EY teams and the University of Oxford explore the emotional cost of failed transformations and what it takes to get them right.
- Transformation is now a constant for all organizations, but success is far from guaranteed.
- New research indicates that giving specific focus to a series of complex human factors can increase the probability of success to more than 70%.
- Instilling leading practices around six key drivers can give your organization the best chance of success.
We always knew how important transformation was to an organization’s enduring success. For decades, this process of organizations making major changes to their operations to improve performance and drive sustainable growth was episodic. Every few years, shifts in market sentiment or stakeholder demands would push leaders to make incremental changes to adapt, or to entirely reimagine their organization from the ground up.
However, over the last few years there’s been a shift in the nature and speed of transformation. According to 82% of board members and CEOs in the EY 2021 Global Board Risk Survey, market disruptions have become more frequent and impactful. To keep pace, companies have begun to transform more frequently.
The need to successfully transform — and to do so continuously in the face of disruption — is now critical for organizations to survive.
In 2021, EY and the University of Oxford’s Saïd Business School formed a research collaboration. Our considered view is that there must be a more contemporary and effective way to drive organizational change. This approach should pay more attention to the human factors so often identified as one of the root causes of transformation failure and consider both leaders and workers. Further, we share the observation that not only is the rate of transformation failure too high, but it also carries a human cost that organizations can no longer afford.
Our research suggests that 85% of senior leaders have been involved in two or more major transformations in the last five years alone. Two-thirds (67%) of those we surveyed said they have experienced at least one underperforming transformation during this time.
It’s a staggering, if unsurprising, statistic. More staggering is that companies continue to accept this rate of failure as the price of change. In any other context, and by any other standard, this level of performance would be completely unacceptable.
It doesn’t have to be this way. Using predictive analytics, we have identified six key drivers that, when done well, can increase the likelihood of a successful outcome 2.6 times to 73%.
EY and the University of Oxford’s Saïd Business School surveyed 935 senior leaders and direct reports, as well as 1,127 workforce members from 23 countries and 16 industry sectors.
Most of our survey respondents had led or experienced multiple transformations — both successful and underperforming. To understand what differentiates success from failure, we asked respondents to reflect on a specific transformation in the past five years and assess its design, execution and performance on multiple dimensions. We used a least-quota fill approach to ensure we captured equal numbers of successful and underperforming transformations.
We also conducted in-depth qualitative interviews with 25 transformation leaders across more than 10 sectors. We asked each leader to identify three critical turning points in their transformations. During the one-hour interview, we discussed each turning point to understand when and why transformations may derail, what actions the leader took to improve and how it impacted the outcome of the transformation.
Chapter 1 – A Transformation’s Success or Failure is Rooted in Human Emotions
Negative emotions among workers increase by 25% in successful transformations but by more than 130% during underperforming transformations.
The key to turning transformation failure into success relies on the ability of organizations to completely rethink and redesign transformations with humans at the center.
Errol Gardner, EY Global Vice Chair – Consulting
Our research highlights that complex factors influencing a transformation’s success or failure are rooted in human emotions. These findings are largely consistent regardless of industry or geography.
In a Successful Transformation: Support Leads to Positive Outcomes
In a successful transformation, leaders invest at the outset to build the conditions for success, both at a rational level and an emotional level. As the transformation progresses, we see that stress increases and confidence may dip. But as the pressure increases, so does the support. With the right support at the right time, workers will end the transformation feeling positive. In our study, 79% of workers reported positive emotions after a successful transformation, the majority of which were happy or content — 50% higher than before the transformation.
Chapter 2 – Six Drivers That Lead to Transformation Success
Leaders must implement leading practices in support of all six drivers to maximise performance.
The transformation journey is neither linear nor easy. There will be twists and turns along the way. The key is to embrace emotions rather than ignore them, build a deep belief in the transformation, create a culture of both discipline and experimentation, use technology to quickly realize the vision, and learn as you go. With the proper support in place, the heightened stress of transformation has the potential to raise performance rather than lower it and serve as an accelerator for the transformation. To maximize the level of success, organizations need to excel at the following six drivers.
To identify which transformation practices drive success, we asked respondents to self-assess the extent to which their organization adopted 50 best practices in 11 areas of the transformation.
We used a logistic regression model with maximum likelihood estimates to determine which of the 11 areas increase the likelihood of success. We used odds-ratios to quantify the impact of each area on success and identified six drivers with a statistically significant and positive impact on transformation success.
