10 PRINCIPLES

COLLECTION
INSIDE: 10
principles of workforce transformation /
modernizing your company’s technology / leading change
management…AND MORE
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 CONTENTS

STRATEGY
5 10 principles of strategy
through execution
by Ivan de Souza, Richard Kauffeld,
and David van Oss

STRATEGY

33 10 principles of strategic
leadership
by Jessica Leitch, David Lancefield,
and Mark Dawson

STRATEGY

54 10 principles of
customer strategy
by Thomas Ripsam
and Louis Bouquet

ORGANIZATIONS & PEOPLE

77 10 principles of
organization design
by Gary L. Neilson, Jaime Estupiñán,
and Bhushan Sethi

98 ORGANIZATIONS & PEOPLE

10 principles of
organizational DNA
by Jaime Estupiñán
and Gary L. Neilson
 ORGANIZATIONS & PEOPLE
107 10 principles of
organizational culture
by Jon Katzenbach, Carolin Oelschlegel,
and James Thomas

ORGANIZATIONS & PEOPLE

131 10 principles of leading
change management
by DeAnne Aguirre
and Micah Alpern

ORGANIZATIONS & PEOPLE

151 10 principles of workforce
transformation
by Deniz Caglar
and Carrie Duarte

TECHNOLOGY
178 10 principles for winning
the game of digital disruption
by Mathias Herzog, Tom Puthiyamadam,
and Nils Naujok

TECHNOLOGY
206 10 principles for leading
the next industrial revolution
by Norbert Schwieters
and Bob Moritz

TECHNOLOGY
234 10 principles for modernizing
your company’s technology
by Leon Cooper
and Milan Vyas

262 About the authors

INTRODUCTION

A principled approach
to tackling the toughest
leadership challenges
by Theodore Kinni

The questions that most vex corporate leaders are usually

the ones without established answers. What should your
company’s strategy be and how will you make it manifest?
What is the best design and culture for your organization?
How will you use digital technologies to achieve the strat-
egy and support the workforce?
What makes these questions so thorny isn’t only the
need to formulate answers that are unique to your com-
pany, it’s also that the answers usually have many mov-
ing parts and require lots of organizational effort, invest-
ment, and commitment. Thus, even though the best
answers may seem elegantly simple and obvious when
examined through the sparkling-clear lens of 20/20
hindsight, they almost always entail a high degree of cor-
porate and career risk.
When questions are complex, you need guiding prin-
1 Introduction: A principled approach to tackling the toughest leadership challenges
ciples that can help you navigate your way to the best
answers for your company. Over the past six years, in
a series of popular articles published in the pages of
strategy+business, PwC network partners and advisors,
including several from Strategy&, PwC’s global strategy
consulting business, have tapped into their deep wells of
experience and knowledge to articulate many of these
principles. This e-book collects 11 of these widely read
and much-shared articles. Each offers 10 principles for
tackling some of the toughest challenges that leaders face.
The first set of articles in this collection home in on
the perennial challenge of strategic success. “10 principles
of strategy through execution” offers guidelines for setting
a suitably ambitious strategy and pursuing it with an un-
erring dedication to excellence. How to combine organi-
zational systems and individual capabilities in ways that
unleash the strategic leader in every employee is explained
in “10 principles of strategic leadership.” “10 principles of
customer strategy” shows how to ensure that your strat-
egy is translated into the distinctive value and experienc-
es that win customers and keep them coming back.
The second set of articles explore key issues in organi-
zation design and culture — essential supports of suc-
cessful strategic transformation. “10 principles of organi-
2 Introduction: A principled approach to tackling the toughest leadership challenges
zation design” goes beyond the lines and boxes of an org
chart to explain how your company’s fundamental build-
ing blocks can be reconfigured to achieve strategy. “10
principles of organizational DNA” examines the formal and
informal elements that define a company’s “personality”
and hold the key to its performance.
How to make sure the established and hard-to-change
patterns of behavior inside your company are working
for, not against, your strategy is the topic of “10 principles
of organizational culture.” And “10 principles of leading
change management” covers how to enlist people in major
change efforts and avoid the pitfalls that cause many
change initiatives to founder. “10 principles of workforce
transformation” offers guidelines for creating a workforce
that is capable of adapting to fast-changing conditions
and technologies.
The final set of articles in this e-book explore a third
essential support of strategic success in this era: digitiza-
tion. “10 principles for winning the game of digital disruption”
explains how to embed digital technology in your com-
pany’s strategy — enabling the delivery of customer value
in ways that you couldn’t before and ensuring that com-
petitors don’t beat you to the party. Advice for navigating
the new technologies that continue to emerge and evolve
3 Introduction: A principled approach to tackling the toughest leadership challenges
and putting them to work for your company is offered
in “10 principles for leading the next industrial revolution.” Fi-
nally, “10 principles for modernizing your company’s technol-
ogy” spells out how to grasp the promise of digitization
on the run with guidelines for integrating it with your
legacy systems and priming the way for the adoption of
new technologies as they appear.
I hope that you find the articles collected in the pages
that follow as useful as did the many leaders who read
them when they first appeared in strategy+business. You
can dip into them selectively as you consider how to ad-
dress specific issues in your company, or, if you have more
time, you can read it cover to cover.
If you read it all, I think you may discover that there
are connections between the articles that are as eye-
opening as the individual principles they espouse. These
connections illuminate the ways in which strategy, orga-
nization design and culture, and technology work to-
gether to drive corporate and career success.

4 Introduction: A principled approach to tackling the toughest leadership challenges

STRATEGY

10 principles of
strategy through
execution
How to link where your company is
headed with what it does best.

by Ivan de Souza, Richard Kauffeld, and David van Oss

5 10 principles of strategy through execution

 Originally published by s+b
on Feb. 13, 2017

Fit for Growth is a registered

service mark of PwC’s Strategy&
LLC in the United States.

We are all in the gutter,” wrote Oscar Wilde, “but some of us

are looking at the stars.” That is the nature of strategy
through execution. You operate deep in the weeds, man-
aging countless day-to-day tasks and transactions. At the
same time, you keep a steady gaze on your company’s long-
term goals — and on ways you can stand out from your
competitors.
Having a close link between strategy and execution is
critically important. Your strategy is your promise to de-
Illustration on previous page by Andrew Bannecker.

liver value: the things you do for customers, now and in

the future, that no other company can do as well. Your ex-
ecution occurs in the thousands of decisions made each
day by people at every level of your company.
Quality, innovation, profitability, and growth all depend
on having strategy and execution fit together seamlessly. If
they don’t fit — if you can’t deliberately align them in a co-
6 10 principles of strategy through execution
herent way — you risk operating at cross-purposes and los-
ing your focus. This problem is all too common. In a recent
global survey by Strategy&, PwC’s strategy consulting busi-
ness, 700 business executives were asked to rate their com-
pany’s top leaders in terms of their skill at strategy creation
and at execution. Only 8 percent were credited as being very
effective at both.
Strategy& has been studying the relationship between
strategy and execution for years. We have found that the
most iconic enterprises — companies such as Apple, Ama-
zon, Danaher, IKEA, Starbucks, and the Chinese appliance
manufacturer Haier, all of which compete successfully time
after time — are exceptionally coherent. They put forth a
clear winning value proposition, backed up by distinctive
capabilities, and apply this mix of strategy and execution to
everything they do.
Any company can follow the same path as these success-
ful firms, and an increasing number of companies are doing
just that. If you join them, you will need to cultivate the
ability to translate the strategic into the everyday. This means
linking strategy and execution closely together by creating
distinctive, complex capabilities that set your company
apart, and applying them to every product and service in
your portfolio. These capabilities combine all the elements
7 10 principles of strategy through execution
of execution — technology, human skills, processes, and
organizational structures — to deliver your company’s cho-
sen value proposition.
How do you accomplish this on a day-to-day basis? How
do you get the strategists and implementers in your com-
pany to work together effectively? These 10 principles, de-
rived from our experience at Strategy&, can help you avoid
common pitfalls and accelerate your progress. For compa-
nies that truly embrace strategy through execution, princi-
ples like these become a way of life.

1. Aim high. Don’t compromise your strategy or your exe-

cution. Set a lofty ambition for your strategy: not just fi-
nancial success but sustained value creation, making a
better world through your products, services, and pres-
ence. Apple’s early goal of making “a computer for the
rest of us,” which effectively shaped the personal com-
puter industry, is a classic example.
Next, aim just as high on the execution side, with a
dedication to excellence that seems almost obsessive to
outsiders. Apple, for instance, has long been known for its
intensive interest in every aspect of product design and
marketing, iterating endlessly until its notoriously de-
manding leaders are satisfied. The company’s leaders do
8 10 principles of strategy through execution
 A guide to
strategy through
execution
1 2 3 4 5
Aim high. Build on your Be ambidextrous. Clarify everyone’s Align structures
strengths. strategic role. to strategy.

6 7 8 9 10
Transcend Become a fully Keep it simple, Shape your Cultivate collective
functional digital enterprise. sometimes. value chain. mastery.
barriers.

Infographic: Opto Design / Lars Leetaru. ©2017 PwC. All rights reserved.

9 10 principles of strategy through execution

not consider execution beneath them; it is part of what
makes Apple special.
Together, a strong long-term strategy and a fierce
commitment to excellent execution can transform not
only a company, but a regional economy. After the 1992
Olympics in Barcelona, a group of local political and
business leaders realized, with some disappointment, that
the event hadn’t triggered the economic growth they had
expected. So they resolved to change the region’s econo-
my in other ways. Led by the mayor, the group created a
common base of technologies and practices and set up
training programs for local enterprises. By 2014, after
two decades of persistent effort, the city had become a
hub for research and technology companies. One legacy
of the Olympics is a group of about 600 sports-related
companies with a collective annual revenue of US$3 bil-
lion and 20,000 employees.
In carrying out this first principle, the top executives
of your company must lead the way. They must learn to
set lofty goals, establish a clear message about why those
goals are relevant, and stick to them without compromise.
This may take a while, because lofty goals require patience.
You need to persevere without lowering your standards,
and you need the confidence to believe you can reach the
10 10 principles of strategy through execution
goals soon enough. Leaders must demonstrate that cour-
age and commitment, or no one else will. At the same
time, don’t be surprised if the rewards start to appear
sooner than you expect — both financial rewards and the
intrinsic pleasure of working with highly capable people
on relevant projects. With high aspirations (for example,
IKEA’s goal of “creating a better everyday life for the many
people” or Amazon’s self-proclaimed role as the “every-
thing store”), you recruit talented people who are deeply
committed to being there. That’s one way you’ll know
that you’re aiming high enough: The whole organization
will start to feel like a better place to work.

2. Build on your strengths.Your company has capabilities

that set it apart, things you do better than anyone else.
You can use them as a starting point to create greater suc-
cess. Yet more likely than not, your strongest capabilities
have been obscured over the years. If, like most compa-
nies, you pursue opportunities that crop up without think-
ing much about whether you have the prowess needed to
capture them, you can gradually lose sight of what you do
best, or why customers respond to it.
Take an inventory of your most distinctive capabilities.
Look for examples where you have excelled as a company,
11 10 principles of strategy through execution
achieving greatly desired outcomes without heroic efforts.
Articulate all the different things that had to happen to
make these capabilities work, and figure out what it will
take to build on your strengths, so that you can succeed
the same way more consistently in the future.
Sometimes a particular episode will bring to light new
ways of building on your strengths. That’s what happened
at Bombardier Transportation, a division of a Canadian
firm and one of the world’s largest manufacturers of rail-
road equipment. To win a highly competitive bid for sup-
plying 66 passenger train cars to a British rail operator,
Bombardier shifted its manufacturing and commercial
models to a platform-based approach, which allowed it to
use and reuse the same designs for several different types of
railway cars. “Platforming,” which was a new operational
strategy for the industry, required adjustments to Bombar-
dier’s supplier relationships and product engineering prac-
tices. But the benefits were immediate: lower costs, less
technology risk, faster time-to-market, and better reliability.
Bombardier won the bid — and, more importantly,
learned from the experience, making the episode a model
for other bids and contracts. When some Bombardier engi-
neers complained about the platform approach on the
grounds that it curtailed their creativity, the leadership had
12 10 principles of strategy through execution
an immediate answer: The platform demonstrated capa-
bilities that competitors couldn’t match and the company’s
creativity could be focused on innovation. Additional con-
tracts soon followed.
The more knowledge you have about your own capa-
bilities, the more opportunities you’ll have to build on your
strengths. So you should always be analyzing what you do
best, gathering data about your practices, and conducting
postmortems. In every case, there is something to learn —
about your operations, and also about the choices you make
and the value you’re able to deliver.

3. Be ambidextrous. In the physical world, ambidexterity is

the ability to use both hands with equal skill and versatil-
ity. In business, it’s the ability to manage strategy and ex-
ecution with equal competence. In some companies, this
is known as being “bilingual”: able to speak the language
of the boardroom and the shop floor or software center
with equal facility. Ambidextrous managers can think
about the technical and operational details of a project in
depth and then, without missing a beat, can consider its
broader ramifications for the industry. If strategy through
execution is to become a reality, people across the enter-
prise need to master ambidexterity.
13 10 principles of strategy through execution
 Lack of ambidexterity can be a key factor in chronic
problems. For instance, if IT professionals focus only
on execution when they manage ERP upgrades or the
adoption of new applications, they may be drawn to
vendors for their low rates or expertise on specific plat-
forms instead of their ability to design solutions that
support the company’s business strategy. When the in-
stallation fails to deliver the capabilities that the com-
pany needs, there will be an unplanned revision; the
costs will balloon accordingly, and the purchase won’t
fulfill its promise.
We recognize, of course, that not everyone needs to be
equally conversant in the company’s strategy. A typical
paper goods manufacturer, for example, employs chemists
who research hydrogen bonds to discover ways to make
paper towels more absorbent. They may not need to spend
much time debating strategy in the abstract, but they do
need to be aware of how their role fits in. Like the apocry-
phal bricklayer who sees himself as building a cathedral,
the highly skilled technologists on your team must recog-
nize that they are not merely fulfilling a spec but rather
developing a technology unlike anyone else’s, for the sake
of building highly distinctive capabilities. They might
even help figure out what those capabilities should be.
14 10 principles of strategy through execution
 Similarly, your top leaders don’t have to be experts on
hydrogen bonds or cloud-based SQL server hosting, but
they do have to be conversant enough with technological
and operational details to make the right high-level deci-
sions. No longer can a senior executive credibly say, “I
don’t use computers. My staff is my computer.” If your
leaders aren’t ambidextrous, they risk being eclipsed or
outperformed by someone who is.
In The Self-Made Billionaire Effect: How Extreme Pro-
ducers Create Massive Value (Portfolio, 2014), John Svio-
kla and Mitch Cohen suggest using the word producers to
describe ambidextrous individuals. Self-made billionaires,
such as Spanx founder Sara Blakely, POM Wonderful
cofounder Lynda Resnick, Uniqlo founder Tadashi Ya-
nai, and Morningstar founder Joe Manseuto have this
quality. They can both envision a blockbuster strategy
and figure out in detail how to develop and sell it to cus-
tomers. There are similarly ambidextrous people in every
company, but they often go unappreciated. Find them,
recognize and reward them, and give them opportunities
to influence others.
Foster ambidexterity in practices and processes as
well as in people. For example, in your annual budget-
ing exercises, ask people to explain the relationship of
15 10 principles of strategy through execution
each line item to the company’s strategy, and specifically
to the capability it is enabling. Over time, this approach
will channel investments toward projects with a more
strategic rationale.

4. Clarify everyone’s strategic role. Whenthe leaders of the

General Authority of Civil Aviation (GACA) of Saudi
Arabia decided to improve the way they ran the coun-
try’s 25 airports, they started with the hub in Riyadh,
one of the largest airports in the country. They had al-
ready outsourced much of their activity, redesigning air-
port practices and enhancing operations. But not much
had changed. Convening the directors and some depart-
ment leaders, the head of the airport explained that some
seemingly minor operational issues — long customs
lines, slow boarding processes, and inadequate basic
amenities — were not just problems in execution. They
stood in the way of the country’s goal of becoming
a commercial and logistics hub for Africa, Asia, and
Europe. Individual airport employees, he added, could
make a difference.
The head of the airport then conducted in-depth ses-
sions with employees on breaking down silos and improv-
ing operations. In these sessions, he turned repeatedly to a
16 10 principles of strategy through execution
common theme: Each minor operational improvement
would affect the attractiveness of the country for com-
mercial travel and logistics. A wake-up call for staff, the
sessions marked a turning point for the airport’s opera-
tional success. Other airports in the Saudi system are now
expected to follow suit.
The people in your day-to-day operations — wherever
they are, and on whatever level — are continually called
upon to make decisions on behalf of the enterprise. If they
are not motivated to deliver the strategy, the strategy won’t
reach the customers. It is well established that financial
rewards and other tangible incentives will go only so far
in motivating people. Workers cannot make a greater per-
sonal commitment unless they understand why their jobs
make a difference, and why the company’s advancement
will help their own advancement.
Successful leaders spend a great deal of time and at-
tention on the connection between strategy and personal
commitment. One such leader has run the trade promo-
tion effectiveness (TPE) capability at two global con-
sumer packaged goods (CPG) companies over the past
several years. CPG companies use their TPE capability
to build the momentum of key brands. It involves as-
sembling assortments of products to promote, merchan-
17 10 principles of strategy through execution
dising them to retailers, arranging in-store displays and
online promotions, adjusting prices and discounts to test
demand, and assessing the results. A great TPE capabil-
ity consistently attracts customers and compels them to
seek out the same products for months after the cam-
paign ends. TPE and related activities often represent
the second-largest item (after the cost of goods sold)
on a CPG company’s P&L statement. This in itself in-
dicates the capability’s strategic importance for CPG
companies.
In both enterprises, this executive took the time to go
up and down the organization, making a case for why the
specific mechanics of trade promotion matter to the value
proposition of the company and, ultimately, to its sur-
vival. He made it a point to talk numbers but didn’t lim-
it the conversation to them. “We spend billions at this
company on promotions,” he might say. “We have to get
back $100 million in added revenue next year, and an-
other $100 million on top of that the year after.”
He then urged employees to develop better promo-
tions that would attract more consumers and increase
their synergies with retailers. This combination of num-
bers and mission made it clear how people’s individual
efforts could affect the company’s prospects.
18 10 principles of strategy through execution
5. Align structures to strategy. Set up all your organiza-
tional structures, including your hierarchical design, de-
cision rights, incentives, and metrics, so they reinforce
your company’s identity: your value proposition and
critical capabilities. If the structures of your company
don’t support your strategy, consider removing them or
changing them wholesale. Otherwise, they will just get
in your way.
Consider, for example, the metrics used to track the
results delivered by call center employees. In many com-
panies, these individuals must follow a script and check
off that they’ve said everything on the list — even at
the risk of irritating potential customers. Better instead
to get employees to fully internalize the company’s strat-
egy and grade them on their prowess at solving cus-
tomer problems.
Danaher, a conglomerate of more than 25 companies
specializing in environmental science, life sciences, dental
technologies, and industrial manufacturing technologies,
is intensely focused on creating value through operational
excellence. Critical to this approach are metrics built into
the Danaher Business System, the company’s intensive
continuous improvement program. Only eight key met-
rics, called “core value drivers” to underline their strategic
19 10 principles of strategy through execution
relevance, are tracked constantly in all Danaher enterpris-
es. The financial metrics (core growth, operating margin
expansion, working capital returns, and return on invested
capital) are used not just by investors but also by manag-
ers to evaluate the value of their own activities. Danaher
also tracks two customer-facing metrics (on-time delivery
and quality as perceived by customers), and two metrics
related to employees (retention rates and the percentage of
managerial positions filled by internal candidates). Lengthy
in-person operating reviews, conducted monthly, are very
data driven, focusing on solving problems and improving
current practices. The metrics are posted on the shop floor,
where anyone can see the progress that’s being made — or
not being made — toward clear targets. The meetings are
constructive: People feel accountable and challenged, but
also encouraged to rise to the challenges.
Data analytics is evolving to the point where it can
help revitalize metrics and incentives. A spreadsheet is no
longer enough to capture and analyze this body of mate-
rial; you can use large information management systems
programmed to deliver carefully crafted performance data.
No matter how complex the input, the final incentives
and metrics need to be simple enough to drive clear, con-
sistent behavior. More generally, every structure in your
20 10 principles of strategy through execution
organization should make your capabilities stronger, and
focus them on delivering your strategic goals.

6. Transcend functional barriers. Great capabilities always

transcend functional barriers. Consider Starbucks’s under-
standing of how to create the right ambiance, Haier’s abil-
ity to rapidly manufacture home appliances to order, and
Amazon’s aptitude for launching products and services en-
abled by new technologies. These companies all bring peo-
ple from different functions to work together informally
and creatively. Most companies have some experience with
this. For example, any effective TPE capability brings to-
gether marketing, sales, design, finance, and analytics pro-
fessionals, all working closely with and learning from one
another. The stronger the cross-functional interplay and
the more it is supported by the company’s culture, the more
effective the promotion.
Unfortunately, many companies unintentionally di-
minish their capabilities by allowing functions to operate
independently. It’s often easier for the functional leaders
to focus on specialized excellence, on “doing my job bet-
ter” rather than on “what we can accomplish together.”
Pressed for time, executives delegate execution to IT, HR,
or operational specialists, who are attuned to their areas of
21 10 principles of strategy through execution
expertise but not necessarily to the company’s overall di-
rection. Collaborative efforts bring together people who
don’t understand each other or, worse, who pursue com-
peting objectives and agendas. When their narrow priori-
ties conflict, the teams end up stuck in cycles of internal
competition. The bigger a company gets, the harder it be-
comes to resolve these problems.
You can break this cycle by putting together cross-
functional teams to blueprint, build, and roll out capa-
bilities. Appoint a single executive for each capability team,
accountable for fully developing the capability. Ensure
this person has credibility at all levels of the organization.
Tap high-quality people from each function for this
team, and give the leader the authority to set incentives
for performance.
There’s always the risk that these cross-functional
teams will be seen as skunkworks, separate from the rest
of the enterprise. To guard against this risk, you need a
strong dotted line from each team member back to the
original function. Sooner or later, the capabilities orienta-
tion will probably become habitual, affecting the way
people (including functional leaders) see their roles: not
as gatekeepers of their expertise, but as contributors to a
larger whole.
22 10 principles of strategy through execution
7. Become a fully digital enterprise.The seventh principle
should affect every technological investment you make —
and with luck, it will prevent you from making some out-
dated ones. Embrace digital technology’s potential to
transform your company: to create fundamentally new
experiences and interactions for your customers, your em-
ployees, and every other constituent. Until you use tech-
nology this way, many of your IT investments will be
wasted; you won’t realize their potential in forming pow-
erful new capabilities.
Complete digitization will inevitably broaden your
range of strategic options, enabling you to pursue prod-
ucts, services, and innovations that weren’t feasible before.
For example, Under Armour began as a technologically
enabled sports apparel company, specializing in micro-
fiber-based synthetic fabrics that felt comfortable under
all conditions. To keep its value proposition as an innova-
tor, it aggressively expanded into fitness trackers and the
development of smart apparel. The company is now de-
veloping clothing that will provide data that can both
help athletes raise their game and point the way to design
improvements.
Adopting digital technology may mean abandoning
expensive legacy IT systems, perhaps more rapidly than
23 10 principles of strategy through execution
you had planned. Customers and employees have come to
expect the companies they deal with to be digitally so-
phisticated. They now take instant access, seamless in-
teroperability, smartphone connectivity, and an intuitively
obvious user experience for granted. To be sure, it is ex-
pensive and risky to shift digital systems wholesale, and
therefore you need to be judicious; some companies are
applying the Fit for Growth approach to IT, in which they
reconsider every expense, investing more in those that are
directly linked to their most important capabilities. (See
“Building trust while cutting costs,” by Vinay Couto, Deniz
Caglar, and John Plansky.)
Fortunately, cloud-based technologies provide many
more options than were available before. To boost agility
and reduce costs, you can outsource some tech activities
while keeping others that are distinctive to your business.
You also can use embedded sensors and analytics to share
data across your value chain and collaborate more produc-
tively (an approach known as “Industry 4.0” and the
“Industrial Internet of Things”). The biggest constraint
is no longer the cost and difficulty of implementation.
Rather, it’s your ability to combine business strategy, user
experience, and technological prowess in your own dis-
tinctive way.
24 10 principles of strategy through execution
 Many company leaders wish for
more simplicity. Unfortunately, it rarely
works out that way.

8. Keep it simple, sometimes. Many company leaders wish

for more simplicity: just a few products, a clear and simple
value chain, and not too many projects on the schedule.
Unfortunately, it rarely works out that way. In a large,
mainstream company, execution is by nature complex.
Capabilities are multifaceted. Different customers want
different things. Internal groups design new products or
processes without consulting one another. Mergers and ac-
quisitions add entirely new ways of doing things. Although
you might clean house every so often, incoherence and
complexity creep back in, along with the associated costs
and bureaucracy.
The answer is to constantly seek simplicity, but in a
selective way. Don’t take a machete to your product lineup
or org chart. Remember that not all complexity is alike.
One advantage of aligning your strategy with your capa-
25 10 principles of strategy through execution
bilities is that it helps you see your operations more clearly.
You can distinguish the complexity that truly adds value
(for example, a supply chain tailored to your most impor-
tant customers) from the complexity that gets in your way
(for example, a plethora of suppliers when only one or two
are needed).
As Vinay Couto, Deniz Caglar, and John Plansky ex-
plain in Fit for Growth: A Guide to Strategic Cost Cutting,
Restructuring, and Renewal, effective cost management de-
pends on the ability to ruthlessly cut the investments that
don’t drive value. Customer-facing activities can be among
the worst offenders. Some customers need more tailored of-
ferings or elaborate processes, but many do not.
For example, Lenovo, a leading computer hardware
company with twin headquarters in China and the U.S.
(Lenovo’s ThinkPad computer business was acquired with
its purchase of IBM’s personal computer business), has a
strategy based on cross-pollination of innovation between
two entirely different markets. The first is “relationship”
customers (large enterprises, government agencies, and ed-
ucational institutions), which purchase in large volume,
need customized software, and are often legacy IBM cus-
tomers. The second is “transactional” customers (individu-
als and smaller companies), typically buying one or two
26 10 principles of strategy through execution
computers at a time, all seeking more or less the same few
models; these customers, however, are sensitive to cost and
good user experience.
Lenovo has a single well-developed hardware and soft-
ware innovation capability aimed at meeting the needs of
both types of customers. But its supply chain capability is
bifurcated. The relationship supply chain is complex, de-
signed to provide enterprise customers with greater respon-
siveness and flexibility. Lenovo’s computer manufacturing
plant in Whitsett, N.C., which opened in 2013, was de-
signed for fast shipping, large orders, and high levels of
customization. Meanwhile, the company maintains a sim-
pler supply chain with manufacturing sites in low-cost lo-
cations for its transactional customers.
The principle “keep it simple, sometimes” is itself more
complex than it appears at first glance. It combines three
concepts in one: First, be as simple as possible. Second, let
your company’s strategy be your guide in adding the right
amount of complexity. Third, build the capabilities needed
to effectively manage the complexity inherent in serving
your markets and customers.

9. Shape your value chain. Nocompany is an island. Every

business relies on other companies in its network to help
27 10 principles of strategy through execution
shepherd its products and services from one end of the val-
ue chain to the other. As you raise your game, you will raise
the game of other operations you work with, including sup-
pliers, distributors, retailers, brokers, and even regulators.
Since these partners are working with you on execu-
tion, they should also be actively involved in your strategy.
That means selling your strategy to them, getting them
excited about taking the partnership to a whole new level,
and backing up your strategic commitment with financ-
ing, analytics, and operational prowess. For example, when
the Brazilian cosmetics company Natura Cosméticos be-
gan sourcing ingredients from Amazon rain forest villages,
its procurement staff discovered that the supply would be
sustainable only if they built deeper relationships with their
suppliers. Beyond paying suppliers, they needed to invest
in the suppliers’ communities. The company has held to
that commitment even during down periods.
Use leading-edge digital technology to align analytics
and processes across your value chain. In the past, compa-
nies that linked operations to customer insight in innova-
tive ways did it through vertical integration, by bringing all
parts of the operation in-house. For example, Inditex cre-
ated a robust in-house network that linked its Zara retail
stores with its design and production teams. Real-time pur-
28 10 principles of strategy through execution
chase data allowed designers to find out what was selling
— and what wasn’t — more quickly than their competitors
could. This approach has helped Zara introduce more items
that would sell quickly while keeping costs down. And it
has helped Inditex outpace its rivals in both profitability
and growth.
At the time Inditex developed its system, vertical inte-
gration was a prerequisite for that kind of integration. But
now the technology has changed, and in a cloud-based
computer environment, you no longer need full vertical in-
tegration. You can achieve the same result through inte-
grated business platforms (some managed by third-party
logistics companies such as Genpact, and others being de-
veloped as joint ventures). By allowing several companies to
share real-time data seamlessly, these platforms enable each
participating company to set more ambitious strategic goals.

10. Cultivate collective mastery. The more bound your com-

pany is by internal rules and procedures for making and
approving decisions, the slower it becomes. Hence the
frustration leaders have with the pace of bureaucracy, in
which people can’t make decisions because they don’t
know what the strategic priorities are — or even what oth-
er stakeholders will think. In a world where disruption
29 10 principles of strategy through execution
has become prevalent, your company can’t afford the time
or expense of operating this way.
The alternative is what we call collective mastery. This
is a cultural attribute, often found in companies where
strategy through execution is prevalent. It is the state you
reach when communication is fluid, open, and constant.
Your strategists understand what will work or not work
because they talk easily with functional specialists. Your
functional specialists know not only what they’re supposed
to do, but why it matters. Everyone moves quickly and
decisively, because they have the ingrained judgment to
know who to consult, and when. People trust one another
to make decisions on behalf of the whole.
Many of the attributes of Silicon Valley companies
owe a great deal to the high level of collective mastery in
the area. The culture of these companies encourages risk
taking, because it’s expected that people will make mis-
takes — not as a goal, of course, but in the process of
learning. People expect their colleagues to be informal,
quick-thinking, and unassuming. They rely on systems
and processes only when they add value, and are willing
to jettison them at other times. With this type of culture,
people can focus on getting results.
Collective mastery builds over time when people have
30 10 principles of strategy through execution
the support and encouragement they need to work easily
and readily across organizational boundaries, with a high
level of trust and frequent informal contact. Even when
they hold different perspectives, they get to the point where
they understand one another’s thinking.
To operate this way, you have to be flexible. That
doesn’t mean giving up your strategy; you still should pur-
sue only opportunities with which you have the capabili-
ties to win. Indeed, knowing what you do best allows you
to be closer to the customers who matter, and to give more
autonomy to employees. Because you are less distracted by
nonstrategic issues, you have the attention and resources
to pursue worthwhile opportunities as soon as they arise.
Collective mastery also makes it easier to conduct an ex-
periment: to launch a project and learn from the response
without making a huge commitment. This high level of
fluidity and flexibility is essential for navigating in a vola-
tile economic landscape.
In the end, the 10 principles of strategy through exe-
cution will do more than help you achieve your business
goals. They will also help build a new kind of culture, one
in which people are aware of where you’re going and how
you’re going to get there. The capabilities you build, and
the value you provide, are larger than any individual can
31 10 principles of strategy through execution
make them. But by creating the right kind of atmosphere,
you make it possible to not just stand in the weeds and
look at the stars, but reach a higher level than you may
ever have thought you would.
The following people also contributed to this article: PwC US principals
Paul Leinwand, Steve Treppo, Hans van Delden, and Anil Khurana,
PwC UK partner Craig Kerr, and PwC Switzerland directors Ilona Steffen
and Nadia Kubis, along with Patricia Riedl, Christopher Vollmer,
Mark Strom, and Julia Heskel.

