Seventy percent of change programmes fail. Depressing news at a time when more and more companies face upheaval. They fail because leaders shy away from making changes broad enough, deep enough and-above all-swift enough to revive the company. Instead, they administer a series of half-cures, which often serve only to prolong the agony and don't always save the patient.

But there is a way to beat the average and lead your company to dramatic and sustained improvement. When Bain & Company managers undertook an in-depth study of 21 of the most remarkable transformation stories of recent years they discovered that four simple principles underpinned the success of each one of those companies. These principles are easy to articulate, though not easy to achieve:

1. Set high standards and lead by example
2. Put the right managers in place, and empower them
3. Focus on results, not on an over-elaborate change process
4. Do it quickly-tackle issues in parallel not in sequence

The principles held true whatever the type of company (small or large, regional or international, diversified or focused), whatever the industry, and whatever particular challenges they faced. Some were already in crisis and were looking for a rescue programme. Others needed to move fast in anticipation of changing consumer tastes or new competitors.

In fact, their only common link was an astonishing transformation story: their share prices rose on average 250% per year in the period during and after the turnaround, and for some companies more than 1,000% per year.

One of those stories is Liechtenstein Global Trust (LGT), which, by 1997, had reached an impasse. Its stock price had been stuck at around $470 for four years and the business was valued at $540 million. Key to its difficulties was its complexity. Over the years LGT had acquired a hotch potch of global asset management businesses which had not been integrated with its private banking operations.

Then, under the leadership of Liechtenstein's Prince Philipp, senior management made a tough decision: to ditch asset management and focus on LGT's core private banking business. Within two years, it had sold its fragmented asset management operations, reduced central overhead dramatically and turbocharged its core private banking business, expanding into attractive markets in Asia and other parts of Europe. It also took the company private by buying up the 20% of the equity not already owned by the Princely Family. During this period, its stock price rose from $470 to $950, creating billions of Euros of value for the owners and many of its executives.

Set high standards and lead by example

Leaders of transformation programmes need to roll up their sleeves and get on with the job. If you are asking the entire company to share your vision and put their shoulder to the wheel you must begin by leading from the front. You must be seen as a person of action.

Then you need to introduce a set of performance and ethical standards and communicate these as simple, powerful messages to all employees.

Kevin Ryan, CEO of Wesley Jessen, is a good example of how trust, dignity and drive can be restored to a company by leading with integrity. He also proved himself a master at packaging these principles into clear messages.

Specialty contact lens maker Wesley Jessen was a misfit in the portfolio of healthcare giant Schering-Plough for years. In June of 1995, the subsidiary was just breaking even and almost out of cash when Schering-Plough sold it to Bain Capital and the Wesley Jessen management team for a fire-sale price of $6.4 million. It was no obvious bargain: for the first 90 days, no one was sure whether Wesley Jessen would survive at all.

But instead of fading away, Wesley Jessen executed a dramatic turnaround. Ryan and his team started by refocusing the company on its core business (specialty contact lenses) and getting out of the mass-market lens business where it competed with-and lost to-larger competitors like Johnson & Johnson and Bausch & Lomb. Wesley Jessen cut costs, recaptured key customers, and jettisoned some unprofitable customers. It also executed some key acquisitions.

The result? In two years, Wesley Jessen nearly tripled revenues and grew net income to a healthy 8% of sales. In 1997 the company issued a successful IPO, garnering a market cap of $290 million (a 45-fold return on equity for shareholders in two years). Then in May 2000, the company agreed to be acquired by Novartis AG's CIBA Vision Corp. for $785 million, a 2.7 times appreciation in equity. In the same month, Business Week included Wesley Jessen in its list of top 100 "Hot Growth Companies." The company is now the world's largest maker of specialty contact lenses.

CEO Ryan's charisma and communication skills were critical in turning Wesley Jessen around.

In presentations, Ryan told the sales force that he understood the sales job, the loneliness, and the frustration. But then he told them to put all that aside. "You chose it," he said. "Now, let's do it." This established the ground rules for what was to come.

