Does Your Organization Have the Energy to Transform?

In conversations with senior leaders, a common theme emerges: Their teams are feeling exhausted. Companies are contending with relentless pressures on multiple fronts, such as shifting consumer preferences, technological advancements, environmental concerns, economic policies, and geopolitical shifts. Navigating this upheaval necessitates change, which inevitably disrupts established routines. Many organizations struggle to cope, eventually succumbing to fatigue and, in severe cases, burnout.

Neglecting organizational energy is a luxury companies cannot afford. Continuous transformation is imperative for companies to successfully navigate the increasingly volatile external environment. However, transformation entails significant change, and change is inherently disruptive. Without diligent management, this disruption can become debilitating, eroding a company’s ability to transform effectively.

Our research into the primary factors that influence the success or failure of transformation efforts and experience supporting effective change programs underscore four pivotal steps in managing organizational energy to facilitate successful business transformation:

1. Understand the organization’s change capacity
   
   Each individual or team possesses a threshold for tolerating disruption — a limit we term “change capacity.” Like adding more water to a saturated sponge, overwhelming the same team with simultaneous disruptions to its routines invariably leads to signs of overload and diminished performance. Prolonged disruption depletes organizational energy, culminating in fatigue or even paralysis. We’ve found that if the same organization is asked to change more than two primary routines simultaneously, the odds of failure increase significantly.
   
   Consider go-to-market transformations, for example. Dramatic increases in sales force productivity often demand changes to how a company manages its existing accounts and prospects. This frequently entails altering sales territories. However, simply enhancing coverage is rarely sufficient. Often, changes to the products that salespeople represent must also take place, which typically necessitates adjustments in the composition of account teams, introducing many new players. Implementing all these changes simultaneously would disrupt numerous established routines. Asking a sales force to navigate through these concurrent disruptions risks exceeding the group’s change capacity, thereby adversely impacting sales productivity and overall business performance.
   

2. Measure and manage disruption meticulously
   
   Leaders spearheading major change efforts should strategically sequence important initiatives to prevent overwhelming the organization with a flurry of simultaneous changes. Clear and consistent communication plays a pivotal role in providing individuals and teams with an understanding of impending changes, empowering them with a greater sense of control amid uncertainty. Finally, allocating additional resources to support those impacted by changes is also imperative. By doing so, leaders can alleviate the mental and operational burden on individuals and teams, allowing them to dedicate their energies toward adaptation and innovation.
   
   Leadership plays a crucial role in ensuring that unnecessary work is either deferred or eliminated entirely, enabling the organization to focus its efforts on the ongoing transformation. Communication strategies should emphasize not only the “what” and “why” of transformation, but also the “how,” including the strategic sequencing of critical efforts. Describing the destination is necessary but not sufficient; teams must also grasp the journey and their position along the path to effectively prioritize their work day-to-day.
   
   In our feature article for Harvard Business Review entitled “Transformations That Work,” we spotlight the extraordinary turnaround of Virgin Australia as a prime example. In April 2020, at the start of the Covid-19 pandemic, the airline filed for voluntary administration as a bankrupt carrier. By September 2020, US private equity firm Bain Capital (an entirely separate entity from our firm) had acquired Virgin, and by November, Jayne Hrdlicka was appointed CEO. In less than three years, Virgin Australia returned to profitability as a much leaner, mid-market airline, with a larger fleet, many new routes, and a reimagined customer experience.
   
   The pace and scale of the changes needed to quickly revitalize Virgin Australia could have been overwhelming, were it not for leadership’s diligent focus on managing organizational energy and minimizing disruption. Leadership meticulously evaluated how each change would impact employees and strategically sequenced the hundreds of initiatives involved, ensuring no single part of the organization was overly burdened at any given time. Non-essential or lower-priority efforts were either temporarily postponed or permanently shelved, freeing up organizational capacity. This strategic prioritization and targeted approach enabled Virgin Australia to swiftly progress without overwhelming its workforce.
   

