Forster N. - Maximum performance (2005)(en)
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airlines in the USA, it lost $US17 million in the second quarter of 2004 (this did include a one-off charge of $US15 million for the retirement of the MD-80 aircraft the company had been leasing). On a more positive note, CA’s results were much better than most analysts had anticipated and amongst the best of the major US carriers (KRT, 2004). In contrast, United Airlines, the world’s second largest carrier in 2001, was forced to file for bankruptcy in December 2002, with operating losses of $US22 million a day (Dalton, 2002d). This was the biggest aviation bankruptcy in US history, with nearly half of the company’s 83 000 employees losing their jobs during the rationalization and restructuring of the business that followed during 2003–4. During 2004, there were rumours of a possible merger between CA and Southwest airlines, a union that for strategic and commercial reasons could have benefited both companies. However, this did not eventuate, and during 2005 Continental, in common with all other US airlines, struggled to cope with high oil prices and cut-throat competition in the American domestic market. In spite of the Herculean efforts of Bethune and Brenneman to turn the company around in the mid-1990s, the immediate future for Continental remains uncertain.
Unsuccessful change management: Shier chaos
The Continental Airlines story shows that the 11 elements described earlier were in place during its change management programme. Consequently, the company was able to achieve a remarkable corporate turnaround. By way of contrast, the next story shows how the absence of almost all of these 11 elements created widespread organizational and individual resistance to change in the publicly funded Australian Broadcasting Corporation (ABC). Critics of the corporation had long believed that it was elitist, politically left-wing, too reliant on taxpayers’ money and not sufficiently commercial in its business operations. In April 2000, the ABC board, with the approval of the Liberal government, appointed a new director, Alan Shier, who had worked for many years in the commercial television sector in the UK. His brief was to reform the ABC’s sluggish culture, grow its commercial potential and increase viewer numbers. At the time, these lagged well behind the main commercial providers in Australia, Channel 7, Channel 9 and Channel 10. Yet, within 19 months, Shier had been sacked, few meaningful changes had been introduced and the ABC’s viewing figures had declined still further. How did this happen?
We’ve seen that successful change management requires a systemic understanding of a number of components that may need to be put in place in order to drive change through an organization. The first
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component was the presence of energetic and committed transformational leaders. To recap briefly, the qualities of successful change leaders include the ability to articulate a better future for the organization, an understanding of the culture and resistance points within the organization, great energy and persistence, the ability to touch hearts and minds and ‘walk the talk’, exceptional two-way communication skills and respect for all employees. Very soon after Shier was appointed, styling himself ‘The Mini-Mogul of Broadcasting’, his employees had given him the nickname ‘Satan’. He quickly became regarded as arrogant and egotistical, and went out of his way to criticize ‘reactionary’ employees at the ABC. He became renowned for throwing temper tantrums when he didn’t get his own way. He sacked a number of senior staff, without explanation, and then set up his own in-group of highly paid outsiders to engineer changes at the corporation. During his tenure he was routinely accused of bullying and intimidating treatment of staff and, on two occasions, of sexual harassment of women employees. This evidence indicates that Shier may have had a number of the characteristics of toxic leaders identified in Chapter 1.
The second component was a clear, compelling and motivational vision that most employees could buy into. After 19 months of Shier at the helm, no one had a clear idea about his vision or the direction he wanted the ABC to move in. Apart from some vague notions and suggestions about making the ABC ‘more commercial’, Shier was unable to articulate a clear and compelling vision of where he wanted to lead the corporation in the future. The third and fourth components were some understanding of why people resist change (and how to overcome this), and an ability first to diagnose and then try to change an organization’s culture: usually the most difficult part of any change strategy. Shier appeared to have no understanding of the ABC’s culture or, more importantly, of ways in which resistance to needed changes within the corporation might have been overcome. This important diagnostic skill also involves systemic thinking: the ability to understand how even small changes can have unintended or negative knock-on consequences. There were a series of disastrous ad hoc changes at the ABC in Shier’s time, including the cancellation of wellestablished flagship programmes, such as the popular science programme, Catalyst. A number of these changes were quickly reversed after he was sacked.
The fifth and sixth components were creating a sense of urgency and applying a ‘clean sweep’ of managers who stand in the way of necessary change (while bringing in new people to replace them). Alas, Shier didn’t even manage to get these right. Any sense of urgency that he may have created after he joined the corporation was soon replaced by
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panic, anger, resentment and resistance. In May 2000, Shier did start sacking staff, including national networks director Andy Lloyd, news chief Paul Williams and many others, and started bringing in his own people. However, as events transpired, even some of those he handpicked to replace senior ABC staff subsequently left, disillusioned by his arrogant and autocratic leadership style. The seventh component was clear, workable and realistic strategies. Few people, inside or outside the ABC, including his own supporters ever had much idea what these were. The sixth and seventh components, linking in with all of the above, are the ability to create a sense of urgency while involving employees in the change process. All Shier managed to achieve was a sense of anger, confusion and alienation amongst his employees. According to all reports in the Australian press in the months leading up to his dismissal, he went out of his way not to consult and involve ABC staff in the change process.
