Chasing Change: Building Organizational Capacity in a Turbulent Environment

Chasing Change: Building Organizational Capacity in a Turbulent Environment

Robert C. Thames Douglas W. Webster

WILEY

Chasing Change Building Organizational Capacity in a Turbulent Environment

Robert C. Thames Douglas W. Webster

John Wiley & Sons, Inc.

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Chasing Change

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Chasing Change Building Organizational Capacity in a Turbulent Environment

Robert C. Thames Douglas W. Webster

John Wiley & Sons, Inc.

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Copyright © 2009 by John Wiley & Sons, Inc. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation.You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317-572-3993 or fax 317-572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our Web site at http://www.wiley.com. Library of Congress Cataloging-in-Publication Data Thames, Robert C., 1946– Chasing change : building organizational capacity in a turbulent environment / Robert C. Thames, Douglas W. Webster. p. cm. Includes index. ISBN 978-0-470-38138-0 (cloth) 1. Organizational change—Management. I. Webster, Douglas W., 1948– II. Title. HD58.8.T485 2009 658.4'06—dc22 2008032161 Printed in the United States of America 10

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All things change, nothing is extinguished. . . .There is nothing in the whole world which is permanent. Everything flows onward; all things are brought into being with a changing nature; the ages themselves glide by in a constant movement.” —Ovid (43 BC–AD 17), Roman poet

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Contents

Acknowledgments Introduction

ix 1 Part One: Awareness

Chapter Chapter Chapter Chapter

1 2 3 4

The Hurricane and the Earthquake Importance of Mindset Change Challenge Framework Crafting the Change Response Part Two: Assessment

Chapter Chapter Chapter Chapter Chapter Chapter Chapter Chapter

5 6 7 8 9 10 11 12

Assessing Capabilities for Change Leadership Commitment Accountability Forward Thinking Innovation Communication Risk Tolerance

9 11 15 21 37 47 49 57 67 79 85 91 101 111

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Chapter Chapter Chapter Chapter Chapter Chapter Chapter

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contents

13 14 15 16 17 18 19

Organizational Learning Trust Diversity Empowerment Adaptation Dynamic Stability Change Journey and the Orchestration Process

121 135 143 151 165 173 181

Part Three: Assimilation

187

Chapter 20 Executing the Change Plan Chapter 21 Candor Bank Chapter 22 2005 Hurricane Katrina Catastrophe in New Orleans Chapter 23 Conclusion

189 203

About CAM-I Index

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Acknowledgments

Organizational change has a massive effect on millions of organizations and puts the careers, livelihood, and well-being of billions of employees and executives at stake.What could be more important? Eric Abrahamson, CHANGE WITHOUT PAIN

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et me set the scene for you. It was a beautiful and sunny fall Monday morning in Jackson Hole, Wyoming. The air was crisp, and I was excited about the official launch of our new interest group on change at CAM-I. CAM-I is an international collaborative research consortium comprised of sponsor organizations from all industry sectors, academicians, and consultancies. Research focuses primarily on cost, process, and performance management issues, and participants meet quarterly at various locations.

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For the past 35 years, CAM-I member collaborations resulted in best practices, rich methodologies, and invaluable personal relationships along the way. However, much like other performance initiatives, these practices were not being sustained at a high success rate. Roughly 75% of cost management initiatives failed—essentially no different from enterprise resource planning or reengineering projects. Several of us at CAM-I had concluded that success with a performance initiative was minimally dependent on the technical aspects of the implementation and much more about the nontechnical, or people, side. The prior summer had afforded the entire CAM-I organization an opportunity to hear from Daryl R. Conner, author of Managing at the Speed of Change and Leading at the Edge of Chaos. Daryl had graciously spent the better part of four hours helping us understand the concept of the change-resilient organization and how, on a personal level, each of us needed to build greater change capacity. He likened his change analogy to a sponge saturated with liquid, unable to absorb any more. When people in organizations become saturated with change and feel that they cannot cope with any more, they need to build more “sponge-space,” Daryl explained. I was reflecting on that day and those concepts as I walked into the lodge for our first session. The room was full of people energized and eager to talk about the topic. It was September 10, 2001. We had a lively and energetic first session. Little did we know how the world as we knew it was about to change forever. In the years since that day, each of us has come to view the world as more fragile. We see a deeper need for nurturing the relationships that bind us together and healing those that divide us. The challenge of change accelerates ever faster, and building the capability to adapt and learn has never been more important. The interest group at CAM-I eventually decided to call itself the Change, Adaptation, and Learning Interest Group (CAL). Over the years, many CAM-I members from all sectors of public and private practice stopped by; some stayed awhile, and all freely gave of their time in contributing to the work you are reading. The following individuals have made significant contributions to the body of work you are about to read. Their enthusiasm and tenacity as an army of volunteers is without measure. We thank them for their contributions.

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Shahid Ansari, Babson College Emily Asmus, Grant Thornton Rick Brusky, U.S. Air Force Gail Buck, U.S. Navy Laura Cole, Naval Postgraduate School James Cook, Institute for Management Accountants Tommie Davis, U.S. Marine Corps (Retired) Kathryn East, Grant Thornton Ken Euske, Naval Postgraduate School Lori Feller, IBM Global Services John Hawkins, I4cast John Heller, U.S. Coast Guard Howard L’Heureux, CACI Jonathan Hornby, SAS Institute Ambrosio Ilagan, U.S. Navy Jim Jensen, Boeing John Kittredge, Focused Management David Koehn, DJ Koehn Consulting Services, Inc. Paul Larson,Vision Heidi Lutz, U.S. Navy Jerry Maatta, U.S. Air Force John Miller, Arkonas Mitchell Palmquist, U.S. Navy Jim Patton, Bearing Point Andrew Price, KPMG David Robinson, Royal Australian Navy Colonel Jim Russell, U.S. Air Force (Retired) Derek Sandison, Performance Measurement & Management Srikant Sastry, Grant Thornton Sheila Sheinberg, Center for Life Cycle Sciences Lew Soloway, Jet Propulsion Lab Catherine and Joe Stenzel, Genesis Alan Stratton, Stratton Associates David Veech, Institute for Lean Systems Maria Villaflor, Federal Trade Commission Larry White, U.S. Coast Guard Frank Wood, U.S. Coast Guard Pete Zampino, Former CAM-I Program Director

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John Miller of Arkonas was instrumental in assisting the team in moving down the home stretch, by performing early edits and writing a couple of open capability sections. David Veech ignited the team with a powerful story on hurricanes and earthquakes and provided us with an understanding of dynamic stability. Alan Vercio, of Barclays Bank PLC, was helpful in providing an early critique of the document. Colonel Ray Naworol, U.S. Army, provided significant insight into the value of this work in the public sector environment. Frank Pollack, CEO of Pentagon Federal Credit Union, reviewed the Candor Bank case study and provided insightful comments. Thanks also to Jane Saly and Patricia R. Hedberg, associate professors from the University of St. Thomas in Minneapolis, for an early sanity check on the content. After all the collaboration, research, and discussions, getting down to the final deliverable tends to thin a group out and crystallize the team into a core group that gets things done. Those hearty souls who hung in there with us and helped deepen and polish the ideas were Emily Asmus of Grant Thornton, Lori Feller of IBM Global Services, and Jim Jensen of Boeing. Their work in scrubbing the deliverable and initially authoring several capability sections is deeply appreciated. Scott Isaacs, vice president of Global Professional Services and Delivery at SAS, has graciously supported my attendance and development at CAM-I over the years, and this book would not have seen the light of day without his encouragement and understanding. Special appreciation goes out to Ashok Vadgama, president of CAM-I, who has supported the efforts of this team in reaching this point. He believes that without proper consideration of change, no initiative can be effectively sustained over time. Finally, I would like to especially thank coauthor Doug Webster, previously of Grant Thornton and who recently served as the chief financial officer for the U.S. Department of Labor. Doug rejoined our group after an excursion to Iraq, where he served in the Coalition Provisional Authority as the Principal Finance Advisor to the Iraq Ministry of Transportation. Besides authoring the Change Challenge Framework section of the book, Doug provided thought leadership that was instrumental in developing a new model for change that was much easier to understand and apply to our work. He also gently nudged me out of my own fixed mindset at the appropriate times. Doug was also

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instrumental in writing several capability sections and helping scrub the final manuscript. Without his tenacity and commitment, we would have never reached the finish line. Bob Thames December 2008

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Introduction

The real voyage of discovery begins not in seeking new landscapes but in having new eyes. Marcel Proust

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re you a change leader or an internal change consultant? Or do you often find yourself to be a victim of change? For most of us, it’s easy to identify with each of these labels, as we play different and multiple roles within an organization at various times. If you feel you need to strengthen your knowledge about change so that you are more effective at dealing with it, this book is written for you. If you believe that with the right structure and leadership, change will take care of itself—this book is especially written for you. The book is organized into three parts: Awareness, Assessment, and Assimilation. It begins with change basics and a model for understanding how the environment sets the stage for change. It covers some key concepts about the multidimensionality of responses to change demands and proceeds to an assessment of core organizational capabilities to respond effectively to requirements for change. It finishes with some specific strategies, references, and tools that are currently available to enable your organization to be more effective in its unique change challenges. Two case studies are included to specifically illustrate and

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apply the change and capability assessment model: a high-level assessment of the Katrina Hurricane catastrophe and the Candor Bank case study, which links the assessment to the strategic planning process. A multitude of books on how to manage change effectively have been written, and numerous sources are quoted in this one. Many of these books make excellent references within a change initiative and provide valuable suggestions for implementing organizational change. However, despite the number of books available on change, the literature still is lacking. Absent is a sound model that addresses the multidimensionality of change in the organization. So many organizations take a single-dimensional perspective on change, then implement technology or redesign the organizational structure in response to change challenges. Rare is the organization that attempts to understand the strategic drivers of change, then link them to specific cause-and-effect actions within the organizational culture on personal and individual levels. Without an understanding of how to manage and integrate change across all dimensions, change initiatives too often apply change management in a one-size-fits-all manner. Without a structured framework to managing change, we cannot target those areas most in need of change management intervention and apply limited resources where they will have greatest value. This book seeks to fill that gap. Our premise is that there are two audiences for our work: those who have limited experience and knowledge of change management and those who already have a good foundation for change. For those whose experience and knowledge of change management is limited, the material in this book provides the necessary context to better understand change and its impact on personal and organizational effectiveness. As your knowledge about change deepens, there is additional opportunity for learning by using an analytical assessment tool to help you measure change capacity. The knowledge you gain from this book will provide a foundation for further learning about change management and provide an important framework for linking together new insights on managing change and taking the action necessary to drive successful change initiatives. For those readers who already have a good foundation for change this work will orient you quickly in change concepts—some familiar

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Introduction

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and perhaps some new thinking. From there, we hope to leverage existing knowledge into the change challenge framework and organizational capability assessment tool in order to allow you to take appropriate action. With the framework provided in this book, you will be better able to prioritize and focus change management initiatives into those areas of the organization that will provide greatest return on the change management investment. For both audiences, this body of knowledge can facilitate a deeper understanding of additional capabilities required by the organization and the people who comprise it in order to build change capacity. Many people believe that change management consists exclusively of stakeholder analysis, training, and communications. Although these things are important, we contend that more is required to sustain change. Managing change is much broader than managing projects that implement change. The Project Management Institute (PMI) is widely known for its contributions to the Project Management Book of Knowledge (PMBOK). As the international standard for project management, the PMBOK provides the structure for project planning and execution. However, this traditional approach focuses primarily on structure and minimally on the relationships and people responsible for implementing the change. For example, in the human resources area, the PMBOK addresses the structure of the project team but does not address the organizational and personal mindsets of stakeholders who may be impacted by changes resulting from the project team’s effort. In the communications area, stakeholder analysis and communications planning are very high level and oriented toward structure and reporting rather than understanding and acceptance. Considerations on gaining stakeholder buy-in and overcoming obstacles such as resistance to change through changing organizational and personal mindsets are largely absent. Although it may have never been the intent of PMI to address the softer side of change, the multidimensional analytical approach presented in this book provides tools to enable exploration of critical organizational capabilities required for an effective change response rather than a one-size-fits-all methodology. This book offers a systematic framework to facilitate diagnosis of change requirements from a cause-and-effect perspective. In addition,

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we provide a tool to assess organizational and personal capabilities. The outputs from the assessment tool can then act as inputs to a change plan template, in order to address change requirements. Members of the research consortium at CAM-I have collaborated on significant methodologies and best practices in cost management for over 30 years. Breakthrough methods and concepts have been reflected in concepts such as the CAM-I Cross, ValueQuest, Target Costing, and Process Management deliverables.Yet even with these best practices, performance initiatives still fail at an unacceptable rate. Some failures may be attributed to lack of a strong business case, lack of operations involvement, or a lack of understanding and managing change. We believe the technical aspects of an initiative are well understood and generally well supported. What is not well recognized is the critical importance of the social aspects of an initiative: how to lead and sustain change. The book Beyond Change Management makes reference to Michael Hammer’s hindsight view of the reengineering efforts of the 1990s. It picked up on the fact that most of those efforts failed because of overlooking the “less tangible domain of culture and people.”1 Hammer said, “I was reflecting my engineering background and was insufficiently appreciative of the human dimension. I’ve learned that’s critical.” Our world is changing at an accelerating pace. Brands that once were household names no longer exist. Institutions and industries once viewed as bastions for lifetime employment have faded away. Skills in high demand become obsolete as they are commoditized and easily replicated offshore at lower cost. Transition from an industrial economy to a knowledge economy is creating a lot of anxiety and insecurity for millions of people. As evidence of the need to learn and remain flexible in the face of global change, Daniel Pink, author of the acclaimed bestseller Free Agent Nation and A Whole New Mind, suggests these questions for individuals and organizations to ponder: Can someone overseas do it cheaper? Can a computer do it faster? Is what I’m offering in demand in an age of abundance?2 Global competition and continuous cost pressures on products and services have produced wave after wave of outsourcing in organizations. Like it or not, this is the “new normal.” Eroding profit margins are causing

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a full retreat to core capabilities internally and policies to outsource everything else. Even governmental institutions face the same demands, as core capabilities are retained while nonessential activities are privatized. This mandate for change impacts us on several levels—at an organizational cultural level and on a personal level. Events don’t just happen in a single-threaded, linear fashion these days. The ability to trace an effect from a single root cause, given the abundance of variables, is rare. Multiple waves of challenges and opportunities abound, often simultaneously, and at an accelerating pace. Analysis of multiple dimensions and prioritizing among them can become a frustrating experience when everything appears to be critical. American innovation and ingenuity have always been core strengths. They can continue to be global differentiators in a world of commodity products and services. However, a diminishing number of successes will be possible with an organizational mindset to effect change along a single dimension. Building the organizational agility to anticipate and respond to changes in the environment is one of the most important capabilities you and your organization can possess to compete effectively in this new paradigm. And . . . that’s why you should consider reading this book. Einstein remarked that doing the same things over and over while expecting different results was the definition of insanity. Attempting to implement change in response to these nonlinear challenges requires new thinking and a new approach, or it is likely we will get the same results—not the success we expected. The objectives in writing this book are to provide you with: • An ability to diagnose the drivers of change within your organization and the type of change response required • An understanding of the different types of change as they may relate to your organization and to you personally • A model to enable self-assessment of multiple dimensions of change responses in building a comprehensive strategy for increased organizational change capacity • A diagnostic framework for self-assessment of organizational capabilities to improve change responses • A source of additional tools and references for increasing organizational learning about change

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The book begins with a story on hurricanes and earthquakes to lock in the concept that the environment is continually shifting and that wisdom can be found in continuous monitoring of environmental factors and their potential impacts. From there we present a framework for understanding how the environment drives and demands change responses on organizational and individual levels. Chapters 6-20 provide an assessment framework for building change capacity. We have identified 13 core capabilities that can be evaluated and further developed to enable greater learning and adaptation to change. Each of these capabilities is described in this format: • A short paragraph or two of background information to explain the importance of developing the capability • An area for definition of the capability • A description of core elements of the capability • The impact of developing and leveraging that capability, as well as its absence • Relationships of the capability to the others • A Capability Assessment Table, to enable evaluation of the specific capability on a maturity continuum In addition, Chapter 20 provides a Master Grid to summarize the collective capabilities within the individual capability chapters. Once a baseline understanding of aggregate current capabilities and required development is in place, putting the organizational learning to work in building the change plan follows. Discussion of the three types of change is important additional content in this area, where incremental, transitional, and transformational change concepts are clarified. The Candor Bank case study describes where these models have been used within the strategic planning process. A second case study on the Hurricane Katrina catastrophe in New Orleans also illustrates the assessment of organizational and personal change capacities in response to a major environmental challenge. Finally, Chapter 19 describes the change journey and the orchestration process is provided to integrate the required capabilities, summarize key points, and provide potential next steps. In order to survive in the future, it is critical that today’s organizations continuously monitor the environment. We all may be aware

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that technology and globalization are major impact factors, yet subtle changes are occurring that have a lot to do with the level of change we will face in the future. The Industrial Era machine-model mindset was conducive to high productivity and efficiency in the past, but the very nature of its processes has allowed other global competitors to replicate them at drastically reduced costs. Thinking about change gets quite messy quickly—especially when the end point is vague or undefined. Sometimes you just have to trust the process. We’ve had a parade of people visit our interest group, share what they’ve experienced, and listen to what we’ve learned. It seems like the dynamics of this group changed with every quarterly meeting, but isn’t that the nature of change? We believe that the things we’ve learned can have a profound and positive impact on every interest group at CAM-I or any organization that takes the time to think, adapt, and learn about change. The more we learn, the more we appreciate the complexity of this topic and how much we don’t know. The journey’s never finished. So . . . let’s get started with an interesting metaphor for change.

Notes 1. Dean Anderson, and Linda S. Ackerman Anderson, Beyond Change Management (San Francisco: Jossey-Bass, 2001), 25. 2. Daniel H. Pink, A Whole New Mind: Moving from the Information Age to the Conceptual Age (New York: Penguin, 2005), 51.

