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Over the past decade, I have watched more than 100
companies try to remake themselves into
significantly better competitors. They have included
large organizations (Ford) and small ones (Landmark
Communications), companies based in the United
States (General Motors) and elsewhere (British
Airways), corporations that were on their knees
(Eastern Airlines), and companies that were earning
good money (Bristol-Myers Squibb). These efforts
have gone under many banners: total quality
management, reengineering, rightsizing,
restructuring, cultural change, and turnaround. But,
in almost every case, the basic goal has been the
same: to make fundamental changes in how business is
conducted in order to help cope with a new, more
challenging market environment.
A few of these corporate change efforts have been
very successful. A few have been utter failures.
Most fall somewhere in between, with a distinct tilt
toward the lower end of the scale. The lessons that
can be drawn are interesting and will probably be
relevant to even more organizations in the
increasingly competitive business environment of the
coming decade.
The most general lesson to be learned from the more
successful cases is that the change process goes
through a series of phases that, in total, usually
require a considerable length of time. Skipping
steps creates only the illusion of speed and never
produces a satisfying result. A second very general
lesson is that critical mistakes in any of the
phases can have a devastating impact, slowing
momentum and negating hard-won gains. Perhaps
because we have relatively little experience in
renewing organizations, even very capable people
often make at least one big error.
Error 1: Not Establishing a Great Enough Sense of
Urgency
Most successful change efforts begin when some
individuals or some groups start to look hard at a
company’s competitive situation, market position,
technological trends, and financial performance.
They focus on the potential revenue drop when an
important patent expires, the five-year trend in
declining margins in a core business, or an emerging
market that everyone seems to be ignoring. They then
find ways to communicate this information broadly
and dramatically, especially with respect to crises,
potential crises, or great opportunities that are
very timely. This first step is essential because
just getting a transformation program started
requires the aggressive cooperation of many
individuals. Without motivation, people won’t help,
and the effort goes nowhere.
Compared with other steps in the change process,
phase one can sound easy. It is not. Well over 50%
of the companies I have watched fail in this first
phase. What are the reasons for that failure?
Sometimes executives underestimate how hard it can
be to drive people out of their comfort zones.
Sometimes they grossly overestimate how successful
they have already been in increasing urgency.
Sometimes they lack patience: “Enough with the
preliminaries; let’s get on with it.” In many cases,
executives become paralyzed by the downside
possibilities. They worry that employees with
seniority will become defensive, that morale will
drop, that events will spin out of control, that
short-term business results will be jeopardized,
that the stock will sink, and that they will be
blamed for creating a crisis.
A paralyzed senior management often comes from
having too many managers and not enough leaders.
Management’s mandate is to minimize risk and to keep
the current system operating. Change, by definition,
requires creating a new system, which in turn always
demands leadership. Phase one in a renewal process
typically goes nowhere until enough real leaders are
promoted or hired into senior-level jobs.
Transformations often begin, and begin well, when an
organization has a new head who is a good leader and
who sees the need for a major change. If the renewal
target is the entire company, the CEO is key. If
change is needed in a division, the division general
manager is key. When these individuals are not new
leaders, great leaders, or change champions, phase
one can be a huge challenge.
Bad business results are both a blessing and a curse
in the first phase. On the positive side, losing
money does catch people’s attention. But it also
gives less maneuvering room. With good business
results, the opposite is true: Convincing people of
the need for change is much harder, but you have
more resources to help make changes.
But whether the starting point is good performance
or bad, in the more successful cases I have
witnessed, an individual or a group always
facilitates a frank discussion of potentially
unpleasant facts about new competition, shrinking
margins, decreasing market share, flat earnings, a
lack of revenue growth, or other relevant indices of
a declining competitive position. Because there
seems to be an almost universal human tendency to
shoot the bearer of bad news, especially if the head
of the organization is not a change champion,
executives in these companies often rely on
outsiders to bring unwanted information. Wall Street
analysts, customers, and consultants can all be
helpful in this regard. The purpose of all this
activity, in the words of one former CEO of a large
European company, is “to make the status quo seem
more dangerous than launching into the unknown.”