The eighth component, communication, was singularly lacking in Shier’s leadership repertoire. He was universally regarded as an awful public speaker, with a thin and indistinct voice, and came across to audiences of ABC employees as arrogant, condescending and patronizing. Even if some of his ideas were good (as some commentators at the time suggested), he was not able to get these across in a clear, engaging, inspirational or motivational manner. He also quickly gained a reputation for not listening to his employees and for routinely ignoring their ideas and suggestions. The ninth component was to involve employees and to celebrate victories and reward successes. Neither of these happened once at the ABC in the 19 months Shier was in charge. The tenth component was to involve customers and clients in the change process. If the letter page of The Australian was anything to go by, during 2000–2001, almost all ABC viewers were appalled by what Shier was trying to do. The corporation’s viewing figures went into further decline from the moment he took over, a clear indication that most viewers did not approve of Shier’s changes. The eleventh component was embedding a deep commitment within an organization’s culture to continuous change, improvement and learning. Again, Shier failed to set this in motion, and it still remains a distant objective for the ABC. Little wonder, then, that Shier failed to drive through long-lasting improvements and changes at the corporation during his short and tempestuous time as director.
What legacy did Shier leave? He managed to get an extra 71 million dollars in funding for the corporation, most of the senior management team he recruited is still working at the ABC, and he pushed through some restructuring of the ABC’s functions and departments. However,
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he quickly lost the support of most of the ABC’s staff, because of his aggressive, volatile and confrontational management style. He also made some serious tactical errors. In retrospect, we can see that the ABC needed to find a media-savvy, results-focused man or woman who was sympathetic to the needs of a public sector broadcaster and, critically, a man or woman who understood its culture and could work with this and the people who worked at the ABC. This person needed to be able to enunciate a clear vision for the ABC and, most importantly, involve the corporation’s staff in change initiatives. Because the ABC’s culture is such a strong and entrenched one, the director would have needed to tap into the creativity and intelligence of the ABC’s staff, while allowing the organization’s leaders to set new strategic objectives and overcome bureaucratic inertia and resistance to necessary changes.
Unfortunately, the ABC Board is still made up of political appointees of the Federal Government. This group, who are responsible for running arguably the most important cultural institution in Australia, are largely underqualified in media-management. It took them more than eight months to appoint a new ‘safe’ director, Russell Balding (an accountant), who was appointed on 30 May 2002. At the time of Shier’s dismissal, a number of media commentators suggested that Parliament should have taken a long hard look at the people who made this decision. Most of these are still sitting on the ABC Board and were, in the words of one commentator, ‘responsible for the most mindless, wasteful and destructive period in the broadcaster’s history’. The real, and still unanswered, mystery is why Shier was employed as director of the ABC in the first place, because, while he may have had some good ideas for strategic change, he lacked many of the most rudimentary change management skills. He certainly lacked transformational leadership abilities, was a poor communicator and may have had some toxic personality traits. Having said this, there was some good news for Shier. First, he was not alone in his inability to manage change: a capability that demands high-level leadership and people management skills, ones that he patently lacked. Second, and predictably, Shier did receive a very handsome pay-off of one million dollars in February 2002, courtesy of the Australian taxpayer, to ‘reward’ him for his short and unsuccessful tenure at the ABC. So he soon found himself a member of the fast-growing club of incompetent private sector directors who, at this time, were being routinely rewarded with huge sums of money, even when they were badly mismanaging their companies (Dempster, 2002; various articles in The Australian, May 2000–June 2002).3
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Conclusion
Q. ‘What has been the biggest change in business during your time as CEO?’
A. ‘By far, speed. How fast you can adapt your goals is the main measure of what kind of company you’ve got. So you’ve got to be getting people to relish changes. You’ve got to talk about change every second of the day.’