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Part One

AWARENESS

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Chapter 1 The Hurricane and the Earthquake

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arm waters stir the winds and fuel their fury. The storm groans, strengthens, and lumbers westward. Its path is true, though imprecise, and it lands where it will with all watching and waiting anxiously. Some may take shelter elsewhere. Others may risk it all by staying put. The storm may bring only rain and tempestuous gusts of wind. But it also could bring the beast, breaking even the most prepared. Then we turn our eyes eastward and watch as the next one forms, builds, and heads right for us. But maybe it will hit someone else this time. Tectonic plates strain in tension, ever struggling to move—even an inch. But they do move—relentlessly. On occasion they will make themselves known in the form of misaligned homes or growling tremblers. Yet we never see them coming in rage. In moments the plates yield, consuming everything in liquefied soil. The impact is overwhelming, but even when its anger subsides, the tension remains— straining until the next breakthrough. And we may never see it coming. To many organizations, change comes like hurricane season. Everyone knows it’s coming. It’s the same every year. The only thing we don’t know is “Who will it hit this time?” Every storm that strikes does 11

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damage; but in most cases communities bounce back relatively quickly. Only in rare instances do we get a storm so powerful that when combined with certain other factors, it makes a permanent change in how a city or coastline appears. With individual change initiatives, where we treat change as a discrete, manageable event, we get the same kind of result: It’s different for a little while, but we always try to go back to the way things were before (intentionally or unintentionally). Sticking with the status quo is human nature. Venturing out from business as usual is risky and uncomfortable. To other organizations, change comes like the earthquake. We may never see it coming but have this nagging feeling that it is. The constant tension at the fault line gives us tremors every so often, hinting that there is more to come, so we prepare. Some organizations opt to place themselves under intentional stress. In this environment, change is constant and often unmanageable, yet we are constantly aware of it. An example of intentional stress is where systems are designed to operate just-in-time to continuously meet changing customer demand. This enables us to learn and improve on a daily basis. We become learning organizations. Then, when the “Big One” comes, we have conditioned and equipped ourselves through growing our capacity to adapt. The disaster causes a disruptive breakthrough that permanently changes the way we do things, and we can never go back to the way things were before. It feels odd using these natural disasters as metaphors for change, since we typically want things better after a change, and both hurricanes and earthquakes only seem to destroy. Is there a “better” approach to change? Do we want organizations to be stressed only during the change season, then relax for a few months before it starts again? Or would we rather have learning organizations that improve continuously, triggering on demand those innovative breakthroughs that permanently change the character and substance of the organization? In 2005 we witnessed the “perfect storm” in New Orleans and its surrounding communities, with a combination of hurricane winds and levee failures. The devastation along the Gulf Coast of the United States was massive. It was also a year of tsunamis abroad and a huge earthquake in Pakistan. Many other natural and economic disasters

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have made their presence known in the intervening years. Our hearts certainly go out to the victims. We would honor them, and serve our organizations well by letting these disasters remind us of the ongoing lessons they teach us about our need to build the capacity to change, adapt, and learn.

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Chapter 2 Importance of Mindset

Today the treacherous, unexplored areas of the world are not in continents or the seas; they are in the minds and hearts of men. Allen E. Claxton, D.D., United Methodist Minister, Broadway Temple Methodist Church, New York, NY

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he environment we live in is constantly in flux and unyielding in demanding change. As its demands for change accelerate, attempting to accomplish more with less continues to be the mantra of our times. Factor in the amount of data coming at each of us, and it’s little wonder that we adopt specific paradigms or ways of thinking and framing issues just to survive. The relentless pressure on cost has moved many jobs offshore, mandating development of new knowledge, skills, and abilities in order to fill the economic void. According to a study done by IBM, “By 2010, the amount of digital information will double every 11 hours.”1 In order to process and make decisions on this mountain of data, the human brain develops shortcuts, or specific 15

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templates for thinking, evaluating, and getting to a quick decision. Some of these mindsets serve us well. Some do not. This section summarizes a key construct in the Change Challenge Framework that follows in Chapter 3, called mindset.

Definition Webster’s Dictionary defines mindset as “a mental inclination, tendency, or habit.”2 This concept is fundamental to building individual and organizational readiness for change. Enrolling the organization in continuously improving its response to environmental challenges is about winning the hearts and minds of its employees. Having the greatest technology, products, executive team, and organizational structure is no guarantee of success unless individual and organizational mindsets are synchronized with them for optimal performance.

Core Elements Carol Dweck is a former professor of Psychology at Columbia University, and is currently at Stanford University. She is one of the leading researchers in the fields of personality, social psychology, and developmental psychology. Dr. Dweck’s research has concluded that the worldview a person adopts will profoundly affect the way they lead their life. She describes two specific types of mindset that are fundamental to our understanding the different ways people approach change: the fixed mindset and the growth and development mindset.3 People with fixed mindsets believe their capabilities are carved in stone. In this belief system, individuals are endowed with a certain amount of intelligence, personality, and moral character. Our education system reinforces this mindset through standard testing and IQ measurement, for example. As an illustration, Dweck describes her sixth-grade teacher, who was of this mindset because “she believed that people’s IQ scores told the whole story of who they were.”4 Individuals with this worldview interpret most situations with an “either/or” decision process: succeed or fail, win or lose. Risks are to be mitigated and avoided. People with this mindset have a great deal

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of passion for the status quo and are generally resistant to change. If a need for change surfaces, such people are likely to perceive it as a change event, after which a return to business as usual is customary. People with the growth and development mindset believe that their qualities can be cultivated and expanded through their personal efforts. They believe that anyone can change and grow through application and experience. These types of people feel that their actual potential is infinite, and it can be developed with impassioned effort and continuous learning. Individuals of this mindset are more inclined to view the world through a lens of win/win or “both/and” decisions. Challenges are actively pursued as opportunities, and risk is measured to a predefined level of tolerance. Thus, the individual or organization with the fixed mindset is likely to interpret change as a threat and resist it. However, the individual or organization with a growth and development mindset may choose to view change as an opportunity to upgrade skills and capacity to change. In today’s world of constant, turbulent change, sticking with the status quo can be deadly, and individuals should take advantage of every opportunity to increase their knowledge and capabilities. Dean Anderson and Linda Ackerman Anderson discuss two types of mindset that are prevalent in the world today in their book Beyond Change Management.5 Clearly, the industrial mindset made significant contributions in fueling the Industrial Revolution, mass production efficiencies, and the scientific management techniques that provided affordable products for consumers on a mass scale. “This mindset has been both a blessing and a curse,” say the authors, first, because of the benefits to society, and second, because of the effects such as “pollution and destruction of the ecosystem, overpopulation, weapons of mass destruction, and alienation of people.” They advocate the emerging mindset, stemming from books such as Leadership and the New Science by Margaret Wheatley.6 Exhibit 2.1 lists some characteristics of each of the two mindsets. Although the mindsets are different from and opposite of each other, the Andersons suggest that we not view them from an either/or perspective. “The emerging mindset does not negate or replace the industrial mindset, but rather transcends and includes it.” The authors of this book believe that the industrial mindset has been applied too

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18 Exhibit 2.1

chasing change Industrial versus Emerging Mindset

Industrial Mindset

Emerging Mindset

The internal reality of human consciousness is not valid: Scientific method relies on observable data. Aspects of personal reality considered to be invalid include feelings, thoughts, desires, values, relationships, fears, motivations, and intuitions.

Consciousness is causative: Mindset directly impacts results.

Scarcity: There are not enough resources or solutions to create what is desired. The scientific method focuses on current problems rather than on positive futures.

Abundance: There are more than enough resources and solutions to achieve desired results.

Separate parts: Scientific method gathers data and furthers knowledge by dissecting reality into smaller and smaller pieces and isolating one phenomenon from another to discover how each works.

Relationship and wholeness: The parts are interconnected and form integrated wholes that are more than the sum of their parts.

Discrete events: Change is perceived as a series of discrete and isolated events, negating the ability to influence the true process dynamics that govern the achievement of desired results.

Continuous process: Everything is in constant motion and specific process dynamics influence how results are produced over time.

Source: Adapted from Dean Anderson and Linda S. Ackerman Anderson, Beyond Change Management: Advanced Strategies for Today’s Transformational Leaders (San Francisco: Jossey-Bass/Pfeiffer, 2001), 112–117.

broadly and that the change-ready organization must extract the wisdom from each mindset in order to build an effective change strategy.

Impact Now that we understand the types of mindset, let’s focus on how this concept manifests itself in an organizational context. How individuals and the collective organizations they comprise interpret change will have a direct relationship to the success and sustainment of a change

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Importance of Mindset

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initiative. In addition to the tangible aspects of change that typically are addressed, such as technology, systems, and organizational structure, two additional aspects of change must also be addressed as part of an overall plan. We recommend inclusion of these two areas relating to mindset, to address the hearts and minds at the individual level, and as collectively represented in the organizational culture. These are: • Organizational mindset. This is often referred to as the organizational culture. It consists of the formal and informal processes, policies, group mental models, traditions, and norms of behavior that drive how the organization responds to the challenges of its environment in pursuit of its mission. • Personal mindset. This mindset is comprised of individual values, behaviors, preferences, habits, and attitudes. Ignorance of the importance of this mindset can be disastrous, because individuals can either be strong advocates for (and enablers of) change or major roadblocks that consume great effort to overcome. Addressing this aspect on a personal level results in actions that embody the individual’s response to the challenges of the environment. We have deliberately chosen the term mindset in the organizational and personal dimensions of our change model because belief systems can be either a critical catalyst or an inhibitor of successful change. Encouraging the growth and development mindset at the individual and organizational levels can produce organizational vibrancy and resilience, resulting in an organization that consistently leverages environmental challenges into opportunities for competitive advantage.

Notes 1. Martin LaMonica, “TalkBack.” ZDNet News, February 13, 2007, located at http://news.zdnet.com/2100-9593_22-6159025.html. 2. Webster’s New Collegiate Dictionary (Springfield, MA: G. & C. Merriam Co. 1980), 725. 3. Carol S. Dweck, Mindset: The New Psychology of Success (New York: Random House, 2006), 6–7. 4. Dweck, Mindset, 6.

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5. Dean Anderson and Linda S. Ackerman Anderson, Beyond Change Management: Advanced Strategies for Today’s Transformational Leaders (San Francisco: JosseyBass/Pfeiffer, 2001), 112–117. 6. Margaret J. Wheatley, Leadership and the New Science: Discovering Order in a Chaotic World (San Francisco: Berrett-Koehler, 2006).

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Chapter 3 Change Challenge Framework

Change is constant, complex, and often rapid. We can’t control it. When we try, it becomes frightening, threatening. But we can learn to understand it, to work in harmony with it, to influence it, even to cultivate it. Stephen R. Covey and A. Roger Merrill

M

anaging change is certainly not a new topic in management literature. Books and magazine articles on the subject abound, frequently espousing different—and sometimes contradictory—points of view. Moreover, most of the leading writers on change management offer prescriptions for facilitating change but provide no underlying framework to understand the dynamics of change. Why do some projects that ignore change management issues succeed while others that seek to address such issues fail? Did project managers simply listen to the wrong experts or read the wrong books? 21

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Is there an underlying logic to managing change, or must we rely on empirical evidence for our source of best practices? The Change Challenge Framework attempts to answer these questions by providing a lens through which we can view all change initiatives. The model is built on these points and assumptions: • Organizations are initially designed to meet the needs of the existing environment as understood by the organization’s architects. • A shifting environment over time creates a gap between the capabilities of the organization and the needs of the environment. • If left unaddressed, ever-widening gaps ultimately lead to organizational obsolescence and failure. • Organizations respond to this environment-organization gap by taking action to close the gap and remain competitive. • Organizational responses always address—with varying degrees of success—the tangible aspects of needed change. • Organizations frequently ignore or underappreciate the organizational and personal behavioral aspects of change, resulting in a major source of project failure. • Addressing organizational and personal behavioral aspects of change requires an understanding of the capability for change at both the organizational and the personal levels. • Change management initiatives targeted at the specific needs of the organization and its individual members are far more likely to lead to effective change. In the remainder of this chapter, we explore the framework in detail.

In the Beginning . . . Nearly every organization is designed, whether consciously or not, to meet the needs of the environment in which it is initially established. Organizations are complex systems, comprised of policies, people, technologies, values, processes, and so forth. These organizations develop missions, visions, products and services, marketing strategies, and operating procedures that recognize the environment within which the

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Change Challenge Framework

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Environment

Organization

Exhibit 3.1

Organization Aligned with Its Environment

organization is intended to function. Exhibit 3.1 depicts this desired alignment. Some organizations do a better job than others of meeting the needs of the operating environment, but no organization can afford to be oblivious to such considerations. Initial efforts to design an organization to meet the needs of its environment may prove to be inadequate, leaving the organization at a competitive disadvantage compared to others that are better aligned with the demands of their environments. However, it is unlikely that, even if at some point the needs of the environment are perfectly aligned with the organization’s capabilities, such alignment will last for long. Internal change within the organization or change in the environment external to it will inevitably follow. The effects of these changes result in misalignment between the organization and the environmental requirements.

Internal Change Even if the world around us were never to change and place new demands on an organization, organizations themselves are much like living organisms. They frequently evolve internally to adapt to pressures for change that come from within. These internal pressures may require improvements to better meet existing customer needs, to become more profitable, or to meet the social needs of members of the organization. Because any organization is made up of a constituent membership—management and staff—all organizations evolve over time, much like the human dynamics of individual relationships. This evolution may narrow the gap to ensure continued alignment of the organization with the needs of the external environment. However, the evolution may actually widen the gap, potentially increasing the misalignment between the organization and the external environment.

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External Change Every organization also maintains a relationship with its external environment, which is an ever-changing amalgam of forces. One framework for analyzing such change is Michael Porter’s Five Forces analysis model.1 Porter, a professor at Harvard Business School, cites five primary sources of change in the environment that organizations face: 1. Rivalry among existing competitors 2. Threat of new entrants 3. Bargaining power of suppliers 4. Bargaining power of customers 5. Threat of substitution In addition to these sources, change can also be viewed from the context of the underlying drivers of change. For example, changing demographics can impact values and customer needs within the marketplace as a whole. Changing regulatory environments may drive change across all customers, suppliers, or competitors. Advancing technology can provide both new opportunities and threats. The external environment affects the organization in four general ways: 1. The environment provides opportunities to the organization to improve what it does. This translates into possibilities to improve effectiveness in meeting customer needs. The organization, however, may or may not identify these opportunities. Moreover, the organization may or may not capitalize on them even if they are identified. Market opportunities for new products and services that align with an organization’s mission and core capabilities are an example of such possibilities. 2. The environment poses obstacles to an organization’s efforts to achieve goals and improve what it does. This is the flip side of the opportunities noted in item 1. These obstacles represent challenges that must be overcome in maintaining the status quo or in achieving opportunities, such as responding to new competitors or adjusting to changing demographics. These obstacles can come from any of Porter’s Five Forces or other sources of environmental change.

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Change Challenge Framework

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3. The environment may present opportunities on how an organization delivers products and services. Advancing technologies or identification of new “best practices” may allow the introduction of new processes that result in better meeting customer needs or allow more cost-effective production of existing products and services. 4. The environment may present obstacles and new constraints on how the organization functions. The environment may place new constraints on an organization’s internal processes. Changing regulatory requirements are a primary source of such obstacles and constraints. For example, pollution control laws in the United States over the past 50 years have greatly constrained how numerous industries are allowed to operate. Similarly, the SarbanesOxley Act has placed significant constraints on corporate financial practices and financial reporting in the United States.

First-Order Change The constantly churning external environment is the primary driver requiring change, and this driver is generally outside the organization’s control. This is why the idea of “managing change” is so misleading. If by the phrase managing change, we mean the change in the world around us, we are fortunate if we have some minor influence. Most of the time, all we can truly “manage” is our response to the demands of change from the environment. Definition First-Order Change is the change resulting from a shift in alignment between the needs of the environment and the capabilities of the organization to meet those needs. As mentioned, the organization itself evolves over time, independent of any external stimulation. To the degree that leaders are effective in guiding the direction of this internal change, they can partially manage it. However, this internal change is not a response to external change,

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but rather an evolution of the organization independent of external needs. Although internal change often is difficult to control, leaders must not ignore its impact on the members of the organization, and on the overall organizational culture. Such internal change can have a powerful influence on the overall functioning of the organization. Assuming that an organization is perfectly aligned with the needs of the environment, as in Exhibit 3.1, over time, external forces come into play that place new requirements on the organization. These external and internal forces cause the environment and organization to move away from positions that once were ideally aligned. We have called this shift, depicted in Exhibit 3.2, First-Order Change. Organization

Environment

Exhibit 3.2

First-Order Change

As a result of the shifting environment and its impact on the organization, a gap develops between the current capabilities of the organization and the current needs of the external environment, as illustrated in Exhibit 3.3. This change in alignment is largely outside the control of the organization, and results in the First-Order Change Gap. Understanding and addressing this gap is important to organizational success. The gap reflects misalignment between products and services provided by the organization and customer needs reflected by the market and the overall external environment. Customer needs; Environmental demands Environment

Exhibit 3.3

Products and services; Outputs First-Order Change Gap

Organization

Misalignment Creates the First-Order Change Gap

The gap resulting from a First-Order Change is situational in nature; different organizations reflect diverse internal elements of misalignment to the environment. Because each organization is unique, a single shift in the environment typically affects different organizations in different ways.

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Change Challenge Framework

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For example, a change in demographics, such as the aging of the U.S. workforce, will impact the healthcare, beauty, and financial services industries very differently. Moreover, the shift in demographics will affect organizations within the same industry differently, depending on how an existing organization’s structure, strategies, policies, and technologies can accommodate the changing environment. A First-Order Change Gap therefore has multiple elements that must be individually addressed by every organization. In Exhibit 3.4, arrows represent these different elements of the overall gap. Other examples of First-Order Change Gap elements include changing technologies, environments, and competitive landscapes.