"You are here," he would say time and time again to employees from senior management down to the factory floor, "because you want to be." The message: those who didn't believe that the company could be saved were free to leave. Those who remained would do so because they believed the prospects were enormous if everyone worked together.

Ryan made no effort to retain managers. Those committed to the turnaround and to the challenge stayed; those without the stomach for a bumpy ride or who were blind to the vision Ryan laid out were free to leave.

"You have to communicate really, really simply," he says. "People are going through a very traumatic event. Don't be cute about it. No big presentations. We had four statements, seven words. They were: 'Build volume. Spend effectively. Be accountable. Cash.' This is what we all have to do. Simple."

Ryan and his team built initiatives around each of the statements and communicated those in more detail to relevant managers. But in terms of transmitting the vision for success to the broader employee base, their communication was concise, simple, and hammered home again and again.

Ryan and his team instituted an Ethical, Legal and Moral (ELM) programme when he took over the CEO job. These became the guiding principles of the company. Implicit in them was honesty and openness with and among employees, even about the bad news. Leading by example, Ryan let people know when cost-cutting or layoffs were happening, and why. He also made a point of sharing the company's financial results with employees on a monthly basis, something that previous management had not done and that Ryan was not obliged to do (the company was privately held). As it turned out, this policy quickly became a morale booster: from a $40 million annual loss, the company turned a profit in its first month under Ryan's stewardship and has never had a losing quarter since.

Ryan acknowledges that a lot of factors went into Wesley Jessen's turnaround. But he believes you cannot ignore the morale and drive of employees if you want to turn a company around. "You don't do the skill set first. You do the mind-set first. In my view, you can't have people who don't sign on. Everybody who comes to work wants to contribute and succeed. But you've got to give them something to believe in."

Put the right managers in place, and empower them

However good the CEO is, he or she cannot single-handedly transform a company—they need a strong team to support them. Unfortunately, the existing senior management team is often not the right one to steer the company through the change process. Even capable managers may be closely aligned with the old company and viewed by employees as incompetent or untrustworthy.

Bain & Company research shows that replacing senior management correlates closely with successful change. Almost every one of the 21 textbook turnarounds substantially replaced the senior team.

Of the 12 top executives at Reed Elsevier, CEO Crispin Davis replaced 11 in 1999 during a turnaround that lasted under two years and turned Reed from an underperforming and strife-ridden company into a stock-market hero. "It was clear that management had to be wrong if a company like this was performing that poorly," said Davis.

The turnaround of contact lens-maker Wesley Jessen hinged on the hiring of a new CEO, Kevin Ryan, who subsequently hired a new CFO and replaced many senior managers.

Ryan sums up the philosophy neatly: "It's better to build boys than mend men. You can't spend all that time trying to convert a person unwilling to meet change who has been beaten up for months."

Sometimes, even capable senior managers need to go. At Continental, the company's previous history prevented otherwise competent executives from getting results. "When I got there, there were several senior operations guys who had had to implement some of [former CEO] Frank Lorenzo's more draconian policies. However competent they were, they would just never again be viewed by the workforce as trustworthy," remembers former COO Greg Brenneman. He felt he had no choice but to replace them.

Putting the right managers in place doesn't just mean hiring from outside. It can also mean putting the right insiders in the right jobs, and giving them the accountability and authority to be effective.

For example, selective strengthening of the top management team has been a hallmark of the recent improved performance at Great Universal Stores (GUS).

The company had performed well in the early 1990s but stumbled badly towards the end of the decade. In 1999 a profit warning in the important Home Shopping division led to a collapse in the share price.

Management changes followed, mostly from within. Sir Victor Blank moved from Deputy Chairman to become Chairman. John Peace was appointed Group Chief Executive, from his previous job running one of the more successful GUS Divisions, Experian.

Peace moved rapidly to strengthen and reinforce his executive team. He achieved this through promoting or expanding the role of his existing most capable senior managers. He supplemented this by a small number of high profile external appointments.

