Carmody:** Great to be here, Sean, thanks.

**[0:01:34] Sean Brown:** And Louisa Greco is a partner in our Toronto office and focuses on driving broad-scale transformations, commercial improvement, innovation, and organizational effectiveness. She previously led the transformation and growth of multiple businesses in the healthcare and consumer product sectors. Louisa, thanks for joining us today.

**[0:01:54] Louisa Greco:** Thank you, Sean. It's great to be here with you.

**[0:01:56] Sean Brown:** And Rob Montgomery is a partner in our San Francisco office and has designed and led comprehensive transformations, as well as served in a number of interim, senior executive and chief transformation officer roles across a number of industries. Rob, it's great to have you with us today. Appreciate it, Sean, thanks. So Kevin, you helped start our transformation practice more than 15 years ago. How has transformation evolved since then, and why does it remain so important to leaders today?

**[0:02:27] Sean Brown:** Fantastic. So there is a massive opportunity for companies to drive performance at scale that goes beyond the way that we may have defined transformation when we began this practice. And the scale of that opportunity might be even bigger than you think. And then the 2nd message is it's not necessarily necessarily easy, but it's effective. And there's been a lot of stories that we've seen across companies where folks deep in the organization are really, maybe even for the 1st time, feeling as though they're empowered to do something truly special that they can actually contribute.

**[0:03:00] Sean Brown:** Either a small or big piece to the transformation, and those are the unlocks building the team that can truly execute. A different way that's linked to a strategy in a simplified way that sets the standard and doesn't compromise it. That's what gets us excited about this topic. So it sounds like the focus of transformation has broadened, and the scale of the opportunities have also expanded along with that. Rob, can you talk a little bit about what's been driving that change, that expansion?

**[0:03:28] Rob Montgomery:** Over the years, what really started as a cost and a cash sort of equation, given the situation that our clients were in, the body of work that we're doing has evolved. And we have really shifted the focus in response to a number of catalysts, to be more holistic in nature, everything from top-line growth, bottom-line margin, the balance sheet, capital efficiency. It's what we refer to as holistic, um, transformations. The reason I came about couple things one, obviously, over 15 years, we've learned quite a bit.

**[0:04:00] Rob Montgomery:** We've partnered with clients on nearly 1,200 transformations in 30 different sectors, 90 different countries. But I would say, more so than that, what has really driven that change is the environment around us global changes, market disruptions that have ushered in effectively a new reality for businesses. World has become far more interconnected, and, frankly, these days unsettled, which has introduced a level of macroeconomic uncertainty for clients that we haven't seen before. Technological innovation, new entrants, disruptors, they have really changed the equation, and it changed the way in which companies and some of those larger legacy companies have had to react.

**[0:04:41] Rob Montgomery:** And in a world where half of the ten largest companies today didn't exist 25 years ago, and the majority of today's Fortune 500 companies aren't exist, aren't expected to exist, at least in their current incarnations, by 2030. Like, the way we think about transformations has had to change. And I think the way that our clients and companies are looking at it and beginning to look at it with a strategy forward perspective on where are we today and where do we need to go tomorrow to to be successful and to compete is absolutely critical.

**[0:05:18] Sean Brown:** So has that strategy forward perspective also changed the definition of what a transformation really is, and is transformation even the right word anymore? For what seems to be a requirement for all businesses now?

**[0:05:33] Rob Montgomery:** Um, you know, it's it's a great question, and it's a point that we talk about quite a bit. But I think most importantly, it's become synonymous with, you know, cost takeout structuring. So, like, one of the biggest hurdles we always have, or at least I do, whenever I go into a new situation, begin working with a new client, is trying to reinforce for them that this isn't about cost, it's about efficiency. It's about freeing up capacity and resources so that we can really reorient the focus of the operations to be pursuing those big, meaty strategic imperatives that are gonna change the outcome for us over time.

**[0:06:12] Rob Montgomery:** I do think that, like, the real essence of it is reinvention, it isn't cost takeout. And we talk about, like, the importance of having that governing long-term view, strategic perspective on where this organization is going. We've seen it in many cases where when you sort of get wrapped up in, oh, oh, shoot, the fundamentals are devolving or are eroding around us, the streets pipe it up quite loudly, activists are coming in. You like the natural knee-jerk reaction is go, go, go on near-term quick hits.

**[0:06:47] Rob Montgomery:** If you can't step back for at least a half a minute and think about, okay, where are we trying to go long term? You run the risk of, like, taking action today that actually ends up being counterproductive to your longer-term, um, priorities and your longer-term goals and could actually slow down that progress. So you need to always be questioning and challenging the org as to is what we're doing today or embarking on today, is setting us up for where we want to go, or is it potentially putting a roadblock between, you know, today and tomorrow?

