Many companies turn to transformation because their leaders seek to capture untapped potential or realize growth or efficiency gains. Yet transformations take work to get right. Our research shows less than a third of transformations reach their goals to improve organizational performance and sustain these improvements over time. In this episode of the Inside the Strategy Room podcast, we talk with two transformation experts about how to beat those odds and sustain a holistic business transformation over the long term. Roman Regelman is senior executive vice president and global head of securities services and digital at US-based financial company BNY Mellon, and Kevin Carmody is a senior partner in McKinsey’s transformation practice. This is an edited transcript of their conversation. For more discussions on the strategy issues that matter, follow the series on your preferred podcast platform.
Sean Brown: Let’s address a foundational question: What does transformation mean in this context? How does the kind of transformation you’re talking about differ from simply improving business performance?
Roman Regelman: Many initiatives are called a transformation and focus on certain aspects of a company—cost, growth, work force motivation—and these are very significant problems. But doing these things together in combination at once, that’s what I think the transformation is. It is not just running a company better. One of the debates we had in our company was, “Do we only need to address some of the low-hanging fruit? Do we need to cut some cost? Or do we need to talk a bit about what transformation is before truly embarking on it? And that’s the road we chose. We executed a bit of a cost transformation, prepared ourselves to embark on a bigger journey in the future, and developed a bit of common language to align on some incentives and on how we deal with one another. That created more of a solid ground for really embarking on something more ambitious.
Kevin Carmody: We would define transformation as something bold, and truly aspirational—not something that generates incremental gains. It wins the hearts and minds of the company from the executive suite down to the line management level. It starts with people, and it covers the entire enterprise. And it has a growth element, as well as a cost optimization element to invest in the business. It involves investing in your people, and there has to be a systems element. Holistic transformation involves tying your strategy to performance objectives.
Sean Brown: What questions do you get the most around long-term business transformation?
Roman Regelman: There are two main areas that people are interested in. One is how to set the transformation up and second, how to run it and get the results. These involve answering questions such as, What are the conditions? When are you ready? What should be the balance of revenue, cost, and culture? What should be the time frame? Does everyone own it together? Is it CEO-led? Is it grassroots-led? These questions are multidimensional, though, and no two companies are alike.
Sean Brown: Why do you view transformation as a continuous journey as opposed to a project with specific start and end points?
Roman Regelman: I would say that a program has a distinct start and end—we start January 1, we finish three years from now on December 31, we have these three goals, we capture 80 percent of this, 120 percent of that … that’s a program. And sometimes programs are needed, because you need to change certain things, maybe cost or revenue.
A journey is different. You create a different operating model, teaming structure, and culture. You embark on ongoing innovation. You also want to build in new methods of working, and new culture. For example, if you want to increase agility, people need to interact differently. You have to renew your work force. And that doesn’t end. The best journey is the one that starts with something concrete and then propels itself moving forward.
Ultimately you know that the transformation is taking hold not only when the financial results hit, but also when the world of transformation collides with the world of business as usual and you don’t notice the difference.
Kevin Carmody
Sean Brown: If the transformation doesn’t have a clear end point, how do you keep people inspired?
Roman Regelman: We’re constantly transforming. I think it’s natural for people to ask, “When is it going to be calm?” But in the modern world, with geopolitical change, with technology constantly evolving, with the value chain in every industry regrouping, I don’t see calm happening soon. This can be an uncomfortable idea, especially in a company like ours, which is 240 years old, and started by a founding father of this country. For us, transformation means building the new operating model and culture that allows us to sustain the ability to evolve and propel ourselves forward.
That doesn’t mean you have to constantly change your cost profile or the way you work across the company. But stuff will always come up. I’ve been in the company for six years, and some of the aspects of digital that we talked about five years ago are becoming a lot more important. AI is an example becoming more prevalent. And maybe some other aspects of digital are becoming less important. So it’s having a culture that sustains you on the journey, and that’s probably the hardest thing of all.
Kevin Carmody: It’s tough at the beginning of a transformation. What you’re really trying to do is create a new enterprise. Ultimately you know that the transformation is taking hold not only when the financial results hit, but also when the world of transformation collides with the world of business as usual and you don’t notice the difference. At that point it is not fatiguing because ultimately you’re winning the hearts and minds of the organization over time. They begin to think differently, so their behaviors and actions change. The way they make decisions changes. How they work with each other at what I call a “horizontal axis” changes. When you have accomplished this, you realize transformation is second nature. That’s why, to Roman’s point, there is not a beginning and an ending. You’re actually creating a new capability and way the company operates.
