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Forster N. - Maximum performance (2005)(en)

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Ansett, HIH, One.Tel, New Tel and The Mayne Group in Australia, Boo.com and several other companies in the UK, and Parmalat in Italy during 2000–4.

As we will see in Chapter 11, the speed of change in organizations is going to accelerate at an even faster pace over the next 20 years, driven by an explosion of dazzling new technologies, the rapid globalization of trade and commerce and the emergence of newly industrialized nations. These developments mean that very few business organizations can avoid change, and any company in the private sector that thinks it is secure probably has a short lifespan ahead of it. Whether the organization is small, medium or large, perpetual change and organizational development is now the name of the game. As Martin Bollinger, managing director of Booz, Allen and Hamilton, observed in 1998, ‘It is difficult to think of a company being able to maintain a posture where they are not trying to change and trying to reinvent themselves. I just can’t imagine a situation where a CEO could stand there and say, “Nope, we’re pretty happy with things the way they are” ’ (cited by Cornell, 1998b). Change is now so pervasive that just making incremental, ad hoc reactive changes is no longer sufficient for many businesses.

The key to success now, and in the future, will be the ability to make continual, proactive changes, and to create change for others to follow (rather than playing the energy-sapping game of perpetual catch-up with other organizations). Change must also be ingrained in the mindsets of employees and their working practices, and be an integral part of organizational cultures and operational thinking. Hence the ability to lead organizational and cultural change is one of the most important skills that leaders and managers must possess. However, many don’t receive any formal education or guidance in the complexities of managing change. Almost all of the MBAs and other professionals I’ve been involved with over the last decade have consistently indicated that they have had to ‘muddle through’, ‘learn by experience’, ‘hire some consultants’ or, in many cases, simply react to change rather than initiating and controlling it. Therefore it comes as little surprise to discover that around 75 per cent of all attempts at corporate change either fail or do not achieve their original objectives (Kotter, 1995). A study by Ernst & Young in 1996, of 584 US, Canadian, Japanese and German companies, revealed that less than 20 per cent felt that they were able to sustain long-lasting change management strategies. A sixyear longitudinal study, by the Centre for Corporate Change at the University of New South Wales in Australia, revealed that 67 per cent of change management initiatives had suffered ‘at least one major setback’ that prevented the changes being implemented in the way that had been originally planned (Simons, 2000).

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Another study, by AT Kearney in 2000, reported that one in five of 294 medium and large European companies rated their change management programmes as being successful. Sixty-three per cent had made some temporary improvements, but failed to sustain these, and 17 per cent had made no improvements at all. An even more dramatic finding concerned the use of external consultants by these companies. Just one in five of the companies that had successfully managed change had used external consultants, and then only for limited or specific purposes such as the introduction of new IT systems. In contrast, four out of five companies that had failed to implement successful change used external consultants. The AT Kearney study observed that ‘The largest gap between companies that were good and bad at change arose because some learnt from change and institutionalised that knowledge, building it into their cultures and performance assessments. Because such companies learn, their changes are more likely to be sustainable’ (The Economist, 2000). The importance of organizational learning, within the context of perpetual change, will be discussed further in Chapter 9.

The obvious question raised by these findings is ‘Why do so many change management initiatives fail?’ The reasons for this are simultaneously simple and complex. First, when people talk about ‘the management of change’, what they are usually thinking about is changing ‘the organization’ in some way. What they often fail to grasp is that what is really going to be changed, in any change management process, is the people who live and work inside the organization. An organization, as such, does not exist. Sure, it has buildings, technology systems, products and services, customers and clients, corporate logos and a market presence of some description; but, at the most basic level, an organization is no more or less than a group of people working together. Take the people away and the organization ceases to exist. This seems such an obvious point to make, and yet when we look at the primary reasons for the failure of change management programmes over the last 30 years it is always because the organizations’ employees were not involved in, or not engaged with, or did not believe in, the changes that were being pushed through by the leadership of their organizations, every single time, without exception. By far the most complex, unpredictable and yet important drivers of organizational change are the employees. However, as we will see shortly, most adult human beings (and, by extension, most organizations) are psychologically conservative and that is why they will often resist change, unless we can provide them with good reasons and incentives to embrace new ways of thinking and working.

