The CEO Imperative

How can the moments that threaten your transformation define its success?

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15 minute read 15 Apr 2024
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Consulting
Transformation Realized
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Leaders who put humans at the center to navigate turning points are 12 times more likely to significantly improve transformation performance.

In brief
  • Critical moments will affect most transformations – 96% of programs experience turning points, according to our new research.
  • Turning points begin when a sense of progress becomes stagnation. If improperly addressed, this harms workers’ motivation and willingness to invest the discretionary effort required to transform.
  • CEOs can successfully navigate critical moments by bringing humans to the center of the process. This is key to greater success in transformation programs.

Why do many transformations fail to deliver the value that organizations expect? And what should CEOs do when a transformation goes off track? These questions have confounded companies for decades.

The CEO Imperative Series provides critical answers and actions to help leaders reframe the future of their organizations. In 2021, the Saïd Business School at the University of Oxford and EY (EYGS LLP) formed a long-term research collaboration to study where transformation programs go wrong and what organizations could do to get them right.

We began with the hypothesis that the human factor is the secret to success in transformation programs. Our research has brought this to life. The heart of a successful transformation is an environment in which the emotional journeys of leaders and the workforce involved in the transformation are well prepared for and sufficiently addressed as their initiatives evolve.

Our 2022 research report identified six drivers that help create this environment. Organizations that excel in addressing these six drivers increase the likelihood of a successful transformation 2.6-fold.

These were:

  1. Inspire: the organization and its leader must have a purposeful vision.
  2. Lead: there must be adaptive leadership, with leaders focusing on “we” not “me.”
  3. Care: employees must feel psychological safety in being able to speak up.
  4. Build: the organization must use technology to bring the vision to life – not technology for technology’s sake.
  5. Empower: there must be disciplined freedom – moving forward with discipline and rigor, while also experimenting and learning.
  6. Collaborate: leaders need to find the best ways to connect and co-create rather than leaving it to chance or assuming it will happen because of good intent.

Sharing these findings with C-suite executives and board members experienced in transformation initiatives raised several practical questions: What do I do when things go wrong? Is there a way to use these pivotal moments to my advantage? Our current research focuses on the practical application of putting humans back at the center when issues that could compromise the transformation arise.

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Turning points are moments of truth that can make or break a transformation

Almost every transformation (96%) has at least one moment of truth, when the program goes off course and leaders intervene (or not). We call these crucial moments “turning points.” How CEOs plan for them and respond to them can make or break the entire transformation.

For example, one of the leaders we interviewed noticed an issue surfacing in a functional transformation with a world-leading technology supplier. Physically sitting in at early workshops with the supplier and listening not only to what was said but what was left unsaid helped quickly uncover his team’s loss of confidence and trust in the vendor. This led to an intervention and engagement with a different external provider that had more functional experience, bringing the program back on track and to high-value results.

Rather than being a problem to avoid, turning points provide an opportunity to increase success by accelerating progress.

Turning points can originate from multiple directions

When we explore the root cause of a turning point, we see that there are often multiple challenges rather than a single issue. They can arise from external challenges (such as geopolitical events or new regulations), internal challenges (such as exceeding budgets or incompatible technology) or human dynamics (feelings of a lack of ownership, power struggles or anxiety around capabilities).

The emotions within the human dynamics are the strongest indicators an issue has emerged. They are also the least frequently tracked. There’s crucial data to be mined in the emotional reactions of the transformation’s workforce.

Leaders need to listen to these emotional signals, make sense of what they’re hearing and act in ways that replenish energy levels, rebuild trust, foster new ways of working, leveraging the six drivers uncovered in our initial research.

Successful transformation programs are built to quickly detect and navigate turning points. Through our research, we have found that this delivers multiple benefits, including accelerating momentum, exceeding outcome measures, developing capabilities, and setting the organization up for future transformations.

Conversely, unsuccessful turning points can make the overall situation worse. Leaders may panic and drive a flurry of uncoordinated action that causes chaos and stalls the program. Alternatively, they may react too late, convening a small leadership group that imposes solutions on the wider program. Typically, they’ll focus on the symptoms rather than the cause.

Three steps that can spin a turning point into outsized transformation performance

Using a combination of predictive modeling and in-depth case studies, we identified three key steps that harness the power of people and increase the likelihood by 12 times that a turning point will pivot the transformation program toward significantly greater value (from 6% to 72%).


The three steps are:

  1. Sensing: build an early warning system to identify when issues emerge and determine if intervention is necessary. This means looking beyond traditional KPIs (which are often lagging indicators) to monitor changes in the behavior and emotions of the people involved in the transformation, which are better predictors that a program is going off course.
  2. Sense-making: bring people together across the transformation program to understand where the issues are coming from.
  3. Acting: re-establish the conditions that encourage people to do the needed work together, using the six drivers we identified in our initial research.

