TRANSFORMATIONAL

CHANGE
WHAT WORKS
AND WHAT CAN DOOM THE INITIATIVE
IN ASSOCIATION WITH:
CONTENTS
Transformational leadership: Inspiring change ...........................................................................................2
Catalysts for change .............................................................................................................................................3
What does it take to make transformation work? ................................................................................... 5
Metrics and incentives ......................................................................................................................................... 6
What can derail a transformation? ..................................................................................................................7
Types of transformational leadership: Is there a more efective approach? .................................. 8
Personal transformation: Need to want it ................................................................................................... 9
Conclusion ..............................................................................................................................................................10
Acknowledgments................................................................................................................................................ 11
Survey methodology .......................................................................................................................................... 12
2 | TRANSFORMATIONAL CHANGE
The stakes couldnt be higher. The cost of an unsuccessful business transformation can be
catastrophic. Retailers from Borders to Circuit City to the corner hardware store have failed
to nd footing as the earth shifted beneath them. Steel and textilesindustries once consid-
ered too big to failare now a graveyard for once mighty companies in the United States.
Even former cutting-edge, high-tech companies such as Kodak that seemed on the cusp of
reinventing themselves in the end succumbed to market shifts.
TRANSFORMATIONAL LEADERSHIP:
INSPIRING CHANGE
In contrast, successful transformation means more
than merely adapting to change; it means rewriting
business models or even reshaping your own industry.
Considering Apples role in the birth of the tablet
computer industry and the revolution in smartphones,
for example, it is hard to believe the company was once
an also-ran hardware maker.
While the outcome of transformation can mean life
or death for a company or industry, only half of
executives say that their organizations adapt well
to new technologies or processes, according to a
survey of 106 executives conducted by Forbes Insights
and Medidata.
What does it take to make transformation work? In
the case of Apple, it began with visionary leadership.
The push for transformation almost always comes
from the top, while it appears to be largely left to the
next layer of management to see it through to execu-
tion, according to our survey. In fact, most companies
get the vision part right; execution is the hard part.
The 106 executives from across the business and
industrial landscape who responded to our in-depth
transformation leadership survey cited leadership
limitations as the biggest barrier to success.
Specically, these executives named conicting visions
among executive leaders or decision makers together
with a lack of internal talent to spearhead or execute a
transformation as the main obstacles by respondents.
Thats the top-line nding of our survey, but the
detailed responses, alongside interviews with a
number of the executives, demonstrate that there
are important nuances in transformational leader-
ship. Among those diferences are various catalysts
for change, strategies for making transformations
work, metrics and incentives for measuring and
encouraging success, and for understanding when
things are going wrong.
Just half of executives
believe their company
is well versed in
transformational change.
CATALYSTS FOR CHANGE
COPYRIGHT 2014 FORBES INSIGHTS | 3
Sometimes catalysts come in the form of earth-
shaking events. The fnancial crisis in 2008, for example,
not only reshaped the entire banking industry but also
spun through every company that counted fnancial frms
among its customers. It was transform or die for many.
Evolutionary developments can be just as provocative.
Big Data, the advent of the cloud and the decoding of the
human genome are catalysts that very few businesses have
fully embraced. These applied technologies clearly have
the power to revolutionize many industries, yet many
companies are still struggling with how to integrate them
into their business plans. One case in point: just 60% of
the companies we surveyed report that they are taking full
advantage of data analytics to better understand customers
and to act on that information. The deluge of information
these new technologies bring is a double-edged sword
a source of tremendous opportunity but also an
exponential increase in complexity.
Take the case of the pharmaceutical industry. With
changes in the payer-provider system globally, drug
developers are facing tremendous pressures to show
greater efcacy and value in the treatments they bring
to market. At the same time, advances in genetics and
personalized medicine increase the variables that can
determine efcacy almost exponentially. Medidata
Solutions, a New York-based provider of cloud-based
solutions to the life sciences industry, has built its
business around collecting and managing data to increase
predictability and efcacy and to bring greater productiv-
ity to clinical development.
The issue is not in the amount of data, but in how
its used, explains Tarek Sherif, chairman and CEO of
Medidata. Big Data is a very dangerous term, he says.
Pharma has a data opportunity, but its more like quality
data than Big Data because the amount of data is minus-
cule relative to some industries like Google. Google has
a Big Data challenge; pharma faces diferent challenges.
