Fluent Essays

Compose a cohesive document that addresses the following: "See attachment' for details Compare Kotter’s eight-stage process with the change process  1-2 pages in length  Include a separate page containing the required table No plagiarism  APA citing Assignment: The Right Approach Kotter states that a successful change process must operate within the framework of his entire eight stages, and he cautions that skipping a step would be harmful to the entire process. In contrast, the authors of “Cracking the Code of Change” in this week’s Learning Resources propose a more integrated, flexible approach to the change process. In this week’s Assignment, you will conduct a thorough review of the change process as you compare various approaches to managing change. To prepare for this Assignment: · Review this week’s Learning Resources, especially: Kotter, J. P., & Cohen, D. S. (2002). The heart of change: Real-life stories of how people change their organizations. Boston, MA: Harvard Business Review Press. · Introduction, “The Heart of Change” See attachments Beer, M., & Nohria, N. (2000). Cracking the code of change. Harvard Business Review, 78(3), 133–141. See attachments To complete The Right Approach Assignment , Compose a cohesive document that addresses the following: · Compare Kotter’s eight-stage process with the change process described in the article “Cracking the Code of Change.” · Create a table outlining the major components of each, including similarities and key differences. · Be sure to analyze how Kotter’s See/Feel/Change core method aligns with Beer and Nohria’s (2000) E and O strategies? · Analyze your own approach to managing change. Which of the two models most appeals to you? Why? · 1-2 pages in length · Include a separate page containing the required table · No plagiarism · APA citing Cracking the Code of Until now, change in business has been an either-or proposition: either quickly create economic value for shareholders or patiently develop an open, trusting corporate culture long term. But new research indicates that combining these "hard"and "soft"approaches can radically transform the way businesses change. T \ HE NEW ECONOMY has ushered in great businessopportunities -and great turmoil. Not since the IndustrialRevolution have the stakes of dealing with change heen so high. Most traditional organizations have accepted, in theory at least, that they must either change or die. And even Internet companies such as eBay, Amazon.com, and America Online recognize that they need to manage the changes associated with rapid entrepreneurial growth. Despite some individual successes, however, change remains difficult to pull off, and few companies manage the process as well as they would like. Most of their initiatives-installing new technology, downsiz- ing, restructuring, or trying to change corporate culture-have had low success rates. The hrutal fact is that about 70% of all change initiatives fail. In our experience, the reason for most of those failures is that in their rush to change their organizations, managers end up immersing themselves in an alphabet soup of initia- tives. They lose focus and become mesmerized by all the advice available in print and on-line about why companies should change, what they should try to accomplish, and how they should do it. This proliferation of recommendations often leads to muddle when change is attempted. The result is that most change efforts exert a heavy toll, both human and eco- nomic. To improve the odds of success, and to reduce the hu- man carnage, it is imperative that executives understand the nature and process of corporate change much hetter. But even that is not enough. Leaders need to crack the code of change. by Michael Beer and Nit±i Nohria HARVARD BUSINESS REVIEW May-func 2000 133 Cracking the Code of Change For more than 40 years now, we've been studying the nature of corporate change. And although every busincss's change initiative is unique, our research suggests there are two archetypes, or theories, of change. These archetypes are based on very differ- ent and often unconscious assumptions by senior executives- and the consultants and academics who advise them- about why and how changes should be made. Theory E is change based on eco- nomic value. Theory O is change based on organi- zational capability. Both are valid models; each theory of change achieves some of management's goals, either explicitly or implicitly. But each the- ory also has its costs -often unexpected ones. Theory E change strategies are the ones that make all the headlines. In this "hard" approach to change, shareholder value is the only legiti- mate measure of corporate success. Change usually involves heavy use of economic in- centives, drastic layoffs, downsizing, and restructuring. E change strate- gies are more common than O change strategies among companies in the United States, where financial markets push cor- porate boards for rapid turnarounds. For instance, when William A. Anders was brought in as CEO of General Dynamics in 1991, his goal was to maxi- mize economic value-however painful the reme- dies might be. Over the next three years, Anders reduced the workforce hy 71,000 people-44,000 through the divestiture of seven husinesses and 27,000 through layoffs and attrition. Anders em- ployed common E strategies. Managers who subscrihe to Theory O helieve that if they were to focus exclusively on the price of their stock, they might harm their organiza- tions. In this "soft" approach to change, the goal is to develop corporate culture and human capability through individual and organizational learning- the process of changing, obtaining feedback, reflect- ing, and making further changes. U.S. companies Theory E change strategies usually involve heavy use of economic incentives, drastic layoffs, down- sizing, and restructuring. Shareholder value is the only legitinnate measure of corporate success. that adopt O strategies, as Hewlett-Packard did when its performance flagged in the 1980s, typically have strong, long-held, com- mitment-hased psychological contracts with their employees. Managers at these companies are likely to see the risks in breaking those contracts. Because they place a high value on employee commitment, Asian and European businesses are also more likely to adopt an O strategy to change. Few companies subscribe to just one the- ory. Most companies we have studied have used a mix of hoth. But all too often, man- agers try to apply theories E and O in tandem without resolving the inherent tensions he- tween them. This impulse to comhinc the strategies is directionally correct, but theo- ries E and O