Targeted Change Gap Definition The targeted change gap is that portion of the First-Order Change Gap selected for closure. Before plans can be set to close the First-Order Change Gap, you must consider how much of the gap is to be targeted for closure. For a number of reasons, it may be impractical to attempt complete closure of any existing gap as part of a single change initiative. These reasons may stem from constraints in: • Budget. The gap may be so wide that resources are not available during any one budget cycle to fully close it. As a result, an organization may plan gap closure on an incremental basis, funding additional steps to close the gap as future funds become available. Customer needs; Environmental demands Environment

Exhibit 3.4

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Products and services; Outputs First-Order Change Gap Elements

Organization

Elements of the First-Order Change Gap

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• Organizational capabilities. The organization may be recognized as capable of digesting or otherwise supporting only so much change over a limited period of time, regardless of the financial resources available. For example, some organizational cultures resist change and are content with the status quo. Such organizations have a lower capacity for change than those that have developed a change-oriented culture. • Risk tolerance. The organization may be risk averse. Implementing change in smaller increments introduces less risk from unforeseen consequences of change initiative actions. In assessing risk, leaders must balance the reduction in risk due to slower, incremental change with the potentially increased risk of being unable to respond to a widening First-Order Change Gap. Such inability to respond would occur if the rate of change in the First-Order Change Gap is greater than the rate of change introduced by efforts to close the gap. • Schedule. Even in organizations fortunate to have sufficient budget and change capabilities to close the full gap, schedule constraints may necessitate focusing on closing only a portion before undertaking a more comprehensive change initiative. Mandated deadlines from regulatory bodies, required changes due to mergers and acquisitions, and other factors may dictate a change initiative focused on the near to midterm time frame rather than a longterm, more comprehensive initiative. • Uncertain direction of change. As the speed and complexity of environmental change increases, maintaining complete organizational alignment becomes more difficult. Choosing to close only a portion of the gap at a particular time may provide additional flexibility in adjusting to unforeseen changes in environmental demands. Fully committing to a long-term change initiative may lock in certain decisions with sunk costs that may become suboptimal if future external changes differ from what had been forecasted. Whether their limitations on change are based on budget, capability, risk, or uncertain environmental direction, all organizations should undertake an analysis that consciously evaluates and strategically selects the extent of gap to be closed over any particular period. The portion of the total gap selected for closure represents the targeted gap to be closed, as illustrated in Exhibit 3.5.

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Change Challenge Framework Customer needs; Environmental demands Environment

29

Products and services; Outputs First-Order Change Gap Elements

Organization

Targeted Change Gap

Exhibit 3.5

Gap Targeted for Closure

Once a general strategy for change gap closure has been selected, the organization has set the stage for a deeper analysis of its specific needs for implementing change.

Second-Order Change Second-Order Change is change—introduced and managed by the organization—in response to First-Order Change. First-Order Change is largely externally driven and therefore outside the control of the organization. This change is indeed not manageable. However, the organization must manage its response to this external First-Order Change. It is this response, which we have labeled as Second-Order Change, for which leaders are responsible. By properly managing Second-Order Change, leaders bring the organization back into alignment with the environment.

Definition Second-Order Change is the organization’s response to the misalignment between the organization and the environment, and which serves to close the Targeted Change Gap.

Often, Second-Order Change initiatives are multifaceted efforts designed to address diverse issues embedded within the First-Order Change. For example, an organization may respond to a First-Order

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Change gap by implementing changes in strategy, policy, technology, and organizational structure. Thus, Second-Order Change can be viewed as typically incorporating multiple elements of change, as indicated in Exhibit 3.6. Customer needs; Environmental demands Environment

Products and services; Outputs First-Order Change Gap Elements

Organization

Targeted Change Gap SecondOrder Change

Exhibit 3.6

Traditional Approach to Managing Change

Traditional Approach to Second-Order Change Management The typical approach to closing a targeted change gap between environmental needs and organizational capabilities is to focus on the tangible aspects of the required change. Organizational realignments and technology infusion are examples that we often see in this easily acknowledged side of a change initiative. These types of issues often are captured in a project plan designed to implement change. Thus, a project plan is developed to close the gap and bring the organization back into alignment with the environment, as illustrated in Exhibit 3.6. In the Change Challenge Framework, these tangible aspects of SecondOrder Change have been called the physical or infrastructure dimension of change. They are so named to recognize that these elements of the Second-Order Change are tangible and are generally not focused on the soft side of organizational and personal change. Depending on the organization’s need to consider organizational and individual behavioral aspects of change, a change management

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Change Challenge Framework

31

strategy may also be included. This strategy traditionally focuses primarily on stakeholder analysis, communications plans, and training. The project plan, if designed to address change in an incremental fashion, may target some elements of the change gap for complete closure while postponing a response to other gap elements. In any case, the traditional project plan represents those concrete plans for addressing the gap targeted for closure in the current change initiative.

Challenges with Traditional Second-Order Change Management If organizations were routinely able to fully identify all of the elements of the First-Order Change Gap and develop executable plans for closing elements of the gap, programs involving significant change would have a high rate of success. Unfortunately, experience does not bear out such expectations. Numerous sources claim that over 70% of projects fail to fully meet stakeholder expectations. In one example, an evaluation of World Bank support for public sector reforms since 1980 found that only about one-third of the bank’s projects had satisfactory outcomes, and even when satisfactory outcomes were achieved, in most cases it appeared unlikely that they would be sustained.2 Such poor success rates imply that the analysis of the change requirement, the execution of the required change, or both are less than adequate to assure reform. Inadequate analysis of the requirement to close the change gap is seen frequently in the postmortem reviews of failed projects. In other words, the gap addressed in the project plan often does not fully address the gap that actually existed. A major source of difference between perceived and actual gaps is the failure to recognize the importance of addressing the change required in both organizational and personal mindsets. If projects to implement change and close the organizationenvironment gap have such high failure rates, then the model introduced in Exhibit 3.6 requires a modification. In Exhibit 3.7, each vertical arrow is divided into two portions. The darker part of the arrow represents change typically recognized and addressed by project plans. These plans typically seek to implement the tangible side of change represented by the infrastructure dimension discussed earlier. The lighter part of the arrow represents change frequently ignored by

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project plans that inadequately address the soft side of organizational and personal behavioral change. The darkened portion of each arrow represents the organization’s current capability to close that portion of the gap that does not require a simultaneous change in organizational and personal values and thinking. The organization plans to close this portion of the gap through implementation of the physical or tangible aspect of change: revised documentation, information technology investments, new performance measurement systems, technical training, and the like. Nearly every project plan for change attempts to lay out tasks and schedules for implementing this physical dimension of change. However, often missed is the need to concurrently address the personal and organization behavioral side of change accomplished via a change in thinking, values, and belief systems. Regardless of the compelling need for change and the incentives to do so, some people in the organization may pursue the status quo.3 Acknowledgment of natural resistance to change is one of the first steps in addressing it. Organizations that are successful in moving resisters from the fixed mindset to the growth and development mindset will increase the probability of success of their change initiatives. In the Change Challenge Framework, the lighter portion of each vertical arrow represents this typically missing piece of the required Customer needs; Environmental demands Environment

Products and services; Outputs First-Order Change Gap

Organization

Targeted Change Gap Physical Dimension

SecondOrder Change

Exhibit 3.7

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Gap between Perceived and Real Change Requirements

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Change Challenge Framework

33

change. Collectively, the lighter portion of each arrow—the elements of the required Second-Order Change—represents the gap between the change response required to close the targeted change gap and the response that the organization is actually capable of providing without further organizational and personal change intervention. This Second-Order Change Gap is illustrated in Exhibit 3.8. Organizations that address only the physical requirements for change face needlessly higher risks of failure. Improving the likelihood of implementing and sustaining the requisite organizational change requires actions to address organizational and personal mindsets to fill in the open part of the change dimension arrows.

Missing Soft Side of Change When some people talk about change or change management, they may refer to the overall need for change that is reflected in the complete arrows in Exhibit 3.8. This is certainly an appropriate point of view. However, to better understand the limitations of the traditional approach to change, we need to focus on the difference between the tangible side of change (reflected in the darkened portion of the arrows) and the organizational and individual behavioral side of change Customer needs; Environmental demands Environment

Products and services; Outputs First-Order Change Gap

Organization

Targeted Change Gap Physical Dimension

SecondOrder Change Second-Order Change Gap

Exhibit 3.8

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Second-Order Change Gap

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(reflected in the lighter portion of the arrows). Closing the SecondOrder Change Gap is fundamental to effective change management and successful organization realignment.

Project Plan In order to focus on this distinction, we have chosen to refer to the darkened portion of the arrows as the project plan as illustrated in Exhibit 3.9. This is the portion of required change that is universally recognized, albeit more completely by some organizations than others. Organizations universally seek to address this physical side of change, and project plans are the typical means of doing so. Examples include detailed implementation plans to develop a new technology capability or a new organizational structure realignment to meet a specific strategic imperative. In contrast, we have chosen the label change plan to refer to those actions needed to address the soft side of change, which is often poorly addressed or sometimes missed altogether.

Change Plan Traditionally, change plans include stakeholder management, communications, and training. The change plan is focused on addressing the need for change, as reflected in the lighter portion of the vertical arrows. The organizational and personal mindsets described earlier are critical in closing this Second-Order Change Gap. These two dimensions of change cut across all the elements of the required SecondOrder Change, and we must recognize that mindset plays a critical role in each of the elements. These relationships are illustrated in Exhibit 3.9. Most organizations would acknowledge that organizationenvironment gaps have different elements of required change. However, those same organizations typically fail to consider this fact when they address change management. As a result, they fail to target the organizational and personal behavioral considerations that pertain to the multiple elements of change. The change plan is a vehicle to address existing gaps in the organizational and personal mindsets. It can be a component of the project plan,

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Change Challenge Framework Customer needs; Environmental demands Environment

35

Products and services; Outputs First-Order Change Gap

Organization

Targeted Change Gap Physical Dimension

Project Plan

Organizational Mindset Personal Mindset

Change Plan

Light gray portion of arrow represents gaps in technology, policy, organizational capability, competitive products or services, innovation, etc.

Exhibit 3.9

Dark gray portion of arrow represents perceived existing organizational capability to close the gap without change intervention

Complete Change Challenge Framework

if organizationally advantageous, or a separate plan. The important thing is to recognize and address these gaps in a proactive way. Now that you have mastered the concepts within the Change Challenge Framework, it is time to turn our attention to those organizational and personal attributes that constitute the response to the environment and facilitate closure of the Second-Order Change Gap. CAM-I’s Change, Adaptation, and Learning working group has developed a highlevel assessment tool to allow evaluation of potentially overlooked yet critical capabilities in the organizational and personal mindsets. Part Two presents the Organizational Capabilities Self-Assessment tool, which can assist you in determining current and required capabilities in this area. The output from this assessment tool should become an input to your organization’s change plan.

Notes 1. Michael E. Porter, Competitive Advantage (New York: Free Press, 1985), 6.

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2. Operations Evaluation Department, “Civil Service Reform: A Review of World Bank Experience,” Report No. 19599 (Washington, DC: World Bank, 1999). 3. See Daryl R. Conner, Managing at the Speed of Change (New York: Random House, 1992), 125–145, where the stages of negative and positive resistance to change are described.

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Chapter 4 Crafting the Change Response

We believe that some, maybe even most, organization change projects are doomed to failure from the beginning.The type and amount of change that is being attempted is simply beyond the ability of the organizations to adopt successfully. Edward Lawler and Christopher Worley, BUILT TO CHANGE 1

L

et’s take a moment to review where we are in the change process at this point. Here are the key areas we have covered:

• A case for change has been built. Those organizations that ignore the importance of change risk failed initiatives and suboptimized return on investment. 37

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• A change model for understanding, exploring, and creating organizational dialogue on change initiatives was presented. • Three interdependent dimensions were detailed and offered for consideration: 1. The Physical or Infrastructure dimension 2. The Organizational or Cultural Mindset dimension 3. The Personal or Individual Mindset dimension Equipped with the understanding of where we are in the change process and familiar with the Change Challenge Framework, the next step is to introduce the concept of a designed-for-change organization and provide an overview of the types of change the organization may face in responding to change demands. The process flow road map presented in Exhibit 4.1 provides an overview of a logical journey through the change process and some important activities that should be considered for action. It is important to understand that, while this process flow is depicted as linear, it does not necessarily have to be. Depending on the demands put on the organization by internal and external environmental factors, some of the activities may need to be revisited or executed in parallel. The overriding characteristic of this process flow should be its dynamic flexibility; it should not be viewed purely as a set of prescriptive steps to follow. Rather it should be customized and viewed in light of the needs of the organization. The paragraphs below the process flow diagram provide further detail on the organization of the book.

Complete Gap Analysis

Exhibit 4.1

Create Case for Change

Assess Capabilities

Implement Change Plan

Measure, Modify, Refresh

Closed Loop Change Process Diagram

Chapter 5 introduces the need for evaluating organizational capabilities for change. Following that, 13 critical organizational change capabilities are detailed for conceptual understanding and explained within the context of the Organizational and Personal dimensions.

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Crafting the Change Response

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Due to the inherent difficulty of developing personal mindset capability diagnostics that apply universally to everyone, most of the capabilities that the framework evaluates are organizational ones. Chapter 5 also presents an Organizational Self-Assessment Master Grid to assist with evaluation of required and current levels of change capabilities. As stated in the Chapter 3, relying on the physical or infrastructure dimension alone is an incomplete solution in change initiatives. Consideration, exploration, and action in the other two dimensions are required. Outputs from the Organizational Self-Assessment Master Grid should serve as inputs to the change plan. An additional question one may ask is: What information should the organization collect and analyze in order to effectively advance change initiatives? In Built to Change, Lawler and Worley suggest the following information should be collected by the designed-for-change organization: performance, capabilities and competencies, and environmental information.2 A visual representation as a triangle of dynamic alignment is depicted in Exhibit 4.2, and offers powerful evaluative questions regarding the ability of the organization to successfully respond to the demands of the environment. This simple structure can be a powerful blueprint for an effective change plan. Once the environmental impacts are defined as a result of the Change Challenge Framework, the next logical step is consideration of the type and magnitude of change responses. The organization and its

are we ng?

doi

Capabilities and Competencies

w Ho

W W hat ha ’s t d goi oes ng it m on? ean ?

Environment

How strong are we?

Performance Management

Exhibit 4.2 Designed-for-Change Organization

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individual employees face essentially three types of change: incremental, transitional, and transformational.

Incremental or Developmental Change Incremental or developmental changes are made to ongoing activities, such as continuously improving work processes. Incremental changes are straightforward and linear in nature, simply tweaking or enhancing existing activities. The resulting outcome of the change initiative remains a function of what the activity was before—no fundamental change in the nature of the activity will have taken place. However, it is likely that performance will be enhanced as a result of the change effort. An example could be when an organization requires an improved level of customer service support due to higher service demands from customers. This requirement could necessitate a revision of the customer support process and contract modifications in the service-level agreement. Another example could involve ongoing reengineering of an operational process, resulting in a more responsive and higher-quality process at lower cost. Incremental changes typically do not require extensive project planning due to their simplicity and short-term nature. They can be integrated easily into a continuous improvement mindset and do not require moving from one state to a future state, as transitional changes do. Although successive incremental changes ultimately can result in major change, they are designed to limit the extent of change in any single change implementation.

Transitional Change Transitional changes depart significantly from the current way of doing things and often require a methodology and project plan to ensure that positive results are achieved and sustained. Virtually all of the interest groups of the Consortium of Advanced Management, International (CAM-I) are engaged in studying processes, ideas, methods, and initiatives that represent transitional changes to organizations when implemented.

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Crafting the Change Response

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Implementing an activity-based management system would be an example of a transitional change initiative. Moving to a new application system with more detailed cost information about product and customer profitability would require a transition from the current cost accounting methods to a new methodology. Moreover, changes in decisionmaking processes would be required to leverage the newly available data. A formal project plan would detail the current state, desired end state, data management requirements, an activity dictionary, processes for integrating the new cost data into decision making, reporting requirements, and the projected timeline to move to the new system. Although formal control processes and metrics improve the probability of success for a transitional change initiative, some attention to winning the hearts and minds of all individuals involved is also important.

Transformational Change Transformational change is fundamentally different from the other two types of change. After a transformational change, an organization often looks very different than it did before the change. Transformational changes, by definition, completely alter the form and substance of what existed prior to the change. The term transformational change is often misunderstood and often used erroneously. Many organizations believe they are driving transformational change when, in actuality, they are implementing transitional change. A key learning for the Change, Adaptation, and Learning team has been to recognize that successful transformational change initiatives are extremely rare, and they have a high risk of failure. An organization attempting transformational change will need to invest heavily in the Organizational or Cultural and the Personal Mindset dimensions; transformational change will not happen without winning the hearts and minds of the people involved. Because individuals will be asked to make a clean break from many past practices, this type of change is inherently difficult. In addition, the Orchestration Process—the collective coordination of all organizational and individual capabilities—must be executed flawlessly to leverage organizational capabilities to support the emerging outcome. Chapter 6 provides greater detail on this critical process.