You have to have a very good idea of what youre
looking for before you start digging around in it, or
youre going to waste a lot of money and time, he adds.
If were successful at what were trying to do, then we
will help the industry become much more insightful
about how to use the data they have.
In the case of Lockheed Martin, it was federal budget
sequestration and defense cuts that catalyzed transforma-
tiona change that has proved more profound than the
end of the Cold War. The 100-year-old frm now has to
look beyond government spending, the source of 90% of
Lockheeds traditional business, to international clients
and non-defense industries, while continuing to provide
innovative and afordable defense technology to its core
government customers.
The new reality is that we live in a very complex
global security environment, says Dr. Ray O. Johnson,
senoir vice president and chief technology ofcer at
Lockheed. The challenges for us as a nation and our
allies, and even our peers, are very complicated, and not
getting simpler. At the same time the resources to take
on these challenges are under pressure, and we see that
through the pressure on the budget.
Beyond fnancial crises, sequestration and disruptive
technology, most companies are pushed to transform
by the pressures that organizations face every day.
Regulatory change, increasing competition and chang-
ing customer expectations as well as technological change
were named as the most pressing issues by respondents to
our survey. These may sound like everyday problems for
any business, but ignoring them can lead to the kind of
slow attrition and deterioration in performance that saps
customers and employees. And any of these catalysts
together or alonecan spell the beginning of the end for
a struggling startup or a century-old industrial company.
4 | TRANSFORMATIONAL CHANGE
In fact, any company that has been around for more
than a few decades has likely undergone some sort of
transformation. Would anyone who worked at IBM
when it was founded in 1911 recognize the company
today? Over the past several decades, many manufactur-
ers saw the opportunity to move beyond production and
distribution and recast their business as a service provider.
Pulling of such a strategic shift without the catalyst of
imminent peril is, in fact, far more difcult.
There is a debate out there: can you really drive
transformation without a burning platform? asks John
Conover, retired president of Ingersoll Rand Security
Technologies. Xerox went through one of the biggest
and most successful transformations in recent history.
Here was a company days away from not being able to
make payroll, completely changing the way they went to
market. Everybody had to get on board.
Conover faced a very diferent problem in the
transformation he oversaw at Ingersoll Rand. You
take a company that is pretty successful, like Ingersolls
security business. We were big, we were proftable, we
were doing well, he explains. Trying to get everyone
to engage in a major change, people look at you like you
have a third eye.
But you cant stand still while everything around
you is changing.
FIGURE 1. TOP FIVE CATALYSTS DRIVING TRANSFORMATION
31%
32%
33%
28%
37%
Regulatory changes
Increasing competition
New or changing technology
Changing customer needs and/or expectations
Consolidation within industry or sector
COPYRIGHT 2014 FORBES INSIGHTS | 5
WHAT DOES IT TAKE TO MAKE
TRANSFORMATION WORK?
In most cases, it begins with visionary leadership. The
push for transformation almost always comes from the
top. Executing transformation, however, usually falls to
the next layer of management, according to our survey.
Most companies get the vision part right; execution is
the hard part. Success or failure depends on getting the
people right (Fig. 2).
As a leader, its about having a vision and being able
to communicate that vision and then tying it to everyone
personally, explains Conover. To that end, your leader-
ship team has to be on board, and everything else has to
tier down from there.
Transformation is tied to the culture of an organiza-
tion. In that regard, leaders have to make communication
a top priority, says Conover. People have to understand
why change is occurring, what were going to do about
it, and the process were going to use, he explains.
People will look at the leadership, where are
we spending our time, our money and where are we
putting our talent, says Conover. At HVAC equipment
maker Trane, where Conover worked 32 years, coming
up through the ranks until he was appointed president
Americas, transformation came with a new organiza-
tional structure. We hired talent, one-third outsiders,
two-thirds insiders. We wanted people who understood
the organization, and we wanted people who had already
been through a transformation.
In fact, employee adherence after transformation is
described as the real challenge by 48% of respondents to
our survey. When youre trying to do a transformational
change, you have to be careful you dont ask people to
do too much, Conover explains. People get confused,
they dont know what their priorities are, and they get
frustrated. Then you start to have an unengaged or,
even worse, a negatively engaged organization. This
can not only afect day-to-day business but can also do
permanent damage to customer relations.
If you just add it to everybodys to-do list, youre not
going to drive major change, says Conover. At the end
of the day, the average employee needs to know, Whats
in it for me?
