There is no one-size-fits-all process to reshape a company. Here’s what transformation takes.
By Niko Canner
Every great con starts from a hunger to believe.
Think about what an extraordinary CEO does. She asserts that an organization will be something that it doesn’t yet know how to be, and then delivers the goods through the work of others. A confidence game? Not necessarily; perhaps a high-wire act performed without a net.
Now consider the condition of the above-average CEO. He and his leadership team take a clear-eyed look at their assets and their context. The company is making money, but facing headwinds. Commoditization is proceeding apace, they’re in the upper ranks of the industry but not the leader, they’re facing investor pressure, and larger disruptive threats (or are they opportunities?) are massing some-where on the horizon. They formulate a strategy: a BHAG (big hairy audacious goal), an articulation of where the company will play and how they’ll win, some stretch goals closer in, and a set of themes that convey the way the company needs to change to effectively win.
These themes cover a broad waterfront. There’s an innovation agenda; significant transformation work to take out cost; deep investment in becoming a more digital business; a “from/to” for the most important customers and channels; and imperatives to upgrade talent and shift culture.
The above-average CEO and his team have a strong bias to action, and they’re leaning in. They drive ambitious pilots that demonstrate how new products and operating models work in practice. They buy a smaller company that is focused on innovations the larger company needs. There’s momentum.
Even so, the CEO is vulnerable. There’s something he needs to believe, and like every mark in every con, he’s broadcasting this need. He has to believe there’s a method to take his company—that’s built to do X and needs to do Y—and rewire it to deliver Y. Is this asking so much? After all, companies do it all the time. We can all point to initiatives that get implemented and to companies that change. We just need to do those things that worked for all the others.
Enter the Change Factory. Like every great con, there are 1,000 variations. At the core is a simple idea: There’s a content-neutral method for change that takes as inputs the “company built to do X” and the “strategy to do Y” and yields as an output, through some process, “company aligned to do Y” that actually achieves Y.
In my experience, the Change Factory takes two main forms: the Road to Alignment and the Grand Campaign.
In the Road to Alignment, the driving force is design. First, redesign the structure. Then, align a set of supporting elements. Decision rights and the processes for decision-making need to be rewired. Incentives need to be changed. Competencies need to be rewritten. At the end of this sequence, you arrive at an organization aligned to do Y.
In the Grand Campaign, the mechanism isn’t nearly as technical. The work isn’t about blueprints, but about hearts and minds. Purpose, values, and behaviors become beacons for employees at all levels to look to. Communications—broadcasted, cascaded, and marshaled inthe many more sophisticated ways that change specialists have developed—are crafted to excite people about these beacons and ensure that people reflect on what they mean for them in their roles.
With sufficient precision of design, artfulness of expression, and intensity of reinforcement, these messages have a transformational effect. The Road to Alignment and the Grand Campaign aren’t mutually exclusive ideas. The Change Factory can encompass both.
What makes the Change Factory such a durable confidence game? Start with the intensity with which the CEO and his team need to believe that there’s some such factory that can be the transmission mechanism from vision to result.
CEOs are so stretched dealing with the disruptive duress that leads to the strategic conclusion of “built to do X but need to do Y” that they need a way to turn out the right result that won’t require all-encompassing personal engagement.
Factory believe in it at least as much as the CEO does. They aren’t con artists; they’re missionaries, engineers, or both, whose beliefs are reinforced by the confidence they place in the CEO, his team, and his credible, analytical, well-researched strategy process.
The clinching element in the con game is a picture of how change happens that makes the operation of the Change Factory feel intuitive. But if we want to escape the Change Factory—and the performance of the company may depend on it—we must take apart what makes this picture feel so intuitive.
How Change Happens
We try to understand large systems by analogy: The hard-to-understand big thing is like another easier-to-understand smaller thing. In particular, when we form a picture of institutional change,we intuitively envision it being like what we know from experience about change in individuals and small groups. We naturally connect this to a second intuition: We believe that once people wrap their heads around the “new way,” it will work better than the old way.
