To thrive in the Next Normal, companies need to make more fundamental changes.
Business leaders pride themselves on their ability to pivot and course-correct in times of crisis and economic turmoil. But there isn’t a CEO or management team on earth that’s experienced the health, financial and operational headwinds that have resulted from the coronavirus pandemic. These are extraordinary times, and inevitably they have required some companies to lean into these challenges by slashing costs, reducing headcount and halting investments to conserve cash.
But to thrive in the Next Normal, companies need to make more fundamental changes. That’s because if business models and mindsets don’t shift, those costs will just creep back. True transformation—the kind that alters the way a business operates on a cellular level—is what’s needed in today’s uncertain climate. It’s the only path to elevating financial performance, building capabilities and changing culture in ways that will not only get companies through this global health crisis but sustain them in the years ahead.
The good news is that there are companies doing this kind of transformation successfully, and business leaders can learn from their wins. “Transformation is one of the most overused terms in business,” says Harry Robinson, a Los Angeles-based senior partner with McKinsey & Company. “But there are companies out there undergoing real transformations that are creating a sense of urgency, resiliency and momentum to deliver material and sustainable results.”
Of course, a company would never seek out a pandemic to catalyze a transformation, Robinson says. “But it’s here now, and the organizations going all-in on transformation can change the odds in their favor and will accelerate out of this crisis,” he adds. “Those companies will never look back.”
Here are the key elements of transformation—with a capital “T”—and how making the right moves now can pay off in the coming years.
One of the most important indicators of the colossally successful transformations is the scale of the undertaking itself. The magnitude of the ambition needs to be a huge step change in performance. McKinsey research shows that more than 40 percent of a successful transformation’s value comes from growth initiatives—not cost cutting, layoffs or other slash-and-burn strategies. “The companies that are doing transformation right have an all-in mentality from the start,” Robinson says. “Incremental change is not their story.”
For George Oliver, chairman and CEO of Johnson Controls, a building technology and solutions company, the transformation challenge was as clear as it was big: Make the 2016 merger of Johnson Controls and Tyco more cohesive, with a unified strategy and a leadership team all moving in lockstep. Stepping into the CEO’s role in September 2017, Oliver was convinced that small, discreet changes would not fix what was ailing the company. “Tyco and Johnson Controls each had a lot of legacy, but we still needed to blend multiple cultures together and reformulate it in such a way that the combined companies were in a position to win,” he says.
It started with making sure the company had the right leadership in every line of business, but Oliver says it was more expansive than that. It also meant engaging employees at every level of the organization. “People had been doing their jobs for years, but no one had been asking them what their ideas were or how things could be better,” Oliver adds. That was the start of Johnson Controls’ transformation—getting the right alignment at the leadership level, and then “turning the company bottoms up so that we’re getting all the best ideas that over the years weren’t being listened to,” he says.
The work paid off. In July, the company unveiled OpenBlue, its open digital platform that connects traditionally separate systems to make buildings more efficient, sustainable and safe—an especially vital offering in today’s environment. Oliver says OpenBlue was designed to be a game changer, not a quick fix or interim solution. “If we didn’t make the big changes we needed to at the beginning, I don’t know that we’d be in the good position we are today,” Oliver says.