are so different that it's hard to manage them simultaneously-employees distrust leaders who alternate hetween nur- turing and cutthroat corporate behavior. Our research suggests, however, that there is a way to resolve the tension so that husinesses can satisfy their shareholders while building viable institutions. Companies that effec- tively comhine hard and soft approaches to change can reap hig payoffs in profitahility and productivity. Those companies are more likely to achieve a sustainable competitive 134 HARVARD BUSINESS REVIEW May-Tune 2000 Cracking the Code of Change advantage. They can also reduce the anxiety that grips whole societies in the face of cor- porate restructuring. In this article^ we will explore how one company successfully resolved the tensions hetween E and O strategies. But before we do that, we need to look at just how different the two theories are. A Tale of Two Theories To understand how sharply theories E and O differ, we can compare them along several key dimensions of corporate change: goals, leadership, focus, process, reward system, and use of consultants. (For a side-by-side comparison, see the exhibit "Comparing Theories of Change.") We'll look at two com- panies in similar businesses that adopted almost pure forms of each archetype. Scott Paper successfully used Theory E to en- hance shareholder value, while Champion International used Theory O to achieve a complete cultural transformation that in- creased its productivity and employee com- mitment. But as we will soon observe, both paper producers also discovered the limi- tations of sticking with only one theory of change. Let's compare the two companies' initiatives. Theory O change strategies are geared toward building up the corporate culture: employee behaviors, attitudes. champion's reform effort couldn't have been more dif- capabilities, and commitment.The organization's ability ferem. CEO Andrew sigler ac- to learn from its experiences is a legitimate yardstick of knowiedged that enhanced eco- corporate success. Goals. When Al Dunlap assumed leadership of Scott Paper in May 1994, he immediately fired 11,000 employees and sold off several businesses. His determination to restructure the heleaguered company was almost monomaniacal. As he said in one of his speeches: "Shareholders are the num- ber one constituency. Show me an annual report that lists six or seven constituencies, and I'll show you a mismanaged company." From a shareholder's perspective, the results of Dunlap's actions were stunning. In just 20 months, he managed to triple shareholder returns as Scott Paper's market value rose from about $3 biUion in 1994 to about $9 bil- lion by the end of 1995. The fmancial community applauded his efforts and hailed Scott Paper's ap- proach to change as a model for improving share- holder returns. nomic value was an appropriate target for management, but he believed that goal would be best achieved hy trans- forming the behaviors of management, unions, and workers alike. In 1981, Sigler and other managers launched a long-term effort to restructure corporate culture around a new vision called the Champion Michael Beer is the Cahners-Robb Professor of Business Administration at Harvard Business School in Boston. He can be reached at [email protected] Nitin Nohria is the Richard P. Chapman Professor of Business Admin- istration at Harvard Business School and chairs the school's Organizational Behavior Unit. He can be reached at [email protected] The authors' book Breaking the Code of Change will be published by Harvard Business School Press in October 2000. To discuss this article, join HBR's authors and readers in the HBR Forum at www.hhr.org/forum. HARVARD BUSINESS REVIEW May-June 2000 135 Cracking the Code of Change Way, a set of values and principles designed to build up the competencies of the workforce. By improv- ing the organization's capabilities in areas such as teamwork and communication, Sigler believed he could hest increase employee productivity and thereby improve the bottom line. Leadership. Leaders who subscribe to Theory E manage change the old-fashioned way: from the top down. They set goals with little involvement from their management teams and certainly without in- put from lower levels or unions. Dunlap was clearly the commander in chief at Scott Paper. The execu- tives who survived his purges, for example, had to agree with his philosophy that shareholder value was now the company's primary objective. Nothing made clear Dunlap's leadership style better than the nickname he gloried in: "Chainsaw Al." By contrast, participation (a Theory O trait) was the hallmark of change at Champion. Every effort was made to get all its employees emotionally committed to improving the company's perfor- mance. Teams drafted value statements, and even the industry's unions were hrought into the dia- logue. Employees were encouraged to identify and solve prohlems themselves. Change at Champion sprouted from the bottom up. Focus. In E-type change, leaders typically focus immediately on streamlining the "hardware" of the organization-the structures and systems. These are the elements that can most easily be changed from the top down, yielding swift financial results. For instance, Dunlap quickly decided to outsource many of Scott Paper's corporate functions - hene- fits and payroll administration, almost all of its man- agement information systems, some of its tech- nology research, medical services, telemarketing, and security functions. An executive manager of a Scott Paper's CEO trebled shareholder returns but failed to build the capabilities needed for sustained competitive advantage -commitment, coordination, communication, and creativity. glohal merger explained the E rationale: "I have a [profit] goal of $176 million this year, and there's no time to involve others or develop organizational capability." By contrast. Theory O's initial focus is on huild- ing up the "software" of an organization-the cul- ture, behavior, and attitudes of employees. Through- out a decade of reforms, no employees were laid off at Champion. Rather, managers and employees Comparing Theories of Change Our research has shown that all corporate transformations can be compared along the six dimensions shown here. The table outlines the differences between the E and 0 archetypes and illustrates what an integrated approach might look like. were encouraged to col- lectively reexamine their work practices and be- haviors with a goal of in- creasing productivity and quality. Managers were replaced if they did not conform to the new phi- losophy, but the overall firing freeze helped to cre- ate a culture of trust