To see the picture these two intuitions shape, imagine a weekend tennis player who has terrible form with his backhand. If he badly wants to improve, hires a coach to help him, studies better form, practices tirelessly, receives encouragement when he does it right, and returns to the court often enough to form a habit, he’ll build a better backhand.
This example suggests something like John Kotter’s eight-step process of successful change: create a sense of urgency; pull together the guiding team (the player and the coach); develop the change vision and strategy (the demonstration of “what good looks like” and the plan for practicing); communicate for understanding and buy in; empowerothers to act; produce short-term wins; don’t let up; and create a new culture.
Voilà, intuition built for a Change Factory: a content-neutral, universal process by which change will produce the desired intent.
The problem with the Change Factory isn’t that you’re better off doing the opposite, but rather that believing in the Factory creates overconfidence about what you can expect a helpful set of actions to achieve. The risk is “doing good things” that add up to far less than a realization of the strategy and achievement of the big goals.
Here are four important ways in which the kinds of change involved in shifting the strategy of a large enterprise differ from the simpler cases of change that, by analogy, build intuition for the Change Factory:
1. High level of abstraction. Most changes that small groups make are relatively concrete. But big enterprises driving major change frame their agenda thematically, beginning at a high level of abstraction, which requires multiple levels of translation to bring down to concrete, operational changes.
Take, for example the four key points in Alan Mulally’s One Ford plan, described in Bryce Hoffman’s excellent book American Icon.
- Aggressively restructure to operate profitably at the current demand and changing model mix.
- Accelerate development of new products our customers want and value.
- Finance our plan and improve our balance sheet.
- Work together effectively as one team.
These weren’t empty slogans. Mulally animated them in one of the most successful corporate transformations of recent years. But for “accelerate development” to be an actionable principle for a midlevel manager, the overarching idea had to be converted into a plan of record and more operational processes and practices for product development put into place. This, in turn, enables the midlevel manager to make concrete choices that support the strategy.
With a concrete understanding of the plan and principles around product development, a procurement executive can make the strategic choice to prioritize a supplier addressing specific component availability issues for the Ford Edge above the other priorities in the sup-plier relationship, such as the year-on-year unit cost reductions on purchased goods that constitute that manager’s own primary metric.
2. Unsolved “how to” problems. The weekend tennis player knows the better backhand is a solvable problem, and that the coach has a solution. Generally, when a company “built to be X” pursues a strategy to “become Y,” many of the core problems on which the validity and viability of the strategy depend have not been solved. “How to” questions aren’t change questions—they’re operational questions on which the relevance of change questions hang.
When a bank resolves to become more customer-centric, for example, it cannot “drive change” without having a concrete answer for “how to” develop tellers to move from just fulfilling transactions to identifying unmet needs and proposing solutions.
3. Productivity gaps. It doesn’t take that much practice for the new backhand to work better than the comfortable old way, but many weekend players might still slide back. In a corporate context, a new way may produce a dip in productivity during the critical early going.
Customer service executives inspired by Zappos might formulate a move: “from” tight, disciplined focus on handle time and execution of scripts “to” skilled, highly autonomous focus on first-call resolution of problems and creating delighted customers. All sorts of good things might result over time from making this shift, but the first thing that hap-pens is handle times go up and, if staffing isn’t increased, customers wait longer.
4. Deep interdependency. The week-end player can essentially improve his backhand in isolation from other elements of his game. But for a consumergiant to deliver on an imperative like “rationalize the global manufacturing foot-print,” a great deal of work needs to be driven in the middle of the organization. This work doesn’t cascade in a clean, easy way. For instance, a regional manufacturing executive can’t simply rationalize her part of the global manufacturing footprint. Each brand her plants supply needs to be able to deliver on its own performance specs with a differently configured supply chain.