Sean Brown: Would it be a situation where there is an initial phase or program that sets up the longer-term, ongoing journey? And once you’ve developed that capability to change, additional change feels natural versus something that is disruptive to the organization?
Roman Regelman: Yes, but it may need to be disruptive in the beginning.
Kevin Carmody: Or it could be disruptive later on too, but by then you don’t notice the disruption. For example, a food company was trying to eliminate waste, and one of their supervisors had it in her mind how she would do it but was not empowered to make such decisions. In the transformation, she finally had a chance to do what she had in mind. That fundamentally changed the way she thought about the correction she made, and that in turn moved the entire organization. That’s disruptive. Now, six months later when she’s doing the same thing but trying to continue to improve it, it’s not disruptive in her mind. But the performance is improving. And it’s building the fabric and the DNA of the company in a very different way.
Sean Brown: How is change actually embedded throughout an organization? You’ve said you need to engage the broader organization. How does that work?
Kevin Carmody: If you only engage 15 people, those 15 people will be exhausted, so you need to engage the broader organization. Hundreds, if not thousands, of people have to be directly tied to the transformation. What we’re really saying is, you have to inspire people. If people are just clocking in and clocking out, they won’t feel as though they own a piece of the company. If they’re inspired differently and they know their job matters, and they’ve got decision-making authority within reason, and they’re being recognized for what they’re doing, and not just financial recognition, but being really rewarded by their supervisor, they’re probably going to do their work differently.
And that’s proven out in the data. When we inspire people differently, they act differently. They have an owner’s mindset, and now you’re starting to catch the hearts and minds of an organization. That directly translates into performance. And we’ve seen that through the data.
Sean Brown: Have either of you seen a situation where a company is just not ready for transformation? Are there any key signs that you might want to hold off on starting a transformation journey?
Kevin Carmody: We know that success hinges on alignment at the top of the house, meaning whether your CEO and executive team actually believe that this transformation is the number-one objective. And it has to be aspirational, meaning not just incremental change, but is it bold enough. And are they prepared to engage, mobilize the entire organization not just at the beginning, but also when it gets tough? Because it will get tough. Transformations require a fundamental change in how people think and work. The CEO and executive team need to be able to inspire people not just on day one but on day 180, so they have to be committed to the transformation. If an executive team, starting with the CEO, is not committed to it, then you shouldn’t do a transformation.
Roman Regelman: Also, you might have alignment but not capacity. If the organization itself is not ready, for whatever reason, if there is another big objective hanging out there, and you simply have no capacity to do this now, you should not embark on a transformation. Having alignment in the C-suite and thinking the transformation will happen by itself is a bit naïve.
Sean Brown: What about incentives? How important is it to have the right incentives in place to ensure long-term success?
Roman Regelman: People talk a lot about financial incentives, and they’re critical. But they also need to be aligned. If you’re incentivized to cut cost, and I’m incentivized to increase revenue, we are going to make conflicting decisions. The nonfinancial incentives are also very critical. Most employees are interested in their company’s stock price, but it’s not like an increase in stock price directly drops into their wallet. That’s why other incentives are also important. The work environment, how they’re recognized, how they’re appreciated, whether the work itself is interesting, whether they feel they’re learning, all of these things matter. And you cannot disconnect them from the rest of transformation.
Sean Brown: Roman, you head up digital for BNY Mellon, and yet you’ve been known to say, “There’s no such thing as a digital transformation.” What do you mean by that?
Roman Regelman: My point is that digital transformation must be part of the holistic transformation of the company. The goal of digital transformation cannot be just to automate a form or simplify the process or give somebody a better app. All these things of course are reasonable goals, but ultimately, what is the goal of the whole transformation? It’s revenue, cost, better client experience, better employee experience, less risk, fewer manual processes, less opportunity for error, et cetera. . . . Digital is the fuel for all of these things; it’s the air we breathe. It’s integral to everything we do.
Sean Brown: So you’re saying you can’t have a holistic transformation today without a digital element?