**[0:07:18] Sean Brown:** Thank you, Rob, and and Kevin, it looks like you'd like to add something there.

**[0:07:22] Kevin Carmody:** The only other thing I'd say briefly is to me, you are building a new business at some level, right? You are setting a new standard, really setting a new standard. It's got to be bold, and that doesn't have to be financial. So if you really want to build an organization that has better capabilities, they're more excited about doing their jobs, that's part of it. Like, when I started my career at Chrysler Corporation, it's the difference of somebody going into a plant and and clocking in and clocking out versus somebody that said, I'm actually building the Ram truck differently.

**[0:07:49] Kevin Carmody:** That that mindset shift is maybe even more important than dollars at at stake. But you wouldn't do it if you if you weren't building a new business, setting a new standard, doing something bold. And also, I don't disconnect from I. I try not to disconnect from history. There's there's things that you build upon, right? The company has a history. This is a continuation, but it's certainly not business as usual. And by by the way, the last thing I'll say, too, is setting that standard that you don't compromise on when things are tough is really important and probably one of the biggest failure points.

**[0:08:17] Kevin Carmody:** But that's how I think about transformation.

**[0:08:19] Sean Brown:** Louisa, let's turn to you. Uh, can you talk a little bit about how companies are approaching what in some cases can turn out to be serial transformations? What are some of the reasons that companies might undertake successive or even ongoing transformations, and are the drivers always the same?

**[0:08:37] Louisa Greco:** One of the things we often hear from clients, it's born of the question that was just asked, is transformation now a continuous thing? Clients will often say to us, Can we do this different than we did last time? Can this transformation be different than the what we did before? And the good news is yes. What we've seen in the same way that the operation of business has really changed over the last ten years, so has the operation of transformation.

**[0:09:00] Louisa Greco:** Companies might have embarked on transformation previously in response to an event, that might have been competitive entry, it might have been an acquisition, it might have been an activist investor. And the reactions would have been quite tactical, they would have been very near-term improvements, and they would have been wholly geared to fundamentals. Things everyone knows discretionary spend management, working capital optimization, spans and layers in the org model, looking for austerity measures. And they invariably had a discrete beginning and a discrete end, often with a fancy name.

**[0:09:33] Louisa Greco:** Mountains were typically popular zenith, Everest, et cetera. What we see today, um, is something very different, and that is really driven by having a dynamic landscape. I won't say an unstable landscape because there are a lot of positive indicators and from an economic perspective that we see today as well. But there are really four vectors that we see informing strategy-led business reinvention. Number one is growth. The external lens to understand the valuation and what the market will reward is truly driving one of the key performance work streams, if you will, that drive value for organizations.

**[0:10:15] Sean Brown:** Okay, that makes sense. So what is it about the current macroeconomic context that's driving these growth-led transformations? And can you talk a little bit about the other three vectors that are at play here?

**[0:10:28] Louisa Greco:** In in disruptive environments, in these dynamic environments, investors are rewarding innovation, product development, core growth. What we do see is organizations that focus on growth deliver five times higher profitability, and we see organizations that exceed sub-sector median growth deliver twelve times TRS versus those that don't. So if we look at the things that drive each of those things, a lot of it is actually driven by core areas of where the business is currently competing. Some of it is driven by growth into adjacencies, and then, of course, there's some of that that's coming from inorganic growth as well.

**[0:11:07] Louisa Greco:** Number two, we see organizations really having a focused performance work stream around organizational effectiveness. Ultimately, transformation is a human event. It is about people, so ways of working is a key vector. We know that when we engage a broader set of employees in the ambition, the odds of success increase by more than three times. We've seen this in the research that we've done, when we look historically over the last eight years. And that brings with it a real focus on performance transparency and capability building.

**[0:11:40] Louisa Greco:** Number three is digital enablement. There was no way we were gonna get through this conversation today without talking about tech. This is about addressing tech debt, it's about creating digital infrastructure that enables the strategic choices that are being set at the beginning. Um, data driving, data-driven decision making, and, of course, automation, where it makes sense in the overall cycle of the business. And then finally, cost optimization. And so this is really about two dimensions, improving operating margins, but also freeing up capital to reinvest in the business.

