People & Organizational Performance PracticeHow to get your operating model transformationback on track “All that work,and what did it get us?” Leaders feel frustrated whentransformations fall short, but they can achieve their goals by avoiding sixcommon pitfalls. The article is a collaborative effort by Ákos Légrádi, Deepak Mahadevan, Olli Salo, and Tom Welchman, withDavid Kincsem, representing views from McKinsey’s People & Organizational Performance Practice. Over the past decade,more than half of large companies have tried to modernize theiroperating models. These efforts have different names: agile, product and platform, digitization,new ways of working. Fundamentally, they all chase the promise of increased agility, speed,efficiency, and customer centricity by improving structures, workflows, culture, and skills. But formany organizations, gains have proved elusive. “We just completed a major operating model transformation, including new quarterly planningprocesses and cross-functional agile teams, yet I am not seeing any changes to ourperformance,” the CFO of a European telecommunications company told us. “We’re facingincreasing labor costs in next year’s budget, and employee and customer engagement metricsare flat. All that work,and what did it get us?” We’ve heard the same from many senior executives: Their operating model transformations havenot delivered the hoped-for benefits, or the changes have been temporary. Many frustratedtransformation leaders feel that their programs are dragging on or have been marginalized intosomething that has barely affected how the company operates. Sometimes the promisedefficiency gains from new ways of working, digital initiatives, and culture changes are nowhereto be seen, and the costs creep back in. McKinsey’s newest research on operating model redesigns shows that 63 percent of companieshave met most of their transformation objectives and improved their performance—though only24 percent are highly successful. While these numbers are higher than a decade ago, they stillreflect the fact that a large slice of companies don’t achieve their full value potential. In our discussions with dozens of companies, we have started to see a pattern that holdsoperating model transformations back. In this article, we discuss six common pitfalls thattransformations face across operating model archetypes—and how leaders can secure thebenefits of a successful change program that creates value. Challenges with the ‘why’ Organizations typically pursue operating model transformations to reduce costs, enhanceemployee engagement and sense of ownership, and get things done more quickly. In all cases,the targeted improvements should translate to specific goals—for instance, launching newrevenue streams faster or improving customer experience. The first pitfall occurs when that linkisn’t made. Pitfall 1: Goals aren’t clearly linked to the transformation Leaders’ aspirations for “more empowerment,” “a greater focus on value,” “improved customercentricity,” or “becoming AI and digital first” are no substitute for clearly stated objectives. In thecase of the telecommunications company, the CFO was quick to admit that there had been noquantified goals tied to the program, which meant that new cross-functional units, or “tribes,”operated without hard budget constraints and were allowed to set their own goals instead oftying them to the strategy. The situation was more nuanced at a European bank. Its operating model renewal team hadinitially set bold, quantified goals, butthe teamnever shared those objectives with business unitleaders. The metrics and ownership of various initiatives were also unclear. Upon closer review,the company realized that its transformation goals were not directly linked to day-to-daysuccess metrics, such as business line profitability, nor to its strategic goals, such asdigitalization. It was no wonder transformation objectives came in second to the real businessperformance-related goals that leaders were tracking. Transformations that lack clear targets lose momentum and relevance. Instead, the besttransformations present a combination of operating model metrics (for example, efficiency andspeed and concrete, quantified business benefits (for instance, margin improvements fromreduced costs driven by digitalization. These goals should be easy to understand and spurdecision-making toward the right option during pivotal moments. Omissions in the ‘what’ If you imagine your old operating model as a horse, simply replacing its front legs with wheelsdoesn’t make it a race car. As new McKinsey research shows, the operating model should beunderstood as a holistic system that can turn strategic potential into market-beating results. Butwhen companies try to change just a part of their operating model, they can hit one or more ofthefour following pitfalls. Pitfall 2: New units lack clarity about strategic goals For a new operating model to take hold, it’s impo