and commitment. Structural change followed once the culture changed. Indeed, hy the mid-1990s. Cham- pion had completely reor- ganized all its corporate functions. Once a hierar- chical, functionally orga- nized company. Cham- pion adopted a matrix structure that empow- ered employee teams to focus more on customers. Process. Theory E is ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ predicated on the view that no battle can be won without a clear, compre- hensive, common plan of action that encourages in- ternal coordination and inspires confidence among customers, suppliers, and investors. The plan lets leaders quickly motivate and mohiiize their busi- nesses,- it compels them to take tough, decisive ac- tions they presumahly haven't taken in the past. The changes at Scott Paper unfolded like a military battle plan. Managers were instructed to achieve specific targets by specific dates. If they didn't ad- here to Dunlap's tightly choreographed marching orders, they risked being fired. Meanwhile, the changes at Champion were more evolutionary and emergent than planned and pro- grammatic. When the company's decade-long re- form hegan in 1981, there was no master blueprint. The idea was that iimovative work processes, val- ues, and culture changes in one plant would he adapted and used hy other plants on their way through the corporate system. No single person, not even Sigler, was seen as the driver of change. In- stead, local leaders took responsibility. Top man- agement simply encouraged experimentation from the ground up, spread new ideas to other workers, and transferred managers of innovative units to lag- ging ones. Reward System. The rewards for managers in E-type change programs are primarily financial. Em- ployee compensation, for example, is linked with 136 HARVARD BUSINESS REVIEW May-June 2000 Cracking the Code of Change Dimensions of Change Goals Leadership Focus Process Reward System Use of Consuitants Theory E maximize shareholder vaiue manage change from the top down emphasize structure and systems pian and establish programs motivate through financial incentives consultants analyze problems and shape solutions Theory 0 develop organizational capabilities encourage participation from the bottom up buiid up corporate culture: employees' behavior and attitudes experiment and evolve motivate through commitment-use pay as fair exchange consultants support management in shaping their own solutions Theories E and 0 Combined explicitly embrace the paradox between economic value and organizational capability set direction from the top and engage the people below focus simultaneously on the hard (structures and systems) and the soft (corporate culture) pian for spontaneity use incentives to reinforce change but not to drive it consultants are expert resources who empower empioyees financial mcentives, mainly stock options. Dun- lap's own compensation package-which ultimately netted him more than $ioo million-was tightly linked to shareholders' interests. Proponents of this system argue that financial incentives guarantee that employees' interests match stockholders' in- terests. Financial rewards also help top executives feel compensated for a difficult job-one in which they are often reviled hy their onetime colleagues and the larger community. The O-style compensation systems at Champion reinforced the goals of culture change, hut they didn't drive those goals. A skills-hased pay system and a corporatewide gains-sharing plan were in- stalled to draw union workers and management into a community of purpose. Financial incentives were used only as a supplement to those systems and not to push particular reforms. While Champion did offer a companywide bonus to achieve husiness goals in two separate years, this came late in the change process and played a minor role in actually fulfilling those goals. Use of Consultants. Theory E change strategies often rely heavily on external consultants. A SWAT team of Ivy League-educated MBAs, armed with an arsenal of state-of-the-art ideas, is brought in to find new ways to look at the business and manage it. The consultants can help CEOs get a fix on urgent issues and priorities. They also offer much-needed political and psychological support for CEOs who are under fire from financial markets. At Scott Pa- per, Dunlap engaged consultants to identify many of the painful cost-savings initiatives that he subse- quently implemented. Theory O change programs rely far less on con- sultants. The handful of consultants who were in- troduced at Champion helped managers and work- ers make their own husiness analyses and craft their own solutions. And while the consultants had their own ideas, they did not recommend any cor- porate program, dictate any solutions, or whip any- one into line. They simply led a process of discov- ery and learning that was intended to change the corporate culture in a way that could not be fore- seen at the outset. In their purest forms, hoth change theories clearly have their limitations. CEOs who must make diffi- cult E-style choices understandably distance them- selves from their employees to ease their own pain and guilt. Once removed from their people, these CEOs begin to sec their employees as part of the problem. As time goes on, these leaders become less and less inclined to adopt O-style change strategies. They fail to invest in building the com- pany's human resources, which inevitably hollows out the company and saps its capacity for sustained performance. At Scott Paper, for example, Dunlap trebled shareholder returns but failed to build the HARVARD BUSINESS REVIEW May-June 2000 137 Cracking the Code of Change capabilities needed for sustained competitive ad- vantage-commitment, coordination, communica- tion, and creativity. In 1995, Dunlap sold Scott Pa- per to its longtime competitor Kimberly-Clark. CEOs who embrace Theory O find that their loyalty and commitment to their employees can prevent them from making tough decisions. The temptation is to postpone the bitter medicine in the hopes that rising productivity will improve the business situation. But productivity gains aren't enough when fundamental structural change is re- quired. That reality is underscored by today's global financial system, which makes corporate perfor- mance instantly transparent to large institutional CEOs who embrace Theory O find that their loyalty and commitment to their employees can prevent them from making tough decisions. shareholders whose fund managers are under enor- mous pressure to show good results. Consider Champion. By 1997, it had become one of the lead- ers in its industry based on most performance