To demonstrate the importance of doing well across all six drivers, we used our predictive model and bootstrapping to estimate the likelihood of success for transformations with below average (-1 standard deviation), average, or above average (+1 standard deviation) performance, relating to our six key drivers.
This demonstrated a 2.6 times increase in the likelihood of success, going from below average for all six drivers (28% chance of success) to above average for all six drivers (73% chance of success).
To identify high-performing transformations, we created a transformation index based on respondents’ adoption of 30 best practices, mapped to the six key drivers of success.
We then segmented respondents using latent class regression based on their transformation index score and how well their transformation achieved its KPIs. This identified two groups with clear differences in transformation outcomes.
High-performing transformations were successful 76% of the time and overperformed their KPIs 36% of the time. They also had high adoption of leading practices in the six key drivers of success.
Conversely, low-performing transformations under-performed their KPIs 77% of the time and had significantly lower adoption of leading practices for the six key drivers.
1. Lead: Adapting and Nurturing the Necessary Leadership Skills
In our survey, workers ranked leadership as the top driver regardless of the success or failure of the transformation. Leaders, meanwhile, identified leadership as the number one driver in successful transformations, but saw it as inconsequential when the transformation underperformed.
The process of personal emotional development is an important one. Leaders need to recognize their current limitations in terms of mindset and capabilities. As a leader of a transformation, you need to be completely honest about your fears, anxieties and self-doubt about the journey ahead. You must also acknowledge what you know, what you don’t know and what you need to learn.
You need to have the courage to acknowledge that you may not have all the answers and demonstrate the humility to look both inside and outside the organization to find them. For example, 47% of respondents in high-performing transformations said that leaders accepted ideas from more junior personnel versus 29% of respondents in low-performing transformations.
Leaders need to be accountable for the good and the bad, to show that the whole team is in the transformation together. They must emphasize a “we not me” approach by fostering collaboration, driving consensus and creating two-way communication to raise challenges and opportunities from workers driving the execution. Some leaders of successful transformations said they reached out to workers directly to understand their concerns. Others invested in technology platforms that brought together disparate voices and facilitated two-way dialogue.
Slightly more than half (52%) of respondents in high-performing transformations said that leaders made decisions that were best for the whole organization, not just their areas of responsibilities. The same percentage indicated that leaders understood the needs and views of the workforce. In comparison, only 31% of respondents in underperforming transformations reported feeling the same way.
Make the investment in self-transformation and emphasize a we approach through collaboration and communication.
2. Inspire: Creating a Vision that Everyone Can Believe In
Vision sets the tone and serves as the foundation for the transformation. Leaders need to look outside for a compelling vision — outside themselves, their organization and their industry. They should consider casting a wide net to gain inspiration and using future-back planning to identify bold new opportunities, and craft a vision that everyone can support and emotionally connect with. Nearly half (47%) of respondents in a high-performing transformation said the vision was clear and compelling versus 26% of those in a low-performing transformation.
For the vision to be real, leaders need to clearly communicate why change is needed, not just what they need to do — 71% of workers agree that this would make transformations more successful. Leaders need to foster true belief in the vision rather than simply an understanding of it.
Half (48%) of respondents in high-performing transformations said that leadership clearly articulated why the organization needed to change versus 25% of respondents in low-performing transformations.
Create a vision that everyone can believe in and that inspires workers to go the extra mile.
3. Care: Building a Culture that Embraces and Encourages Everyone’s Opinion
Emotions are the key to unlocking a successful transformation — or, if the organization is unprepared, having the transformation spiral down into failure.
In our study, 50% of workers who experienced an underperforming transformation agreed that transformation was just another word for layoffs. In the free-text analyses of our research, workers involved in underperforming transformations said they felt unheard, unsupported and stressed during and after the transformation. In follow-up conversations, leaders indicated that they were surprised by these findings and were unaware of the enormous toll that an underperforming transformation took on the workforce.
Leaders need to harness the right emotions to keep workers engaged and motivated, while providing enough emotional support to prevent anxiety and burnout. Our predictive model indicates that providing more emotional support improved the average likelihood of transformation success by 17%.
If you understand the emotional state of the workforce throughout the transformation journey, you will be able to identify the early warning signals when things are going wrong and make adjustments to get the transformation back on track.