All of this will require a mindset shift. Turning points are inevitable. Adopting a human-centric approach that detects and deftly navigates issues early, before they destroy value, is essential. Leaders who make this shift and embrace turning points for what they are – opportunities to accelerate momentum and improve transformation performance – are much more likely to succeed.

1

Chapter 1

What are turning points and why do they matter?

Turning points are a part of any transformation. When successful, they’re 1.9x more likely to improve transformation success.

The turning point is a moment of potential – where performance can be elevated and people can thrive – or where the entire program could fail.

Successful turning  points1 not only address underlying issues (74% vs. 33% of unsuccessful turning points); they’re 2.1 times more likely to improve the speed of execution (80% vs. 39%) and 1.9 times more likely to lead to the program overperforming its target KPIs (31% vs. 17%). Moreover, they’re 1.9 times more likely to improve workforce readiness and motivation for the next transformation (79% vs. 41%) – preparing the organization to embrace a state of continuous change.

Conversely, unsuccessful turning points fail to improve performance and make the situation worse. They’re 1.6 times more likely to lead the entire transformation to underperform (50% vs. 31% of successful turning points) and 3.4 times more likely to leave workers grappling with negative emotions such as sadness and anxiety (41% vs. 12%), which can be detrimental to their well-being and the organization at large.


While turning points can occur at any time during the program, three-quarters (75%) take place during the planning and early implementation phases, when management’s intent to transform needs to turn into action across the organization. At these points, the real pain of transformation has yet to be felt, so leaders often see no compelling reason to intervene. By the time the pain is being felt, it is too late. Leaders need to tune into these human signals to act early enough.


Decoding the root cause of turning points

What causes turning points to emerge? There appear to be three factors:

  1. External shocks, especially in times of disruption: in our data, we can see almost half (48%) of turning points involve at least one major external issue. These impact people working on the transformation on both a rational and an emotional level. 
  2. Operating model issues, caused by misalignment of the organization: our deep dive case studies suggest this is often a result of faulty assumptions and/or an inaccurate understanding of the current reality of the organization. Most (71%) turning points in our data involve at least one operating model issue.
  3. Human dynamics, which need to be shifted: as we’ve already seen, most (75%) turning points occur early in a program, either during planning or early implementation. Our in-depth case studies show that this stage requires a series of shifts. These shifts create friction and are commonly where issues emerge.

Individually, not all issues escalate to a point that requires intervention. However, when multiple issues arise at the same time, things begin to falter. The noise around the transformation escalates and the emotional energy within key groups shifts.

As issues hit the transformation program, they undermine people’s belief in the vision and the leaders of the transformation. They also reduce the level of psychological safety, as people don’t feel heard. This can be seen clearly in our data: employees felt that their concerns weren’t taken seriously (33%), the issues they flagged weren’t escalated (32%), and leadership never asked for their input in the first place (32%).

2

Chapter 2

How to navigate a turning point

There are three steps that organizations can take to increase the likelihood of success in navigating a turning point.

Our research has identified three steps that increase the likelihood of successfully navigating a turning point will significantly improve transformation performance by 12 times – from 6% to 72%.

Step 1: Sensing

Programs need to build an early warning system to rapidly identify when issues arise and decide when to intervene. Our research shows that leaders need to pay attention to signals around how their people are feeling and how they’re behaving. Programs need to pivot from looking at only lagging indicators in their KPIs to also looking at leading indicators – people. Our research shows that the earliest signals a significant issue has emerged come from changes in workers’ emotions and behavior, rather than traditional signals, such as missed KPIs or exceeded budgets. This requires knowing what signals to look for, creating conditions where people can speak up freely, and putting mechanisms in place to listen – ideally before the program begins.

Yet a striking 72% of surveyed leaders admit it’s all too easy to overlook warning signals. This is understandable, as most programs focus on successful delivery of the plan that so many people are invested in. Furthermore, a substantial 61% of leaders say it’s hard to know when to intervene or when it’s best to stay the course. As a senior manager at financial institution summed up: “One of the biggest cultural issues is if you are [the transformation leader] you've got so much personally invested in it that you are quite defensive when you are told, ‘this isn't working.’ I think we should have probably spent more time working out and recognizing defensive behavior because defensiveness then leads to someone's opinion being disregarded or just creates a challenging team environment.”


How EY can Help

Step 2: Sense-making

Sense-making is about convening the right leaders and members of the workforce to make sense of the issues and co-create the way forward. This means bringing people from across the organization together, often in a physical location, to create a shared understanding of the issues and a sense of ownership over the outcome. They then explore the issue – to look at root cause rather than symptom.