**[0:12:16] Louisa Greco:** What we see more often than not is organizations will often say, for what we capture from a cost perspective as part of one of our vectors, we'll invest a portion of that, often half, back into the business for growth, and the rest of it will drop to bottom line. So it's not like we're we're scooping all that back. And again, what employees need to see is this reinvestment in the business.

**[0:12:39] Sean Brown:** Thanks, Louisa. So Kevin, um, can you take us through some of the common themes that successfully transforming companies share? And what about the companies that miss the mark? What were some of the missing ingredients in those transformations that that could have put them on the right path,

**[0:12:56] Kevin Carmody:** In the first instance, we saw that there was an opportunity to establish a clear and concise message that really captures what the company's strategic vision is in a way that can be understood not only by the CEO, the executive team, but even the folks throughout the organization. I talk about manufacturing because I do a lot of manufacturing, about the folks that are on a line on the 3rd shift, and they truly understand what the company is trying to accomplish.

**[0:13:23] Kevin Carmody:** And when that was done well, you could see the performance follow because the strategy was clear, it was communicated effectively, and it was something that actually could be activated in that plant. The second, the second point is when we saw management teams spend the time at the very beginning getting aligned, not just the CEO, but the full executive suite saying, we are fully committed to the North Star. And making sure they're clear not only on that vision, but how they're aligned around that vision, what they're personally responsible for, how they work across, uh, their executive teams, cross-functionally, that was important.

**[0:14:00] Kevin Carmody:** Doing it at the front end, not in the middle of the transformation, it eliminated inefficiencies, it eliminated rework, and the feedback from the the organization was much stronger. Now we finally understand what we're trying to accomplish.

**[0:14:13] Sean Brown:** right? So it goes well beyond cost to extend to other performance pillars. Can you take us through some of those other factors?

**[0:14:21] Kevin Carmody:** In my mind, the 1st one is team, the most important. Are you building the organizational muscle? Are you empowering people to do something bold? That team concept is our 1st performance pillar. The 2nd one is technology. Are you leveraging data? Not only your tech stack, you're leveraging data to run your business differently and incorporating it directly into your transformation, which is 2nd performance pillar. The 3rd one is growth. So are you really expanding the boundaries of how we're competing as a company for that next horizon, whether that be new markets, new products, even pricing, things like that really important.

**[0:14:57] Kevin Carmody:** The 4th one is cost, which in when, when we've now evolved the way we think about transformation, cost optimization really is an opportunity to reset the organization, but to drive cash generation to basically fund the other three performance pillars. So we think that's that's somewhat, uh, kind of a new innovation that we're hearing a lot from our clients saying, our our, we just don't wanna do cost, we wanna do something different. We really wanna be excited about what we're doing.

**[0:15:21] Sean Brown:** So should transformation be targeted to specific parts of an organization, or is this something that you encourage the entire company to undergo all at once?

**[0:15:32] Kevin Carmody:** There is an opportunity, not all the time, but there's an opportunity to do these transformations institutionally wide. And I know there there are reasons why you might wanna just do it in procurement or maybe in a business unit. But we like to say, let's set that aspiration in a bold way right now. If you had to do it across an entire company and you wanted to be an institutional or industry leader, what would it take? And just defining that vision, whether you go forward or not is important, but not compromising.

**[0:15:59] Kevin Carmody:** So thinking about how to do this institutionally as opposed to episodic is important because it really is an opportunity to get your leaders, and by that I mean your committed leaders that are deep in the organization that are your future executives of the company. To really look differently at how they personally perform and how they work with their teams to to realize a massive change in performance. The second point I talked a bit about, and we get this feedback almost in every initial conversation with clients, and it's basically that you can't cut your way to greatness.

**[0:16:31] Kevin Carmody:** It has to go beyond cost. Interestingly, I was working with a large industrial client that wanted to do a very large cost program, and we talked about holistic, we talked about what would it take to do it institutionally. They decided to do cost, but the the missing ingredient was the quote from the CFO was basically, we've taken out cost before, we're good at taking out cost. It always creeps back into our cost structure. Why is that?

**[0:16:55] Kevin Carmody:** It's the team concept. So when we thought about how to serve this client, we we, we went through cost, for sure. But we had a very deliberate plan to activate the organization hundreds of people, not just the top ten, to help them build the capabilities, to teach them to do things differently, so they're making decisions in a way that was different than what they did historically. And that combination of empowering people, building the skills and capabilities to succeed, proved successful because they got ahead of their plan and the cost reductions stuck.