32 10 principles of strategy through execution

STRATEGY

10 principles
of strategic
leadership
How to develop and retain leaders
who can guide your organization through
times of fundamental change.
by Jessica Leitch, David Lancefield, and Mark Dawson

33 10 principles of strategic leadership

 Originally published by s+b
on May 18, 2016

Most companies have leaders with the strong operational

skills needed to maintain the status quo. But they face a
critical deficit: They lack people in positions of power with
the know-how, experience, and confidence required to
tackle what management scientists call “wicked problems.”
Such problems can’t be solved by a single command, they
have causes that seem incomprehensible and solutions that
seem uncertain, and they often require companies to trans-
form the way they do business. Every enterprise faces these
kinds of challenges today.
Illustration on previous page by Lars Leetaru

A 2015 PwC study of 6,000 senior executives, conducted

using a research methodology developed by David Rooke of
Harthill Consulting and William Torbert of Boston Uni-
versity, revealed just how pervasive this shortfall is. Respon-
dents were asked a series of open-ended questions; their
answers revealed their leadership preferences, which were
34 10 principles of strategic leadership
then analyzed to determine which types of leaders were
most prominent. Only 8 percent of the respondents turned
out to be strategic leaders, or those effective at leading
transformations (Rooke and Torbert refer to them as “strat-
egist” leaders).
The study suggests that strategic leaders are more like-
ly to be women (10 percent of the female respondents were
categorized this way, versus 7 percent of the men), and the
number of strategic leaders increases with age (the highest
proportion of strategic leaders was among respondents age
45 and above). These leaders tend to have several com-
mon personality traits: They can challenge the prevailing
view without provoking outrage or cynicism; they can act
on the big and small pictures at the same time, and change
course if their chosen path turns out to be incorrect; and
they lead with inquiry as well as advocacy, and with en-
gagement as well as command, operating all the while
from a deeply held humility and respect for others.
It may seem disheartening that such a small percentage
of senior leaders can operate this way. The trend over time
is almost as bad. When the same survey was conducted in
2005, only 7 percent of respondents were identified as stra-
tegic leaders. In other words, in the course of a transforma-
tive decade marked by the collision of technological break-
35 10 principles of strategic leadership
throughs, financial crises, demographic shifts, and other
major global forces, the leadership needle barely moved.
Given the small percentage of senior leadership equipped
to manage large-scale transformation, companies are often
forced to bring in leaders from outside. But as we’ve ob-
served in countless organizations over the years, significant
change in a company is more likely to succeed if it is led
from within. Perhaps most alarming, the leadership gap is
typically hidden from view. No one recognizes that the
company’s top executives aren’t acting strategically, or peo-
ple do realize it, but no one is willing to call attention to
the problem. The gap thus comes to light only when a
company faces a major challenge to its traditional way of
doing business. It’s in the do-or-die moments, when com-
panies need a strategic leader most, that they discover the
current leadership isn’t up to the task.
Fortunately, companies can build the capacity for stra-
tegic leadership. It starts with recognizing that your orga-
nization undoubtedly already has emerging strategic lead-
ers within it whose skills are being overlooked or even
stifled. The problem can be traced back to how organiza-
tions traditionally promote and develop their leaders. In
many companies, the individuals who make their way to
the top of the hierarchy do so by demonstrating superla-
36 10 principles of strategic leadership
tive performance, persistent ambition, and the ability to
solve the problems of the moment. These are valuable
traits, but they are not the skills of a strategic leader.
The following 10 principles can help unlock the poten-
tial strategic leadership in your enterprise. These principles
represent a combination of organizational systems and in-
dividual capabilities — the hardware and software of trans-
formation. You may have already adopted some of these
tenets, and think that’s enough. But only when you imple-
ment all of them together, as a single system, will they en-
able you to attract, develop, and retain the strategic leaders
who’ve eluded you thus far.

1. Distribute responsibility. Strategic leaders gain their skill

through practice, and practice requires a fair amount of
autonomy. Top leaders should push power downward,
across the organization, empowering people at all levels
to make decisions. Distribution of responsibility gives
potential strategic leaders the opportunity to see what
happens when they take risks. It also increases the col-
lective intelligence, adaptability, and resilience of the or-
ganization over time, by harnessing the wisdom of those
outside the traditional decision-making hierarchy.
In an oil refinery on the U.S. West Coast, a machine
37 10 principles of strategic leadership
 Top leaders should push power
downward, empowering people at all
levels to make decisions.

malfunction in a treatment plant was going to cause a

three-week shutdown. Ordinarily, no one would have
questioned the decision to close, but the company had re-
cently instituted a policy of distributed responsibility. One
plant operator spoke up with a possible solution. She had
known for years that there was a better way to manage the
refinery’s technology, but she hadn’t said anything because
she had felt no ownership. The engineers disputed her idea
at first, but the operator stood her ground. The foreman
was convinced, and in the end, the refinery did not lose a
single hour of production.
When individuals like the plant operator are given re-
sponsibility and authority, they gain more confidence and
skill. And when opportunities to make a difference are
common throughout an organization, a “can-do” profi-
ciency becomes part of its identity. At Buurtzorg, a Dutch
38 10 principles of strategic leadership
neighborhood nursing organization, most decisions are
made by autonomous, leaderless teams of up to a dozen
nurses. A small central management team supports and
coaches the frontline nurses; there is no other middle man-
agement. The company achieves the highest client satis-
faction levels of all community nursing delivery in the
Netherlands, at only 70 percent of the usual cost. Patients
stay in care half as long, heal faster, and become more au-
tonomous themselves. And the nurses gain skills not just
for leading their part of the enterprise, but in community
leadership as well.

2. Be honest and open about information. The

management
structure traditionally adopted by large organizations

VIDEO FEATURE
Find your strategic leaders
Most companies lack
people in positions of power
with the experience and
confidence required to
challenge the status quo.

39 10 principles of strategic leadership

evolved from the military, and was specifically designed to
limit the flow of information. In this model, information
truly equals power. The trouble is, when information is
released to specific individuals only on a need-to-know
basis, people have to make decisions in the dark. They do
not know what factors are significant to the strategy of the
enterprise; they have to guess. And it can be hard to guess
right when you are not encouraged to understand the big-
ger picture or to question information that comes your
way. Moreover, when people lack information, it under-
mines their confidence in challenging a leader or propos-
ing an idea that differs from that of their leader.
Some competitive secrets (for example, about products
under development) may need to remain hidden, but em-
ployees need a broad base of information if they are to
become strategic leaders. That is one of the principles be-
hind “open-book management,” the systematic sharing of
information about the nature of the enterprise. Among
the companies that use this practice are Southwest Air-
lines, Harley-Davidson, and Whole Foods Market, which
have all enjoyed sustained growth after adopting explicit
practices of transparency.
Transparency fosters conversation about the mean-
ing of information and the improvement of everyday
40 10 principles of strategic leadership
practices. If productivity figures suddenly go down, for
example, that could be an opportunity to implement
change. Coming to a better understanding of the prob-
lem might be a team effort; it requires people to talk
openly and honestly about the data. If information is
concealed, temptation grows to manipulate the data to
make it look better. The opportunity for strategic leader-
ship is lost. Worse still, people are implicitly told that
there is more value in expediency than in leading the
enterprise to a higher level of performance. Strategic
leaders know that the real power in information comes
not from hoarding it, but from using it to find and create
new opportunities for growth.

3. Create multiple paths for raising and testing ideas. Devel-

oping and presenting ideas is a key skill for strategic lead-
ers. Even more important is the ability to connect their
ideas to the way the enterprise creates value. By setting up
ways for people to bring their innovative thinking to the
surface, you can help them learn to make the most of their
own creativity.
This approach clearly differs from that of traditional
cultures, in which the common channel for new ideas is
limited to an individual’s direct manager. The manager
41 10 principles of strategic leadership
may not appreciate the value in the idea, may block it from
going forward, and may stifle the innovator’s enthusiasm.
Of course, it can also be counterproductive to allow people
to raise ideas indiscriminately without paying much atten-
tion to their development. So many ideas, in so many re-
petitive forms, might then come to the surface that it would
be nearly impossible to sort through them. The best op-
portunities could be lost in the clutter.
Instead, create a variety of channels for innovative
thinking. Some might be cross-functional forums, in which
people can present ideas to a group of like-minded peers
and test them against one another’s reasoning. There could
also be apprenticeships, in which promising thinkers, early
in their careers, sign on for mentorship with leaders who
are well equipped to help them build their skills. Some or-
ganizations might set up in-house courses or sponsor at-
tendance at university programs. Reverse mentoring — in
which younger staff members share their knowledge of
new technology as part of a collaboration with a more es-
tablished staff member — can also be effective.
Google has made use of a number of channels to promote
innovation. A few examples: Employees can directly email
any of the leaders across the organization; the company es-
tablished “Google cafés” to spark conversation by encour-
42 10 principles of strategic leadership
aging interaction among employees and across teams; and
executives hold weekly all-hands meetings (known as
TGIFs) to give employees at every level in-person access to
senior leaders. People at Google learn to make the most of
these opportunities — they know the conversations will be
tough, but that genuinely worthwhile innovative thinking
will be recognized and rewarded.

4. Make it safe to fail.A company’s espoused statement of

values may encourage employees to “fail fast” and learn
from their errors. That works well until there is an actual
failure, leading to a genuine loss. The most dreaded phone
call in the corporate world soon follows; it’s the one that
begins: “Who authorized this decision?” Big failures are
simply unacceptable within most organizations. Those
who fail often suffer in terms of promotion and reward, if
not worse.
You must enshrine acceptance of failure — and will-
ingness to admit failure early — in the practices and pro-
cesses of the company, including the appraisal and pro-
motion processes. For example, return-on-investment
calculations need to assess results in a way that reflects the
agreed-upon objectives, which may have been deliberately
designed to include risk. Strategic leaders cannot learn
43 10 principles of strategic leadership
 Strategic leaders
need to recognize the types of failures
that turn into successes.

only from efforts that succeed; they need to recognize the

types of failures that turn into successes. They also need
to learn how to manage the tensions associated with un-
certainty, and how to recover from failure to try new ven-
tures again.
Honda is one enterprise that has taken this approach
to heart. Like several other industrial companies, the au-
tomaker has had a dramatic, visible failure in recent years.
The installation of faulty equipment from its favored air-
bag supplier, Takata, has led Honda to recall about 8.5
million vehicles to date. Although the accountable execu-
tives were fired, the company’s leaders also explicitly stated
that the airbag failure, in itself, was not the problem that
led to dismissal. The problem was the lack of attention to
the failure at an early stage, when it could have been much
more easily corrected. As one Honda executive told Jeffrey
44 10 principles of strategic leadership
Rothfeder, author of Driving Honda: Inside the World’s
Most Innovative Car Company (Portfolio, 2014) (and an
s+b contributing editor), “We forgot that failure is never
an acceptable outcome; instead, it is the means to accept-
able outcomes.”
Some organizations have begun to embrace failure as
an important part of their employees’ development. The
Bill & Melinda Gates Foundation and the U.K.-based in-
novation charity Nesta have held “failure fests,” at which
employees discuss decisions that went wrong and derive
lessons from them. In addition to establishing such fo-
rums, you can provide managers with opportunities to
oversee smaller change initiatives, some of which may not
work out, to develop the skills they’ll need to lead larger-
scale transformations.

5. Provide access to other strategists. Give potential strate-

gic leaders the opportunity to meet and work with their
peers across the organization. Otherwise, they remain hid-
den from one another, and may feel isolated or alone. Once
they know that there are others in the company with a
similar predisposition, they can be more open, and adept
in raising the strategic value of what they do.
The first step is to find them. Strategic leaders may not
45 10 principles of strategic leadership
 10 principles
of strategic
leadership

Infographic: Opto Design / Lars Leetaru. ©2016 PwC. All rights reserved.

46 10 principles of strategic leadership

be fully aware themselves that they are distinctive. But oth-
ers on their team, and their bosses, tend to recognize their
unique talents. They may use phrases like “she just gets it,”
“he always knows the right question to ask,” or “she never
lets us get away with thinking and operating in silos” to
describe them. A good way to learn about candidates is to
ask, “Who are the people who really seem to understand
what the organization needs — and how to help it get
there?” These may be people who aren’t traditionally pop-
ular; their predisposition to question, challenge, and dis-
rupt the status quo can unsettle people, particularly people
at the same level.
Of course, you don’t want to create the impression that
some people deserve special treatment. Instead, cultivate
the idea that many managers, perhaps even most, have
the potential to become strategic leaders. Then bring the
first group together. Invite them to learn from one an-
other, and to explore ways of fostering a more strategic
environment in the rest of the enterprise.

6. Develop opportunities for experience-based learning. The

vast majority of professional leadership development is in-
formative as opposed to experiential. Classroom-based
training is, after all, typically easier and less expensive to
47 10 principles of strategic leadership
implement; it’s evidence of short-term thinking, rather
than long-term investment in the leadership pipeline. Al-
though traditional leadership training can develop good
managerial skills, strategists need experience to live up to
their potential.
One vehicle for creating leadership experiences is the
cross-functional “practice field,” as organizational learning
theorist Peter Senge calls it. Bring together a team of po-
tential strategic leaders with a collective assignment: to cre-
ate a fully developed solution to a problem or to design a
new critical capability and the way to generate it. Give
them a small budget and a preliminary deadline. Have
them draw plans and financial estimates of their solutions.
Then run the estimates through an in-depth analysis. This
project might include a simulation exercise, constructed
with the kind of systems simulation software that has been
used to model and participate in wargames since the 1980s.
You can also let reality be their practice field. Have them
create the new capability or initiative on a small scale, and
put it into effect. Then track the results assiduously. As-
sign mentors with experience to help them make the most
of their effort — without sidetracking it.
Whether you set up the project in reality or as a simu-
lation, the next step should be the same. Schedule a series
48 10 principles of strategic leadership
of intensive discussions about the results. Explore why these
results appeared, what the team might have done differ-
ently, and how things could be different in the future if the
group changed some of the variables. The goal is to culti-
vate a better understanding than would be possible with-
out this type of reflection, and to use that understanding
as the basis for future efforts.

7. Hire for transformation.All hiring decisions should be

based on careful considerations of applicants’ capabilities
and experiences, and should aim for diversity to overcome
the natural tendency of managers to select people much
like themselves.
Test how applicants react to specific, real-life situa-
tions; do substantive research into how they performed
in previous organizations; and conduct interviews that
delve deeper than usual into their psyche and abilities, to
test their empathy, their skill in reframing problems, and
their agility in considering big-picture questions as well
as analytical data. In all these cases, you’re looking for
evidence of their ability to see the forest and the trees:
their ability to manage the minutiae of specific skills and
practices, while also being visionary about strategic goals.
The better they are at keeping near and far points of view
49 10 principles of strategic leadership
simultaneously available, the better their potential to be
strategic leaders.
For those hired, the onboarding processes should send
explicit signals that they can experiment, take on more
responsibility, and do more to help transform the organi-
zation than they could in their previous career. New em-
ployees need to feel that the culture is open to change and
to diverse views.

8. Bring your whole self to work. Strategic leaders under-

stand that to tackle the most demanding situations and
problems, they need to draw on everything they have
learned in their lives. They want to tap into their full set
of capabilities, interests, experiences, and passions to come
up with innovative solutions. And they don’t want to waste
their time in situations (or with organizations) that don’t
align with their values.
Significantly, they encourage the people who report to
them to do the same. In so doing, strategic leaders create a
lower-stress environment, because no one is pretending to
be someone else; people take responsibility for who they
truly are. This creates an honest and authentic environment
in which people can share their motivations and capabili-
ties, as well as the enablers and constraints in their life.
50 10 principles of strategic leadership
9. Find time to reflect. Strategicleaders are skilled in what
organizational theorists Chris Argyris and Donald Schön
call “double-loop learning.” Single-loop learning involves
thinking in depth about a situation and the problems in-
herent in it. Double-loop learning involves studying your
own thinking about the situation — the biases and as-
sumptions you have, and the “undiscussables” that are too
difficult to raise.
Your goal in reflection is to raise your game in double-
loop learning. Question the way in which you question
things. Solve the problems inherent in the way you prob-
lem-solve. Start with single-loop learning, and then move
to double-loop learning by taking the time to think: Why
did I make that decision? What are the implications? What
would I do differently next time? How am I going to ap-
ply this learning going forward?
Reflection helps you learn from your mistakes, but it
also gives you time to figure out the value of your aspira-
tions, and whether you can raise them higher. It allows
you the chance to spot great ideas using what you are al-
ready doing or things that are going on in your life. Man-
agers are often caught up in the pressures of the moment.
A mistake or a high-pressure project can feel overwhelm-
ing. But if you take a minute to step back and reflect on
51 10 principles of strategic leadership
these problems, it can provide the space to see what you
did right.
Some reflection is more productive than others. Psy-
chologists warn about “rumination,” or dwelling on de-
ceptive messages about your own inadequacies or the in-
tractability of problems in a way that reinforces your feeling
of being stuck. To avoid this pattern, deliberately give
yourself a constructive question to reflect on. For example,
what are the capabilities we need to build next? How can
I best contribute? Human capital teams can help by train-
ing individuals in these practices and ensuring that all
managers support their team members who take the time
to reflect.

10. Recognize leadership development as an ongoing practice.

Strategists, however experienced they may be, have the
humility and intelligence to realize that their learning and
development are never done. They admit that they are
vulnerable and don’t have all the answers. This character-
istic has the added benefit of allowing other people to
be the expert in some circumstances. With this opening,
strategic leaders make it easy for others to share ideas by
encouraging new ways of thinking and explicitly asking
for advice.
52 10 principles of strategic leadership
 Their thirst for learning also gives potential strategists
the space to be open to less obvious career opportunities
— new industries, different types of roles, lateral moves,
stretch assignments, secondments, or project roles — that
may help them fulfill their potential.
At some point, you may advance to the point where
you are not concerned solely with your own role as a stra-
tegic leader, but also with cultivating opportunities for oth-
ers. This will require a clear-eyed, reflective view of the
talent pool around you. It isn’t easy for any leader to accept
that others in the company may not have what it takes. Or,
worse, to learn that the people with the potential to dem-
onstrate leadership feel constrained by current organiza-
tional practices, and they are taking their talents elsewhere.
But if you can come to terms with reality, as uncom-
fortable as it may be, then you’re in a position to help change
it. By following the 10 principles we’ve outlined here, you
will give yourself the skill and influence to pave the way for
others who follow. That’s fortunate, because the ability to
transform amid societal and business challenges and dis-
ruptions is essential to your company’s success — and per-
haps even to its survival.

53 10 principles of strategic leadership

STRATEGY

10 principles
of customer
strategy
It’s no longer enough to target your
chosen customers. To stay ahead, you
need to create distinctive value and
experiences for them.
by Thomas Ripsam and Louis Bouquet

54 10 principles of customer strategy

 Originally published by s+b
on Sept. 26, 2016

After losing the fourth major deal in a row to a rival, the CEO
of a technology solutions company turned to his team lead-
ers to ask what was going wrong. The sales team doesn’t have
the right relationships, marketing reported. Our products
lack key features, sales replied. The offerings are too expensive,
finance explained. None of these answers seemed right.
The products were made in the countries where manufac-
turing was cheapest, had high ratings from analysts, and
included new features that people raved about. So the CEO
finally called the client and bluntly asked: “Why did you
Illustration on previous page by Lars Leetaru

give this deal to our competitor?”

The response: “Your products are great, but your com-
petitor gives me what I’m looking for.” As they talked, the
CEO realized that closing this deal — and other deals —
didn’t come down only to product price, quality, features,
or sales capabilities. The competitor spoke the language of
55 10 principles of customer strategy
the customer. Its salespeople knew how to anticipate the
customer’s needs, work closely with its leaders, and come
up with solutions to problems that hadn’t even been voiced
yet. The CEO now saw that his company lacked a key in-
gredient necessary for serving its clients: a deliberate, well-
designed, and perceptive customer strategy.
This real-life scenario is all too familiar. The conven-
tional approach to gaining customers, which was based on
picking a segment of purchasers to target and developing
products for that segment, is no longer sufficient. A custom-
er strategy goes further: It is the articulation of the distinc-
tive value and experience your company will deliver to a
chosen set of customers over three to five years, along with
the offerings, channels, operating model, and capabilities
you will need. In 2016 a team of researchers and advisors
from the customer strategy practice at Strategy&, PwC’s
strategy consulting group, conducted a global survey of 161
executives. And the findings indicated that having a cus-
tomer strategy was high in importance. More than 80 per-
cent of the respondents said their investment in customer
strategy during the next three to five years would be equal to
or greater than the amount invested this year.
In developing a successful customer strategy, you must
provide answers to questions such as these: Who are our
56 10 principles of customer strategy
customers? Which of their needs can we address? Given
our company’s overall value proposition and strategy, what
customer experience should we create? What capabilities
do we need in order to deliver that experience? How should
we organize ourselves accordingly, and what aspects of our
culture can help us?
A well-designed customer strategy will coordinate many
different functions, skills, and practices. For example, it
should encompass data analytics; go-to-market and chan-
nel choices; and the delivery of products, services, and ex-
periences. Ten principles are at the heart of any effective
customer strategy. These principles are universally appli-
cable, regardless of what industry a company operates in,
whether it focuses on a business or consumer clientele,
where it does business, or what products and services it of-
fers. Based on long-standing practice and observation —
along with our survey and interviews with key players in
eight industries — these principles show how companies
can position themselves for customer success.

Because technological
1. Master the art of the possible.
breakthroughs are now common in nearly every industry,
customers expect big changes to be a regular occurrence.
The most successful companies continually experiment
57 10 principles of customer strategy
 The most successful companies
continually experiment with innovations that
make life better for customers.

with innovations that make life better for customers. Cus-

tomers appreciate companies that can do this effectively,
time after time. That doesn’t mean asking your customers
what they will find indispensable in the future; they can’t
tell you. Consumers also don’t know what they want from
new innovations, and they don’t always anticipate what
will happen when they adopt them. They often know what
they want only after they see it.
No one, for example, asked for ride-sharing apps before
Uber appeared, followed by Lyft, Sidecar, BlaBlaCar, Haxi,
and other similar services. Digital and mobile devices are
now endemic to customer experience, and new kinds of
apps (for example, for mobile payments) emerge regularly.
No one knew these apps were indispensable until they were,
suddenly, everywhere.
Therefore, when launching innovative products and
58 10 principles of customer strategy
services, develop your own informed judgment about tech-
nology. Carefully consider which new technologies will
appeal to your customers at just the right time, in just the
right way, so that customers become more loyal. This is
particularly important for digital and mobile technologies,
which continue to fundamentally alter the ways people in-
teract with businesses and the types of products and ser-
vices they favor.
There is a hefty risk management component to this
principle. While you try to anticipate emerging technolo-
gies, others are doing the same. No one will get everything
right; your ability to outpace your competitors depends on
your cultivating better judgment, and then placing bet af-
ter bet, refining your acumen all the time. Not only do you
have to decide what technologies will be most valued, but
you have to know how far ahead of your customers to be,
and you have to learn from every foray.
In our customer strategy survey, 40 percent of the re-
spondents said that one of their top five priorities was mas-
tering the art of the possible, particularly in digital and
mobile technologies. Of these, 67 percent reported that
they conducted regular assessments of digital and mobile
technologies they might adopt or improve, but only 28
percent truly analyzed the financial impact of being early
59 10 principles of customer strategy
or late with their own innovations or those developed by
others. The ability to analyze what you should bring to
market and when will give you an edge, because better
judgment relies on informed experimentation: trying new
things at a reasonable scale, and paying enough attention
to the results to be able to learn from each new launch.
Consider how Nest Labs, a maker of smart home de-
vices owned by Alphabet, Google’s parent company, con-
tinually gains competitive advantage through its adroit
use of technology. Nest takes ordinary home fixtures and
makes them smart, beautiful, and energy efficient. For
years, the marketing research at established companies
found that consumers wouldn’t pay more than US$200
for a thermostat. But Nest developed a stylish, self-learn-
ing, and intuitive thermostat that could be controlled us-
ing a smartphone. After carving out a market by targeting
the subsegment of highly educated, energy-conscious cus-
tomers willing to pay the $249 list price, Nest began build-
ing an ecosystem of Internet-connected devices, including
smoke detectors and security cameras. The company is
now the leader in the smart thermostat market, which is
expected to grow over the next several years and generate
revenues of more than $1.3 billion by 2019, according to
Sandler Research.

60 10 principles of customer strategy

2. Know your customers at a granular level. Leading compa-
nies are moving beyond traditional quantitative segment-
ing. They’re developing much more sophisticated custom-
er analysis that draws from a variety of sources, including
customer behavior and psychographic data gathered on-
line and offline, real-time information collected from sen-
sors and other tracking mechanisms, and geographic and
mapping data. Business leaders understand how critical
this shift is. The executives we surveyed rated “segment
and know your customers” as the second most important
principle of developing a great customer strategy. (The
first, “Link your company’s customer strategy to its over-
all identity,” is included as principle number three below.)
Many companies claim to have mastered this principle.
Among the companies we surveyed that said customer in-
sight was a top priority, 73 percent said their business had
the capability in hand. Still, even at these organizations,
there’s plenty of room for improvement. For example, only
46 percent said they regularly translate their customer
knowledge into business platforms, actionable expansion
plans, or new business models.
To raise your own customer analytics ability, start by
thoroughly defining your market and customers. Deepen
your knowledge by applying techniques such as mapping
61 10 principles of customer strategy
the customer journey. Seek out data from a variety of sourc-
es at the most granular level: for example, activity tracked
by the Internet of Things, real-time interactions with your
own Web and e-commerce sites, social media, and online
communities such as customer advocacy councils. Use all
of these, and more, to embed the voice of the customer in
your decision making.

3. Link your company’s customer strategy to its overall

identity. Every successful company has a strong value prop-
osition that distinguishes it from rivals. It consistently of-
fers something for its customers that no competitor can
match. To deliver on this promise, it must develop and
deploy a group of interrelated, distinctive capabilities. All
of these must work together across the full portfolio of
products and services. This combination of value proposi-
tion, capabilities, and offerings, when they all fit together
in a coherent way, gives the company its identity. The com-
pany’s customer experience can be thought of as the visible
edge of that identity: the way in which people interact with
the company and learn to appreciate it.
It is more challenging than it may seem to develop a
strong identity. Many businesses don’t truly know what
they stand for, especially when they face so many outside
62 10 principles of customer strategy
influences and threats. Companies often find themselves
playing defense, calibrating their value proposition against
what rivals offer, instead of basing it on what they can do
distinctively well.
Linking your customer strategy to your company’s val-
ue proposition goes beyond lining up the right processes
from marketing, sales, and data analytics. It means align-
ing the emotional elements of your customer strategy, and
all customer touch points including pricing, with the stron-
gest capabilities your company has.
Apple has mastered this type of appeal. It offers cus-
tomers a sense of superiority, grounded in an intuitive and
productive experience and beautifully designed devices.
Everything Apple does reinforces these attributes. It sticks
to premium pricing and high margins, creating an associa-
tion with status on which the company has refused to com-
promise — even when its sales slowed in fiscal year 2016.
Its stores are spacious, open, and sophisticated, its website
is sleek, its customer service is knowledgeable and savvy,
and it doesn’t waste its customers’ time. Apple’s cultish fan
base is a testimony to the emotional connection it builds by
consistently delivering on its value proposition.
This principle requires a commitment from every part
of the organization. If your company has many different
63 10 principles of customer strategy
groups that aren’t tightly connected or that can’t even agree
on what they represent, you will need to bring them to-
gether around a common identity.

4. Target customers with whom you have the “right to win.”

When your company has a strong identity, you don’t need
to compete in every marketplace — only in the categories
where you are reasonably confident of succeeding. Your
value proposition will be consistent enough to appeal to a
group of customers whom you can serve profitably. This is
where you have the right to win — that is, a reasonable ex-
pectation that you can compete effectively against rivals.
If you try to grow your business where you don’t have
the right to win, you risk investing time and resources on
indifferent customers. You can and should branch out to
other customers and markets. But those new customers and
markets should be reachable with the same capabilities that
gave you an edge with your base.
The Trader Joe’s grocery chain has a right-to-win cus-
tomer strategy that provides a clear example of this princi-
ple. From the start, instead of trying to reach a mass mar-
ket, the company built a devoted following by providing
budget-friendly products for health- and diet-conscious
shoppers. It caters exclusively to these consumers, working
64 10 principles of customer strategy
consistently to source and offer a tightly edited range of
private-label, hard-to-find epicurean items. With $11.3 bil-
lion in sales and 457 stores in the U.S., Trader Joe’s sells
more than twice what Whole Foods, its next biggest com-
petitor, sells per square foot, and consistently tops the rank-
ings for customer satisfaction.

5. Treat your customers as assets that will grow in value. Not

every company cultivates long-term customer relationships
in a constructive way. Leading companies do. They con-
tinually create better reasons for their customers to identify
with the company and its products and services.
Building great customer relationships is a long-term
game. It goes against many common practices, such as
tracking the short-term return on customer acquisition
investments. It even goes beyond quantifying the lifetime
cost of a customer relationship, at either the individual or
segment level, though that’s an important first step.
You can build on this quantitative understanding by
analyzing your customers’ paths to purchase. This analysis
gives you the insight you need to expand and tailor your
customer relationships, investing in meeting the evolving
needs of your customers. The results of this analysis,
particularly when customer data is included, can affect
65 10 principles of customer strategy
 10 principles
of customer
strategy

Infographic: Opto Design / Lars Leetaru. ©2016 PwC. All rights reserved.