In a few of the most successful cases, a group has
manufactured a crisis. One CEO deliberately
engineered the largest accounting loss in the
company’s history, creating huge pressures from Wall
Street in the process. One division president
commissioned first-ever customer satisfaction
surveys, knowing full well that the results would be
terrible. He then made these findings public. On the
surface, such moves can look unduly risky. But there
is also risk in playing it too safe: When the
urgency rate is not pumped up enough, the
transformation process cannot succeed, and the
long-term future of the organization is put in
jeopardy.
When is the urgency rate high enough? From what I
have seen, the answer is when about 75% of a
company’s management is honestly convinced that
business as usual is totally unacceptable. Anything
less can produce very serious problems later on in
the process.
Error 2: Not Creating a Powerful Enough Guiding
Coalition
Major renewal programs often start with just one or
two people. In cases of successful transformation
efforts, the leadership coalition grows and grows
over time. But whenever some minimum mass is not
achieved early in the effort, nothing much
worthwhile happens.
It is often said that major change is impossible
unless the head of the organization is an active
supporter. What I am talking about goes far beyond
that. In successful transformations, the chairman or
president or division general manager, plus another
five or 15 or 50 people, come together and develop a
shared commitment to excellent performance through
renewal. In my experience, this group never includes
all of the company’s most senior executives because
some people just won’t buy in, at least not at
first. But in the most successful cases, the
coalition is always pretty powerful—in terms of
titles, information and expertise, reputations, and
relationships.
In both small and large organizations, a successful
guiding team may consist of only three to five
people during the first year of a renewal effort.
But in big companies, the coalition needs to grow to
the 20 to 50 range before much progress can be made
in phase three and beyond. Senior managers always
form the core of the group. But sometimes you find
board members, a representative from a key customer,
or even a powerful union leader.
Because the guiding coalition includes members who
are not part of senior management, it tends to
operate outside of the normal hierarchy by
definition. This can be awkward, but it is clearly
necessary. If the existing hierarchy were working
well, there would be no need for a major
transformation. But since the current system is not
working, reform generally demands activity outside
of formal boundaries, expectations, and protocol.
A high sense of urgency within the managerial ranks
helps enormously in putting a guiding coalition
together. But more is usually required. Someone
needs to get these people together, help them
develop a shared assessment of their company’s
problems and opportunities, and create a minimum
level of trust and communication. Off-site retreats,
for two or three days, are one popular vehicle for
accomplishing this task. I have seen many groups of
five to 35 executives attend a series of these
retreats over a period of months.
Companies that fail in phase two usually
underestimate the difficulties of producing change
and thus the importance of a powerful guiding
coalition. Sometimes they have no history of
teamwork at the top and therefore undervalue the
importance of this type of coalition. Sometimes they
expect the team to be led by a staff executive from
human resources, quality, or strategic planning
instead of a key line manager. No matter how capable
or dedicated the staff head, groups without strong
line leadership never achieve the power that is
required.
Efforts that don’t have a powerful enough guiding
coalition can make apparent progress for a while.
But, sooner or later, the opposition gathers itself
together and stops the change.
Error 3: Lacking a Vision
In every successful transformation effort that I
have seen, the guiding coalition develops a picture
of the future that is relatively easy to communicate
and appeals to customers, stockholders, and
employees. A vision always goes beyond the numbers
that are typically found in five-year plans. A
vision says something that helps clarify the
direction in which an organization needs to move.
Sometimes the first draft comes mostly from a single
individual. It is usually a bit blurry, at least
initially. But after the coalition works at it for
three or five or even 12 months, something much
better emerges through their tough analytical
thinking and a little dreaming. Eventually, a
strategy for achieving that vision is also
developed.
In one midsize European company, the first pass at a
vision contained two-thirds of the basic ideas that
were in the final product. The concept of global
reach was in the initial version from the beginning.
So was the idea of becoming preeminent in certain
businesses. But one central idea in the final
version—getting out of low value-added
activities—came only after a series of discussions
over a period of several months.
Without a sensible vision, a transformation effort
can easily dissolve into a list of confusing and
incompatible projects that can take the organization
in the wrong direction or nowhere at all. Without a
sound vision, the reengineering project in the
accounting department, the new 360-degree
performance appraisal from the human resources
department, the plant’s quality program, the
cultural change project in the sales force will not
add up in a meaningful way.