**[0:17:27] Kevin Carmody:** And most importantly, when they were taking cost out of the system, they used it to invest in other parts of the business. So that expansion of how we think about, uh, holistic transformation has evolved over the past couple of years. Final two points, don't waste an opportunity. Um, it may never feel like the right time. Earnings are coming up, you've got an activist investor in your capital structure. But I would say never lose or waste an opportunity to create strategic existence from your company from your competitors, but also to really build that stronger, uh, company for the next ten years.

**[0:18:00] Kevin Carmody:** And the final point, redefine business as usual. And this usually happens in the middle of a transformation, where we have a transformation that folks are getting fatigued because it's hard on the left side, and you've got business as usual on the right side. When those two entities are far apart, it's an opportunity to bring them together. Because ultimately, the transformation is, I think of it as an incubator. You're doing something bold, something different, you're changing the way you operate, but that should be part of your operating system or your operating model going forward.

**[0:18:29] Kevin Carmody:** So when done, when done right, the transformation and business as usual combine because you're actually building a stronger muscle. And you're you're dr- delivering performance in a different way, and you're empowering your organization. So combining those two, I think, is really important.

**[0:18:44] Sean Brown:** Thanks, Kevin. So now let's get to some of the specific characteristics of successful transformations. Louisa, can you take us through the winning ingredients and how you actually measure the positive impact that the transformation is driving?

**[0:18:58] Louisa Greco:** So transformation isn't a place where everyone gets a participation trophy. All transformations are not created equal. A meaningful measurement that we look at of transformation impact is delivery or execution of the commitment plan or bankable plan. Those companies in top quartile of execution of their bankable plan commitments deliver TRS of six and a half times those in the bottom quartile. And so we know that there are some things that actually cause this to flip. So a committed and engaged CEO making it a top agenda item for her or him is critical to the success of the transformation.

**[0:19:44] Louisa Greco:** If it is seen as handed off to somebody else, including the chief transformation officer, the likelihood of success is diminished immensely. Setting the true north, in keeping with the criticality of the roadmap that's informed by strategy, is this bold aspiration piece. It's what the enterprise seeks to become. So it's not, hey, next year's gonna be tough, so we're implementing austerity measures. This is about in five years, we wanna be something that we're not today, and it can only be enabled by this roadmap to change.

**[0:20:20] Louisa Greco:** So the very first piece is the CEO making this a priority. Very close beside that is this setting of aspiration, if you will. There are a few other characteristics. Um, one is the installation of a transformation architecture, if you will, that includes a leader, and that doesn't include a warm, doesn't suggest a warm body in that role. But somebody with influence, somebody who can look across the business, someone who can frankly challenge and lead with the authority of the CEO to drive a level of decision making or change the metabolism of the organization, um, in ways to make it more effective versus where it's been previously in getting to this roadmap to change.

**[0:21:03] Louisa Greco:** There's a piece, for sure, around performance transparency, and a piece for sure around behavior and capability shifts. Tech technology is going to underpin all of those pieces. I think the biggest thing that I would say here is we've historically thought about transformation in ways where it's quite linear, if you will. We build initiatives and we execute against them. But the the biggest piece in all of that is the courage to make those tough decisions, the courage to embark on.

**[0:21:35] Louisa Greco:** Where are we gonna pilot at scale, not a little tiny area in the corner of the business? Where will we pilot at scale? And what are some of the big swings we're gonna make overall? And then the last thing I would say is integrating all of this with part of the day-to-day operation of the business is critical to success. Uh, we've all seen organizations where transformation is operating effectively, the business is gonna deliver on the commitment plan of a hundred million two hundred billion, half $1 billion in terms of improvement.

**[0:22:07] Louisa Greco:** But they're leaking the advantage out the other side of the business because people have taken their eye off the ball on the day-to-day operation of the business. So transformation can't be a part of someone's job. Um, 10% of what I do today, a project with a mountain name. It needs to be the way that we run and operate the business day to day. That's truly what we're seeing as being different from the way organizations have thought about transformation historically.

**[0:22:33] Sean Brown:** Thanks, Louisa. And can you talk a little bit about the sequencing that you just took us through? Do do you go after all of these at once, or, like, maybe thinking of them as a group of spinning plates that you're trying to all keep going at the same time, or do you tackle them in some kind of a sequence?

**[0:22:49] Louisa Greco:** That's kinda, kind of an interesting image when I think about our CEOs managing these plates spinning in the air, which which often is the case. So think about we're gonna put something in place from a performance management perspective, we're gonna drive transparency to what we're looking at on a day-to-day basis. Those we're putting in place at the very beginning, but it continues throughout as a bit of a red thread. Senior leader who leads that the overall transformation or the change or the ambition is maybe a different way to talk about it, rather than using the transformation word again, continues to be a red thread throughout.