This likely requires the brands to solve significant “how to” problems they haven’t yet solved, such as how to rationalize their product lines without reducing sales. That’s deep interdependency: Multiple parties need to solve significant, unsolved problems for the joint goal to be achieved, the solutions are highly interdependent, and the out-comes are uncertain.
Any program manager knows how to deal with more transactional interdependency, which is largely about completion of planned actions, like “ensure the risk assessment is completed before the bid goes to the review committee.” Deep interdependency requires navigating uncertainty about when and how well significant unsolved “how to” problems will get resolved, in a context when any of these factors could compromise the result.
These four differences give rise to what we call the Middle Distance Problem, where large organizations shape a compelling vision for their future state and successfully create a microcosm of this future state in a pilot environment, but never successfully execute the work in between the vision and the realization of the future state.
The Middle Distance Problem can be challenging, as the logic of the strategic vision generally requires economies of scale and differentiation of capabilities that only kick in after some midpoint is reached. Until then, all you see is investment in the service of a long-term goal. Companies that don’t get to or get through the middle distance never even learn if their long-term strategy was right.
What happens when the Change Factory comes up against the four dynamics above? The Road to Alignment tries to get all the organizational gears meshing just right for the new way to operate. Undoubtedly, a well-aligned organization will navigate the four dynamics better than a poorly aligned organization. But the well-aligned organization still hasits real work in front of it: translating abstract themes into concrete change, solving unsolved “how to” problems, dealing with the headwinds of productivity gaps as new ways of operating are tested and refined, and navigating the landmines of deep interdependency.
The Grand Campaign unleashes energy and action faster than the road to alignment, but the campaign doesn’t it-self solve any of the four dynamics. The best such campaigns create disciplines to wrestle with the operational meaning of enterprise-wide themes—strategic pillars, values, statements of purpose—but many focus simply on generating “buy in” to the abstract themes themselves. Even the best communications campaigns can’t solve “how to” problems, wipe away the reality of productivity gaps, or reduce deep interdependency. A campaign might raise awareness or strengthen resolve around these factors, which could be useful, but equally might create unrealistic expectations that lead to cynicism when the realities of the four dynamics kick in.
The point here isn’t that organization-al alignment is a mirage, or that communications campaigns aren’t important. It’s that leaders can’t rely on these kinds of tools to act as a Change Factory to transform a company “built to do X” into a company “winning through Y.”
How Can We “Manage Change”?
We escape the Change Factory when we dispel the idea that there might be a change management approach that can achieve the lofty objective of strategic transformation. Having made this escape, what can a leader do?
The road here begins with recognizing that driving transformation simply is the work of top management. Yes, every CEO affirms that top management must play a championing, sponsoring role. But close examination of Mulally’s tenure at Ford provides a clear picture of what’s needed: deep, day-to-day engagement in the work of solving the practical barriers that stand in the way of the vision.
Mulally saw running Boeing’s commercial aircraft division as if it were an engineering exercise, according to American Icon. To crack it, he developed his Business Planning Review (BPR) process, which he believed he could also apply to any global organization—starting with Ford.
Mulally gave Ford executives his slides from Boeing to use as BPR templates and instructed them to fill in the blanks with their own data, and be ready to present it.
While Mulally had plenty to do as CEO beyond his famous Thursday BPRsand Special Attention Reviews (SARs), they were the beating heart of how Mulally and his team led Ford.
To push one level deeper, six management disciplines stand out as near-uni-versal for CEOs and leadership teams driving major change:
1. Top management articulates and stands behind specific “briefs” (what outcomes, by when, subject to what constraints) for operating executives that are as clear, tangible, and vivid about the strategic “how” as they are about the financial “what.”
2. The enterprise leadership team surfaces the tensions between the operating units and the functions or initiatives responsible for building new capabilities, and creates robust problem solving and debate.
