The concept of change has become so powerful that it elects politicians – and so pervasive that no business leader could impress investors by extolling the virtues of the status quo. Yet while driving change is a constant preoccupation for most CEOs, relatively few change management programs succeed. Most experts agree that around 70% of change in multinationals fails, a figure that has remained pretty constant for the past 15 years.
“Corporations have been asked to take on change in the past,” says Mark Spears, Global Leader in KPMG’s People and Change practice. “But now they’re taking on lots and lots of change all at the same time.” Government regulation, globalization, emerging technology, environmental responsibility, increased competition, economic uncertainty… “There are all kinds of drivers forcing organizations to react and evolve,” Spears says.
Major strategic shifts now come around much quicker. “Many companies are being hit with those big changes that, not too long ago, happened once in a decade, in half or a third of that time,” says John Kotter, the Konosuke Matsushita Professor of Leadership, Emeritus, at Harvard Business School and author of Buy-In: Saving Your Good Ideas from Being Shot Down.
“The consequences, the stakes and the costs of change management failure are big.”
Change hurts. Organizations are structured to resist it. People are hard-wired to reject it. “People have a view of the world. They see it through a frame of reference,” says Spears. “If you challenge that, they fight against it.” Today, staff are being asked to take on three to four times as much change as they can naturally handle, he suggests.
Yet, as Edward E. Lawler III and Chris Worley argue in Built to Change,
the ultimate corporate advantage in today’s business environment is the ability to transform, making change management the definitive core competence. Change is seen by many as a positive force, an opportunity to reassess the fundamentals and keep excesses in check. It can be so useful that one CEO even quipped: “In some companies, if you don’t have a crisis, you should make one up.”
It’s easy – if time-consuming – to list all the steps that characterize successful change management efforts. Having the discipline to stick to them is the hard part. “Even if you get all of these things right, it’s still a bloody and difficult process. And that’s just one change,” Spears warns. “But companies today have to become change-capable. It’s too costly not to get it right.”
1 Persuade the troops
The logical first step to major change is convincing everyone that a fundamental shift is needed – and quickly. But rather than hitting employees over the head (“A little hit on the head does wake people up, but hitting them on the head 19 times will kill them,” Kotter says), leaders must ignite the kind of fire that inspires deep-seated, durable change.
It is essential that change is driven and communicated by senior leaders. When Jeffrey Hiatt and Timothy Creasey, authors of Change Management: The People Side of Change, explored failed change management initiatives, they found there often wasn’t enough communication from executive sponsors and senior managers.
Change is easier when company culture is prepared for upheaval. In the 1980s, says former AlliedSignal CEO Lawrence Bossidy, change was “a radical, unpopularized idea” akin to “changing the tire when the car is running” at many multinationals. By the time Bossidy was implementing his own changes at the aerospace company in the 1990s, however, “the burning platform was obvious to everyone”.
Hugh Grant, CEO of Monsanto, took this lesson on board when he began its transformation from an agri-chemical company to a biotech giant. He was quick to personally engage colleagues at all levels of the company, regularly addressing meetings to explain his vision and answer questions.
Lawler says: “Monsanto’s history until Grant became CEO was one of episodic mega-changes. It wasn’t terribly successful… Under his leadership, Monsanto transformed itself into a business that’s built to change.”
But bravery is often rewarded. Intel restructured to abandon dynamic RAM, the invention which had made its name, and carve out a more profitable niche in the then-nascent microprocessor market. Such extremes may not suit every company, but change represents an opportunity to radically revisit tried and tested systems.
2 Too many cooks can be useful
A common problem plaguing change management efforts is that too few people are invited to the strategy party. “We don’t involve people in change nearly enough,” says Spears. “You need to get people to own the change instead of having the change done to them. Then they react more positively to challenges.”
Once the top executives are in agreement – an important step in itself – the next task is to recruit a broader group to the effort. “In every company, a small group of stakeholders lays claim to most of the influence,” says Kotter. “Unless a change agent rallies these key decision-makers to their side, they will have difficulty garnering enough momentum to shift the organization.”
Kotter suggests that ideally the change forum should include around 35 people. But how do you figure out who to include? Ask. “The people who come screaming, ‘Put me in! Put me in!’ will be attentive, cooperative, and sensible,” he says.
But don’t let the same group drive every change. They will burn out, and may not be the best advocates for every new plan. Be sure to give the group authority and visibility. “Don’t dump this on a task force buried in the organization,” says Kotter. Be clear about how much involvement is required and what the goals of the coalition are.
“You have to be clear about the benefit of what you’re moving toward,” says Spears. “And it has to be meaningful.” If you’re going through a merger, for example, just talking about synergies fails to inspire. Kotter says a smart leader will focus and simplify their vision until they can articulate it to a group in five minutes or less. When Alan Mulally took over as CEO of Ford in 2006, he imagined a future in which regional and business unit fiefdoms within the automaker united to produce global cars for global consumption. He honed his plan for change down to two words: “One Ford”.
3 It’s the quality – not quantity – of information that really counts
Most managers say they understand the power of communication – yet are very bad at it. “We’re taught that communication means creating a PowerPoint, giving that message to a comms person and cascading it down the organization,” Kotter says. “You end up pouring 10,000 gallons of information on the people below you. That’s not a good way to make things happen.”