**[0:23:22] Louisa Greco:** Upskilling of employees is something that we need to think about on the front end. It only really becomes clear as we build initiatives. I mean, you don't start at the beginning saying, Hey, we want to build all these new characteristics and qualities in our employees. It's in service of what? And so that piece, for sure, ends up coming through, but I would say it's very much informed by the initiatives that the organization builds. I'll give you, for example, um, organizations that are looking to build growth in their organization or digital marketing capabilities, that may well, very well be identified on the very front end.

**[0:23:56] Louisa Greco:** Look, we wanna actually have a a frictionless customer experience. Therefore, here are the things we're gonna be putting in place from an automation perspective. Here's what we're gonna outsource from vendors, and here's what the capabilities are that we're gonna build. Those capabilities may not be built until a little bit later in the transformation, once those initiatives are fully are fully stood up. And then the last piece around integrating, uh, you know, Sean, that's all the way through.

**[0:24:21] Louisa Greco:** Uh, w- we see failure modes as transformation operates over here and the business operates over there, and never the two shall meet. Um, and so I'd say that the failure modes might be a different lens to take on. This would be the absence of infrastructure that causes the business to work differently or enables the business to work differently. Um, the lack of upskilling where that's actually required, um, because then people are just doing the same old, same old, and you step away, and you know, employees have no choice but to go back to the way they've always operated.

**[0:24:57] Louisa Greco:** And then again, having these separate pieces, that would be the way to think about them, Sean.

**[0:25:01] Sean Brown:** Thank you, Louisa. And and Rob, how long does this typically take to bear fruit? With the broadening scope of transformations that we've been discussing, it seems like maybe there would be an associated lengthening of the timeline it might take to transform successfully. Is that the case?

**[0:25:18] Rob Montgomery:** Yeah, I I think we've touched on this a little bit, but there's this concept of how much can we do all at once, and the answer is you can't do everything at once. You there needs to be a logical sequence. I think there was a perspective for many years that transformations were one and done, twelve, eighteen month process. You fix the org, soup to nuts. Um, I think when back in the day when we were principally focused on cost efficiencies and perhaps cash generation, that might have worked.

**[0:25:52] Rob Montgomery:** Now, with a focus, a stronger focus on growth, uh, nearly 50 of the impact that we have seen in our client transformations comes from growth, top line, um, which is a huge uptick over the last 15 years. Um, so the focus on growth, which just understandably takes longer to see through, both from an execution and from a realization standpoint, as well as strategy and making some of these big bold moves. Whether it's, you know, reorientation within a market, it's acquisitions, what have you?

**[0:26:22] Rob Montgomery:** Those things take time there really is. You really need to take a horizon view of how you approach this. Um, I I like the the fundamentals is near and dear to me, you know, having sort of spent the first half of my career in turnaround. Um, but I think there's real value to focusing quickly on how can we shore up the base of this business, both financially and operationally, to ensure that we can stem any hemorrhaging we've got from a inefficiency or a cash perspective, poor earnings.

**[0:26:54] Rob Montgomery:** We can respond to the street, we can build confidence, not just in our external stakeholders, but we can demonstrate internally that we're capable of posting wins to the board and celebrate them. We can celebrate the individuals who are driving those is super important. That's, you know, usually a primary focus. We like to think about, you know, three to six-ish months, as you know, the initial window where we're really focused on those quick wins and building that momentum and getting the flywheel spinning.

**[0:27:22] Rob Montgomery:** And during that time, and in parallel, we are moving through the execution stage of putting the um, the actions in place or mobilizing on the actions that we need to drive that next horizon, the growth, the things that are gonna take twelve months to work through the market, to get through sales cycles, so on and so forth, work through inventory. We do the work early on to get that rolling, knowing that we're not gonna see the impact.

**[0:27:49] Rob Montgomery:** We're not gonna see, you know, the results of initial pilots, tests, so on, and so forth, for six, eight, ten, twelve months, perhaps. Um, that's horizon two, horizon three are those really big meaty discussions or or decisions or actions that need to be taken. And generally, we're trying, we're striving to fund some of those actions on the backs of the improvements and the value that's been driven through horizon one and horizon two. So for us, transformation isn't a point in time exercise, it is a continuous flywheel.

**[0:28:23] Rob Montgomery:** It should be a continuous mechanism of reinvention and performance improvement. And I think you need to think about it if you're really going at this holistically, and you're really thinking about strategy and where your business needs to be over the longer term. It it is a two to three year thing. Um, now back to the you can't do it all at once. There's a there's a a risk to that. Um, generally, most companies, um, I think, left to their own devices, aren't gonna move fast enough.