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Transformational changes don’t happen quickly, except in extreme circumstances. Often the primary driver for this type of change is when the environment mandates a “burning platform” change, and rapid, radical response may be the only thing between survival and complete devastation. When the only choice is to change, winning the hearts and minds of stakeholders is more straightforward, and the natural resistance to change is minimized as the process accelerates. Few good examples of sustained transformational changes exist. Both IBM and Unisys transformed themselves to global services companies. IBM, formerly a hardware and software company, took more than 10 years to accomplish the transformation, and there were some moments when it looked as if the company might not survive. Nokia successfully transformed itself into a global electronics company in spite of its local market focus in a completely different technology. Many more examples of failures abound. Consider the highly touted merger of Time-Warner and AOL. Attempting to knit together acquired companies, with their unique business models and organizational cultures, into a seamless new identity is an incredibly complex task with a high probability of failure. Consider also the vision of a transformational response to the 9/11 tragedy, with the formation of the Department of Homeland Security (DHS). The largest government reorganization since that of the Department of Defense in 1947, DHS brought together 22 federal agencies under a new umbrella. The Federal Emergency Management Agency (FEMA) became part of the new DHS. In its first test during the hurricane season of 2005, we were provided a vivid example of how the primary objective of efficient and effective interagency communications failed tragically. Thus, it is clear that transformational change is a complex undertaking. The primary contributions of CAM-I members thus far have been based on thorough research, comprehensive methods, and fundamental process approaches. What we do consistently has a tendency to create a particular view of the world and can create a certain mindset when it comes to how we view change. Like it or not, working in a financial accounting environment can lead to a specific mindset and a focus on maintaining control. Incremental and transitional changes can, to a certain extent, be managed. However, when it comes to

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transformational change, the machine model of control breaks down, because of multiple dimensions that must be “managed” simultaneously. In addition, not many executives are willing to invest in initiatives that do not have clearly defined and measurable outcomes. In this instance, the idea of emergent outcomes, guided by a directional vision of where the organization needs to be in the future, may be perceived as too unstructured, uncontrollable, and risky to attempt.

Defining Your Change Strategy Incremental, transitional, and transformational approaches to change differ significantly and offer very different opportunities and challenges. An important early step in addressing change is selecting the approach to change that is most appropriate for your organization. A useful method is to distinguish between the vision for change and the path to be taken to execute that change.This vision for change is the targeted First-Order Change Gap. Is that vision sufficiently forwardlooking and aggressive to enable you to be competitive in the future? If, for example, you identify environmental requirements based on an understanding of today’s requirements while ignoring future trends in a dynamically changing environment, you may find that you are always in a race to catch up. By the time you have implemented the change you sought to achieve, the environment has moved on, and a new First-Order Change Gap exists. Understanding the rate of change in the environment, forecasting what that environment will look like at relevant points in the future, and targeting your change efforts to achieve alignment with those future states is what change management ultimately seeks to accomplish. If the First-Order Change Gap is very small, consider yourself fortunate. Once you finish congratulating yourself, you must recognize that it is unlikely that a transformational change is called for. Incremental or transitional change would be the most likely approach in such conditions. When the First-Order Change Gap is more significant, the choice in approach becomes more difficult. Unless an organization is proactively change-oriented with a strong strategic planning process and

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good follow-through with implementation, most likely you are facing this more significant gap. Change strategists need to understand not only the size of the First-Order Change Gap to be closed but also the ability of the organization to close that gap. Does it make sense, for example, to craft an approach to close the entire gap within a single planning period, such as a year or two? Or should the organization develop a step-wise approach to closing the gap, committing resources only to the first step and then reevaluating progress and any shift in the external environment, before committing to—and possibly modifying—the second step? In Chapter 3 we mentioned a number of possible constraints that may limit your ability or desire to close the First-Order Change Gap in a single step. These may include limitations arising from: • • • • •

Budget Organizational capabilities Risk tolerance Schedule Uncertain direction of change

Any one or more of these considerations may greatly limit your ability to apply a more aggressive approach to change. Even one of these considerations, for example, could make a compelling argument for applying a transitional approach to change rather than a transformational approach. Making broad generalizations is typically a risky exercise, and suggesting that any one approach to change is the best— without considering the particular gap and organizational capacity—is risky and ill-advised. As if these considerations don’t make selection of a change approach sufficiently difficult, one more situation adds another level of complexity. Both incremental and transitional changes tend to take a linear project management approach, as the envisioned end state can be defined at a detailed planning level. There are times when the end state cannot be predicted with any degree of certainty—where requirements for change are said to be “emergent,” due to evolving environmental conditions. Defining the change gap requirements can be tricky in a chaotic environment, and the type of change required could be either transitional or transformational. One argument for crafting an incremental or transitional

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change response is that midcourse corrections and the accompanying shifts to meet environmental demands would be more easily facilitated as the requirements emerge. However, if the requirements for change are drastic, such as completely revamping the business model to address the demand, a different approach may be necessary. Optimizing limited resources means that we must consider all constraints and factors in evaluating the First-Order Change Gap and carefully select a change management approach (incremental, transitional, or transformational) that closes the gap in a fashion that best meets the organization’s needs and best leverages its capabilities. It would be a terrible waste of scarce resources to propose change for change’s sake. However, it would be similarly wasteful to select a change approach that is beyond the capabilities of the organization or that does not meet the ultimate organizational goals for change.

Creating an Agile Organization As a final note, it is important to point out that the ultimate objective for the organization should not be solely to close the First-Order Change Gap. Success in that endeavor is certainly worthwhile and to be sought. However, at some point down the road you may again face a sizable First-Order Change Gap. In a turbulent environment, such a gap could manifest itself long before expected or desired. The aim is not only to close the gap but to create an organization that does not allow a significant gap to occur in the first place—to create, in other words, an organization designed for change. How is that possible? The organization that is designed for change does not view an environmental scan and gap analysis as a once-a-year strategic planning exercise but as an ongoing business process. When environmental scanning and analysis are part of the organization’s day-to-day procedures, the organization can react to an emerging gap immediately. Such an organization can identify emerging trends long before they become critical issues and can plan and implement responses before gaps become insurmountable challenges. Moreover, by setting expectations that emerging First-Order Change Gaps will be dealt with as part of an ongoing strategic assessment and business planning process, organizations will come to think of change as just another day-to-day activity.

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Organizations need to have specific strategic intent in designing a culture that is able to continuously change, adapt, and learn. The organizational practice of continuously scanning the environment for opportunities and threats and acting on them must become second nature. Leveraging all three dimensions of change and change capabilities in a comprehensive plan will produce the highest probability of successful change responses.

Notes 1. Edward E. Lawler III and Christopher G. Worley, Built to Change: How to Achieve Sustained Organizational Effectiveness, (San Francisco: Jossey-Bass/Wiley, 2006), xv. 2. Lawler and Worley, Built to Change, 119.

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Part Two

ASSESSMENT

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Chapter 5 Assessing Capabilities for Change

Some values promote change while others inhibit it. Inculcating core values such as customer focus, risk taking, innovation, open communication, collaboration, or participation can help an organization to continually change. Other values such as loyalty, consistency, individuality, profit maximization, or engineering excellence may—especially when taken to their extreme—block or inhibit effective change. Edward Lawler and Christopher Worley, BUILT TO CHANGE

J

ust as there is no one foolproof strategy for managing an investment portfolio, there is no single strategy to build a change plan. Each plan must be customized to the organizational requirements generated by the demands placed on it by its environment. Again, just so it’s crystal clear: The environment drives the requirements for change. 49

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As discussed previously, the infrastructure, or physical dimension (see Exhibit 3.7), tends to be the most easily recognized and leveraged aspect of the organization utilized to implement change. Focusing on this dimension alone, without regard to the need to orchestrate and integrate the organizational and personal dimensions, contributes to a great deal of the failures in change initiatives. In order to move away from this common practice, we need to begin by distinguishing between organizational competencies and organizational capabilities. Hamel and Prahalad, former Harvard Business School professors, provided some foundational research concepts on core competencies in the 1990s. They defined core competencies “as a combination of technology and production skills that underlie the product lines and services of an organization.”1 Competencies typically include technological or intellectual capital protected by patents and trademarks. They are more transferable than capabilities, and can be ramped up more quickly through acquisition or outsourcing. Competencies are therefore more aligned with the physical, or infrastructure dimension in the Change Challenge Framework model. As used in this book, capabilities are different from competencies, in that they describe what activities an organization does to create value. They reside in people and relationships, not technology, and are not easily replicated or imitated. In order to more proactively integrate the organizational and personal mindset dimensions into change initiatives, it is important to have a clear picture of organizational capabilities, because the organization’s ability to respond effectively to changes mandated by the environment lies in the collective capabilities of its people and processes. Colleen Barrett, president of Southwest Airlines, published an article called “Talking Southwest Culture” in the airline’s magazine. In it she states: We often say that other airlines can copy our business plan from top to bottom but Southwest stands apart from the clones because of our people. But I would still wager that if another company somehow managed to hire all of our fantastic Employees, that company might see its best performance but still would not match up to Southwest.

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Why? The new employer would not possess the Southwest Culture, the secret sauce, if you will, of our organization. That Culture motivates and sustains us. For so many of us, being part of Southwest is not just a vocation, but a mission. I don’t dictate the Culture; neither do our other Officers. Rather it stems from the collective personality of our Employees.2 According to Barrett, in January 2008 the company “observed the eighteenth anniversary of the founding of their Corporate Culture Committee, a group dedicated to preserving our Culture for the present and the future. This Committee stresses that the Southwest Culture resides in each Employee, no matter the Employee’s title.” Barrett’s intentional capitalization of the words Culture and Employee demonstrates her respect for the deep capabilities of the people of the organization. What a testament to the value of their collective organizational capabilities! Now let’s address your organization’s capabilities. Each of the 13 capability sections in Chapters 6 through 18 follows a similar format: background, definition, core elements, impact, and relationships to other organizational capabilities. The Change, Adaptation, and Learning Interest Group developed these capabilities from our secondary research and our collective experience. However, other individuals with different experiences would likely have chosen a somewhat different set of capabilities. The capabilities chosen by the CAL group and presented here are simply one way of viewing the overall set of change capabilities applicable to any particular organization. As illustrated in the Southwest story, there is no single correct way of decomposing overall organizational change capability into constituent elements. What is important is that the selected capabilities provide a useful framework for viewing your organization’s change capabilities and identifying gaps between the level of capability present and that needed to be successful for a change initiative. We have attempted to cover the key capabilities we have seen, but it is critical that the capabilities resonate as relevant to your organization. Feel free to substitute your own capabilities, or make additions/ deletions to tailor the assessment to your organization. How robust are your organizational change capabilities? The selfassessment table at the end of each of the capability chapters provides

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an overview of some of the critical capabilities for change that we have seen consistently in our literature reviews and the team’s collective experience base. Before beginning to construct a plan for change, you must bring to light the gaps that need to be addressed. As you progress through the chapters that follow, complete each self-assessment table to rate your organization on that specific capability, keeping in mind these points. • A high score in a particular capability may not always be a good thing. For example, high autonomy may be great, but it could produce organizational silos that do not work well together. • While the assessment tool is designed primarily to identify capability gaps at an organizational level, often organizational capabilities are an aggregate of personal or individual ones. This tool could have secondary value in identifying capabilities that may need to be addressed at an individual level. • Unlocking the value of the capability assessment through dialogue and discussion will contribute to organizational ability to adapt and craft the appropriate change responses to environmental demands. The process begins with an understanding of the capability itself, presented in scenarios or maturity levels. Each chapter closes with an evaluation of your own organizational capability through choices from scenarios at five levels of maturity. Score your organizational capability from two perspectives: 1. The level of capability needed to close the gap as mandated by the environment 2. The perceived current level of actual organizational capability Describe and discuss significant gaps identified in these capability assessments within your organization, then carry them forward as inputs to the organizational change strategy section, Part Three, Assimilation. Also carry forward individual capability scores from each chapter to the Organizational Self-Assessment Master Grid in Chapter 20. Exhibit 5.1 presents an example of the grid. Remember, the primary purpose of this assessment tool is to create organizational dialogue around how capabilities can be leveraged within the organization to formulate effective and sustainable change responses and, to provide

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Evaluating Core Capabilities for Change Level

1

2

3

4

5

Leadership Commitment Accountability Forward Thinking Innovation Communication Risk Tolerance Organizational Learning Trust Diversity Empowerment Adaptation Dynamic Stability Low

High

Exhibit 5.1 Organizational Self-Assessment Master Grid

insight into areas where organizational capabilities are most in need of development. A word of caution in interpreting the capability assessment: Never view a high score in any particular capability as the end objective. This tool facilitates a gap assessment between the required capability and the capability that is present. It is not a “scorecard” in which more (or a higher score) is always better. An organization’s objective should be to achieve the level that is required to succeed with a change initiative, not to achieve as much maturity in any one capability as possible. Capability in excess of the requirement may drive additional internal controls that actually constrain its use. For example, when the environment calls for limited risk taking, controls over a very risk-tolerant organization would be necessary. In this example, resources consumed in developing capacity in a capability beyond what is needed could be better directed to other capabilities and initiatives.

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chasing change Evaluating Core Capabilities for Change Level

Illustrative Scenario: R ⫽ Required or expected level of capability to close gap C ⫽ Current level of capability

3

4

Leadership

1

C

R

Commitment

C

Accountability

C

Forward Thinking

C

Innovation

C

Communication C

Organizational Learning

C

R

R R R R R

C

Diversity

5

R

C

Risk Tolerance

Trust

R

C R

Empowerment

C

Adaptation

C

Dynamic Stability

C Low

Exhibit 5.2

2

R R R High

Use of Master Grid

An example of a completed Organizational Self-Assessment Master Grid is depicted in Exhibit 5.2. Each capability can be recorded on the master grid by transferring scores documented in the tables at the end of each capability chapter, by placing an “R” in the grid for required level of capability, and a “C” for current perceived level of capability. Results from the grid should provide an overview of the gap between the environmentally driven change capability requirement and a change response driven by current capabilities that exist within the organization. The size and scope of that gap provide indicators by which to define the type of change initiative that should be detailed in the change plan. How aggressively the organization pursues the gaps in capabilities has a great deal to do with the type and complexity of the change response demanded by the environment. The Change Challenge Framework provides an organization with an ability to understand the requirements for successful change and to target resources to meet those requirements. The assessment tables in

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Chapters 6 to 18 provide ways for you to understand and document how to target your improvement efforts in building your organization’s change capabilities. The most important capability that a [built to change]3 organization can have is a change capability. And it’s the one capability that most organizations lack today. Forward-looking organizations are building and investing in their capability to manage change, but most are not. Edward E. Lawler III and Christopher G.Worley, Built to Change.

Notes 1. Edward E. Lawler III and Christopher G. Worley, Built to Change (San Francisco: Jossey-Bass, 2006), 38. 2. C. Barrett, “Talking Southwest Culture,” Spirit Magazine, Pace Communications, Greensboro, NC (May 2008): 12. 3. Referred to as a “b2change” organization in the original text and changed here to ensure there is no misinterpretation out of context.

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Chapter 6 Leadership

Management is doing things right. Leadership is doing the right things. Peter Drucker,1 THE DEFINITIVE DRUCKER: THE FINAL WORD FROM THE FATHER OF MODERN MANAGEMENT

Background Leadership is not a position but an active responsibility—a process, not a role. Yet leadership is often viewed as a position rather than an organizational capability with capacity at all levels. The environment may demand different attributes of leaders at different times, so it should be evaluated in relationship to the purpose of the organization—its mission and its employees. What critical need does the organization serve? What is the level of intensity of the demands that the external environment is placing on the organization? Are there “burning platform” issues that must be resolved in order for the organization to thrive and survive? What are the attributes of a successful leader in your organization? 57

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Definition Many books have been written on the topic of leadership, which is generally characterized as defining goals and committing human resources to reaching set objectives. Numerous works articulate leadership qualities, often defining the term based on personal experience with leaders. Warren Bennis, professor at the University of Southern California, stated that “the basis of leadership is the capacity of the leader to change the mindset, the framework of another person.”2 This definition is characteristic of the type of leadership we are referring to in this book, because it is our belief that the key to being a great leader is an understanding and influencing mindset to create the necessary cultural shift. As opposed to mythical hero leaders who rise up in times of crisis to save the day, according to Peter Senge, author of The Fifth Discipline, today’s leaders, “are designers, stewards, and teachers. They are responsible for building organizations where people continually expand their capabilities to understand complexity, clarify vision, and improve shared mental models—that is, they are responsible for learning.”3 The traditional definition of leadership for the twentieth century emerged from the Industrial Era, and is described by Joseph Rost, author of Leadership for the Twenty-First Century, as “Leadership is great men and women with certain preferred traits influencing followers to do what the leaders wish in order to achieve group or organizational goals that reflect excellence defined as some kind of higher order effectiveness.”4 Rost argues that for the twenty-first century, more than “good management” is required. With massive change occurring globally, and with the impact of this change on societal and individual values, people are less inclined to be followers; more want to be part of a process that allows them to influence and participate in major organizational decisions. With a view more toward collaborative leadership at all levels, Rost proposes this “emerging” definition for leadership: “Leadership is a dynamic relationship based on mutual influence and common purpose between leaders and collaborators in which both are moved to higher levels of motivation and moral development as they affect real, intended change.”5 The quote marks around “emerging” are somewhat tongue-in-cheek, because Rost used that definition in his

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Leadership

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book almost two decades ago. Although Rost believes that collaborative leadership is still “the wave of the future,” he is disappointed in its progress. Many organizations still seem to be steeped in the Industrial Era command-and-control paradigm, which leads to compliance but not necessarily commitment. According to Les Csorba, author of Trust: The One Thing that Makes or Breaks a Leader, “Leadership primarily must be a moral endeavor. It requires a selfless attitude to lead merely by responding to a need or a call rather than ambition alone. In a phrase, leadership is character in motion— drawing its followers to a virtuous destination at which they don’t necessarily wish to arrive.”6 Csorba suggests that leadership is not a style that one works to develop but rather a way of being. To him, “leadership is built on many characteristics, such as humility, service, vision, courage, and so on, but, fundamentally leadership is built on trust.”7

Core Elements From years of research, supported by thousands of surveys, Kouzes and Posner, authors of The Leadership Challenge, describe key leadership attributes observed when leaders are operating at their best. These characteristics of strong leadership are embodied in their Five Practices of Exemplary Leadership8 in the way leaders: 1. Model the way. Leaders commit to finding a personal voice by clarifying their personal values and expressing them in a style that is authentically their own. In addition, leaders set the example by building consensus around shared values and a shared organizational commitment. 2. Inspire a shared vision. According to Kouzes and Posner, “Leadership is a dialogue, not a monologue.”9 Exemplary leaders envision the future by imagining exciting and ennobling possibilities and enlisting others in a common vision by appealing to shared aspirations. 3. Challenge the process. These leaders search for opportunities by seeking innovative ways to change, grow, and improve. They experiment and take risks by constantly generating small wins and by learning from mistakes.