66 10 principles of customer strategy

every aspect of your customer relationships, including the
emotional attributes of your brand and the consistency of
your pricing.
Few companies treat customers as assets more effec-
tively than Salesforce.com. The company disrupted the
low end of the customer relationship management mar-
ket by positioning its “Success. Not Software” advertis-
ing campaign against competitor Siebel’s higher-priced,
more complex on-premise software applications. Sales-
force.com created a platform that customers license on a
subscription basis rather than buy. This powerful model,
known as software-as-a-service (SaaS), allows customers
to use software without a large up-front purchase, and
Salesforce.com can regularly add features based on cus-
tomers’ feedback. The company also offered training and
certification programs that made customers a critical part
of the branding and sales engine. Through this customer
partnership, and by exploiting SaaS to meet clients’ needs
as computer prices dropped, Salesforce.com redefined the
software market.
To treat your customers as assets, you need clear ac-
countability in your organization. When anyone who buys
from you has a problem or complaint, there must be a way
of resolving it and someone responsible for doing so. You
67 10 principles of customer strategy
also need a culture that motivates relationship building
and joint problem solving — a partnership with the cus-
tomer as opposed to transactional selling.

6. Leverage your ecosystem. Your company exists in a broad

network of relationships that form an ecosystem. These
relationships are not just with customers, but also with sup-
pliers, distributors, retailers, industry associations, institu-
tional partners, and government agencies. You can tap into
this ecosystem to engage your customers in ways that go
beyond what has been relevant to your business relation-
ship in the past. A broad ecosystem can provide data on
your customers’ interests, thereby opening up ideas for new
product and service offerings and growth opportunities.
Using the ecosystem is different from managing a
value chain. You develop partners that can help spur in-
novation and more venues for going to market. They
might also help win new customers for you by endorsing
your brand.
Developing brand ambassadors is crucial to this ap-
proach — including some who work directly for you, some
who work for other companies in your ecosystem, and
still others among your customers. These advocates pro-
mote your brand to attract and win over new consumers.
68 10 principles of customer strategy
To be sure, you can’t control them the way you control
your direct advertising and communications. However,
with the right talent, training, and cross-organizational
oversight, you can manage the risks and engage your cus-
tomers through a far-reaching community that becomes
central to your ecosystem. Companies such as Lego, Har-
ley-Davidson, and BMW, whose enthusiastic customers
communicate regularly with one another, successfully use
this principle.

7. Ensure a seamless omnichannel experience. We all know

the importance of omnichannel experience — a consis-
tent look and feel in all customer touch points, including
brick-and-mortar, face-to-face, online, voice phone, and
mobile. Successful companies develop these channels us-
ing customer expectations, brand positioning, customer
value, and cost-to-serve. They analyze the full cost and
full set of benefits of each channel. The result is a seamless
experience for the customer across every point of contact,
so that shopping with an app feels reasonably similar to a
face-to-face transaction.
Maintaining consistency across channels will be even
more important during the next three to five years, because
customers expect it. They count on being able to hop be-
69 10 principles of customer strategy
 Customers count on being able to hop
between call centers, websites, mobile apps,
retail stores, and sales calls, getting
the same experience at each stop.

tween call centers, websites, mobile apps, retail stores, and

sales calls, getting the same experience at each stop. This
raises the bar for every part of the organization — from
product development to supply chain management.
The apparel startup Bonobos adapted its omnichannel ap-
proach after looking closely at its customers’ expectations.
Initially, Bonobos’s ambitions were limited. It was a Web
store designed to make it easy for male shoppers to find
pants that fit. By chance, when the company opened a fit-
ting room in its New York office, company leaders real-
ized that although they could broaden their reach by let-
ting customers see, touch, and try on apparel, most of the
walk-in customers were not buying on impulse. Rather,
they would come in to try on the clothes, and then order
them later. The “guideshop” concept was born. Now shop-
pers book an appointment to try on clothes with the help
70 10 principles of customer strategy
of a stylist, or guide. The guide places the order, and the
item is sent to the customer’s home from a warehouse.
This multichannel strategy meets customers’ needs and
streamlines costs because Bonobos doesn’t need stores that
carry full inventories. The company is using a large part
of the $55 million it has raised to open new guideshops.

8. Excel at delivery. The physical delivery of products and

services is critical to keeping your customers happy. Wheth-
er or not you compete directly with Amazon, you are af-
fected by its delivery innovations. These include recruiting
individuals to do on-demand delivery, experimenting with
drones, and signing up the U.S. Postal Service to handle
Sunday deliveries. Customers now expect something simi-
lar to Amazon’s effectiveness from every company.
This is a daunting challenge. Amazon’s continually
improved supply chain is designed to give it an edge. By
managing its own inventory and that of third parties,
Amazon gets volume discounts with shippers. Through
co-locating small, dedicated distribution centers within
key suppliers, such as Procter & Gamble, it lowers ware-
housing costs. By shipping a growing number of items us-
ing the Amazon freight network, it saves on shipping costs.
But you can emulate some aspects of Amazon’s prac-
71 10 principles of customer strategy
tices, even if you don’t deliver nearly as high a proportion
of merchandise directly. You can tailor delivery options
on the basis of margin, brand positioning, and customers’
value expectations — while staying in step with techno-
logical advances. Data and analytics are the keys to these
efforts. The use of relevant metrics, including customer
experience, cost, and productivity, can help ensure high-
quality delivery without sacrificing profitability.

9. Reorganize around the customer. Your organization should

be “fit for your customer”: that is to say, it should be de-
signed to make it easy to deliver a great customer experi-
ence. If you have already gone through the first eight prin-
ciples, you should have a clear idea of your chosen
customers, your identity, and your capabilities — and why
these give you a right to win. Now redesign the organiza-
tion accordingly. This might involve changing decision
rights, shifting roles and responsibilities, establishing new
teams, and aligning incentives, norms, and practices, al-
ways with your preferred customer groups and value prop-
osition in mind. In other words, you may need to take the
formal mechanisms and hierarchical structures of the ex-
isting company — your organizational DNA — and wire
them differently.
72 10 principles of customer strategy
 Resist the temptation to adopt elements of agile devel-
opment from technology companies and apply them to
customer strategy. These elements include rapid mobiliza-
tion on new projects (“sprint and scrum”), multidisci-
plinary teams, greater and faster information sharing,
rapid decision making, and continuous collaboration and
problem solving. Agility of this sort gives you flexibility,
but it can also lead you to distracting, unprofitable en-
deavors. Don’t try to be agile just for the sake of being
agile. Clearly articulate how these methods will help you
develop a powerful customer strategy.
You also need to attract and retain the right talent.
This means not only people with technological skills, but
also those who understand customer experience and the
practices needed to deliver it.
Many companies have instituted a chief customer of-
ficer (CCO) role. But quite often the CCO isn’t able to
create the kind of customer-centric organization we’re talk-
ing about, because responsibility and accountability for
customer strategy remains highly fragmented among sales,
marketing, service, and other functions embedded in busi-
ness units and geographies. Make sure your CCO (if you
have one) directly or indirectly oversees every part of the
organization that touches the customer’s experience.
73 10 principles of customer strategy
10. Match your culture with your customer strategy. A relevant
culture is a bigger advantage than ever for customer-facing
companies. In our survey and interviews, a majority of ex-
ecutives said that the biggest barriers to a successful cus-
tomer strategy were finding the right talent and developing
the right organizational culture. Yet among companies that
ranked meeting customer expectations as one of their top
priorities in our survey, just 51 percent said they used cul-
ture as an accelerant and a differentiator.
Keeping your culture vibrant takes diligence. You
might feel that your embedded cultural inhibitors hold
you back. Veteran managers may mistrust the social col-
laboration tools that younger and more digitally adept
employees use freely. The rank and file may be skeptical
about the cultural changes you are trying to implement.
Don’t try to fix these problems directly; instead, focus
on the few critical behaviors that exist in your organiza-
tion in which people are doing well for their customers.
These might include mobilizing a cross-functional team
to help a customer solve a particular problem quickly, say-
ing no to a potential deal with a customer with whom you
don’t have a right to win, or starting each meeting by ex-
plicitly asking how the topic under discussion is relevant
to the customer strategy. Then help spread these behaviors
74 10 principles of customer strategy
through the rest of the company, in part by explaining
why these behaviors matter.
You may also need to lead by following — becoming
a visible master of these behaviors yourself — while culti-
vating advocates among employees. Keeping a culture
moving forward is one of the hardest tasks companies take
on, which is why many don’t evolve.

Customer-oriented leaders
The 10 principles we’ve laid out are familiar to many
companies. But few companies consistently practice them
with the level of finesse that’s called for.
What, then, should you as a C-level or senior execu-
tive do? First, check your current customer strategy and
see to what extent all 10 principles are addressed. Rather
than just focusing on one or two measures, such as an-
nual sales, incremental sales, market share, or return on
investment, establish a scorecard that captures several of
these dimensions. Then conduct a qualitative assessment
of what your company does well and poorly. As you adjust
your practices, focus on a clear identity. If everything you
do makes sense in a coherent way, you can build customer
relationships that help your business thrive.

75 10 principles of customer strategy

 About the survey

Our researchers emailed the 2016 PwC’s Strategy& Customer Strategy survey to more than 15,000
executives in a variety of industries in North America, South America, Europe, Asia, the Middle East,
and Australia in April 2016.

Of the recipients, 161 completed the survey; 56 percent of the companies that responded were
headquartered in North America. Industries in which the respondents sold their products or
services included construction and real estate, energy, entertainment and media, financial services,
healthcare, manufacturing, mining and agriculture, retail, technology, and transportation.

Annual revenues for responding companies ranged from US$100 million to more than $10 billion.
Of the respondents, 17 percent were at the C-suite level, and 80 percent were at the level of president,
senior or executive vice president, vice president, or director. Sixty-four percent were highly involved
with their company’s customer strategy, and 26 percent were somewhat involved. Of the companies
responding, 44 percent served primarily the B2B market, 14 percent served primarily the B2C
market, and 43 percent served both.

76 10 principles of customer strategy

ORGANIZATIONS & PEOPLE

10 principles
of organization
design
These fundamental guidelines, drawn
from experience, can help you reshape your
organization to fit your business strategy.
by Gary L. Neilson, Jaime Estupiñán, and Bhushan Sethi

77 10 principles of organization design

 Originally published by s+b
on May 23, 2015

A global electronics manufacturer seemed to live in a per-

petual state of reorganization. Introducing a new line of
communication devices for the Asian market required
reorienting its sales, marketing, and support functions.
Migrating to cloud-based business applications called for
changes to the IT organization. Altogether, it had reorga-
nized six times in 10 years.
Suddenly, however, the company found itself facing a
different challenge. Because of the new technologies that
had entered its category, and a sea change in customer ex-
pectations, the CEO decided to shift from a product-based
Illustration on previous page by Lars Leetaru

business model to a customer-centric one. That meant yet

another reorganization, but this one would be different. It
had to go beyond shifting the lines and boxes in an org
chart. It would have to change the company’s most funda-
mental building blocks: how people in the company made
decisions, adopted new behaviors, rewarded performance,
78 10 principles of organization design
agreed on commitments, managed information, made sense
of that information, allocated responsibility, and connected
with one another. Not only did the leadership team lack a
full-fledged blueprint — they didn’t know where to begin.
This situation is becoming more typical. In the 18th
annual PwC survey of chief executive officers, conducted
in 2014, many CEOs anticipated significant disruptions
to their businesses during the next five years as a result of
global trends. One such trend, cited by 61 percent of the
respondents, was heightened competition. The same pro-
portion of respondents foresaw changes in customer be-
havior creating disruption. Fifty percent said they expect-
ed changes in distribution channels. As CEOs look to stay
ahead of these trends, they recognize the need to change
their organization’s design. But for that redesign to suc-
ceed, a company must make its changes as effectively and
painlessly as possible, in a way that aligns with its strategy,
invigorates employees, builds distinctive capabilities, and
makes it easier to attract customers.
Today, the average tenure for the CEO of a global com-
pany is about five years. Therefore, a major reorganization
is likely to happen only once during that leader’s term. The
chief executive has to get the reorg right the first time; he
or she won’t get a second chance.
79 10 principles of organization design
 The chief executive has to get the
reorg right the first time; he or she won’t
get a second chance.

Although every company is different, and there is no

set formula for determining the appropriate design for
your organization, we have identified 10 guiding prin-
ciples that apply to every company. These have been de-
veloped through years of research and practice at PwC
and Strategy&, PwC’s strategy consulting business, using
changes in organization design to improve performance
in more than 400 companies across industries and geog-
raphies. These fundamental principles point the way for
leaders whose strategies require a different kind of organi-
zation than the one they have today.

1. Declare amnesty for the past. Organization design should

start with corporate self-reflection: What is your sense of
purpose? How will you make a difference for your clients,
employees, and investors? What will set you apart from
80 10 principles of organization design
 10 principles
of organization
design

Infographic: Opto Design / Lars Leetaru. ©2017 PwC. All rights reserved.

81 10 principles of organization design

others, now and in the future? What differentiating capa-
bilities will allow you to deliver your value proposition
over the next two to five years?
If you’re like many other business leaders, answering
those questions means going beyond your comfort zone.
You have to set a bold direction, marshal the organization
toward that goal, and prioritize everything you do accord-
ingly. Sustaining a forward-looking view is crucial.
We’ve seen a fair number of organization design initia-
tives fail to make a difference because senior executives
got caught up in discussing the pros and cons of the
old organization. Avoid this situation by declaring “am-
nesty for the past.” Collectively, explicitly decide that you
will neither blame nor try to justify the design in place to-
day or any organization designs of the past. It’s time to
move on. This type of pronouncement may sound simple,
but it’s surprisingly effective for keeping the focus on the
new strategy.

2. Design with DNA. Organization design can seem unneces-

sarily complex; the right framework, however, can help you
decode and prioritize the necessary elements. We have iden-
tified eight universal building blocks that are relevant to
any company, regardless of industry, geography, or business
82 10 principles of organization design
Exhibit 1: The eight elements of organization design
Grouped into complementary pairs (the four rungs),
these components can be combined into a design
relevant to any company. When initiating the redesign
of an organization, start with just four or five
changes.

FORMAL INFORMAL
Decisions Norms
How decisions are made How people instinctively act or take action
• Governance forums • Values and standards
• Decision rights • Expectations and “unwritten rules”
• Decision processes • Behaviors
• Decision analytics
Motivators Commitments
How people are compelled to perform How people are inspired to contribute
• Monetary rewards • Shared vision and objectives
• Career models • Individual goals and aspirations
• Talent processes • Sources of pride

Information Mind-sets
How the organization formally processes data and knowledge How people make sense of their work
• Key performance indicators and metrics • Identity, shared language, and beliefs
• Information flows • Assumptions and biases
• Knowledge management systems • Mental models

Structure Networks
How work and responsibilities get divided How people connect beyond the lines and boxes
• Hierarchy and reporting relationships • Conversations and collaboration
• Roles and responsibilities • Teams and other working units
• Business processes • Organizational influence

Source: PwC’s Strategy&

model. These building blocks will be the elements you put

together for your design (see the diagram above).
The blocks naturally fall into four complementary
pairs, each made up of one tangible (or formal) and one
intangible (or informal) element. Decisions are paired with
norms (governing how people act), motivators with com-
mitments (governing factors that affect people’s feelings
about their work), information with mind-sets (governing
83 10 principles of organization design
how they process knowledge and meaning), and structure
with networks (governing how they connect). By using
these elements and considering changes needed across each
complementary pair, you can create a design that will inte-
grate your whole enterprise, instead of pulling it apart.
You may be tempted to make changes with all eight
building blocks simultaneously. But too many interven-
tions at once could interact in unexpected ways, leading
to unfortunate side effects. Pick a small number of chang-
es — five at most — that you believe will deliver the great-
est initial impact. Even a few changes could involve many
variations. For example, the design of motivators might
need to vary from one function to the next. People in sales
might be more heavily influenced by monetary rewards,
whereas R&D staffers might favor a career model with
opportunities for self-directed projects and external col-
laboration and education.

Company leaders know

3. Fix the structure last, not first.
that their current org chart doesn’t necessarily capture the
way things get done — it’s at best a vague approximation.
Yet they still may fall into a common trap: thinking that
changing their organization’s structure will address their
business’s problems.
84 10 principles of organization design
 We can’t blame them — after all, the org chart is seem-
ingly the most powerful communications vehicle around.
It also carries emotional weight, because it defines report-
ing relationships that people might love or hate. But a
company hierarchy, particularly when changes in the org
chart are made in isolation from other changes, tends to
revert to its earlier equilibrium. You can significantly re-
move management layers and temporarily reduce costs,
but all too soon, the layers creep back in and the short-
term gains disappear.
In an org redesign, you’re not setting up a new form for
the organization all at once. You’re laying out a sequence of
interventions that will lead the company from the past to
the future. Structure should be the last thing you change:
the capstone, not the cornerstone, of that sequence. Other-
wise, the change won’t sustain itself.
We saw the value of this approach recently with an
industrial goods manufacturer. In the past, it had under-
taken reorganizations that focused almost solely on struc-
ture, without ever achieving the execution improvement
its leaders expected. Then the stakes grew higher: Fast-
growing competitors emerged from Asia, technological
advances compressed product cycles, and new business
models appeared that bypassed distributors. This time,
85 10 principles of organization design
instead of redrawing the lines and boxes, the company
sought to understand the organizational factors that had
slowed down its responses in the past. There were prob-
lems in the way decisions were made and carried out, and
in how information flowed. Therefore, the first changes in
the sequence concerned these building blocks: eliminat-
ing non-productive meetings (information), clarifying ac-
countabilities in the matrix structure (decisions and
norms), and changing how people were rewarded (moti-
vators). By the time the company was ready to adjust the
org chart, most of the problem factors had been addressed.

4. Make the most of top talent. Talent is a critical but often

overlooked factor when it comes to org design. You might
assume that the personalities and capabilities of existing
executive team members won’t affect the design much. But
in reality, you need to design positions to make the most of
the strengths of the people who will occupy them. In other
words, consider the technical skills and managerial acu-
men of key people, and make sure those leaders are equipped
to foster the collaboration and empowerment needed from
people below them.
You must ensure that there is a connection between
the capabilities you need and the leadership talent you
86 10 principles of organization design
have. For example, if you’re organizing the business on
the basis of innovation and the ability to respond quickly
to changes in the market, the person chosen as chief mar-
keting officer will need a diverse background. Someone
with a conventional marketing background whose core
skills center on low-cost pricing and extensive distribu-
tion might not be comfortable in that role. You can some-
times compensate for a gap in proficiency through other
team members. If the chief financial officer is an excel-
lent technician but has little leadership charisma, you may
balance him or her with a chief operating officer who
excels at the public-facing aspects of the role, such as
speaking with analysts.
As you assemble the leadership team for your strategy,
look for an optimal span of control — the number of di-
rect reports — for your senior executive positions. A Har-
vard Business School study conducted by associate profes-
sor Julie Wulf found that CEOs have doubled their span
of control over the past two decades. Although many ex-
ecutives have seven direct reports, there’s no universal
magic number. For CEOs, the optimal span of control
depends on four factors: the CEO’s tenure thus far, the
degree of cross-collaboration among business units, the
level of CEO activity devoted to something other than
87 10 principles of organization design
working with direct reports, and whether the CEO is also
chairman of the board. (We’ve created a C-level span-of-
control diagnostic to help determine your target span.)

5. Focus on what you can control. Make a list of the things

that hold your organization back: the scarcities (things
you consistently find in short supply) and constraints
(things that consistently slow you down). Taking stock of
real-world limitations helps ensure that you can execute
and sustain the new organization design.
For example, consider the impact you might face if 20
percent of the people who had the most knowledge and
expertise in making and marketing your core products —
your product launch talent — were drawn away for three
years on a regulatory project. How would that talent short-
age affect your product launch capability, especially if it
involved identifying and acting on customer insights?
How might you compensate for this scarcity? Doubling
down on addressing typical scarcities, or what is “not good
enough,” helps prioritize the changes to your organization
model. For example, you may build a product launch cen-
ter of excellence to address the typical scarcity of never
having enough of the people who know how to execute
effective launches.
88 10 principles of organization design
 Constraints on your business — such as regulations,
supply shortages, and changes in customer demand —
may be out of your control. But don’t get bogged down in
trying to change something you can’t change; instead, fo-
cus on changing what you can.
For example, if your company is a global consumer
packaged goods manufacturer, you might first favor a sin-
gle structure with clear decision rights on branding, poli-
cies, and usage guidelines because it is more efficient in
global branding. But if consumer tastes for your product
are different around the world, you might be better off
with a structure that delegates decision rights to the local
business leader.

6. Promote accountability. Design your organization so that

it’s easy for people to be accountable for their part of the
work without being micromanaged. Make sure that deci-
sion rights are clear and that information flows rapidly
and clearly from the executive committee to business
units, functions, and departments. Our research under-
scores the importance of this factor: We analyzed dozens
of companies with strong execution and found that among
the formal building blocks, information and decision
rights had the strongest effect on improving the execution
89 10 principles of organization design
of strategy. They are about twice as powerful as an orga-
nization’s structure or its motivators (see Exhibit 2).
A global electronics manufacturer was struggling with
slow execution and lack of accountability. To address these
issues, it created a matrix that could identify those who
had made important decisions in the past few years. It
then used the matrix to establish clear decision rights and
motivators more in tune with the company’s desired goals.
Sales directors were made accountable for dealers in their
region and were evaluated in terms of the sales per-
formance of those dealers. This encouraged ownership
and high performance on
Exhibit 2: The importance of
both sides, and drew in accountability
critically important but Survey responses suggest that changes in
information flows and decision rights are twice
previously isolated groups, as powerful as changes in an organization’s
motivators or structure.
like the manufacturer’s
warranty function. The Average strength index score (out of 100)
company operationalized Information 54

these new decision rights

Decision rights 50
by establishing the neces-
sary budget authorities, Motivators 26
decision-making forums,
Structure 25
and communications.
When decision rights Source: PwC’s Strategy& analysis of Org DNA Profiler® survey
90 10 principles of organization design
and motivators are established, accountability can take
hold. Gradually, people get in the habit of following through
on commitments without experiencing formal enforce-
ment. Even after it becomes part of the company’s culture,
this new accountability must be continually nurtured and
promoted. It won’t endure if, for example, new additions to
the firm don’t honor commitments or incentives change in a
way that undermines the desired behavior.

7. Benchmark sparingly, if at all. One common misstep is

looking for best practices. In theory, it can be helpful to
track what competitors are doing, if only to help you opti-
mize your own design or uncover issues requiring attention.
But in practice, this approach has a couple of problems.
First, it ignores your organization’s unique capabilities
system — the strengths that only your organization has,
which produces results that others can’t match. You and
your competitor aren’t likely to need the same distinctive
capabilities, even if you’re in the same industry. For ex-
ample, two banks might look similar on the surface; they
might have branches next door to each other in several
locales. But the first could be a national bank catering to
millennials, who are drawn to low costs and innovative
online banking features. The other could be regionally
91 10 principles of organization design
oriented, serving an older customer base and emphasizing
community ties and personalized customer service. Those
different value propositions would require different capa-
bilities and translate into different organization designs.
The national bank might be organized primarily by cus-
tomer segment, making it easy to invest in a single lead-
ing-edge technology that covers all regions and all mar-
kets. The regional bank might be organized primarily by
geography, setting up managers to build better relation-
ships with local leaders and enterprises. If you benchmark
the wrong example, the copied organization model will
only set you back.
Second, even if you have the same strategy as a com-
petitor, who’s to say that its organization is a good fit with
its strategy? If your competitor has a different value prop-
osition or capabilities system than you do, using it as a
comparison for your own performance will be a mistake.
If you feel you must benchmark, focus on a few select
elements, rather than trying to be best in class in every-
thing related to your industry. Your choice of companies
to follow, and of the indicators to track and analyze, should
line up exactly with the capabilities you prioritized in set-
ting your future course. For example, if you are expand-
ing into emerging markets, you might benchmark the ex-
92 10 principles of organization design
tent to which leading companies in that region give local
offices decision rights on sourcing or distribution.

8. Let the “lines and boxes” fit your company’s purpose. For
every company, there is an optimal pattern of hierarchical
relationship — a golden mean. It isn’t the same for every
company; it should reflect the strategy you have chosen,
and it should support the critical capabilities that distin-
guish your company. That means that the right structure
for one company will not be the same as the right struc-
ture for another, even if they’re in the same industry.
In particular, think through your purpose when de-
signing the spans of control and layers in your org chart.
These should be fairly consistent across the organization.
You can often hasten the flow of information and
create greater accountability by reducing layers. But if
the structure gets too flat, your leaders have to supervise
an overwhelming number of people. You can free up
management time by adding staff, but if the pyramid
becomes too steep, it will be hard to get clear messages
from the bottom to the top. So take the nature of your
enterprise into account. Does the work at your company
require close supervision? What role does technology
play? How much collaboration is involved? How far-
93 10 principles of organization design
flung are people geographically, and what is their pre-
ferred management style?
In a call center, 15 or 20 people might report to a single
manager because the work is routine and heavily auto-
mated. An enterprise software implementation team, made
up of specialized knowledge workers, would require a nar-
rower span of control, such as six to eight employees. If
people regularly take on stretch assignments and broadly
participate in decision making, you might have a narrow-
er hierarchy — more managers directing only a few people
each — instead of setting up managers with a large num-
ber of direct reports.

9. Accentuate the informal. Formal elements like structure

and information are attractive to companies because
they’re tangible. They can be easily defined and measured.
But they’re only half the story. Many companies reassign
decision rights, rework the org chart, or set up knowledge-
sharing systems — yet don’t see the results they expect.
That’s because they’ve ignored the more informal, in-
tangible building blocks. Norms, commitments, mind-
sets, and networks are essential in getting things done.
They represent (and influence) the ways people think, feel,
communicate, and behave. When these intangibles are
94 10 principles of organization design
not in sync with one another or the more tangible build-
ing blocks, the organization falters.
At one technology company, it was common practice
to have multiple “meetings before the meeting” and “meet-
ings after the meeting.” In other words, the constructive
debate and planning took place outside the formal presen-
tations that were known as the “official meetings.” The
company had long relied on its informal networks because
people needed workarounds to many official rules. Now,
as part of the redesign, the leaders of the company em-
braced its informal nature, adopting new decision rights
and norms that allowed the company to move more flu-
idly, and abandoning official channels as much as possible.

10. Build on your strengths. Overhauling the organization is

one of the hardest things for a chief executive or division
leader to do, especially if he or she is charged with turning
around a poorly performing company. But there are al-
ways strengths to build on in existing practices and in the
culture. Suppose, for example, that your company has a
norm of customer-oriented commitment. Employees are
willing to go the extra mile for customers when called
upon to do so. They deliver work out of scope or ahead of
schedule, often because they empathize with the problems
95 10 principles of organization design
customers face. You can draw attention to that behavior
by setting up groups to talk about it, and reinforce the
behavior by rewarding it with more formal incentives.
That will help spread it throughout the company.
Perhaps your company has well-defined decision rights,
wherein each person has a good idea of the decisions and
actions for which he or she is responsible. Yet in your cur-
rent org design, they may not be focused on the right
things. You can use this strong accountability and redirect
people to the right decisions to support the new strategy.

Conclusion
A 2014 Strategy& survey found that 42 percent of execu-
tives felt that their organization was not aligned with the
strategy, and that parts of the organization resisted it or
didn’t understand it. If that’s a familiar problem in your
company, the principles in this article can help you develop
an organization design that supports your most distinctive
capabilities and supports your strategy more effectively.
Remaking your organization to align with your strat-
egy is a project that only the top executive of a company,
division, or enterprise can lead. Although it’s not practi-
cal for a CEO to manage the day-to-day details, the top
leader of a company must be consistently present to work
96 10 principles of organization design
through the major issues and alternatives, focus the design
team on the future, and be accountable for the transition
to the new organization. The chief executive will also set
the tone for future updates: Changes in technology, cus-
tomer preferences, and other disruptors will continually
test your business model.
These 10 fundamental principles can serve as your
guideposts for any reorganization, large or small. Armed
with these collective lessons, you can avoid common mis-
steps and home in on the right blueprint for your business.

97 10 principles of organization design

ORGANIZATIONS & PEOPLE

10 principles of
organizational DNA
Based on 10 years of organizational design
(“organizational DNA”) research and 220,000
diagnostic surveys, here’s what we’ve learned
about building high-performance companies.
by Jaime Estupiñán and Gary L. Neilson

98 10 principles of organizational DNA

 Originally published by s+b
on Oct. 27, 2014

Anyone who’s celebrated a significant work anniversary

knows just how much a company can change over the
years — who has a seat at the table, what customers expect,
the most coveted skills. But there’s just as much that stays
the same: what your brand stands for, the shared lexicon,
your unique culture. We use the term organizational DNA
as a metaphor for the underlying organizational and cul-
tural design factors that define an organization’s personal-
ity and determine whether it is strong or weak in executing
strategy (see the diagram on the next page).
Illustration on previous page by Elwood Smith

This year marks the 10th anniversary of our work on

organizational DNA. Since our first article in 2004,
we’ve analyzed more than 220,000 online surveys in
which people describe their company’s personality and
performance. Amid the turbulence of changing business
environments and personnel, 10 precepts have remained
99 10 principles of organizational DNA
Exhibit 1: The eight elements of organization design
Grouped into complementary pairs (the four rungs),
these components can be combined into a design
relevant to any company. When initiating the redesign
of an organization, start with just four or five
changes.

FORMAL INFORMAL
Decisions Norms
How decisions are made How people instinctively act or take action
• Governance forums • Values and standards
• Decision rights • Expectations and “unwritten rules”
• Decision processes • Behaviors
• Decision analytics
Motivators Commitments
How people are compelled to perform How people are inspired to contribute
• Monetary rewards • Shared vision and objectives
• Career models • Individual goals and aspirations
• Talent processes • Sources of pride

Information Mind-sets
How the organization formally processes data and knowledge How people make sense of their work
• Key performance indicators and metrics • Identity, shared language, and beliefs
• Information flows • Assumptions and biases
• Knowledge management systems • Mental models

Structure Networks
How work and responsibilities get divided How people connect beyond the lines and boxes
• Hierarchy and reporting relationships • Conversations and collaboration
• Roles and responsibilities • Teams and other working units
• Business processes • Organizational influence

Source: PwC’s Strategy&

useful, for empowering people and unlocking any orga-

nization’s potential.

1. There are only a few organizational personality types. Every

company may seem unique, but in their enterprise-wide
behavior, companies fall into just seven behavioral
patterns (in order from the least to most effective at execu-
tion): passive-aggressive, overmanaged, outgrown, fits-
100 10 principles of organizational DNA
 No matter how pernicious a
performance problem may seem, other
companies have faced it before.

and-starts, just-in-time, military-precision, and resilient.

People who take our online survey (the Org DNA Profil-
er®) continue to identify their company as one of these
archetypes, regardless of industry and geography. That
means that no matter how pernicious a performance prob-
lem may seem, other companies have undoubtedly faced
it before — and some have prevailed, often by changing
their organizational personality.

2. Companies are mosaics of personalities.Most companies

contain a mix of personalities — having two or three, or
more, business units that fall under different archetypes.
This is especially true of companies that have made major
acquisitions. For example, a 20-year-old technology pow-
erhouse might be a resilient organization. But its newly
acquired health-tech division matches the fits-and-starts
101 10 principles of organizational DNA
profile, characterized by smart entrepreneurial talent but a
lack of collective discipline.

