Most Companies Fail at Transformation. How to Beat the Odds.

Over the past decade, Satya Nadella has led a remarkable transformation at Microsoft. Taking the helm of what was once a sluggish tech giant mainly known for PC software, he steered the company into a leading position in cloud computing. This strategic shift not only revitalized Microsoft but also set the stage for its potential dominance in enterprise AI solutions.

The software giant’s overhaul under Nadella is a textbook example of what University of Virginia Darden School of Business Professor Scott A. Snell calls “strategic transformation.”

“This is not middling change at the margin,” he says. “It’s where a company changes its value proposition, operating model, technology and culture to meet the shifting demands of the environment.”

In today's rapidly changing business landscape, strategic transformation has become a necessity for companies to stay competitive. In his new book "The CEO Playbook for Strategic Transformation,” Snell lays out four key factors for successful organizational change along with real-world cases that serve as a practical guide for business leaders wanting to effect change.

He emphasizes that strategic transformation is not just for struggling companies. “Many CEOs are reluctant to engage in transformation unless there is a ‘burning platform’ and the company is in crisis,” he writes. “In such cases, change is probably not strategic, but merely reactive, and the journey will be more difficult — and painful — for the CEO and everyone associated with the company.”

Rather, strategic transformation is about galvanizing the organization around a promising future.

The success of companies such as Microsoft, which earlier this year topped $3 trillion in stock market value, shows the potential rewards of effective transformation.

Indeed, when Nadella was appointed CEO in February 2014, the company’s market cap was around $300 billion. Today it is the world’s second-most valuable company behind Apple.

The stakes of change are high, and while some of the best companies have done it very well — think Amazon, Apple, Microsoft — many others have struggled, bogged down in the complexity.

“The success rate of transformation is really low,” says Snell, the Eleanor and Philip Rust Professor of Business Administration. “Eighty-five percent of companies fail because there are so many moving parts.”

Snell’s playbook sets out four factors that are key to successful transformation:

• Establish strategic context;
• Engage stakeholders;
• Orchestrate mobilization; and
• Cultivate change agility.

It is these levers that together make the biggest difference, and all four are essential. And while the book’s title is aimed at CEOs, the potential audience is much broader: senior-level executives, middle level managers, consultants, students and some academics, he says.

Snell notes that when organizations change successfully, it's because leaders execute these four factors well. Conversely, when transformation fails, these are often the areas found lacking in post-mortems.

Moreover, strategic transformation is not a “once and done.” Case in point: After pushing Microsoft to go all-in on the cloud, Nadella is now doing the same with artificial intelligence.

Below is a summary of Snell’s playbook for success:

Factor One: Establish Strategic Context

Snell says organizational action makes sense only if people understand the circumstances behind the change and the outcomes they can expect. At its simplest, and when done well, providing context answers the question: “What’s really going on here?”

Establishing context for change puts an organization on a more solid footing, with a clearer trajectory. “Far too often, transformation efforts go off the rails before they get going, principally because leaders have not done a good job of establishing the strategic context for change,” Snell says.

As he notes in the book, when Nadella was named CEO in 2014 (just the third person to lead Microsoft), he knew better than almost anyone that his company needed a hard pivot toward cloud computing and mobile technology.

“To lead the transformation, Nadella needed to establish the context for change, not so much to uncover industry dynamics — Nadella knew very well how the industry was evolving because he had been leading Microsoft’s cloud business — as to help others see what was happening and help them to stop relying on Microsoft’s dominant position in PCs and desktop computing,” Snell writes.

“Because the company was very profitable and had an enduring leadership position in the market over the prior decades, Nadella had to change the perspective and mindset of others in the organization.”

Employees often resist change when they don’t understand the rationale behind or purpose for change — "the why?” adds Snell. This is why it’s important to establish context.

Factor Two: Engage Stakeholders

Stakeholders encompass a wide range of individuals and groups whose interests intersect with a company's operations. These include not only shareholders and employees but also customers, suppliers, community members, and even regulatory bodies.

Despite their crucial role in a company's ecosystem, many executives fail to fully grasp the significance of engaging these diverse stakeholders. This oversight can lead to missed opportunities, increased resistance to change, and potential setbacks in achieving organizational goals.

“Research increasingly shows that how well you engage your stakeholders can make all the difference to your transformation efforts,” Snell explains.

To illustrate this point, look no further than the ongoing revolution in the automotive industry, he adds.

As major companies such as Ford, GM, and Volkswagen pivot from traditional internal combustion engines (ICE) to electric vehicles (EVs), they must navigate a complex web of relationships. This network includes suppliers adapting to new technologies, employees and unions facing skill shifts, regulators shaping policy around EVs, and customers with changing expectations. The success of these automakers' transformations hinges on effectively managing this diverse ecosystem of stakeholders.

“The challenge of stakeholder engagement in this case is that while customers and many shareholders might embrace the shift to EVs, supplier groups and labor unions might not,” Snell writes. “Whatever strategies these auto companies take towards transformation, they need to consider — and engage wisely with — their associated stakeholders.”

Factor Three: Orchestrate Mobilization

Snell warns against a common pitfall in leadership: the tendency to approach changes incrementally. This step-by-step method, while intuitive, is often inadequate in today's rapidly evolving business landscape.

“This might have worked in the past, during an era of relative stability and linear change,” he explains. “However, today most truly strategic efforts cut across business units and functions, target both the top and bottom lines, and engage a substantial share of the workforce.”

Snell emphasizes that implementing changes in a piecemeal fashion not only results in a disjointed transformation but also significantly slows down the process. He cautions, “Change takes time, but slow change often equals no change.”

Factor Four: Cultivate Change Agility

Snell says agility is the most crucial factor for successful transformation, based on his work with senior executives. “Learn faster; act faster,” he summarizes. “That's the essence of agility.”

In today's challenging environment where change is constant, strategic transformation depends on being “continuously nimble and responsive.” However, Snell emphasizes that this factor is about “cultivating” change agility, a deliberate word choice. “The capacity to adapt quickly becomes an enduring characteristic of the organization's culture, and it needs to be developed and shaped over time.”