(Jack Welch, in an interview to coincide with the launch of his autobiography,
Straight from the Gut, Fortune, 17 September, 2001)
The evidence from research into organizational and cultural change, and real-life examples of successful change, shows that transformational leaders have a number of shared characteristics. They are very flexible and responsive to the dynamic and turbulent business environments in which their businesses operate. They are able to tap into employee dissatisfaction with the present, build on this and create a new and shared vision of a better future. They understand that leading change requires a commitment to action, effective communication and the involvement and participation of employees in implementing their vision. They listen and they learn from their employees. They know that they must involve the whole team and enable their employees to own, share and run with the new vision. Successful transformational leaders are catalysts and facilitators, people who encourage others to achieve more and who honour their followers with trust, respect and support. They are tolerant of ambiguity, uncertainty and diversity, and able to empathize with the concerns and needs of their followers. They are able to foster attitudes and processes amongst their employees that are conducive to continual adaptation, learning and change. They understand how far their people can be stretched, and can equip and motivate them to achieve more than they thought they could achieve alone. Deep down, they know that successful change is not easy to achieve. They understand that fear of the unknown must be expected and overcome. They know that shocks and surprises should be assumed (and even welcomed) and that risk or resistance-free change often means no change. Last, they understand that failures and mistakes that may occur during times of change are not the problem – a failure to learn from these is.4
However, the presence of transformational leaders alone will not always guarantee success and, as noted earlier, managing change is not a paint-by-numbers exercise. It will always throw up unexpected surprises and setbacks. Anita Roddick has observed:
When you read about change, it often comes across as a remarkably simple activity: establish your vision, design the change programme and paint by numbers. Get this: change doesn’t work that way. In the real world of
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change, the vision gets blurred – especially when new leaders come into play. Competition and opposition come in the places and forms you least expect and your fiercest opponent can turn into your most vital supporter. Why does this happen? Because change is about people and people will always surprise you. When you try to bring in new changes into a sleepy business setting, you’re going to have some nightmares along the way with a few sweet dreams come true.
(Roddick, 2000: 26)
Hence it is important to emphasize that there never has been, and probably never will be, a standard fix-it-all blueprint for leading change in every organizational context. Every leader has to examine the particular requirements of their own organization and adapt their change management programmes accordingly. Having said this, the elements contained in the template described in this chapter can be found in all the examples of successful organizational and cultural change we reviewed between 1997 and 2004. As a result, this template has real operational potency in most change management situations, and it can be used as a basic framework, and refined and reformulated as needed to help plan change in many different organizational circumstances.
In conclusion, the twin forces of technology and globalization are producing changes that are faster and more radical than the first industrial revolution of the 19th and 20th centuries. These are also fragmenting markets and reshaping industries faster than at any other time in human history. The most successful organizations of the next 20 years will be those that can change now and keep changing quickly in the future, in order to keep ahead of these developments. The creation of grandiose visions, and the engineering of dramatic revolutions in organizations, should always be the last resort, because they are actually the hardest things to initiate and see through, particularly in large public sector bureaucracies. The world’s most consistently successful businesses do not ‘manage change’ by undergoing wrenching restructuring or dramatic periods of downsizing, and only on very rare occasions do they merge with other companies. Instead, they have created a perpetual organic impetus for steady change, evolution, development and growth. They have achieved this by building these capacities into the mind-sets of their employees, their collective working practices and the operational cultures of their organizations, in the form of perpetual innovation, systemic organizational learning and effective knowledge management. These elements of perpetual organizational change and evolution are addressed in the next two chapters.
There are only two types of company:
those that are changing and those that are going out of business. (Norman Augustine, former CEO of Lockheed Martin, 1997)
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Only the paranoid survive.
(Andy Grove, co-founder and former Chairman of Intel, 1990)
Exercise 8.3
Having read through this chapter, how can you use any new insights you may have acquired about managing organizational and cultural change in the future?
Insight |
Possible strategy |
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Notes
1This section is adapted from Forster (2002).
2For a more detailed account of the turnaround of Continental, see Bethune (1999).
3And, in the cases of Enron, Worldcom and several other companies, the directors of these companies led them headlong into bankruptcy, while at the same time awarding themselves very large salaries, stock options and ‘performance bonuses’, and lying systematically to their employees and shareholders, within weeks of these companies’ collapses (see Chapter 12 for further discussion of these issues). In their book on the rise and fall of Enron, Bethany McLean and Peter Elkind describe Enron’s culture from the mid-1990s to its demise in 2001 as arrogant, chaotic, destructive, rotten, dysfunctional, delusional, individualistic, over the top, unethical, avaricious, greedy, macho, immoral and obsessed with money making regardless of any moral considerations (McLean and Elkind, 2003).
4A detailed discussion of the evaluation of change management programmes is beyond the scope of this book. The most systematic and widely used method of ‘before/after’ evaluation is the ‘Balanced Scorecard’ system, developed by Kaplan and Norton (1996, 2000).
9Innovation and organizational learning
Objectives
To define innovation and invention.
To describe the pivotal roles that innovation, creativity and intrapreneurship now play in modern organizations.
To enhance your lateral thinking abilities, help you become more creative and improve your ability to envision the future.
To describe how to create an organizational culture that can promote greater creativity and innovation amongst employees.
To define what a learning organization is, to evaluate the benefits of introducing learning organization principles into organizations, and to describe some strategies for achieving this.
Introduction
Innovation.
(The one-word logo on 3m products. This US company has been regularly cited in business surveys as being one of the world’s most consistently innovative companies over the last 50 years)
Destroyyourbusiness.com.
