The Beating Heart Powering Transformation

Corporations across all sectors are now forced to operate in an environment of unprecedented volatility that has rendered traditional business strategy obsolete. Global warming is at its fastest recorded pace, market volatility is at its high measured point, and average company lifespan is predicted to continue falling. And that was all before the Covid-19 crisis rocked the global economy.

The following is an excerpt from Boston Consulting Group’s first flagship book on thriving in a new global era, BEYOND GREAT: Nine Strategies for Thriving in an Era of Social Tension, Economic Nationalism, and Technological Revolution (October 6, PublicAffairs), which details the disruptive forces transforming the global economy and outlines nine strategies for incumbents to thrive when the very notion of outstanding business performance is being reinvented. 

Most companies have tended to treat people as a means to an end when it comes to change—or, worse, as collateral damage. One study of 200 executives found most either were leading or would lead a change initiative, but half reported not having thought through how their people felt about the shift. This is a shame and likely one of the biggest reasons companies have struggled to succeed with transformations. In our study, “of the companies with long-term high performance, twice as many had high heart scores.”

Companies can’t take their people for granted if they hope to succeed with always-on transformation—they have to make them their central focus.

People will only sustain transformation over time, sticking with multiple initiatives and welcoming ongoing changes in the portfolio of initiatives, if they feel passionate about change. They must put their whole selves into transformation rather than viewing it as just another corporate initiative. In effect, they must become the beating heart powering transformation forward. To ensure that the workforce feels an enduring passion for change, leaders must take a series of measures to empower and inspire their workforces. Pulling four distinct activation levers is especially important.

Activation Lever #1: Purpose

Employees will become more enthused in transformation if they understand at a deep level why they’re doing it. To build an always-on transformation capability, leading-edge firms take care to explicitly connect change efforts with the company’s purpose. Purpose has always been important for transformation, but it becomes absolutely vital when change is always on. Purpose provides “much-needed alignment, clarity, guidance, and energy,” serving to link “various transformation efforts in a way that is logical and accessible to everyone.” Satya Nadella recounted in his book, Hit Refresh, how purpose played a critical role in Microsoft’s ongoing transformation. Upon becoming CEO, Nadella called on the company to rediscover its “soul,” as he put it, its purpose or core reason for being. He spent months querying employees about the company’s purpose. “To my first question, why does Microsoft exist, the message was loud and clear. We exist to build products that empower others. That is the meaning we’re all looking to infuse into our work.”

In a 2014 all-company email, Nadella called on the company to “rediscover our soul—our unique core” and defined a mission attached to that purpose: “We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more.” The response from employees was overwhelming. From across the enterprise, they wrote to him, conveying that “the language of empowering everyone on the planet to achieve more inspired them personally, and they saw how it applied to their daily work, whether they were a coder, designer, marketer, or customer-support technician.” To give everything they have to ongoing transformation efforts, to stick with those efforts during challenging moments, and to pursue open-ended change, people need to understand the ultimate point of the change. Not just understand—they must feel it in their bones each and every day as they do their work. Transformation efforts must have meaning, and it’s up to leaders to shape that meaning by discovering and communicating the deeper purpose.

Activation Lever #2: Culture

So many companies today are content to pursue purpose in a halfhearted or incomplete way—this is surface purpose. These companies fail to make the company’s reason for being tangible and compelling for employees and customers. As leading-edge companies also understand, you can’t simply articulate the purpose in words and expect it to stick. People have to live the purpose in their daily work, which in turn means that the culture must change to evoke and support it. Further, the culture must liberate and empower people to take action in support of transformation efforts. As enthused as they might be about where the company is headed, employees’ passion for change will evaporate if the culture prevents them from taking action in support of the company’s strategy and goals. In our research, companies that emphasized culture during digital transformations were five times more likely to achieve strong or exceptional performance than those that didn’t. Simply put, it’s not a digital transformation without a digital culture.

In guiding Microsoft’s turnaround, Nadella understood the importance of culture and its close relationship with purpose. Influenced by Carol Dweck’s book Mindset: The New Psychology of Success, he shifted Microsoft’s culture away from one of competitiveness and conflict to one of personal growth, or, as he put it, “dynamic learning” rooted in a growth mindset. “Anything is possible for a company,” he said, “when its culture is about listening, learning, and harnessing individual passions and talents to the company’s mission.” For Nadella and Microsoft, a culture of dynamic learning would take on a number of expressions, including an obsessive curiosity about customers and their needs, diversity and inclusion internally, and collaboration across the organization, what Nadella termed “One Microsoft.” “I talked about these ideas every chance I got,” he recalled. “And I looked for opportunities to change our practices and behaviors to make the growth mindset vivid and real.”

One place Microsoft’s culture and purpose have come alive is in the large hackathons it has held in recent years during the company’s annual One Week event. The company’s performance-management and organizational structure have also changed to reflect the growth mindset ideal, and Microsoft has sought to empower people to grow via human resources policies that promote a positive and welcoming work environment, attract top and diverse talent, and provide collaboration-enhancing tools and technology. Nadella himself has worked tirelessly to instill a growth mindset, communicating with the company about interesting books he has discovered, letting leaders know when they’re straying from the culture, and holding two-way conversations with employees. He has also pushed leaders to live the culture and empower their teams to embrace a positive growth mindset as well. Over time, the culture Nadella envisioned has taken hold and fueled the company’s ability to pursue ongoing transformation. As Microsoft’s chief marketing officer has said, “We went from a culture of know-it-alls to a culture of learn-it-alls. Everything we do now is rooted in a growth mindset.