**[0:28:56] Rob Montgomery:** Um, they may be seeing improvement and driving value, but not achieving the rate or the pace that, you know, they really are capable of. And that's just, you know, symptomatic of having grown comfortable with the way that they operate, their ways of working, so on and so forth. We we like to tell our clients that if you're comfortable with what's going on, if you're comfortable with your current pace, there's more opportunity to not moving fast enough.

**[0:29:21] Sean Brown:** That makes sense, but it's not easy to do often, right? Change in the workplace can be really challenging. So how do successful transformation leaders create the enthusiasm in the front lines for the transformation? Especially maybe at companies that are already in a good position in a stable market, where it may not actually be clear to employees what the rationale is to undergo a transformation at that point in time?

**[0:29:47] Rob Montgomery:** I think a lot of it comes down to the growth story. I mean, if you're in a stable market, the the company is performing reasonably well, you're hitting numbers, cost is not gonna be something that excites people. You really need to be able to, and this is like it it. It comes down to having a very bold ambition of like how you can elevate your organization, how you can change how it is. You drive value, improve, you know, the value that you deliver for your stakeholders, whether it's, you know, customers, employees, investors, whoever is vital.

**[0:30:20] Rob Montgomery:** Um, and you need to, you need. That needs to be cr- crafted in a succinct and punchy way, such that it's very easy for the organization to understand. It needs to be communicated widely and frequently, and you need to focus on the channels and the methods by which it's it's communicated. It can't like emails, newsletters, quarterly earnings discussions like that won't be sufficient. I mean, it all sort of comes across as this a little bit of talky, talky when it comes to the front line.

**[0:30:51] Rob Montgomery:** Um, there's an example, um, I have. I was working with a large, um, automotive services provider. They ran, you know, service stations for commercial vehicles. And when we were kicking off the transformation, we roadshow, we did a roadshow through, I think, nine or ten different major hubs to sort of try and convey the essence of why and what we were trying to achieve. I remember one in Detroit, um, the thing that this company did fantastic job of is they brought a great cross section of individuals into these live sessions.

**[0:31:24] Rob Montgomery:** It was everybody from the hub managers, senior leaders who'd come in from HQ to we brought techs in right off of the line. They're, you know, walk in in the coveralls, ready to go. And when we had our 1st breakout session, the 1st tech I talked to, um, she was a young apprenticing technician. You know, you could see it in her eyes, and I. It was very clear in the way she framed it. It's like, we've heard this time and time again, like this is just, this is just more corporate talk.

**[0:31:51] Rob Montgomery:** But as over the course of the day, and as we actually got into workshops where we were passing the mic over to her, her colleagues, people from every element of the business to hear from them firsthand, like, what, what could be better, what would make their lives better? Why, you know, do they view this as like a catalyst moment? Like, giving that, like, firsthand interaction was huge. We came back to plenary, you know, a couple hours later.

**[0:32:20] Rob Montgomery:** And the mic goes around for QA, and she's like the 1st person to get up from the back of the room. And she's asking of, you know, the divisional SVP, you know, boom, boom, boom. Like, I'm excited now, I like, I can relate to this on a personal, um, level. Like you guys have gone out of your way to actually come speak to us, understand from us, like the people who literally are turning the wrenches every day.

**[0:32:44] Rob Montgomery:** What needs to be fixed in this organization? Like that was a huge unlock. So, you know, having that compelling why, a vision for why the company and the mission can be better, how it can drive value and impact for stakeholders, including employees, and communicating in a way that is tangible and personable and people can internalize absolutely critical.

**[0:33:08] Sean Brown:** That is an inspiring story, Rob, and, you know, the entire organization got excited for the future. And Louisa, I think you've got a couple of others that you could share with us.

**[0:33:17] Louisa Greco:** Uh, I'll share examples where it's been super meaningful. One was a life sciences organization where there was an in intense opportunity to actually serve more patients. And when the CEO spoke, uh, the CEO spoke with the context of how is what we are doing in service of patients? And there needs to be a really clear red thread from the actions being taken to how it's in service of patients. That has generated immense energy within the organization, and the CEO has been most impressed by the grassroots initiatives that have come up well after the long transformation in a in a completely different industry, heavy industrial business, longstanding business in North America.