FIGURE 2. TOP FIVE GREATEST FACTORS IN SUCCESS
80%
82%
85%
78%
9.5
Assigning the right employees to implement the project
The need to appropriate adequate resources from the start
Gathering data for metrics during the process
Accurate timely feedback from employees executing the program
Forming the right executive team to oversee the project
88%
6 | TRANSFORMATIONAL CHANGE
What gets measured, gets done still holds
true. But more than that, what gets measured can be
rewardedand that is a major factor behind successful
transformation.
Larry Wash, executive vice president and area
director of KONE Americas, has been through a few
transformations at old-line industries such as Xerox and
American Standard. He sees transformation as a process
of building competencies, improving work practices
and refocusing corporate cultureall of which can be
measured and rewarded. So, while setting the direction
of a transformation is strategic, making it happen is
generally tactical.
You cant just say, Okay, now were going to do X,
when the company makes its money doing Y. You have
to have a path to get there, he says. You have to put a
lot of things in place, and then you can start changing the
way operational reviews are done and the way the man-
agement team conducts itself in its operating cadence.
The front-line managers, production staf and sales
people, who make or break a transformation, will be
asking themselves: How do I internalize this? How do
I mobilize my people? How do I take this and then put
it into action? Unless they have that foundation around
direction, situation, rationale and the expected outcome,
they cannot drive their organization, says Wash.
You reinforce all the things that youve been talking
about, and you change the agendas of the company, he
explains. The management team will realize that not
only is this serious, but were managing the company
diferently, and were measuring our progress diferently.
Performance measures, for example, might include
how many technicians have been trained on new safety
procedures. Results can also be measured: how many
salespeople have written a new service contract, for
example. Even behavior can be measured, says Wash. A
behavioral measure would be the number of proposals
generated using a new pricing tool, for example. So now
youre changing the behavior of the sales force, he
explains. Or it may be a question of how many audits
are conducted by a supervisor. Now you are changing the
role of the supervisor from being in the ofce all day to
being on the job site.
For Medidata, the changes go beyond motivating
employees and measuring performance. How do you
price and articulate value? asks Sherif. If you dont do
that well, you can do all the right things internally, but
youre going to fail with your customers. Its not enough
to tell your customers, Were changing our pricing
structure, he says. If you can demonstrate where you
are creating value using hard numbers and say, Heres
how I can save you money, heres how I can bring your
drug to market faster, heres how I can do it with higher
quality and a better safety profle, then having a conver-
sation about pricing becomes a lot easier, he explains.
Its not qualitative, its quantitative.
To help with the transformation, Medidata has
brought in a new C-suite executive: the chief value
ofcer. Having a CVO helps, says Sherif, but you
need the whole organization to make it happen. There
isnt an employee here that doesnt know the mission is
to articulate, defne and deliver value to our customers at
this point.
How do you know if youre succeeding? Its important
to set realistic goals, says Conover. You cant change
overnight, but you want to see deltas and then reward
the behavior you are trying to encourage, he says.
I had a boss who once told me that in a year, there is
never as much change as you think there is going to be,
but there is vastly more change than you can imagine
over 10 years, he says. You drive these things, and it
takes time.
METRICS AND INCENTIVES
COPYRIGHT 2014 FORBES INSIGHTS | 7
Even with time, not every transformation will proceed
without hitting a few bumps. In our survey, the biggest
problems by far came from executive conficts and lack
of leadership to successfully execute a transformation
(Fig. 3).
Larry Wash has witnessed these conficts frsthand
and some of them still sting. One thing he has learned
is the importance of understanding the current state of
an organization before pushing through transformational
change. How violently reactive are people going to be
against it? Does it undermine their beliefs? Does it under-
mine their culture? he asks. Another question that must
be asked: How capable is the management team? Are the
employees capable of change? Does the organization have
the bandwidth to do what youre asking?
With any transformation, youre going to get a lot
of blockers, he says. They may want to help, but they
dont know how, or, worse, they are really hostile to
the whole idea. Then you have to ask if you want that
leadership team in place because the whole organization
will see whats going on.
In a worst-case scenario, pushing though a transformation
can set diferent regions, ofces and teammates against
one another. For Wash, problems began with a global
transformation that extended to Europe, where the plan
was to move from selling equipment to installing it as
well, thus competing with some channel partners. The
team in one country was experiencing problems and
asked for help, says Wash. The message was: Were ready
to do this. We know its a challenge. Weve failed three
times. Bring over your best guy.
