Not just a Leader - A Transformational Leader

The need for culture transformation can be driven by one or more factors: organizational growth, toxic organizational culture, poor top-level leadership, industry or technology changes, negativity, poor management, or even a lack of succession planning for an aging workforce. To change and transform culture, we must transform the individuals who make up the culture. Any time we are trying to create positive change, we find ourselves challenged to influence others to accept, buy in, and get on board with the transformation. In an uncertain world, one thing is certain: Leading positive transformation is challenging.

And, regardless of the cause, the effect is disastrous if the response isn’t sufficient to meet the challenge.

Transformation is a change in form, appearance, or character. Transformational leadership is being able to influence others to change their character, and therefore behavior. This can create positive change and culture transformation and also lead to organizational success far beyond any strategic goal.

Few people have a desire to truly become a transformational leader, and not all of those with a desire actually make it. Leadership requires sacrifice, character development, time, effort, energy, and putting others ahead of yourself. Transformational leadership isn’t about the title you have or the position you hold. It’s not about climbing to the top alone. It’s about summiting the top of the mountain, then intentionally going back down to find others who need help climbing to the top. Transformational leaders sacrifice personally in order to become significant in the lives of others. The challenges will be great, and the obstacles endless.

However, the reward is priceless. Transformational leadership is about making a difference in the lives of others. It’s about fulfilling your purpose and helping someone else unleash their potential. Transformational leadership is about refusing to accept good enough and going for great. As Jim Collins, author of Good to Great said, “Good is the enemy of great. And, that is one of the key reasons why we have so little that becomes great.”

Regardless of whether you are a CEO, director, HR professional, consultant, trainer, or talent development specialist, you have the opportunity to move beyond simply managing the tasks of your daily job and to influence others in a way that allows you to become a transformational leader. You have the opportunity to move from good to great personally, and professionally, when you accept the responsibility of becoming a transformational leader.

There are two requirements: personal transformation and a high level of positive influence. 

Personal Transformation

You must have undergone transformation yourself before you can lead others through it. Leadership isn’t about being a travel agent directing people to a place you may have never been. It’s about being a tour guide as you take them someplace you’ve already been. You cannot give someone something you don’t have to give. You can’t take them to the top of the mountain if you don’t know the way. 

High-Level Positive Influence

You must be able to influence others relative to improving their character by changing their values in a transformational and positive way. Influence is the essence of leadership, and positive influence is the key to transformational leadership because we are asking someone to follow us somewhere they have never been. Quite possibly, they don’t believe in themselves as much as we believe in their potential. We must be able to motivate them to change, and sustain that motivation until they become inspired enough to continue the journey without as much, or any, support. If it sounds hard and time-consuming, it is.

In truth, we cannot force someone to change their values. But, we can influence them. Our ability to coach and develop others not just in job competencies, but also on personal character, determines whether we become more than just a competent manager—whether we become someone who, regardless of formal level of authority, can take their organization from good to great.

Companies that claim to be “transforming” seem to be everywhere. But when you look more deeply into whether those organizations are truly redefining what they are and what they do, stories of successful change efforts are exceptionally rare. In a study of S&P 500 and Global 500 firms, our team found that those leading the most successful transformations, creating new offerings and business models to push into new growth markets, share common characteristics and strategies. Before describing those, let’s look at how we identified the exceptional firms that rose to the top of our ranking, a group we call the Transformation 10.

Whereas most business lists analyze companies by traditional metrics such as revenue or by subjective assessments such as “innovativeness,” our ranking evaluates the ability of leaders to strategically reposition the firm. Some companies that made the list were obvious choices; for example, the biggest online retailer now gets most of its profit from cloud services (Amazon). But others were surprising, given their states before embarking on transformation. The list includes a health care company that was once near bankruptcy (DaVita), a software firm whose stock price stagnated for a decade (Microsoft), a travel website that faced overwhelming competition (Priceline), a food giant that seemed to lose its focus (Danone), and a steel company that faced new pressure from lower-cost rivals (ThyssenKrupp).