**[0:34:00] Louisa Greco:** There's intense pride in this enterprise, and so the CEO has engaged the pride of employees, um, and the safety record of the organization. That is the rationale and service of what they're doing is to deliver on those mandates. And so as long as it's very clear and others can pull that red thread through, then it becomes meaningful. So, in ways where we can actually help organizations, employees, the executive team and further down, make it meaningful in a very personal way.

**[0:34:35] Louisa Greco:** That is the red thread that I keep referring to that we need to pull through, and that's part of what makes organization successful.

**[0:34:42] Sean Brown:** Thanks, Louisa. So I'd like to bring up a difficult aspect of building enthusiasm for transformations, especially with the front lines, and that's often the fear of layoffs. Many times, when employees hear the word transformation, they do think about cost-cutting, they think about layoffs. And how do you, as a leader of a transformation, navigate and communicate the sort of positive story that a transformation can bring? How do you get your entire organization to think about this for the long term and engage actually as employee stakeholders who can make the organization better?

**[0:35:20] Sean Brown:** Kevin

**[0:35:21] Kevin Carmody:** Well, it's tough because I think they are stakeholders in the 1st instance, right? You have to treat them like that. I think it's challenging because in a lot of these programs, there's gonna be an adjustment of the organization, there's gonna be a realignment. And I think the 1st step when we talk about empowering folks, people wanna be part of a winning team, right? The uh, when when you set the standard, especially when we get down to the line management level, that moment of clarity and transparency is refreshing to folks that are serious about what they're doing.

**[0:35:49] Kevin Carmody:** So I think part of this is saying we're gonna like. I said, there's a bridge to the past, but we're setting a new standard for the business and you're part of it. We say in every one of these transformations, one of the 1st discussions is it cannot be about the top ten. That's where it starts and the executive team. But if you're not engaging hundreds of folks, or in some cases, thousands of folks, then you're missing that opportunity.

**[0:36:10] Kevin Carmody:** And I think that, um, commitment to helping people be a better version of themselves, giving them the tools, the leeway, the empowerment to do something different is important. That's the 1st thing is really making folks understand they are a key contributor to the transformation, not just dollars, large or small, but they're making a difference. The 2nd one is harder because in in situations where there are potential layoffs, right? I think there has to be, uh, roles will be redefined.

**[0:36:39] Kevin Carmody:** I'll give you one example. So we think the chief transformation officer is one of the most important roles in a transformation. Sometimes that goes really well, in other cases it doesn't, and we know why. But a CTO is typically somebody that's fairly senior in an organization. For that person to give up their current role and to drive a transformation for 18 months is scary. What happens after that? So even if we start with the CTO and we say this is a, I would say this is a vision that the the person in that role sees.

**[0:37:09] Kevin Carmody:** The entire enterprise, unlike maybe any other role, and probably different than what that person did historically, that opens up opportunities. If you're setting a new standard and you're building a new business, there's a role for that CTO beyond, um, what he's doing in the transformation office. And that can get pushed throughout the organization. We I talk about a a dairy company where there was a literally a 3rd line production supervisor that thought about how to eliminate waste in on her production line.

**[0:37:37] Kevin Carmody:** There was something like 40 production, uh, lines in that plant, and that was the 1st time she was asked her opinion, right? So she said, I was an order taker, now I can actually be part of the solution. So she fixed it on just that one line, but it cascaded through the organization, that turned a negative into a positive. So these things are hard. Sometimes people leave, people self-select out of transformations. It's a huge opportunity for folks that wanna meet the new standard and build their career because they should feel energized and empowered to do it the right way.

**[0:38:05] Kevin Carmody:** But it's not easy.

**[0:38:06] Sean Brown:** Indeed, and Louisa, earlier you talked a little bit about the importance of communicating early in a transformation. Do you want to speak to this question as well?

**[0:38:14] Louisa Greco:** The the two things I would add to that is at the outset, leaders need to make commitments they can keep. And all too often we hear people say, cause there's always a question, will there be layoffs? And when the response is we're not expecting any or no, it's just not a commitment you can keep. The answer is, you know, we don't know. We're gonna do what's right for the business. And you know, I've sat on the other side of that table.

**[0:38:40] Louisa Greco:** Those are hard things to say, but people will remember that moment. You've said, you know, we will not have any layoffs this year. Your words need to be chosen really carefully, and you need to live into them. 2nd thing I would say is in organizations where there hasn't been change and they've grown to the size of bloating, they're not leveraging automation. Those in the business know, and they know how it's being hindered. I recently had a leader who stood up in front of his organization, who's brand new to the to the team, and said, Look, here are the changes I think we need to make.