Secondly, managing change (particularly from a standing start and/or in large, bureaucratic organizations) is time-consuming, complex and

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difficult. It requires the effective use of many of the leadership and people management skills described in Chapters 1–7, as well as some new ones that will be outlined in this chapter. It also requires the ability to implement a series of strategic initiatives and processes, often simultaneously and systemically. Far too many books on change management, particularly those written by consultants, portray the management of change, in a ‘paint-by-numbers’ fashion, as a relatively straightforward exercise. It isn’t, and anyone who says that it is easy is misleading you. John Pettigrew neatly captured the complexities of this process when he observed, ‘The management of change can be compared to juggling lots of balls in the air while the platform on which the juggler stands is moving all the time. Drop one of the balls or forget to pick one up in the first place and the effect will be disastrous’ (Pettigrew, 1985: 70). In a nutshell, this is why leading organizational and cultural change is extremely difficult, and why we will be spending some time examining why all change management programmes must first focus on how individuals habitually interpret and react to the prospect of change in their organizational contexts.

Leading organizational and cultural change: the theory

People talk a lot about ‘the management of change’ these days. The reality is that much of this ‘change’ is so badly ‘managed’ that it often produces demoralisation, fear and resistance amongst employees.

(Tom Peters, 1992)

A staggering quantity of research has been generated on leading and managing change. While preparing this book, I came across more than 200 books and about 1000 articles or websites that had ‘change’, ‘cultural change’, ‘renewal’, ‘restructuring’, ‘re-engineering’, or ‘organizational development’ in their titles. There are at least 40 models/frameworks of change management in this literature, although many of these echo each other and/or overlap to a large extent. Despite this voluminous output, and more than 30 years’ research on change in organizations, very few people would agree that there is a widely accepted and foolproof formula for leading and managing organizational and cultural change. However, there are very clear indications of the components that do need to be in place when managing change processes, and these are described below. The following sections represent a synthesis of these 40 models/frameworks, as well as numerous theories about leading and managing change, spanning organizational theory, management studies, the sociology of organizations and occupational psychology.

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In addition to these insights, several hundred of my MBA students have looked at change management programmes (CMPs) in more than 70 organizations between 1997 and 2004. These include household-name companies, such as General Electric, 3m, Hewlett-Packard, IBM, Continental Airlines, Harley-Davidson, BHP-Billiton, BP and Royal Dutch Shell, and more than 30 Australian private and public sector organizations, who have experienced both incremental and radical changes in recent times. By reviewing the change management programmes in these companies, and after many hours of class discussion and debate, an 11point template for successful change management has been developed. This has also been road-tested in conjunction with two companies who collaborated in the Australian Institute of Management/Harvard Business School’s Action Learning Programmes during 2003–4, and during several Executive MBA change management projects during 2002–3. This template contains the key elements and components that were always in place during successful change management programmes and, conversely, often not in place when change failed:

the presence of energetic and committed transformational leaders;

a vision, or a clear sense of direction/purpose, or a set of clear and well-articulated goals and objectives for the company to travel towards (it doesn’t matter which);

an appreciation among organizational leaders of why there is always resistance to change, at the individual, group and organizational level, and an understanding of strategies that could be used to overcome this;

integrating strategic macro change with the organization’s operational culture and the daily working practices of its employees;

creating a sense of urgency, in order to develop the initial impetus or thrust for change, removing those senior and middle managers who stand in the way of necessary change, and ‘getting the right people on the bus’;

developing straightforward, realistic and workable strategies to drive change initiatives throughout all levels of the organization;

extensive two-way communication with all employees during times of change;

involving employees, whenever and wherever possible, by giving them as much ownership as possible over change management initiatives and processes;

celebrating successes and short-term wins, and rewarding employees when they have made changes to their working practices;

involving external customers and clients in change management initiatives and processes;

developing an ongoing cultural commitment to continuous change, improvement and learning.

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Each of these components is described in more detail below, and then illustrated in practice with two real-life examples of change: Continental Airlines and the Australian Broadcasting Corporation.

The presence of energetic and committed transformational leaders

One of the fellows at the mine said that the guy who took over BHP would need steel balls. They wanted to make sure I had some.

