How can I achieve fundamental transformation without exposing my organisation to unacceptable risk? Corporate transformation challenges come in many forms and confront executive leaders with an array of vexing questions: How can I help my company, which is at the top of its competitive game, side-step complacency and energise people to redirect their efforts and reposition their organisation? How can I lead my company, which has lost its way and greatly depleted its resources, to revitalise itself for competitive excellence? How can our recently merged companies or functions overcome business and cultural differences? Or, more simply, now that I am in a position to do so, how can I effectively take charge of my organisation and help people develop a new agenda to lead us through the next phase of its development?
These questions, and more, have found successful resolution through the framework for leading corporate transformation described in this book. The framework is based on my privileged, direct involvement over the past twenty years with the practice and theory of fundamental change in large, complex organisations. It has been successfully field-tested in a variety of situations. With it, corporate leaders have restored financial viability, pursued quantum revenue growth, and successfully integrated merged operations. This approach to transformation has been used in companies with only a few days of cash reserve, and in those earning in excess of a billion dollars in net profits annually. It has been used to integrate the diverse cultures of newly merged companies and to help them leverage elusive synergies and agree on common purpose and direction. This approach has also been used to facilitate top executive succession and the creation of new leadership agendas. It has been successfully adapted for use at the
corporate and business-unit levels across a variety of manufacturing, technology, service, and entertainment sectors.
With each use, the framework has been refined. It has evolved alongside the series of conceptual breakthroughs described in the literature on corporate transformation and has been enriched by a long series of practical applications.
The Corporate Transformation framework
Successful corporate transformation processes share a few fundamental attributes: they thrive on energy, they are vision led, they are based on a total-system perspective, they are embedded in a comprehensive implementation process, and they demand a transformational leader. The importance of having such a leader is shown in Exhibit I, a summary of the general framework for leading corporate transformation that I have been refining, based on my intensive involvement in practice and knowledge of the literature, over the past twenty years.
Transformational change requires enormous energy; it is easy to underestimate how much. Reality must be confronted as early as possible, not just by executive leaders but by everyone in the organisation. Some resources must be created to support the transformation; others must be reallocated to signal intent and conviction regarding fundamental change. Stretch goals must be installed to underscore the departure from business as usual. And leaders at all levels, starting at the top, must visibly and consistently model the new performance expectations and required behaviours. All of these levers must be thrown early in the process to jump the gap from the current state of the organisation to its critical path of corporate transformation.
Second, as contrasted with incremental change, transformational change is vision led. It requires projection into a dimly outlined future. It involves the creation of goals that stretch the organisation beyond its current comprehension and capabilities. Therefore, launching a corporate transformation process necessitates development of the business case for transformation as opposed to incremental change. It also imposes upon the leader the task of creating a clear and compelling vision of a desirable future state, one that can be fully defined only as the organisation sustains movement into it. This feature of corporate transformation is difficult to understand for individuals who are accustomed to incremental change as a way of life. But visionary leadership is the essence of successful corporate transformation.
The third vital ingredient of all successful corporate transformations is that they be based on a total-system perspective. They seek to move the organisation boldly from an initial state to a vision state, not piecemeal but by simultaneously articulating all the major elements of the whole organisation.
This need for holism leads to the fourth critical attribute of successful corporate transformations: they are embedded in a comprehensive implementation process. The total-system approach to change and the large magnitude of change implied by a visionary aspiration require a sustained process of organisational learning and orderly orchestration of all of the pieces in order to make a safe passage to the vision state.
The framework offered in Exhibit I identifies the major tasks that a leader indeed, that leaders at all levels in the organisation must perform to achieve successful transformation without exposing the corporation to unacceptable risk. The leader must
Generate energy to launch and sustain the process of corporate transformation
Develop a vision of the future Align the organisation to the vision Create a transformation process architecture to orchestrate a swift but safe passage from current to vision state f a corporate transformation falls short on one or more of these leadership tasks, the attempt will fail. In addition, the framework's effectiveness depends on two more factors: the extent to which the requirements of the initial change condition are met and the presence of a transformational leader.
Initial change condition
The first step in planning a corporate transformation involves assessing the initial change condition. This initial condition may be described along two dimensions: readiness and resources (Exhibit II). Readiness is the extent to which employees recognise the need for change or; conversely, the extent to which they are dissatisfied with the status quo. The other dimension is resources, the extent to which the organisation has the ability to support a transformation process. There can be no major change in a complex organisation unless there are both sufficient resources and substantial readiness.
The general state of the conditions of contemporary corporations is expressed along an axis running from the upper left-hand quadrant to the lower right-hand quadrant. In the top-left quadrant reside those companies that may be characterised as high-readiness, low-resources companies that is, companies in crisis and in need of revitalisation. These troubled companies have experienced a substantial performance shortfall and have been consuming resources to no avail in attempts to return to former performance levels. At the extreme, these companies have depleted the resources needed to transform themselves and have cannibalised their core operating resources simply to continue existing as independent entities. Their cash reserves are gone, their banking facilities under tremendous strain, and their ability to raise equity in the open market greatly diminished. Just as damaging, their non-financial resources, such as customer goodwill, employee commitment, and management loyalty, have become greatly eroded.