In failed transformations, you often find plenty of
plans, directives, and programs but no vision. In
one case, a company gave out four-inch-thick
notebooks describing its change effort. In
mind-numbing detail, the books spelled out
procedures, goals, methods, and deadlines. But
nowhere was there a clear and compelling statement
of where all this was leading. Not surprisingly,
most of the employees with whom I talked were either
confused or alienated. The big, thick books did not
rally them together or inspire change. In fact, they
probably had just the opposite effect.
In a few of the less successful cases that I have
seen, management had a sense of direction, but it
was too complicated or blurry to be useful.
Recently, I asked an executive in a midsize company
to describe his vision and received in return a
barely comprehensible 30-minute lecture. Buried in
his answer were the basic elements of a sound
vision. But they were buried—deeply.
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If you
can’t communicate the vision to someone
in five minutes or less and get a
reaction that signifies both
understanding and interest, you are not
done. |
A useful rule of thumb: If you can’t communicate the
vision to someone in five minutes or less and get a
reaction that signifies both understanding and
interest, you are not yet done with this phase of
the transformation process.
Error 4: Undercommunicating the Vision by a Factor
of Ten
I’ve seen three patterns with respect to
communication, all very common. In the first, a
group actually does develop a pretty good
transformation vision and then proceeds to
communicate it by holding a single meeting or
sending out a single communication. Having used
about 0.0001% of the yearly intracompany
communication, the group is startled when few people
seem to understand the new approach. In the second
pattern, the head of the organization spends a
considerable amount of time making speeches to
employee groups, but most people still don’t get it
(not surprising, since vision captures only 0.0005%
of the total yearly communication). In the third
pattern, much more effort goes into newsletters and
speeches, but some very visible senior executives
still behave in ways that are antithetical to the
vision. The net result is that cynicism among the
troops goes up, while belief in the communication
goes down.
Transformation is impossible unless hundreds or
thousands of people are willing to help, often to
the point of making short-term sacrifices. Employees
will not make sacrifices, even if they are unhappy
with the status quo, unless they believe that useful
change is possible. Without credible communication,
and a lot of it, the hearts and minds of the troops
are never captured.
This fourth phase is particularly challenging if the
short-term sacrifices include job losses. Gaining
understanding and support is tough when downsizing
is a part of the vision. For this reason, successful
visions usually include new growth possibilities and
the commitment to treat fairly anyone who is laid
off.
Executives who communicate well incorporate messages
into their hour-by-hour activities. In a routine
discussion about a business problem, they talk about
how proposed solutions fit (or don’t fit) into the
bigger picture. In a regular performance appraisal,
they talk about how the employee’s behavior helps or
undermines the vision. In a review of a division’s
quarterly performance, they talk not only about the
numbers but also about how the division’s executives
are contributing to the transformation. In a routine
Q&A with employees at a company facility, they tie
their answers back to renewal goals.
In more successful transformation efforts,
executives use all existing communication channels
to broadcast the vision. They turn boring, unread
company newsletters into lively articles about the
vision. They take ritualistic, tedious quarterly
management meetings and turn them into exciting
discussions of the transformation. They throw out
much of the company’s generic management education
and replace it with courses that focus on business
problems and the new vision. The guiding principle
is simple: Use every possible channel, especially
those that are being wasted on nonessential
information.
Perhaps even more important, most of the executives
I have known in successful cases of major change
learn to “walk the talk.” They consciously attempt
to become a living symbol of the new corporate
culture. This is often not easy. A 60-year-old plant
manager who has spent precious little time over 40
years thinking about customers will not suddenly
behave in a customer-oriented way. But I have
witnessed just such a person change, and change a
great deal. In that case, a high level of urgency
helped. The fact that the man was a part of the
guiding coalition and the vision-creation team also
helped. So did all the communication, which kept
reminding him of the desired behavior, and all the
feedback from his peers and subordinates, which
helped him see when he was not engaging in that
behavior.
Communication comes in both words and deeds, and the
latter are often the most powerful form. Nothing
undermines change more than behavior by important
individuals that is inconsistent with their words.
Error 5: Not Removing Obstacles to the New Vision
Successful transformations begin to involve large
numbers of people as the process progresses.
