The Truth About Corporate Transformation

Empirical analysis reveals that conventional wisdom about big, risky change initiatives is often wrong.

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Corporate transformation sits atop the strategic agenda for many CEOs. While transformation is ideally undertaken preemptively, in practice it is much more commonly a reaction to changing — and challenging — circumstances. Such transformations represent a fundamental and risk-laden reboot of a company, with the goal of achieving a dramatic improvement in performance and altering its future trajectory.

Given the stakes, we were startled to find that the research underpinning the design and execution of corporate transformations is surprisingly thin. As a result, transformations are often guided by beliefs that, while seemingly plausible, are more anecdotal than empirical in nature. It’s time for a more evidence-based approach.

To study corporate transformation and its success factors, we analyzed financial and nonfinancial data of all U.S. public companies with $10 billion or more market cap between 2004 and 2016.1 We identified companies with a demonstrated need for fundamental change, namely, those companies with an annualized deterioration, relative to their industry average, in total shareholder return (TSR) of 10 percentage points or more over two years. This definition provided us with a large data set for empirical analysis including more than 300 companies across different industries over more than a decade.

Further, we trained a proprietary algorithm to quantify the strategic orientation of companies, based on semantic patterns within the “Management’s Discussion and Analysis” section of 70,000 10-K filings. We built a prediction model to identify formalized transformation programs, based on restructuring costs and major corporate announcements (as reported by Standard & Poor’s Financial Services LLC). And we conducted a multivariate regression analysis to determine the impact of a number of factors on change in TSR during transformations.

Empirical Patterns of Transformation

Our analysis reveals that leaders must be ready to transform their companies: At any given point in the 12-year period we studied, 32% of all large companies were experiencing a severe deterioration in TSR, and that share has stayed roughly constant in recent years. We also found that successful recovery from a severe episode of deterioration is the exception rather than the norm: Only one-quarter of the companies were able to outperform their industry in the short and long run after the point of deterioration.



1. Excluding the energy sector, due to outsized impact of volatility in energy prices.

2. Defined as one year and five years after the point of deterioration.

3. Using S&P Capital IQ data, we determined the average change in competitive ranking (by sales) for all companies within each industry group. The type of environment is based upon that average change. The changes are weighted by rank so that shifts at the top have a higher impact (e.g., going from 1 to 3 is a larger change than going from 11 to 13).

4. M. Reeves, K. Goulet, G. Walter, and M. Shanahan, “Why Transformation Needs a Second Chapter,” BCG, Oct. 21, 2013,

5. We define “above-average R&D spending” as having a higher ratio of R&D/sales than the industry average based on our analysis of S&P Capital IQ data.

6. J.L. Bower, “Solve the Succession Crisis by Growing Inside-Outside Leaders,” Harvard Business Review 85, no. 7 (November 2007),

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Comments (2)
Robert Jones
With perhaps a bit more straightforwardness, "change" and "transformation" are more or less rhetorical unless there is a clear "from" and "to" involved. To that point, success can only be assessed if there's a fixed point or state clearly defined, targeted, and achieved to at least some degree. The real challenge today is that we're way beyond what used to be called "whitewater" modeling. This business environment almost feels like freefall. No matter what fixed point or state we achieve, it's moot on January 1, 201x, or until the next major surprise environmental change. In other words, our targets often move or even disappear before we get there.
Venugopal Chepur
A lot of companies don't understand the difference between 'Change' and 'Transformation' and what it entails to transform. This ignorance (and resulting hindrance to learning and unlearning) causes a lot of damage inadvertently! And consequently, fail to view the "multiplier" effects on both ways (on p&L and lifetime value) and to reinvent! Yes. Change (of mindset and commitment) has to start at the top and go through an upwelling cycle!