The challenge of a growth transformation doesn’t have to be daunting. In this video, McKinsey senior partner Duncan Miller outlines key practices that will lead an organization over short-term and long-term challenges. An edited version of his remarks follows.
Growth transformations are exciting and challenging, which makes them quite fun. One of the challenges is that unlocking an organization’s potential requires cross-functional collaboration at a level that some organizations may not be used to.
For example, it can be difficult to manage the intersection of supply chain, marketing, and sales to do new things more effectively, especially within a large organization. And in both large and small organizations, things don’t always go right in execution. A client may be running a rigorous transformation program and a third of its initiatives may not be working. It’s critical to understand whether that’s due to poor execution or a less-than-great idea.
We’ve identified several critical success factors for a growth transformation. The first is top team commitment. The top team must be committed emotionally and behaviorally to act differently. It’s always useful if the incentives are aligned to drive that growth. That is the number one success factor, having a top team that has signed up for the full, realistically achievable potential, and is going after it no matter what.
The second success factor is the willingness to challenge past practices. In many cases, businesses have faltered because they’re focused too much on the short term and how to make their numbers this year or this quarter. They’re following patterns of behavior on practices such as pricing and sales that have worked in the past, but those practices aren’t going to endure. You might have run out of room on pricing. You might have run out of room in the way you’re running the sales force.
An effective program also requires discipline. You need a disciplined approach to identifying those things that will help you grow and then executing on those. Keeping the discipline, the rigor, the cadence, the performance management—all of those things are just as important on the growth side as they are on the cost side.
Another critical success factor is building confidence. That’s why it’s important to have some quick wins in the first few months to help the organization feel good about the journey they’re on, because this is a hard journey. The good news on the growth side is there are often things you can do in the short term to give yourself a little bump. We tend to find up to 30% of those by doing that diligence up front, and we make sure that we execute those quickly and early.
We have found that many organizations will rerun a diligence process every couple of years, to re-identify their full potential. Typically, they do this without us, but occasionally with us. By resetting the target for their full potential, they can refill the pipeline of initiatives and drive the next wave of growth.
The final factor is talent: having a talented top team who believes in the transformation, who can perform, and who can be fact-based and objective.
So talent, capability, and then rerunning the discipline process are three things to ensure that gains endure over time.
The critical success factor in the long term is capability building. If we don’t transform a client’s capabilities, we may have helped them for a couple of years, but we haven’t helped them for the next five or ten years. So shifting the underlying capabilities of the organization is incredibly important.
It’s easy to drop in the special forces and fix pricing, and fix the sales force, and change incentives. But the reality is, that bump in performance will last for a year or two unless there’s an enduring shift in the client capabilities.
An effective approach to building client capabilities varies widely, depending on the situation. In some cases, you work with someone shoulder to shoulder. In other cases, you use a big, digital capability building program and we’ll deploy a learning management system to train the front line on new ways of doing things.
Sometimes you need talent acquisition. One approach could include a recruiting program where we help senior executives source and recruit talent to build out a new capability.
To ensure sustainability of the long-term gains, the most important factor is building capabilities, particularly on the commercial side. The environment changes. Consumers change, customers change, new competitors enter. You need to adapt to all of this. An enduring revenue management capability or a flexible sales capability with talented people at the frontline is the best way to ensure that gains endure.