A New Model for Continuous Transformation...

A New Model for Continuous Transformation…

By Matt Dallisson, 13/06/2024

Transformation programs have become ubiquitous, with more than one-third of large organizations engaged in some form of transformation at any given time. But the conventional model that most companies rely on for transformation has faltered in the wake of today’s rapidly changing business environment. Leaders need a fresh approach — one better suited to the continuously evolving nature of our world.

Typical transformation efforts are organized as programs with a defined beginning and end, often overseen by a program management office. Rooted in a change model popularized by German American psychologist Kurt Lewin in the 1950s, this approach involves three stages: “unfreeze, change, and refreeze.” While effective for discrete projects like implementing a new payroll system, this model falls short in today’s dynamic business environment. The continuous evolution of the external landscape demands ongoing business transformation, with no room for pausing, refreezing, and stepping away.

In this article, we draw on our research and experience to describe the three key drivers of continuous transformation:

1. Adopt an Agile Mindset

Unlike the conventional “unfreeze, change, refreeze” approach, which implies change represents only a temporary disruption, an agile orientation embraces the philosophy of “rethink, reshape, repeat” — an ongoing quest for excellence. Under this paradigm, transformation becomes a perpetual journey involving assessing the company’s strategy, prioritizing critical issues, carefully considering potential alternatives for addressing each issue, choosing the best course of action, adapting the organization accordingly, and then moving to the next critical issue. Much like agile software development, where tasks progress from “to do” to “doing” to “done,” business transformation should involve a similar continuous process of issue identification and resolution.

By embracing an agile mindset, organizations unlock the potential for sustained innovation and adaptation, thereby making continuous change a core capability. The transformation of State Farm, a company we worked with, serves as a compelling example. As a leading provider of various insurance services including auto, home, life, health, and business coverage, State Farm had long been a trusted name in the industry. However, in 2019, the company’s leadership recognized a shift in the fundamentals of their business. The insurance landscape was evolving beyond merely offering coverage; it was now about delivering personalized experiences, swift service, and seamless claims processing within an intensifying pricing environment. Customers increasingly demanded convenience, efficiency, and tailored solutions. In response, State Farm recognized the need to rethink its operations, processes, and technology infrastructure to remain competitive in this swiftly changing market.

A pivotal factor in State Farm’s successful transformation was the adoption of an agile mindset by its leadership. While previous change efforts at the company had been treated as episodic, the pace of change in the insurance industry now necessitated continuous transformation. Accordingly, State Farm built a “persistent change capability,” essentially a suite of tools empowering executives to continually reassess and reshape the company’s strategy and operations. In addition, in working with State Farm, we saw how the company’s newly established “Change Center of Excellence (CoE)” provided support and coaching to leaders throughout the organization in driving transformative change and helping the impacted workforce adapt. This group also served as a central repository for best practices, approaches, and tools utilized at State Farm to strengthen ongoing change initiatives.

State Farm’s transformation journey has already yielded significant benefits for both the company and its customers. By embracing digital technologies and modernizing processes, State Farm improved customer experience, enhanced operational efficiency, and achieved substantial cost savings. Notably, between 2018 and 2023, State Farm Mutual’s net worth — a critical measure of financial strength in the insurance sector — grew from $100 billion to nearly $135 billion, and the growth across its primary lines of business surpassed the average growth rate for each sector. 

2. Use aspirations to continuously challenge and stretch the organization.

Relying solely on top-down targets, even those based on external benchmarks and industry best practices, often falls short of fostering sustained performance improvement. While these targets may initially inspire efficiency enhancements, they often lead to complacency once achieved, perpetuating the rigid “unfreeze, change, refreeze” model of transformation.