Listen intently to what your people have to say, understand the source of their concern and seek to address issues in an emotionally supportive and constructive way.
4. Empower: Setting Clear Responsibilities and Being Prepared for Change
Transformations are traditionally thought of and managed as linear journeys. Our research suggests this is not the case. There will be ups and downs, twists and turns, stops and starts. The key for leaders is to provide both the structure and discipline, as well as the creative freedom to explore and innovate.
It’s important to create autonomy for the organization to execute. More than half (52%) of respondents in high-performing transformations said that employees were assigned clear roles and responsibilities, and 49% said that decision-making authority was delegated in a clear and appropriate way across the organization (versus 29% in low-performing transformations).
You should also encourage experimentation by shifting from a “don’t fail” to a “fail fast” mindset. Small failures can lead to big successes. Fear of failure, meanwhile, often leads to missed opportunities. Forty-six percent of respondents from high-performing transformations established a process that encourages innovative experimentation, while also ensuring that failed experimentation won’t negatively impact career or compensation.
Foster a culture of experimentation and create a mindset of fail fast to capture and realize opportunities that a don’t fail mindset may miss.
5. Build: Using Technology and Capabilities to Drive Visible Action Quickly
Technology isn’t the vision in and of itself, but it does bring the vision to life. The right technology is critical to fulfilling the vision and facilitating the process of transformation. Executives ranked effective use of technology as the number two driver of success and ineffective use of technology as the number two driver of underperformance.
Nearly half (48%) of respondents in successful transformations said that their organization had invested in the right technologies to meet their transformation vision versus 33% of respondents from underperforming transformations.
It’s also important to acknowledge the emotional component involved in introducing new technology. Some people fear the impact of technology. Workers in underperforming transformations are 25% more likely to agree that transformation leads to worry about job security (49% versus 39%). Others may see it as a means to avoid human interactions, which are essential for the emotional wellbeing of the workforce and the effective operation of the organization.
As a leader, you should prioritize progress over perfection. It’s important to prove the value of the new technology-enabled approaches early and to enlist early adopters and influencers to bring your customers and the workforce along in terms of realizing the vision and the value.
Through a combination of hiring, upskilling or reskilling, partnering and outsourcing, you can cultivate the right digital mindset and skillset to turn the potential value of technology into reality. Forty-nine percent of respondents in high-performing transformations said their organizations had the digital skills and mindset needed for transformation versus 35% of respondents from low-performing transformations.
Recognize the emotional impact technology can have on the organization. Provide the right learning and emotional support to foster a digital mindset and skillset, and convince workers of the vision and the value.
6. Collaborate: Finding the Best Ways to Connect and Co-Create
Where legacy cultures embraced a command-and-control, top-down hierarchical approach, with leaders setting the vision and workers executing, today’s constant state of transformation requires interdependency and collaboration.
As a leader, you will need to develop a culture that fosters connectivity and creativity. Provide a safe space where new ways of working — both digital and agile — can emerge to nurture innovation, engagement and fulfilling work. Forty-four percent of respondents in high-performing transformations said that their organization’s culture encouraged new ways of working, compared with 28% in low-performing transformations.
For new ways of working to be successful, leaders and workers need to collaborate to redefine the balance of delegation, ownership and empowerment. Forty-two percent of respondents in high-performing transformations said that a new organizational culture was consciously defined and implemented as part of the transformation program.
For new ways of working to be successful, leaders and workers need to collaborate to redefine the balance of delegation, ownership and empowerment.Liz Fealy – EY Global People Advisory Services Deputy Leader and Workforce Advisory Leader
Co-create new ways of working and empower workers to redesign and redefine their own work, both in terms of what work and behaviors need to shift and how work gets done. Consciously build interdependency across teams to manage both the emotional and rational elements of change.
Harness the Power of Your People to Drive Transformation Success
Leaders know that their organizations need to transform, but change is hard, and many feel overwhelmed by the prospect. In an era of constant disruption, standing still isn’t an option. By harnessing the power of their people, and by implementing leading practices around each of the six drivers, leaders can put their organization on the path to transformation success.
However, it’s important to recognize that success doesn’t lie in doing well across only one of these drivers. Organizations need to adopt leading practices across all of them to maximize the likelihood of success. For organizations looking to elevate their transformations to the next level, it’s time to put humans at the center.
A special thank you to Michael Wheelock, Associate Director, EY Knowledge, Ernst & Young LLP for his contribution to this article.