Because sitting still is generally not advisable amid today’s shifting business landscape, most companies are trying to upgrade their performance by reinventing their business models, business processes, digital capabilities or culture.
In fact, more than half (52%) of CFOs surveyed recently by McKinsey said they’ve spent more time on such transformations over the past year than on any other category of activity.
That doesn’t mean all the time was well spent. Less than a third (31%) of the 143 responding finance chiefs reported having achieved sustained success from transformations.
Whether a transformation is ultimately deemed successful may depend on what companies choose to prioritize, McKinsey found.
In the beginning
For example, assessing the potential impact of a transformation based on market trends, internal assessments or strategic goals is a necessary step. But according to survey results, prioritizing that during the initiation phase of a transformation is associated more with failure than success later on.
Indeed, only about 23% of CFOs who reported successful transformations said such assessments should be prioritized early on, compared with 46% of the less-successful finance chiefs.
Additionally, many more CFOs at the less-successful companies (about 38%) focus on aligning with the CEO on a budget at the outset of a transformation process, again twice the proportion of the successful ones.
Instead, finance leaders would be better off spending their time identifying and assembling a cross-functional team to manage the initial transformation stage, according to the research. A large majority of the successful CFOs (70%) said that it should be a priority, compared with only about one in five among the others.
In the middle
During the due diligence and business planning phase, establishing performance metrics and KPIs to track progress was a priority for approximately 40% plurality of those polled, both the successful and unsuccessful ones.
But with fewer than half of CFOs prioritizing performance measures, McKinsey cautioned companies not to lose track of their strategy.
“CFOs should use this phase to dynamically allocate resources based on initiatives’ performance, rather than spending time running new analyses to find additional growth opportunities,” McKinsey wrote in its survey report. “They should nimbly move capital across their already identified, best-performing initiatives.”
In the home stretch
In the implementation phase of a transformation, the surveyed CFOs’ runaway top priority was managing change and addressing resistance within the organization. Nine in 10 of the successful finance chiefs said it should be prioritized, and a majority (about 60%) of the others agreed.
A clear second priority during implementation was ensuring alignment between different departments and functions, prioritized by nearly 80% of successful CFOs and half of the unsuccessful ones.
“CFOs risk spending too much time leading initiatives’ implementation, which can be managed by a transformation office or team instead,” McKinsey wrote. According to the research, nearly three times as many unsuccessful finance chiefs viewed implementing initiatives as worthwhile for CFOs, compared to successful ones.