3. Weak execution is prevalent. The connection between

the organization’s personality type and how well the or-
ganization executes on strategy is always strong. When
we analyzed our most recent data set (more than 20,000
respondents), we discovered that a whopping 48 percent
fit a profile distinguished by weak execution. And 11
percent fit into the most vexing of those profiles: the
passive-aggressive organization, in which people pay lip
service to results but consistently undermine the neces-
sary efforts.

The 52 percent of
4. Strong execution is not self-sustaining.
respondents with a strong-execution archetype can’t af-
ford to be complacent. In our experience, even a company
with the most desirable profile, the resilient organization,
must continually work to stay at the top of its game. For
example, its leaders should relentlessly seek feedback from
those closest to the market, encouraging and acting on
criticism from customers and frontline employees, and
taking action to address minor issues before they become
bigger problems.
102 10 principles of organizational DNA
5. Performance is based on interdependent factors. Your or-
ganization’s DNA is made up of four pairs of building blocks:
decision rights and norms, motivators and commitments,
information and mind-sets, and structure and networks.
The way that the building blocks combine determines your
company’s aptitude for execution. It is crucial, then, for
companies that want to improve their execution to consider
the building blocks as a whole and not individually.

Many company leaders

6. The org chart isn’t the solution.
fall into a common trap: They think that changing their
organization’s structure will solve their problems. They
may remove significant management layers and tempo-
rarily reduce costs that way — but all too soon, the layers
creep back in and the short-term efficiencies disappear.
We see structure as the capstone, not the cornerstone. It’s
better to change other formal elements first, like decision
rights, motivators, and information flows, and then fig-
ure out the structural changes needed to support the re-
vitalized company.

7. Intangibles matter.Those formal organizational DNA

elements are attractive to companies because they’re tan-
gible. They can be easily defined and measured. But they’re
103 10 principles of organizational DNA
 10 principles
of organizational
DNA

Infographic: Opto Design / Elwood Smith. ©2016 PwC. All rights reserved.

104 10 principles of organizational DNA

only half the story. Companies often realize this after
they’ve made significant changes — reassigned decision
rights, reworked the org chart, established new incentives,
or set up knowledge-sharing systems — yet don’t see the
results they expect. That’s because they ignored the infor-
mal, intangible elements. These include norms (what peo-
ple think is the right way to behave), commitments (the
promises people feel motivated to keep) mind-sets (deeply
held attitudes and beliefs), and networks (connections
among employees outside the formal structure). They add
up to influence the ways people think, feel, communicate,
and behave. Until you learn to influence these factors,
your efforts to build performance will be unbalanced.

8. Decision rights and information flows deliver. Decision

rights and information traits are twice as powerful as struc-
ture and motivators in driving organizational effectiveness.
We analyzed dozens of strong-execution companies and
discovered that information had the strongest correlation
to execution, at 54 percent, and decision rights correlated
at 50 percent. Structure came in at 25 percent. That may
be why we see more and more companies making smart
use of digital information technology to differentiate them-
selves. But these changes can also be low-tech. One com-
105 10 principles of organizational DNA
pany boosted its performance by setting up regular meet-
ings to ensure that people at the top and the bottom of the
hierarchy were regularly talking together, and information
flowed more effectively among them.

9. Informal factors change when you focus on what works. The

best approach for improving intangibles like norms and
commitments is to use them as a force for transforma-
tion. So, instead of trying to change the culture of your
company, use your intangible strengths to help improve
it. Suppose your company is losing customers despite hav-
ing a deep commitment to customer service. By focusing
attention on a few powerful and positive behaviors, you
can draw out that commitment and boost customer re-
tention rates.

10. High performance can’t be isolated. Rarely do depart-

ments or business units work in isolation. Changes are
more likely to last when they’re made holistically, across
a company or division. Manufacturing needs to know
what sales intends to sell, and sales, in turn, needs to know
what marketing will promote. The more connectivity
among different groups or functions, the more effective
they can become.
106 10 principles of organizational DNA
ORGANIZATIONS & PEOPLE

10 principles
of organizational
culture
Companies can tap their natural advantage
when they focus on changing a few important
behaviors, enlist informal leaders, and harness
the power of employees’ emotions.
by Jon Katzenbach, Carolin Oelschlegel, and James Thomas

107 10 principles of organizational culture

 Originally published by s+b
on Feb. 15, 2016

How often have you heard somebody — a new CEO, a journalist,

a management consultant, a leadership guru, a fellow em-
ployee — talk about the urgent need to change the culture?
They want to make it world-class. To dispense with all the
nonsense and negativity that annoys employees and stops
good intentions from growing into progress. To bring about
an entirely different approach, starting immediately.
These culture critiques are as common as complaints
about the weather — and about as effective. How frequent-
ly have you seen high-minded aspirations to “change the
Illustration on previous page by Lars Leetaru

culture” actually manage to modify the way that people

behave and the way in which they work? And how often
have you seen noticeable long-term improvements?
If the answer to these last two questions is “rarely,” it
wouldn’t surprise us. We don’t believe that swift, wholesale
culture change is possible — or even desirable. After all, a
108 10 principles of organizational culture
company’s culture is its basic personality, the essence of
how its people interact and work. However, it is an elu-
sively complex entity that survives and evolves mostly
through gradual shifts in leadership, strategy, and other
circumstances. We find the most useful definition is also
the simplest: Culture is the self-sustaining pattern of be-
havior that determines how things are done.
Made of instinctive, repetitive habits and emotional re-
sponses, culture can’t be copied or easily pinned down.
Corporate cultures are constantly self-renewing and slowly
evolving: What people feel, think, and believe is reflected
and shaped by the way they go about their business. For-
mal efforts to change a culture (to replace it with some-
thing entirely new and different) seldom manage to get to
the heart of what motivates people, what makes them tick.
Strongly worded memos from on high are deleted within
hours. You can plaster the walls with large banners pro-
claiming new values, but people will go about their days,
right beneath those signs, continuing with the habits that
are familiar and comfortable.
But this inherent complexity shouldn’t deter leaders
from trying to use culture as a lever. If you cannot simply
replace the entire machine, work on realigning some of the
more useful cogs. The name of the game is making use of
109 10 principles of organizational culture
what you cannot change by using some of the emotional
forces within your current culture differently.
Three dimensions of corporate culture affect its align-
ment: symbolic reminders (artifacts that are entirely vis-
ible), keystone behaviors (recurring acts that trigger oth-
er behaviors and that are both visible and invisible), and
mind-sets (attitudes and beliefs that are widely shared
but exclusively invisible). Of these, behaviors are the
most powerful determinant of real change. What people
actually do matters more than what they say or believe.
And so to obtain more positive influences from your cul-
tural situation, you should start working on changing
the most critical behaviors — the mind-sets will follow.
Over time, altered behavior patterns and habits can pro-
duce better results.
You may be asking: If it is so hard to change culture,
why should we even bother to try? Because an organiza-
tion’s current culture contains several reservoirs of emotion-
al energy and influence. Executives who work with them
can greatly accelerate strategic and operating imperatives.
When positive culture forces and strategic priorities are in
sync, companies can draw energy from the way people feel.
This accelerates a company’s movement to gain competitive
advantage, or regain advantages that have been lost.
110 10 principles of organizational culture
 Research shows that companies that use a few specific
cultural catalysts — that is to say, those that use informal
emotional approaches to influencing behavior — are sig-
nificantly more likely to experience change that lasts. Of
the companies that reported consciously using elements of
their culture in the 2013 Global Culture & Change Management
Survey by Strategy&, PwC’s strategy consulting business,
70 percent said their firms achieved sustainable improve-
ment in organizational pride and emotional commitment.
That compares with 35 percent for firms that didn’t use
culture as a lever. Although there is no magic formula, no
brilliant algorithm, no numerical equation that will guar-
antee results, we have gleaned some valuable insights
through decades of research and observation at dozens of
enterprises, including some of the most successful compa-
nies in the world. By adopting the following principles,
your organization can learn to deploy and improve its cul-
ture in a manner that will increase the odds of financial
and operational success.

1. Work with and within your current cultural situations. Deep-

ly embedded cultures cannot be replaced with simple up-
grades, or even with major overhaul efforts. Nor can your
culture be swapped out for a new one as though it were
111 10 principles of organizational culture
an operating system or a CPU. To a degree, your current
cultural situation just is what it is — and it contains com-
ponents that provide natural advantages to companies as
well as components that may act as brakes. We’ve never
seen a culture that is all bad, or one that is all good. To
work with your culture effectively, therefore, you must un-
derstand it, recognize which traits are preeminent and con-
sistent, and discern under what types of conditions these
traits are likely to be a help or a hindrance. Put another
way, there’s both a yin and a yang to cultural traits.
For example, a European pharmaceutical company with
a solid product development pipeline had a tendency to be
inward-looking. It had great execution capabilities and an
excellent record of compliance with regulators around the
world. However, when new products were ready to be
launched, the company had a hard time marketing them to
physicians and healthcare providers. Rather than bemoan-
ing the company’s ingrained insularity — for example, its
collective tendency to value the opinions of internal col-
leagues more than those of outside experts — the leaders
decided to use this feature of its culture to its advantage.
They set up a program through which employees were ac-
knowledged and rewarded by colleagues for “going the extra
mile” to support customers. By recognizing a new kind of
112 10 principles of organizational culture
 10 principles
for mobilizing
your organizational
culture
1 2 3 4 5
Work with and Change behaviors, Focus on Deploy your Don’t let your
within your current and mind-sets a critical few authentic informal formal leaders
cultural situations. will follow. behaviors. leaders. off the hook.

6 7 8 9 10
Link behaviors Demonstrate Use cross- Align programmatic Actively manage
to business impact quickly. organizational efforts with your cultural situation
objectives. methods to behaviors. over time.
go viral.

Infographic: Opto Design / Peter Stemmler. ©2016 PwC. All rights reserved.

113 10 principles of organizational culture

internal authoritativeness, the company tapped a powerful
emotional trigger already in place, and engendered a new
(and strategically important) behavior in its sales force.

2. Change behaviors, and mind-sets will follow. It is a com-

monly held view that behavioral change follows mental
shifts, as surely as night follows day. This is why organiza-
tions often try to change mind-sets (and ultimately behav-
ior) by communicating values and putting them in glossy
brochures. This technique didn’t work well for Enron,
where accounting fraud and scandal were part of everyday
practice, even as the company’s espoused values of excel-
lence, respect, integrity, and communication were carved
into the marble floor of the atrium of its global headquar-
ters in Houston. In reality, culture is much more a matter
of doing than of saying. Trying to change a culture purely
through top-down messaging, training and development
programs, and identifiable cues seldom changes people’s
beliefs or behaviors. In fact, neuroscience research suggests
that people act their way into believing rather than think-
ing their way into acting. Changes to key behaviors —
changes that are tangible, actionable, repeatable, observ-
able, and measurable — are thus a good place to start. Some
good examples of behavior change, which we’ve observed
114 10 principles of organizational culture
 Neuroscience research suggests that
people act their way into believing rather than
thinking their way into acting.

at a number of companies, relate to empowerment (reduc-

ing the number of approvals needed for decisions), collabo-
ration (setting up easy ways to convene joint projects), and
interpersonal relations (devising mutually respectful prac-
tices for raising contentious issues or grievances).
A telecommunications company was seeking to im-
prove its customer service. Rather than trying to influence
mind-sets by, for example, posting signs urging employees
to be polite to disgruntled customers, or having employees
undergo empathy training, the company focused on what
psychologists call a “precursor behavior” — a seemingly
innocuous behavior that reliably precedes the occurrence
of problem behavior. Leaders had noticed that poor team-
ing led to poor customer service, so the company rolled
out a plan to encourage better and more effective teaming
within call centers. To accomplish this, they set up regu-
115 10 principles of organizational culture
lar design sessions for improving practices. When employ-
ees felt they were part of a happy team, and sensed a great-
er level of support from colleagues, they began treating
their customers better.
In another example, a resources company in the Mid-
dle East was seeking to make its workplace safer. Rather
than erect placards threatening workers with consequenc-
es, the company focused on a relatively basic precursor be-
havior: housekeeping. It organized a litter drive. Picking
up trash as a team helped employees take greater pride in
the workplace, which engendered a greater sense of care for
fellow employees and made them more likely to speak up
when they noticed an unsafe situation. Changed behavior,
changed mind-set.

3. Focus on a critical few behaviors.Conventional wisdom

advocates a comprehensive approach — everybody should
change everything that’s not perfect! But companies must
be rigorously selective when it comes to picking behaviors.
The key is to focus on what we call “the critical few,” a
small number of important behaviors that would have great
impact if put into practice by a significant number of peo-
ple. Discern a few things people do throughout the com-
pany that positively affect business performance — for ex-
116 10 principles of organizational culture
ample, ways of starting meetings or talking with customers.
Make sure those are aligned with the company’s overall
strategy. Also check that people feel good about doing these
things, so that you tap into emotional commitment. Then
codify them: Translate those critical behaviors into simple,
practical steps that people can take every day. Next, select
groups of employees who are primed for these few behav-
iors, those who will respond strongly to the new behaviors
and who are likely to implement and spread them.
At an Asian banking company, rapid inorganic growth
had led to diverse ways of working across different units
and geographies. To focus on improving teaming, custom-
er outcomes, and the ability to realize synergies, the CEO
and leadership embarked on a culture-led evolution pro-
gram. They targeted just three critical behaviors: taking
extra steps to delight customers, valuing performance over
seniority, and backing up and supporting one another.
They then converted these three general behaviors into
specifics for each part of the company. Delighting cus-
tomers, for instance, was translated into frontline staff
collaborating with other colleagues to solve client prob-
lems and prioritizing the implementation of process im-
provements that affected customer outcomes. For all three
behaviors, leadership recognized and celebrated examples
117 10 principles of organizational culture
in which people made an extraordinary effort. Senior lead-
ers acted as role models, explicitly modeling these three
new behaviors. The company also identified influential
frontline, client-facing employees who could demonstrate
these new behaviors in action.

4. Deploy your authentic informal leaders. Authority, which

is conferred by a formal position, should not be confused
with leadership. Leadership is a natural attribute, exercised
and displayed informally without regard to title or posi-
tion in the organizational chart. Because authentic infor-
mal leaders, who are found in every organization, are of-
ten not recognized as such, they are frequently overlooked
and underused when it comes to driving culture. It is pos-
sible to identify such leaders through interviews, surveys,
and tools such as organizational network analysis, which
allow companies to construct maps of complex internal
social relations by analyzing email statistics and meeting
records. Once identified, these leaders can become power-
ful allies who can influence behavior through “showing
by doing.” In fact, when companies map out their organi-
zations, they can identify leaders who exhibit different
core leadership strengths (see “Four types of authentic in-
formal leaders,” next page).
118 10 principles of organizational culture
 At one major oil company, an informal leader named
Osama became known as the “turbo-collaborator.” His role
gave him very little formal influence. But when he began
working at the refinery, he walked the plant with the en-
gineers, maintenance technicians, and operators, and took
copious notes. As a result, he knew everyone and developed
relationships across disciplines. Whenever somebody want-

Four types of authentic informal leaders

Every organization has people who influence and energize others without relying on their title or
formal position in the hierarchy to do so. We call them “authentic informal leaders.” They are a
powerful resource in spreading a critical few behaviors from the bottom up. Among the many types
of informal leaders present in organizations, the following are seen most frequently.

Pride builders are master motivators of other people, and catalysts for improvement around them.
Often found in the role of line manager, they understand the motivations of those with whom they
work. They know how to foster a sense of excellence among others. They can be found at every level
of a hierarchy; some of the most effective pride builders are close to the front line, where they can
interact directly with customers as well as employees. Pride builders often have powerful insights
about the culture and about what behaviors are likely to lead to improvement.

Exemplars are role models. They bring vital behaviors or skills to life, and others pay attention to them.
They are respected and are effective peer influencers in middle and senior management cohorts.

Networkers are hubs of personal communication within the organization. They know many
people, and communicate freely and openly with them. They serve as links among people who
might not otherwise share information or ideas. If you want to see an idea travel virally through an
enterprise, enlist your networkers.

Early adopters enthusiastically latch onto and experiment with new technologies, processes,
and ways of working. Involve them in your performance pilots, or whenever you are trying to demon-
strate impact quickly.

119 10 principles of organizational culture

ed to know how the place really worked, they would speak
to Osama — who would either have the answer in his note-
book or know precisely the right person to ask. When the
company formed a buddy program between operations and
maintenance aimed at using greater collaboration to im-
prove plant reliability, it knew it needed Osama at the heart
of it. He connected people, defined templates to encourage
collaboration, and captured success stories. Identifying, en-
gaging, and nurturing such informal leaders allows com-
panies to harness their talents and further the company’s
transformation efforts.

Most organiza-
5. Don’t let your formal leaders off the hook.
tions tend to shunt culture into the silo of human resourc-

VIDEO FEATURE
What is corporate culture?
At its worst, culture can be a drag
on productivity. At its best, it is
an emotional energizer. Here’s
how companies can use it to gain
a competitive advantage.

120 10 principles of organizational culture

es professionals. But leaders in all parts of the company are
critical in safeguarding and championing desired behav-
iors, energizing personal feelings, and reinforcing cultural
alignment. The signaling of emotional commitment sets
the tone for others to follow. If staff members see a discon-
nect between the culture an organization promulgates and
the one its formal leadership follows, they’ll disengage
quickly from the advertised culture and simply mimic their
seniors’ behavior. The people at the top have to demon-
strate the change they want to see. Here, too, the critical
few come into play. A handful of the right kind of leaders
have to be on board to start the process.
When Jim Rogers was CEO of GE Motors in Fort
Wayne, Ind., he became frustrated because his senior lead-
ership group of more than 15 leaders seldom functioned
together as a “real team.” As described by Jon Katzenbach
and Douglas K. Smith in The Wisdom of Teams: Creating
the High-Performance Organization (Harvard Business
School Press, 1993), a real team is one with a high level of
emotional commitment; the leadership role shifts easily
among the members depending on their skills and experi-
ence and the challenges of the moment, rather than on any
hierarchical positions. Team members hold one another ac-
countable for the quality of their collective work. Interest-
121 10 principles of organizational culture
ingly, at GE Motors the senior leadership group members
often demonstrated real team capabilities in running their
individual business units and functions. So Rogers decided
to find ways to break them into subteams of three or four
members to address specific cross-organizational issues fac-
ing the larger group. Over time, he mixed the subgroup-
ings to match emerging issues. By working in different sub-
group settings, the executives developed camaraderie, which
in turn improved the effectiveness of the group as a whole.

6. Link behaviors to business objectives. When people talk

about feelings, motivations, and values — all of which are
vital elements of strong cultures — the conversation can
often veer into abstractions. It may then range far afield of
what it takes to succeed in the market. Too many employ-
ees walk away from culture-focused town halls or values
discussions wondering how the advice on how to be a bet-
ter person actually translates into the work they do. To
avoid this disconnect, offer tangible, well-defined exam-
ples of how cultural interventions lead to improved per-
formance and financial outcomes. Select behaviors that
are aimed specifically at improving business performance
and can be measured over time.
An oil company’s drive to reduce maintenance costs at
122 10 principles of organizational culture
an industrial installation highlights the importance of
such an approach. The critical few behaviors included em-
powerment and good decision making. One of the com-
pany’s exemplars (employees who lead by example) de-
cided it would be a smart move to make costs visible to
workers. So he placed price tags on various pieces of ma-
chinery. These cues inspired behavioral changes related to
decisions about whether to repair or replace equipment.
Workers and managers began to recommend fixing ex-
pensive equipment rather than replacing it. The company
celebrated and publicized cost savings identified by em-
ployees. The behaviors led to a change in focus and mind-
set. When an employee noticed that fans were cooling the
machinery during the winter, he felt empowered to call it
out, and ask whether it was necessary to do so. It turned
out that it wasn’t — and the company saved US$750,000
annually in power costs as a result.

7. Demonstrate impact quickly. We live in an age of notori-

ously short attention spans. That applies as much to orga-
nizational culture as it does to people’s media consump-
tion habits. When people hear about new high-profile
initiatives and efforts, and then don’t see any activity re-
lated to them for several months, they’ll disengage and
123 10 principles of organizational culture
grow cynical. That’s why it is extremely important to
showcase the impact of cultural efforts on business results
as quickly as possible. One effective method of doing so is
to stage performance pilots — that is, high-profile dem-
onstration projects. Pilots are relatively low-risk efforts
that introduce specific behaviors that can then be evalu-
ated and assessed. They often rely on a dashboard that
defines desired impacts, the tactics used, and the specific
metrics to be employed.
When Bell Canada first explored using new behaviors
at the front line to improve its customer service and profit-
ability, there were many more skeptics than believers with-
in the leadership ranks. There simply wasn’t any numeri-
cal proof that the tactics would work. So CEO Michael
Sabia decided to set up a pilot test in a sales unit near
Toronto. The sponsors of the test blocked out a tight time
frame of eight months, and developed realistic ways of
measuring behavior change, customer reactions, and ac-
tual sales and margin performance. Armed with positive
results in these areas — a 29 percent increase in customer
satisfaction in retail stores, a 31 percent increase in revenue
per call at call centers — the company went on to acceler-
ate the expansion of these efforts across the front line in
different geographies, functions, and businesses.
124 10 principles of organizational culture
 People are often more receptive to changes
when those changes are recommended
by friends, colleagues, and other associates.

8. Use cross-organizational methods to go viral. Ideas can

spread virally across organizational departments and func-
tions, as well as from the top down and from the bottom
up. One powerful way to spread ideas is through social
media: blogs, Facebook or LinkedIn posts, and tweets —
not from senior management, but from some of the au-
thentic informal leaders mentioned in Principle 4.
By now it is well established that social media can be
more effective at spreading information, news, and music
than traditional modes of distribution. The same holds
with critical behaviors. People are often more receptive
to changes in “the way we do things around here” when
those changes are recommended or shared by friends, col-
leagues, and other associates. This kind of credible social
proof is more compelling than similar testimonials from
125 10 principles of organizational culture
someone whose job it is to sell something.
Just as there is an art to making content go viral, there’s
a craft to making behavior go viral. For example, in a
model that we have tested successfully in several situa-
tions, a company starts with a few carefully chosen groups
of 12 to 15 informal leaders in three or four different parts
of the business. After several weeks, an additional 10 to 15
groups of informal leaders are set up in every business
unit. After about three months, the existing groups are
encouraged to expand and bring in new people. After an-
other three to six months have passed, the groups become
more autonomous, allowed to control their own expan-
sion. Meanwhile, the company facilitates connections
among groups to share learning and insights. As behavior
spreads, company leaders see increased performance as
well as peer and leadership recognition.

We’ve empha-
9. Align programmatic efforts with behaviors.
sized the role that informal leaders can play in helping
ideas go viral. But it’s also important to match the new
cultural direction with existing ways of doing business.
Informal mechanisms and cultural interventions must
complement and integrate with the more common formal
organization components, not work at cross-purposes. By
126 10 principles of organizational culture
providing the structure in which people work — through
disciplines such as organization design, analytics, human
resources, and lean process improvement — the formal
organization provides a rational motivation for employee
actions, while the informal organization enables the emo-
tional commitment that characterizes peak performance.
The U.S. Marine Corps provides a classic example of
integrating formal and informal leadership efforts. The
“rule of three” dictates how the Marines design their orga-
nizations and projects and how they execute in a hierarchy.
(Three squads form into one of three divisions, which form
one of three battalions.) The formal leaders of those units
are expected to know the intent of the officer two levels
above them — and to call out any order or situation they
perceive to be incoherent or in conflict with that intent.
But there are also informal leaders: Each of the four mem-
bers of a frontline rifle team is prepared (and expected)
to take the lead whenever the formal leader is disabled or
loses the high-ground position. This means that the infor-
mal leaders also need to know the intent of that officer
two levels above. Integrating informal norms with the for-
mal structures helps enable the timely battlefield adjust-
ments that have served the Marine Corps well for more
than 200 years.
127 10 principles of organizational culture
10. Actively manage your cultural situation over time. Com-
panies that have had great success working with culture
— we call them “culture superstars” — actively monitor,
manage, care for, and update their cultural forces. Why?
As we noted at the outset, when aligned with strategic and
operating priorities, culture can provide hidden sources of
energy and motivation that can accelerate changes faster
than formal processes and programs. Even if you have a
highly effective culture today, it may not be good enough
for tomorrow.
Southwest Airlines stands as an example of a battle-
tested company in which culture has been managed over
time. Famous for its long-term success in an industry
where even the largest players routinely fail, Southwest for
40 years has been energized by a deep sense of pride among
all employees. Southwest has found that constructing an
environment that puts its employees first — above cus-
tomers and owners — fosters a sense of emotional com-
mitment and pride that delivers excellent customer ser-
vice. But at Southwest, the work on culture is never
completed. Just as the airline’s strategy, tactics, and tech-
nologies have evolved to cope with a changing external
environment, specific HR practices, including informal
behaviors, have shifted over time.
128 10 principles of organizational culture
Living in your culture
Although challenging, multidimensional, and often dif-
ficult to deal with, a company’s cultural situation consti-
tutes a powerful set of emotional resources. As is the case
with other resources — human, technological, financial
— it is incumbent upon leaders to strive to get the most
value out of it.
To a degree, culture can be compared to natural forces
such as winds and tides. These elements are there in the
background, sometimes unnoticed, sometimes obvious.
Endowed with immense power, they can waylay plans and
inhibit progress. They can’t really be tamed or fundamen-
tally altered. But if you respect them and understand how
to make the most of them, if you work with them and tap
into their hidden power, they can become a source of en-
ergy and provide powerful assistance.
The best way to start is to ask yourself a series of ques-
tions. What are the most important emotional forces that
determine what your people do? What few behavior
changes would matter most in meeting strategic and op-
erational imperatives? Who are the authentic informal
leaders you can enlist? And what can you and your fellow
senior leaders do differently to signal and reinforce those
critical behaviors?
129 10 principles of organizational culture
 Of course, you shouldn’t plan for dramatic results over-
night. Expect an evolution, not a revolution. One of the
challenges of working with culture is that, as we’ve noted,
it changes gradually — often too slowly for leaders facing
fast-moving competitors. That’s the bad news. The good
news? If you approach culture with respect and intelligence,
as a milieu in which you and your enterprise live, you can
use it to accelerate your competitive momentum. There’s
no better time than the present to start.
The following people also contributed to this article: PwC Australia
partner Varya Davidson, PwC Japan partner Kenji Mitsui, PwC US
principal Henning Hagen, and PwC Malaysia senior manager Shona
Especkerman, along with Rutger von Post.

130 10 principles of organizational culture

ORGANIZATIONS & PEOPLE

10 principles
of leading change
management
These time-honored tools and techniques
can help companies transform quickly.
by DeAnne Aguirre and Micah Alpern

131 10 principles of leading change management

 Originally published by s+b
on June 6, 2014

This article is a revision and

update of “10 Principles of Change
Management,” by John Jones,
DeAnne Aguirre, and Matthew
Calderone, s+b, Apr. 15, 2004.

Since the mid-2000s, organizational change management and

transformation have become permanent features of the
business landscape. Vast new markets and labor pools have
opened up, innovative technologies have put once-power-
ful business models on the chopping block, and capital
flows and investor demand have become less predictable.
To meet these challenges, firms have become more sophis-
ticated in the best practices for organizational change man-
agement. They are far more sensitive to and more keenly
aware of the role that culture plays. They’ve also had to get
much better on their follow-through.
Illustration on previous page by Lo Cole

Yet according to a 2013 survey of global senior execu-

tives on culture and change management, conducted by
the Katzenbach Center at Strategy&, PwC’s strategy con-
sulting business, the success rate of major change initia-
tives is only 54 percent. This is far too low. The costs are
132 10 principles of leading change management
high when change efforts go wrong — not only finan-
cially but in confusion, lost opportunity, wasted resources,
and diminished morale. When employees who have en-
dured real upheaval and put in significant extra hours for
an initiative that was announced with great fanfare see it
simply fizzle out, cynicism sets in.
Our experience with organizational change manage-
ment suggests that there are three major hurdles to over-
come. The first — no surprise — is “change fatigue,” the
exhaustion that sets in when people feel pressured to make
too many transitions at once. A full 65 percent of respon-
dents to the Katzenbach Center survey reported this as a
problem. The change initiatives they suffered through may
have been poorly thought through, rolled out too fast, or put
in place without sufficient preparation. Fatigue is a familiar
problem in organizational change management, especially
when splashy “whole new day” initiatives are driven from
the top.
Change initiatives also flounder, according to 48 per-
cent of the respondents, because companies lack the skills
to ensure that change can be sustained over time. Leaders
might set out eagerly to raise product quality, but when
production schedules slow and the pipeline starts looking
sparse, they lose heart. Lacking an effective way to deal
133 10 principles of leading change management
with production line problems, they decide their targets
were unrealistic, they blame the production technology, or
they accuse their frontline people of not being up to the
task. A much better way to solve the problem is to invest in
operational improvements, such as process design and train-
ing, to instill new practical approaches and give people the
knowledge and cultural support they need.
The third major obstacle is that transformation efforts
are typically decided upon, planned, and implemented in
the C-suite, with little input from those at lower levels. This
filters out information that could be helpful in designing
the initiative while also limiting opportunities to get front-
line ownership of the change. In the Katzenbach Center
survey, 44 percent of participants reported not understand-

VIDEO FEATURE
How to lead change
management
DeAnne Aguirre discusses
techniques that can help
companies transform quickly
and effectively.

134 10 principles of leading change management

ing the changes they were expected to make, and 38 per-
cent said they didn’t agree with the changes.
The following list of 10 guiding principles for change
can help executives navigate the treacherous shoals of trans-
formation in a systematic way.

1. Lead with the culture.Lou Gerstner, who as chief execu-

tive of IBM led one of the most successful business trans-
formations in history, said the most important lesson he
learned from the experience was that “culture is everything.”
Businesspeople today understand this. In the Katzenbach
Center survey, 84 percent said that the organization’s cul-
ture was critical to the success of change management,
and 64 percent saw it as more critical than strategy or
operating model. Yet change leaders often fail to address
culture — in terms of either overcoming cultural resis-
tance or making the most of cultural support. Among
respondents whose companies were unable to sustain
change over time, a startling 76 percent reported that
executives failed to take account of the existing culture
when designing the transformation effort.
Why would this be true, given the widespread recog-
nition of culture’s importance? Perhaps it’s because change
management designers view their company’s culture as
135 10 principles of leading change management
 10 principles
of leading
change
management

6 7 8 9 10

Infographic: Opto Design / Martin Leon Barreto. ©2016 PwC. All rights reserved.

