Why Company Transformation Often Fails at the Human Level

David: Boards and senior executives are navigating a world where strategy ages quickly, talent is stretched thin, and technology is reshaping leadership itself. In this season of Pearl Meyer Unscripted, we’re exploring the real conversations happening today in boardrooms and the C-suite, and the new rules and adaptations required for executive leaders to be effective. 

Today's episode, ‘Why Company Transformation Often Fails at the Human Level.’ Transformation is often described in strategic terms: portfolio shifts, digital investments, operating model redesigns, margin enhancement programs. Investors underwrite the targets, boards approve the plan, management launches the initiative. But when large-scale performance improvement efforts fail, it's rarely because the math was wrong. It's because the organization couldn't absorb the change.

In many high-profile turnarounds and margin expansion programs, the limiting factor isn't strategy. It's leadership alignment, talent depth, incentives, and organizational resistance. The human capital system simply doesn't support the financial ambition. 

In this episode, we'll explore what it really takes for boards and CEOs to drive significant performance improvements. We'll look at the predictable organizational failure points, where transformation efforts stall, and how leaders can ensure that value creation plans are actually executable, not just aspirational.

I'm excited to have with me today, Jeff Lagomarsino. Jeff is a managing director at Pearl Meyer and a decorated expert in helping clients traverse the tricky waters of large-scale transformation, with a particular emphasis on the human and organizational aspects as key success factors. Jeff, thanks for joining today, and thanks for your time.

Jeff: Glad to be here with you, David. Excited for the conversation.

David: Let's start with some context setting. When does performance improvement, or a company operating model shift, become a full organizational transformation? Not just an operational initiative.

Jeff: Yeah, that's a great question, David. Because the word transformation gets thrown around a lot. It's a common buzzword. So, it's helpful to be specific. I think of a capital T transformation as an approach to achieving the organization's full potential. It's an enterprise-wide and time-bound effort that delivers a true step change in performance. And it's a step change that the organization can then sustain going forward. So, this isn't about, you know, three to five percent efficiency gains, this is about material value creation, often 20% plus improvement in earnings, for example. And there's a few clear signals that this has become an enterprise-wide capital T transformation.

First, the required improvement is large enough that demands multiple levers at once and often working together. So typically, across growth, cost, working capital, productivity, sometimes pricing and portfolio.

The second is that it needs to be enterprise-wide to work because the outcomes depend on cross-functional trade-offs, shared ownership, and having a single set of priorities in the organization. 

Then lastly, doing all the things I just mentioned requires addressing key issues related to the talent and organizational effectiveness.

So, in short, you need a capital T transformation when the size of the performance gap forces you to change how the company operates, how work gets done, not just what it works on.

David: Makes sense and I really like the capital T transformation concept. Moving on from that, where do these capital T transformation efforts break down? Is it leadership alignment, talent gaps, resistance at the middle management level or something else?

Jeff: Yeah, David, so great question. I've been involved in dozens of transformations and the first thing that comes to mind when I'm asked that question is the opening line of Anna Karenina by Leo Tolstoy, “all happy families are alike. Each unhappy family is unhappy in its own way.” I hope I got that right. 

But let me start the answer to your question by describing what all the happy organizations do well. That is the ones that achieve or surpass their transformation goals. You can really boil it down to three main things they get right: commitment, capability, and discipline.

And starting with the concept of commitment, we already talked about the scope of a capital T transformation and the importance of it capturing what's required to achieve the organization's full potential. The question is, are the people in the organization truly committed to achieving that bold aspiration? And of course, commitment starts with the board and the top management team and begins as early as target setting. But ultimately that commitment has to be shared by the broader organization, i.e., all the people who are actually going to do the work to execute it. And surveys show that some 50% of transformation leaders wish they had spent more time building the necessary alignment at both the top and throughout the organization.