We recruited a panel of expert judges (see the list below), who evaluated the companies through the lens of their own expertise and gauged which transformations were most durable and had the highest impact in their industries. (For more on our methods, see the sidebars below.) With these criteria in mind, our final list is as follows:

 Transformational CEOs Tend to be “Insider Outsiders”

The list is topped by companies headed by visionary founders with no prior experience in their industries; Jeff Bezos came from the world of finance, and Reed Hastings from software. As it turned out, having no predetermined way of doing things turned out to be an asset when it came to reinventing retailing and television, and these leaders kept that outsider’s perspective even through waves of growth.

We see an interesting pattern across the professionally managed companies, those whose CEOs were hired by the board. These CEOs are what we call “insider outsiders.” Make no mistake, they have substantial relevant experience. They had 14 years of tenure on average before getting the top job. That knowledge helped them understand how to make change happen inside an organization. Yet these executives also had an outsider role where they worked on an emerging growth business or consciously explored external opportunities, giving them critical distance from the core. After becoming CEO, that insider-outsider perspective helped them explore new paths to growth without being constrained by yesterday’s success formula.

Satya Nadella, for instance, joined Microsoft in 1992 and worked his way up to running its cloud computing effort, building that business unit into a viable new growth platform before becoming CEO, in 2014. He got the top job because of that, and then as CEO he accelerated cloud-business development to make it the company’s primary strategy.

The same was true of Adobe’s Shantanu Narayen. He joined the creativity applications vendor in 1997, and got the CEO job a decade later largely because he was able to articulate a vision for pursuing digital marketing services as the new growth path.

At Priceline, Glenn Fogel joined in 2000 and became head of strategy. Long before becoming CEO, in 2016, he was searching for new growth in the hypercompetitive travel reservations market, coming across a pair of small European startups with a business model opposite to Priceline’s in two key ways: Instead of taking an up-front 25% commission on a hotel reservation, the startups charged only 15% after check-out. Instead of focusing on major hotel brands, they pursued the long tail, engaging with more than 1 million inns, B&Bs, and apartment buildings in 200 countries. The result was the Booking.com platform. What started with a $200 million investment a decade ago now accounts for most of Priceline’s new growth as well as its rise past $80 billion in market valuation.

And at Danone, Emmanuel Faber, an insider for 17 years, won the CEO job, in 2014, because he was one of the architects of the firm’s 2020 vision to transform from a food and beverage conglomerate into a family health and medical nutrition company that emphasized sustainable agriculture. That vision prompted Danone to divest product lines such as biscuits and beer while broadening its core dairy franchise. For new growth, in 2007 Faber helped form a new business unit called Nutricia, anchored off a $17 billion acquisition, to pursue baby foods, protein bars, and health shakes. Today this unit accounts for 29% of revenue.

They Strategically Pursue Two Separate Journeys

Many firms that have tried to transform have failed. A common reason why is that leaders approach the change as one monolithic process, during which the old company becomes a new one. That doesn’t work for a host of practical reasons. An organization that grew up producing newspapers, for instance, not only lacks key skills to build a digital content company but also might actively resist embracing the new in order to protect the business it knows and loves.

Success requires repositioning the core business while actively investing in the new growth business.

Apple serves as the classic model of such “dual transformation.” With the iMac and iBook, Steve Jobs reinvigorated the core Macintosh franchise by injecting a new sense of design and rethinking what computers would be used for in the age of the internet. On a separate track, he launched the device and content ecosystem, starting with iPod and iTunes, that would become the company’s new growth engine.

It’s a strategy that has also worked for others on the list. While Amazon has expanded its core retailing platform into new categories, such as food and streaming content, in parallel it has built the world’s largest cloud computing enterprise. Amazon Web Services CEO Andy Jassy has been with the effort since it began as an internal challenge to scale IT infrastructure. Established as a separate division in 2006, AWS ultimately addressed a long-standing analyst complaint about Amazon — that its core was only barely profitable. Today AWS accounts for just 10% of Amazon’s $150 billion in revenue, but generates close to $1 billion in quarterly operating profit.

German steel maker ThyssenKrupp, facing pricing pressure from Asian competitors, likewise embraced a dual transformation strategy. In 2011 the board selected as the new CEO one of its own members, Heinrich Hiesinger, a Siemens executive with experience supplying technology to many industries. From day one, Hiesinger began executing a plan for repositioning the declining core of steel manufacturing by divesting less profitable product lines, focusing on higher-margin custom manufacturing, and even opening 3D printing centers to fashion components such as parts for wind turbines. For new growth areas that now make up 47% of sales, it moved into industrial solutions and digital services, creating systems such as internet-connected elevators.

