OVERCOMING THE HIGH COST OF MEDIOCRITY: COMPANIES THAT FOCUS ON THE ‘INNER GAME’ DURING A BUSINESS TRANSFORMATION ARE THREE TIMES MORE LIKELY TO SUSTAIN CHANGE

New Bain & Company research reveals only 12 percent of companies achieve their full transformation targets

New York – June 13, 2018 – Every year, companies spend billions of dollars on business transformations. The good news: the number of transformation failures has dropped sharply from 38 percent to 20 percent. The bad news: only 12 percent achieve their full transformation targets – the same number as five years ago. This is according to new research from Bain & Company, Soul Searching: True Transformations Start Within.

Contrary to popular belief, transformations rarely fail outright; they underperform. While companies are learning how to avoid a complete failure, most have not figured out how to succeed. Winning the outer game – cost, competitive position, and strategy – is key, but the leadership teams that address the inner game – helping a company’s employees through the transition – are nearly two times more likely to achieve their ambitions and three times more likely to sustain change.

Bain & Company surveyed more than 400 senior executives who have led large-scale change programs. By their own admission, the vast majority said their transformation results were mediocre: 68 percent settled for value dilution, achieving more than half of their stated goals, but falling well short of their ambition.

“Based on our experience, the cost of a mediocre outcome is higher than most leadership teams realize,” said Patrick Litre, global head of Bain & Company’s Results Delivery practice. “Even a relatively minor miss on things like margin targets compounds over time. That can cause the business to fall far short of its goals and disappoint investors. For the weakest companies, this gap can be formidable.”

When leadership teams move ahead without investing sufficient time and resources to manage internal risks, transformations stall out. On the other hand, survey respondents reported that steering change effectively inside the company had a tremendous impact on reaching their goals: leaders who achieved or exceeded their transformation targets said inner-game factors made up 80 percent of the reasons for their success. Five years after launching a transformation, average shareholder returns for companies that managed internal risks well were more than two times higher than for those in the bottom 10 percent, Bain & Company research shows.

Leaders who have mastered the inner game acknowledge a simple truth: People struggle with change. Successful leaders do two things well:

1. Build deep commitment at all levels of the organization from the outset, acquiring the capability to encourage behavior change, ensuring fast governance and inspiring the organization with a clear vision of the company’s future state.
2. Prepare for the valley of death—the difficult phase of sustaining change after the initial enthusiasm disappears.

The most critical factor to improving a company’s inner game is getting an early start building commitment throughout the organization. That finding makes sense, given the widespread shift to a more collaborative management culture – the No. 1 trend in Bain & Company’s 2018 Management Tools and Trends survey. Nearly 80 percent of executives say today’s business leaders must “trust and empower people, not command and control them.”

But Bain & Company cautions that communication alone does not create engagement.

“Leadership teams that launch a transformation without engaging their own people in dialogue and giving them time to embrace the logic themselves are less likely to succeed,” said David Michels, who leads the firm’s Results Delivery practice across Europe, the Middle East and Africa. “Winning the inner game starts with making sure people participate in the change and provide regular input, so it’s not done to them, but with them.”

Editor's Note: To arrange an interview, contact Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102

# # #