3. Recognize and reward success
   
   Recognition and rewards serve as potent catalysts for energizing change efforts. While minimizing disruption is crucial, sustaining a transformation requires more. The transformation journey itself should evoke energy and enthusiasm, with rewards playing a pivotal role. Our research highlights the potency of recognition and reward in positively influencing behavior, indicating that they have four times the impact of penalizing undesirable behaviors. It falls upon leaders to establish effective mechanisms for identifying individuals and teams that demonstrate positive adaptation in their routines, thereby offering explicit recognition and rewards to maintain the momentum of transformation.
   
   Importantly, rewards need not always be monetary, as not everyone is motivated solely by financial incentives. Understanding the unique “currency” that resonates with each individual or team is critical. For some, it could be the public acknowledgment received at a town hall meeting. For others, it might be the opportunity for new career pathways or avenues for professional development. And, of course, for some, financial rewards and compensation may be the primary motivator. Whatever the preferred currency, individuals and teams must share in the benefits of the company’s transformation, rather than solely bearing the burden of executing the necessary changes. By aligning rewards with individual motivations and ensuring everyone sees the personal benefits of transformation, organizations can foster a culture of engagement and commitment, driving sustained progress toward their goals.
   
   Consider the recent resurgence of the fast-food chain Chipotle under the leadership of CEO Brian Niccol. In 2016, Chipotle experienced a significant decline in system-wide sales due to food safety incidents at its restaurants. However, since Niccol took over as CEO in early 2018, Chipotle’s sales have consistently grown. Alongside implementing an improved food safety program, which includes DNA testing ingredients before they reach restaurants, altering food preparation and handling procedures, and providing paid sick leave to discourage ill employees from working, Niccol has strategically focused on advancing the brand’s mission of “Cultivating a Better World.” He has steered the company’s efforts toward enhancing visibility, expanding accessibility, fostering innovation, and promoting engagement among both employees and customers.
   
   Another crucial aspect of the transformation is Chipotle’s crew bonus program, which provides hourly employees the opportunity to earn up to an additional month’s pay annually. To qualify for the quarterly bonus program, restaurant teams must meet specific criteria linked to Chipotle’s marketplace success, particularly sales and throughput. Additionally, Chipotle has intensified in-store training for its managers aimed at improving connectedness and enhancing store productivity. This collaborative “work together to win together” program has helped to reinvigorate the workforce, boost crew productivity, and revitalize the Chipotle brand.
   
   In the fourth quarter of 2023, Chipotle saw a notable 8.4% increase in same-store sales, outpacing rivals McDonald’s and Starbucks, coupled with a 7.4% rise in foot traffic, bucking an industry-wide trend of declining visits.
   

4. Expand change capacity
   
   A company’s capacity for change isn’t fixed but rather fluctuates over time. Fortunately, there are practical strategies to boost an organization’s ability to adapt, responding to change more efficiently and with less strain.
   
   Streamlining decision-making processes and empowering individuals can help reduce resistance when implementing important changes. One major U.S. retailer exemplified this approach when rolling out a new, geographically tailored, merchandising strategy across hundreds of stores. By standardizing merchandising procedures across all locations and entrusting more location-specific product and positioning decisions to frontlineassociates, the company involved a broader segment of its workforce in the change effort, significantly augmenting its overall change capacity.
   
   Cohesive teams exhibit greater productivity and responsiveness to changes. Drawing a comparison, Special Forces units demonstrate superior adaptability compared to standard platoons. By assembling well-aligned teams and deploying them to execute pivotal aspects of the transformation, leadership can bolster the entire organization’s capacity for change.
   
   Finally, leaders can proactively nurture resilience within their organization. In talent acquisition endeavors, priority can be given to individuals who demonstrate resilience in the face of disruption. For instance, individuals with sales experience often showcase a greater capacity to rebound from temporary setbacks compared to those lacking such experience. Development programs can then be customized to underscore adaptability as a critical skill. Furthermore, rewards, including pathways for career advancement, should be structured to recognize and retain employees who have proven their ability to excel in an environment characterized by continual change.

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Continuous transformation is imperative yet taxing. For most companies, organizational energy is the limiting factor in the speed and success of their transformation efforts. Leaders must diligently measure and manage change capacity to fully realize the full potential of business transformation.

Copyright 2024 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.

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