Activation Lever #3: Empathy

Traditional transformation has typically been challenging for employees. Always-on transformation is even more so, as now organizations are asking their people to step up, reach further, and run faster on an ongoing basis. Even if employees don’t lose their jobs, they’ll undergo the stress and strain of seeing colleagues depart, having to change how they operate, and potentially relocating to a new job within the company. Leading-edge firms show empathy for employees, anticipating the challenges transformations bring and helping their workforces to adapt. Nadella, for instance, has often spoken of empathy. In his book Hit Refresh, he remarked, “My passion is to put empathy at the center of everything I pursue—from the products we launch, to the new markets we enter, to the employees, customers, and partners we work with.” In this spirit, not only do leading-edge firms offer the usual help to employees transitioning to new jobs and careers outside the company; they supply employees with coaching, various kinds of vocational training, and assistance with financial planning. Making life just a bit easier for employees, such measures show them that the company cares about their welfare and considers them more than just an expendable resource.

A good example comes from the Finnish technology firm Nokia. Having missed the smartphone revolution with significant financial consequences in terms of revenues, losses, and market capitalization, Nokia undertook a set of massive transformations that remade the company. Over several years, Nokia restructured and then sold its core mobile phone business to Microsoft and adopted network infrastructure as its new core business, acquiring the remaining half of its joint venture with Siemens in 2013 and then finalizing its acquisition of Alcatel-Lucent in 2016. The company also sold its mapping software business and strengthened its innovation-and-reinvention business. These changes helped to stabilize the company, launching it into a new phase of reconsolidation and integration that spanned the years 2015–2019. For many employees, however, the changes posed an immense challenge. While the company was trimming businesses, some employees had to continue at their jobs knowing that their time at the company was limited, while others who stayed had to witness their colleagues depart. As the company integrated new businesses, employees had to face uncertainties about the shape and form their eventual roles would take.

Still, as distressing as this transition was for employees, Nokia had their backs in ways that many companies undergoing transformations don’t. Leaders strove for transparency, giving teams as much notice as possible of future layoffs so that employees could prepare. To help people transition to new careers, the company provided support through an extensive program called Bridge. It’s goal: maximize the number of employees who knew their next move after their employment with the company ended. Through Bridge, employees could locate new jobs inside Nokia and obtain access to coaching, help with their résumés, networking, money for skills training, and more.

Those seeking to strike out on their own as entrepreneurs could apply for start-up money as well as connections to incubators. A special feature of Bridge was its flexibility: as employees’ plans for the future evolved, they could access different parts of the program as they saw fit. They could also obtain funding to help them achieve their own unique goals, such as volunteering. For Nokia, Bridge was not merely altruistic but also good business. By treating employees well, the company could maintain morale among remaining employees, ensuring that they continued to put out their best effort. To ensure that Bridge met employees’ needs, Nokia assigned key local managers who were also poised to leave the company to oversee it.

All told, the company let go 18,000 employees during this phase of its turnaround, but thanks to Bridge, almost two-thirds of them had already determined their next career move before leaving the company. Bridge funding helped employees found one thousand new businesses. Checking in with employees some eighteen months after leaving the company, Nokia found that the vast majority—67 percent of participants in general (and 85 percent within Finland)—felt positively about the program’s treatment of them. The company fared well too. Thanks to Bridge, the company avoided any dips in engagement, productivity, and quality. In some cases, quality even improved. Meanwhile, Nokia’s expenditures on Bridge represented just a tiny percentage (4 percent) of its total restructuring costs over the years 2011–2013.39 As compared with 2012, Nokia’s sales growth improved by almost ten percentage points, and its margins rose by almost twelve percentage points by 2015. Annualized total shareholder return had risen by over fifty percentage points during that same period.

In 2015–2016, when Microsoft laid off former Nokia employees who’d come on board during its acquisition of the latter’s mobile phone business, it chose a similarly empathetic approach. Under a program called Polku, Microsoft supplemented its severance program by offering start-up money and other resources to former Nokia employees in Finland interested in founding new companies. Thanks to this effort and others coordinated by the Finnish government, virtually all (almost 90 percent) of the employees hit by layoffs managed to secure new employment. As Polku’s director related, “It was really reassuring to see so many of our former colleagues find new work through Polku. The programme earned high praise from participants and external actors.

Activation Lever #4: Leadership

As we’ve seen, Nadella’s personal involvement was vital to Microsoft’s ability to sustain ongoing and open-ended transformation. Nadella served as the curator of the purpose or reason for being that gave rise and was embedded in its culture. To ensure that other leaders throughout the company supported its ability to transform, Microsoft implemented a transformational leadership model with three planks: “create clarity,” “generate energy,” and “deliver success.” At other leading-edge companies as well, we’ve seen leaders help to create an always-on transformation capacity by making it their personal mission to inspire and empower employees and by ensuring that other leaders in the company do so as well. Companies we’ve studied have deployed a number of specific tactics to mobilize leaders behind the transformation, including enhancing their training function and performance-evaluation processes.

Stay tuned for Part 2, “Beyond Great Leadership,” exploring the six fundamental imperatives of truly outstanding leadership.