Instead, organizations should cultivate aspirations that challenge and motivate at every level. Unlike static targets, aspirations serve as dynamic catalysts for ongoing improvement. They represent goals currently beyond the reach of the company’s existing plans, but not so distant as to be perceived as unattainable. Unlike fixed targets that stagnate progress once achieved, aspirations evolve with the organization and its strategy. They continuously push the organization to adapt to changing market conditions, technological advancements, evolving customer needs, and even growing environmental concerns.

Consider the example of Ørsted, a multinational energy company based in Denmark formerly known as DONG Energy. In 2008, its leadership embarked on a journey to transition the company from a traditional power provider reliant on fossil fuels to a pioneering force in renewable energy.

At the heart of Ørsted’s transformation was a singular, audacious goal encapsulated in a simple number: 85%. Historically, the company derived 85% of its energy from fossil fuels, with only a meager 15% from sustainable sources. The leadership resolved to flip this ratio entirely, aiming for 85% of its energy to come from renewables like wind and solar.

Initially, Ørsted lacked a concrete plan to achieve this ambitious objective. There were no existing benchmarks to study, nor industry best practices to emulate — Ørsted ‘s goal surpassed anything seen in the sector before. This bold ambition compelled everyone within the company to confront harsh realities about its business model, including the urgent need to address climate change and the finite nature of fossil fuel resources, and reshape its business portfolio.

Henrik Poulsen, who served as Ørsted ‘s CEO from 2012 to 2020, leveraged this bold ambition to rally a workforce initially skeptical of such monumental change, inspiring them to embrace creative solutions. The company sold off its oil and gas business, phased-out the use of coal for power generation, and acquired Deepwater Wind and other assets to expand its position in offshore wind.  Ørsted set a timeline of 30 years to achieve its goal, yet remarkably accomplished it in just a decade.

3. Build transformation into the company’s operating rhythm.

To thrive in today’s fast-paced environment, leaders must seamlessly integrate transformation into the company’s operating rhythm. This involves incorporating change initiatives into existing governance processes and forums, ensuring that evolution becomes a natural part of running the business.

By embedding transformation initiatives into the operating rhythm, leadership can ensure alignment between strategic goals and day-to-day activities. This integration fosters a holistic approach to the change effort, enabling organizations to respond swiftly to evolving market trends, customer demands, and competitive pressures. When transformation becomes part of the company’s operating rhythm, accountability for driving change is distributed across all levels of the organization.

Take the remarkable evolution of Dell Technologies. When Michael Dell, in collaboration with Silver Lake Partners, took his company private in 2013, he recognized the imperative for broad-based transformation. This decision came at a time when many were predicting the “death of the PC.” Proving these skeptics wrong necessitated the transformation of Dell Computer into an enterprise technology powerhouse, known today as Dell Technologies.

As we describe in our recent HBR article, Michael Dell has embedded transformation into his company’s operating rhythm. Following the privatization, the executive leadership team (ELT) instituted the Dell Management Model (DMM), supplanting the existing strategic planning, resource allocation, and business performance review processes.  At the heart of the DMM lay the Dell Agenda — a backlog of strategic imperatives essential to the company’s transformation. Addressing items on the Dell Agenda became a primary focus of ELT meetings and other leadership sessions. The Dell Agenda remained dynamic; as issues were resolved and integrated into the company’s strategy, new issues were added, ensuring the transformation remained an ongoing process. As the DMM became ingrained in the company’s operating rhythm, transformation became an integral part of daily leadership practices at every level of the company.

The results speak volumes. By the close of 2023, the ongoing transformation at Dell had yielded a 10-fold return on Michael Dell’s initial investment in 2013. Our analysis of total shareholder returns for large companies reveals that this number surpasses the performance of any other public company with revenues exceeding $30 billion.

In today’s fast-paced world, business transformation can no longer be treated as a one-time project. Continuous change necessitates ongoing transformation. The traditional approach of “unfreeze, change, refreeze” must give way to a new mindset: “rethink, reshape, repeat.” It’s through this continuous process of transformation that companies can truly realize their full potential.

This content was originally published here.

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