Having a concise mission statement is handy. Most leaders live in fear of repeating themselves. But when it comes to change, reverberation is compelling. “Leaders should be more afraid of [staff] misinterpreting the vision or losing sight of it,” Kotter says. “Just because you’ve said it before doesn’t mean people six layers below you have heard it. They’ve got 5,000 things to worry about and you spent an hour on it one time. It gets lost.”
Corporations that are built to embrace change make sure that two-way communication becomes part of their culture, say Lawler and Worley, as IBM has done with its famous ‘jam sessions’.
Face-to-face communication – or some approximation of it – is the best way to connect. “The people most affected by change need to figure out how to adjust their frame of reference,” says Spears. “They’re going to have questions and you have to be there answering them.”
Buttress that with packets of information, emails, stories in the corporate newsletter, change portals. The level of detail must be appropriate to the audience. “Identify key constituencies and understand that each has different communication needs,” advises Spears.
“If you’re introducing a new suite of IT systems, there may be no fundamental impact for large groups; updates may work fine for them. Those whose roles will change or disappear need more details on rationale and how they fit into the future state of things.”
Creasey points out that change can mean different things for different constituencies. While executives ask about the impact on customers, the level of investment and the ROI, staff on the front-line may have more fundamental questions: “Will I still have a job? And do I have the skills and knowledge to succeed in the new environment?”
No matter how eloquent you are, you won’t convince everybody. But rather than marginalize sceptics, you might want to engage with them. Sometimes, an open dialogue can yield pearls of insight which will help you achieve change.
4 With change comes opportunity
To embrace change, an employee must be willing – and able. “A company may spend millions on a merger or acquisition,” says Spears, “and then spend only a fraction of that on training.”
Customization is key here. “It can’t be a sheep dip, with everyone going through the same training,” says Spears. “You must have a clear understanding of the new competencies required and tailor your training efforts so people are fit for the new purpose.”
With transformative change, the new skills are often more behavioral than technical. An employee whose IT role has been outsourced may be willing to take a stab at the more strategic job of business liaison, but lack the capabilities. That kind of shift takes time and in-depth education.
Others may have been won over by the urgency, vision and communication, but instinctively cling to the old way of doing things. Recognition and reward programs need to be retrofitted to the revolution in roles.
To change the focus at GE from quality, costs, and deals to revenue-generating innovation, CEO Jeff Immelt tied bonuses to idea generation. At the privately owned technology and fabrics company W.L. Gore, organizational charts and job titles are rare because the company believes they hamper collaboration and innovation.
5 Focus on the numbers
The forces of tradition in an organization are always stronger than a proposed change. It’s helpful to break down the transformation into smaller chunks of changes so the organization can monitor and celebrate success.
“The scale of a change can be overwhelming,” says Kotter. “Whittle it down into bite-sized bits, and be sure to celebrate every milestone. Build on small, short-term victories to infuse the team with momentum so they can carry out the full extent of the desired changes.”
“You launch a big change with massive fanfare – we’re going to merge with this business, transform this function,” says Spears. “But you have to measure progress against goals to demonstrate momentum. You can’t just assume you’re achieving them. You have to measure them and celebrate them.”
And you have to ensure that you’re measuring the right things, the indicators that prove you’re enhancing the value of the business,
It’s a mistake to let up too early. Often, “a new CEO gets something going and, after a number of successes, they declare victory and move on,” says Kotter. “They don’t worry about making it stick.”
Many things can sidetrack a change effort – the abrupt departure of a CEO, a shift in the economy, or massive growth. “Social anthropologists have proven that the ultimate glue is culture,” Kotter says. “If you can connect change to the culture, it doesn’t just ramble off when winds pick up.”
There’s no magic to all this, says Spears. To get through the first weeks, months, even years, of transformation, a leader needs to rinse, wash and repeat the steps to serious change – rallying the troops, keeping an eye on key indicators, updating and communicating the vision, and making sure that employees can continue to contribute.
6 Feel the fear – and use it
Many management experts advise sugar-coating bad news, but there is always a point where truth is the most powerful weapon. For Om Prakash Bhatt, that point arrived soon after his appointment as chairman of the State Bank of India (SBI), the country’s oldest bank, in 2006. The bank had lost 20% of its market, and its leadership position.
Bhatt took 25 of its top leaders on a five-day retreat. He showed them the movie The Legend of Bagger Vance – about a golfer who loses his swing – and likened the predicament to SBI’s market slide.
And then the stick came out. “Before, we were always told everything was hunky-dory, but I wanted to be brutally honest,” Bhatt says. He laid it on the line: the bank faced extinction if it didn’t change. “When a company tries to hoodwink itself, everybody becomes a partner to institutionalized hypocrisy, which is what had happened here,” he says.
The leaders left with a 14-point action plan setting out the fundamental changes they needed to make. The harsh truth lesson worked: SBI regained its leadership position in India, and entered the Fortune 500 in 2008.
Sometimes, when change is the key to survival, honesty is the only policy.
About the Author
This article is republished from KPMG Agenda Magazine, the website on advisory and other issues by KPMG, a global network of professional firms providing audit, tax and advisory services.