mea- sures. Still, newly instated CEO Richard Olsen was forced to admit a tough reality: Champion share- holders had not seen a significant increase in the economic value of the company in more than a decade. Indeed, when Champion was sold recently to Finland-based UPM-Kymmene, it was acquired for a mere 1.5 times its original share value. Managing the Contradictions clearly, if the objective is to build a company that can adapt, survive, and prosper over the years. The- ory E strategies must somehow be combined with Theory O strategies. But unless they're carefully handled, melding E and O is likely to bring the worst of both theories and the benefits of neither. Indeed, the corporate changes we've studied that arbitrarily and haphazardly mixed E and O tech- niques proved destabilizing to the organizations in which they were imposed. Managers in those com- panies would certainly have been better off to pick either pure E or pure O strategies - with all their costs. At least one set of stakeholders would have benefited. The obvious way to combine E and O is to se- quence them. Some companies, notably General Electric, have done this quite successfully. At GE, CEO Jack Welch began his sequenced change by imposing an E-type restructuring. He demanded that all GE businesses be first or second in their in- dustries. Any unit that failed that test would be fixed, sold off, or closed. Welch followed that up with a massive downsizing of the GE bureaucracy. Between 1981 and 1985, total employment at the corporation dropped from 412,000 to 299,000. Sixty percent of the corporate staff, mostly in planning and finance, was laid off. In this phase, GE people began to call Welch "Neutron Jack," after the fa- bled bomb that was designed to destroy people but leave buildings intact. Once he had wrung out the redundancies, however, Welch adopted an O strat- egy. In 1985, he started a series of organizational initiatives to change GE culture. He declared that the company had to become "boundaryless," and unit leaders across the corporation had to submit to being challenged by their subordinates in open fo- rum. Feedback and open communication eventually eroded the hierarchy. Soon Welch applied the new order to GE's global businesses. Unfortunately for companies like Champion, sequenced change is far easier if you begin, as Welch did, with Theory E. Indeed, it is highly unlikely that E would successfully follow O be- cause of the sense of betrayal that would involve. It is hard to imagine how a draconian program of layoffs and downsizing can leave intact the psy- chological contract and culture a company has so patiently built up over the years. But whatever the order, one sure problem with sequencing is that it can take a very long time; at GE it has taken almost two decades. A sequenced change may also require two CEOs, carefully chosen for their con- trasting styles and philosophies, which may create its own set of problems. Most turnaround man- agers don't survive restructuring-partly because of their own inflexibility and partly because they can't live down the distrust that their ruthlessness has earned them. In most cases, even the best- intentioned effort to rebuild trust and commitment rarely overcomes a bloody past. Welch is tbe excep- tion that proves the rule. So what should you do? How can you achieve rapid improvements in economic value while si- multaneously developing an open, trusting corpo- rate culture? Paradoxical as those goals may appear, our research shows that it is possible to apply theo- ries E and O together. It requires great will, s k i l l - and wisdom. But precisely because it is more diffi- cult than mere sequencing, the simultaneous use of O and E strategies is more likely to be a source of sustainable competitive advantage. One company that exemplifies the reconciliation of the hard and soft approaches is ASDA, the UK grocery chain that CEO Archie Norman took over 138 HARVARD BUSINESS REVIEW May-June 2000 Cracking the Code of Change in December 1991, when the retailer was nearly bankrupt. Norman laid off employees, flattened the organization, and sold off losing businesses-acts that usually spawn distrust among employees and distance executives from their people. Yet during Norman's eight-year tenure as CEO, ASDA also became famous for its atmosphere of trust and openness. It has been described by executives at Wal-Mart-itself famous for its corporate culture-as being "more ^ ^ ^ ^ ^ H like Wal-Mart than we are." Let's look at how ASDA resolved the conflicts of E and O along the six main dimensions of change. Explicitly confront the tension between E and O goals. With his opening speech to ASDA's execu- tive team - none of whom he had met-Norman indicated clearly that he intended to apply both E and O strategies in his change ef- fort. It is doubtful that any of his listeners fully understood him at the time, but it was important that he had no conflicts about recog- nizing the paradox between the two strategies for change. He said as much in his maiden speech: "Our number one objective is to secure value for our shareholders and secure the trading future of the business. I am not coming in with any magical solutions. I intend to spend the next few weeks listen- ing and forming ideas for our pre- cise direction.... We need a culture huilt around common ideas and goals that include listening, learn- ing, and speed of response, from the stores upwards. iBut] there will be management reorganization. My objective is to establish a clear focus on the stores, shorten lines of communication, and build one team." If there is a contradiction between building a high-involve- ment organization and restructur- ing to enhance shareholder value, Norman embraced it. Set direction from the top and engage people below. From day one, Norman set strategy without expecting any participation from below. He said ASDA would adopt an everyday-low-pricing strategy, and Norman unilaterally determined that change would begin by having two experimental store formats up and running within six months. He de- cided to shift power from the headquarters to the stores, declaring: "I want everyone to be close to the stores. We must love the stores to death; that is our business." But even from the start, there was an O quality to Norman's leadership style. As Change Theories in the New Economy Historically, the study of change has been restricted to mature, large companies that needed to reverse their competitive declines. But the arguments we have advanced in this article also apply to entrepreneurial companies that need to manage rapid growth. Here, too, we believe that the most successful strategy for