And so we brought over an expert, says Wash.
And when he got there, he wasnt greeted with, Okay.
How do we do this? Instead, they wanted him to spend
the next few quarters explaining: Why do we need to
do this again? We wasted a whole year, says Wash.
The whole thing was frustrating because we thought
we were going in to execute but we were right back to
explaining strategy.
Instead of wasting more time, Wash and his team
concentrated resources on the three countries in Europe
that were already on board and ignored the other nine. It
wasnt long before those other nine ofces started yelling
for help. And they got really upset with me, but thats
how you create pull, explains Wash.
In the early stages of change, I dont like to do
push, he explains. There will always be some high
potentials, parts of the organization that are saying, Im
ready, Larry. This makes sense to me. My customers
are asking for it. Im getting killed here. There will be
a group within an organization that will get it. If they
dont, then youve got a bigger issue. Maybe you should
think about an acquisition instead.
WHAT CAN DERAIL A TRANSFORMATION?
FIGURE 3. TOP FIVE BIGGEST BARRIERS TO OVERCOME
22%
25%
28%
21%
33%
Conflicting visions among executive leadership or decision makers
Lack of internal talent to spearhead or execute business change
Resource/budget constraints
Inefficient execution or lack of formal process
Lack of adequate technology
8 | TRANSFORMATIONAL CHANGE
FIGURE 4. PLEASE CHOOSE WHICH MODEL BEST REPRESENTS YOUR ORGANIZATIONS PHILOSOPHY
At a more philosophical level, our survey revealed
a remarkable dichotomy among executives on the best
way to approach a transformation with employees and
clients. Half of executives think of their companies as
enabling employees to fnd their own way, while the
other half believe in setting the rules to navigate new
processes. This dichotomy between empowerers and
close managers carried over into almost every question
of executing a transformational change. Nearly half of
respondents whose organizations empower the individ-
ual say they reward employees with internal recognition
for adhering to a transformation versus 16% of close
managers, who were also notably less likely to have any
incentive system in place.
The empowerment group is also more likely to ofer
incentives, such as loyalty programs and discounts, to
clients or customers to ease adoption of new processes.
They were far more likely to use pilot programs or roll
out a product while still in beta than the close managers.
This suggests that the empowerment group may put
into practice the notion that allowing customers an early
sneak peek causes them to feel more invested in a new
product or service (My input helped make this!) and
perhaps more likely to want to use it.
Were taking in input from people across
the organization, says Sherif of Medidata. And we
are empowering people to go forward. For Sherif,
managing transformation means being part cheerleader
and part overseer. Once you set the direction, he says,
there is too much going on to try to micromanage.
John Conover agrees. Its better to establish a
clearly defned set of outcomes and then measure against
those outcomes but not be overly prescriptive about the
process, he says, especially when you are doing things in
front of customers.
For Lockheed Martin, everyone in the company
recognizes the imperative to change, says Johnson,
and this is enough of a burning platform to motivate
his employees. Theyre a very savvy, smart group of
people, and they know whats going on in the world, and
they certainly know whats going on in the Department
of Defense.
To move the transformation along, Johnson is playing
to the strengths of Lockheeds professionals and workers.
We have 60,000 scientists, engineers and technologists,
he notes. If I can rely on them to solve these problems
and turn them into technical problems, then I feel very
comfortable that well get to the answer. There was a
defensive feeling at frst, he says, but we took on an
ofensive role. Now, I think most employees are excited,
because they see us being the corporation that can
provide global security solutions for the next
hundred years, because we are able to change, we
are able to adapt.
Enabling individuals to choose their own approach
within a set of parameters meets with more success
than management and a prescribed set of rules.
Individuals need close management and clearly
dened rules to help them navigate a new process,
technology or set of behaviors.
47%
53%
TYPES OF TRANSFORMATIONAL LEADERSHIP:
IS THERE A MORE EFFECTIVE APPROACH?
47%
53%
COPYRIGHT 2014 FORBES INSIGHTS | 9
On a more personal level, executives were very
clear that they preferred the empowerment approach
for changes in their own lives, such as habits or life-
style, though diferences in age among these leaders
delivered up diferent results.