136 10 principles of leading change management

the legacy of a past from which they want to move on. Or
they get so focused on structural details — reporting lines,
decision rights, and formal processes — that they forget
that human beings with strong emotional connections to
the culture will be enacting these changes. Or they as-
sume that culture, because it is “soft” and informal, will
be malleable enough to adapt without requiring explicit
attention.
Yet skilled change managers, conscious of organiza-
tional change management best practices, always make
the most of their company’s existing culture. Instead of
trying to change the culture itself, they draw emotional
energy from it. They tap into the way people already think,
behave, work, and feel to provide a boost to the change
initiative. To use this emotional energy, leaders must look
for the elements of the culture that are aligned to the
change, bring them to the foreground, and attract the at-
tention of the people who will be affected by the change.
In two healthcare companies undergoing a merger, cul-
ture led the post-deal integration. Using a culture-related
diagnostic questionnaire, the change management team
asked people to describe each company’s operating style —
and mapped the responses from the two legacy companies
to get a sense of their combined strengths and challenges.
137 10 principles of leading change management
It quickly became clear that where one company had a cul-
ture attuned to bottom-line results, the other tended to fo-
cus on process. Optimally, the new company would need
to skillfully use processes to deliver clear results. By first
taking the time to recognize and acknowledge each com-
pany’s underlying culture, leaders of the merged firm har-
nessed deeply ingrained strengths to energize the change
and avoided the incoherence that could have resulted from
a less intentional and sensitive redesign.

2. Start at the top. Although it’s important to engage em-

ployees at every level early on, all successful change man-
agement initiatives start at the top, with a committed and
well-aligned group of executives strongly supported by the
CEO. This alignment can’t be taken for granted. Rather,
work must be done in advance to ensure that everyone
agrees about the case for the change and the particulars for
implementing it.
A clinical research firm was committed to tripling its
size over the next decade to achieve a more competitive po-
sition. Because the company was still pretty much operat-
ing as a startup after 25 years, this required a far-reaching
organizational redesign. Before starting the design phase,
finance leaders gathered at an off-site meeting to begin a
138 10 principles of leading change management
rigorous exercise in alignment. The exercise included a lead-
ership team effectiveness survey, which revealed that though
these leaders called themselves a team, they didn’t really see
themselves that way. Instead, they mostly operated as lone
rangers, in characteristic startup style.
Each of the executives in the group made a thoughtful
individual presentation about the case for change. Most of
them agreed on the general direction the company needed
to take to achieve rapid growth. But their descriptions of
how to move in that direction — for example, what the
first concrete steps should be — were all over the map.
They were then tasked to work together to develop a case
for change that every one of them could support.
To hammer out these agreements, these top executives
had to listen closely to their colleagues and weigh conflict-
ing points of view. The exercise was demanding, but they
began to coalesce around a coherent vision for what the
company should look like in 10 years. Most importantly,
the experience of working together so intensely led the ex-
ecutives, for once, to act as a collaborative and committed
team. By the end of the off-site meeting, they found that
they were all using the same language to describe what the
company needed to do. As one participant noted, the expe-
rience had transformed him, which in turn gave him con-
139 10 principles of leading change management
fidence that together they could cascade the plan to other
groups at other levels of the hierarchy.

3. Involve every layer.Strategic planners often fail to take

into account the extent to which midlevel and frontline
people can make or break a change initiative. The path of
rolling out change is immeasurably smoother if these peo-
ple are tapped early for input on issues that will affect
their jobs. Frontline people tend to be rich repositories of
knowledge about where potential glitches may occur, what
technical and logistical issues need to be addressed, and
how customers may react to changes. In addition, their
full-hearted engagement can smooth the way for complex
change initiatives, whereas their resistance will make im-
plementation an ongoing challenge.
Planners who resist early engagement at multiple levels
of the hierarchy often do so because they believe that the
process will be more efficient if fewer people are involved
in planning. But although it may take longer in the begin-
ning, ensuring broad involvement saves untold headaches
later on. Not only does more information surface, but
people are more invested when they’ve had a hand in de-
veloping a plan. One common aphorism in change man-
agement is “you have to go slow to go fast.”
140 10 principles of leading change management
 IBM recognized the need for such an approach in
2003, when rolling out a new initiative on culture. The
leadership team had met intensively to develop clear defi-
nitions of the cultural traits the organization would re-
quire going forward. They then declared a “values jam,” a
website set up for a 72-hour period, where anyone in the
company could post comments, responses, suggestions,
and concerns. Leaders then made key changes based on
the feedback they received and communicated clearly how
the input they’d received was being incorporated.

4. Make the rational and emotional case together. Leaders

will often make the case for major change on the sole ba-
sis of strategic business objectives such as “we will enter
new markets” or “we will grow 20 percent a year for the
next three years.” Such objectives are fine as far as they
go, but they rarely reach people emotionally in a way that
ensures genuine commitment to the cause. Human be-
ings respond to calls to action that engage their hearts as
well as their minds, making them feel as if they’re part of
something consequential.
Hewlett-Packard CEO Meg Whitman and her senior
executive team appear to be following this principle in
their transformation efforts. They have sought to activate
141 10 principles of leading change management
a strong personal connection between HP and its employ-
ees, by drawing directly on the company’s cultural history
and traditions. For example, through symbolic gestures
such as tearing down the fences that surrounded the ex-
ecutive parking lot and moving top executives into cubi-
cles, the company has reinforced the original “HP Way”
ethic in which the intrinsic quality of the work is as im-
portant as one’s position in the hierarchy. (Whitman tells
this story in an April 2013 LinkedIn blog post, “The Pow-
er of Transparent Communication.”) This strategy con-
trasts with that of Whitman’s immediate predecessors,
who had declared it was time for the company to abandon
its core identity. In any organization facing a challenging
environment, the emotional connection fostered by moves
like these is likely to make a major difference.

5. Act your way into new thinking. Many change initiatives

seem to assume that people will begin to shift their behav-
iors once formal elements like directives and incentives
have been put in place. People who work together on cross-
functional teams will start collaborating because the lines
on the chart show they are supposed to do so. Managers
will become clear communicators because they have a
mandate to deliver a message about the new strategy.
142 10 principles of leading change management
 Yet lines on a chart and bold statements of intent have
only so much impact. Far more critical to the success of
any change initiative is ensuring that people’s daily behav-
iors reflect the imperative of change. Start by defining a
critical few behaviors that will be essential to the success of
the initiative. Then conduct everyday business with those
behaviors front and center. Senior leaders must visibly
model these new behaviors themselves, right from the start,
because employees will believe real change is occurring
only when they see it happening at the top of the company.
Leaders of a major global manufacturer seeking to es-
cape bankruptcy believed the company had lost touch with
customers because of entrenched problems in its culture.
Managers operated in an overly layered system without
much accountability. They were ponderous, risk averse, in-
sular, and prone to spending time on approvals and office
politics. Instead of implementing a dramatic, full-scale
turnaround, the change team demanded that leaders adopt
three specific behaviors:
• Make major, visible decisions in days instead of
weeks or months.
• Spend time with people at the frontline leadership
(supervisory) level, asking for their input and engag-
ing them in frank discussions.
143 10 principles of leading change management
 • Ensure the middle and lower ranks have direct con-
tact with real-life customers.
Because these behavioral shifts were both limited and
clearly spelled out, they were implemented quickly. Leaders
were asked to act “as if” the organization did things this
way, rather than trying to think their way out of old ways
of being. These behaviors accelerated the company’s pas-
sage out of bankruptcy, which occurred ahead of schedule.

6. Engage, engage, engage. Leaders often make the mistake

of imagining that if they convey a strong message of change
at the start of an initiative, people will understand what to
do. Nothing could be further from the truth. Powerful
and sustained change requires constant communication,
not only throughout the rollout but after the major ele-
ments of the plan are in place. The more kinds of com-
munication employed, the more effective they are, which
is why HP’s tearing down that fence was so important:
Symbols reinforce the impact of words.
A global publisher undertook a major initiative to be-
come more digital, putting in place far-reaching structural
changes. The top leaders decided to engage people through-
out the company at a variety of levels. First, they convened
a series of town halls where large groups were given the
144 10 principles of leading change management
news and invited to ask how the shift would affect them.
Executives followed this with function-wide meetings where
people could learn, for example, about the prospective im-
pact on finance or human resources. The company also of-
fered a version of fireside conversations they called “PIE
chats” (PIE stood for performance, innovation, and execu-
tion). Finally, an internal trade fair was planned to showcase
what various teams were doing to make the company more
digital. This multifaceted and ongoing communications ef-
fort kept the message alive, giving every employee an un-
derstanding of the change and a stake in the outcome.

Change has the best chance of

7. Lead outside the lines.
cascading through an organization when everyone with
authority and influence is involved. In addition to those
who hold formal positions of power — the company’s rec-
ognized leaders — this group includes people whose pow-
er is more informal and is related to their expertise, to the
breadth of their network, or to personal qualities that en-
gender trust.
We call these informal leaders “special forces.” They
can be found throughout any organization. They might
include a well-respected field supervisor, an innovative
project manager, or a receptionist who’s been at the firm
145 10 principles of leading change management
for 25 years. Companies that succeed at implementing
major change identify these people early and find ways to
involve them as participants and guides. There are three
distinct kinds of informal leaders:
• Pride builders are great at motivating others and in-
spiring them to take pride in their work. People influenced
by them feel good about working for the organization and
have a desire to go above and beyond.
• Trusted nodes are go-to people. They are repositories
of the organization’s culture. They are the ones approached
by people who want to know what’s really happening in
the organization — for example, when they’re trying to
figure out if those leading a change initiative are actually
going to follow through.
• Change or culture ambassadors know, as if by instinct,
how to live the change the organization is making. They
serve as both exemplars and communicators, spreading
the word about why change is important.
Informal leaders must be identified before they can
be engaged. The best way to do this in a large organiza-
tion is to run a network analysis. By mapping out con-
nections and seeing who people talk to, you can comple-
ment the formal org chart with one that enables you to
lead outside the lines.
146 10 principles of leading change management
8. Leverage formal solutions. Persuading people to change
their behavior won’t suffice for transformation unless for-
mal elements — such as structure, reward systems, ways
of operating, training, and development — are redesigned
to support them. Many companies fall short in this area.
A law firm tried to professionalize its clubby culture,
which clients perceived as inwardly focused. The lead
partner group recognized that associates needed more for-
mal mentoring and development. The existing system, in
which partners who headed the practice groups conducted
all the training, had led to uneven results. So the transfor-
mation team created a development committee and put
out a call for experienced staff members willing to work
with new hires. The team was delighted when a strong
group of contributors volunteered and put in the time re-
quired to design a robust development program and start
engaging associates.
After a strong start, however, the effort faltered; people
who had been enthusiastic fell away. Debriefing those in-
volved, leadership identified the problem: No formal
mechanisms were in place to support or reward this par-
ticipation. Calculations for bonuses left development work
out of the equation, and although senior partners paid lip
service to the “wonderful work” the development com-
147 10 principles of leading change management
mittee was doing, they seemed to regard its members as
internal volunteers. Once they recognized this problem,
the firm’s leaders enacted substantial policy changes, start-
ing with a mechanism the compensation committee could
use to take into account the contributions made by those
who trained others.

9. Leverage informal solutions. Even when the formal ele-

ments needed for change are present, the established cul-
ture can undermine them if people revert to long-held but
unconscious ways of behaving. This is why formal and
informal solutions must work together.
A top-tier technology company was trying to inculcate
a more customer-centric mind-set after a decade focused
on relentlessly cutting costs. Survey diagnostics revealed
significant customer dissatisfaction with the quality of the
company’s products, which were too often released into
the marketplace with significant flaws. A set of new pro-
cedures was put in place along with metrics to identify
gaps in product development, process quality controls,
and cross-teaming at the front lines.
But one of the most powerful solutions was purely cul-
tural and informal — changing the informal motto that
governed frontline decision making. The slogan of the
148 10 principles of leading change management
cost-cutting era, “Ship by any means,” was replaced by a
new aphorism: “If it’s not right, don’t ship it.” Pride build-
ers were enlisted to instill the message that everyone need-
ed to prevent flawed products from going out, even if that
meant pulling products apart to check them or slowing
down production. By asking people at every level to be
responsible for quality — and by celebrating and reward-
ing improvements — change leaders were able to create an
ethic of ownership in the product and vanquish the old
ethic: “We just do what we’re told.”

10. Assess and adapt. The Katzenbach Center survey re-

vealed that many organizations involved in transforma-
tion efforts fail to measure their success before moving
on. Leaders are so eager to claim victory that they don’t
take the time to find out what’s working and what’s not,
and to adjust their next steps accordingly. This failure to
follow through results in inconsistency and deprives the
organization of needed information about how to support
the process of change throughout its life cycle.
A global consumer products company had made a far-
ranging commitment to lowering costs. Leaders designed
a robust change template and implemented it widely;
the metrics indicated that they were succeeding. But the
149 10 principles of leading change management
company wanted to be sure that people understood the
ongoing nature of this commitment. So they rolled out a
series of pulse surveys and convened focus groups to de-
scribe the case for change and the new behaviors required
of everyone.
The first round of surveys found that only 60 percent
of respondents understood the message. The company then
called on informal leaders to play a bigger role in evange-
lizing for the initiative. They continued to run these sur-
veys and focus groups to measure the result until a more
sizable majority of the staff had shown they were prepared.
These 10 guiding principles offer a powerful template
for leaders who are committed to effecting sustained trans-
formational change. The work required can be arduous
and exacting. But the need for major change initiatives is
only going to become more urgent. It behooves us all to
get it right.

150 10 principles of leading change management

ORGANIZATIONS & PEOPLE

10 principles
of workforce
transformation
How to raise the skills of your employees to
meet your digital challenges.
by Deniz Caglar and Carrie Duarte

151 10 principles of workforce transformation

 Originally published by s+b
on Sept. 25, 2019

When you (or your board members) think about thriving in

a digital world, you probably think first about technology.
It’s evolving so fast that your business constantly has to
adapt. But the greatest challenge is not the tech itself: It’s
developing a knowledgeable, strategically adept, cognitively
flexible, and proficient workforce. You want people who
can command artificial intelligence, analyze data, invent
and apply solutions on the fly, and slide effortlessly into
new roles as needed. All the while, they should keep their
skills sharp with mobile apps and online self-taught courses.
Illustration on previous page by James Yang

Ideas should flow from all corners of the company, wheth-

er from full-time managers or a pool of gig workers who
jump in when work heats up.
The demand for a more talented workforce goes be-
yond adapting to the new digital world. CEOs of fast-
moving organizations — enterprises with bold strategies,
152 10 principles of workforce transformation
innovative cultures, inclusive workforces, and great expec-
tations — need highly skilled people. As a PwC report to the
T20 summit meeting in May 2019 noted, workforce trans-
formation is also closely linked to the productivity gains
needed in both business and the public sector.
Unfortunately, in nearly every industry, the best talent
is in perilously short supply. In PwC’s 22nd Annual Glob-
al CEO Survey, 79 percent of chief executives around the
world said that a lack of key skills threatens their business
growth. Retailers need interface designers who understand
customer experience. Banks and insurance companies need
data visualization experts. Energy, automotive, and indus-
trial companies need team leaders who can manage in-
teroperable platforms. Just about everyone is looking for
employees adept in robotic process automation, materials
science, or simulations with machine learning that can pre-
dict outcomes and streamline processes. They also need
people who can master softer skills, such as managing
teams effectively, gaining trust, working across boundar-
ies, or applying neuroscience findings to increase their own
stature and influence.
Many business leaders realize that they can’t just hire
the workforce they need. There aren’t enough prospective
recruits, and the expense would be enormous. Instead,
153 10 principles of workforce transformation
companies must upskill their existing employees or mem-
bers of their communities. This means expanding people’s
capabilities and employability, often using adult learning
and training tools, to fulfill the talent needs of a rapidly
changing economy.
Upskilling is part of the answer. But you also need to
rethink your jobs: redesign the workflow, combine some
positions, add others, and probably eliminate some. You
need to be more creative in finding and onboarding peo-
ple, including through acquisitions, partnerships, gig
economy–style freelancing arrangements, and talent pools
oriented to flex work. Finally, you must fill your enterprise

A guide to workforce
transformation

Focus on a few Design Change Plan and commit Include

concrete business a compelling behavior to a comprehensive everyone but
outcomes experience first journey the unwilling

1 2 3 4 5 6 7 8 9 10
Foster emotional Start with the Promote Engage Track results and
commitment highest-impact citizen-led with cultural course-correct
roles innovation influencers

Infographic: Opto Design / James Yang. ©2019 PwC. All rights reserved.

154 10 principles of workforce transformation

with opportunities for continual self-renewal via modern
learning strategies and digital technologies, so that becom-
ing adept in new technologies is just part of everyday life.
A workforce transformation brings all these elements
together, oriented specifically to your organization. Your
initiative must be led directly by the CEO and the other
top executives, because your company’s success depends on
the ability and commitment of all your employees. In a suc-
cessful initiative, you’ll do more than approve a budget and
hold the leaders accountable; you’ll take part in the learn-
ing efforts yourself, engage in teaching others, and use this
transformation as a genuine opportunity to improve your
own skills and those of your direct reports.
Because no two organizations have the same circum-
stances, there is no single recipe to follow. But together, the
10 principles below can help you ready your company’s
workforce for the future.

1. Focus on a few concrete business outcomes. Before you

can articulate how your people need to change, you must
know the results you expect them to deliver. Are you using
digital technologies to improve your basic business model?
Have you declared a new AI-enabled strategy and need your
workforce to execute it? Are you seeking market growth
155 10 principles of workforce transformation
through innovation? Do you want more profitability and
productivity? Or are you trying to become more entrepre-
neurial and attentive to customers?
If you aim for all of these goals, you’ll achieve none.
Pick one or two to prioritize now. With that clarity and
focus established, you can define how you want your work-
force to change (and set up the metrics described under
principle number 10). For example, you might need em-
ployees to work with artificial intelligence (AI). This could
lead you to set up an experimentation lab where people
learn to build and test AI-based apps. Or you may need
frontline employees to engage customers in a more com-
pelling way. You might then establish coaching programs,
support technologies, and incentives targeted to them. Ar-
ticulate your vision in bold, clear terms to all constituents:
employees, shareholders, customers, regulators, and citi-
zens. Give employees, in particular, insight into the initial
steps that they can take.
Don’t be afraid to restructure or combine roles if that’s
what is needed. In studying the effect of automation, PwC
economists John Hawksworth and Yuval Fertig concluded
that for many roles, some tasks will become more valuable
and other tasks will be eliminated. In fields such as con-
struction and manufacturing, jobs may need to be struc-
156 10 principles of workforce transformation
tured very differently. Today’s specialized skills, including
programming and analytics, could become as common in
the new world as working with a spreadsheet or word pro-
cessing program is now.
One large chain retailer voiced its chosen outcome: to
attract more shoppers into brick-and-mortar stores by de-
livering a great experience there, not just online. It already
had a presence in many urban and suburban neighbor-
hoods. To accomplish its goal, it tried to reinvent its in-
store ambiance. Though customers often saw it as a conve-
nience store, it would become as casually welcoming as a
coffee bar. The executive team translated this aspiration
into specific actions and outcomes. They would install
easy-to-use and attractive self-checkout kiosks. The store
design, while remaining efficient and resistant to shoplift-
ing, would be lighter, airier, and more open. Managers as-
sessed and coached employees differently, helping them
learn to talk to customers in a friendlier and more authen-
tic way. Articulating the business outcome helped the re-
tailer’s leaders define and crisply communicate how the
workforce needed to change.

2. Foster emotional commitment. To participate wholeheart-

edly in a transformation of this sort, employees need more
157 10 principles of workforce transformation
than a strategic direction and incentives. They need to be
excited about the future and inspired to opt in. You have
to speak to their emotions — in particular, to their deep
wish to see a connection between their own activities and
the larger purpose of the enterprise.
Jon R. Katzenbach, founder of PwC’s Katzenbach Cen-
ter (its global institute on organizational culture and lead-
ership), suggests that many business leaders and managers
avoid addressing emotional commitment directly because
it’s hard to know what people are feeling, and especially
difficult to manage emotions at the scale of hundreds or
thousands of people. Also, most leaders are rational — we
count on them to be! — and thus might have a blind spot
in assessing how people will react emotionally to any type
of change. But it is possible for any leader, no matter how
cerebral in temperament, to foster positive emotions on an
organization-wide level.
What excites and motivates your employees? Why, be-
sides a paycheck, do they keep coming to work? Chances
are, many believe in what the company stands for, identify
with its mission, and are proud to be part of it. At a pet
food manufacturer, employees see their role as enhancing
the quality of life for beloved companions. At a financial
advisory firm, employees know they help people retire safe-
158 10 principles of workforce transformation
ly and securely. A convincing story about the value of the
company’s contribution to the world is a powerful starting
point for any type of emotional engagement.
You also need to recognize how fear, anxiety, and fa-
tigue can escalate when people don’t feel engaged. Even
when people are willing to change, you risk sapping their
energy as their work demands shift. That’s why many com-
panies include flexibility and well-being programs as part
of their long-term workforce transformations.
If you’re a top leader, your personal behaviors are criti-
cally important. Involve HR and other internal profession-
als, but you must be the most visible, excited champion,
articulating the case for change, defending what it requires,
and participating wholeheartedly. When your employees
see you “walking the walk,” they’re more likely to follow
suit. Foster commitment through what Dan Cable, profes-
sor of organizational behavior at the London Business
School, calls “emotions projection”: visibly demonstrating
authentic feelings, for example, in the way you talk and
listen. “Try talking with them first about themselves,” writes
transformation expert and PwC partner David Lancefield,
“not about the business and the challenge. Showing empa-
thy goes a long way.”
Demonstrate commitment by building your own skills.
159 10 principles of workforce transformation
At Danaher, one of the most consistently successful indus-
trial companies, with a long track record of well-integrated
acquisitions, the top 25 leaders (including the CEO) spend
two weeks or more every year leading in-depth training
sessions, which always include visible efforts to improve
their own prowess. In PwC’s own case, the U.S. chairman
and COO were champions of a gamification-style upskill-
ing effort, displaying online the “digital acumen” badges
that signify completion of the training. As word got around,
employees were inspired to fully engage as well.

3. Design a compelling experience. Before you impose your

workforce transformation plan on people, consider what
it will feel like to be caught up in it. A good employee
experience (EX) will make your company well liked, but
that’s not the only benefit. It will give people the cogni-
tive support they need to conduct their jobs with confi-
dence and excellence.
EX design involves many factors. These include the
user interface of desktop and phone apps; the physical
workspace (including the flexibility and movability of
walls, and the availability of spaces for working collabora-
tively and concentrating alone); workload and flexibility
(with a reasonable work–life balance); and the design and
160 10 principles of workforce transformation
range of learning and development opportunities. Anoth-
er factor is the way people treat one another, reinforced
by the enterprise’s culture and operational approaches.
The most compelling learning experiences are intensively
social, involving small groups that meet to develop capa-
bilities together, whose members may stay in touch infor-
mally for years.
People regularly tell survey takers they would favor an
employer who gave them a more intrinsically rewarding job,
with greater control over how they work. Design your EX
accordingly, especially for learning new skills. Provide self-
paced, mobile-friendly modules that can be accessed from
anywhere. Use gamification such as online simulations and
challenges so that people can participate in simulated real-
world business events and learn why their choices worked or
didn’t work. Most importantly, listen to what employees say
as you design these systems. Don’t assume you know how
they learn; offer varied forms of learning, personalized for
different individuals.
Our own efforts to raise skills at PwC include many
innovative EX-related ideas. We selected an “opt-in” ap-
proach, in which we invite employees to voluntarily gain
new skills, rather than a mandatory compliance-driven ini-
tiative. All employees have access to a digital fitness app,
161 10 principles of workforce transformation
offering self-administered courses that they can take at their
own pace. We supplement these courses with Q&A-style
“learning bursts,” virtual game show–style community
events, and an immersive in-person training program called
the Digital Academy. There is also a crowdsourcing plat-
form where people can share bots and apps they have cre-
ated, and receive points when others use them.
As our staff graduate from these academies, they apply
their newly acquired skills in their day-to-day work, so the
skills are more likely to stick. Some people emerge ready to
build a bot or create an AI model; others are now savvy
enough to apply what their peers have created. The em-
ployee creations tend to be productivity enhancers, so that
the act of using them (and further improving them) be-
comes part of the employee experience.

4. Start with the highest-impact roles. Although a workforce

transformation will ultimately reach across the entire or-
ganization, some people’s roles and skill sets are critical
to achieving the highest-priority business outcomes right
away. That’s the population to focus on first.
People with some immediately important skills may
already be working in your organization; you need to find
and reassign them. Other skills may be new and unfamil-
162 10 principles of workforce transformation
iar; you need either to recruit for them or to upskill your
existing staff. Look for people whose temperament and
training would lead them to succeed in the new organiza-
tion, even if their experience isn’t directly relevant in a
traditional sense.
Early successes will build your effort’s reputation and
make it easier for subsequent advances. Laurent Probst
and Christian Scharff, in “A strategist’s guide to upskilling,”
put it this way: “In any given year, only 10 percent of a
company’s workforce is immediately at risk [of losing their
jobs to automation]. If you target that group and success-
fully move them into new roles, you create a track record
and garner further support. Within five years, moving at
the same pace, you can reach close to half of the employ-
ees in a company.”
One pharmacy chain recently needed to invest in its
workforce but had limited funding. Its new strategy called
for employees who could deliver better customer experi-
ence — a change from the older priorities, which empha-
sized operational excellence. Although the entire work-
force needed to adapt, two roles were most essential:
pharmacists and store managers. Pharmacists needed to
be trained in new systems and operational procedures that
would free up time for patients, and they needed to be
163 10 principles of workforce transformation
 What people do changes what they know.
Therefore, any workforce transformation effort
must explicitly design and instill new behaviors.
The skills and knowledge will follow.

coached on better patient engagement. Store managers,

who were responsible for hiring, training, and motivating
employees, needed to learn how to model and teach ex-
ceptional customer service. By concentrating on these two
essential roles, the drugstore chain saw a stronger, swifter
return on investment than if they’d tried to transform ev-
eryone at once. Within two years, the retailer observed
significant increases in its customer experience scores.

5. Change behavior first. What people do changes what they

know. Therefore, any workforce transformation effort must
explicitly design and instill new behaviors. The skills and
knowledge will follow.
It takes thought and time to create behavior change;
change doesn’t sink in when learning is confined to a train-
ing course. For example, to acquire skills in predictive
164 10 principles of workforce transformation
maintenance — a form of artificial intelligence that can
anticipate and prevent possible breakdowns — factory
workers need to learn by doing. The factory worker might
thus get involved in installing sensors, developing a com-
puter model that makes sense of the data, and honing
some interpretive skills: explaining his or her own conclu-
sions about the data, and considering others’ ideas.
Embed new behaviors in everyday business activity.
The book Fit for Growth: A Guide to Strategic Cost Cut-
ting, Restructuring, and Renewal, by Vinay Couto, John
Plansky, and Deniz Caglar, describes a North American
energy company that did this. Top leaders identified four
critical behaviors they wanted to see throughout the com-
pany. These were exhibiting a “can-do mind-set” when
executing strategy, having an enterprise-wide perspective
when making decisions, demonstrating accountability,
and continually developing the company’s people. Then
they translated these into day-to-day actions, and included
the behaviors in performance reviews.
Try digital twin–style simulations of business realities,
virtual reality programs that reproduce a complex envi-
ronment, or augmented reality systems (in which sensors
and other devices are embedded in the environment and
interact with people directly). Implementing these virtual
165 10 principles of workforce transformation
systems carries less risk and cost than changing real-world
systems. Just as airlines use flight simulators to train nov-
ice pilots, companies can allow a novice manager to see
how different strategies might play out over time, without
jeopardy. Not only can employees better understand their
possible decisions with this approach, but they also learn
the behaviors needed to implement them.
Build repetition into the learning experience. Adults
need periodic opportunities to practice and refine their
techniques so that the learning sticks. In psychology, this
principle is known as neuroplasticity. When people con-
tinually behave in a particular way, the brain neurons ad-
just accordingly, so that this behavior becomes easier and
easier, until it is second nature.
Personalize your learning. Adjust the pace of training,
the interplay of practice and reflection, and the measure-
ment of outcomes to account for different roles, experi-
ence levels, and personal preferences. Mid-career finance
professionals will need a different program than will retail
store associates or corporate marketing staff. It’s not just
the content that varies, but the means of delivery: A fa-
cilitated classroom, a discussion guide for supervisors to
share on the job, a digital app, or (ideally) a mutually re-
inforcing combination of these methods are all possible.
166 10 principles of workforce transformation
6. Promote citizen-led innovation. When it comes to behav-
ior change, top-down mandates often fail. That’s espe-
cially likely with today’s employees, who want and expect
to be active participants in any change that affects them.
These individuals are the closest to your customers and to
the day-to-day execution of the business; they know what
needs fixing and how to change it. People on your staff
will come up with insights and opportunities that you
might never have thought of.
But they need an invitation to do so, and a high level
of support. Encourage grassroots efforts to help foster
their investment in the change. Encourage them to ex-
periment with their own ideas for innovations and new
ways of working. The venues could include online fo-
rums, idea laboratories where people work together on
software development, or activities that employees them-
selves suggest.
At PwC, we call this approach “citizen-led innova-
tion.” Leadership sets the direction, and the organization’s
citizens — empowered employees — take it from there.
They choose what digital apps to work on, build solutions,
test them, and post them to PwC’s Digital Lab for other
employees to download and use. The users provide feed-
back and ratings, and the higher-quality offerings then
167 10 principles of workforce transformation
rise to the top. Examples include bots and apps for con-
ducting rapid high-value analysis; for streamlining com-
mon tasks such as reserving rooms or entering timesheet
data; for converting data from spreadsheets to more so-
phisticated dynamic dashboards; and for rearranging work
to bring critical issues to the surface. We see an inspiring
level of enthusiasm and emotional commitment, and have
generated more than 1,500 active digital solutions in just
under one year.