change will be one that combines theories E and O. Just as there are two ways of changing, so there are two kinds of entrepreneurs. One group subscribes to an ideology akin to Theory E. Their primary goal is to prepare for a cash-out, such as an IPO or an acquisition by an established player. Maximizing market value before the cash-out is their sole and abiding purpose.These entrepreneurs emphasize shaping the firm's strategy, structure, and systems to build a quick, strong market presence. Mercurial leaders who drive the company using a strong top-down style are typically at the helm of such companies.They lure others to join them using high-powered incentives such as stock options.The goal is to get rich quick, Other entrepreneurs, however, are driven by an ideology more akin toTheoryO-the building of an institution. Accumulating wealth is important, but it is secondary to creating a company that is based on a deeply held set of values and that has a strong culture. These entrepreneurs are likely to subscribe to an egalitarian style that invites everyone's participation. They look to attract others who share their passion about the cause-though they certainty provide generous stock options as well.The goal in this case is to make a difference, not just to make money. Many peopie fault entrepreneurs who are driven by a Theory E view of the world. But we can think of other entrepreneurs who have destroyed businesses because they were overly wrapped up in the Theory O pursuit of a higher ideal and didn't pay attention to the pragmatics of the market. Steve Jobs's venture. Next, comes to mind. Both types of entrepreneurs have to find some way of tapping the qualities of theories E and Cjust as large companies do. HARVARD BUSINESS REVIEW May-June 2000 139 Cracking the Code of Change he put it in his first speech: "First, I am forthright, and I like to argue. Second, I want to discuss issues as intelligence and business acumen. Leighton, who is warmer and more people oriented, worked on em- ployees' emotions with the power of his person- ality. As one employee told us, "People respect Archie, but they love Al- lan." Norman was the first to credit Leighton with having helped to create emotional com- mitment to the new ASDA. While it might be possible for a single in- dividual to embrace op- posite leadership styles, accepting an equal part- ner with a very different personality makes it eas- ier to capitalize on those styles. Leighton certainly helped Norman reach out to the organization. Together they held quar- terly meetings with store managers to hear their ideas, and they supple- mented those meetings with impromptu talks. Focus simultaneously on the hard and soft .sides of the organization. Nor- man's immediate actions To thrive and adapt in the new economy, companies must simultaneously build up their corporate cultures and enhance shareholder value; the O and E theories colleagues I am looking for your of business change must be in perfect step. advice and your disagreement." Norman encouraged dialogue with employees and customers through colleague and customer circles. He set up a "Tell Archie" program so that people could voice their concerns and ideas. Making way for opposite leadership styles was also an essential ingredient to Norman's-and ASDA's-success. This was most clear in Norman's willingness to hire Allan Leighton shortly after he took over. Leighton eventually hecame deputy chief executive. Norman and Leighton shared the same E and O values, but they had completely different personalities and styles. Norman, cool and reserved, impressed people with the power of his mind-his followed both the H goal of increasing economic value and the O goal of transforming culture. On the E side, Norman focused on structure. He re- moved layers of hierarchy at the top of the organiza- tion, fired the financial officer who had been part of ASDA's disastrous policies, and decreed a wage freeze for everyone - management and workers alike. But from the start, the O strategy was an equal part of Norman's plan. He hought time for all this change by warning the markets that financial recovery would take three years. Norman later said that he spent 75% of his early months at ASDA as the company's human resource director, mak- 140 HARVARD BUSINESS REVIEW May-|une 201X) Cracking the Code of Change ing the … p Introduction The Heart of Change he single most important message in this book is very simple. People change what they do less because they are given analysis that shifts their thinking than because they are shown a truth that influences their feelings. This is especially so in large-scale organizational change, where you are dealing with new technologies, mergers and acquisitions, restructurings, new strategies, cultural transformation, globalization, and e-business- whether in an entire organization, an office, a department, or a work group. In an age of turbulence, when you handle this reality well, you win. Handle it poorly, and it can drive you crazy, cost a great deal of money, and cause a lot of pain. . . The lessons here come from two sets ofinterviews, the first com- pleted seven years ago, the second within the last two years. About 400 people from 130 organ izations answered our questions. We found, in brief, that • Highly successful organizations know how to overcome antibodies that reject anything new. They know how to grab opportunities and avoid hazards. They see that bigger leaps d 2 • THE HEART Ut l,MJ-\1'4U'- . . gl associated with winning big. They see that are 1ncreas1n Y . dual improvement, by itself, is no longer continuous gra enough. ful l rge -scale change is a complex affair that • Success a happens in eight stages. The flow is this: push urgency up, put together a guiding team, create the vision and strate- gies, effectively communicate the vision and strategies, remove barriers to action, accomplish short-term wins, keep pushing for wave after wave of change until the work is done, and, finally, create a new culture to make new be- havior stick. • The central challenge in all eight stages is changing people's behavior. The central challenge is not strategy, not systems, not culture. These elements and many others can be very im- portant, but the core problem without question is behavior- what people do, and the need for significant shifts in what people do. • Changing behavior is less a matter of giving people analysis to influence their thoughts than helping them to see a truth to influence their feelings. Both thinking and feeling are es- sential, and both are found in successful organizations, but the heart of change is in the emotions. The flow of see-feel- ch · ange is more powerful than that of analysis-think-change. These distinctions betw • . een seeing and analyzing between feehng and thinking · · ' 'are critical because, for the most part, we use the latter much m f comfortabl th ore requently, competently, an9 Y an the former. When we are frustrated we som . there is a decreasi ' etimes try to convince ourselves ng need for large- al h and unceasing forces ar d . . sc e c ange. But powerful e riving the turbulence. When frustrated, The Heart of Change • 3 we sometimes think that problems are inevitable and out of our control. Yet some people handle large-scale change remarkably well. We can all learn from these people. CEOs can learn. First-line supervisors can learn. Nearly anyone caught up in a big change can learn. That's the point of this book. The Eight Stages of Successful Large-Scale Change To understand why some organizations are leaping into the future more successfully than others, you need first to see the flow of ef- fective large-scale change efforts. In almost all cases, there is a flow, a set of eight steps that few people handle well. STEP 1 Whether at the top of a large private enterprise or in small groups at the bottom of a nonprofit, those who are most successful at signifi- cant change begin their work by creating a sense of urgency among relevant people. In smaller organizations, the "relevant" are more likely to number 100 than 5, in larger organizations 1,000 rather than 50. The less successful change leaders aim at 5 or 50 or 0, allow- ing what is common nearly everywhere-too much complacency, fear, or anger, all three of which can undermine change. A sense of urgency, sometimes developed by very creative means, gets people off the couch, out of a bunker, and ready to move. STEP 2 With urgency turned up, the more successful change agents pull together a guiding team with the credibility, skills, connections, reputations, and formal authority required to provide change lead- ership. This group learns to operate as do all good teams, with truSt and emotional commitment. The less successful rely on a single [ART Of CHANGE 4 • THE H ak task forces and committees, or co one we lltplex ~TSon or no ' all without the stature and skills and ..-- strUcurres, . . k . Po\\rer governance ds ape is littered with tas forces ill eq\li do the job. The lan c PJled to rod ce needed change. toP u sTEP3 . the d'niding team creates sensible, clear sun l In the best cases, o-- ' p e, . . . • s and sets of strategies. In the less successful ,..~~"A uplifting vzszon ~, nly detailed plans and budgets that, although neces~...,, thereareo --J, are insufficient, or a vision that is not very sensible in light of what is happening in the world and in the enterprise, or a vision that is created by others and largely ignored by the guiding team. In un- successful cases, strategies are often too slow and cautious for a faster-moving world. STEP4 Co . . h mmumcation of the vision and strategies comes next-simple, eartfelt messages sent through many unclogged channels. The goal is to induce und tandin . ers g, develop a gut-level commitmen~ andliberatemoreene gyfr .. are ft . r om a critical mass of people. Here, deeds o en more unportant th etition is ~ In an words. Symbols speak loudly. Rep-ey. the less su ful # tive conunum . ccess cases, there is too little euec-cation or peo 1 h Rernarkab1 ' P e ear words but don't accept them. . Y, Slllart peopl mcate all the time . e undercommunicate or poorly conunu· Without reco . . STEP 5 grtizmg their error. In the h est situar obstacles th ions, You find h J{eY Chan at stop Peo 1 a eavy dose of empowerment. ge lead P e frolll . "ed, infonnati ers focus on b acting on the vision are reill0 b on and . asses wh d. . dequate atliers in lllforinati O 1sempower, on ma not ''giVin People's lllind on systems, and on self-confideJlce g Power." Yi s. The issu h . . bstacles, ou can't h e ere 1s removing o c- and out power in a bag. In less sU ~ The Heart of Change • 5 . t'ons people are often left to fend for themselves de- ful s1tua 1 , cess . d'ments all around. So frustration grows, and change is ·te unpe 1 spl undermined. STEP 6 With empowered people working on the vision, in cases of great success those people are helped to produce short-term wins. The wins are critical. They provide credibility, resources, and momen- tum to the overall effort. In other cases, the wins come more slowly, less visibly, speak less to what people value, and have more ambigu- ity as to whether they really are successes. Without a well-managed process, careful selection of initial projects, and fast enough suc- cesses, the cynics and skeptics can sink any effort. STEP 7 In the best cases, change leaders don't let up. Momentum builds af- ter the first wins. Early changes are consolidated. People shrewdly choose what to tackle next, then create wave after wave of change until the vision is a reality. In less successful cases, people try to do too much at once. They unwittingly quit too soon. They let mo- mentum slip to the point where they find themselves hopelessly bogged down. STEP 8 Finally, in the best cases, change leaders throughout organizations make change stick by nurturing a new culture. A new culture- group norms of behavior and shared values-develops through co · ffi · t period of time. nsistency of successful action over a su cien . H loyee orientation, ere, appropriate promotions, skillful new emp a d ak big difference. In n events that engage the emotions can m e a k th f Agreatdealofwor 0 er cases, changes fl.oat fragile on the sur ace. h rt . . . a remarkably s o can be blown away by the winds of traditwn in Period of time. G • THE HEART OF CHANGE ~ , . ., .,.. The Eight steps for' Successful Large-Scale C~arr~e STEP ACTION NEW BEHAVIOR 1 Increase urgency People start telling each other, "Let's go, we need to change things!" 2 Build the guiding team A group powerful enough to guide a big change is formed and they start to work together well. 3 Get the vision right The guiding team develops the right vision and strategy for the change effort. 4 Communicate for buy-in People begi n to buy into the change, and this shows in their behavior. 5 Empower action More people fee l able to act, and do act, on the vision. 6 Create short-term wins Momentum builds as people try to fulfill the vision, while fewer and fewer resist change. 7 Don't let up People make wave after wave of changes until the vision is fulfilled. 