3. Leaders clearly communicate what’s on track and off track, and the inevitable “yellows” and “reds” are metabolized to understand what’s not working, why, and what to do about those gaps. This process engages leaders at all levels, reaching all the way to the top.
4. Top management invests in problem-solving capacity to help tackle the challenges of “how to” problems and navigate deep interdependency. Internal and external advisors are given voice to share what they see and escalate issues, but their work is in service of the leaders who are ultimately responsible for making change, not off to the side.
5. Change agents in the middle are purposefully identified, networked with one another, and given the connection to and sponsorship from top management needed for them to have outsize influence. This is because the right leadership in the middle can never be developed or hired as fast as top management would wish.
6. The work of teaching and communications gets done to a significant degree in the course of driving operations. Day-to-day decisions be-come teaching points, and the critical lessons from operational reviews get disseminated broadly.
One could, I suppose, call these principles of change management, but they’rereally just tried-and-true principles of good management. They simply cannot be separated into a change process distinct from the day-to-day work of running an enterprise.
There are many ways these principles can be embodied in concrete management processes. Mulally’s turnaround of Ford provides one vivid example. Mulally knew he’d implement a form of matrix organization be-fore stepping into the job at Ford, and when he arrived, he used the structure to push conflict up to the top of the organization, where it could be enacted publicly in the BPR process.
But no structural design contributes to transforming an enterprise if leaders duck or avoid truly confronting problems. A month into Mulally’s tenure at Ford, he’d instituted the BPR process, and clearly communicated the expectation that executives openly call out the status of each key objective using green, yellow, or red. The company was losing billions, but the BPR objectives were reported as consistently green.
In American Icon, Bryce Hoffman recounts the story of the BPR meeting in which a Ford executive, Mark Fields, called out a product launch as “red.”
“There was dead silence. Everyone turned toward Fields. So did Mulally, who was sitting next to him.” Fields’ peers thought to themselves, “Dead man walking” and “I wonder who will get [Fields’] Americas.” But to every-one’s surprise, Mulally started to clap.
“‘Mark, that is great visibility,’ [Mu-lally] beamed. ‘Who can help Mark with this?’” After an intervening week in which it became clear that Fields retained Mulally’s confidence, everyone’s BPR slides included plenty of reds and yellows.
The core work of top management was dealing with these reds and yellows, some of which could be done readily, and some only much later, after “how-to” problems and interdependencies had been worked out.
John Kotter would no doubt read in Mulally’s story a beautiful realization of his eight-step process. The CEO created a sense of urgency from the beginning. The top leadership he constructed with his matrix design was a powerful “guiding team.” His four priorities were a change vision, and the BPR process was a change strategy.
Certainly, Mulally communicated for understanding and buy in, empowered others to act, produced short-term wins, and didn’t let up. But he succeeded because he didn’t think he could send off an order to the Change Factory. Mulally’s eight-step process was woven into a deeply operational fabric of leadership and management.
Few “change managers” help CEOs and their teams with actual management. It feels too hard, and pulls too deeply into the specific operational dynamics of this business, at this point in time. However, here’s no other level on which the real work of driving change can get done.
As Mark Fields proved when he called out the red product launch, the first step in positioning a strategic transformation for success is to acknowledge that the color always begins as red. The critical “how to” questions are largely un-answered. The new way won’t be productive enough at first, even when it becomes clearer. Deep interdependency will require us to take frightening leaps, and we won’t always land well.
There isn’t a process answer to all of this. There is no Change Factory. There are principles for the work ahead, but no process or map. If we confront this reality with all the resourcefulness we can summon, the best advice we can get, the courage to take the right risks and leaps, and the resolution to stay the course, we have a solid shot to turn it green.
Niko Canner is the founder of Incandescent, a strategy consulting and venture development firm. He previouslyserved as cofounder and managing partner of Katzenbach Partners, and in 2010 was named one of the top 25 in the consulting profession by Consulting Magazine.