Commitment at the top often requires going from a team of leaders to a leadership team. And what that means is, often you have a group of leaders who are focused on achieving their respective individual goals. You want to go to a group that's focused on the enterprise goals. And boards and CEOs often under-invest at their own peril in the work and trust-building that's required to accomplish that. But as hard as that is, really the more difficult challenge is what I mentioned around building the individual and collective commitment across the entire organization. And any leader who's communicated to their organization that “we're embarking on a transformation,” they know the "here we go again," eye rolls that they get as soon as the word transformation is mentioned. Most people have been through a transformation before. And for folks with some tenure, they've probably been through several of them. And research, again, shows upwards of 70% of transformations failed to meet their goals. So those eye rolls that people are giving you, they're in fact justified. 

As a CEO, you need your entire leadership team to have a compelling answer to why this time the transformation is going to be different. And then leaders need to proactively share that change story with their teams and connect it to the ‘what's in it for me?’ question that everyone's asking. And most certainly, people have different answers to that question of what's in it for them. So, in a nutshell, that's commitment.

The next success factor I mentioned is capability. And commitment to a bold aspiration, that won't take you very far unless you have the people, the knowledge, the skills and behaviors to execute it. And this, of course, starts with having top talent. You need to aid players in the roles that create disproportionate value. But it also means that you've got to invest to identify and build the skills and behaviors, particularly in your leadership ranks, but ideally in a much broader swath of the organization that's involved in the execution. 

Then lastly, that brings us to discipline, which first and foremost includes the performance infrastructure of the transformation. So, think of the processes, the governance, the cadence, the tools, all the stuff that turns ideas and initiatives into delivered results that hit the bottom line. Setting up and running an effective transformation office, the TO, that's the most critical component of this. You have to get that right.

But organizations with the most successful transformations, they do more than just set up and run an effective transformation office. They also embed the transformation goals into a lot of the business-as-usual stuff. All those transformation goals and performance reviews. Do they align leader financial incentives to the transformation specific outcomes? Again, this is an area where organizations tend to think too narrowly. They under invest and, you know, can tend to do what's easy at times.

David: It’s a complex recipe is what I'm taking away. And maybe this isn't an easy question, or answer, but given your vantage point from the center of so many transformations, given the complexity, what are some early warning signs of potential failure ahead?

Jeff: Yeah, so the unhappy organizations, the ones that fail to achieve their transformation goals, they get any number of things wrong from the outset. And what happens is, given the complexity of transforming an organization, mistakes tend to compound and it becomes death by a thousand paper cuts. So, as the CEO and CTRO, you've got to imagine everyone in the organization is trying to read the tea leaves.

They're trying to see—is this transformation going to be a success or a failure? And based on what they see around them, they're constantly recalibrating their commitment to what they're being asked to do. And even those small failures begin to accumulate, creating the skeptics to gain more influence. And those who want to share the aspiration and commitment are now starting to waver. Frustration mounts, fingers start to get pointed, and it becomes extremely difficult to right the ship and change course once that happens. And so, in failed transformations, if you polled the organization, you'd probably get a hundred different answers to why the transformation fails. But I'll give you two specific early warning signs that I've noticed.

The first is when an organization wants to use their PMO to run the transformation. Or if they want to staff the transformation office primarily with people from their PMO. This is a walk away sign for me. It's a clear indication that the leadership doesn't understand or is not committed to the holistic approach needed to transform the organization. PMOs track activity, they manage dependencies, they report status. A transformation office must do that, but more so, they also have to drive outcomes, they have to remove roadblocks, they've got to change the speed and performance standard of the organization. That requires a CTRO who reports directly to the CEO and who drives a rigorous weekly cadence where problems get solved in the room, decisions are made, and activity translates to actual operational and financial results.

The second example is when senior leaders, particularly the CEO and CTRO fail to create a culture of issue transparency and what I call poll-based engagement. So, in other words, they're constantly trying to push down accountability in the organization. The CTRO is trying to push down accountability on the initiative owners, instead of empowering initiative owners to use the transformation office to solve their problems.

I'll share a story where I saw this, I think it exemplifies the challenge. I was working with a PE portfolio company, and it was about three years into the whole period, and the value creation plan was off track. So, they embarked on an enterprise-wide transformation. At the surface level, everything was off to a textbook start in terms of, you know, commitment, capability, discipline, all the good stuff we mentioned before, all the boxes were checked. But six weeks into implementation of the transformation, we nonetheless started to see some of the quick-win initiatives hadn't actually delivered their financial impact. And across the board, we were seeing delayed or missed milestones just piling up. And, you know, as you can imagine, given the dependency between initiatives, the knock-on effects of each of these delays were bad and frustration was growing across the organization.

