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Many senior managers today are aggressively trying to transform their companies, seeking radically to improve performance by changing behavior and capabilities throughout the organization. Unfortunately, most leadership groups lack a proven way of thinking about the challenge.
Ask your management team what a good business plan looks like, and you will probably find close agreement. But ask them—especially in the middle of a major change effort—what a good change plan should include, and opinions will vary all over the map. A CFO will insist on creating new financial measures; an operations VP, on installing a quality program; an HR specialist, on revising compensation and training; a marketing executive, on getting everyone to be more customer focused. And all these managers will have handfuls of articles to wave—and mantras of buzzwords to invoke—to defend their choices.
The chaos of opinion created by hype and buzzwords is doubly unfortunate. Most obviously, if left unresolved, it can easily turn a desire for bold, systemic change into a rag-tag collection of discrete, ad hoc initiatives. Less obviously, but perhaps more troublingly, it can also prevent the kind of meaningful discussion that keeps a management group pulling together toward a common end. The CEO of a company facing transformational change must be, by definition, the driver and facilitator of just this sort of top-level “conversation.” Without it, no change program will stay focused, integrated, and in balance. And without balance, integration, and focus, no disjointed set of initiatives will lead to significant performance-enhancing change.
Today, however, generating and capturing such quantum leaps in performance lie at the heart of many CEOs’ jobs. “To meet our performance goals—or to stay ahead of the competition—we need to reinvent ourselves,” they acknowledge. “Virtually everything about the way we do business must change.” But if leaders are unable to translate these beliefs into a coherent basis for conversation and learning with their leadership group, then the chances of developing an effective, tangible, and manageable program of change are much reduced.
For that, the right kind of conversation is essential. Which, in turn, means having in place a shared framework for structuring activities and responsibilities, a road map for laying out their proper sequence, and a background set of guiding principles about the “natural laws” that govern organizational transformations. All three of these—framework, road map, and guiding principles—are necessary for a successful conversation, because all three have a critical role to play in giving CEOs the practical means to shepherd through a balanced, integrated change program.
Axes of change
Our experience indicates that no single type of change initiative is sufficient to bring about acceptable levels of performance improvement. Though companies spend a lot of time, money, and energy on a broad-scale quality program, or a training program, or a program to refocus their organization’s culture, measurable downstream benefits—in, say, customer satisfaction or on-time delivery or cost reduction—fall well short of expectations. The inevitable result: frustration, an exhausted and increasingly cynical organization, and a deteriorating competitive position.
Examples of the failure of single-initiative “magic pills” abound. Recent work indicates that nearly two out of three companies launching quality programs to increase worker involvement are dissatisfied with their progress. Other equally well-intentioned initiatives face similar difficulties.
One industrial firm began its aggressive efforts in the mid-1980s by cascading, top down, a well-crafted vision of change throughout the company. Each mill and factory took the corporate vision and developed its own companion vision. Senior executives traveled the country describing their objectives and signaling their personal commitment. An ambitious array of corporate training programs was developed, emphasizing participative management and situational leadership skills, team development, and group problem solving. Managers were called in to head office every quarter to describe how they were implementing the program in their area.
After three years, however, it became clear that only sporadic progress was being made. Top-down assertions of the need for change were not enough. No agreed-on process existed for translating broad objectives into specific, focused performance goals at functional, plant, or machine-operation level. Nor did managers have the skills to define these goals in a way that would engage their people in finding new ways to improve performance—not once, but continually. Though the new training programs were useful, they had no vital or clear-cut connection to the primary levers of performance improvement.
Of the dozens of leading US companies that have embarked on transformational change efforts in recent years, we have looked in detail at the experience of more than thirty. Although each company’s program is unique, the successful programs have developed points of view on all three types of initiative. Where any one is absent, the ill-matched collection of initiatives under way is falling short. Poor results are invariably the result of focusing efforts along only one or two—rather than all three—of the key axes of change:
- Top-down direction setting to create focus throughout an organization and develop the conditions for performance improvement.
- Broad-based, bottom-up performance improvement to get people at all levels to take a fresh approach to solving problems and improving performance.
- Cross-functional core process redesign to link activities, functions, and information in new ways to achieve breakthrough improvements in cost, quality, and timeliness.
Together, these three axes make up what we think of as a “transformation triangle”—a balanced, integrated framework for combining separate initiatives into a coherent overall program.
Each axis is necessary. If top-down initiatives are lacking or faulty, managers will be left to guess where to aim new skills or activities. If bottom-up involvement is absent, motivation will falter, momentum will flag, opportunities for improvement will be overlooked, and the new skills and behavior will not be built. If horizontal core processes are ignored, function-specific efforts will never add up to the critical mass of change required. A quality program here, a new training program there, a set of internal strategy taskforces, and an executive team-building exercise may not add up to anything other than a jumble of parts that can sap, rather than build, energy. Real transformations in performance come only when efforts along all three axes are coordinated and engaged.
To develop the necessary preconditions for performance improvement, successful transformations start with clear, consistent, and ongoing direction-setting initiatives. In almost all the efforts we examined, the leadership team made a concerted effort to clarify priorities, create energy, and signal commitment to change in performance and behavior through a variety of approaches: everything from new themes and visions (General Electric’s “Boundaryless Organization” or Motorola’s “Six Sigma”) to new measures and objectives.