(The name of Jack Welch’s intranet initiative at General Electric in the mid-1990s)
Innovation is the only core competency that an organization needs. (Peter Drucker, 1985)
The role of innovation in organizations
Innovation comes from the Latin innovare, meaning to ‘change into something new’. Innovation and innovate have been in use since the
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early 16th century, and ‘innovative’ since the 17th century. However, during this time the word had largely negative connotations. For example, William Shakespeare, in King Lear, talks of ‘Poor discontents, which gape and rub the elbow at the news of hurly-burly innovation.’ Innovation was synonymous with revolution and, for the political and religious authorities of the time, something to be actively discouraged. Over the next three hundred years, the meaning of innovation slowly evolved to signify the creation of something new. The 1939 edition of the Oxford English Dictionary first articulated the modern meaning of this word as ‘the act of introducing a new product into the market’. It is defined here as the process of creating new products or services, introducing new methods and ideas, or making incremental changes or improvements. Innovation is linked to, but distinct from, the process of invention. This word also originates in innovare. To invent means to devise, originate, produce or construct something by original thought. Both are forms of creativity, but invention does not always lead to innovation. For example, Thomas Edison, probably the single most successful inventor in human history, with 1093 patents to his name, was, strangely, a hopeless innovator. His financial backers routinely removed him from many of the new businesses he founded and put these in the hands of professional managers (Nicholas, 2000).
If ‘culture’, ‘quality’ and ‘re-engineering’ were three of the dominant buzzwords of the 1980s, then ‘innovation’ was certainly the dominant buzzword of the 1990s, being described by some business analysts as the ‘industrial theology’ of the last decade of the 20th century. In October 2000, in its annual survey of ‘the world’s most admired companies’, Fortune asked the question, ‘How do you make the world’s most admired list?’ The answer was, ‘Innovate, Innovate, Innovate!’ (Stein, 2000). This survey reported that all of the world’s top companies believed that the key to staying ahead of the pack was constant innovation and learning. Included amongst these innovative companies were BP and Royal Dutch Shell, who are featured later in this chapter. There are three principal reasons why innovation became such an important organizational competency during the 1990s.
First, many ‘old’ management techniques such as just-in-time, supplychain management, outsourcing, total quality or business process reengineering have been used, at some time, by almost every large and medium-sized business in the industrialized world. So, in order to gain a competitive edge, companies have to be able to find new ways of increasing their performance, and improving the quality and novelty of the products and services that they bring to their markets.
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Second, these traditional organizational management techniques, while certainly improving efficiencies for many companies around the world over the last two decades, can also lead to rigidity and inflexibility. In itself, this might not be a problem, except that new ideas, knowledge and intellectual capital are fast becoming the primary drivers of competitive advantage in business. According to many commentators, efficient internal systems and processes have become merely a prerequisite for being in business, and non-linear innovative thinking is fast becoming the principal driver of long-term wealth creation. It is no longer sufficient to make one thing well and sell it at a profit. Sooner or later a competitor will undercut your price, steal your ideas from you or create something better. Sometimes they will do all three at the same time. In any event, your company will either die or be taken over. So the Holy Grail for many businesses today is the generation of a steady stream of new ideas, services or products that will sell in the marketplace (James, 2001; Sutton, 2001; Hamel, 2000a, b; Drucker, 1985).
Third is the impact that innovation can have on the bottom-line performance and profitability of organizations. In Chapter 3, we cited several examples of the dividends that can flow from upward communication in organizations. They are also excellent examples of the power of unleashing the innovative capabilities of all of an organization’s employees. Between 1984 and 1999, the top 20 per cent of firms in the annual ‘Innovation Poll’ conducted by Fortune (in conjunction with Arthur D. Little) achieved double the shareholder return of a comparison group of their peers (Jonash and Sommerlatte, 1999). Another survey showed that the overall rate of return on 17 successful business innovations made in the 1970s averaged 56 per cent, compared with an average return of 16 per cent on investment in all American businesses between 1970 and 2000 (Nicholas, 2000). A study of 30 large international companies revealed that the single most important factor that differentiated high-growth companies from low-growth companies was the emphasis they placed on strategic innovation (Kim and Maurbogne, 1999).
In the 1990s, the desire to become more innovative led to an increased interest in ‘intrapreneurship’ in many companies, by devolving power, setting up internal ‘ideas-factories’ or ‘skunk-works’, and a concerted drive to recruit and retain creative and innovative employees (Christensen, 1997). The idea of ‘intrapreneurship’ is not a new one. H.G. Wells, the visionary 19th-century science-fiction writer, created a game in the 1880s called ‘Cheat the Prophet’. This game involved gathering together the smartest group of forward thinkers and futurists he could find, asking them to describe the future and then imagining how