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4. Enable others to act. They strengthen their followers by sharing power and decision making. They foster collaboration by promoting shared objectives and building trust across the organization. 5. Encourage the heart. Exemplary leaders recognize contributions by showing appreciation for and rewarding individual excellence. They celebrate the values and victories by creating a spirit of collaboration and community. No discussion of leadership would be complete without using Peter Drucker as an additional source of insight. Peter Senge, in The Dance of Change quotes Drucker as saying that the many leaders he encountered “knew four simple things”: 1. “The only definition of a leader is someone who has followers. Some people are thinkers. Some are prophets. Both roles are important and badly needed. But without followers, there can be no leaders.” 2. “An effective leader is not someone who is loved or admired. He or she is someone whose followers do the right things. Popularity is not leadership. Results are.” 3. “Leaders are highly visible. They therefore set examples.” 4. “Leadership is not rank, privileges, titles, or money. It is responsibility.”10 Another source for leadership wisdom comes from Oakley and Krug, in their book Enlightened Leadership.11 They say that enlightened leaders don’t necessarily have to possess the vision themselves but rather have the willingness and ability to draw the vision from their people and inspire them to bring it to reality. They define enlightened leadership not so much about the things leaders do as the state of being that leaders come from. Exhibit 6.1 presents some of Oakley and Krug’s perspectives on differing leadership styles.

Impact Leadership is the igniter of change, adaptation, and learning. Traditional top-down leadership from a fixed mindset may be effective with incremental change, and in short-term crisises. However, if the requirement

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Exhibit 6.1 Differing Styles of Leadership Reactive Leader

Enlightened Leader

Feels the need to have all his or her own answers

Has no ego-driven need to have all his or her own answers

Is tell oriented

Is listen oriented

Makes all the decisions personally

Empowers people to make decisions

Pushes the organization for results

Pulls the organization toward a vision

Analyzes, analyzes, analyzes

Listens to intuition

Creates sporadic motivation

Generates lasting commitment

Is highly opinionated

Is open-minded

Teaches subordinates to expect direction

Teaches importance of self-responsibility

Is in a self-protect mode

Models self-responsibility

Is afraid of losing control

Knows relaxing control yields results

Focuses on finding and fixing problems

Focuses on building on strengths

Quick to fire those that fail

Teaches how to learn from mistakes

Source: Ed Oakley and Doug Krug, Enlightened Leadership (New York: Simon and Schuster, 1991), 223.

for change demands commitment from the hearts and minds of individuals in the organization, this leadership style will not be effective. Today’s leaders must set the vision, live it by example, and influence organizational collaboration toward shared objectives. Leveraging all the other capabilities described in the next chapters allows leadership to emerge at all levels of the organization. It also allows it to proactively build capacity for adaptation and learning and to produce change in a culture of continuous organizational renewal.

Relationships Leadership defines the purpose for all the organizational capabilities and is closely aligned with them in these ways: • A spirit of discovery to innovate and the resources to make it possible would be impossible without quality leadership.

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• Leadership sets the threshold for the acceptable level of risk. • Being accountable and expecting accountability is a key leadership attribute. • Leadership uses all available media and methods to ensure timely and accurate messaging and create a culture of openness and collaboration. • Leadership understands the value of and models organizational learning to continually renew capabilities to respond to environmental demands effectively. • Leadership is committed to values of diversity and inclusion, and fosters commitment to building all organizational capabilities continuously. • Forward thinking is a key action of leadership, in order to facilitate proactive responses. • Power and responsibility is shared in developing leadership at all levels of the organization through empowerment and autonomy. • Effective leadership is adept at facilitating agility through creative tension and dynamic stability to position the organization to effectively respond to change.

Capability Assessment Table As explained in Chapter 5, each capability section has a capability assessment table to enable you to evaluate capabilities within your organization. Take a few moments to score your organization on the critical foundational capability of leadership. In this and ensuing chapters, after you complete each capability assessment table, transfer the scores to the Organizational Self-Assessment Master Grid in Chapter 20.

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Capability Assessment Table

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Level

Leadership

Scenarios (for each level)

1

Absence of capability

Organizational structure is hierarchical, consisting of leaders and followers. Below the top level of the organization, there are a variety of management styles and tactics; often insular, parochial, and periodically producing conflicting and misaligned points of view. Individual and organizational values are not tied to organizational purpose, or mission. Preserving the status quo and minimizing risk through command-and-control management are paramount operating tactics. Risk taking is discouraged and the status quo is reinforced via punitive measures for failure.

2

Minor evidence of capability

Leadership is acknowledged in a few charismatic executives. Minimal decision-making authority is extended to lower levels of organization. Awareness exists of a need for deeper leadership development but is sporadic across the organization. Middle management pulls together lower levels of the organization to execute tactics that are tied to leadership strategies from above. Discussions are beginning on how personal and organizational values can and should influence the organizational mission.

3

Moderate evidence of capability

The need to formally develop greater levels of leadership and collaboration is publicly acknowledged internally. Values-clarification exercises are launched to begin the organizational dialogue on mission and purpose. Efforts to begin the initial shaping of vision are undertaken but not yet shared across the organization. Initial steps are being taken to empower individuals toward a generalized vision. Individuals are beginning to evaluate the impact of the responsibilities that come with empowerment and autonomy. Stepping outside the status quo is becoming more prevalent. (Continued)

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64 Level

Leadership

4

Considerable Taking measured risks is encouraged and rewarded. evidence of Proactively creating (and resolving) constructive conflict capability is seen as a healthy organizational attribute. Organizational values are defined and linked to a more specific vision that engages the hearts and minds of employees. Employees step up to additional responsibilities as a result of clarity of vision and leadership engagement. Decision making is more evenly distributed among management levels, as trust begins to spawn further empowerment. Leaders at all levels are proactively engaging the hearts and minds of organizational constituents. Conflict is embraced as constructive dialogue and viewed as an opportunity for improvement.

5

Fully Diverse leadership styles are valued and integrated at all implemented levels of the organization. capability Execution on the organization’s shared vision is enabled through empowered and autonomous leadership teams. Leaders live the Five Practices of Exemplary Leadership (see core elements from Kouzes and Posner referenced earlier in this chapter). Formal programs to continuously renew leadership through development and succession planning are in place. Leaders and collaborators are interchangeable roles on high-performance teams. Leadership is an attribute specified in every job description within the organization. A spirit of leadership “community” is evident; leadership excellence is celebrated and rewarded.

ⵧ ⵧ

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chasing change Scenarios (for each level)

Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.) Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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Top management buy-in is a poor substitute for genuine commitment and learning capabilities at all levels in an organization. In fact, if management authority is used unwisely, it can make such commitment and capability less likely to develop. Peter M. Senge, The Dance of Change

Notes 1. Elizabeth Haas Edersheim, The Definitive Drucker: The Final Word from the Father of Modern Management (New York: McGraw-Hill, 2007), xi. 2. Warren Bennis, “Learning to Lead,” Executive Excellence (January 1996). 3. Peter M. Senge, The Fifth Discipline (New York: Doubleday, 1990), 340. 4. Russ Volckman, “21st Century Leadership: An Interview with Joseph Rost,” Integral Leadership Review, May 18, 2005; www.leadcoach.com/archives/interview/joseph_rost.html (accessed May 26, 2008). 5. Kevin and Jackie Freiberg, Nuts! Southwest Airlines’ Crazy Recipe for Business and Personal Success (Austin, TX: Bard Press, 1996), 298. 6. Les T. Csorba, Trust: The One Thing That Makes or Breaks a Leader (Nashville, TN: Nelson Business, 2004), xxiii. 7. Csorba, Trust, xxiv. 8. James M. Kouzes and Barry Z. Posner, The Leadership Challenge Workbook (San Francisco: Jossey-Bass, 2003), 10–15. 9. Kouzes and Posner, The Leadership Challenge Workbook, 11. 10. Frances Hesselbein, Marshall Goldsmith, and Richard Beckhard, The Leader of the Future: New Visions, Strategies, and Practices for the Next Era (San Francisco: Drucker Foundation, Jossey-Bass, 1996), xii. 11. Ed Oakley and Doug Krug, Enlightened Leadership (New York: Simon & Schuster, 1991), 19.

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Chapter 7 Commitment

Hierarchical authority, as it has been used traditionally in Western management, tends to evoke compliance, not foster commitment. The more strongly hierarchical power is wielded the more compliance results. Yet there is no substitute for commitment in bringing about deep change.” Peter M. Senge, Frances Hesselbein, Marshall Goldsmith, and Richard Beckhard, THE LEADER OF THE FUTURE: NEW VISIONS, STRATEGIES, AND PRACTICES FOR THE NEXT ERA

Background Historically, one of the most important attributes of character is the ability to rely on someone’s word. A change initiative that exhibits commitment and perseverance in the face of adversity is more likely to succeed. The promises we make to one another fuel the progress of the organization reaching its potential. 67

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Most challenges to organizations today require more than a compliance approach in order to be effective. Incremental change programs may possibly be effective with a fixed mindset and control procedures to ensure compliance. However, deeper change initiatives that proceed without a strong commitment capability will likely produce minimally acceptable results. Commitment will not occur unless people’s hearts and minds are engaged in support of change, and that will not happen without understanding and respecting individual values, which can then be incorporated into the organizational growth mindset. Commitment requires somewhat of a breakthrough moment, where realization takes place that the old way will no longer suffice and that mental energy must be devoted to finding a new path. That is why commitment is easier to build in “burning platform”1 situations—there is no choice but to change. According to Daryl Conner, author of Managing at the Speed of Change, “The key characteristic that distinguishes a decision made in a burning-platform situation from all other decisions is not the degree of reason or emotion involved, but the level of resolve. When an organization is on a burning platform, the decision to make a major change is not just a good idea—it is a business imperative.”2

Definition You’ve probably heard the story about the chicken and the pig arguing about who is the most important participant in a breakfast meal of eggs and bacon. The pig quickly ended the discussion by pointing out that the chicken was only “involved” in breakfast while the pig was indeed “committed.” Commitment is another one of those soft and squishy topics that can be difficult to measure. Meaningful definitions of commitment as related to committing to change could be: The act of binding yourself (intellectually or emotionally) to a course of action, or the trait of sincere and steadfast fixity of purpose.3 These definitions are clear about the depth of action required in a true commitment. They also suggest the importance of tenacity—the measure of duration for sticking to the commitment until it is achieved, regardless of obstacles.

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Core Elements Several prerequisite elements come into play for getting firm commitments in place. These include: • Openness. Individuals need to possess an attitude of receptivity and an ability to detach from self-interest to be open to new opportunities. The term openness also refers to the ability to engage in candid and frank dialogue in evaluating commitments and their inevitable trade-offs. • Intention. Prior to committing, people have a reasonable expectation to understand the unvarnished intent of what will be accomplished by their commitment to an initiative and their role in it. They also will need to know what level of effort is expected within the commitment in order to meet stated objectives. • Trust. An entire chapter of this book is devoted to trust. No lasting commitments occur unless individuals trust that their role is clear, their efforts will be respected, and the initiative is something they can get behind. • Agreement. Unless expectations are understood and discussed to satisfaction, agreement is unlikely to occur. Without agreement, some compliance is possible, but not commitment. Peter Senge, author of The Fifth Discipline, tells us that “90% of the time, what passes for commitment is compliance.”4 He stresses that just getting people to “buy into” a vision suggests a selling process. A preferable alternative term is “enrollment—a process of becoming part of something by choice.”5 • Action. Commitment without action is only intention. Action must take place for a commitment to be fulfilled. • Fulfillment. This is the desired outcome of a commitment, the satisfaction of collaboration, engagement, and a job well done.

Techniques for Getting to Commitment It is useful to have tools for securing commitment in this vital capability. We offer multiple perspectives for your consideration. 1. Kolbe Commitment Contract. Kathy Kolbe is a theorist who created an assessment instrument that measures conation—the behaviors

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that come from an individual’s striving instincts. Her theory on conation and the creative process suggests that people have natural ways of behaving that are determined by instinct yet buffered by free will. According to Kolbe, we each have “the choice—or free will—to allocate our instinctive powers with varying degrees of self-determination.” Our free will “channels the subconscious force of instincts, assigns it, and then transmits it into conscious effort.”6 By understanding how to leverage our natural ways of expressing our creative energies, we can be more successful and fulfilled in what we do. Kolbe defines commitment as “guarantee that the necessary instinctive power will be allocated to accomplish a goal.”7 Her commitment model is useful in self-assessing the degree of commitment along organizational and personal dimensions in a change effort. Kolbe advocates measuring commitment according to “the three Levels of Effort you can assign to any action. Commitment is the highest level, followed by Attempt at the second level, and Intention at the third level. Some guidelines: • Commitment. Focus and application of full capabilities toward an action • Attempt. Effort expended toward action, but without use of full capabilities or mental energy • Intention. Implies minimal or no current effort toward action An example cited to clarify the meaning is “when people intend to call you, attempt to call you, or commit to a time to call you.” Another example is where a person “intended suicide, attempted suicide, or committed suicide.”8 It’s a bit gruesome, but it does bring specific clarity to the differences between levels of effort. (Note: Details on a very helpful technique called the Kolbe Commitment Contract program for managing time and mental energy can be found in her work Powered by Instinct.) 2. The Language of Commitment. Earlier in the book we referred to Kegan and Lahey and their work on the Seven Languages for Transformation. They believe so strongly that commitment is a critical factor in successful change behavior that they detail it as a leadership opportunity in their first “language.” Their book is a rich source for exploring the way we talk to ourselves, how we form our assumptions, and how these assumptions impact our interactions with colleagues. It offers a methodology for evaluating alternative assumptions that can

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lead to openness, trust, and agreement to action. Exhibit 7.1 is from their work, contrasting the Language of Complaint with the Language of Commitment. Exhibit 7.1 From the Language of Complaint to the Language of Commitment Language of Complaint

Language of Commitment

Easily and reflexively produced, widespread

Relatively rare unless explicitly intended

Explicitly expresses what we cannot stand

Explicitly expresses what we stand for

Leaves the speaker feeling like a whiny or cynical person

Leaves the speaker feeling like a person filled with conviction and hope

Generates frustration and impotence

Generates vitalizing energy

Sees a complaint as a signal of what’s wrong

Sees a complaint as a signal of what someone cares about

Nontransformational; rarely goes anywhere beyond letting off steam and winning allies to negative characterizations

Transformational; anchors principleoriented, purpose-directed work

Source: Robert Kegan and Lisa Laskow Layhe, How the Way We Talk Can Change the Way We Work: Seven Languages for Transformation (San Francisco: Jossey-Bass/Wiley, 2001). Reprinted with permission of John Wiley & Sons, Inc.

3. Quality and Commitment. Stephen R. Covey tells us that “an effective decision has two dimensions: quality and commitment.” He suggests that by assigning values to each and multiplying them together, one can derive an effectiveness factor. His example follows. Let’s suppose that we make a quality decision—a perfect 10 on a 10-point scale; however, for some reason the commitment to that decision is low—a 2 on a 10-point scale. As a result we have a relatively ineffective decision (by multiplying 10 and 2, we get an effectiveness factor of 20). Now let’s assume that by involving others, we compromise the quality of the decision (it drops from 10 down to 7), but we increase the commitment to it (let’s say from 2 to 8). In this case we have an effectiveness factor of 56 (7 times 8). That means the decision may not be as good, but is almost three times as effective!9

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4. Stages of Change Commitment. Daryl Conner, in Managing at the Speed of Change details a straightforward approach to building change commitment.10 For sake of brevity, we include an overview of this model in Exhibit 7.2. 5. Infectious Commitment. Andrea Shapiro, an internal consultant for Nortel Networks, designed a computer simulation model that applies Malcolm Gladwell’s “Tipping Point” concept to gaining organizational commitment. Her approach was to use a principle of epidemiology—the spread of infectious diseases—with the “disease being the strongly held belief that a particular change will transform the organization for the better. The means of infection is exposure to committed change advocates.”11 It is a novel approach that takes an organization from being apathetic to incubation, full exposure to new ideas, and testing them against personal experiences. According to Shapiro, “as with all management simulations, the value of the model is not in its predictive power but in its power to catalyze reflective conversation” within the organization. Interestingly enough, it demonstrates that sometimes even small changes can have a large impact, defying conventional wisdom that great changes drive great impact.

Impact Individuals and organizations that deliberately accomplish their commitments are able to build and leverage strategic advantage from their competencies and capabilities. Those who do not build commitment should prepare for the inevitable consequences. The Price Waterhouse Change Integration Team published The Paradox Principles over a decade ago, yet many of their findings still resonate today: “Renewal cannot be achieved without decisive actions that make sense to the entire company, not just to the folks at the top. People will commit when they see an organization worthy of their commitment. And their commitment increases the greatness of the organization.”12 Without collective commitment, the organization is attempting to accelerate an engine that is not firing on all cylinders. In addition, backsliding creeps into the picture. Forward momentum is stalled, and doubt regarding success and sustainability saps morale. Having the

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Contact

Preparation Phase

“Buy-in”

Aborted after Initial Implementation

Adoption

Aborted after Extensive Implementation

Disposition Threshold

Decision to Move Forward

Institutionalization

Internalization

Source: Daryl R. Conner, Managing at the Speed of Change (New York: Random House, 1992), 148. Used with permission from the author.

