Large-scale transformation initiatives have become a fact of life at major corporations, and their success or failure often means the difference between long-term success and underperformance. It stands to reason, then, that senior executives who lead successful change initiatives should be rewarded with promotions. But that is not what we found when we studied 84 major change initiatives that had taken place at Fortune 500 companies between 1995 and 2005.
The results of our study were sharply counterintuitive. Although 85 percent of the major change initiatives we studied met or exceeded the performance goals set for them at the start, fewer than 30 percent of the initiatives’ full-time leaders were promoted — and the same percentage were terminated or left their companies voluntarily at the conclusion of the change effort. The remaining 40 percent either remained in their positions or moved laterally in their organizations. Those are astonishing numbers: Some 70 percent of the executives who led these major transformations went unrewarded, or were sidelined, fired, or spurred to leave. Most companies would be horrified to learn that they were wasting raw materials or financial capital on such a scale, yet the companies we studied wasted human capital in this key discipline at a staggering rate. And the impact on future change initiatives, although not measurable, is equally staggering; how many highly talented managers will step up to a leadership role in such an effort if they sense that it could derail their careers?
Our research was motivated by the many years of experience our partners have devoted to observing and advising senior corporate leaders who are significantly changing their organizations. We have seen the power that comes from unlocking the energy of leaders at companies that are adept at large-scale organizational change, such as General Electric during the Jack Welch era. But far too frequently, we have seen the pain that comes when CEOs or other bosses throw away one of their company’s most valuable resources.
Consider the fate of one senior executive in his 50s at a highly decentralized Fortune 50 company. Given responsibility for managing all of the company’s major transformation projects, he oversaw a global initiative to consolidate purchasing. Subsequently, he took on the company’s SAP implementation — a massive and successful effort. Then, after a change of management, he found himself no longer reporting to the CEO, but to a CFO who was far less committed to the transformation office. He lost influence, and then, following the introduction of well- intentioned but shortsighted talent-management policies aimed at promoting younger people, he was terminated. The personal damage inflicted was considerable, as was the damage to the organization. Already critically short of effective change leaders, the company had to muddle on with one fewer.
Having witnessed many such situations, we sought both to quantify the success rates and human results of change initiatives, and to see what we might find beyond the hard data. Specifically, we wanted to determine how CEOs and other top leaders might approach change so that they not only achieve better results but also avoid losing and misusing talent. So we revisited and analyzed many of the most important corporate change initiatives with which our partners had been directly engaged.
Altogether, we examined 84 transformational events at 36 Fortune 500 companies over a five-year period. These events, each defined as a “top three” company priority, included reorganization, cost cutting, operational improvement, strategic redirection, and other initiatives of the sort that figure prominently in annual reports.
We assessed the companies’ capabilities in terms of two variables that, in our experience, are critical for successful change events. The first is the extent to which companies embrace change, discerned through five indicators: high growth expectations, innovation, continuous transformation, clarity of vision and values, and willingness to set stretch goals. The second is a company’s attitude regarding leadership development, again with five indicators: valuing people, rigorous evaluation, development and advancement, incentives, and mentoring. We then correlated these findings against the outcomes of change events and the fates of their leaders. We found that the results differed significantly among four primary categories of companies: