Summary of The Truth About Corporate Transformation

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Many articles concerning corporate transformation offer perspectives on change with little basis in empirical data. This contribution from the MIT Sloan Management Review features data analyses on more than 300 US companies with dropping total shareholder return (TSR) – an indicator that suggests the need for massive corporate change. Boston Consulting Group’s Martin Reeves, Lars Fæste, Kevin Whitaker and Fabien Hassan discovered several factors that exercised an outsize influence on subsequent improvements in TSR. Leaders hoping to spearhead their own successful corporate transformation should take note.

About the Authors

Martin Reeves directs the Boston Consulting Group Henderson Institute and is a senior partner in BCG’s New York office. Lars Fæste leads BCG’s transformation practice and is a senior partner at BCG Copenhagen. Kevin Whitaker is a member and Fabien Hassan is an ambassador at the BCG Henderson Institute.

 

Summary

Corporate transformation is an increasingly necessary but increasingly risky part of doing business.

When a company’s total shareholder return (TSR) is lower than the industry average, that company is due for corporate transformation. Only about a quarter of the companies that experience such a drop go on to perform better than the industry average over the long term, with failure rates of more than 95% if a company has experienced two consecutive years of TSR lower than industry averages. Be forewarned: It is better to embark on corporate transformation before it’s needed than to wait until you’re in the thick of a dipping TSR. 

Efficiency is important in corporate transformation, but company valuation is more important.

Cost-cutting is an obvious step...


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