Change is not easy. In a recent IBM study, less than half of change management programs were successful, and the bottom 20% of companies only succeeded 8% of the time. For any company hard at work implementing a change program, it is essential to also keep reflecting on what has been done and how to ensure that the program is steered in the right direction.
In this post, I will examine a change management framework from a recent book by Gregory S. Carpenter, Gary F. Gebhardt, and John F. Sherry Jr., all of whom are influencers from the Northwestern University’s Kellogg School of Management. The book is called Resurgence: The four stages of market-focused reinvention.
Four stages of market-focused reinvention
Resurgence documents its authors’ ten years of studies into seven companies that had lost their way and attempted to reinvent themselves. Three of the studied companies, Alberto-Culver (best known for VO5 line of haircare products), Harley-Davidson, and Marshfield DoorSystems, returned back to growth and profitability, while the other four failed either early on or somewhere along the way. The most concerning discovery about the change programs is that all the companies carried out very similar actions. Success, or failure, was determined by small nuances in the way, and the sequence the change programs were carried out.
Based on these studies, the authors suggest a four-stage program for change management: recognize, reinvent, formalize, and maintain.
The very first step on the way to change is a long and difficult one: the top management of the company has to recognize that the company has a problem. In the case of Harley-Davidson, this required near-bankruptcy, and in the case of Motorola, this required five years of losing market share. A Motorola executive described the recognition of a problem as attending Alcoholics Anonymous, it was that difficult.
It is worth emphasis that recognition in this sense only occurs when the people in power recognize the problem. Sadly, no examples of successful grass roots revolution were discovered in the research. Correspondingly, change usually only occurs under a new management: in the studied companies, the speed and success of change were inversely proportional to the leadership tenure (note, not tenure at the company as such, which tended to be longer) of the change leader and his or her coalition.
After the need for change has been recognized, the next step is to build a team to manage the change. This change coalition has to have a shared set of values concerning the importance of employees and the need to have a collaborative culture and have sufficient influence to reach all relevant parts of the organization. In the case of Harley-Davidson, the change coalition was formed by 13 executives who bought the struggling company in an attempt to save it. At Alberto-Culver, it was the new management team of which 70% were new to the management team (but not to the company).
Only now, with the need for change recognized and a like-minded change coalition in place, the actual reinvention of the company can begin.
The reinvention of a company begins with the change coalition creating a vision of what the company wants to be like. At Marshfield, for example, this vision consisted of six themes: reinventing the business based on market needs, communicating the state of business throughout the company, improving work safety, initiating continuous improvement, clarifying roles and responsibilities, and taking into use information technology tools to manage order complexity. Now, that is one very tangible vision!
Once the vision is complete, it is time to go public with it and get the entire organization involved. There are many ways to do this, and many successful change programs have started with a big bang. For example, Starbucks closed all of its 7100 locations across the US at the same time to retrain its baristas, and the CEO told them all that they have his permission to pour out a poor espresso and start anew rather than serve poor quality coffee. A big bang like that makes sure that behavior really changes at once.
Once public, it is of vital importance that the executives walk the talk. At Motorola, there was even a term for ignoring decisions or orders by senior officers, “pocket veto” (usually used as a term in lawmaking). Facing such behavior is typical in times of change, and it is one of the most devastating forms of behavior to a change program. The top management commitment should already be clear if the coalition has been built right, and this commitment needs to spread rapidly throughout the organization. Many of the studied change programs that failed did so because people from all rungs of the corporation gave the change program mere lip service but did not change their behavior.
At this point, the company is ready to actually reconnect with the market. Wide reconnection with the market and building a shared market understanding within the company are the keys to success. For example, Harley-Davidson created some of its trademark events during its resurgence: Harley Owners Group (HOG) rides and demo rides, in which many Harley-Davidson employees participate and are in direct contact with their customers.
With shared market understanding, it becomes possible to involve more people in strategy and problem-solving work, and to empower people to make more decisions at a lower level. When you have a shared understanding, you can confidently make decisions, because you know others would make similar decisions anyway.