Employees are emboldened to try new approaches, to
develop new ideas, and to provide leadership. The
only constraint is that the actions fit within the
broad parameters of the overall vision. The more
people involved, the better the outcome.
To some degree, a guiding coalition empowers others
to take action simply by successfully communicating
the new direction. But communication is never
sufficient by itself. Renewal also requires the
removal of obstacles. Too often, an employee
understands the new vision and wants to help make it
happen, but an elephant appears to be blocking the
path. In some cases, the elephant is in the person’s
head, and the challenge is to convince the
individual that no external obstacle exists. But in
most cases, the blockers are very real.
Sometimes the obstacle is the organizational
structure: Narrow job categories can seriously
undermine efforts to increase productivity or make
it very difficult even to think about customers.
Sometimes compensation or performance-appraisal
systems make people choose between the new vision
and their own self-interest. Perhaps worst of all
are bosses who refuse to change and who make demands
that are inconsistent with the overall effort.
One company began its transformation process with
much publicity and actually made good progress
through the fourth phase. Then the change effort
ground to a halt because the officer in charge of
the company’s largest division was allowed to
undermine most of the new initiatives. He paid lip
service to the process but did not change his
behavior or encourage his managers to change. He did
not reward the unconventional ideas called for in
the vision. He allowed human resource systems to
remain intact even when they were clearly
inconsistent with the new ideals. I think the
officer’s motives were complex. To some degree, he
did not believe the company needed major change. To
some degree, he felt personally threatened by all
the change. To some degree, he was afraid that he
could not produce both change and the expected
operating profit. But despite the fact that they
backed the renewal effort, the other officers did
virtually nothing to stop the one blocker. Again,
the reasons were complex. The company had no history
of confronting problems like this. Some people were
afraid of the officer. The CEO was concerned that he
might lose a talented executive. The net result was
disastrous. Lower-level managers concluded that
senior management had lied to them about their
commitment to renewal, cynicism grew, and the whole
effort collapsed.
In the first half of a transformation, no
organization has the momentum, power, or time to get
rid of all obstacles. But the big ones must be
confronted and removed. If the blocker is a person,
it is important that he or she be treated fairly and
in a way that is consistent with the new vision.
Action is essential, both to empower others and to
maintain the credibility of the change effort as a
whole.
Error 6: Not Systematically Planning for, and
Creating, Short-Term Wins
Real transformation takes time, and a renewal effort
risks losing momentum if there are no short-term
goals to meet and celebrate. Most people won’t go on
the long march unless they see compelling evidence
in 12 to 24 months that the journey is producing
expected results. Without short-term wins, too many
people give up or actively join the ranks of those
people who have been resisting change.
One to two years into a successful transformation
effort, you find quality beginning to go up on
certain indices or the decline in net income
stopping. You find some successful new product
introductions or an upward shift in market share.
You find an impressive productivity improvement or a
statistically higher customer satisfaction rating.
But whatever the case, the win is unambiguous. The
result is not just a judgment call that can be
discounted by those opposing change.
Creating short-term wins is different from hoping
for short-term wins. The latter is passive, the
former active. In a successful transformation,
managers actively look for ways to obtain clear
performance improvements, establish goals in the
yearly planning system, achieve the objectives, and
reward the people involved with recognition,
promotions, and even money. For example, the guiding
coalition at a U.S. manufacturing company produced a
highly visible and successful new product
introduction about 20 months after the start of its
renewal effort. The new product was selected about
six months into the effort because it met multiple
criteria: It could be designed and launched in a
relatively short period, it could be handled by a
small team of people who were devoted to the new
vision, it had upside potential, and the new
product-development team could operate outside the
established departmental structure without practical
problems. Little was left to chance, and the win
boosted the credibility of the renewal process.
Managers often complain about being forced to
produce short-term wins, but I’ve found that
pressure can be a useful element in a change effort.
When it becomes clear to people that major change
will take a long time, urgency levels can drop.
Commitments to produce short-term wins help keep the
urgency level up and force detailed analytical
thinking that can clarify or revise visions.
Error 7: Declaring Victory Too Soon
After a few years of hard work, managers may be
tempted to declare victory with the first clear
performance improvement. While celebrating a win is
fine, declaring the war won can be catastrophic.