They Use Culture Change to Drive Engagement

Microsoft is a case in point. In the four years since Satya Nadella came on as CEO, he has been credited with transforming Microsoft’s cautious, insular culture. In the old world, large teams would work for years on the next major version of a franchise program like Windows and Word, leading to a risk-averse environment. In the new world of “infrastructure on demand,” dozens of new features and improvements would need to be introduced per month — and no one would fully know ahead of time what they might be. This required a culture of risk taking and exploration.

In this way, Nadella was unlike his predecessors, in that he built his reputation as a hands-on engineer, not as a visionary like Bill Gates or a Type-A salesman like Steve Ballmer. Instead, Nadella was known for listening, learning, and analyzing. His idea of how to engage and motivate employees wasn’t by making a speech but rather by leading a company-wide hackathon, and empowering employees to work on projects they were passionate about. This new level of employee engagement has helped drive Microsoft’s expansion into cloud services and artificial intelligence, areas that now account for 32% of revenue.

They Communicate Powerful Narratives About the Future

To change the culture and move into new growth areas, the CEO needs to become “the storyteller in chief,” says Aetna’s Mark Bertolini. That means telling different aspects of the same transformation narrative to all the constituencies and stakeholders in the company.

“The CEO’s responsibility is to create a stark reality of what the future holds,” says Bertolini, “and then to build the plans for the organization to meet those realities.”

In Aetna’s case, this meant building a narrative of how the move away from fee-for-service reimbursement to the new business model of value-based care would change the nature of health insurance, and one day possibly render it obsolete. Instead of simply reinforcing the story about strengthening Aetna’s current businesss, Bertolini developed a narrative about building new skills to help consumers make better health choices — and about building a new organization that can make money doing so.

Telling that kind of story about the future is not a one-time event. “It’s easy to underestimate the amount of communication that is needed,” he adds. “You have to be tireless about it, consistent and persistent, and keep battering the core messages home week after week. Your leaders have to as well, and they have to tailor the message so it has the appropriate level of fidelity relevant to each part of the organization. A person working in a call center might need a different set of messages than a line manager does to understand how he docks into the big picture.”

They Develop a Road Map Before Disruption Takes Hold

Because dual transformations typically take years, we used a 10-year time frame in our analysis. Indeed, transformations often can’t be completed during the average tenure of a CEO. These long time horizons mean that there’s no time to waste in getting started. Many of the most notable disrupted companies — from Blockbuster, to Borders, to Blackberry, to Kodak — ran into their deepest troubles a decade or more after some of the first warning signs appeared. None of their leaders developed effective transformation plans in time to halt the decline.

At the other end of the spectrum is Reed Hastings of Netflix. Even as the original DVD-by-mail business grew quickly to dominate the industry, Hastings believed that a new wave of disruption could be rolling in. “My greatest fear at Netflix,” he says, “has been that we wouldn’t make the leap from success in DVDs to success in streaming.”

That’s why he laid the groundwork for a transformation as far back as 2007, when he started negotiating deals with Hollywood to test online streaming of movies and TV shows. Famously, Hastings moved too quickly to spin off the core and focus only on streaming, when Netflix announced plans in 2011 to create a stand-alone mail-based DVD company called Qwikster. This prompted a backlash from angry customers — and triggered a humbling apology from Hastings.

But the mistake he made was preferable to waiting too long. He reformulated his plan, this time to extend the life of the core DVD business while aggressively rolling out the new streaming service in parallel. It proved to be such a winning strategy that it funded a big move into original content. Now, with membership of 100 million homes in 190 countries, Netflix is the leader of a reconfigured movie and television landscape that it helped shape.

As all these cases show, transformation is not just about changing an enterprise’s cost structure or turning analog processes into digital ones. Rather, it’s about pursuing a multiphase strategy to reposition today’s business while finding new ways to grow.

Thanks for reading my blog.

Are you Leading?

Dr. Deepak A. Patil

CEO, Lead ThySelf