There have been surprisingly few studies that set out to quantify what makes for a successful corporate transformation. Using a meta-analysis that crunched data on financial performance as well as corporate reputation, the authors examined 128 global companies that had undergone transformation between 2016 and 2020 and found that: 1) Transformation is even harder than expected (only 22% of companies in their sample were successful), and 2) Successful companies shared a common focus on initiatives that prioritized employees, including DE&I programs and support for women managers’ careers, in addition to competitive pay and access to health care.
Successful enterprise transformation has long been considered the holy grail of the corporate world — continually sought after, but difficult to grasp. More than 25 years ago, John Kotter highlighted the challenge when he made his now-famous assertion that 70% of corporate transformation efforts are doomed to fail.
Is Kotter’s number accurate? And what makes a successful transformation? There have been surprisingly few studies that set out to answer these questions in a quantitative way. So last fall, our three organizations, Copperfield Advisory (Copperfield), Insider, and Revolution Insights Group (RIG) came together as a team to determine what puts some companies on the path to success.
Using a meta-analysis that crunched data on financial performance as well as corporate reputation, we found that:
- Transformation is even harder than we thought. Only 22% of companies in our analysis successfully transformed themselves. A 78% failure rate, compared with Kotter’s asserted 70%, quantifiably affirms how tough it is to transform an organization.
- How companies engage their employees can be the difference between success and failure. Our findings revealed that companies that successfully transformed themselves shared a common focus on initiatives that prioritized employees, such as DE&I programs and support for women managers’ careers, in addition to competitive pay and access to health care.
Defining Transformation — and Transformative Organizations
Transformation is perhaps one of the most used and abused buzzwords in business today. Thus, an important first step in our study was defining what constitutes a transformation. In consultation with a panel of 60 executives from global companies, we defined “transformation” as a fundamental shift in the way that an organization conducts business, resulting in economic or social impact.
To find companies that fit this description, we identified a range of quantitative indicators that would signal that a company had experienced or was in the midst of a transformation. These included: increased R&D spend, restructuring cost spend, change in operating margin, mergers and acquisitions, name changes, and public announcements of transformation efforts. Using RIG’s database, which includes information on 350 companies, we assembled a list of 128 global companies that had undergone transformation between 2016 and 2020.
At the outset of our research, we reviewed the existing literature on this topic. Surprisingly, we found that only one study — a 2018 report by Martin Reeves (et al.) of the Boston Consulting Group — had performed a quantitative evaluation of corporate transformation. That research focused on financial metrics — that is, total shareholder return — of more than 300 companies, and ultimately found that transforming successfully was most challenging for companies that faced deteriorating market performance.
Our study also assessed financial performance — based on revenue, stock price, and market value. But in addition, we added positive reputation as a criterion for success, using it as a proxy for evaluating the extent to which companies brought all of their stakeholders (not just shareholders) along on their transformation journeys. For this component, we used RIG’s proprietary meta-equity score, which aggregates metrics from the most used and trusted rankings, including RepTrak, BrandZ, Barron’s, Harris’s Reputation Quotient, and Fortune’s Most Admired. Through statistical analysis, we ranked the companies according to their financial and reputational performances.
What Successful Transformations Have in Common
Our assessment found that only 28 of the 128 companies we examined (i.e., 22%) successfully transformed from both a financial and reputational perspective.
Our next step was to take a closer look at these 28 organizations to identify the attributes that set them apart from the rest. Here we took inspiration from perhaps a surprising source — evolutionary biology. (See sidebar.)
In looking at the 128 companies that had undergone transformations, we identified 66 corporate attributes measuring everything from innovation and energy efficiency to customer guarantees and market depth — giving us a snapshot of how each organization dealt with customers, employees, shareholders, and its own environmental impact.
But when we looked more closely at the 28 most successful transformers, we identified six attributes — most of which are related to employee compensation and DE&I — that set them apart from the rest of the pack:
- Employee Pay: These employees were compensated more highly compared to those at companies of a similar size.
- Employee Stock Options: Employees at these companies receive more stock options compared to those at companies of a similar size.
- Employee Satisfaction: Employees at these companies report higher satisfaction at work.
- Diversity and Inclusivity: These companies employ hiring practices with an eye toward equity.
- Women Managers: These companies employ more women in managerial positions
- Women Employees: Women make up a higher share of employees at these companies.
We spoke to executives at three of the successful transformers to understand their keys to achieving both reputational and financial success.
Microsoft: Unifying Employees around an Inclusive Vision
Microsoft is one of the best-known examples of corporate transformation in recent years, moving from a software company to a cloud-services company and gaining $1.5 trillion in market capitalization. A core element of its overall restructuring and strategic shift was an overhaul of the company’s vision, which in turn affected all aspects of the employee experience, from team dynamics to compensation.
In 2014, when the company began its transformation initiative, it also set out to change its corporate culture, which had previously been characterized by individualism, competitiveness, and a “know it all” attitude among employees. CEO Satya Nadella and other executives partnered with HR leaders to craft a refreshed mission and vision that better reflected the ideals of empathy, humanity, understanding of cultural differences, and Microsoft’s place in the world. The result was a mission that shifted from a product focus to a more inclusive, people focus — an aim to “empower every person and organization on the planet to achieve more.”
Rolling out this people-centric mission meant a lot of repetition and reinforcement. The new language was printed on office items, like company badges and coffee cups, and discussed at town hall meetings and smaller team gatherings