When it comes to personal health, for example,
just under a quarter of the executives we surveyed
are already digitally tracking their health habits,
and another 20% plan to start. But there was a difer-
ence among age groups, with younger respondents
(under 45) more likely to embrace digital tracking.
As with corporate transformation, taking more
personal responsibility for ones health may be
enhanced with the right incentives. Some compa-
nies ofer insurance discounts to employees who
quit smoking or lower their BMI. At KONE Americas,
for example, there is a pedometer competition to see
which employee can walk the most over a set period
of time. We want employees who are healthy and
focused, says Area Director Larry Wash. So we
ofer very comprehensive programs that help peo-
ple get there, with diagnostics and a plan to close
any gaps, he says. And then we give behavioral and
monetary incentives to anyone who participates in
challenges and activities, including rafes for prizes
and discounts on healthcare premiums.
Being given more information makes most
respondents (87%) feel empowered to want to fol-
low through on a change. But it remains to be seen
whether their actions match their words: when asked
whether they would consult an expert or use a help
line if they needed more information, just half51%
agreed or strongly agreed. And just 29% said it was
easier to make a change stick if they had an expert
with them to provide guidance when needed, while
32% were ambivalent, and the rest actively opposed it.
Those whose corporate culture more closely
manages individual approaches to transformational
change also demonstrated a preference for this
approach in their personal life; 21% strongly agreed
that they pro-actively use help lines or call experts
when they need help, compared with 8% of those
whose companies enable them to act on their own.
The question remains: is personal transformation
truly possible? About half of the executives surveyed
agreed that making major transformational changes
to their own lifestyle sounds great in theory, but the
reality is these changes simply dont work most of
the time.
The survey did support the popular adage that, in
order for a transformation to be successful, the per-
son has to want to change. Whan asked to respond
to the statement It doesnt matter how much sup-
port or engagement I get, I wont make a big change
until I decide Im ready, six out of 10 agree.
PERSONAL TRANSFORMATION: NEED TO WANT IT
FIGURE 5. ID RATHER CHOOSE MY OWN
APPROACH THAN BE MANAGED BY AN EXPERT
Agree 86%
Neither agree nor disagree 10%
Disagree 3%
49%
10%
86%
10%
3
10 | TRANSFORMATIONAL CHANGE
Transformational change is clearly achievableand frequently a matter of life and death
for some companies. Yet the road is littered with companies that have failed to
successfully execute and sufered in the market. From those that have met the challenge,
some key lessons:
Make sure the vision at the top is aligned and coherent. Deal with conficts among the highest
levels because they can undermine all eforts.
Articulate why a transformation is necessary, explain the rationale and the desired outcome.
Then, explain it all again and reinforce the message. Communication is key.
Assign the right people and allocate enough resources to see the change through.
Incentivizing employees and customers can make or break a transformation. Stakeholders
need to understand why a transformational change is the best way forward and, in an ideal
world, have some role in shaping the outcome.
You cant change what you cant measure. Establish metrics, take advantage of analytics
and keep the dialogue moving.
Set realistic goals. Transformation takes time.
CONCLUSION
COPYRIGHT 2014 FORBES INSIGHTS | 11
ACKNOWLEDGMENTS
Medidata and Forbes Insights would like to thank the following executives
for sharing their time and expertise:
John Conover, President, Ingersoll Rand Security Technologies, retired
Dr. Ray O. Johnson, Senior Vice President and Chief Technology Ofcer, Lockheed Martin
Tarek Sherif, Chairman and Chief Executive Ofcer, Medidata Solutions
Larry Wash, Executive Vice President and Area Director, KONE Americas
12 | TRANSFORMATIONAL CHANGE
67%
Based on a survey of 106 executives conducted by
Forbes Insights in January 2014. Respondents were from
fnancial services (41%), manufacturing (20%), healthcare
(13%), life sciences and pharmaceuticals (8%), media (5%),
technology (8%), construction (1%) and non-fnancial
services (1%). All respondents work for companies with
revenues of more than $100 million.
Thirty percent of respondents were from compa-
nies with revenues above $5 billion. Fifty-fve percent
of respondents were C-level executives; the rest were
managing director or above. Functional roles were
dominated by general management (36%) and IT (26%).
Executives in fnance (14%), R&D (3%) and operations
(11%) also participated. Two-thirds (66%) of respondents
have been with their current employers for more than fve
years, including nearly a quarter (23%) with more than 15
years at the same company.
SURVEY METHODOLOGY
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