(Paul Anderson, former CEO of BHP-Billiton, commenting on the gift he received from his employees at the Escondida copper mine in Chile, January 2000)

In Chapter 1, we saw that transformational leaders seek something much more than mere unthinking obedience and compliance from their followers. Transformational leaders are capable of changing their followers’ basic beliefs, values and attitudes in order to get superior levels of achievement out of them. Sometimes described as ‘SuperBosses’, they are perceived to lead by virtue of their ability to inspire devotion and extraordinary effort from their followers. These individuals are driven, often from an early age, by a very strong need for achievement and success. They are very self-confident and believe that they can truly make a difference to the world. People usually do what these leaders ask them because they understand something about human behaviour and how to motivate or, if required, manipulate people to do their bidding. They are often regarded as good communicators and storytellers. Transformational leaders are also able to adapt their leadership styles, depending on the circumstances, particularly when they are brought in in the role of trouble-shooters to sort out an organization in crisis. A direct corollary of this is that they have to be fast, proactive learners and good listeners. They also have to adopt a hands-on approach to leadership in these situations. Another characteristic is their ability to ride the white waters of change. This transformational mind-set is absolutely essential these days. When we unpack this mind-set, we discover that it is actually a combination of a number of skills, such as the ability to think long-term, the ability to create visions, effective communication skills, the ability to link strategies with opportunities and, increasingly, systemic and lateral thinking. Transformational business leaders embrace change with enthusiasm. They believe that change is good and inevitable. They have the ability to create an impetus for change. They also recognize that change must be perpetual and not reactive.

Research on the management of change in organizations, and our reviews of numerous change management programmes, indicate that, without the presence of such leaders, successful change is near impossible to achieve. This does not mean that they have to be larger than

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life, highly paid ‘charismatic’ leaders brought in from the outside. As Collins has observed:

Larger than life celebrity leaders, who ride in from the outside are negatively correlated with taking a company from good to great. Ten of eleven good-to-great CEOs came from inside the company, whereas the comparison companies tried outside CEOs six times more often [ ] We also found no systematic pattern linking forms of executive compensation in the process of going from good to great. The idea that the structure of executive compensation is a key driver in corporate performance is simply not supported by the data.

(Collins 2001: 10–11)

Collins and his research colleagues were surprised to find that the leaders of their ‘Good-to-Great’ companies were not archetypal, high-profile or larger-than-life charismatic personalities (or grossly overpaid for underperformance). They had little in common with the kind of leaders who were so often exalted by the business and financial press of the 1980s and 1990s, and who are still part of the mythology of successful change management. In contrast, their leaders were all modest, self-effacing, quiet and even reserved. In fact, ‘They were more like Lincoln and Socrates than Patton or Caesar’ (ibid.: 12–13). Something else they all had in common was an unerring ability to diagnose the problems facing their businesses and what their companies’ strengths and weaknesses were. They also spent a lot of time ‘clean-sweeping’ their senior managers and recruiting new people who shared their visions of the future, before they set about deciding in which direction they were going take their companies.

Hence any organization (public or private sector) that hopes to change must have some leaders with transformational qualities. In a small enterprise, this may be just the founder of the company. In a mediumsized company, it may be seven or eight people formed into a change management team. In a very large company, it could be 50–100 senior employees. The presence of people who are comfortable with leading the change and committed to its outcomes is important because, while most employers believe ‘employee resistance’ is the biggest obstacle to change, most employees believe that the biggest problem is ‘poor leadership’. In one large survey, the biggest perceived faults of leaders who were unable to manage change were, in ranking order, ‘lacking direction, failing to communicate a vision of the future, not matching the vision with organizational processes, failing to lead by example, failing to motivate staff, failing to make unpopular decisions about change, demonstrating inconsistent attitudes to change, and failing to come up with ideas for change’ (Waldersee and Griffiths, cited by Gettler, 1998: 16).

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A clear sense of direction, or purpose, or a set of clear and well-articulated goals and objectives for the company to travel towards (it doesn’t matter which)

Somebody who can develop a vision of what he or she wants their business unit, their activity to do and be. Somebody who is able to articulate to the entire unit what the business is, and gain through a sharing of discussion – listening and talking – an acceptance of the vision. And, someone who can then relentlessly drive implementation of that vision to a successful conclusion.