Eighteen months on, GUS market value has increased by over 50% in a falling market. When the new management team took over the company was 85 in the FTSE top 100 index, but is now up around number 50. Most important, the strengthening of the management team has provided the basis for sustaining and building on these encouraging early results.

Sometimes, organisational changes need to be broader, and may include the need for layoffs. These are inevitably painful. The key is not to fudge, and to treat the people involved with dignity and respect. "Cutting people was the hardest part of the whole turnaround," says Wesley Jessen's Ryan. "The first thing is to look them in the eye and say, 'Yes, some people will lose their positions. But I guarantee that you will be treated with great respect, and that we'll give you a pay-out plan that is second to none.' And we did just that. We also told people that when things rebounded, they'd be the first we would contact to come back, if they chose. And in fact we had many people come back."

Focus on results, not on an over-elaborate change process

The most successful leaders of troubled companies are not beguiled by the process of change, but stay focused on the end result.

This is not to say that don't have a change process-they do. But they treat it as a means to an end, not an end in itself. The goal is always a successful outcome rather than purely a smooth process. So the starting point is a clear view on where the value is in the business, and what will be required to get it. Once this is clear, the successful leaders establish nonnegotiable targets, both financial and non-financial. This leads to a change plan focused on the most critical outcomes, with an appropriate set of financial and non-financial measures to track progress-and most importantly, to signal in advance when things are not on track. They communicate the change plan with the goal of achieving buy-in rather than building consensus. Finally, they ensure that individual managers with the appropriate skills, motivation and authority are made accountable for developing the detailed plans to achieve each goal-and for achieving them.

US carrier Continental Airlines provides a good example. When Greg Brenneman took over as President and Chief Operating Officer of Continental in 1994 the company was about to fold. Legend had it that the company had never met a budget forecast. It had churned through 10 presidents in ten years, was on the brink of a third bankruptcy and ranked last on every measure of customer satisfaction.

Brenneman and his team began by introducing a host of measures to track company performance. They divided the measures into four categories: marketplace, product/customer, people and financial. They set targets for their employees, provided meaningful incentives to meet them and then let the employees themselves determine how they would achieve those results.

Because Continental had failed to meet budget forecasts, Brenneman and Continental Chairman and CEO Gordon Bethune instituted a tantalising bonus programme: for each quarter the company met its revenue and earnings forecasts, senior executives would receive bonuses equal to 125% of their quarterly pay. They offered similar bonuses on a six-month schedule to lower-ranking managers.

Lo and behold, Continental soon met its first budget forecast.

A similar programme was instituted for the airline's on-time performance. When Brenneman arrived at Continental, the company ranked near the bottom of all airlines in on-time arrivals and departures. This hurt Continental's image with travel agents and customers, particularly with busy—and highly profitable—business travelers. In response, management offered all employees an after-tax bonus of $65 for every month Continental was in the top five airlines for on-time performance, and $100 per month if the airline was first. Within months Continental was near the top of all airlines in on-time performance.

The programme remains in place today, and so do its results: until August 2001, Continental ranked first in on-time service for 13 months running.

The key to getting results, says Brenneman, is not to tell people what to do but to find ways to keep them focused on the right things, and for the most part, let them figure out how to achieve the goals themselves. If you provide incentives, link them to short-term achievements, such as monthly or quarterly targets. "The monthly on-time bonus (of $65 or $100) has become a point of pride and a fact of life for employees; every month they expect to get that cheque and every day they work hard to make sure it comes through. And for executives, the quarterly bonus programme keeps everyone focused on delivering results early in the year, day in and day out."

Six years after the turnaround, Continental employees were still focused on results: In Q1 2001, Continental and Southwest were the only two major American airlines to report a quarterly profit. More remarkably, Continental also celebrated its 24th consecutive profitable quarter. Since, the events of September 11 have blown Continental and many of its competitors off course. If Continental can navigate back to health, it will etch its place in comeback history.