The final step in the reinvent stage is the unpleasant one: getting rid of dissenters (and hiring believers). After all the other steps have been taken, all employees should be aligned. For the ones who refuse to change their behavior, there can be no future at the company. For example, at Marshfield, the Vice President of Sales refused to work with the new FIFO-based delivery process and kept trying to escalate orders important to him despite the mutual agreement to stick with FIFO. Eventually he had to be let go.
However, it should be noted that in the studied companies, layoffs were the exception, not the rule. Only Harley-Davidson, on the verge of bankruptcy, reduced its workforce significantly. A successful reinvention of a company does not necessarily require layoffs, and unless there are other financial reasons that force the management’s hand, layoffs should be rare in a company turnaround. That said, the management team itself usually does change quite radically already at the beginning of the change program, but the rank-and-file does not have to be affected at all. It is all down to individual choice. In successful change programs, there is usually a clear understanding that even high performance does not ensure a future at the company unless the individual commits to the new company culture. In failed turnarounds, various reasons are found to keep dissenters on board, destroying the change program from within.
The successful company turnarounds feature this unintuitive sequence of things. The change is formalized only after the reinvent stage. This means formalizing the company culture, redesigning the organization structure, and renewing incentive programs.
When thinking about this in more detail though, it all makes sense.
Creation of the company culture starts at the very beginning of the change program, and formalizing it at this stage makes the work easy, as it is already something that is lived throughout the organization. Formalization ensures that new hires will be systematically indoctrinated to the same culture the existing employees have already acquired through shared experiences.
Redesigning the organization structure is possible because of the shared market understanding and improved connection with the customers. There have already been changes, especially in the management, but at this point the company has enough understanding of its market to create a really effective structure.
The one weakness I see in the studies is the role of incentive programs. The incentive programs were revamped at this point in many cases because of wide dissatisfaction with the way incentive programs were misaligned with the new company culture. If that is so, and the overall vision has been created already before, then it should follow that incentive programs could be effectively revamped already at an earlier stage instead of waiting until the dissatisfaction is widespread.
As the change program progresses, power is increasingly shifted to the masses. Decision-making has actually shifted to the grass roots level and the new culture is self-sustaining. Getting to this point requires that actual change has happened and company practices fully support wide decision-making.
Finally, in order to not lose grip of the market again, a company needs to find a way to maintain the change. Interestingly, the human tendency to myth-making can be one influence that harms these endeavors.
Myth-making can take place in two ways: either about individuals or about company culture. Myths of super individuals who turned the company around are potentially harmful to the sustenance of the change as are myths about company culture: once the change has been successful, it is easy to forget that the company once functioned in a different way, and thus it is also easy to slip back to harmful ways.
Ways to maintain the good company culture include selecting new hires based on cultural compatibility, keeping the culture fresh and vivid in the minds of the employees, and keeping employees widely connected to the market.
And the spotlight moves back to John Kotter’s 8-step process
If you think you may have encountered a similar description of how to lead a change program before, I can assure you that you indeed have. The four stages model is almost identical to John Kotter’s 8-step process to leading change, first detailed in his 1996 book Leading Change and most recently revised in his 2014 book Accelerate: Building Strategic Agility for a Faster-Moving World.
To recap, Kotter’s 8 steps are:
- Create a sense of urgency around a Big Opportunity.
- Build and evolve a guiding coalition.
- Form a change vision and strategic initiatives.
- Enlist a volunteer army.
- Enable action by removing barriers.
- Generate (and celebrate) short-term wins.
- Sustain acceleration.
- Institute change.
This does not mean that Resurgence is a bad book. Quite the contrary, it is a very refreshing read, as it details actual attempts to turn companies around, and while the overall model is very much a rehash of Kotter, there are always gems to be found in details. As a book based on research, it actually lends further credibility to Kotter’s model as well, and is a good companion volume to Kotter’s books.