Governance of transformation amid an uncertain business climate
Why it matters
It seems an understatement to characterize the current state of global affairs as “volatile.” If the past few years have shown anything, it’s that boards can be certain of at least one thing: an uncertain governance landscape. Volatility wrought by a pandemic, economic upheavals, and geopolitical conflict—to name just a few challenges of late—have added a suite of new risks for boards to navigate.[1] Finding a way through such turbulent waters isn’t easy. But according to Deloitte’s MarginPLUS 2024 Survey, a growing number of companies are charting a course with the help of transformation initiatives focused on margin improvement.[2]
Regardless of form, transformation initiatives may involve large-scale changes that aim to bolster efficiency, reduce manual processes, and otherwise modernize business operations. Their scale and scope (from individual business units to organizationwide) can be different across industry as can the governance processes. In this article, we highlight three areas of focus for boards when overseeing transformation initiatives.
> External pressures
Governing the (sometimes) turbulent transformation process.
> Targeted transformation
A possible emerging trend of focused initiatives is on the governance horizon.
> Vigilant governance
Proactive board oversight of strategy may help organizations realize transformation goals.
External pressures: Governing the (sometimes) turbulent transformation process
With the complexity of board governance growing, increasing uncertainty of macroeconomic winds, and numerous destabilizing geopolitical events, new risks have emerged for boards to navigate. No single strategy can fully address the shifting list of macro-level challenges that companies find themselves in. In an uncertain business climate, the board’s governance of transformation may help add value for shareholders.
The challenge with these transformation programs, according to Deloitte’s MarginPLUS 2024 survey, is that many are not achieving their targets. Over 8 in 10 reported falling short of their cost reduction goals in the past year (Figure 1). That’s an all-time high in the survey’s 16 years of existence and shows there could be benefit to boards that consider a higher level of transformation initiative oversight.
While directors have no control over the external forces, maintaining awareness of them may bolster the transformation effectiveness. For example, on average, companies report a 13% increase in input costs versus an average price increase of 10% (Figure 2). Put another way: for a $1.00 in input cost increases, $0.76 was recovered. Respondents attributed the gap to rising inflation and consumer behavior changes.
Nevertheless, there is a common theme in a transformation strategy: it begins and ends with oversight via proactive monitoring.3 Even with proactive oversight, executing large-scale change is rarely easy. But how boards navigate transformation projects from a governance perspective could help their organizations to proactively identify and mitigate potential issues.
In uncertain times, it’s important to manage what we can control, like costs, to stay agile and adapt to the everchanging market. By actively endorsing transformation efforts and keeping a close watch on progress, company boards can help businesses face challenges with confidence, fostering steady growth that benefits everyone involved.
Jason Salzetti, principal,
Deloitte Consulting LLP; Member, Deloitte US Board of Directors
Governance insights from the 2024 MarginPLUS Survey
Source: Deloitte’s MarginPLUS Survey, 2023 and 2024
Targeted transformation: A possible emerging trend on the governance horizon
According to the data, more companies are using a smaller number of enterprise-level strategies. Across the nine enterprise transformation strategies presented to respondents, the highest utilization rate was for AI and data strategies (52%). That is a stark decline from the previous edition of the survey, where it was 90%. Similar drops were observed in utilization rates of every strategy.[4] According to respondents, these reversals are a shift from “do everything” initiatives to those targeting specific business units or areas of geography.
Source: Deloitte’s MarginPLUS Survey, 2023 and 2024
Vigilant governance: Proactive board strategies to navigate transformation
As corporate boards navigate through stormy waters, the ability to adapt and strategically respond to changing market conditions could offer a competitive advantage. The majority of respondents to the survey indicate their current margin improvement efforts may need updating. In the process of working toward sustainable growth and resilience, there are a few navigation aids to consider.
Proactive oversight of transformation amid uncertainty
> Strategy investments
Just as boards and executives are staying current through continuing education on trends around GenAI, digital innovation, ESG, cyber, and others, it is worth considering training on leading practices for strategy and transformation.
> Connecting the dots
Interdependencies are inherent in transformation activities with existing business and functional priorities. Building a clear tracking system and metrics to drive accountability is important to oversight and governance.
> Legacy technology and processess
Companies will face differing internal and external challenges to realizing transformation goals. Yet, one thing is consistent for over 50% companies in our study, outdated technology infrastructure is posing a barrier to success.
Next steps: Boardroom conversation starters
In the role of overseeing transformation strategy or engaging in oversight of multiple enterprise-level/focused initiatives, the following questions might serve as conversation starters within the boardroom and with management.
Assessing completed transformations
- What was the result of the most recent enterprise-level or targeted transformation program?
- Was the management team’s staffing model for historic transformation initiatives (e.g., transformation-specific leadership roles) appropriate and helpful for the project’s goals?
- How effective was the board’s governance and oversight processes in recently completed transformation projects?
Current and future transformations
- For current and future transformations under consideration, is there a clear business case?
- Is the management team sufficiently agile in terms of its ability to assess and adjust transformation goals throughout the implementation of current and future projects?
- How frequently are external factors assessed for potential impact on transformation programs? If no such assessment is made, is there a need for one? Proactive governance strategies
- Are management’s existing tracking processes shared with the board? If not, could doing so be helpful for transformation oversight purposes?
- To facilitate decision-making, is there a need to make additional investments in data tracking processes?
1Carey Oven et al., “Board governance and strategy in a changing global economic landscape,” On the board’s agenda, Deloitte Center for Board Effectiveness, April 2023.(go back)
2Mauricio Garza, Annie Adams, and Austin Buit, 2024 MarginPLUS Survey: Refocusing amidst uncertainty, Deloitte, 2024.(go back)
3Annie Adams and Raed Masoud, “Boards and transformation initiatives: Strategy is just the beginning,” Directorship, Q4 2023.(go back)
4Mauricio Garza, Raed Masoud, and Austin Buit, 2023 MarginPLUS Survey: Transforming through disruption, Deloitte, 2023.(go back)