At the extreme, these high-readiness, low-resources companies are often described as being "in the ditch."
In these companies, readiness at the collective level couldn't be higher; everyone recognises the need to change. The profound need is for resources. Without resources, the highly motivated people in the crisis-bound company do not have the ability to do what is needed. Thus the first priority for companies in an initial change condition of high-readiness, low-resources is to find and deploy the resources needed to support a transformation effort. They must do this before they can successfully embark on a corporate transformation journey. Often this step involves closing and consolidating peripheral or underperforming operations, trimming employee payrolls, reducing corporate staff overhead expenses, and suspending or deferring programmes so that current operations can generate more cash to be redeployed to the launch. Invariably, such decisions involve reallocation of resources not only away from current operations toward transformation activities but also away from activities residing off the critical path
of the transformation effort, toward those that are both immediate in transformation priority and critical to the realisation of the new institutional vision and direction.
Companies in the high-readiness, low-resources condition also tend to create new resources as they launch their transformation process. Typically, they attempt to do this by increasing their debt burden or placing additional stock in the market, often on unfavourable terms because of their strained performance condition. For example, when Lee Iacocca took over Chrysler Corporation in 1978 he sought government bailout to avert bankruptcy and provide the company with new resources to launch the corporate transformation process.
At the other extreme initial change condition is the company in the low-readiness, high-resources situation, one that needs repositioning. As a result of successful past performance, companies at this extreme have accumulated a surplus of resources. However, their people have become satisfied with current performance and are not actively searching for new ways of doing things. Readiness for change is very low; the order of the day is to extend and refine business as usual. These companies are fully susceptible to the so-called paradox of success, where ultimate failure is associated with current success because the latter blindfolds the organisation to new developments in the competitive environment that can eventually overtake the company. Examples of colossal failures, during the late 1970s and early 1980s, of once highly successful companies in the low-readiness, high-resources condition are General Motors in the automotive industry and IBM in the information-processing industry.
Paramount in the launch of transformation efforts in the low-readiness, high-resources condition is the need to legitimately elevate the level of dissatisfaction with the status quo. To be effective, transformational leaders faced with this condition must confront organisational members with data and experiences that catalyse readiness for change. Such leaders must ignite the "burning platform," a shorthand phrase that recalls the incident in which offshore riggers jumped to likely death in the icy North Sea rather than certainly perish in the fire raging on their oil platform.
When companies in the low-readiness, high-resources initial condition put significant and visible investments into the launch of their corporate transformation process, they powerfully signal that something new is about to happen in the company. By beginning to reallocate substantial amounts of resources away from businesses and activities that are not compliant with the new vision and direction toward those that are on the new critical path, the company further reinforces the sense of commitment to major change and clarifies its meaning and direction.
An example is the initial condition when Jack Welch began the transformation of General Electric in 1981. At the time, many of the company's resources were being allocated to businesses that were not financially attractive and that did not fit Welch's vision for the future of the company. Despite GE's $2 billion cash balance, businesses that did not fit the vision had to "fix, sell, or close" themselves. Resources that would otherwise be consumed by these ill-fitting businesses were reallocated to enhance productivity and automation initiatives, and to fuel capital investments in businesses that offered greater promise for becoming number one or number two in their chosen global markets. Long-term GE employees certainly did not like seeing large, traditionally prominent businesses within the GE portfolio closed or sold off. But the new resources they received provided some assurance that the businesses remaining in General Electric's portfolio would be better positioned to achieve the stretch goals that were
part of the transformation initiative.
The other two windows in the initial change condition diagram of Exhibit II are generally unstable conditions for most companies. In today's information-rich global economy, it is difficult to find an industry that is not undergoing significant change. Companies described by the low-readiness, low-resources box won't last long in a performance situation that is substantially in flux. Such companies are likely to cease to exist or be taken over by companies with higher levels of readiness and resources.
At the other unstable extreme is a largely vacant space where only a few notable companies manage to reside for long. These companies achieve and sustain a leadership state that combines abundant resources with high readiness for change. Hewlett-Packard and GE have been able to avoid the paradox of success and use their resources to continue to reinvent themselves and thereby maintain global leadership positions. Indeed, a primary goal of this book's approach to leading corporate transformation is to create a process architecture within companies that can enable them to move into and remain in a high-readiness, high-resources mode.
Coming to grips with the requirements of the initial change condition is critical to the success of a major change effort, as are the other elements in the corporate transformation framework. Even together, however, these are not sufficient. It is also essential that a transformational leader arrive or emerge who can catalyse the corporation transformation effort and steer it to the vision state. What are the essential characteristics of such a leader?