(Jack Welch, former CEO of General Electric describing his ideal leader)

One of the things about leadership is that you cannot be a moderate, balanced, thoughtful, careful articulator of policy. You have to be on the lunatic fringe.

(Welch again, talking about the risks that leaders have to take, cited by Lowe, 1998: 72, 86)

When a team of change leaders has been established, a path to the future has to be identified for the organization. Without this, nothing will ever change and a leader cannot move an organization forward or mobilize its employees, without a clear understanding of the journey they want to embark on. This is usually described as the organization’s vision and/or mission. The word ‘vision’ is derived from the Latin, videre, ‘to see’. This was defined in Chapter 1 as ‘an apparition of a prophetic, revelational or supernatural nature presented to the mind in a state of heightened spiritual or emotional awareness, a distinct or vivid mental image or concept, insight or foresight, an ability to plan or formulate policy in a far sighted way’ (OED website, 2003); more succinctly as ‘a realistic, credible and attractive future for an organization’ (Bennis and Nanus, 1985: 8) and ’an ideal and unique image of the future’ (Kouzes and Posner, 1997: 95). It is defined in this chapter as the articulation of a road, way, path or journey to the future. The word ‘mission’ is derived from the Latin missionum, meaning action, and is defined here as the formal, written articulation of an organization’s vision and/or purpose and/or its main strategic goals and objectives.

It is important to emphasize that, whether we call this desired future state the ‘vision’, the ‘mission’, the ‘direction’, the ‘purpose’, ‘a cause’ or the ‘goals and objectives’ really doesn’t matter one iota. Many successful transformational leaders use these terms interchangeably and some, like Michael Chaney of the highly successful Australian company Wesfarmers often don’t use the word ‘vision’ at all. This may come as a surprise to those organizational leaders who have spent large sums of money employing consultants and PR companies to craft their vision and mission statements. But the reality is that organizations that manage change successfully attach little importance to vision and mission statements. These merely represent the starting point of a

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long process of perpetual change and evolution. Equally, it doesn’t matter where the sense of direction/vision/mission comes from. You may create this yourself, because you have exceptional creative, lateralthinking and scenario-mapping skills (as described in Chapter 9), or you may develop this in conjunction with a senior change team and/or your employees. However, the following must emerge from this process:

a sense of deep dissatisfaction with the present situation and a clear understanding of how that situation came about,

the creation of a picture or image of a better future for the organization to travel towards,

the identification of the way, road or path to travel down in pursuit of this picture or image of the future,

a clearly mapped out series of destinations on this journey into the future.

In Chapter 1 we cited some examples of individuals and companies who have created breakthrough visions in the past. Here are a few more.

Frank Whittle

He wrote his original ideas for a jet engine in a school dissertation in the early 1920s. Scientists, engineers and the military in the UK rejected his ideas for more than a decade. With the help of two visionary RAF pilots, and a small investment, their company, Power Jets Limited, was established and a working prototype built in 1937. However, it was only with the outbreak of World War II that his ideas were taken up with enthusiasm by the military and personally backed by Winston Churchill. On 1 May 1941, the first jet plane flew, revolutionizing military and civil aviation forever.

Frank MacNamara

The first recorded use of credit was in Abyssinnia and Egypt nearly 3000 years ago and, by the early 19th century, goods could be bought ‘on credit’ in industrializing countries. In 1914, Western Union became the first bank to offer a deferred-payment credit service to customers. However, the modern credit card is a much more recent innovation. MacNamara was dining in a Manhattan restaurant with some clients (including Alfred Bloomingdale) in 1949. The bill arrived and he and his guests realized that they did not have enough money to pay it. Afterwards, he thought about this for a while and, with Bloomingdale, came up with the idea of a network of restaurant charge accounts and a third-party credit company for people dining out in Manhattan. Not surprisingly, this new ‘credit card’ was called ‘The Diners’ Club Card’.