Time

Negative Perception

Installation

“Ownership”

Decision Not to Implement

Positive Perception

Understanding

Confusion

Awareness

Stages of Change Commitment

Unawareness

Acceptance Phase

Commitment Phase

© Conner Partners

Exhibit 7.2

Degree of support for the change

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tenacity to push through old habits that keep us in our comfort zone is essential to prevent falling back into the trap of business as usual. Jeanie Duck, senior vice president of the Boston Consulting Group, states in The Change Monster: “Leaders have to be genuinely engaged or the change effort will fail. It is impossible to fake commitment and excitement; the employees will not be fooled. Why should an employee get fired up about a change that the management team is ambivalent about?”13 Evidence of the interaction between leadership and mutual respect can be seen in the relationship between leaders and collaborators at Southwest Airlines, an organization that continues to compete better than any other in a turbulent industry. In fact, Southwest intentionally chooses to use the term collaborator instead of follower. According to Kevin and Jackie Freiberg, coauthors of Nuts! Southwest Airlines’ Crazy Recipe for Business and Personal Success, the roles of leader and collaborator are interchangeable because “leadership is something that leaders and collaborators do together.” Here is what they have to share about commitment: The relationship between leaders and collaborators at Southwest Airlines is based on commitment, not compliance. Leadership isn’t some sophisticated technique for getting people to do what you want them to do. Leadership is getting people to want to do what you want them to do because they share your purpose, vision, and values. When the interests of leaders and collaborators overlap, the result is long-term, sustained commitment. When people are committed, they are bound emotionally or intellectually to a purpose or course of action. They are in it with all their heart, soul, and mind. Compliant people simply go through the motions and put in their time; it’s difficult for them to transcend the nine-to-five mentality because they have no emotional or spiritual attachment to the cause their work represents. Commitment doesn’t come with position, and it can’t be bought. Commitment must be earned. Leaders and collaborators are drawn to higher levels of commitment when both see that their personal agendas are encompassed by a purpose that is deeply held by everyone in the relationship.14

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Relationships Commitment is closely aligned with other change capabilities in these ways: • Leadership lacks credibility without a clear record of committing to initiatives and tenaciously leading the organization to accomplishing the objective. The credibility of leadership determines whether people will invest their hearts and minds in shared values and visions. People want to see the “walk” as well as the “talk.” • Tenacity and commitment are powerful indicators of consistent communications. • A key component of organizational learning is “doing what you say you will do” and leveraging this reliability for competitive advantage. • Innovation without a tenacious spirit of commitment can delay speed to market. • Trust and commitment are interdependent. Commitment is where trust promises are kept. • Empowerment and a sense of autonomy are achieved through commitment. • Being committed to an initiative acknowledges a willingness to be accountable. • The adaptive organization can find that overzealous allegiance to commitment in the face of a need to adapt produces rigidity, inflexibility, and a lack of responsiveness. • Commitment and tenacity are supportive enablers for a forwardthinking organization that is dedicated to leveraging diverse skills and backgrounds.

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Capability Assessment Table

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Level

Commitment

Scenarios (for each level)

1

Absence of capability

Many initiatives are launched; few are completed as they are “overcome by events.” Highly competitive internal environment exists, with each person looking out for him- or herself. Tenacity shows up in devotion to personal agendas rather than collaborating for the greater good. Significant misalignment with strategies and mission at individual levels is observed— some outright sabotage. In a command-and-control culture, compliance masks commitment. Trusted relationships within the organization are generally absent.

2

Minor evidence of capability

Distinct pockets of cooperation are developing, but most of the organizational culture is still operating from individual agendas and a compliance perspective. Initial attempts at facilitating trust between leadership and employees in the organization are beginning. The management perspective tends to be one way and top down.

3

Moderate evidence of capability

Increased emphasis on the value of team building is promoted, with specific roles and responsibilities being defined in support of greater commitment. Improvement is seen in completion of initiatives, but conflicting priorities still interfere with a robust effort. Resources are promised to support specific initiatives but are not named and alignment may or may not be attained.

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Commitment Level

Commitment

Scenarios (for each level)

4

Considerable evidence of capability

Established teams create detailed planning and alignment charters in order to build cross-functional commitment and collaborative methods for identified improvement initiatives. Significant effort is expended to focus improvement initiatives on the vital few that need to be completed, and resources are named to support them. The majority of these initiatives are completed successfully. Organizational metrics specify the key indicators and rewards that ensure the desired performance is attained. As evidence of the organization’s understanding the importance of developing commitment and tenacity, specific commitment training is provided to allow individuals and teams to be successful.

5

Fully implemented capability

The enterprise is fully aligned in support of core initiatives, linked through specific objectives, performance indicators to measure progress, and reward systems to reinforce desired behaviors for commitment and tenacity. All individuals understand their role and expected contribution toward organizational strategies and tactics, and will expend the necessary effort to reach objectives.The vast majority of all improvement initiatives are completed with desired outcomes and sustained going forward.





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77

Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.) Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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The two most important letters in commitment are ME. Commitment is not something you put on every morning; it is something you had when you went to sleep last night. It gives those you manage hope. It is that important. John Buck, “Real Leadership Includes Value, Honesty, and Caring”

Notes 1. The full description of the genesis of this term can be found in Daryl Conner’s book, Managing at the Speed of Change (New York: Random House, 1992), 92–93. 2. Conner, Managing at the Speed of Change, 93. 3. WordNet 3.0, Cognitive Science Laboratory, Princeton University, or http:// wordnet.princeton.edu/. 4. Peter M. Senge, The Fifth Discipline: The Art & Practice of the Learning Organization (New York: Doubleday, 1990), 218. 5. Senge, The Fifth Discipline, 218. 6. Kathy Kolbe, Pure Instinct: 5 Rules for Trusting Your Guts (New York: Random House, 1993), 25. 7. Kolbe, Pure Instinct, 199. 8. Kolbe, Pure Instinct, 26. 9. Stephen R. Covey, Principle-Centered Leadership (New York: Simon & Schuster, 1991), 219. 10. Conner, Managing at the Speed of Change, 148. 11. Peter M. Senge et al., The Dance of Change (New York: Random House, 1999), 344–346. 12. Price Waterhouse Change Integration Team, The Paradox Principles: How HighPerformance Companies Manage Chaos, Complexity, and Contradiction to Achieve Superior Results (Chicago: Irwin, 1996), 153. 13. Jeanie Daniel Duck, The Change Monster: The Human Forces That Fuel or Foil Corporate Transformation & Change (New York: Random House, 2001), 110. 14. Kevin and Jackie Freiberg, Nuts! Southwest Airlines’ Crazy Recipe for Business and Personal Success (Austin, TX: Bard Press, 1996), 299.

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Chapter 8 Accountability

The conventional corporate governance structure has outgrown most of the political structures designed to control it. Accountability must therefore come from within. Nell Minow, DANCE OF CHANGE

Background In Stephen Covey’s book The 8th Habit, we find a disturbing statistic. He cites a Harris Poll where only 10% of a survey of 23,000 workers felt their organizations held people accountable for results.1 What is the percentage in your organization?

Definition To be accountable means to be answerable. Being accountable indicates a willingness to take responsibility for your own actions and those 79

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of the organization. It signifies that you will do what you say you will do. To place accountability into a meaningful context, we must be able to answer “The accountability for what?” Individual accountability is different from organizational accountability, but generally each type can be categorized as accountability for finances, fairness, and performance. The difference between intention (wanting to do something) and actually doing it is action. Action is assured through personal accountability. Absence of accountability leads to finger-pointing, artificial boundaries, and a not-my-job attitude. Absence of accountability in organizational financial affairs can lead to abuse of funds, preferential treatment of cronies, inefficiency and waste of resources, and ineffectiveness in achieving desired results.

Core Elements Here are the core elements of the accountability capability: • Adherence to standards and the importance of potential oversight by internal and external auditors, legislative committees, other reviews (board, management, oversight bodies), professional organizations (e.g., American Institute of Certified Public Accountants), nongovernmental organizations (public interest groups), media, and court cases. • Meeting expectations—of customer satisfaction, quality management, productivity management, project management, cost measurement, and planning and budgeting. • Consequences of deviation from standards and expectations established relative to the level of criticality to the organization. • Rectification—willingness to repair, or make whole, those interested parties negatively impacted by deviation from standards or expectations. • Punishment and rewards—an organization says a lot about itself in the way it punishes and rewards its people. Some quick tests follow. Are managers punished (e.g., demoted, cut in pay, fired) when caught abusing funds, giving preferential treatment to cronies, and are wasteful or inefficient and ineffective in achieving desired

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results? Are managers and employees rewarded (e.g., promotions, salary bonuses) when they have made efficiency gains and improved effectiveness in achieving desired results?

Impact Specific impacts from the accountability capability include: • Regardless of whether a change takes place, if there is no accountability before the change, there will be no accountability after the change. • Lack of accountability can lead to an abuse of funds and performance. In a worst-case scenario, lack of accountability can lead to the demise of an enterprise—witness the Enron and WorldCom scandals. • Expectations of organizational accountability could enhance internal and external confidence in the organization, increasing its qualitative and quantitative value to stakeholders.

Relationships The relationships between the accountability capability and other organizational capabilities are detailed next. • Accountability is the basis of trust. • Accountability and trust can lead to empowerment and autonomy. • Accountability and strict adherence to expectations need to be balanced with the organization’s planned risk tolerance. Otherwise, the potential opportunities that can accrue from innovation will be lost. • Accountability and full disclosure are key enablers of organizational learning and leadership traits. • Accountability, trust, empowerment, and autonomy lead to higher and improved levels of performance and the ability to effect change in an organization.

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Capability Assessment Table Level

Accountability

Scenarios (for each level)

1

Absence of capability

Management is not accountable to stakeholders. Employees are not accountable to management. No one is accountable to the customer. Very little oversight is observable.

2

Minor evidence of capability

Some evidence of accountability with selected oversight processes is in place. Established goals and responsibilities are evaluated periodically for some personnel.

3

Moderate evidence of capability

Evidence of accountability at the management and executive level is established. Clear accountability is present at the board of directors (or equivalent) level. A corporate set of ethics and a code of conduct are in place.

4

Considerable evidence of capability

Accountability exists at the individual and organizational levels. Reward systems are evident, and violations of ethics and code of conduct are not tolerated.

5

Fully implemented capability

All managers and employees are accountable and responsible for their actions. The organization’s financial and operating performance is transparent and fully disclosed to stakeholders.




Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)
Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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The decentralization of private companies, public agencies, and even community groups has spread the responsibility for decision making more broadly at the same time that it has greater accountability for each individual decision made. Such corporate restructuring and reengineering—and its public variant, “reinventing government”— puts a premium on leadership not just at the top, where it has always mattered, but throughout an organization. Raymond Smith, chief executive officer of Bell Atlantic Corporation, forced his firm through a wrenching remake on its way to a 1997 merger with NYNEX Corporation. To get there, he offered this formula: “We have to change everything in our organization. We have to transform everyone from a bureaucrat to an owner.” For Smith, the company’s future depended upon “making everybody into a strategic thinker.” Michael Useem, The Leadership Moment

Notes 1. Stephen R. Covey, The 8th Habit: From Effectiveness to Greatness ( New York: Free Press, 2004), 3.

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Chapter 9 Forward Thinking

Skate to where the puck is going, not to where it is. Wayne Gretzky, Retired Professional Hockey Player

Background The Gretzky quote is a profound analogy when it comes to leading organizational change. A healthy respect for traditions of the past and a clear vision for the future are vital in order to respond effectively to environmental demands. Conscious aversion to conducting business as usual and continuously improving organizational capabilities are critical to success, and perhaps survival.

Definition For continual improvement to take hold, organizations need to embrace a culture of forward thinking. Forward thinking entails continuing 85

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to scan the environment outside the organization, and the infrastructure within, in order to implement change as part of routine business. For some companies, that may be as simple as scanning the external environment by attending conferences, participating in professional groups, and reading publications about new technologies coming to market in order to prepare to shift toward that technology or incorporate capabilities into existing infrastructure. In more robust organizations, it means instituting both continuous and periodic forward thinking practices as part of the culture and fabric of day-to-day business. Forward thinking is continuous in that each day we accomplish tasks and interact with staff, we find opportunities to make improvements. It is periodic because forward-thinking leaders establish regular reviews and mechanisms to capture changes. By ignoring forward thinking and not incorporating it into the organizational culture, an organization risks inertia and lost opportunities. One method of instituting periodic forward thinking is a SWOT—strengths, weaknesses, opportunities, and threats—assessment. Through such an assessment, you can classify the internal organizational infrastructure into strengths and weaknesses and the external environment into opportunities and threats. By using a SWOT analysis, organizations can form forward-thinking strategies and look toward the horizon for future change opportunities, before they become either internal weaknesses or external threats. Another technique used to promote continuous improvement is the concept of lessons learned after significant events or milestones. Lessons learned involves an exercise in which staff members evaluate what went well, what could be better, and what you could do differently next time. These ideas are then documented and harvested to improve new initiatives and avoid making the same mistakes the second time around. Finally, forward thinking can be defined as “vision”: where you want to be in the future. A good leader has the ability to articulate the future path for the organization and then dissect it into manageable steps. A good vision becomes tangible—something that staff can relate to and see evidence of implementation.

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Forward Thinking

87

Core Elements Some of the critical elements of forward thinking include: • A preference to be proactive. Both external and internal environments produce increasing demands on organizational time and energy, to the point that it can seem futile to do anything other than react to them. With a clear line of sight to the organization’s strategic intent, all leaders and collaborators can model a conscious and deliberate approach to achieving objectives and creating future opportunities proactively rather than reactively. Continuous environmental scanning is an example of a proactive organizational preference. • A clear and well-communicated vision. The strategic intent of the organization needs to be communicated at all levels in order to engage and enroll everyone in the objectives. The vision must be exciting, attainable, justified, and powerful enough to drive commitment from everyone in the organization. It is also important to ensure that objectives link to personal values and reward systems. • A continuous improvement mindset. Continually assessing processes, policies, and methods is a core competency of the change-resilient organization. An organizational mindset that monitors performance on a recurring basis to ensure that quality, cost, and time metrics are creating increasing value for all stakeholders will simultaneously build organizational change capacity. • A tolerance for risk—“failing forward.” If everything worked according to plan, there would be no need for risk management. As the demands of change increase, so does the profile for risk. However, total aversion to risk can stifle creativity and innovation, placing the organization in the position of not meeting the needs of the environment and its customers. Failing forward assumes that the organization learns from the risks it takes and captures lessons learned to avoid making the same mistake a second time. Allowing a measured level of risk creates an internal organizational mindset where experimentation and innovation

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can produce new products and services to exploit opportunities and produce competitive advantage.

Impact Without a predilection for forward thinking, organizations will stagnate and fail to grow in response to environmental demands. With a cultural attitude of forward thinking, an organization will be able to fully orchestrate all its capabilities to meet stakeholder needs and create value for all participants.

Relationships Forward thinking is closely aligned with other change capabilities in these ways: • Forward thinking is integrated with a strong sense of vision and purpose, and championed by strong leadership. • Communications translate forward thinking into key messages that are disseminated across the organization, providing credibility, outlining expectations, and articulating results. • Forward thinking can help manage risk by anticipating negative events and celebrating innovation in market strategies and problem solving. • Trust is inherent in effective forward thinking; staff members need to trust that leaders will act on the information in a positive manner, make suitable adjustments, and not punish them. • Empowerment to contribute ideas, thoughts, and energy to continually improve the organization is an outcome of forward thinking. • Being committed to forward thinking is a way to demonstrate accountability for the future state of the organization.

Imagination is the living power and prime agent of all human perception. Samuel Taylor Coleridge

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Forward Thinking

89

Capability Assessment Table Level

Forward Thinking

Scenarios (for each level)

1

Absence of capability

The organization has not acknowledged an understanding of the need for forward thinking and has not promised any effort to the initiative. The organization is fully content with the status quo, ignoring potential indicators calling for change. Organization leaders base decisions on the assumption that the future will always look like the present.

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2

Minor evidence of capability

The organization has acknowledged that it is subject to the impact of the external environment but is consistently reactive in its response to environmental change. The organization’s planning processes are designed to meet current needs and pay little attention to forecasting future needs. Leaders recognize that the future will look different from the present; however, business decisions are almost universally focused on reacting to current needs.

3

Moderate evidence of capability

The organization recognizes that the future will differ from the present. However, a firefighting mentality leaves limited time and resources available for effective planning for the future. Although limited in nature, the organization does employ a periodic strategic planning process that seeks to define major future trends; insight gained from this exercise forms the basis for advance planning. Resources may be promised but are not named, and alignment between defined plans and future needs may be limited. The organization engages in occasional efforts to better understand future needs in critical areas through literature review, conferences/ symposiums, benchmarking, and so on. (Continued)

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90 Level

Forward Thinking

Scenarios (for each level)

4

Considerable evidence of capability

The organization understands the importance of forward thinking and expends significant effort toward the objective in concert with other objectives. A structured strategic planning process is in place that requires a periodic reassessment of the future. Recurring analyses of the gap between future requirements and current capability are undertaken and used to drive the planning process. The organization seeks to inform itself of future direction through multiple means, including literature review, conferences/symposiums, benchmarking, and so on.

5

Fully implemented capability

The organization proactively seeks to understand the changing environment through multiple means: benchmarking, identification of industry best practices, and maintaining currency with leading-edge industry thinking. Change responses are aggressively sought, evaluated, and implemented as appropriate. The organization uses judgment to extrapolate current trends as a means of estimating future direction; educated estimates of future direction are consistently included within the strategic planning process. Leaders consistently communicate the importance of vision and the need to identify future trends before they become incorporated into standard industry practice.