**[0:39:09] Louisa Greco:** Here's where we need to make productivity improvements. It really is in service of productivity. There's three people who raised their hand and said, Thank you very much for finally making the changes that we need to have. So it's not easy. I don't wanna suggest that, uh, there's not compassion, I don't wanna suggest there's not caring. Most people in the organization will see it. And, frankly, even if the total number of employees remains exactly the same, the roles within the organization may well change.

**[0:39:39] Louisa Greco:** With automation, we see that, therefore, you may end up with departures in the organization by virtue of people not having the skills that are required in the future organization.

**[0:39:49] Sean Brown:** Rob, it looks like you've got something to add there.

**[0:39:51] Rob Montgomery:** Sorry, one small add-on to something Kevin said, which is important. We we talk a lot about engagement, and I think we've spoken about the why in communicating. The example he gave is great because when we say engagement, it doesn't mean town halls, it doesn't mean newsletters. What when we? What we have found to be highly effective is when the C-suite sets a goal, establishes targets by specific areas or functions within the business, and then they empower those areas to develop their own roadmaps.

**[0:40:25] Rob Montgomery:** And the people developing those roadmaps and coming up with the ideas and building the initiatives are the individual contributors that we're trying to tap into. So it's not the top ten to Kevin's point, it's like ten or 15 of the overall organization. And it isn't just listening to them and communicating with them, it's actually putting them in a position where they are determining the actions and the initiatives that we are gonna pursue in order to deliver on the goals that have been set for them.

**[0:40:55] Rob Montgomery:** And then empowering them and creating the space for them to step up and actually own the execution of those. That's what real engagement is, that's how you bring the organization along, and that's how you reinforce in people's day-to-day lives and in their minds that this is different than just a corporate edict. You can't go forth on a program of this scale as a directive. Here's what you're doing, this is every change. Boom, boom, boom, just go do it.

**[0:41:23] Rob Montgomery:** You need to bring people along for part of the design element and then let them be part of the solution.

**[0:41:29] Sean Brown:** Thanks so much. So we are coming up to time. But I think Kevin, you had a couple final thoughts you wanted to share, and I wanted to give you that opportunity.

**[0:41:35] Kevin Carmody:** Yeah, I'll just so we. There's some data behind this, so the science behind what we've seen over the past 15 years. Um, so data points that are, I think, are really important. I'll just hit on a couple of them. But we, we went over 15 years, hundreds of different transformations, every industry, every sector, every region, rather. And so what do the data tell us? So getting it right at the beginning on what are we trying to accomplish?

**[0:41:58] Kevin Carmody:** As a North Star CEO committed to it, board informed, executive team fully aligned, and then cascading it throughout the organization and then role modeling that when it gets tough, when it's done right, success follows. 68 of the initiatives in our transformations are smaller, 250,000, uh, dollars or less, not 10 million. What that basically says is we're getting the the companies that do it right are getting more people involved, deeper in the organization. The 1st resistance point we get is, how do I do a transformation?

**[0:42:30] Kevin Carmody:** When I have my day job? By engaging more people, the opposite is true. You've got folks in the organization that do one or two smaller initiatives that, by the way, is directly tied into their day job. It makes it easier, not harder, and we find some of the inefficiencies in how people are working go away. If you look at ways of working, if you actually have a plan to build those capabilities and you follow through, so you're teaching people to do something differently, it's a twox bump to your TRS.

**[0:42:56] Kevin Carmody:** And then a plug one more time on the CTO. When a CTO is empowered by the CEO and that doesn't get compromised over time, you're set up for success. And by the way, the CTO typically is someone that does not have direct P L or business unit authority. So it makes that job exceptionally tough, which is why he or she needs the air cover from from the CEO. But having that discipline and that attention to detail, not compromising the standard with a CTO that has the skills to do it and is empowered to actually drive a transformation is critical.

**[0:43:27] Sean Brown:** Thank you, Kevin, Louisa, Rob. This has been a great conversation. As always, it's great to sit with you and to get your insights on transformation. Really appreciate you taking the time today

**[0:43:37] Rob Montgomery:** Appreciate you.

**[0:43:38] Louisa Greco:** Thank you, Sean.

**[0:43:39] Sean Brown:** and thank you to all of our listeners for joining us today. We really hope you enjoyed the conversation. And if you'd like to read more, you can find Kevin, Louisa and Rob's article Defining Your True North A Roadmap to Successful Transformation, available on McKinsey.com. And we've also included a link to that article in the show notes. As always, we welcome your feedback, ideas for future podcasts. Just email us at itsr at mckinsey dot com for Inside the Strategy Room.

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