Dominant lag indicators, such as KPIs that populate common dashboards, seem to offer clarity. While their apparent objectivity makes it tempting to use them in decision-making, their retrospective nature makes them less useful to guide future action. By contrast, key behavioral indicators (KBIs) and emotional cues are much more subjective, diffuse and hard to understand. If the signal is a shift in emotional energy, the next step is to get to the root cause.

Leaders should try to discern what they need to work on to get the program on track. Successfully navigating a turning point requires more than spotting the signal amid the noise; it requires leaders to decode what the signals are saying.

One company we interviewed established a series of small-scale projects to test and improve ways of working. “The [small-scale projects] were a testing ground for the imperfect but that was as good as we could get it,” the transformation leader noted. “When people used them, they had lots of ideas on how to improve them. So, we captured the ideas on those defining best practices from each of the [projects] and then we went from 60% to 80%. Then we deployed it to a few more and then went from 80% to 95%. So, it was continuous improvement.”

Step 3: Acting

Once program leaders sense the issues and understand what they mean – or are in the process of trying to understand them – they need to take action. Importantly, these actions must put humans at the center if they are to address the unique challenges facing the transformation.

Acting involves re-establishing the program environment that allows and encourages people to work together, using the six drivers of transformation success we identified in our initial research. Acting often occurs concurrently with sense-making, as leaders continually decide the best course of action. As one senior manager explained: “We escalated that we needed a change to top management, and that meant basically the ones reporting to the CEO. We had an event where we gathered all these leaders to present what the problems were. Because when you’re presenting what the problems are, you’re also presenting the solution. And I think we did that. We changed a lot of things related to the second [phase of the transformation] – more than we thought was possible, to be honest.”

While the idea of steps seems linear, these three steps are dynamic and interdependent. There needs to be a constant flow among them to maximize their success.

Six key takeaways

Turning points are a natural part of how we navigate into the future. When leaders navigate turning points successfully, they can do more than bring things back on track, they can actually accelerate the program and increase the value created by the whole transformation.

Here are six takeaways from our research and data:

  1. Anticipate challenges. Leaders need to effectively plan for the transformation but be ready to anticipate and embrace turning points as a natural part of the process and change the plan where needed. This requires an early warning system that uses KBIs to understand in near real time the state of emotional energy of the people involved.
  2. Listen to the organization. Across large organizations, leaders need data from multiple sources to understand what’s happening. However, data alone doesn’t tell the whole story. Our evidence suggests leaders need to be physically and emotionally present. This means spending time with the team on the frontline of the transformation, as well as those impacted by the program. It also requires leaders to proactively engage with the workforce by listening to what’s said and not said.
  3. Don’t be the reason issues aren’t raised. Subconsciously, most leaders suppress the free flow of communication about challenges or issues. Leaders who are present – emotionally and physically – know how to listen to what is and isn’t said and recognize that they’re in service to the middle managers and workforce who are trying to achieve the transformation vision. 
  4. Constantly shape the environment so people can thrive. Several of the case studies experience a “social movement” where the position of power and control for future transformation moves from a few at the top of the hierarchy, to many at the base. This is a profound shift in how the roles of leaders and the workforce are understood and shows how leaders can release a high level of energy and motivation.
  5. Co-create and jointly solve problems. Get the team and anyone involved in the whole system together in the same room. Empower them to address the problems at the heart of the turning point. Then stay with them to test and learn together, with fast feedback loops. This means designing and using experiments to understand how the envisioned transformed state will work in practice.
  6. Embrace people and their full selves. At the heart of a successful transformation are people working together to do something that hasn’t been done before. People – their ability to experience things and have emotional responses – is what differentiates humans from technologies like Generative AI (GenAI). Emotional responses hold the key to unlock deeper learnings and the potential for huge accelerations in progress. This is what leaders need to tune into.

Michael Wheelock, Associate Director, EY Knowledge, Ernst & Young LLP; AnnMarie Pino, Associate Director, EY Knowledge, Ernst & Young LLP; Paul Meijer, Partner, Ernst & Young LLP; Ron Rubinstein, Director, EY Brand Marketing and Communications, Ernst & Young LLP; Ryan Gavin, Supervising Associate, EY Knowledge, Ernst & Young LLP; and Bhavnik Mittal, Senior, EY Knowledge, Ernst & Young LLP, contributed to this article.


Summary

Turning points – moments of potential where performance can be elevated or where the entire program could fail – are part of any transformation program. Organizations that can rapidly identify when an issue is emerging, bring people together to understand what the issues are, and create the right conditions to act, can increase the likelihood by 12 times that a turning point will pivot the transformation program onto a trajectory that will deliver significantly greater value.

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    Related topics
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