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Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.) Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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Chapter 10 Innovation

In an era when Six Sigma controls no longer guarantee competitive advantage, when outsourcing to China and India is universal, when creeping commoditization of products, services, and information hammers prices, innovation is the new currency of competition. It is the key to organic growth, the lever to widen profit margins, the Holy Grail of 21st century business. Michelle Conlin, “Champions of Innovation”

Background More and more companies are realizing the competitive advantage to embracing innovation as a key component of business. In the March 10, 2005, issue of The Economist, innovation was identified as the most important element in any modern economy. Innovation can be the source of strategic/competitive advantage, reducing costs, increasing productivity, improving/refining products, and attracting new customers. 91

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Both customers and businesses benefit from innovation, and when the business benefits, so do stakeholders. Business Week has a strong point of view on this topic. According to editor-in-chief Stephen Adler: Assistant Managing Editor Bruce Nussbaum likes to say that innovation is the “new black.” He’s right of course, judging by the speed with which companies are accelerating efforts to change their cultures, foster innovation, and serve customers more effectively. Innovation, or “design thinking,” is, we believe, something truly important and enduring, not just the latest management fad.1 Business Week believes innovation is such a critical topic that beginning in 2006, it incorporated quarterly inserts called “Inside Innovation” into its publication, and is sustained today as a major web domain on the Business Week website, providing a repository of rich resources for readers. The editors explained the original mission of the insert in this way: “We dedicate ourselves to the proposition that making innovation work is the single most important business challenge of our era. Our goal is to make a meaningful difference in the difficult journey toward building innovative business cultures.”2

Definition Innovation is the spark that ignites change. It is the marriage of invention and initiation. Although its birth comes from the creativity of designers and developers, it cannot be propelled into action without strong motivation, support, and action. One of the greatest forces acting on innovation comes from change leaders and champions. By their very nature, they encourage their companies to see the forest, walk beyond the trees, and join them out in the field on the other side. Organizations today cannot afford to overlook innovation, and instead should look toward innovation as an active and creative nucleus of corporate capability. Today, global competition forces a limited shelf life in any breakthrough ideas, as there is always a competitor who is going to do it faster, better, and cheaper.

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Innovation

93

Common Areas of Innovation As an organic body, the environment is constantly morphing and growing in response to the multitude of forces acting on it. Responding successfully to the ever-shifting environment requires adaptive behaviors that embrace and leverage creativity. As living systems themselves, businesses, economies, and government entities should be in a state of continuous improvement and always looking for a way to innovate and execute more effectively. Common areas where innovation is exploited for organizational advantage are: • Improve quality of existing products and services to the point that new offerings no longer resemble existing products and services. • Improve productivity of operational and organizational processes in a dynamic and inventive way for maximum efficiency and effectiveness. • Create new products and services that address customer needs unmet by existing products or services. • Improve cycle time and speed to market through progressive benchmarking tools, inventory optimization, and integrated operational communications. • Optimize resources by tapping unconventional lines of business for team projects. • Reduce negative impact on the organization through progressive human resources strategies and methods that reward experimentation and measured risk taking. • Improve status and work quality through attainment of higher customer satisfaction ratings from creative service offerings that competitors do not identify or offer. • Reach performance goals through dynamic employee campaigns that stimulate commitment and ownership. With the correct approach to innovation, organizations can benefit by their attention to return on investment in ingenuity. Such attention requires deliberate focus on the process of innovation development and delivery. A company may have a sophisticated research and development team, warehouses full of test resources, and state-of-the-art tools

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and facilities that innovators utilize, but without the appropriate distribution plan for the exciting new ideas produced, there is no value added. Likewise, the organization that has a strong marketing plan, an encouraging management team, a willing staff, and an untapped market, yet possesses weak concepts and old products will not have the capacity to be innovative. Capability to innovate is not all that is required; you have to execute as well. Innovation is not an innate and abstract quality some companies are blessed with. An article in The Economist suggests that innovation is a combination of dedicated and active focus supported by systematic process. Two things set apart all organizations with a good record of innovation. One is that they foster individuals who are internally driven—whether they are motivated by money, power, and fame, or simply curiosity and the need for personal achievement. The second is that they do not leave innovation to chance: They pursue it systematically. They actively search for change (the root of all innovation), then carefully evaluate its potential for an economic or social return.3 With this concept, innovation no longer becomes a charismatic characteristic some businesses are fortunate enough to possess. Rather, innovation becomes an executable process for change, as identified in the next four stages of innovation.

Core Elements Innovation typically is managed in four stages: Stage 1: Cultivate. The first stage in innovation requires idea generation. Someone must develop a new concept or approach that is not leveraged by another business. The approach may be as simple as a brainstorming session or as technical as a “deep-dive” product/service analysis. The innovation process may be triggered by another process—that of conducting a continuous environmental scan. Integration of input from customer focus groups and other stakeholders can help develop the conceptual requirements. The there-must-be-a-better-way concept takes over when an observer intimately connected to a process, product, or service identifies problem(s). Such an observation also could be stimulated by the

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goals of the organization or an opportunity that suddenly appears. Various scenarios can lead to idea generation: from leafing through magazines, to watching TV, to playing with children, to touring obscure factories. Each can conjure up dynamic possibilities. In the first stage of innovation, companies cannot afford to rely strictly on the more conventional methods of research and analysis. Stage 2: Evaluate. In the second stage of innovation, idea generation leads to opportunity evaluation. Observers assess their idea(s) and determine what opportunity exists through testing. Typically, the more environments and types of testing conducted, the more salient the idea becomes, and more valid the strength of the solution is in relation to identified requirements.This process should reveal how robust the idea is. If the idea meets the goals established and helps solve the problem identified in stage 1, the process moves to stage 3. For example, the organizational goal of the solution may be to develop a product that matches the needs of a certain demographic and can be produced with a fixed amount of resources. In general, for an idea to have solution resilience, it must go through a series of refinements before it can be developed into an actual product, service, and so on. Stage 3:Validate. Here an idea that successfully meets the requirements set forth by testers will move through a series of developments. This stage may include drafts and prototypes distributed to a small test populations for review and solution-resilience assessment. For example, an organic product or service developed by an in-house group of engineers may appear to solve the problem(s) originally identified by the observer, but if the customer does not agree, the concept product has no marketable purpose. Many great products get eliminated in stage 3 of innovation as, for one reason or another, they just do not meet expected goals. However, even if these products and services never make it to market, the companies that embrace innovation and the innovation process will retain the mock-ups and blueprints for possible future development and creative design. Stage 4: Execute and reassess. In the final stage of innovation, there is profit realization where the market makes the final evaluation. The ultimate test is whether alignment between customer wants and needs and the market offering exists that will recoup the investment made in the innovation process to bring the product or

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service to market. Additionally, innovative people are never satisfied with the status quo, and the innovation cycle is renewed. Most people do not like change, and view it as disruptive. If our business is doing well, we worry a change may upset performance. If our business seems to be struggling, we worry that the change could further damage already fragile operations, technologies, or management relations. Change means something new is about to develop—something we might not understand is going to be put on a plate before us that we are expected to swallow and digest. However, if experimentation is an expected part of our culture—if our corporate climate encourages calculated risk taking and celebrates proactive creativity and invention— we may be more likely to accept such changes.

Impact If the organization is change resistant or even change reluctant, its forward progress in responding to increasing environmental demands is going to be slower than that of change-ready organizations. Innovation requires a constant eye on the environment, searching for opportunities to match with organizational capability outcomes from idea creation in the Stage 1 of the innovation process. A culture of control and compliance, with its penchant for stability and status quo, is not likely to have an appetite for risk to push the envelope in innovation. A lack of investment in innovation could put the enterprise at competitive risk in the long term by being out of sync with wants and needs of customers.

Relationships Innovation is a critical capability of the change-resilient organization and is aligned with the other capabilities in these ways: • Leadership sets the tone for innovation in its strategic intent, or forward-thinking purpose. • Innovation is fueled by an organizational tolerance for risk, which encourages and rewards a spirit of experimentation within an environment of trust, empowerment, and autonomy.

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• Accountability and commitment link idea creation with execution in innovation. • Integrated communications in an organizational learning environment ensures that lessons learned and knowledge captured are retained for future use. • Diversity and inclusion keep a variety of fresh ideas and experiences circulating within the organization for maximum organizational leverage. • Adaptation is a critical capability that drives the innovation process, either by viewing new requirements demanded from the external environment or through continual improvements to products and services to better meet customer needs.

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Capability Assessment Table Level

Innovation

Scenarios (for each level)

1

Absence of capability

Traditional methods of management and operation are followed without significant change to process, products, and solutions. The need for an innovation capability is not recognized or emphasized. In some situations, the need for innovation is minimal, as environmental demands are not of a pressing and urgent nature.

2

Minor evidence of capability

Traditional methods of management and operation are followed. Suggested alterations to business processes experience significant resistance. Minor development is gradually made, via established and traditional methods. Innovation is not championed.

3

Moderate evidence of Traditional methods of management and capability operation are gradually modified in response to environmental needs. Alterations to business processes, products, and services face moderate resistance from management. Development of new concepts and ideas is informally encouraged but not formally supported by management. Innovation is not championed, but discussions to elevate its priority are in process.

4

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Considerable evidence of capability

Business management and operations evolve in response to current environmental needs. Alterations to business processes, products, and services face mild to no resistance from management. Development of new concepts and ideas is formally encouraged in business plans and supported by management. Innovation is championed at the individual level through fresh ideas and perspectives.

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Level

Innovation

Scenarios (for each level)

5

Fully implemented capability

Business management and operations are driven by environmental needs and to proactively anticipate future needs. Alterations to business processes, products, and services face mild to no resistance from management. Continuous innovation is seen as the new normal. Development of new concepts and ideas is formally encouraged in business planning and supported by performance management systems. Innovation-focused initiatives are launched and championed by management, supported by reward systems, and embraced by employees. The organization leverages knowledge of innovation in market leadership and pursuit of organizational excellence.




Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)
Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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“We can believe that we know where the world should go. But unless we are in touch with our customers, our model of the world can diverge from reality. There’s no substitute for innovation, of course, but innovation is no substitute for being in touch, either. Steve Ballmer, CEO, Microsoft

Notes 1. “Editor’s Memo,” Business Week, June 19, 2006, 18. 2. Bruce Nussbaum, “inmanifesto,” Business Week, June 19, 2006, 3 IN. 3. “Industry Gets Religion,” The Economist, Innovations in Business, February 18, 1999.

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Chapter 11 Communication

Only 17 percent [of workers, managers, and executives] felt their organization fosters open communication that is respectful of differing opinions and that results in new and better ideas. Stephen R. Covey, THE 8TH HABIT

Background Communication is at the center of human relationships. Communication may be verbal or nonverbal, in a foreign language, or unspoken. It may be specific and direct, or it may be couched in polite, passive words. Irrespective of how the concept is relayed, at least two people are involved: one who sends the message and one who receives it. For longterm, trusted relationships, it is important that the communication is clear, honest, and understood. See if you can relate to this story on communicating a vision of change.

101

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In the middle of the night a senior manager wakes up from a fitful sleep, springs from the bed, snatches a pencil and sheet of paper, and frantically scribbles down sketches and notes. The next morning, he schedules an impromptu meeting with company allies and spreads out copies of his nocturnal musings as the prototype of the shining new direction of the organization. The manager fervently explains to employees that this concept holds the prospect of success that far outreaches every other initiative to date. The manager then goes on to explain just how the company would need to operate with this new concept, emphasizing the main points with short, hard-knuckled wraps on the smooth oak table. Then, after he has relayed the last portion of his narration, he leans back and exchanges satisfied smiles with his staff, as if to say “This is it, this is exactly what we need.” He parcels out tasks to various team leads on their way out the door. The manager lingers for a moment in the empty conference room, thinks fondly over what just took place, and then heads out for an 11:30 luncheon. Later that day, Marketing is asked to work up the content for an enterprise-wide program to create the buzz for the new organizational direction. Thousands of dollars and many late nights are spent on the “New Direction” campaign. Then finally the cover is lifted and the initiative is revealed through posters, memos, a sleek web video, and firm-wide e-mails. Again the manager sits back with his allies and waits for his troops to rally around him. They don’t come. In fact, they are not even sure what the “new direction” is. A few employees overheard an upper management conversation about it but most deleted the web-video file that was clogging up their inbox. If they had opened it, they might have seen what an innovative concept it was, but their workload was too heavy and the message was too long for most to even give it a second thought. Those who did open it became confused and intimidated by the amount of data the financial team had pulled together. One quarter later, the company has actually lost money from the “new direction,” the senior manager seems defeated, and the trusty allies feel a bit foolish for jumping in so fast.

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Does this story ring true for you?

Definition For the purposes of organizational change, communication is the capability to create and distribute a relevant message to an organizational body responsible for shifting or sustaining an action, behavior, or belief. Communication is the vehicle or enabler for organizational knowledge sharing.

Core Elements Before communications can begin, the organization must clearly articulate its case for change. Unless and until your key audiences clearly understand what must change, there is no reliable mandate for change.1 Leaders of successful change programs commit resources, including a top-level manager, to develop communications surrounding the case for change. These resources then create, shape, and execute communication activities. To develop an effective communications program, organizations need to look at the most elementary elements: what their stakeholders must hear and see in order to internalize the message and act on the guidance from senior management. Doing this requires not only awareness but also a change in behavior. It is not sufficient to come up with an innovative idea that would revolutionize the “way we do business.” The idea, or case for change, has to be repeated, embraced, and socialized until it carries its own momentum. The communications program must identify audiences and core messages and specify the vehicles to carry those messages to the designated audiences. These messages must be delivered by credible messengers. Additionally, the program must incorporate feedback to strengthen communications throughout the life of the change initiative. As preparation for getting our minds around communicating on change initiatives more effectively, let’s examine some of the questions we might ask ourselves in planning our communications program: • Who are the receivers of the message? Generally speaking, most change programs have at least four audiences: a. Program sponsors/executive leadership (change sponsors)

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•

•

•

•

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b. Program managers responsible for executing activities (change agents) c. Internal employees (change targets) d. External audiences (change targets), such as customers, regulatory agencies, constituents, and competitors For communications to be effective, these audiences need to be identified, understood, and segmented. Don’t forget to keep an overarching category of “all audiences” for general communications. What do the receivers need to hear to internalize the message and act on it? What’s in it for them? Communications need to be put into a language that the target audience understands and that leads them to awareness of the change and behavior modification, as required. How and in what forum should the message be delivered? A variety of vehicles should be used to distribute the message. Best practices state that an individual needs to hear a message an average of six times to properly receive it. This does not mean that someone needs to hear the message from the same person six times. Rather, it means that a variety of vehicles are needed to deliver the message six times using six different means. These vehicles should include both written and verbal communications, including one person to many people as well as one to one. Who should deliver the message? What may be more important than the actual words used in the message is the person or vehicle that delivers the message. The sheer act of having a credible messenger who motivates and inspires people to change often is more important than the detailed words used to craft the message. A poor or ill-received messenger with the best message may never be heard. A forum that is read by many but is related only tangentially to the change can be a larger draw than the information technology department newsletter that the rank and file never reads. How can we make it better? Communications are delivered by people and received by people. Each individual is different, leading us to no single correct answer. As a result, every time a message is delivered, an element can be improved: in the message, the vehicle, or the messenger, or in preparing the receiver to hear the message.

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Communications programs need to have a continuous improvement mechanism that collects and acts on informal and formal feedback. The process of effectively sharing the message and getting others to accept it is somewhat of an art. Capturing the attention of a crowd and steering them toward various emotions and thoughts is a very powerful capability that can take years to develop. In Leading Minds: An Anatomy of Leadership, Howard Gardner, renowned professor of education and neurology, equates successful leadership to winning storytelling, enabling change agents to review the concept of storytelling and transfer the concepts to an organizational change and communications context.2 According to Gardner, a story or message goes through three phases: creation, relation, and duplication. These phases embrace the key elements needed for successful communication of change within an organization, and each deserves its own brief discussion. 1. Creation. The first phase requires that you create a story from the resources at your disposal. You have to determine what it is you want to say, what reaction you want, and how you are going to say it. You have to determine, even before you start writing, what direction you want others to see. 2. Relation. The second phase requires legwork. Once you create the message, you want it to spread across as many mediums as possible. E-mails and posters are not enough; the message has to permeate the workplace. Whenever and wherever possible, the story has to be told. In hallways, during meetings, after coaching/mentoring sessions, within round robins and town hall meetings, the story must be related over and over again. There is, however, a potential for a story to get lost in translation. When the story is shared, audiences selectively listen and pull out relevant parts that they fold into their own stories within their own personal mindset. Although this identification process is vital to the relation of a message, once the listening audience retells it, the message no longer belongs to its creator. Therefore, to keep the integrity of the message and sincerity of the purpose, the creator should make it his or her own mission to retell the story in as many

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environments and situations as possible, thus decreasing the risk the story is distorted and misinterpreted. 3. Duplication. The last phase of successful storytelling requires the listener to personally identify and act in response to the story. In phase 1, the messenger concentrates on creating a story that is relevant and of interest to the audience. In phase 2, the messenger shares the message in approachable environments that welcome and encourage an emotional response to the telling. But in phase 3, the messenger must step away from the story and wait patiently for others to identify with its values and beliefs and embrace it as their own. Then, once listeners adopt this message and the personal motivations it establishes, they will begin to act and follow in the direction the leader is pointed. Anyone sharing the story must promote it physically through their own actions. Resist the trap of assuming that people can get the message in an hour when it took the management team months to plan the communication! Example The senior manager in the story discussed earlier created his message in the quietness of the night. It seemed to come to him in a dream, and he frantically wrote down all of his thoughts. That was his first problem: He only wrote down his thoughts. He never stopped to consider how Sue in accounting would relate to his story or to consider that Bob’s IT experience may not lend well to the marketing-based analogies. The manager created a message that applied only to himself. With these three phases, the messenger can encourage adoption of the message. It is important to understand that the message must appeal to the desires, interests, values, and feelings of the target audience. As a gut check to evaluate this perspective, take a moment to consider these behaviors before you finalize your communications program: • You are committed. Think about the manager who championed a recycling program then tossed his own soda can in the trash. This is not just the new fad laced with the latest buzzwords and fancy slides. You are building integrity by explaining the process, how

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others need to adapt, and how you personally will be adapting and changing your own routine. • You did your homework. Think about what would happen if your CEO said at the next firm-wide event, “Okay, guys, I just got this awesome idea that I think will be really cool.We just need to dive in.” Make sure you didn’t just dream up this scheme. Ensure you took the time and care to construct an intelligent implementation plan that benefits everyone. The amount of detail in the implementation plan should leave no doubt about how much time and thought went into the change initiative. • You respect those around you. Who would you rather work for: the person who listens to your idea and asks questions to understand, or the person who dismisses every idea with “That’s a good idea, but . . .”? Listen to what others are saying and address their issues, concerns, and suggestions. Make an effort to show how you value and care about their feelings as they face uncertain and potentially disruptive times. Diffusing their issues by working through them as a team sows esprit de corps. • You keep people informed and educated. There is a reason why the dentist tells you what she is going to do before she does it! Set proper or appropriate expectations and follow through on commitments. Make sure that your target audience walks away knowing that this meeting isn’t a one-time event. Your audience needs tangible proof that you have a communication plan to keep them informed and feeling secure with the process.