Until changes sink deeply into a company’s culture,
a process that can take five to ten years, new
approaches are fragile and subject to regression.
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After a
few years of hard work, managers may be
tempted to declare victory with the
first clear performance improvement.
While celebrating a win is fine,
declaring the war won can be
catastrophic. |
In the recent past, I have watched a dozen change
efforts operate under the reengineering theme. In
all but two cases, victory was declared and the
expensive consultants were paid and thanked when the
first major project was completed after two to three
years. Within two more years, the useful changes
that had been introduced slowly disappeared. In two
of the ten cases, it’s hard to find any trace of the
reengineering work today.
Over the past 20 years, I’ve seen the same sort of
thing happen to huge quality projects,
organizational development efforts, and more.
Typically, the problems start early in the process:
The urgency level is not intense enough, the guiding
coalition is not powerful enough, and the vision is
not clear enough. But it is the premature victory
celebration that kills momentum. And then the
powerful forces associated with tradition take over.
Ironically, it is often a combination of change
initiators and change resistors that creates the
premature victory celebration. In their enthusiasm
over a clear sign of progress, the initiators go
overboard. They are then joined by resistors, who
are quick to spot any opportunity to stop change.
After the celebration is over, the resistors point
to the victory as a sign that the war has been won
and the troops should be sent home. Weary troops
allow themselves to be convinced that they won. Once
home, the foot soldiers are reluctant to climb back
on the ships. Soon thereafter, change comes to a
halt, and tradition creeps back in.
Instead of declaring victory, leaders of successful
efforts use the credibility afforded by short-term
wins to tackle even bigger problems. They go after
systems and structures that are not consistent with
the transformation vision and have not been
confronted before. They pay great attention to who
is promoted, who is hired, and how people are
developed. They include new reengineering projects
that are even bigger in scope than the initial ones.
They understand that renewal efforts take not months
but years. In fact, in one of the most successful
transformations that I have ever seen, we quantified
the amount of change that occurred each year over a
seven-year period. On a scale of one (low) to ten
(high), year one received a two, year two a four,
year three a three, year four a seven, year five an
eight, year six a four, and year seven a two. The
peak came in year five, fully 36 months after the
first set of visible wins.
Error 8: Not Anchoring Changes in the Corporation’s
Culture
In the final analysis, change sticks when it becomes
“the way we do things around here,” when it seeps
into the bloodstream of the corporate body. Until
new behaviors are rooted in social norms and shared
values, they are subject to degradation as soon as
the pressure for change is removed.
Two factors are particularly important in
institutionalizing change in corporate culture. The
first is a conscious attempt to show people how the
new approaches, behaviors, and attitudes have helped
improve performance. When people are left on their
own to make the connections, they sometimes create
very inaccurate links. For example, because results
improved while charismatic Harry was boss, the
troops link his mostly idiosyncratic style with
those results instead of seeing how their own
improved customer service and productivity were
instrumental. Helping people see the right
connections requires communication. Indeed, one
company was relentless, and it paid off enormously.
Time was spent at every major management meeting to
discuss why performance was increasing. The company
newspaper ran article after article showing how
changes had boosted earnings.
The second factor is taking sufficient time to make
sure that the next generation of top management
really does personify the new approach. If the
requirements for promotion don’t change, renewal
rarely lasts. One bad succession decision at the top
of an organization can undermine a decade of hard
work. Poor succession decisions are possible when
boards of directors are not an integral part of the
renewal effort. In at least three instances I have
seen, the champion for change was the retiring
executive, and although his successor was not a
resistor, he was not a change champion. Because the
boards did not understand the transformations in any
detail, they could not see that their choices were
not good fits. The retiring executive in one case
tried unsuccessfully to talk his board into a less
seasoned candidate who better personified the
transformation. In the other two cases, the CEOs did
not resist the boards’ choices, because they felt
the transformation could not be undone by their
successors. They were wrong. Within two years, signs
of renewal began to disappear at both companies.
There are still more mistakes that people make, but
these eight are the big ones. I realize that in a
short article everything is made to sound a bit too
simplistic. In reality, even successful change
efforts are messy and full of surprises. But just as
a relatively simple vision is needed to guide people
through a major change, so a vision of the change
process can reduce the error rate. And fewer errors
can spell the difference between success and
failure.
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