Federal Express, for example, has twelve closely-watched numbers it publishes every day. These numbers reflect the corporation’s customer service goals, and management has put a lot of thought into how to express them. On-time performance, for instance, is not expressed as a percentage. If it were 98.5 percent one day and 98.4 percent the next day, no one would know how to interpret the difference. So the company publishes the number as an absolute tally of late deliveries. If 1,100 packages were delivered late yesterday, everyone can understand that there were 1,100 customers who were inconvenienced or annoyed.
No single initiative offers a “magic bullet” to unfreeze and redirect an organization. What distinguishes success here is consistency among initiatives, as well as their continuing refinement and development.
Most companies start their transformation efforts with very broad objectives—say, “to lead the industry in customer satisfaction.” But this is like saying “head west” as a direction for getting from New York to California. Successful efforts push over time for increasing clarity and specificity in top-down direction as change pushes toward tangibility at the front line.
At one railroad, for example, the vision and goals started broadly (“be the quality leader in the transportation industry”) and became more specific (“achieve the three Rs of precision execution: right car, right train, right time”) as customer needs and operational requirements came into sharper focus. This clarity helped align other change efforts to make it evident how they contributed to the overall goal. That way, a headquarters taskforce could redesign train scheduling while front-line teams attacked execution problems with individual trains.
Although top-down efforts create the focus and the necessary preconditions for transformational change, they alone are not sufficient to achieve it. One of the biggest challenges to overcome is the widely held management view that “all we have to do is tell employees what we want, provide some training and rewards, and change will happen.” This approach may work when the desired results lie well within the existing capabilities of an organization—for instance, developing a product extension. But it falls far short when the change requires fundamentally new ways of doing business—like moving from a product to a customer orientation. In these cases, embedded skills, systems, and attitudes are usually so at odds with the new requirements that a much more intensive process is needed to retool the organization to effect lasting change.
What’s needed, therefore, is to get large numbers of people throughout an organization (in operations, support units, and business management teams alike) aggressively and creatively working to improve performance. This, in turn, depends on the availability—or the creation—of disciplined processes for identifying opportunities and developing plans to close clearly identified performance gaps. Many such problem-solving processes exist, most of which are rooted in the Quality movement and share common principles: set goals, determine gaps, understand root causes, brainstorm and try out solutions, monitor results, and make adjustments.
To be truly effective, however, these approaches must be tailored to the specific challenges, skills, and change readiness of a given part of the organization. This requires, among other things, designing a methodology for setting appropriate goals and performance objectives, developing analytical templates to guide problem solving, and determining specific information needs that, of course, will vary by level and unit. For most parts of an organization, this effort will start simply and become more advanced over time.
- Front-line operations will tend to focus on improving the cost, quality, or timeliness of products and services. At one railroad, for example, front-line teams in each terminal analyzed their operational delays and helped move on-time performance from 20 to 79 percent.
- Staff functions will tend to work on aligning their activities to increase the value of products or services through joint efforts with front-line operations. At one insurance company, finance and human resource teams redesigned planning and compensation systems to be consistent with desired new agent behavior.
- Management groups will tend to concentrate on identifying the most attractive performance improvement opportunities and on designing the processes to exploit them. Over a two-year period, a steel company’s management team started with relatively simple efforts to improve safety and housekeeping and moved on to design advanced processes to address yields, labor productivity, and throughput time.
The net effect of launching such team-based problem-solving efforts is much like getting a flywheel spinning. Initially, tremendous inertia exists, and the first cycle can be lengthy and difficult, requiring substantial energy from outside the group to get it started. But if the process continues to be supported and rewarded by management, momentum gradually builds, improvements are achieved, the problem-solving cycle runs a more regular course, and the promise of “continuous improvement” becomes a real possibility.
Tapping the brains and energy of thousands of people is powerful in itself, but there is a second reason for using bottom-up problem solving. In many cases, you already know what needs to be done, but you don’t believe that people can change their behavior just because they are told—with good reason—to do so. What does it actually take to create new behavior?
Think, for a moment, about the mechanics of a golf swing. You know you have to set up square to the target. You know you have to take the club head back slowly. You know, because a golf pro has told you at one time or another, each of the fifteen things you have to do to hit a golf ball well.
But knowing is not enough. You have to experience it. You have to be able to try it in a risk-free environment, get the feel of it. In other words, you have to go through the process of finding the right answer yourself.
For these reasons, bottom-up initiatives go far beyond the familiar “pilot testing and implementation.” This is largely a function of their …
- Scope. In most cases, intensive problem-solving efforts ultimately have to spread across an entire enterprise. With pilots, by contrast, the normal pattern is to try them in one or two isolated locations, watch them for a year or so, and then re-evaluate the effort.
- Objectives. Bottom-up efforts go beyond simply implementing a new solution. They have wider objectives: rapid and sustained performance improvements, development of new skills, increased change readiness, and deeper insights into how an organization must adapt to sustain the improvements.
- Process. These efforts depend on effective “problem solving for process”—that is, developing creative ways to involve people in improving performance and redesigning their work. Again, this goes well beyond the top-down implementation of a solution defined by others.
- Iteration. Bottom-up activities are not one-off initiatives. They call for successive rounds of effort to improve performance and build skills.
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