Transformational leadership
A profile of successful transformational leadership has begun to emerge from field research and management practice. Important distinctions between managers and leaders, between the "transactional" and "transformational" forms of leadership as distinguished in the seminal work of James MacGregor Burns, form a relatively consistent pattern.
Michael Beer and his colleagues at Harvard Business School have identified three essential characteristics of leaders who are able to revitalise their institutions. First, they share a conviction that transformation is vital to the competitiveness of their organisations. They simply don't believe that piecemeal changes and incremental improvements will get the job done. Second, they have the ability to articulate their conviction in the form of a credible and compelling vision. Third, they are able to model what is required for transformation through a consistent pattern of words and behaviours and by mixing the hard and soft elements of the organisation to provide additional reinforcement.
Noel Tichy, the former director of GE's Crotonville executive development operation, has observed a similar pattern of transformational leadership traits. Such leaders first recognise the need for corporate transformation and can alert the organisation in a timely manner about growing threats from the competitive environment. Second, they are able to create a new vision for the organisation that is exciting and positive, and to focus everyone's attention on it. Finally, successful leaders of transformation institutionalise the changes they make so that the change will endure after they have departed. These visionary leaders see themselves as change agents. They are courageous in advancing needed changes and they have the ability to deal with complexity and ambiguity. They also are life-long learners who believe in people and are value-driven.
Warren Bennis and Burt Nanus have identified similar attributes of transformational leaders, based on a study of ninety public and private-sector leaders who have successfully transformed their organisations. Bennis and Nanus conclude that the attributes that set these leaders apart from others are their ability to develop a compelling vision, give the vision meaning for all organisational members, position their organisations to uniquely pursue the vision, and put in place an internal organisational context that greatly facilitates the process of organisational learning. They conclude that effective leaders seem able to create visions that give workers "the feeling of being at the active centres of the social order."
At the most general level, all of these studies point to three core characteristics of effective transformational leaders:
Firm belief that transformation is required in order to gain a competitive advantage
Ability to clearly and consistently articulate this belief in the form of a compelling vision
Commitment to make the vision a reality through involvement, teamwork, and courage.
Setting business performance expectations and reinforcing the behaviours and values the culture required to make progress to the vision state are essential requirements of leaders of corporate transformation. Not only must the leaders articulate these elements of expected business results and process, but they must take every opportunity, no matter how trivial, to demonstrate these attributes in everything they do. Moreover, they must be prepared to take action when key leaders in their cadre resist or fall short. As Tichy and Sherman have concluded regarding the transformation of GE during the 1980s, "Welch didn't understand until later the enormous cost of having tolerated the resisters..... Their passive-aggressive behaviour did at least as much damage as open opposition could have. They presented new ideas without enthusiasm, damned them with faint praise, and embodied the old way while feigning allegiance to the new.....
Jack Welch agrees with their assessment. Reflecting on GE's transformation under his early leadership as CEO, he concluded, "my biggest mistake by far was not moving faster....human nature holds you back. You want to be liked, to be thought of as reasonable. So you don't move as fast as you should....."
The recent dramatic shift from government regulation to open market competitive in the global telecommunications industry caused Bill Weiss, CEO of Ameritech, to describe his experience with corporate transformation as "...a race where you run the first four laps as fast as you can and then you gradually increase the speed." When asked how to get the leadership alignment needed to launch and sustain such an effort, Weiss replied, "The best way I know to get people to accept the need for change is to not give them a choice. The organisation has to know that there's a leader at the top who has made up his mind, that he is surrounded by leaders who have made up their minds, and that they're going to drive forward no matter what."
Not surprisingly, many scholars have concluded that despite substantial attempts to "develop" leaders so that they can take up the corporate transformation banner, many are never able or willing to adjust their style to the requirements of the new order. Beer and his colleagues found that replacement of key personnel who resisted transformation characterised 50 per cent of the businesses they studied that achieved successful transformation, but only 17 per cent of the ones that were unsuccessful at their transformation attempt. David Nadler of the Delta Consulting Group, a firm specialising in change management, has said that "Dealing with executives who do not support the new cultural values is a key intervention. Certain executives become well-known for failing to live up to the new values. Often their failures are in the area of interpersonal skills and behaviours teamwork, empowerment, open and honest communications, and so on. When they are permitted to continue violating the new norms without sanctions, they undermine the credibility of the new cultural values." Following the move of Larry Bossidy, former vice chairman at GE under Jack Welch, to the position of transformation CEO at Allied Signal, Stratford Sherman reported that 69 of Allied's top 128 managers left as part of Bossidy's highly successful transformation of the firm. Thus, turnover as well as development are essential aspects of the leadership alignment process needed for successful corporate transformation.n
Leading corporate transformation By Robert H Miles Published by Jossey-Bass Publishers Distributed by IBD, Mumbai Pages 248; Price $ 18.75 To be effective, transformational leaders must confront organisational members with data and experiences that catalyse readiness for change. Such leaders must ignite the burning platform.
Exhibit II. The initial condition of corporate transformation ranges from a state of high readiness but low resources to a state of low readiness but high resources.