8 Make change stick New and winning behavior continues despite the pull of tradition, turnover of change leaders, etc. The Flow of Change T~e process of change involves subtle points regar ding overlap- ping stages guidi g t . . . ' n earns at multiple levels in the organ1zat1 0n, handling multipl 1 . e eye es of change, and more. Beca use the world 1s complex som d ' e cases o not rigidly follow the eight-step flow. But I r - 1 I The Heart of Change • 7 I the eight steps are the basic pattern associated with significant use- ful change-all possible despite an inherent organizational inclina- tion not to leap successfully into a better future. Evidence overwhelmingly suggests that the most fundamental problem in all of the stages is changing the behavior of people. The core issue in step 1 is not urgency in some abstract sense. The core issue is the behavior of people who are ignoring how the world is changing, who are frozen in terror by the problems they see, or who do little but bitterly complain. In step 2, the issue is the behavior of those in a position to guide change-especially regarding trust and commitment. In step 3, the core challenge is for people to start acting in a way that will create sensible visions and strategies. For people who know how to plan but have never devised a winning change vision, this behavior change is very big. In step 4, the issue is getting sufficient people to buy into the vision via communica- tion. In step 5, it's acting on that communication-which for some employees will mean doing their jobs in radically new ways. And so on throughout the process. See, Feel, Change Significantly changing the behavior of a single person can be excep- tionally difficult work. Changing 101 or 10,001 people can be a Her- l · · t the future sue-cu ean task. Yet organizations that are leapmg m 0 ceed at doing just that. Look carefully at how they act and you'll fi nd fth t ge in the overall another pattern. They succeed, regardless o e s a • · d not center on for-process, because their most central activity oes . -a1 ·t· and presentat10ns- ·11 data gathering, analysis, report wr1 mg, . th . th' k'ng m order to e sorts of actions typically aimed at changmg m 1 h . 1 h eople what the c ange behavior. Instead, they compellmg Y s ow P 1 They provoke re-Problems are and how to resolve the prob ems. d d f fl eeded change, an sponses that reduce feelings that slow an s 1 en 8 • THE HEART OF CHANGE .c 1 . g that motivate useful actio n. The emotional they enhance 1ee m s . h vi'des the energy tha t propels people to push along reaction t en pro . . no ma tter how great the difficulties. the change process, The stories presented throug hout the book clarify this pa t- h · g what can be done to enab le the process. In chap- tern, s owm ter 1 (w hich deals with urgency), a pro curement manager starts a needed change by creating a dr amatic presentation. On the b oard- room table he piles 424 differen t kinds of glovesthat the firm is cur- rently buying for its workers a t dozens of different prices fo r the same glove and from dozens of different suppliers. First peop le are shocked, then the gut-level sen se of complacency shrinks an d ur- gency grows. It's not just a mat ter of the data saying that cha nges are necessary in the purchasing process so people alter their b ehav- ior. Instead, it's subtler and deep er. It's a loud sound that catche s at- tention in a day filled with thous ands of words and dozens of ev ents. It's an image, hard to shake, th at evokes a feeling that we mu st do something. In chapter 2 (guiding team), the army officer doesn't pull toget her his new change team with a rat ional argument. Instead, he s hocks them by taking a risk for the g reater good with his commen ts in a meeting. He then helps them b egin to tell emotion-packed s tories around a campfire. More posit ive feelings and trust grow, m aking them act as an effective team. The aircraft plant manager in chapter 3 (vision and strateg ies) ceases to just talk to his people about developing ambitious s trate- 1 gies to fit an ambitious quality vision. Instead he takes dra matic . , actwn. He st0Ps the normal p roduction process-just stops it-so everyone must stare all day l ong at a gigantic plane that can no longer move along the produc tion line. At the same time, he ex- pres~es a_ rock-solid belief th at they can find a way to im prove q~ality Wi th0ut delaying delivery. After the initial shock, and with his continuously upb t b h . ea e avior, employees begi n developing all The Heart of Change • 9 sorts of new strategies for leaping ahead in procurement, logistics, and quality control. In chapter 4 (communication), people logically explain why maintaining a lush executive floor is cost-effective in an age of cut- backs-the· logic being that it would cost more to change the archi- tecture and decor to make-it look less excessive. But that commu- nication convinces few employees and allows cynicism to grow. So they "nuke" the floor, making it less regal, and shock employees in a way that increases their faith in top management and their belief in the vision. In chapter 5 (empowerment), managers refuse to demote, fire, or "retrain" someone who is staunchly against change and who disempowers others from helping with change. Instead they loan him to a customer, where he is dramatically confronted each day with the problems the customer is having with his products. What he sees generates shock, then feelings that help the man rise to the occasion. He returns to his employer a manager reborn. Approach- ing his job in a whole new way, he helps the firm make changes that benefit customers, employees, and owners. In chapter 6 (short-term wins), a manager does not ignore an in- fluential state Senator or sell him on a change effort's progress with graphs and charts. Instead, the manager finds out what the Senator really cares about. Then he dramaticallY, reduces the number of ri- diculous, bureaucratic forms needed to be filled out in that area. He shows the Senator the result, surprising the man in the most posi- tive sense. As a result, the Senator begins actively supporting the change effort. In chapter 7 (not letting up), a task force knows top management behavior is slowing down the change process. But instead of duck- ing the issue, or trying to describe it in antiseptic terms, the task force creates a hilarious video with actors spoofing the problem. Th . . 1 •d g·ves those executives try- e amusing, nonconfrontat10na VI eo 1 I 10 • THE HEART OF CHANGE e a much-needed tool for legitimizing new to . g to create chang I> 1n . ment behavior. manage ( aking change stick), staff write a good spe h 1 hapter 8 m ec n c th firm has created and needs to strengthen a d bout the values e n a . formation is to be firmly entrenched. But th retain if their trans e hen they present a real customer to employee real power comes w . s. . pi·rational story showing the consequences of living He tells an ins those values. Stories like these reveal a core pattern associated with successful change. 