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By the end of the first year, 200 cards had been issued which were accepted in 27 of New York’s finest restaurants. By 1958, there were more than a million cardholders in the USA. American Express and Master Card arrived on the scene in 1966, with Visa following in 1977. There are now more than 140 million individual cardholders in the USA who collectively owe about $US500 billion and, in 2003, paid about one trillion dollars in interest.

Lee Iacocca

He was the architect of one of the most audacious turnarounds in American corporate history, when he saved Chrysler from bankruptcy in the 1980s. Iacocca believes that he has one vision left in him, to get more people using electric bicycles. In his words, ‘I founded EV Global Motors because I believe in the future of electric vehicles. I believe that America is ready to take this exciting technology from theory to reality’ (cited by Gibney, 1999). His company, EV Global Motors, is planning to sell 50 000 bikes a year in the USA (EV website 30 November 2002). This vision may appear to be ambitious, but there are now huge pressures on all governments to produce cheap non-polluting vehicles, and the electric bike market has grown rapidly in Europe during the early 2000s.

Richard Branson

The pioneer of Virgin Records, Virgin Airlines, Virgin Mobile, Virgin Bride, Virgin Credit and many other companies, Branson has set his eyes on outer space. He established a new company, Virgin Intergalactic, in March 1999. Its mission: to get the first paying spacetourists into orbit by 2007. XCOR Aerospace is currently developing a reusable eight-seat space plane for this. This will provide fee-paying passengers with the opportunity to experience weightlessness and see the curvature of the earth. The company is now taking bookings and, if you’re interested, a ticket will set you back $US100 000 per person.

Alan Wurtzel

Wurtzel took over the US company Ward’s (now known as Circuit City) in 1973, when it was almost bankrupt. At the time, the company was a hodgepodge of appliance and hi-fi stores, with no clear vision or strategic focus. Wurtzel later confessed that he did not have the answers to the company’s problems or a grandiose vision to rescue it. So he did what any good leader would do in this situation: he asked a lot of questions. Wurtzel quickly gained a reputation as a CEO who asked more questions of his board, and other employees, than they did of him. One fellow-board member recalls, ‘Allan was a real spark. He had an ability to ask questions that were just marvelous. We had some wonderful debates in the boardroom. It was never just a dog and pony

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show, where you would just listen [to him] and then go to lunch.’ He used the same approach with all of his senior managers, pushing and prodding and probing with questions. He did this to gain understanding of the firm and, only then, start to develop a vision and strategies to create a better future for the company. Over the next ten years Wurtzel and his senior management team not only turned the company round; they also laid the foundations for a stunning record of results, with the company’s share price beating the market average by a factor of 22, between 1982 and 2000 (abridged from Collins, 2001: 74–5).

The Kyungwon Enterprise Company

The company has spent approximately US$3.4 billion over five years developing an add-on device which transforms water into an electrically charged liquid that cleans with the same power as conventional powders. Called the ‘Midas System’, this harnesses the tendency of supercharged water to launder, deodorize and kill viruses. This will create cheaper, easier and ‘greener’ washing, by using half the power and two-thirds of the water of conventional machines. The patent for this was registered on 18 September 2001 and the product is expected to be on the market in 2005. This will not be good news for the worldwide multibillion-dollar detergent industry, but will be appreciated by consumers throughout the world (Kuyungwon website, 25 October 2002).

While a vision is clearly important to kick-start a CMP, employees can be justifiably cynical about both vision and mission statements. For example, Tom Peters used to advise audiences of organizational leaders to put mission statements in the trashcan the moment they received them. Scott Adams once described a mission statement as ‘a long and awkward sentence that demonstrates management’s inability to think clearly’, and most US managers ‘believe that mission statements are not worth the paper they are written on’ (Gettler, 1998: 15). They all have a point, because the glossiest and most finely worded vision/mission statement in the world will change absolutely nothing, because change has to be learnt and internalized and, most importantly, it has to be led. Fine words on paper will change nothing. Employees have to understand and see where they are heading, why they are going there and how they can get there. As we will see later, the first reaction of most individuals, when confronted with change, will be, ‘What’s in it for me?’ followed by an introspective bout of finding all the flaws in the proposed changes, and what the negative effects are likely to be. Hence, in a nutshell, what employees need are some