Roman Regelman: I don’t think you can.
Sean Brown: How do you make sure that the digital oxygen you described actually infuses the whole organization? Perhaps you could give us an example from your experience in your industry.
Roman Regelman: I looked across the financial services industry and saw three ways of doing the digital piece of transformation. One is a “lab”: different tools and people than what the main business has, and with agile methods. It is really an exciting place to work, but it might not actually have an impact on the legacy business. Another is a parallel organization, where the company and its processes are old so they build a parallel new version. But that company doesn’t have the trust that the old company does.
My company is very old, and it has trust built over its 240 years. So instead of those two, we chose to digitize our existing bank. We just digitize every process, every product, every client interaction, and do that holistically and do that under the umbrella of holistic change. It’s probably harder. It would be much easier to run a lab or a parallel bank. But you don’t truly impact the whole organization. And that’s, I think, what we have to do as senior leaders.
Winning hearts and minds is really hard. Numbers and tools are important. So are incentives, and focus. But those are incomplete without a workforce that wants to make the transformation happen. Change is hard for people.
Roman Regelman
Sean Brown: Has there been anything that’s really surprised you along your transformation journey?
Roman Regelman: Yes, small surprises and big ones. A small one is faxes—in our industry we use a lot of digitized faxes. I never met a client who says, “I want to send you faxes,” or a senior executive who says, “I want to receive faxes,” or, “I want to send faxes to our clients.” But faxes are embedded in many different aspects of our operation. I thought it would be easy to change that, but the journey is taking longer than I expected.
A big surprise we’ve encountered isn’t really a surprise because we knew it would be hard, but winning hearts and minds is really hard. Numbers and tools are important. So are incentives, and focus. But those are incomplete without a workforce that wants to make the transformation happen. Change is hard for people. We deal with it every day, and I think every company does. Cracking the code on this allows us to propel things, and that’s why, when we embark on a transformation, we look to get some small wins early and use those results to pull the whole organization along.
Kevin Carmody: Sticking to standards through this is really critical while you’re inspiring people and getting folks excited down the line. If you can do that, you have a better chance of succeeding. Do you have the discipline, the hard stuff, and practice every day to make sure you’re sticking to your principles? When companies do that well, the results follow.
Sean Brown: How can the CEO or leader of the transformation get the best sense of the state of their transformation and if it is starting to go off the rails? What are the subtle signs or red flags that something’s not working?
Kevin Carmody: When we talk to CEOs about the signals that things are going off the rails, many times they’re not getting a candid point of view from their executive team. Sometimes it’s because their people don’t see a problem that has arisen yet, or they do and for whatever reason they don’t bring it up. In other cases, they’ll say their executive team is not working across the horizontal axis, and failing to cross-collaborate. The biggest stories of inspiration that we’ve seen is where executives find a common bond to solve a difficult problem, as opposed to focusing on their business unit at the expense of the other and keeping score.
Sean Brown: Who typically pursues and launches major holistic transformations of this kind? Is it CEOs who are in the early stages of their tenures and have the energy to see this kind of thing through?
Kevin Carmody: It could also be a CEO who has been there for a while and wants to establish a legacy. I think either way, having a very open and candid discussion at the outset as to what this actually means is critical. Ask them how they define transformation. It has to be bold and holistic. You need to make sure the CEO is committed to it first, and then the broader executive team next. Get that out of the way earlier. I think having that kind of discussion where the CEO might say, “I don’t think it’s right for my company right now,” is not a bad outcome. Being very clear about what transformation is and what it is not, and being committed to, it will save everybody a lot of time. It’s a huge opportunity, but you’ve got a lot of hearts and minds throughout the organization that you’re going to ask to do very difficult things, and before you put the burden on your people, align in the C-suite that this is right for the company.
Sean Brown: Can transformation also be fun, in addition to hard work?
Roman Regelman: Yes, in fact it needs to be fun. And exciting. I believe in metrics and that employee satisfaction needs to be measurable, just like cost and revenue and customer satisfaction. But it also needs to be something that brings people to work and which people can rally around. People often ask, “Do I go hard on metrics? Or do I go hard on culture?” I think you have to go hard on metrics and culture.
Kevin Carmody: People just need to be inspired. Otherwise the transformation will lose steam.
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