7. Plan and commit to a comprehensive journey. Workforce

transformation does not just happen in a few pockets, but
at scale throughout your enterprise. A full initiative might
take three years or more, rolling out in stages, building
the organization’s capabilities along the way. The initiative
should be planned, prepared for, and resourced according-
ly. Though the time and expense may seem daunting, the
payoff will be worth it, especially if you manage expecta-
tions appropriately.
Don’t try to anticipate everything that will happen.
Any initiative of this sort is full of uncertainty. But you
can set a direction, put a group in charge, and plot how
your efforts will scale gradually through the entire com-
pany — and perhaps through your value chain as well.
168 10 principles of workforce transformation
There will be quick wins along the way, and you will start
seeing returns on investment rapidly. But don’t abandon
the transformation after the first year’s success. Be pre-
pared from the start to invest in long-term success, and to
let each stage of activity build on the success of the previ-
ous stage.
The pharmacy chain mentioned under principle num-
ber four planned for a comprehensive journey to transform
its workforce to a more customer-centric one. It started
with a four-month communications launch. Leaders at
each level in the hierarchy educated their teams on the vi-
sion, plan, and expectations. Top leadership actively par-
ticipated in these education efforts.
The company also invested significantly in a three-year
training program for pharmacists and retail store manag-
ers. The first year focused on rebuilding basic skills, the
second on customer experience, and the third on perfor-
mance leadership. This plan involved pulling highly com-
pensated employees out of the stores for several days a year
— a serious, sustained investment in the company’s future.
And the commitment and perseverance paid off. Within
two years, the retailer experienced significant improve-
ments in its employee engagement and customer satisfac-
tion scores.
169 10 principles of workforce transformation
8. Engage with cultural influencers. Workforce transforma-
tion always involves cultural change. A survey by Strate-
gy&, PwC’s strategy consulting group, of more than 2,200
executives and managers about change management pro-
grams showed that companies were more than twice as
likely to deliver sustainable change when they brought any
existing transformation into alignment with their culture.
The culture of a company, as defined by Jon R. Kat-
zenbach, James Thomas, and Gretchen Anderson in their
book The Critical Few: Energize Your Company’s Culture by Choos-
ing What Really Matters, is “the self-sustaining patterns of
behaving, feeling, thinking, and believing that determine
how things are done within an organization.” Culture
manifests itself in the way people act and talk. You can’t
succeed if you ignore your organization’s culture, and yet
you can’t pin it down or shape it through the formal efforts
of ordinary organizational programs. You have to work
with your culture as it is, not as you think it should be.
Cultural alignment is especially important for a work-
force transformation. Employees may be concerned about
their livelihood; they may think of upskilling as another
crazy management fad that will be abandoned in six
months. And they may not believe that they can learn
new skills well enough or quickly enough to compete.
170 10 principles of workforce transformation
Those around them may be reinforcing that message with
deceptive cultural signals, such as “we’re not good enough
to change.” Those signals can and should be replaced with
new messages such as “we know how to develop the capa-
bilities we need.”
Perhaps the most important resource is the group of
people who are most ready to change. Katzenbach, Thom-
as, and Anderson call them “authentic informal leaders.”
They can be found at any level of the hierarchy. These
people are already acquiring new skills, using all the tools
and opportunities available to them, and demonstrating
the value of workforce transformation by example. They
can help you understand how employees feel and how to
reach them. They are influential not because of their posi-
tion, but because of their capability, energy, and commit-
ment. If 5 or 10 percent of your workforce falls into this
category, that is probably enough to make a difference.
In PwC’s upskilling effort, these individuals were known
as “digital accelerators.” As PwC’s chief people officer Mike
Fenlon and digital talent leader Sarah McEneaney noted in
a recent Harvard Business Review article, they volunteered
to “rapidly deepen their skills in digital specialties, such as
data, automation, AI, and digital storytelling, by learning
a variety of self-service tools and coding languages and
171 10 principles of workforce transformation
applying these skills across our business.” Time was allotted
for them to focus on this new role, and to help them sup-
port learning among their peers. They nominated them-
selves and were selected for their digital skills, naturally, but
also for their social acumen and influence, and their passion
for helping others succeed. That’s what made them true au-
thentic informal leaders.

9. Include everyone but the unwilling. Any comprehensive

workforce transformation must be designed to accommo-
date the full diversity of people, from a variety of back-
grounds, in most large organizations today. To be an inclu-
sive organization does not mean just avoiding bias related
to demographic and identity factors (such as gender, age,
race, ethnic and socioeconomic background, religion, and
sexual orientation). It means embracing the wide range of
experience, perspectives, and goals that people bring to
work. It may also mean establishing a heterogeneous struc-
ture, mixing full-time, part-time, and contract/gig work-
ers; remote workers all around the world; and outsourced
staff employed by other companies — all as part of your
organization’s culture. Companies that live the values of
inclusion are more likely to recruit and retain highly skilled
people, and to benefit from their full complement of skills.
172 10 principles of workforce transformation
 You can expect a diverse range of responses to the ini-
tiative itself. The willing and able are your allies; they will
recognize the value of this effort and may influence others
to join with them. The “unable” employees — those who
feel that they can’t learn the skills of a digital age — can
be reached if you convince them to explore options they
may not have considered. When they see what is possible
for them, they can become highly enthusiastic, eager for
the opportunity to learn.
It’s the unwilling employees — those who covertly or
overtly resist change — who need the most attention. These
people tend to hold what Stanford University professor
Carol Dweck calls the fixed mind-set: the belief that adults’
intelligence and capabilities are essentially stable. People
who believe this may fear that only a few innately smart
people can rise to the challenge of adult learning or acquire
the requisite technological skills.
To counter this belief, you may need to explicitly de-
scribe the “growth mind-set” research pioneered by Dweck
and others, showing that nearly everyone, at any age, is
capable of learning new things and improving his or her
capabilities and intelligence. It generally takes planning,
hard work, and help and mentoring from others, but those
are all elements of your workforce transformation initia-
173 10 principles of workforce transformation
tive. You can also point out that workforce transformation
engenders a leaner, less bureaucratic, more fulfilling work
environment, where people are moved into more produc-
tive roles.
If the unwilling persist in their skepticism, be compas-
sionate but firm — especially if they are middle or senior
managers responsible for leading teams. Hear them out:
Do they have a point? For example, they may have seen
other initiatives come and go without making an impact.
But if these senior leaders still aren’t convinced after you
address their concerns, then they are dangerous. At best,
their tepid support sends a message to others that the trans-
formation isn’t essential; at worst, they sow doubt and dis-
cord. Ask the tough but critical question: Are they a good
fit for the new enterprise you’re building? You may need to
shift them out of a leadership position or even separate them
from the company.

10. Track results and course-correct. As a leader of work-

force transformation, you need to ensure that all the ef-
fort will pay off. There are two basic ways to do this:
Track the workforce transformation and intervene as
needed to course-correct.
Tracking results can be difficult in workforce transfor-
174 10 principles of workforce transformation
mation, because value is sometimes hard to quantify and
the benefits can be intangible. In their forthcoming report
Fit to compete: Accelerating workforce transformation in digi-
tal financial services, PwC’s global financial-services work-
force of the future team tackles this issue in a hypothetical
scorecard for a bank’s upskilling initiative. It goes beyond
financial metrics to include measures of skill building (such
as survey results and instruction quality measures); knowl-
edge gained (such as online learning community activity
and numbers of downloads of apps); productivity (for ex-
ample, savings in contractor spending), and business out-
comes (such as launch data and scaling measures). There
could also be metrics on brand health or social media com-
mentary if those are affected by employees.
Your own measurements need to include actions (“Are
we doing what we said we would do”?) as well as the re-
sults achieved through those actions (“Are we getting the
results we expected to get?”). Include data collected from
frontline employees on the behavior changes they see in
themselves, their peers, and their supervisors.
Put a skills inventory in place that can help you con-
tinually track and analyze your progress. Our studies in-
dicate that just one-third of companies today use any type
of analytics to predict and monitor skills. Investment in
175 10 principles of workforce transformation
skills monitoring can help you predict talent shortages and
respond faster to changing business conditions.
Inevitably, you will translate these measures into in-
centives — giving people further reason to make a com-
mitment to the initiative. Don’t include only financial in-
centives or promises of job security; also motivate people
with opportunities to work on interesting projects or raise
their skills. The pharmacy retailer mentioned earlier
changed its incentives this way. Store managers had been
given bonuses only on sales and profitability. After the
change, a large portion of their bonus was based on cus-
tomer experience scores and employee engagement.
If your measurement and tracking show that parts of
the organization are not adopting the transformation,
you need to intervene. With the data in hand, engage
with the business leaders: Ask what help they need, and
provide it. But also push them to follow the plan and
make the transformation progress a part of your regular
business review meetings.

Taking the transformation to heart

The winds of change are stronger than ever in enterprises
today. It is a good bet that just about every organization
will need to transform its workforce during the next few
176 10 principles of workforce transformation
years. This type of initiative is big, complex, and time
consuming. And by no means is success guaranteed. You
may experience the undertaking as a burden, not a choice.
But you can also see it as a chance to think differently
about your aspirations as an employer. The people who
work for your enterprise are there transactionally, to be
sure; you are paying for their time. But your enterprise’s
success depends on their investment of not only time but
also creativity and interest. In return, you can give them
the opportunity to become proficient — on your behalf
and theirs. As we’ve seen in our own business, a sincere
workforce transformation initiative leads people to regard
their company, their work, and themselves more positively.
Technological automation, which has been seen as a detri-
ment to humanity, becomes a vehicle for advancing it. If
you can focus on the right path, your business and your
people will be well prepared to face the future.

177 10 principles of workforce transformation

TECHNOLOGY

10 principles
for winning the
game of digital
disruption
It’s time to take today’s technological threats
seriously and change the way you do business.

by Mathias Herzog, Tom Puthiyamadam, and Nils Naujok

178 10 principles for winning the game of digital disruption

 Originally published by s+b
on Nov. 30, 2017

This article is adapted in part

from “The Coming Wave of Digital
Disruption,” by Leslie H. Moeller,
Nicholas Hodson, and Martina
Sangin.

If you haven’t noticed, a high-stakes global game of digital

disruption is currently under way. It is fueled by the latest
wave of technology: advances in artificial intelligence, data
analytics, robotics, the Internet of Things, and new soft-
ware-enabled industrial platforms that incorporate all these
technologies and more. Every enterprise leader recognizes
that, as a result, the prevailing business models in his or her
industry could drastically and fundamentally change. A
wide range of industries, such as entertainment and media,
Illustration on previous page by Francesco Bongiorni

military contracting, and grocery retail have already been pro-

foundly affected. No enterprise, including yours, can afford
to ignore the threat. Yet most companies are still not mov-
ing fast enough to meet this change. Some leaders are still in
denial about it, some are reluctant to upend the status quo
in their companies, and some are unaware of the necessary
steps to take. But these excuses are not good enough.
179 10 principles for winning the game of digital disruption
 If your company is already struggling, then digital dis-
ruption will accentuate your problems. You may not have
needed a plan for the new digital age yet, if only because it
didn’t seem relevant to your industry. But you will need it
now. Otherwise, no matter how well you run your business,
it will not produce results at a scale that will allow you to
compete. The companies with a clearly differentiated iden-
tity — those that stand apart from the crowd — are in the
best position to thrive. For every company, this is an im-
mense opportunity to rethink every aspect of the business,
and chart a bold path for success.
Disruption, by our definition, means a shift in relative
profitability from one prevailing business model to another.
The dominant companies, accustomed to the old approach,
lose market share to a new group of companies. Not every
disruption is driven by advances in technology, but this
one is. And because the software fueling this transforma-
tion can be applicable across traditional industry and busi-
ness function boundaries, competitors can emerge from
seemingly anywhere. In sector after sector, new entrants
are lowering prices, meeting consumer needs in novel ways,
making better use of underutilized assets, and hiring peo-
ple with broadly relevant digital skills, who have collabora-
tive, creative, and efficient work styles.
180 10 principles for winning the game of digital disruption
 If you’re skeptical about this, it’s probably because
you’ve seen digital technology appear before, without
much of an effect on your core business. Even industries
that feel pressure will not be completely transformed. No
matter how many people order their paper towels and
canned soup online, for example, there will continue to be
some brick-and-mortar grocers.
But the wave of disruption that’s cresting now is more
comprehensive and far-reaching than any previous wave.
Consider what has already happened to less physically based
industries, such as media and entertainment. They have had
to rework their business models, seeking revenue through
social media and new forms of consumer engagement. In-
dustrial and manufacturing companies are following a sim-
ilar path: embedding logistics systems with sensors, linking
supply chains with shared data and robotics, opening the
door to innovations in energy and materials, and changing
the way that every product is made and delivered.
Your shareholders (particularly activist shareholders),
customers, and employees expect you to respond quickly.
But panic and full-bore opportunism, in which you pursue
every seeming source of revenue, will not work either. The
answer is to develop a coherent strategy, seeking out the op-
tions that fit best with what you already do well. Here are
181 10 principles for winning the game of digital disruption
10 principles for accomplishing this, drawn from the expe-
rience of companies that have done so.

1. Embrace the new logic. When you first hear about a new
digitally enabled competitor, you may tell yourself that com-
pany can’t succeed. It’s operating in a narrow niche, and it
won’t be profitable at scale. Hundreds of executives of es-
tablished companies have made this mistake, dismissing
such innovations as the photocopier, steel mini-mill, graph-
ical user interface, smartphone-embedded camera, and vid-
eo streaming service. Instead, view each upstart competitor
as a company you can learn from.
There’s always logic behind a new entrant’s business
model, a reason it is being introduced. It meets customer
needs more effectively than you do (see principle number
four), offers consistently lower prices (principle number
five), or makes better use of assets (principle number six).
Chances are, it does all three. For example, Zume, which
makes pizza to order in its oven- and robot-equipped trucks,
delivers fresh, inexpensive food to people’s homes rapidly.
As of October 2017, it had raised more than US$70 million
in venture capital. Although no one can predict whether
Zume or another contender will succeed, the general logic
of vehicle-based fast food represents a major threat to
182 10 principles for winning the game of digital disruption
 A guide to winning the
digital disruption game
1 2 3 4 5
Embrace the Start now, Focus on your Create your Price to drive
new logic move deliberately right to win customers’ demand
future

6 7 8 9 10
Profit from Control your Integrate, Challenge Define a new
overlooked part of the don’t isolate the rules way of working
assets platform

Infographic: Opto Design / Lars Leetaru. ©2017 PwC. All rights reserved.

183 10 principles for winning the game of digital disruption

 The existence of potential disruptors is a sign
that your business model is regarded as obsolete.
It’s up to you to figure out why.

low-cost restaurant chains. The very existence of potential

disruptors in your industry — especially if they are funded
by venture capital — is a sign that your business model is
regarded as obsolete. It’s up to you to figure out why, and
how you can change it.
In addition to studying your new competitors’ logic,
look closely at the assumptions embedded in your com-
pany’s current business model. Keep in mind what you
know digital technology can do for you. How could you
redesign your capabilities to deliver better value than your
competitors can? What aspects of your business model
could you change to deliver better value, on a grand scale,
than any upstart could? What would you have to do dif-
ferently to make your own disruption work?
Best Buy went through a thought process much like
this, and became one of the very few specialty retailers to
184 10 principles for winning the game of digital disruption
compete successfully against online retailers such as Ama-
zon. Among the disruptive factors it had to deal with, as
New York Times reporter Kevin Roose put it, was “show-
rooming: customers were testing new products in stores
before buying them for less money online from another
retailer.” Best Buy chose to disrupt its own business mod-
el with a price-matching guarantee, a renewed emphasis
on customer consultations (building on its “Geek Squad”
experience), new workforce policies to gain a more skilled
and loyal employee base, and improved logistics that inte-
grated its online and in-person experiences. (In effect,
manufacturers now pay to be included in Best Buy’s “show-
rooming” array.) These elements added up to a powerful
new approach for Best Buy that raised its stock price more
than 50 percent in 12 months.

2. Start now, move deliberately. You have to balance moving

reactively and acting strategically when the signs of pend-
ing disruption first appear for your industry. “We always
overestimate the change that will occur in the next two
years,” wrote Bill Gates in his 1995 book The Road Ahead.
“And [we] underestimate the change that will occur in the
next 10. Don’t let yourself be lulled into inaction.”
To be sure, it may take a year or more for customers to
185 10 principles for winning the game of digital disruption
change their habits at a scale that affects you financially.
During this period, you are still relying on your old busi-
ness model for earnings. But if you don’t start visibly taking
steps to change that business model right away, it could af-
fect your company’s market value. Investors are gauging
your effectiveness based on their perceptions of the digital
threat approaching your industry. If they consider you un-
prepared, they will have reason to pounce.
At the same time, you have to proceed deliberately and
strategically, rather than frantically and reactively. Panic is
contagious. You are not looking for quick opportunities —
you are plotting the new trajectory of your company. Use
this time to develop your own sustainable, digitally enabled
value proposition, to build out your own distinctive capa-
bilities, and to sell off or shut down the assets you will no
longer need when the disruption fully takes hold.
Be bold and openly declare your intentions. Make it
clear to your constituents — not just investors, but em-
ployees, suppliers, distributors, and other members of your
business ecosystem — that you are preparing your own
disruptive innovations. Continually reevaluate and refine
your new approach, adjusting it to reflect changes in cus-
tomer behavior and in your industry. Prototype new prod-
ucts and services and take them to market quickly, testing
186 10 principles for winning the game of digital disruption
them with real customers. Bring the best ideas to scale.
When your industry’s changes finally reach a tipping
point, it will seem sudden to everyone else. But you’ll know
better. Because of your early start, you’ll be ready with the
capabilities you need. You can then move fast, seize the ad-
vantage, and lead your sector.
Amazon has provided an example of this approach
since the 1990s. Starting with books, then branching into
other types of retail, and ultimately moving into general
logistics and cloud-based computer services, it always had
the same game plan: to expand gradually, taking on chal-
lenges when it was equipped to do so. It took Amazon 20
years to build up the requisite capabilities to master gro-
cery delivery, an extraordinarily difficult challenge be-
cause fresh food can easily spoil. By contrast, Webvan,
which also began in the late 1990s, started out with a
home food delivery concept, overextended itself trying to
cover the then-too-expensive “last mile” to the customer’s
door, and went bankrupt.

3. Focus on your right to win. Aright to win is the ability to

meet challenge after challenge with a reasonable likelihood
of success. Instead of relying on a single product or service
to define your business, develop a strong identity — a rec-
187 10 principles for winning the game of digital disruption
ognizable expression of what your enterprise does well and
why it matters — that makes your company truly distinct.
Don’t abandon your old business model entirely; build on
your existing strengths. In many disrupted industries, the
new and old business models continue to coexist: Brick-
and-mortar groceries will not go away entirely, just as brick-
and-mortar bookstores have not. Combine those core capa-
bilities to create one consistent approach that applies to
everything you do. Like Amazon, Apple, IKEA, Starbucks,
or other iconic companies, you will send a strong, steady
signal of who you are and what customers can expect from
you. Or as Harvard Business School professor Clayton M.
Christensen, who developed today’s prevailing concept of
disruption, put it: “Decide what you stand for, and then
stand for it all the time.”
One company that has gained a right to win is PetSmart,
a retailer of pet products and services. In April 2017, PetSmart
made the largest e-commerce acquisition in history. It ac-
quired Chewy.com, a pet supply site, for $3.35 billion —
just a bit more than Walmart paid for the online store Jet
.com around the same time. Chewy provided customer ser-
vice capabilities that complemented PetSmart’s extensive
retail store network and its multiple services (such as board-
ing hotels, grooming salons, and walk-in pet clinics). Chewy
188 10 principles for winning the game of digital disruption
offered a high level of customer interaction, comparable to
that of premium retailers such as Nordstrom. The company
calls customers proactively to address service problems, and
sends cards to thank people for their business. These com-
bined capabilities give PetSmart and Chewy a much clearer
identity and way to compete.
You gain your right to win by building and maintain-
ing a system of distinctive cross-functional capabilities —
combinations of people, knowledge, IT, tools, structures,
and processes, refined and developed over time. To preemi-
nent business historian Alfred D. Chandler Jr., this “inte-
grated learning base” was the single most important factor
for business success. You already have some of those capa-
bilities, or you wouldn’t have gotten this far, but you may
need to develop or acquire others, as PetSmart did. Orient
your business around those key capabilities. Make long-
term investments to support them, and divest businesses
that don’t fit.
Another prominent example is Honeywell. In the mid-
2010s, its right to win enabled Honeywell’s heating, ven-
tilation, and air conditioning (HVAC) business to beat
back a disruptive threat from Nest and other digital ther-
mostats. Honeywell had a strong distribution capability;
its people knew how to maintain strong relationships with
189 10 principles for winning the game of digital disruption
HVAC installers and contractors, who referred customers
to Honeywell’s digital thermostats instead of those from
the startup. This gave the company time to bring its tech-
nology up to date.

4. Create your customers’ future. What does your customers’

future look like? Think about meeting their needs in a more
fundamental way, so that they continually want more con-
tact with your company and its offerings. Your mission, as
Steve Jobs told his biographer Walter Isaacson, “is to figure
out what they’re going to want before they do.” This will
require imagination and insight; they won’t be able to ar-
ticulate it if you ask them. Creating your customers’ future
may require an obsessive focus on them. Make their prob-
lems go away. Remove the friction in their lives. Make
things easier and less complex, while reducing the price
they have to pay.
The most effective consumer-oriented companies rely
on privileged access to their customers. For example, IKEA
has an extensive program for sending executives to the
homes of customers, who welcome them because the com-
pany has enhanced their daily life. You can also learn a
great deal from co-creating your products with customers,
involving them in design and development. Adobe Sys-
190 10 principles for winning the game of digital disruption
tems, for example, routinely consults with graphics pro-
fessionals in designing new packages for them. Google
and Facebook had a huge advantage in the large number
of sophisticated early adopters in their own workforce.
The companies continually sampled their employees’ re-
actions and adapted their offerings accordingly.
As marketing experts have pointed out since at least
1960, when Theodore Levitt’s groundbreaking Harvard
Business Review article “Marketing Myopia” was published,
customers are most compelled by outcomes: the results
your products and services deliver, rather than the prod-
ucts and services themselves. This was how Philips prof-
ited from its halogen bulbs, the kind that retailers install
in parking lots. Concerned about losing out to makers of
lower-priced commodity bulbs, Philips set up a service to
change the bulbs when they burned out, and continued
its R&D on longer-life bulbs so the costs of that service
would go down. Similarly, GE’s aircraft engines, Daim-
ler’s trucks, Tesla’s electric cars, and Siemens’s power sys-
tems are all embedded with sensors, designed to provide
analytics about not just the machines’ behavior (for better
maintenance) but what the customer (the airline, truck
driver, or power utility) is doing day after day, and how
that experience might be improved.
191 10 principles for winning the game of digital disruption
5. Price to drive demand. Nearly every significant disrup-
tion reduces costs in some way. Customers respond more
powerfully to cost reduction than to other types of in-
creases in value. When you set your prices low, you attract
customers, scale up your new business model, and force
changes that make it more difficult for rivals to compete.
Even high-profile disruptive competitors do not dra-
matically affect the rest of the industry until they become
competitive in price. For example, it was only with its
launch of the “affordable” $35,000 Model 3 in 2017 that
Tesla began to compete with a wide range of other auto-
makers. For most products and services, it’s best to build
your response to disruption by lowering costs and looking
for a larger customer base.
Often this means using digital technology in inven-
tive ways. Sometimes, as with Amazon and Uber, it in-
volves pricing at a loss for the sake of long-term scalability
and market share.
Undoubtedly, you are already diligent about reducing
costs. But you may not have gotten in the habit of strate-
gic pricing: cutting costs to drive up demand. A notable
example is IKEA, which builds a 1.5 to 2 percent product
price reduction into its budget planning every year, as a
forcing function. This requires its planners to figure out
192 10 principles for winning the game of digital disruption
how to reduce costs significantly, and it has created the
kind of customer loyalty that no disruptor can dislodge.

6. Profit from overlooked assets. Many digital disruptions

take advantage of assets that have been underutilized. This
approach is feasible because of the way digital technology
reduces friction and reveals options. The sharing economy
businesses that sell access to unused time in privately
owned automobiles, production plants, homes, and office
spaces changed their industries by monetizing their assets’
previously unused capacity.
You, too, can disrupt your industry, by identifying ways
to create value from underused assets. These may be found
anywhere in your business. With a cloud computing instal-
lation, you may make more effective use of your computer
processing power — and your programmers’ time. Or con-
sider the stockroom of a big-box store. The space is big be-
cause of the scaling factor of labor. Once you have paid for
the cost of putting in one pallet, putting in the next four is
quite cheap. Because digital interoperability makes it easier
to process multiple materials and products from multiple
vendors, why not share back rooms and warehouse staff?
Overlooked assets don’t have to be physical. They can
include proprietary information, continually gathered
193 10 principles for winning the game of digital disruption
data, or specialized expertise. For example, the Aravind
Eye Hospital in India is one of the most effective cataract
treatment centers in the world. It values professional ex-
pertise as a specialized asset. Each surgeon treats 10 times
as many cataract patients per day, on average, as a similar
surgeon would in the United States. The hospital, whose
processes were modeled after those of McDonald’s, uses
every means possible to focus a skilled surgeon’s time where
it matters most: on the cataract operation. Everything else,
including administrative work and referrals of complex
cases, is handled by someone else.
It may take time to develop a compelling and profit-
able approach to your assets. The first shared office space
enterprises emerged in the early 2000s, but it wasn’t until
the mid-2010s that companies such as WeWork landed on
a format and package that brought the concept main-
stream. While you are developing your own approach,
consider divesting the assets that hold you back or require
ongoing costs. Every asset you own should contribute to,
or benefit from, your differentiating capabilities.

7. Control your part of the platform.Disruptive companies

don’t do everything themselves. They rely on the capa-
bilities provided by others. Those capabilities will be more
194 10 principles for winning the game of digital disruption
widely available as vast business-to-business platforms
emerge: platforms such as Amazon Web Services, GE’s
Predix, Siemens’s MindSphere, and the emerging Chinese
“Belt and Road” system. A platform is a group of interop-
erable technologies that provide a basic infrastructure into
which applications and processes from a host of compa-
nies can fit, working together seamlessly.
The new digital platforms will help transform enter-
prises in the same way that their online predecessors, such
as Google, Facebook, and Amazon, helped change con-
sumer habits. A platform provides access to others on the
platform, new ways of creating value from digital assets,
and a much greater scale at minimal cost. Just as it’s vital to
know what your company is best at, it’s critical to know
where you can rely on others’ technology and solutions.
Some companies thrive by becoming platform provid-
ers. Salesforce, for example, has used its capabilities in de-
veloping software-as-a-service and other cloud-based of-
ferings to build an open ecosystem for sales and customer
relationship management that gives the company a dis-
tinctive competitive advantage. By incorporating indepen-
dent developers, system integrators, and consultants into
the Salesforce ecosystem, the company has become a hub
for a vast number of innovative businesses in multiple sec-
195 10 principles for winning the game of digital disruption
tors, giving Salesforce unique access to information and
leading trends.
But you don’t have to own platforms to profit from
them. Instead, focus on a part of the platform that gives
you a right to win and establishes stable standards for an
entire ecosystem. For example, if you are one of many
component manufacturers for, say, servers or home-con-
trol devices, or one of many developers of similar software
apps, you may lose value. But if you carve out a distinctive
identity and role within other companies’ ecosystems, you
can still draw value to you. You can be like Corning, man-
ufacturing the Gorilla Glass used in the iPhone, along
with many other kinds of specialty glass used for automo-
biles and other smartphones; or like HCL Technologies,
which has parlayed its distinctive R&D and consultation
capabilities into a refined outsourced technology business
serving other high-tech companies.
Because digital technology blurs boundaries among
industries, you should use platforms to break free of the
constraints of your sector. It is no longer necessary to man-
age your own supply chain to connect with suppliers and
distributors. Apple, famously, is in music and video stream-
ing, information technology hardware and software, In-
ternet services, telephony, timepieces, digital photography,
196 10 principles for winning the game of digital disruption
and retail. It is number one in most of those businesses. It
doesn’t matter anymore what sector you think Apple is in;
Apple is number one at being Apple. It has consolidated
its market around one distinct identity.
Choose carefully the platforms you join. Once you are
intertwined with them, there may be enormous switching
costs if you need to change. Protect your control over your
customer data, intellectual property, and distinctive capa-
bilities system. There may still be an advantage to integrat-
ing vertically; as Inditex (Zara), Amazon, and Haier have
discovered, it can provide opportunities for differentiating
your company. But the best option is to make a more fine-
grained assessment of your costs and customers, and design
your mix of vertical and horizontal activity accordingly.

8. Integrate, don’t isolate. The perception that disruption is

imminent has many executives scrambling to launch digi-
tal side projects in the form of programs, products, and
services that can stand on their own. There are many
evocative nicknames for these mini-enterprises and iso-
lated projects: Skunkworks. Pirate ships. Special forces.
Labs. Quarantined units. The names convey the problem:
a basic lack of connection between this subscale unit of
activity and the core enterprise.
197 10 principles for winning the game of digital disruption
 To be sure, “pirate ships” have more freedom than the
rest of the enterprise. They avoid the usual restrictions
and requirements, the cultural antibodies that hamper
creativity. They can even generate innovative products
and services that seem to be the wave of the future. But
because they are not integrated with the rest of the
company, they don’t have the capabilities or support they
need to be sustainable. Nor does the core business learn
from them or benefit from their capabilities. Even if it
succeeds in a narrow context, a pirate ship dissipates re-
sources and makes it more difficult to go to scale with a
new digitally enabled business model. In the end, trans-
formation doesn’t happen in silos; it requires an enterprise-
wide digital effort.
One classic example of a failed mini-enterprise occurred
at the North American typewriter manufacturer Smith
Corona. In 1976, rightly fearing the onslaught of comput-
er-based word processing machines, the company opened
a digital research and development lab, staffed with newly
recruited hardware and software engineers. But they lo-
cated it in Danbury, Conn. — a four-hour drive away from
the company’s headquarters near Syracuse, N.Y., where
mechanical engineers worked on “real” typewriters. People
at the two facilities had no regular opportunity to learn
198 10 principles for winning the game of digital disruption
from one another or build common capabilities. The re-
sulting new electronic word processors were easier to use
and less expensive than personal computers, but they lacked
some critical features (such as the ability to print pictures)
that Smith Corona might have developed with more input
from its customer base of students and writers. According
to a case study by Erwin Danneels, they were also plagued
with manufacturing problems, which the rest of the com-
pany would have known how to manage. The company
went through two bankruptcies and another acquisition
before becoming a small manufacturer of thermal labels
for barcode printers.
Other well-known examples of pirate ships that ran
aground are Ericsson’s AXE-N project — an asynchro-
nous digital highway endeavor that cost the company bil-
lions before being shut down in 1995 — and the Xerox
Palo Alto Research Center. This semi-independent lab is
famous as the source of many ideas, including the graphi-
cal user interface that Steve Jobs adapted into the design
of Apple’s first Macintosh computer. Xerox never gained
commercially from the innovations it had funded.
Instead of quarantining your digital efforts, embed
them throughout your organization. Then experiment
with prototypes that you can realistically bring to scale.
199 10 principles for winning the game of digital disruption
Tailor them to make use of your existing strengths. En-
sure that both the prototype and the main enterprise teams
continually interact, learning from each other.
GE has instilled this type of approach in all its new
ventures. When it designs a prototype of seaport infrastruc-
ture embedded with sensors and analytics, for example, it
conducts exercises that simulate activities at existing sea-
ports. Truckers pick up shipments, trains stop to unload
and load cargo, and employees move goods around the yard
or into containers. Even regulators are simulated, querying
the reports. Because of this, when it’s time to bring that
complex new technology to scale, the company is ready.

