THETRUTHABOUTTRANSFORMATION Howseniorleadersaretransformingtheirorganizationstocreatevalue HectorS.NelsonVladGil LiviaDinu EXECUTIVESUMMARY Today’sdynamicglobalbusinessenvironmentpresentsorganizationswithmanychallenges.Opinionsonthemarketoutlookaresplit,reflectingahighdegreeofuncertainty.Inoursurveyofmorethan240C-suiteexecutivesfromleadingcompaniesacrossindustriesintheAmericas,63%saidtheybelievemarketconditionswillimprove,while37%thinkthatconditionswillstaythesameorworseninthenext12months. 100% ofexecutivesattemptedatransformation Only25% oftransformationeffortssucceeded $1.63 averageinvestmentper$1ofrun-ratebenefit;31%higher investmentinsuccessfuleffortsvs.unsuccessfulones 21% higherrevenuechangeexpectations Executiveshavesetoutonambitioustransformationstonavigatethemarketandmaintainorenhancetheirpositioning.Oursurveyrevealedthat100%ofbusinessesattemptedatransformationinthelastthreeyears. Themere25%thatsucceededusedcostefficiencyasfuelfortheirgrowthobjectives,andfundamentallychangedthewaytheirorganizationworkedtomaketheirtransformationsustainableinthelongterm.Theywerelaser-focusedongrowthandcreatingvalueforclientsandshareholders,zeroinginonthetangibleimpactsthetransformationwasmeanttodeliver,andrelentlesslyrallyingtheirorganizationbehindtheneedtochange.Bycontrast,businessesthatdidnotachievemostoftheirobjectives,reportedlackingnotonlyfocusontangibleimpact,butalsothenecessarycapabilitiestodriveasustainabletransformation. Additionally,theyreportednojointvisionorpurposebehindtheirtransformationeffort. Thesuccessfulonesalsospentapproximately31%more,onaverage,thanthosethatdidnotmeetmostoftheirtransformationgoals.Focusingongrowthandadequatelyinvestingpaidoff,asthosecompaniesareexpectingtheirrevenuetoincreaseby21%morecomparedwiththosewhoseeffortsfailed—demonstratingtransformations’remarkableimpactontop-linegrowthinadditiontoimprovementsincompany-wideefficiency. TheTruthAboutTransformation EXECUTIVESAREEXPERIENCING ACHALLENGINGENVIRONMENT Whatisthepathforward? Today’svolatilegeopoliticalandmacroeconomicenvironment(inflation,thebankingcrisis,supplychaindisruption,climatechange,anddigitizationandtheriseofartificialintelligence)posesunprecedentedchallengesforbusinessexecutives.AsconcernsaboutnewwavesoftheCOVID-19pandemichavewaned(only5%ofsurveyedexecutivesidentifiedthepandemicasapressingobstacle),manyrespondentsshareconcernoverfourpotentialareasinthemarket:generaleconomicdownturn,inflation,risinginterestrates,andclimatechange. Exhibit1:Topchallengesreportedbyrespondentsoverthenext12months %ofrespondentsselectingfactor 49% 47% 37% 34% Predictageneraleconomicdownturn Expectinflationtobeatopchallenge Anticipaterising interestrates Reportconcernson climatechange Source:OliverWymanPerformanceTransformationSurveyAmericas2023 Generaleconomicdownturn,inflation,andrisinginterestratesarethebiggestmarketchallengesexecutivesexpecttofaceinthenext12months. Uncertaintyabouttheimpactofthecentralbanks’ratehikesoneconomicactivityseemstobeputtingpressureonCEOs.Andwhiledecliningafteranaverageglobalpeakof9.9%inthesecondquarterof2022,inflationremainstopofmindforbusinessleaders:while47%ofexecutivesexpectinflationtobeatopchallenge,almost90%expectinflationtoimpacttheircompany’sperformanceoverthenext12months.Withforecastsprojectingglobalinflationtoremainabove3%untiltheendof2024,businessarelikelytofacetheeffectsofhighinflationthroughtheremainderoftheyear. Climatechangeremainsoneofthetopchallengesthatbusinessexecutiveswillfacethisyear. Thethreatofimminentregulation—coupledwithpublicpressurestoimplementsustainabilitypractices —isforcingexecutivestoconsideractionstomitigatetheconsequencesofclimatechange.While34% ofexecutivesreportconcernsabouthowclimatechangewillimpactbusinessinthenext12months,100%reportthattheyareactivelyadjustingtheirorganizationstoaccountforclimaterisk. ESGgoalsandsustainablemanufacturingwithreducedemissionswillbeourpriority SeniorExecutive,Automotiveindustry TheTruthAboutTransformation 100% ofexecutivessurveyedreportedtheircompanyattemptedatransformationinthelastthreeyears Thereisamassiveneedfororganizationstoadjustbusinessplanstosecurevaluegrowth. Uncertaintyinthemacroenvironmentseemslikelytostayinthenearterm.Whileabout63%ofexecutivesbelievethemarketwillimproveoverthenextyear,37%expectsimilarorworsening conditions.Suchhighstakesdemandthatexecutivesrethinktheirstrategicagendasandpursueambitious transformationalchangestomanagecostsandboostprofitability.Infact,100%oftheexecutivessurveyedhaveattemptedtotransformtheircompaniesinthelastthreeyears,and,onaverage,companieshaveallocatedafifthoftheirspendingtotransformations.Thesepatternsareconsistentacrossorganizations’geographiesandsizes. ©OliverWyman6 KEYDIFFERENTIATORS betweensuccessfulandunsuccessfultransformations THOSETHATFULLYREALIZEDTHEIRTRANSFORMATIONOBJECTIVESHADMAJORDIFFERENCESFROMTHOSETHATSTRUGGLED Despitethecleardesiretotransformtheircompanies,only25%ofexecutivesreportedachievingfullsuccessintheirefforts(thatis,bymeetingalltheirtransformationobjectives).Whilecom