Do it quickly—tackle issues in parallel not in sequence

Successful transformations turn on speedy execution. Implementing change quickly and tackling the issues simultaneously, not in sequence, is far more effective than easing change into the organisation.

How quickly? The most successful transformers in the study substantially completed their turnarounds in two years or less. None took more than three years. And in all cases, some form of tangible, improved results appeared almost immediately.

For an example of fast, focused and simultaneous change, look at Reed Elsevier. When Crispin Davis joined the firm as CEO in September 1999 he ended a period of nearly a year without a CEO. The company—the product of a 1993 merger between the UK's Reed International and Elsevier of the Netherlands—was in trouble. Feuding between its London and Amsterdam boards had distracted senior managers from problems in its business units, and three separate profit warnings had plunged Reed International's share price on the London Stock Exchange to a low of 348 pence.

By December, Davis was ready to unveil his transformation plan. He started, as mentioned earlier, by changing almost all of the company's senior managers. This new senior team then set about tackling the problems in Reed Elsevier's business units. In particular, Reed's legal division and its US business, Cahners, were rapidly transformed. Meanwhile, science unit Elsevier was moved onto the Internet. This meant annual price increases for Elsevier's periodicals could be scrapped, thus reducing the level of library cancellations.

Davis was prepared to make substantial investments in the core businesses where he identified value. He earmarked £150-200 million a year for new product development, a sizeable chunk of which was directed towards the Internet strategy. At the same time, he was ready to shed units, like OAG Worldwide and Springhouse, which did not fit in with his strategy. On top of this he identified cost savings of £170 million, including 1,500 job losses.

Just 20 months after his transformation plan was announced, Reed International's share had nearly doubled to 634 pence.

Davis' willingness to act swiftly was key to his successful turnaround. But, while prevarication is the main reason turnarounds fail, change managers need to be mindful that organisations can only absorb so much change at once. Also, some things only work in sequence.

LGT, Reed Elsevier, Wesley Jessen and GUS all created enormous value by implementing fast, focused and comprehensive change. As it turns out, they are not alone. Figure 2 plots the annual share-price appreciation of the companies in our sample against the amount of time their transformations required. Longer change efforts correlate with lower returns. The inverse is also true: the top five performers in our sample, generating annual share-price appreciation in excess of 250%, each completed its transformation in 20 months or less.

Evidence like this is not an excuse to act recklessly, nor does it mean that moving faster will make transformation easy. It means that if your company is facing a situation that demands transformation, the window of opportunity for creating value is probably brutally narrow. For every day you hesitate, shareholder value disappears and the farther you fall behind your competitors, the harder it becomes to catch up.

While your competitors will exploit your hesitation, your customers may also give you only one chance to get it right. If you let a customer down once by, say, fumbling an order as your company goes through a sales-force reorganisation, he may give you another chance. If six months later you restructure again and transfer that customer's favourite sales representative to Timbuctoo, your customer may walk.

Employees too are more likely to tolerate a brief interval of change than prolonged uncertainty. Morale plummets as each "final fix" is followed by yet another, while the company falls ever farther behind. Top performers, seeing the writing on the wall, head for the exits, while the people you want to see move on, remain. The result is a vicious circle of deteriorating performance, falling morale and dwindling talent.

Conclusion

Of course, the hard part of making change stick is acting on the principles that underpin success.

We learned that every one of the showcase transformation stories we examined followed the four principles outlined in this article. That doesn't tell us how many change candidates attempted to follow some, or perhaps even all, of these same principles but failed nevertheless.

By focusing on results, appointing the right leaders, establishing high standards, and doing it quickly and in parallel you can greatly increase the odds of success. But there is no "magic formula". What really makes change stick is a leader's ability to inspire his organisation to embrace the need for change, and to persevere in translating the vision into decisions and behaviours that net results.

(Paul Rogers is a vice president with Bain & Company in London, and leads the firm's change management practice for the U.K. Stan Pace, based in Dallas, directs Bain & Company's global change management practice. Paul Wilson directs Bain's financial services practice area for the U.K.)