9. Challenge the rules. Sometimes you have to ask for per-

mission before you ask for forgiveness. When you are fac-
ing disruption, or launching a disruptive effort, recognize
the leverage that comes from finding unrecognized gaps
in the rules. A disruptive move will tend to circumvent
regulations and governance structures that have been built
up over time, wherein people internalize the behavior and
turn it into a norm. For instance, years of compliance may
lead a company to institute tracking sheets that, after 15
years, are no longer needed by the regulator or anyone
else. But the tracking continues.
200 10 principles for winning the game of digital disruption
 If a regulation is preventing customers from getting
what they need, it is likely to be ripe for disruption. Prob-
ably the best-known case involves ride sharing. In many
cities, the regulation of taxi medallions led to artificial
scarcities and monopolies. The first taxi competitors took
advantage of this. Incumbent taxi firms, in response, have
adopted some of the same measures the startups pioneered,
including the use of apps to hail cabs. Nonetheless, non-
medallion companies have had an edge in most localities,
except for the few cities that put in new rules tailored to
ride-sharing companies.
Most regulations exist for a reason. If you can orient
your practices toward that intent rather than the letter of
the law, you will tend to succeed. In deciding how far to
go, let the creation of value be your guide.
You have little or no control over rules imposed from
the outside. But your interpretation of them is under your
control. Likewise, your rivals have their own interpretation
of the rules. As part of the digital disruption game, then,
compare your new competitors’ interpretation with your
own. If their interpretation is looser, which of those con-
straints might you consider giving up as well? Alternatively,
which breaches will ultimately come back to haunt them?
And can you prepare your company to take up the slack?
201 10 principles for winning the game of digital disruption
 You may also compete against companies that ma-
tured under different regulatory regimes. Tech giants
Alibaba and Tencent, for example, have a history in
China of entering financial-services businesses that were
off-limits to their counterparts in the U.S. and Europe.
They’ve introduced mutual funds and wealth manage-
ment systems, whereas Apple and Facebook scaled back
their payments efforts because of regulatory concerns.
Now all four of these companies will be operating in the
same environment.

10. Define a new way of working. Most companies have been

experimenting with new technologies for years. But the
relatively few companies that embrace digital technology
successfully have used it as a catalyst for changing the way
they operate. They rethink how marketing, IT, and fi-
nance work together, and every aspect of their organiza-
tion embodies that understanding.
Start with recruiting. Don’t look for cloud architects or
blockchain specialists. Assemble teams of people who can
combine skills in business strategy, consumer experience,
and advanced hardware and software development. (We
call this BXT, for “business, experience, and technology.”)
Along with your coders and spec writers, include creative
202 10 principles for winning the game of digital disruption
designers, anthropologists, finance people, data analysts,
and psychologists who can understand when something is
drawing people in, as opposed to pushing them out. Look
especially for “helicopter quality”: the ability to operate at
two conceptual levels simultaneously, one close up to the
detail and the other lofty enough to provide an overview,
moving rapidly from one to the other. Seek out these peo-
ple at every level of the hierarchy, so they can make tech-
nological and design decisions on the fly that are in har-
mony with the larger business strategy.
When you combine technological acumen, strategic
purpose, and an appreciation for customer experience in
one group, it enables you to imagine products and ser-
vices that you wouldn’t have thought of otherwise. For
example, Apple defined itself as the creator of a digital
hub in 1999, and everything the company introduced af-
ter that, from the iTunes store to the iPhone and iPad,
followed from that identity. Amazon defined itself as a
store that connected with customers online, with a new
and innovative interface that allowed people to exchange
views about the value of its products. Scandinavia’s Dan-
ske Bank redefined its business around a peer-to-peer
smartphone payments app that is used today by more
than half the Danish population. Its subsequent prod-
203 10 principles for winning the game of digital disruption
ucts, including innovative mobile mortgage and wealth
management offerings, followed naturally from that dig-
itally enabled logic.
In practice, it’s often surprisingly difficult to integrate
business, experience, and technological acumen. Each
typically involves a different functional silo, with its own
skill base, priorities, and culture. In many companies,
business strategy is the domain of financial specialists
and top executives, who may not understand the options
that digital technology gives them. User experience is of-
ten relegated to marketing or design specialists, who may
lack the strategic perspective to create the right sort of
vehicles for the company. And technology is typically the
domain of software engineers, whose background may
lead them to underestimate the importance of simplicity,
emotional resonance, and intrinsic fulfillment to the cus-
tomers and employees who use their systems. Typically,
these three groups work separately, and they may not
know how to talk together. A word like effective could
mean low-cost to a business strategist, high-touch to an
experience designer, and leading-edge to a technological
specialist. If you can’t get them to work together easily at
first, persevere. They will come to appreciate one another
over time.
204 10 principles for winning the game of digital disruption
 If you don’t know where to begin, start with customer
and employee experience. Best Buy CEO Hubert Joly, for
example, began to reshape the company’s digital identity
by canvassing employees about their experience on the job.
When they complained about a faulty internal search en-
gine that misinformed them about out-of-stock items, the
search engine was immediately upgraded. That early step
paved the way for continuous improvement of the cus-
tomer-facing and backroom operations.
Digital disruption can seem like a threat, but it can
truly be a game-changer for you. Your opportunities to
rethink your business have never been so great. The chal-
lenge facing you, no matter how mature your enterprise,
is the same challenge facing any upstart: to create a new
business model, value proposition, and system of custom-
er-facing capabilities, positioning your enterprise for long-
term success.
The following people with PwC US also contributed to this article:
principals Nicholas Hodson, Namit Mehta, and Paul Leinwand; directors
Martina Sangin and Lina Woods; and senior manager Miriam Ready,
along with Leslie H. Moeller, Mark Haller, and Simon Jensen.

205 10 principles for winning the game of digital disruption

TECHNOLOGY

10 principles for
leading the next
industrial revolution
Tools and techniques to ensure your company
will stand out in the new age of digitization.

by Norbert Schwieters and Bob Moritz

strategy+busines s issue 88

206 10 principles for leading the next industrial revolution

 Originally published by s+b
on Mar. 23, 2017

It isn’t often that the broad infrastructure that underlies

industrial civilization undergoes a dramatic transforma-
tion. But just such a change appears to be happening now.
In a great wave of technological change, sensors are spread-
ing through factories and warehouses, software is predict-
ing the need for maintenance before a machine breaks
down, power grids and loading docks are becoming in-
telligent, and custom-designed parts are being produced
on demand. The leaders of the next industrial revolution
Illustration on previous page by Miguel Montaner

are companies making advances in fields such as robotics,

machine learning, digital fabrication (including 3D print-
ing), the Industrial Internet, the Internet of Things (IoT),
data analytics, and blockchain (a system of decentralized,
automated transaction verification). Because all of these
technologies reinforce the impact of the other technolo-
gies, they are leading to a new level of proficiency, and to
207 10 principles for leading the next industrial revolution
new types of opportunities and challenges for business
and for society at large.
One key indicator is that conventional boundaries be-
tween industries are eroding. It’s getting harder to tell the
difference between, say, a telecommunications company
and an entertainment producer, or between a retail bank
and a retail store. The relationships among suppliers, pro-
ducers, and consumers are also blurring, more rapidly than
many business decision makers are prepared for.
The foundation of business strategy has long been the
classic value chain, which links together raw materials pro-
ducers, manufacturers, distributors, and (in the end) con-
sumers through a well-established commercial infrastruc-
ture characterized by a stable set of transactions. But the
rise of digital technology enables individuals to connect
outside the value chain and deliver more efficient, effective
products and services. This will reduce the importance of
economies of scale and conventional divisions of labor. Re-
lationships among companies will be more fluid and the
price and cost of goods and services more volatile than
they are today. There is one certainty, however: Trust-
worthiness and a clear articulation of purpose will become
more important to business. An enterprise that is continu-
ally changing must balance that turbulence with purpose
208 10 principles for leading the next industrial revolution
and trust, or people — including employees, suppliers,
customers, and regulators — will not be able to make the
full commitments that businesses need.
Our research at PwC suggests that the Industrial Inter-
net presents unprecedented potential gains for companies
that claim leadership roles. Their ability to realize these
gains will depend, in part, on their actions during these
early years: the capabilities they build and the extent to
which they reframe their business and operating models to
make the most of this new technological infrastructure.
How, then, can you lead your company, whether it is
large or small, to play a pivotal role in the next industrial
revolution? How can you take advantage of your existing
strengths while developing the digital prowess and person-
al skill that you need? How do you balance the techno-
logical acumen you require with the managerial skill to
become a true market leader in this field? How can you
help the broader society meet the challenges posed by this
technology — issues related to privacy, employment, in-
come equality, and general well-being, among others —
while still ensuring success for your enterprise? The follow-
ing 10 principles can help senior executives navigate the
uncertainties of the next few years in a systematic and prof-
itable way.
209 10 principles for leading the next industrial revolution
1. Rethink your business model. The business world has be-
come accustomed to disruption. In industry after industry,
incumbents that cling to old business models lose ground
to upstarts that introduce new products and services at
much lower prices. The next industrial revolution will ac-
celerate this sequence, especially in manufacturing, by re-
ducing costs and improving efficiency at a broad scale.
Companies that are slow to change will lose to those that
rethink their business models to take advantage of the new
platforms and their new opportunities.
Consider, for example, the electric power utility in-
dustry, which has essentially maintained the same busi-
ness model since it began in 1882: metered power genera-
tion, selling electrons to residential and commercial
customers. Now power utilities find themselves at the
nexus of an evolving technological ecosystem that allows
them to offer a variety of new options — and just in time,
because the revenues from selling electrons are rapidly
shrinking. The new offerings include renewable energy
from solar and wind sources; sensor-based energy moni-
toring systems that use data analytics to continuously im-
prove efficiency; and heating, cooling, and facilities man-
agement services. Some power utility companies are
recasting their offerings as “gateway hubs” for Internet ac-
210 10 principles for leading the next industrial revolution
cess and home security. The utilities have the potential to
capture several new sources of value, but they will also
face unprecedented competition from technology and
telecommunications companies.
Automakers, too, are anticipating a dramatic new busi-
ness model; a few years from now, they may no longer rely
solely on individual car sales. They will provide mobility
on demand, through their stakes in shared or self-driving
vehicles. Manufacturers of tools, hardware, instruments,
and heavy equipment are adding sensors and connectivity
to their products, enabling predictive maintenance, secu-
rity, and frequent upgrades. The healthcare industry is
moving toward its own adaptation of the IoT, with wear-
able sensors providing data that health professionals can
use for early diagnosis and better follow-up services. Fi-
nancial services, engineering and construction, and enter-
tainment and media are all poised for similar changes.
If you are falling into the trap of thinking that your
company can make money indefinitely by following its
traditional business model, you risk losing out to more
flexible competitors. You are not in the same industry that
you were in before; soon, that industry may not even ex-
ist. Your path to profitability is different. Your opportuni-
ties for raising capital have changed. Your capabilities may
211 10 principles for leading the next industrial revolution
not apply to the same customers they did before. Your
circumstances are probably different from those of any
other company, so you need to look freshly at them, with-
out relying on an industry playbook, and rethink your
business model accordingly.
To fund new investments in R&D, operations, and
customer experience, you may have to cut back legacy ac-
tivities that no longer apply. This will take perseverance
and discipline, but your competitive advantage lies with
your role in the infrastructure of the future. Selling or
shutting down less essential practices, and focusing your
portfolio of products and services more effectively, can
make you fit for growth in this new world.

2. Build your strategy around platforms. What the value

chain was to the old industrial system, the platform is to
the new. A platform is a combination of interoperable stan-
dards and systems. It creates a plug-and-play technologi-
cal base on which a wide range of vendors and customers
can interact seamlessly with the same collection of hard-
ware, software, services, and one another. The most suc-
cessful platforms match customers with vendors, maintain
an appealing and effective customer experience, and col-
lect data and rents from people who use the system. A
212 10 principles for leading the next industrial revolution
 A guide to
leading the next
industrial revolution

Infographic: Opto Design / Elwood Smith. ©2017 PwC. All rights reserved.

213 10 principles for leading the next industrial revolution

business that controls a popular platform — Microsoft
with Windows, Apple with its mobile iOS, Amazon with
its “everything store” merchandising system, Facebook
with social media, and Google with its search engine —
can influence the direction of evolution for a business-to-
consumer market. The same will be true of the new in-
dustrial operating systems for business-to-business markets.
The users of a platform become, in effect, an ecosystem: a
group of companies exchanging goods and services, their
fates bound together.
These are still the early days of platform building on
the Industrial Internet. Companies such as GE and Sie-
mens are staking their claims now. GE has announced its
goal to be “the world’s first digital industrial company”;
its cloud-based Predix platform combines data analytics,
connectivity, cyber-protection, and offerings such as the
Digital Twin, a simulation of industrial processes based
on digital profiles of more than half a million machines.
Siemens is developing its equally ambitious MindSphere
platform in collaboration with Microsoft, offering its apps
on the Azure cloud starting in 2017.
Other industrial platforms are more narrow, but equal-
ly profitable. For example, the Trumpf company, based in
Germany, has established a platform called Axoom, which
214 10 principles for leading the next industrial revolution
provides laser equipment, welding, and metalworking
equipment for the many small companies that build com-
ponents from metal and plastic, giving them all access to
specialized 3D printing tools and software. There will be
platforms for specific types of supply chains, and platforms
for hospitals, banks, and other types of organizations. As
automobiles evolve into autonomous vehicles, they will be
designed as platforms, operating within “smart city” plat-
forms that continue to improve the ways in which autono-
mous vehicles navigate.
Your first step in establishing yourself as a participant
in the Industrial Internet is to figure out what role you
can realistically play in this platform-based world. Will
you be a platform “enabler” like Trumpf, GE, and Sie-
mens, a company responsible for building (and owning)
the underlying megahubs? Will you be an “engager” of
customers, using the platform as a vehicle for providing
products and services? Will you be a platform “enhancer,”
a developer of new technologies on the platform, selling
them primarily to enablers and engagers? Or will you de-
velop a business that combines two or three of these roles?
If you become an enabler, building out your own plat-
form, three elements will help you stay ahead of competi-
tors. First, digitize your own enterprise — the platforms
215 10 principles for leading the next industrial revolution
 The next industrial revolution is driven by
large-scale digital tech, so it’s easy to overlook the
way it could affect human relationships.

at GE and Siemens began as in-house services for their

own operations. Second, continually work on gaining ef-
ficiencies, improving the technologies that you already
have. Third, build cost reduction into that continuous
improvement; use sensors and analytics, for example, to
raise the quality and performance of your products and
thus lower costs. These abilities take time and acumen to
develop, and they will become core distinctive elements of
your platform.

3. Design for customers. Because the next industrial revolu-

tion is driven by large-scale digital technology, it’s easy to
overlook the way it could affect human relationships. The
new infrastructure is a web of connections among people:
Producers and consumers, in particular, are much more
closely connected than they used to be. Through smart-
216 10 principles for leading the next industrial revolution
phones and social media, consumers can connect directly
to primary producers of the products and services they
buy. Through sensors and data analytics, producers can
be thoroughly attuned to the needs, habits, and long-term
interests of the people who buy products and services. As
a designer of the new platforms, or a business leader par-
ticipating in them, you have an unprecedented opportu-
nity to build a customer-centric enterprise, one that con-
nects with what people genuinely want and need from
your company, thus generating commitment that will last
a lifetime.
For many large businesses, this represents a dramatic
change. Apparel companies, for example, are building new
connections between the retail store and the factory, so that
retail customers’ preferences rapidly translate into new cloth-
ing designs. A few farsighted companies, such as Inditex
(Zara) and H&M, have pioneered this approach in their
own operations. Now, the platforms of the Industrial Inter-
net make it much easier for any apparel manufacturer to
follow suit. Banks, power utilities, and telecommunications
providers are making similar transitions: They are cleaning
up their user interfaces, offering new types of services, and
solving customer problems in faster, friendlier, more respon-
sive, and more effective ways.
217 10 principles for leading the next industrial revolution
 When you design for customer-centricity, you trans-
late your desired relationship and mutual commitment
into the look and feel of your enterprise. A true omnichan-
nel customer experience connects every touch point: all
face-to-face contact, every retail environment, all online
activity, anything connected through a smartphone, and
all the other myriad connections between you and your
customer. In the new infrastructure of your business, there
are far more touch points to work with. Customers live in
an interactive world. Their behavior is aggregated into
data you can consult to make business decisions. Your be-
havior, in turn, is more evident and transparent to them
than it has ever been before.
For example, consider a simple shopping transaction.
A customer places an order online for a shirt, trying it on
in a virtual showroom, and then picks it up in a local
store. Can he or she move seamlessly from the smartphone
to the pickup point? Is it obvious how to try it on and pay
for it without waiting in line? Is it easy to pay? Does the
store, abetted by analytics, show the customer other items
that would look good with that shirt?
You will need new levels of design acumen to succeed.
People will interact with your company through online
automated systems, and perhaps through robots in the
218 10 principles for leading the next industrial revolution
physical world. Are these machines appealing or frustrat-
ing? Do they draw upon knowledge of ergonomics and
human sensitivity? (Does the transaction mimic the se-
quence and pacing of human interaction?) Equally im-
portant, are your systems adaptable? The more easily pro-
fessionals and customers can change and customize their
systems — without having to be an IT professional — the
more effective they will be.

4. Raise your technological acumen. No matter what indus-

try you’re in, you live in a programmable world, and soft-
ware will be key to your competitiveness. Take the Ger-
man auto industry, for example. For years it has traded on
a worldwide reputation for excellence in mechanical and
powertrain engineering. But from now on digital excel-
lence will be at least as important. This change is forcing
some hard thinking about future industrial strategy, in a
country that is known, according to the Financial Times,
for relative weakness in IT. “In the future, 50 to 60 percent
of the value of a car will consist of digital devices and tools,”
said German federal chancellery chief of staff Peter Alt-
maier, one of Angela Merkel’s senior advisors, at a panel
debate in November 2016. “And 20 percent [will be] bat-
teries. If we’re not careful, [German manufacturers will]
219 10 principles for leading the next industrial revolution
only be responsible for the windows, seats, and wheels.”
Every company, even if it’s in Silicon Valley, will need
to improve its technological acumen during the next few
years. This is a matter not just of recruiting people with
software expertise, but of raising the skills of everyone at
your company. They need not just the technical training
to use digital tools, but insight into the patterns of tech-
nology — for example, how to create an operations foot-
print that can take advantage of the Industrial Internet, or
how to accumulate the type of data that can foster ma-
chine learning.
You will be adopting manufacturing execution systems
that link the elements of enterprise resource planning with
all the factory operations of a company and its suppliers.
Augmented reality will enable operators and decision mak-
ers to see data about operations (or anything else) on wear-
able devices. A schematic might pop up, helping an engi-
neer (or, in another setting, a surgeon) determine where to
direct a probe. Digital fabrication will allow a wider range
of components and products to be created close to where
they are needed, rather than being shipped long distances
or going through customs; the costs of this technology are
dropping about 10 percent per year. Interoperability among
all these technologies is much more common than it was in
220 10 principles for leading the next industrial revolution
the past. This allows even the largest enterprise to coalesce
around a more coherent global strategy — and when your
people have the right kind of digital acumen, they can make
use of systems far more effectively.
The industrial infrastructure will make it easier to de-
sign your workplace for digital acumen. Set up displays
with shop floor or financial data, offering opportunities for
employees to discuss their meaning and how to improve
them. If your factories have robots, design them as “co-
bots”: collaborative robots, equipped with sensors that
make them responsive to the people who work nearby. The
robots handle the rote tasks, such as moving parts into po-
sition; the people handle the more fine-grained parts of the
operation, where judgment or artistry is required. Tailor
office environments to the work needs, learning opportu-
nities, and emotional engagement of the people who work
in them, with collaborative workrooms that bring teams
together easily with videoconferencing and other digital
connections. In general, design your work spaces as oppor-
tunities for your people to learn — from experience, from
analyzing data, from the increasingly intelligent technolo-
gy around them, and from one another.
As people throughout your company become more
comfortable with the Industrial Internet, they will develop
221 10 principles for leading the next industrial revolution
a collaborative culture of innovation. They will also better
understand the risks of the new world — for example,
risks related to accidents, privacy violations, and cyber-
attack. This insight will be invaluable, not just within your
company, but across the platforms you inhabit.
Because possible points of attack or vulnerability are
spread throughout the ecosystem, responsibility for their
security needs to be shared broadly, and frameworks for
legal liability need to keep pace with technological devel-
opments. CEOs and their boards may need to be as good
at judging when the world is not ready for their technol-
ogy as they are at judging when their technology is ready
for the world.

5. Innovate rapidly and openly. Innovation and leadership go

hand in hand in the next industrial revolution. Many com-
panies will seek disruptive innovation, but a steady stream
of incremental innovations can be more profitable. Smaller
innovations will be easier to generate and, more important,
easier to test in the market. With the tools of the Indus-
trial Internet, you can prototype new products, manufac-
ture them in small batches profitably, distribute them rap-
idly, and see how your customers respond before rolling
them out worldwide. As you continue to develop incre-
222 10 principles for leading the next industrial revolution
mental innovations, they can sometimes snowball into dis-
ruption. That’s what happened with the smartphone, which
evolved between 2000 and 2007 from a music player (the
iPod) into a world-changing device.
Rapid innovation is more effective when you are open
to collaboration with those outside your own company’s
walls. Draw on a broad group of participants, including the
organizations that are connected to your platform. Much
of the technology in the Industrial Internet is not just cross-
functional, but cross-industry. When whole supply chains
and customer ecosystems are automated, integrated, and
transformed, innovation follows a similar pattern.
Siemens, for example, is making a billion-dollar in-
vestment in what Lak Ananth, the head of the company’s
Next47 startup unit, hopes will be “a new era of collabo-
ration between hungry early-stage startups.” (The name
Next47 echoes the landmark year of 1847 when the com-
pany was founded.) Areas of collaborative venture capital
investment include artificial intelligence, autonomous ma-
chines, decentralized electrification (smart grids), con-
nected mobility, and blockchain.

6. Learn more from your data. The

exponential increase in
real-time data — gathered from customers, equipment,
223 10 principles for leading the next industrial revolution
and work processes — is giving companies new insights.
Gathering and analyzing data are important, but they are
only the beginning. It is critical to use the analytic results
to recognize important patterns, and to gain insights that
help you make the right choices and keep improving on
the fly.
For example, getting accurate information about prog-
ress and cost on construction sites has always been a chal-
lenge. Now, a construction company or investor can use
drones to gather photographic images, overlay them with
the original site plans, verify contractor reports, and spot
discrepancies as small as a centimeter wide. In the agro-
chemical sector, farming companies also use drones, along
with data from weather reports and sensors mounted on
their machinery, to fine-tune their planting, fertilizing,
and harvesting practices. Industrial companies of all sorts
now use data gathered from factory floor sensors to in-
form maintenance and operational decisions. GE’s chief
digital officer, Bill Ruh, estimated that just one perfor-
mance increase resulting from these efforts, in locomo-
tives, saves one railroad US$200 million per year.
In the military aerospace sector, manufacturers are able
to use the data set that is fed back from an aircraft to create
immersive and experiential simulation software and train-
224 10 principles for leading the next industrial revolution
ing programs that can transform the training economics
for fighter and other flight crews. Wear and tear on the
airframe can be minimized and the aircraft reserved for
the missions that matter, substantially reducing the overall
cost to customers of military training and preparedness.
And of course, in all industries, companies are now
able to develop highly customizable, on-demand manu-
facturing, with customers having real-time access to de-
sign, supply, and demand systems. Direct feedback and
interfaces between manufacturing systems and customers’
own ordering and demand planning systems are shorten-
ing lead times and improving capacity utilization plan-
ning. One of the great frontiers in data analytics is materi-
als. A plastics maker that notices a customer using a
polymer in one way could propose a different approach,
based on analysis of what other companies have done with
that same polymer.
To make the most of your data, integrate your analyt-
ics teams. Schedule regular sessions in which people talk
about what they are finding, and how it could affect the
business. Ensure that data from all your operations and
customer insights is considered. Draw in relevant infor-
mation from other companies and from the government.
By doing so, you balance your proprietary interest in your
225 10 principles for leading the next industrial revolution
own data against the fact that open data sharing allows
for much more insight. Platforms make sophisticated data
sharing of this sort far easier than it used to be. Finally, in
addition to any business changes you make, revamp your
analytics approach so that your data gathering and syn-
thesis will be still more effective next quarter.

7. Adopt innovative financing models. New large-scale tech-

nologies inevitably put pressure on the old ways of raising
money for them. As the Industrial Internet expands, the
ability to finance major capital projects will remain one of
the hallmark capabilities of an industrial company. But the
particulars will shift.
Infrastructure projects will closely follow the example
of the software industry, where cloud computing has
sparked a quiet but pervasive change. Software users no
longer buy packages; instead, they subscribe to software-
as-a-service, paying rent to the provider in exchange for
access and continual upgrades. This approach affects the
type of financing that tech companies need, and the ways
they manage return on investment.
Larger industrial firms will similarly move from financ-
ing the ownership of factories and machinery to financing
a pay-as-you-go system, with smaller but more frequent
226 10 principles for leading the next industrial revolution
rent charges for more flexible installations. There will be
less interest in replacing old equipment, and more interest
in continuing to upgrade it, using 3D printing and other
forms of digital fabrication to manufacture and customize
new components. Industrial companies will take a cue
from Silicon Valley and finance more of their investments
through equity and venture capital, rather than through
debt. Adjustable pricing will also be more common; tech-
nology will allow B2B prices to vary by time of sale, amount
of use, and type of application.
Amazon has been a pioneer with innovative financing,
particularly in the way it scales up and upgrades its plat-
forms. It consistently innovates in areas such as cloud
computing and warehousing, which require large but tar-
geted investment. It has done so by repeatedly raising
money from the stock market and making a convincing
case that these investments are going to pay off in the long
term. It has thus been able to put in money where other
companies didn’t have it. GE has had similarly strong fi-
nancing acumen, drawing its investment capital from the
management (and divestment) of multiple businesses. It’s
building an enormously expensive platform almost from
scratch. The company has a staff of about 28,000 soft-
ware engineers.
227 10 principles for leading the next industrial revolution
 In the end, to fully develop the Industrial Internet (and
thus to continue the viability of industrial civilization), it
will be necessary to replace or upgrade every aspect of the
world’s industrial infrastructure, with capabilities and sys-
tems that didn’t exist before. Financing all this will require
as much expertise and creativity as the technological in-
novation. The technologists understand this. They are es-
tablishing metrics for tracking short- and long-term re-
turns, balancing immediate payback and long-range
aspiration. They are also embracing new mechanisms,
such as blockchain, to ensure that pricing, billing, transfer
payments, and subsidies are reliable and free of undue in-
fluence. By the time they are finished, the capital infra-
structure could be as boldly innovative, and as different
from that of the past, as the physical infrastructure that it
made possible.

8. Focus on purpose, not products. Asa leader in the Indus-

trial Internet, you will probably develop a wide range of
products and services during any given five-year period,
potentially in several sectors. Many other companies will
use the same platforms to enable their capabilities. To
differentiate your company, you need to develop a clear
purpose: a value proposition, more effective than anyone
228 10 principles for leading the next industrial revolution
else’s, that applies to everything you do. This means look-
ing closely at the reasons people come to your company,
the outcomes they expect, and the ways you can deliver.
When you are clear about what your company is, and why
you sell what you sell, people will trust you to deliver what
you promise.
Customers recognize when a company fulfills its pur-
pose. They are interested not in products or services, but
in outcomes. Consumers at a premium retailer are buying
more than clothing or a coffee drink. They are buying a
distinctive experience as well. Instead of thinking of your
company as providing a particular type of product or ser-
vice — electric power, health records management, or au-
tomobile components, say — think of it as a producer of
outcomes. The customer needs to get somewhere, so you’re
not a car company; you’re a facilitator of mobility. Already
in many cities, customers are using vehicle sharing apps
for short-term rentals (often of electric vehicles), reserving
cars where they need them and dropping them off when
they are finished. The house is cold, so you’re not just a
fuel supplier. Your purpose is to help make the home warm,
possibly through energy consultation.
Ask yourself whether your company truly has an out-
comes focus or is still stuck in a physical product mind-
229 10 principles for leading the next industrial revolution
set. Are you judging success according to the meaningful
differences you make to customers in terms of satisfaction,
quality of life, and productivity? Could better outcomes
be possible for customers if you could produce or provide
goods and services in a different way?

9. Be trustworthy with data. You already collect a vast amount

of data. As the IoT spreads to wearables, consumables,
cars, and every conceivable part of the home, what you
know about people will increase exponentially. The In-
dustrial Internet will bring that level of data collection
into your workplace. Shared data is the fuel of the next
industrial revolution. And just as earning digital trust will
be key to success, forfeiting people’s trust will be a surefire
route to failure.
You will need not only to manage customers’ behav-
ior, but to prevent outsiders from gaining access to critical
information. Strong risk management, cybersecurity, and
data integrity systems are essential in helping companies
avoid breaches and better manage disruption to opera-
tions. Transparency has to be an integral part of your strat-
egy. Without a clear idea of how rules are defined and
implemented, for example, stakeholders may question a
company’s fairness and honesty.
230 10 principles for leading the next industrial revolution
 Keep up with leading-edge approaches to protecting
sensitive information from cyber-attack or theft. Cloud-
based systems built into most digital platforms will make
it easier to protect data by enabling companies to track and
recognize intrusion in near real time. As PwC cybersecu-
rity experts David Burg and Tom Archer put it, your com-
pany will most likely protect itself in the future “by moni-
toring activity across all its online systems, studying not
just the moves of hackers but the actions of legitimate cus-
tomers as well. Both types of visits, after all, are forms of
repetitive human behavior, opposite sides of the same coin.”
It might seem as if the lack of trust in large businesses
and government institutions, endemic throughout the
world, will compromise your ability to be trustworthy and
transparent. But it actually creates a powerful opportunity
to differentiate your company. In PwC’s latest global sur-
vey of CEO opinion, many CEOs recognize as much. Just
under two-thirds of chief executives (and three-quarters
of those who head companies with revenues of more than
$10 billion) believe that how their firm manages data will
be a differentiating factor in the future.