1. SEE. People find a problem in some stage of the change process-too many of their colleagues are behaving com- placently, no one is developing a sensible strategy, too many are letting up before the strategy has been achieved. They then create dramatic, eye-catching, compelling situations that help others visualize the problem or a solution to the problem. 2. FEEL. The visualizations awaken feelings that facilitate useful change or ease feelings that are getting in the way. Urgency, optimism, or faith may go up. Anger, complacency, cynicism, or fear may go down. 3 · ~HANGE. The new feelings change or reinforce new behav- ior, sometimes very different behavior. People act much less comp~acently. They try much harder to make a good vision a reahty They d 't · f the d · on st0P before the work is done, even 1 roa seems long. Successful see-feel c and never cyu· - hange tactics tend to be clever, not clumsY, ically mani 1 · l w where the sto pu ative. They often have an afterg O ' · ry of the eve t · h e is a rernaining • . n is told again and again or where t er P Vls1ble sign f h . al eople over tirn , 1 n._ 0 t e event that influences addition e. vvnen d one Well over all eight stages of a change Almost Always the Core Method Is: SEE-FEEL-CHANGE 1. HELP PEOPLE SEE. Compelling, eye-catching, dramatic situations are cre- ated to help others visualize problems, solutions, or prog- ress in solving complacency, strategy, empowerment, or other key problems within the eight steps. As a result 2. SEEING SOMETHING NEW HITS THE EMOTIONS. The visualizations provide useful ideas that hit people at a deeper level than surface thinking. They evoke a vis- ceral response that reduces emotions that block change and enhances those that sup- port it. 3 · EMOTIONALLY CHARGED IDEAS CHANGE BEHAVIOR OR REINFORCE CHANGED BEHAVIOR. . The Heart of Change • 11 Rarely the Core Method Is: ANALYSIS-TH INK-CHANGE 1. GIVE PEOPLE ANALYSIS. Information is gathered and · analyzed, reports are written, and presentations are made about problems, solutions, or progr~ss in solvi~g urgency, teamwork, communication, momentum slippage, or other key problems within the eight steps. As a result 2. DATA AND ANALYSIS INFLUENCE HOW WE THINK. The information and analysis · change people's thinking. Ideas inconsistent with the needed change are dropped or modified. 3. NEW THOUGHTS CHANGE BEHAVIOR OR REINFORCE CHANGED BEHAVIOR. 12 • THE HEART OF CHANGE It an be breathtaking. Mature (old-fash. rocess, the resu s c . . Ioned, P ., ganizations take a leap into the future. Lag dun~ or heavy1 or gards ' 1 ders Leaders jump farther ahead. start to become ea . . . . t that careful data gather1ng, analysis, and pre The point 1s no . . sen- . . portant. They are impo rtant. Sometimes it is b tatwn are un1m . . e- . h g d by analysis that sends peo ple into a see-feel-chan havior c an e ge S met imes change launched through fee lings creates process. o a radically better approach to analysis. O ften small changes are a nec- essary part of a larger change effort, and the small changes are driven by analysis. Occasionally, careful anal ysis is required to get show- me-the-numbers finance people or engi neers in the mood to see. But analysis has at least three major limitations. First, in a re- markable number of cases, you don't n eed it to find the big truths. You may not need to do much work to fi nd that the old strategy isn't working and that a new one isn't being embraced. You don't need a fifty-page report to see there is insuffi cient new product develop- ment and that a number of factors ma ke it impossible for the en- gineers to do what is necessary. You do n't need reams of financial data to learn that you cannot stay out of e-business and that the first step is simply to take the first step. It is n't necessary for a team of psychologists to study Fred and his team to find out they are failing and must be replaced. Yes, there are ma ny exceptions-deciding on w~ic~ $IOO million IT system to buy, fo r example-but the general pomt 1s valid. Seco nd, analytical tools have their limitatio ns in a turbulent ~orld. These tools work best when para meters are known, assump- tions are minimal d h . ' an t e future is not fuzzy . Third, good anal s • It h Y Is rarely motivate s people in a big way. c anges thought but h t the do t . ' ow often does i t send people running ou or o act m signifi l . t a thinki . cant Y new way s? And motivation 1s no ng word; It's a feeling word We fail at change . controlled and efforts not beca use we are stupid, over- ' unemotional b · h t waY at times. We fa .1 b eings, although it can seem t a 1 ecause we h , h ·gh1Y aven t sufficiently experienced 1 The Heart of Change O 13 successful change. Without that experience, we are too often left pessimistic, fearful, or without enough faith to act. So we not only behave in less effective ways, we don't even try. Consider the implications of this pattern in an age of accelerat- ing change, at a time when we are making a mind-boggling transi- tion from an industrial to an information/knowledge economy. Consider the implications in light of how managers, management educators, and others today deal with large-scale change. Of course there are many difficulties here, but being uninformed and pessimistic does not help. We need more leaps into the future. And although we are becoming better at this, there is no reason that we cannot learn to become much better still. In light of the stakes, we must become better still. Using the Book Because they help show, the stories in the book are very im- portant. As a reader, glancing at the figures, reading a bit of the text, and moving on does not work especially well. If you are in a rush and want to learn from the book quickly, read three or four stories and look at the end-of-chapter figures. You might choose the stories in whichever chapter seems of most relevance. Or you might go to "Gloves on the Boardroom Table" in the step 1 chapter, "The Plane Will Not Move!" in the step 3 chapter, and "Retooling the Boss" in the step 5 chapter. No matter how you read the book, feel free to copy a story and send it to your colleagues. The more a relevant story circulates among your colleagues, and the more it creates useful dialogue, the better. In a recent edition of Fortune magazine, Jack Welch is quoted as saying, "You've got to talk about change every second of the day." That's a bit of an extreme position, but maybe extreme is what wins.