It was too early to panic, but you could feel the positive momentum dissipating. And the chief transformation officer, who was a very competent guy, and was running a rigorous weekly cadence with all the work streams. One of his biggest frustrations was that in the weekly TO meetings, many initiatives were presented as on track or green until suddenly a milestone was delayed or missed. And then they all switched to red. And despite his best efforts at probing and getting ahead of the issues to solve them, he wasn't able to do it effectively at scale, the ‘at scale’ being the key part. There just wasn't time in the day for him to get under the surface of all the potential problems and the initiatives of the transformation. And he was pushing hard to hold people accountable, but he was failing.

And so, I said to him, this is the classic "watermelon status" problem. They are watermelons because they're green on the outside and they're red on the inside. We had an offsite coming up with the entire senior leadership team. And I said to the CTRO, I said, we need to have a conversation about psychological safety—and he could hardly believe that that was my response to his challenge. And, you know, David, I don't remember his exact words, but it was something to the effect of, I've got a CEO and a PE sponsor breathing down my neck as our company fights for its life, and you want to talk about psychological safety. 

It just doesn't come naturally. So, I managed to convince them that—psychological safety isn't about being nice. It's about creating an environment where people proactively share their concerns. They admit mistakes and they ask for help because that's what the organization and leadership rewards.

David: And presumably early enough, right? Because it sounds like everything was pushing to the very end in this example.

Jeff: Exactly. And this is a key cultural ingredient you need, combined with high accountability, for a transformation to be successful. If you have high accountability, but low psychological safety, as in this example, that creates anxiety, lack of transparency, and a transformation context that is not conducive to high performance.

Similarly, if you have strong psychological safety, but low accountability, then everyone's just chilling and comfortable, and that's not going to give you the performance edge either. So, you need both high accountability and psychological safety to get the people closest to the work feeling ownership and accountability over the outcomes and seeing the organization's leadership and the transformation office as supporting them to be successful. Once you've done that, you've unlocked something powerful. 

David: If I take it up a level, Jeff, and I think about advice that you'd give to boards and CEOs about what they really have to get right before they even embark on a big T transformation, as you call it. How would you answer that?

Jeff: Yeah, it all starts there. And it starts with the aspiration, really. You can't have a shared aspiration, you can't have a shared commitment, unless you start with a shared fact base about where the organization is today, what the current baseline trajectory looks like, and what needs to change to achieve the full potential. So, the challenge is that the board, the CEO, the broader C-suite, they all have their own biases and unique perspectives on the problem that the organization faces. 

They are all smart people who can make the arguments well. So, it's tough to get alignment. And even if they are aligned, there's a good chance that if you speak to people one or two levels down in the organization, they have a radically different perspective. So, typically, David, there's a strong case for getting an independent objective assessment of the organization's readiness for a transformation. And once everyone is looking at those objective facts, there can be a productive debate about what to prioritize and what the solution should look like.

David: Jeff, I think I know where you're going to go on this last question I have for you today, but for companies that are getting ready to embark on large-scale transformation, what is one assumption that boards and CEOs need to eliminate from their minds right now?

Jeff: Yeah, David. So, I'd say it quite simply. Organizations don't transform; people transform. So, if you want to achieve that step change and performance, you've got to be laser focused on what are your people issues that you need to address and how you get that organizational alignment.

David: Jeff, thank you so much for your time today, and I look forward to working with you as we go forward.

Jeff: Happy to have the conversation. Thank you, David.

David: My thanks again to Jeff for his insights on the importance of getting the people aspect of organizational transformation right. On our next episode, we’ll discuss how corporate culture influences organizational performance and can play a major role in creating long-term company value. We’ll also explore how the tone at the top influences decision-making, accountability, and the employee experience across the organization. My colleague Lisa Shall will join me to examine how culture and these related dynamics can play a key role in creating organizational alignment. I hope you’ll join us.