10. Put humanity before machines. You might think the

principle of putting people before machines is so obvious
231 10 principles for leading the next industrial revolution
that it goes without saying. But the history of technology
is full of examples where the opposite has happened. The
Industrial Internet places unprecedented power in every
enterprise. As machines become increasingly intercon-
nected, the quality of user experience will spread in viral
fashion. If people are shut out — of jobs, creative oppor-
tunities, income, and customer satisfaction — embracing
technology will backfire. Business, in particular, will thrive
in this new world only if its leaders understand the place
of human values.
Set up your enterprise to foster better connections
among people, to encourage humane behavior, and to build
the requisite capabilities that overcome technological isola-
tion. The most important skills for accomplishing this will
be those that can’t be replicated by machines. Your com-
pany will need people who can understand the technolo-
gies of the industrial infrastructure, such as artificial intel-
ligence and analytics, but who are also adept at working
with an organization’s culture. Helping people take pride
in their endeavors, as our colleague Jon Katzenbach sug-
gests, will be critically important; so will establishing a di-
versity of points of view, so that people from different back-
grounds can challenge one another’s perspectives.
Most important of all will be a basic attitude of respect
232 10 principles for leading the next industrial revolution
for human beings; as technology becomes more proficient
at this larger scale, the most distinctive thing about people
will not be their ability to solve problems or achieve results,
but their empathy, intuitive judgment, and authenticity;
their abilities to care, connect, and choose, in ways we can’t
predict in advance.
What place will your company occupy as the next in-
dustrial revolution unfolds? It depends on your ability to
bring all these principles to bear. You will combine your
people, your capabilities, and your technological acumen
in ways that you never have before. We will soon not just
see individual fortunes change, but also see them move
forward in ways that provide stability, self-sufficiency, and
a high quality of life. In a sense, this represents the culmi-
nation of the wave of digital technology that started in the
1950s, and it still has a few years to go before it stabilizes.
By that time, we’ll be just about ready to start all over again
with yet another “next” industrial revolution — assuming
this one works out as well as we hope.

233 10 principles for leading the next industrial revolution

TECHNOLOGY

10 principles
for modernizing
your company’s
technology
Today’s technology platforms are not just
new versions of legacy systems. They allow you
to design a completely new digital enterprise —
as long as you follow these guidelines.
by Leon Cooper and Milan Vyas

234 10 principles for modernizing your company’s technology

 Originally published by s+b
on Feb. 21, 2019

The life cycle of information technology is becoming shorter

every year. New competitors are disrupting industries by
leveraging state-of-the-moment digital practices and pro-
cesses. Customer expectations are constantly evolving
in an accelerating race for the most advanced, hypercon-
nected, seamless experiences. IT functions are under un-
relenting pressure to support leading-edge capabilities
such as data analytics, cybersecurity, automated process-
ing, and integration with third-party systems. The easiest
way to achieve this goal is through platforms that connect
Illustration on previous page by QuickHoney

everyone to the same cloud-based cross-industry digital

infrastructure.
In this context, your company’s legacy IT system, which
seemed so capable a few years ago, is rapidly becoming ob-
solete. The systems modernization you need today is more
than an upgrade; you’re playing a new game with new rules,
235 10 principles for modernizing your company’s technology
in which you modernize not just the tools and functions,
but the way you do IT. The vendors are largely the same,
but the options and principles of the past no longer apply.
Hardware no longer stands alone. Sensors and Internet
connections are embedded in practically every tool, includ-
ing those that used to be purely mechanical. Software is no
longer sold as a package to install. It is offered as a platform
by subscription from the cloud, is automatically upgraded,
and is programmed in new ways.
Yet some of the most important factors have not
changed at all. Organizations must remain focused on
their competitive edge. Modernization efforts must create
value for the enterprise. Investors and other stakeholders
are as demanding as ever.
Understanding what to get right — the elements of
your IT system necessary to reach your goals — is essen-
tial. Knowing how to get it right — how to plan, sequence,
invest, design, and engage the enterprise around your tech-
nological modernization — is equally important. Some
efforts fare better than others. We have distilled 10 prin-
ciples that are common to successful efforts. You can
think of them as essential guidelines for your digital trans-
formation, from your legacy system to the platforms of
the future.
236 10 principles for modernizing your company’s technology
1. Put customer value first. Although any number of factors
may trigger a decision to modernize IT, one explicit goal is
paramount: to deliver value. Every investment in technol-
ogy should amplify the benefits for end customers, whether
through better experiences, higher product quality, or oper-
ating efficiencies that reduce prices and add value.
Start by developing a solid business case for the mod-
ernization effort, showing expected value and innovation.
Explicitly include (and agree upon) the most important
outcomes for customers. Articulate, with clarity and pre-
cision, how each facet of the new IT system will contribute.
You should be able to point to measurable improvements
in key metrics — for example, customer retention, user
experience, sales, productivity, and recruiting.
Use cross-functional teams to plan and design this
modernization effort. Functional experts from areas such
as IT, strategy, R&D, customer interaction, and opera-
tions can all work together in an agile sandbox environ-
ment to design the changes around a set of coordinated
specifications. In this early stage, and throughout the ini-
tiative, you thus link leading-edge knowledge of the chang-
ing technology with deep, day-to-day awareness of the
desired results. As you bring these teams together, you
will establish a shared frame of reference — a common
237 10 principles for modernizing your company’s technology
language to describe the features you want and the capa-
bilities you are building. This also will help engage new
stakeholders as they join in the effort.
A major transportation company revamped its online
system this way, improving the integration between the
website that handled passenger bookings and the back-
office functions that, among other things, routed travel.
In its intensive sandbox sessions, the company set up tem-
porary cross-functional working groups, which became
known as “tribes.” Charged with planning and executing
the modernization, the tribes included IT specialists along
with people from finance, operations, and R&D.
In the public sector, customer value translates to public

A guide to modernizing
your company’s technology

Invest in
Design resources that
Put customer for flexibility Adopt a services Organize by make the
value first. and speed. mind-set. capabilities. change stick.

1 2 3 4 5 6 7 8 9 10
Simplify your Engage with Plot the journey Be agile and Partner based
architecture. your workforce before starting. user-centric. on shared values
and culture. and trust.

Infographic: Opto Design / Lars Leetaru. ©2019 PwC. All rights reserved.

238 10 principles for modernizing your company’s technology

service, but the principle still holds. When the Ottawa
Police Service (OPS) in Canada’s capital city resolved to
fundamentally transform its service delivery model to bet-
ter connect with and serve the public, its leadership recog-
nized that the change needed to be driven by the needs of
frontline officers and the public. They put in place a robust
process to ensure that these officers would generate and
validate ideas for technology modernization and IT inno-
vation. OPS’s initiative has been successful enough to be
held up as an example for many other policing organiza-
tions contemplating similar transformations.

Questions for putting customer value first:

• Why do we need to enhance or transform our
technology right now?
• What problems do we expect to solve?
• How will this change deliver value to our customers?

2. Simplify your architecture. As

organizations have evolved
over the past 10 years, the underlying architecture of in-
formation technology has tended to evolve with them,
often in a haphazard and as-needed fashion. A single or-
ganization might have had IT systems based on a variety
of coding languages, data structures, integration require-
239 10 principles for modernizing your company’s technology
ments, and support arrangements. The result was often
a complex network of technologies: fit for purpose in each
individual application, but difficult to adapt, refresh, and
integrate. It often required significant effort to make
changes, or even to understand the implications of chang-
es on stakeholder needs and business performance.
Modern modular platforms have changed all that.
Standardization of software code and integration standards
have enabled systems to interact more fully without requir-
ing bespoke designs. Tools such as application program-
ming interfaces (APIs) allow companies to develop inter-
operable components that fit together in standard ways
and interact seamlessly. Formerly separate systems, such as
those for payments or customer relationship management
(CRM), can now be linked to a single, configurable plat-
form, with the ability to share data across the enterprise.
Instead of assuming a trade-off between simplicity and
the features you need, look for systems that give you both.
Many modern systems can combine simplicity at the back
end with enhanced functionality at the front end. The
leaders at GE Digital exploited this when they designed
the modular platform that they use in-house and for cus-
tomers such as airlines. Based on a cloud infrastructure
and incorporating the Internet of Things, the system inte-
240 10 principles for modernizing your company’s technology
grates applications built by other companies (such as Ora-
cle), by GE’s customers, and by GE itself. GE followed the
model of smartphone apps, but on an enterprise scale.
Simplicity makes it easier to take advantage of the
software-as-a-service (SaaS) model, which allows organi-
zations to procure increasingly complex functions on
demand from their existing software providers without
needing to manage the implementation or underlying re-
sources. As with the consumer smartphone apps revolu-
tion, the new enterprise-level SaaS apps compete on qual-
ity and ease of use. The best ones rise to the top, contain-
ing costs and providing better experiences for the people
interacting with your organization. As you implement
these systems, you’ll learn that most customers and em-
ployees don’t want an overabundance of menus and fea-
tures. They prefer simple, flexible commands that move
them quickly to their desired results.
Embracing a simplified architecture requires a change
in thinking, particularly when considering options for new
systems and partnering arrangements. Establish clear IT
design principles, focused on simplicity and strategic func-
tionality. Shift from asking “How do we connect our com-
ponents?” to asking questions about adding value, attract-
ing customers, and making life easier for your employees.
241 10 principles for modernizing your company’s technology
 Questions for simplifying your architecture:
• How can we best simplify our technology systems
environment?
• Where is the modularity in our current system
environment? Is it flexible enough for our needs?
• What data and functionality will be accessible —
from customers, business partners, and operations
— when we better integrate our system?

3. Design for flexibility and speed. Modern organizations

have a constant need to adapt within an ever-changing
environment, requiring continuous innovation in prod-
ucts, services, and practices. Their systems must also have
the flexibility to keep up.
The technology systems of the past competed on func-
tionality. They were designed to do one or two things very
well, and the organization adapted to focus on those one or
two activities. When the enterprise needed to change its
focus, the structures and processes of the system held it
back. Today’s more modular systems can be much more
flexible. So seek out modular platforms that can accom-
modate a wide range of plug-and-play functions for con-
nection and configuration — including those that haven’t
been designed or even imagined yet.
242 10 principles for modernizing your company’s technology
 Modular IT design is future-ready — it can
flex as needed for innovation.

Develop your own capabilities for the design and de-

ployment of future-ready IT systems that can flex as need-
ed for innovation. Learn to use them to quickly reorient
your operations while retaining the quality of user experi-
ence that your customers and staff expect. For example,
your sales and service staff can reconfigure your customer
engagement systems as the market changes. Your CRM
system can lead teams to think more creatively about iden-
tifying and approaching customers.
To assess the fitness of new IT systems or upgrades,
adopt a minimum viable product (MVP) approach. This
approach consists of a “bare-bones” installation, covering
the few features that are absolutely necessary to demon-
strate the system’s value. Release an MVP to a small group
of employees or customers, and ask those early adopters for
responses — or better yet, observe them using the system.
243 10 principles for modernizing your company’s technology
You will learn what features customers care about, what
features they don’t, and what features are missing.
The use of AI and machine learning is also critical for
flexibility and speed. Employees and customers are used
to apps and search engines that guess what they are going
to type or select. They understand and accept systems that
learn their habits. Already, users expect as much from their
enterprise software. A company whose systems understand
users’ behavior, and guide them rapidly to work more pro-
ductively, will gain their commitment.

Questions for designing for flexibility and speed:

• What aspects of our existing systems are constraining
our speed with respect to change?
• Are these aspects necessary? Are there better ways to
change direction while managing risks?
• What kinds of unexpected changes have we needed
to deal with in the past? What do they suggest about
future designs?

4. Engage with your workforce and culture. IT moderniza-

tion is often seen solely as a matter of changing technolo-
gy. But changes in technology sustain themselves only if
people accept and embrace them. You must therefore align
244 10 principles for modernizing your company’s technology
your new systems with the company’s culture — starting
with a clear recognition of the new habits that people will
need to adopt.
An evolution in technology architecture may well in-
volve a significant cultural shift, with a new structure and
new competencies. Consider where the stumbling blocks
may be. For example, do employees understand how to
analyze the data your company collects while protecting
your privacy? Do they have the operational skills to coor-
dinate with external partners? Do they have concerns or
qualms that have not been addressed? Armed with that
information, your company’s leadership can determine
what types of training, support, recruitment, and work-
force changes are needed.
Engage users of the new technology, encouraging them
to play an active role in the transformation effort. At GE
Digital, for example, managers fostered engagement by
bringing in all stakeholders from 20 different departments
to be certain the right voices were heard. They made sure
that users felt they were part of the process, giving them
roles to play in implementation and providing regular up-
dates on the delivered benefits. As a result, employees who
used the system felt invested in the outcomes. Engage-
ment on that scale isn’t easy, but it is essential.
245 10 principles for modernizing your company’s technology
 There already are some powerful elements of your cul-
ture — including attributes of the company and behaviors
that work well — that you can muster on the side of effec-
tive change. In addition, every company has “authentic
informal leaders,” people at every level of the hierarchy
who are already demonstrating the behaviors you need for
modernization because they believe in the new direction.
Find these individuals and work closely with them. They
can tell you about the readiness of your organization to
change, the places where resistance will occur, and the
magnitude of effort required to overcome resistance.
For a large insurance provider in Australia, the critical
starting point for modernization was to create cultural ac-
ceptance of the idea “decommission the old and embrace
the new.” To achieve this, the technology leadership pro-
vided a strong mandate for simplification, and communi-
cated it consistently. The mandate helped rally the teams
around a common set of priorities, decisions, and behaviors.
At Ottawa Police Service, where there was a strong
culture and deeply held values and beliefs, the new initia-
tive sought to modernize critical policing applications with
newer foundational technologies. Staff needed to be con-
vinced that security and privacy issues could be properly
addressed. As the technologies changed, PwC helped OPS
246 10 principles for modernizing your company’s technology
put in place a strong and collaborative change manage-
ment process, along with providing expertise in cyberse-
curity and public safety, to create confidence that the tech-
nical solutions were appropriate for use given the many
regulatory, privacy, and security considerations. In the
end, more than 150 police officers regularly contributed
ideas. When the ideas were valued and implemented, that
created a virtuous circle of more engagement, faster up-
take, and still better results.

Questions for engaging your workforce and culture:

• What do people need from the new IT systems to
be productive? How do we know?
• How technologically capable is our existing work-
force? What skills do they already have and what do
they need to develop?
• What kind of cultural changes need to occur
for new systems to be adopted? How do we
create them?

5. Adopt a services mind-set.The traditional approach to

technology treats systems as assets that a company owns
and operates. A modern approach treats technology as a
set of services that a company can consume and integrate
247 10 principles for modernizing your company’s technology
as needed, without necessarily owning the systems at all.
Companies can then select and combine services from a
range of best-in-class providers, within an overall frame-
work that suits the organization’s unique needs.
This approach redefines the IT function. Where once
you hosted and managed systems internally, now you over-
see a more open platform. Services are outsourced and
dynamically managed; when a service component is not
effective, you can adapt or replace it. You no longer care
as much about the source of a service; you care about how
well it serves your needs and creates value. You judge its
financial performance in operational terms — productiv-
ity and results measured against cost — rather than by
return on asset costs and the costs of maintenance.
One major bank redesigned or replaced a large num-
ber of critical systems within a five-year time frame. The
refresh affected customer systems, analytics, product de-
velopment, and core ledgers. When communicating the
changes with the bank leadership, the IT group explicitly
avoided describing their hardware and software assets; in-
stead, they focused on the services they would provide to
internal functions.
This approach made it easier to add new IT functions.
For example, when the group installed analytics packages,
248 10 principles for modernizing your company’s technology
they naturally gravitated together to talk about new ways
to use them. The same was true of new marketing tools
and the new network for linking branches. Ultimately, the
bank made its message about services public. It was invest-
ing in modernization, it announced, because it knew the
investment would help the bank become the type of finan-
cial institution that its customers and partners needed.
Adopting a services mind-set also promotes a more
open approach to sharing value with service providers. By
using your providers as ongoing partners in innovation,
you can shift your focus from negotiating terms to collab-
oratively generating results.

Questions for adopting a services mind-set:

• What are the essential technology services we provide
to our organization?
• Are we organized and funded according to the out-
comes we provide rather than the assets we manage?
• What other services could we offer in a cost-effective
way if we were better organized to do so?

6. Plot the journey before starting. Justas successful trans-

formation is a staged journey, so too are systems modern-
ization efforts. In their article “The Four Building Blocks of
249 10 principles for modernizing your company’s technology
Transformation,” PwC organizational change experts Al
Kent, David Lancefield, and Kevin Reilly describe how
iconic companies — the likes of Apple, IKEA, Starbucks,
and Honda — have achieved their success through a fully
coherent, differentiated, strategic identity. They methodi-
cally developed the capabilities and business models they
needed to deliver this vision.
Your systems modernization can help you do some-
thing similar. Having set a direction based on customer
value (as in principle number one), you now plot a systems
modernization road map, that is, a sequence of milestones
and markers that you can expect along the way. For ex-
ample, you might introduce cloud-based capabilities early,
so they can be used for other initiatives. Or you may need
to modernize some legacy systems as a prerequisite for im-
proving time-to-market for product launches.
For a technology modernization at GE, the business
units and geographies shared the responsibility to get core
applications up and running. Progress was tied to explicit
deadlines and goals, including “reduce quarter close time
by 50 percent” and “cut 40 percent in IT expenditures.”
Each milestone also included progress toward a predeter-
mined set of core business needs: expanding market share,
automating processes, deploying common platforms, re-
250 10 principles for modernizing your company’s technology
thinking shared services, and ensuring quick wins.
When your organization is embarking on this journey,
ensure up-front buy-in from key senior stakeholders. In his
book Leading Change, John Kotter calls this the “powerful
guiding coalition.” It consists of change champions from
every key area of the business at all line management levels.
This coalition helps to ensure ongoing business alignment.
Although it’s planned, your IT modernization should
not be rigid. Set it up as a self-correcting journey. In each
step, you learn from previous iterations and discuss what
could be done better next time.

Questions for plotting the journey before starting:

• What are the critical steps in our migration to a new
system? Who will we bring together to implement
each step?
• How will we adapt our plan to “course-correct”
when things don’t go as expected?
• Who needs to be part of our own powerful guiding
coalition?

7. Organize by capabilities. Mostlarge and midsized com-

panies cannot reorganize their legacy IT system all at once.
Their efforts must be divided, prioritized, and sequenced,
251 10 principles for modernizing your company’s technology
or they will be too large and complex to manage. Most IT
modernization efforts are organized by project; they are
short-lived efforts, framed by conventional enterprise soft-
ware categories, and budgeted and delivered through de-
velopment teams that disband when the project is com-
plete. This leads to a short-term focus that can distract
efforts from the most important goal: building the capa-
bilities that deliver value.
What if you organized by capabilities instead? Your
organization’s most distinctive capabilities are the combi-
nations of systems, processes, and functions that deliver
value in a way that no other enterprise can match. Think
of your systems modernization initiative as an opportu-
nity to energetically improve these capabilities, drawing
on your digital expertise. For example, Inditex (the Span-
ish apparel company best known for its retail brand Zara)
has long had distinctive capabilities in customer insight,
fashion-forward product design, rapid-response manufac-
turing, and globally consistent branding. In recent years,
it has enhanced these capabilities with an IT moderniza-
tion that included, among other things, setting up RFID
tags for every item it sells. Now it also has an integrated
online–offline inventory capability, so that any clerk in a
Zara store can instantly locate a garment in a specified
252 10 principles for modernizing your company’s technology
size and color, and arrange for it to be shipped directly to
a customer — giving the company strengths in customer
satisfaction that few other retailers can match.
Your organization’s customer-facing products and ser-
vices are central in this approach (it’s sometimes called the
“product management–based IT operating model”). You
logically group applications and infrastructure by the busi-
ness capabilities they primarily support. Then you find
the necessary applications and hardware needed to fill the
gaps in those capabilities, and (better yet) to refine and
expand your conception of those capabilities, staying steps
ahead of competitors.
Organizing the IT operating model in this way offers
many benefits. They include enhanced business–IT align-
ment, the ability to deliver faster innovation and greater
value, more effective investments, and a simplified vendor
landscape. Consider procuring a managed services and
solutions provider with which to partner; they may be
more familiar with the newer technologies and thus able
to deliver more quickly and effectively than you can.
When you organize by capabilities, you don’t have to
worry about the different layers of the technology stack.
They’re all in scope. Your IT organization is no longer
wedded to legacy concepts; it can help accelerate a digital
253 10 principles for modernizing your company’s technology
transformation by applying principles such as mobile ac-
cess, API-based design, microservices, cloud-based infra-
structure, and modular IT structures.

Questions for organizing by capabilities:

• What are the most critical capabilities that differentiate
our company and provide value?
• How will our IT modernization enable and enhance
these capabilities?
• What technological solutions and vendors fit best
with these critical capabilities?

8. Be agile and user-centric. When executing the modern-

ization, look for ways to realize benefits faster. Avoid the
“big bang” approach, in which you gradually build toward
a single all-encompassing systems release, which can in-
volve many months’ wait before results start to be seen.
Divide the modernization road map into discrete delivery
increments, releasing usable functions on a frequent re-
lease cycle. It’s better to be incomplete and rapid than
complete and slow, as long as you obtain system user feed-
back frequently and let that feedback guide you to shift
your direction. (Users of your systems could include cus-
tomers, employees, and anyone else who interacts with
254 10 principles for modernizing your company’s technology
your company, including regulators, suppliers, and com-
munity members.)
Use established agile frameworks for design and devel-
opment. These include scrum (consisting of self-organizing
teams), disciplined agile delivery (a process for team deci-
sion making), the scaled agile framework (which aligns
multiple teams), DevOps (practices aimed at reducing
software development time), and lean IT (which is based
on quality and continuous improvement approaches).
Whichever frameworks you choose, train all stakeholders
carefully in them, so they have a shared understanding of
the practices involved.
Even as you embrace agility, remain user-centric, that
is, attentive to customer and employee responses, and re-
sponsive in the way you incorporate their reactions into
your designs. Roll out new features in a way that allows
you to test them on different user and customer profiles.
For example, you might roll out two different features to
members of the same customer group or geographic re-
gion to see if they trigger different responses.
Establish a disciplined and consistent approach to user-
centricity. You might track people’s behavior on your sys-
tem by monitoring keystrokes, through surveys, or through
direct observation of users struggling with the prompts on
255 10 principles for modernizing your company’s technology
their screens or smartphones. Adapt and adjust your sys-
tem iteratively, building your own capacity for interpreting
user feedback. Adopt a continuous improvement mind-set,
so you are always looking for opportunities to learn and
make your system better. Seize those opportunities.

Questions for being agile and user-centric:

• Who will benefit most from the changes, and how
are they engaged?
• How do our analytics improve our knowledge of
their experiences?
• How do we pivot and change our approach when
we need to?

9. Invest in resources that make the change stick. Before com-

mencing modernization, perform a careful analysis of the
breadth and diversity of resources needed for a successful
outcome. Project management and transformational lead-
ership capabilities are as important as technical capabili-
ties. Be highly selective in forming the team that oversees
the effort. Choose people with a strong bias for change, a
strong desire and ability to learn, a high tolerance for com-
plex and uncertain situations, and a solid reputation for
collaboration and teamwork.
256 10 principles for modernizing your company’s technology
 Financial resource allocation is just as important. Align
funding to your highest modernization priorities. Be very
clear about which areas you will not spend money on. Scru-
tinize your choices about desired features and technologies to
ensure that financial resources are aligned with highest value.
Avoid locked-in situations, in which a single vendor
has control over your interactions (because, for example,
your data resides in a closed and proprietary system). In-
sist on open APIs that can connect to a range of other
systems. Experiment with open source software and make
interoperability and integration a critical part of your tech-
nological due diligence. For example, if you use commer-
cial off-the-shelf software, make sure it can link to a vari-
ety of databases, including open source products. Look
for technologies that easily integrate and work together
because of the languages they’re written in and the tech-
nology stacks they are built on.
Think through resourcing for the legacy system to keep
it running adequately while the new system is being built.
Even during the transition, you may need to fund must-do
modifications to the legacy system (for example, to meet
new regulatory and legislative requirements). Ensure that
funding for these types of changes, for both the old and
the new systems, has been factored into the overall budget.
257 10 principles for modernizing your company’s technology
 Develop a plan for funding to decommission and re-
tire the old system, and to move people to the new one.
Include funding for learning and development. Be clear
and up-front about the transition plan so that the team
with responsibility for maintaining the legacy system un-
derstands how important their role is and what options
are available to them. Provide incentives to make sure that
these people remain highly motivated while doing what
may seem to be unglamorous work.

Questions for investing in resources that make the

change stick:
• Which IT investments are linked to the greatest
return?
• How do we realign resources to support the trans-
formation while running the business?
• What skills will be needed with the new systems,
and how do we build them?

10. Partner based on shared values and trust. The techno-

logical systems that you are modernizing are key to your
organization’s future. Therefore, do not treat moderniza-
tion — or the procurement of the goods and services need-
ed to support it — as a transactional event. When selecting
258 10 principles for modernizing your company’s technology
long-term partners, invest in special due diligence in excess
of your standard evaluation criteria. Your goal is to find
companies that can deliver mutual benefits and with which
you can develop a working relationship that involves mu-
tual commitment and creative collaboration as well as a
fair deal.
If you don’t get this right, not only could the project
fail, but the switching costs could be substantial. There-
fore, use informal as well as formal ways of gathering in-
formation. Seek out companies whose values you share and
whose leadership has proven trustworthy. Evaluate the
credibility of their work by looking at the technology sys-
tems they have built for themselves. Think about how well
those systems support their own distinctive capabilities, es-
pecially those that would benefit you as their customer.
A good example of how to find the right partner comes
from ATB Financial, based in the Canadian province of
Alberta. It was founded in 1938 as a government-owned
corporation, with the mandate of providing the citizens of
Alberta with sources of alternative credit. After a strategic
review, the company’s leaders set out to stand up a cloud-
native digital-first challenger bank. This challenger bank
— Brightside — is designed to provide a unique value
proposition to a group of consumers that ATB believes is
259 10 principles for modernizing your company’s technology
underserved: digital-native and digital-savvy customers.
Recognizing the long-term relationships they would
need to stand up Brightside, ATB’s leaders were very de-
liberate in the way they evaluated vendors. They started
by developing a list of 37 potential partner organizations
identified through PwC’s research and knowledge of the
financial-services digital landscape. The list was shortened
to four through an RFI process using standard criteria
such as technological considerations, the ability to meet
requirements and commitments, references, financial
health, and long-term viability.
However, those criteria were just table stakes. The right
partner also needed to share the values that ATB Finan-
cial held, and to verify that it could be trusted. ATB thus
conducted site visits for each of the four semifinalists. It test-
ed each company’s flexibility and speed by asking it to com-
plete a proof-of-concept task, with only two days to work on
it after receiving the specs. In addition, during the visits, the
evaluation team spoke to employees at multiple levels.
ATB ultimately settled on two: a first choice, and a sec-
ond choice kept on standby. On a fee basis, the first-choice
partner delivered a two-month pilot designed to build out
5 to 10 percent of the critical requirements. This allowed
ATB Financial to fully evaluate how open the partner was
260 10 principles for modernizing your company’s technology
to change, how fast it actually worked, what tools it used,
and overall how compatible the two teams were. The sys-
tem modernization has made considerable progress and is
meeting all key metrics, and the companies’ superior work-
ing relationship is credited for much of this initial success.

Questions for selecting a trustworthy partner with shared

values:
• What are we looking for in a partner? What values
are important to us?
• What criteria will we use to ensure that our partner
has similar values?
• In committing fully to a partner, how can we build
mutual trust?

In modernizing your company’s technology, your goal

is an effective and sustainable vehicle for strategic success.
The critical issues, as with any organizational IT effort, are
not purely technical. They involve learning how to design
systems more effectively, engage individuals, and help
facilitate constructive change throughout the enterprise.
Taken together, these 10 principles can guide your way.
Also contributing to this article were PwC Canada partner Stovel Ferguson
and PwC US director Alexis Hall, along with Jane Livesey.

261 10 principles for modernizing your company’s technology

ABOUT THE AUTHORS

DeAnne Aguirre Mark Dawson Jon Katzenbach

retired from PwC as a partner was formerly a partner with [email protected]
based in San Francisco. PwC UK, specializing in culture is an acclaimed advisor to
and leadership. executives for Strategy&, PwC’s
Micah Alpern strategy consulting group. He
was formerly a senior associate Ivan de Souza is a managing director with
with PwC US. was formerly a partner with PwC US, based in New York,
PwC Brazil. and founder of the Katzenbach
Louis Bouquet Center, Strategy&’s global institute
[email protected] Carrie Duarte on organizational culture and
is a thought leader with Strategy&, [email protected] leadership. He is a best-selling
PwC’s strategy consulting business, is a principal with PwC US, author on organizational culture,
based in Seattle. He is a director with based in Los Angeles, and leadership, and teaming; his
PwC US. He focuses on customer serves on PwC’s US board books include The Wisdom of
strategy and transformation for of partners and principals. She Teams (with Douglas K. Smith;
technology clients. is the US leader for PwC’s Harvard Business School Press,
Workforce of the Future platform. 1993) and Leading Outside the
Deniz Caglar She provides strategic and Lines (with Zia Khan; Jossey-
[email protected] tactical guidance as organizations Bass, 2010).
is an advisor to executives on develop their workforce
strategic cost and organizational strategies, drive performance, Richard Kauffeld
transformation for Strategy&. and optimize the workplace was formerly a principal with
Based in Chicago, he is a principal environment. PwC US.
with PwC US. He is a leader in
the PwC US organization strategy Jaime Estupiñán David Lancefield
practice. He is the coauthor, with was formerly a principal with was formerly a partner with
Vinay Couto and John Plansky, of PwC US. PwC UK.
Fit for Growth: Strategic Cost Cutting,
Restructuring, and Renewal. Mathias Herzog Jessica Leitch
was formerly a principal with was formerly a senior manager
Leon Cooper PwC US. with PwC UK.
is an independent contractor
who works with the technology Bob Moritz
practice with PwC Australia. [email protected]
is chairman of the PwC Network.

262 About the authors

ABOUT THE AUTHORS, continued

Nils Naujok Thomas Ripsam David van Oss

[email protected] [email protected] [email protected]
is an advisor to executives in is an advisor to executives with is a partner with PwC UK in
operations for Strategy&. He is Strategy&. A principal with PwC London, specializing in innovation
a partner with PwC’s Strategy& US, he is based in Florham Park, strategy.
Germany, based in Berlin. N.J., where he leads the customer
strategy team. His areas of Milan Vyas
Gary L. Neilson specialty include operating was formerly a director with
was formerly a principal with model design and transformation PwC Canada.
PwC US. strategies for clients in the
technology, information,
Carolin Oelschlegel communications, entertainment,
[email protected] consumer, and retail industries.
is a director with PwC US,
working in the Katzenbach Center. Norbert Schwieters
She leads the global operations was formerly a partner with
of the center and advises clients PwC Germany.
around the world on culture and
leadership topics. She is based in Bhushan Sethi
San Francisco. [email protected]
is the joint global leader of PwC’s
Tom Puthiyamadam people and organization practice.
[email protected] Based in New York, he is a
is a principal with PwC US, principal with PwC US.
based in New York. He leads the
digital services practice for PwC James Thomas
and oversees its Experience james.thomas@strategyand.
Center, which helps clients create ae.pwc.com
next-generation experiences for is a thought leader in organizational
their customers, employees, culture with Strategy&. He is the
and partners. Middle East lead of the Katzenbach
Center and an expert in culture
and organizational topics. Based
in Dubai, he is a partner with
PwC Middle East.

263 About the authors

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