Impact It does not matter how good a change concept is—if it can’t be communicated, it can’t be shared. If it isn’t shared, there is no chance for buy-in. If there is no buy-in, there is little to no enrollment by the individuals in the organization. Forcing compliance can work in the short term, but ultimately it will be suboptimal and lack the synergy that could have made the change wildly successful. Often communication is overlooked during change initiatives; however, it remains the central flywheel throughout the course of the

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change. And as innovative as the senior manager was with his midnight notes, he forgot to keep his vision running. He forgot to share it over and over again, until it became part of the culture. Each one of us has a unique story, supported by our experiences and values. We all have a certain way of looking at the world that is a bit different from the perspective of the person standing beside us. Once we identify our life purpose, vision, and mission, we act in accordance with that internal drive and work very hard in pursuit of our goals. Some of us choose to work quietly, turning our mind inward, calling on our resources and potentials. Others of us may send feelers out toward the masses, calling on others for support and strength. But no matter how we choose to personally operate and what methods we use to gain strength to achieve our goals, we all have our own vision of how the world should be and our own story to tell. Let’s make sure we communicate it well!

Relationships Communication is an enabler that glues all the other organizational capabilities together and is closely aligned with them in these ways: • An effective leader generally is backed by a robust communications program that champions and communicates the case for change, expectations, and results throughout the organization. • Communications translate forward thinking into key messages that are disseminated across the organization, providing credibility, outlining expectations, and articulating performance results. • Communications can help management cultivate an organization that tolerates measured risk by disseminating information and celebrating innovation in market strategies and problem solving. • Trust is inherent in effective communications; open and honest messages transparently delivered by credible messengers are at the heart of effective information. • Staff members are empowered to collaborate and support communication efforts, acting as messengers and providing feedback for improvements to the overall communications program. • Regular communications that translate expectations into actions are a way to demonstrate accountability for the future state of the organization.

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Capability Assessment Table Level

Communication

Scenarios (for each level)

1

Absence of capability

The organization has not acknowledged an understanding of the need for a communications program and has not promised any effort to the initiative. Organizational messages are reactive and unplanned.

2

Minor evidence of capability

The organization has acknowledged the understanding of the need for a communications program but has not promised more than minimal effort. Organizational communications are planned to some extent, but not well integrated, taking some receivers by surprise.

3

Moderate evidence of capability

The organization has stated it will attempt to implement a communications program but conflicting priorities and reward structures could interfere with a robust effort. Resources toward improving communication may be promised but not named, and alignment may or may not be attained.

4

Considerable The organization understands the priority of a evidence of capability communication program and will expend significant effort toward the objective, in concert with other objectives at hand. The organization proactively creates opportunities for discussion and dialogue.

5

Fully implemented capability

The organization will deploy its full capability in achieving the objectives and expected outcomes of the communications program. Resources are identified and aligned. Effort will be sustained until the initiative is completed. Organizational dialogue is the standard for conflict resolution.




Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)
Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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It’s not so much that we’re afraid of change or so in love with the old ways, but it’s that place in between that we fear. . . . It’s like being between trapezes. It’s Linus when his blanket is in the dryer. There’s nothing to hold onto.3 Marilyn Ferguson, author of The Brain Revolution and The Aquarian Conspiracy

Notes 1. The Price Waterhouse Change Integration Team, Better Change: Best Practices for Transforming Your Organization (Chicago: Irwin, Price Waterhouse: 1995), 11. 2. Howard Gardner and Emma Laskin, Leading Minds: An Anatomy of Leadership (New York: Basic Books, 1995), 9. 3. http://thinkexist.com/quotation/it-s_not_so_much_that_we-re_afraid_of_ change_or/328419.html

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Chapter 12 Risk Tolerance

Failure is just another way to learn to do something right. Marian Wright Edelman, Founder and President, Children’s’ Defense Fund

Background In game theory and finance, risk is the variability in possible outcomes of an event or process. In this broad context, risky outcomes are not necessarily bad, only uncertain. The term risk refers to that uncertainty. In this context, both the positive and negative outcomes resulting from a risky decision are considered part of risk. In many other contexts, however, the term risk refers only to the negative outcomes that result from uncertainty. In the insurance industry, for example, risk generally refers to the potential losses against which economic protection is sought. Depending on your prior experiences and training, you may be used to thinking of risk as uncertainty 111

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with both an upside and a downside, or simply as the chance of a loss to be avoided. However, in either case, it is important to recognize that sound management practices require optimizing the balance between gains and losses when outcomes are uncertain. Some individuals knowingly make risky decisions in which the potential losses are greater than the potential gains. We all understand, for example, that the opportunity for net losses on money put into a slot machine is greater than the overall opportunity for wins. However, thousands of individuals can be found on any given day betting on the potential for a net gain from slot machines. Although there may be some entertainment value in such gambling, such an approach to business decision-making makes little sense. In business—or in any organization that seeks to achieve maximum outcomes with limited resources—decision-makers need to consider whether the potential gains from a decision outweigh the potential losses. Sound decision-making requires that a risky decision is rewarded with a risk premium when compared to an alternative that does not incur risk. The greater the uncertainty of the outcome of a decision, the greater the risk premium that is required for the decision to be economically sound. How risky the decisions an organization is willing to make, and how much of a risk premium the organization demands in return, is referred to as risk tolerance. In the context of this book, risk tolerance relates to the willingness of the organization to accept occasional failure or harm for the sake of a higher overall return on investment. Anytime an organization takes an action where the outcome is uncertain, risk is present. If organizations only take actions that involve limited risk, their opportunities will be correspondingly limited. As a result, many opportunities with an excellent return on investment potential will be forgone. Companies make money by taking risks and lose money by failing to manage them. It is important to recognize that organizations that manage risk effectively will outperform those that have a lower risk management capability in the long run. Any change initiative assumes some form of risk. The general notion is that effective risk takers receive a reward. They put capital or resources “at risk” with an expectation of creating increased value or returns for stakeholders.

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Those organizations that successfully balance risk and reward will attain significant advantage in a world that seeks constant innovation and change. However, not all risk is rewarded. Various standards, regulations, and operating principles must be met (e.g., in financial management, compliance with the Sarbanes-Oxley Act in the United States). Failure to meet these requirements can result in loss of reputation and ability to compete in a market, fines, even potential incarceration. Generally speaking, compliance is the minimum level of risk management a company must manage.

Definitions Typically, risk is related to the possible losses or undesired consequences of an event or action and the probability that this event or action will generate damage, loss, or injury. In other words, Risk = (probability of loss or undesired consequence)
(impact of loss or undesired consequence) Tolerance is the acceptance of multiple views or outcomes, or the range of acceptable engagement and participation. Risk tolerance may also be termed risk appetite. Risk tolerance can therefore be defined as the degree of uncertainty or loss a person or firm is prepared to accept in order to achieve a higher overall rate of return or payback on investment or on organizational and personal success.

Core Elements There are many uncertainties or risks associated with doing business— particularly as you initiate a change program. To arrive at an effective “risk tolerance” measure, you will need to assess many factors from different perspectives. A selection of those factors follows. • People. Risk associated with injury, churn, behavior, values, capabilities, adaptability, motivators, and communication (impact on customers, employees, owners, and other significant stakeholders)

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• Process and systems. Risk associated with quality, performance, reliability, complexity, scalability, adaptability, efficiency/effectiveness, cost competitiveness, disaster recovery, and loss of use (impact on customers, employees, partners, missed opportunities, cash flow, and profit) • Physical assets. Risk associated with damage, financial cost to repair, loss of use, and erosion of value • Supply chain. Risk associated with concentration, complexity, adaptability, control or influence, and political stability (particularly if outsourcing to other countries) • Strategy. Risk associated with uniqueness/differentiation; balance of short-, medium-, and long-term goals; adaptability or rate of innovation; focus; alignment; and agility • Financial stability. Risk associated with cash flow, liquidity, debt ratio, insurance, and exposure to interest rate/foreign exchange volatility In a world where the environment is driving rapid change, organizations with a capability to mitigate risk effectively while rewarding innovative exploration can attain significant advantage. Unfortunately, not all data relating to a “risk” is captured systematically. In this situation, risk analysis can be qualitative, relying on best judgment or experience. Given this scenario, evaluations may not be consistent. Risk tolerance may differ by person, team, group, or division compared with overall corporate risk tolerance. In isolation, it may seem relatively easy to assess a risk and the value associated with any of the factors just mentioned. However, there are three challenges: 1. Aggregating risk across many factors. Many mathematical methods can be applied here. The key is generating plausible scenarios and understanding their cascading impact. For example: A network card in a bank’s computer system may have a value of $100. Suppose that computer is used for processing interbank transfers as part of the clearing system. If it were to fail and there was no backup, the real cost is not limited to the cost of replacement. It would extend to the cost or value of making good the transactions not processed, which could be millions of dollars, not to mention loss of reputation.

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By evaluating scenarios, you can assess likelihood and impact. Methods such as Monte Carlo simulation can assign probabilities. Armed with this information, you can assess “inherent risk” (i.e., the “raw” risk before putting controls in place that mitigate the risk). Once you have devised and implemented controls, you are left with the “residual risk,” or potential remaining exposure. Risk tolerance relates to your acceptance of this residual risk in relation to the potential positive outcomes you seek. If the risk is still too high, you can avoid the risk by not doing it, you can insure against it, or you can improve your mitigating controls. 2. Aggregating risk across divisional silos. This is perhaps the most difficult challenge of all. The first issue talks to definition: Is there a consistent language used to describe events, outcomes, processes, and metrics in your organization? If not, common or similar risks may not be aggregated to highlight risk concentrations. In such cases, little or no priority may be assigned to mitigating the risk as each discrete risk is seen to have low impact. The second issue relates to balancing conflicting objectives. Each division, department, or group first considers its own objectives and then may consider how its actions impact other parts of the organization. For example: Marketing creates a new campaign to generate interest in a new product. This new campaign should be coordinated with Manufacturing to ensure it has the capacity to meet expected demand. Otherwise the campaign may prove to be a huge success from Marketing’s perspective (as many more orders than the original target are received), but the company may be unable to meet demand due to manufacturing capacity issues. Loyal customers become frustrated and cancel their orders. Ultimately, they switch all their business to alternative providers. In the short term, the marketing people are rewarded for exceeding their target. In the medium term, the company implements a cost-cutting exercise to balance the decline in overall business—clearly an imbalance of risk versus reward. Another example relates to how divisions, departments, or groups fail to use available data from other parts of the organization because they don’t “trust” the data. For example: A bank has three lending arms—mortgages, credit cards, and personal loans. Each

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arm uses its own systems. Each performs its own risk assessment before granting credit. Although it is possible to aggregate credit exposures at a customer level, it is not done because the individual arms don’t want to rely on data from the other divisions. This could mean that a personal loan is granted without knowledge that the same customer has a large debt on her credit card and a 100% mortgage against her home. 3. How you account for higher tolerance in certain groups. Is it because of the market they operate in? Is it because of their track record? Is it because of their seniority? All of these factors must be taken into account and clearly communicated. Failure to do so could result in groups taking on either too much or too little risk because they are following another group’s “tolerance” without fully understanding the ramifications.

Impact Having an appropriate risk tolerance means the organization will be able to maximize its success within its tolerance for possible unexpected outcomes by encouraging managers to pursue opportunities that have a good risk-adjusted rate of return but are not sure bets. What is appropriate will vary by industry and organization. The risk an oil drilling and exploration firm may determine to be appropriate for well drilling based on a risk/rewards analysis may be far different from the level of acceptable risk in the design of a passenger airplane. Although investing in exploratory drilling may be economically attractive with only a 10% chance of hitting a gusher, not many passengers would want to fly in a plane designed to safely land 99 out of 100 times. Appropriate risk may vary by the organization and industry, but in all cases, risk should be assessed based on an understanding of the level appropriate for maximizing organizational value within the tolerance for incomplete success. Attaining this appropriate level—whether that is an increase or decrease in risk tolerance—will increase the likelihood of project and organizational success. A failure to establish the appropriate level of risk tolerance can cause two problems: Managers will be reluctant to make decisions involving risk if the organizational risk

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tolerance is too low; or, if risk tolerance is too high, managers may be reckless in the application of limited organizational resources.

Relationships Risk tolerance is most closely related to other capabilities in these ways: • Setting the tone for the appropriate risk appetite is the prerogative and responsibility of leadership. It also demonstrates forward thinking and the resulting accountability for risk management. • Risk tolerance links directly to innovation, as an unwillingness to accept any risk can stifle the innovation process. • Risk tolerance facilitates organizational learning, helping develop a finer sense of what does and does not work in any particular situation. • Risk tolerance in an organization and its management enables the development of trust in the decision-making process. Decisionmakers understand that their jobs will not be in jeopardy for making decisions with uncertain results so long as risks and rewards are appropriately considered and balanced. • An acceptable tolerance for risk by the organization facilitates dynamic stability and fosters adaptation as the organization weighs probabilities in light of potential opportunities. • Empowerment and autonomy are difficult or impossible to establish in risk environments, unless an appropriate level of risk tolerance exists. It doesn’t work to leap a 20-foot chasm in two 10-foot jumps. American proverb

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Capability Assessment Table

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Level

Risk Tolerance

Scenarios (for each level)

1

Absence of capability

There is little to no understanding of or appreciation for the level of risk inherent in the initiative to be undertaken. There is no evaluation of the consequences of not attaining projected outcomes. There is no evaluation of the acceptance of risk compared to the potential rewards of project success.

2

Minor evidence of capability

The organization and key individuals are sensitive to the element of risk in projects but have very limited ways to quantify or analyze risk. Consequences of not attaining project outcomes are discussed in qualitative terms but decisions are largely based on personal judgment. Acceptance of risk is recognized but is not supported with fact-based analysis and varies from case to case, often succumbing to political considerations.

3

Moderate evidence of capability

Major sources of risk are explicitly identified and generally quantified in relative terms. Impacts of risk are generally stated in qualitative terms and analytically compared to a predetermined qualitative standard of acceptable risk. The organization has developed a subjective acceptable risk profile against which projects are evaluated. While acceptability of risk is generally fact-based, political considerations occasionally take precedence.

4

Considerable evidence of capability

A broad-based risk analysis system identifies and quantifies all significant sources of risk. Impacts of risk are stated in a combination of qualitative and quantitative terms and are analytically compared to a predetermined standard of acceptable risk. The organization has developed an acceptable risk profile that is fact-based and against which projects are evaluated. Alignment with strategy is subjectively apparent, but processes for derivation of risk profile are undefined.

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Level

Risk Tolerance

Scenarios (for each level)

5

Fully implemented capability

Enterprise risk management is employed to evaluate risks across the organization, including projects and change initiatives. Impacts of risk are generally stated in quantitative terms where feasible and analytically compared to a predetermined standard of acceptable risk. The organization has developed an acceptable risk profile that is purely fact-based and against which projects are evaluated. The risk profile is derived from and integrated with the organization’s strategy and values.




Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)
Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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Chapter 13 Organizational Learning

There are many years of experience to draw upon from organizations that have explicitly sought to enhance their capability to learn.While the gains from downsizing, reengineering, and “slash and burn” retrenchments often fail to sustain themselves, the gains from enhancing learning capacity have proven to be sustainable, cumulative, and self-reinforcing. Peter Senge, THE DANCE OF CHANGE

Background The field of organizational learning provides many concepts and tools for those leading a change initiative. It has been suggested within the organizational learning community that change is a by-product of learning that goes on within the organization. In this context, learning can be seen as increasing the capacity of individuals to more deeply understand and do things in a new way. As this learning and understanding spreads

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and grows, new capabilities emerge and take root, and change “happens” within individuals and organizations. Our challenge is to see how we can build and institutionalize a learning organization that can facilitate the change we are seeking. Both Peter Drucker, called by some the “father of modern management,” and Peter Senge, author of The Fifth Discipline, suggest that in order for an organization to become a learning organization, it first needs to be a teaching organization. Many of us have experienced the benefit of learning that can come from teaching a subject—in the process of teaching, we are forced to learn at a deeper level. General Electric is the organization most recognized for its teaching done by senior executives in its Croton, New York, facility. In the process of teaching, senior executives also have the opportunity to demonstrate that they can walk the talk.

Definition Organizational learning can be defined as a capability to utilize knowledge to enable an organization to learn and effectively adapt to changes within its environment. This concept has been championed by a number of experts, including Chris Argyris and Donald Schon, James G. March and J. P. Olson, Daniel H. Kim, Ikujiro Nonaka and Hirotaka Takeuchi, Nick Bontis, and R. L. Flood. Application of the theories and models of organizational learning was further enhanced by Peter Senge in The Fifth Discipline.

Core Elements: Organizational Learning Skills, Language, and Practices A person could invest years in mastering all of the material written on organizational learning. Here we describe a select number of these skills and practices to help us build our toolbox and strengthen our capability to facilitate change. As we discuss these skills and practices, we will interweave the specific language and terminology of organizational learning with the concepts, along with discussion of Senge’s five disciplines: systems thinking, personal mastery, mental models, building shared vision, and team learning.

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Establishing an Individual and Shared Vision Vision is the direction and driving force in organizational learning. It represents the outcome we are seeking or the desired end state in a change model. Different from a goal, vision can be thought of as the aspiration of an individual or a group of individuals. The term vision is commonly used in today’s world of strategy development within an organization. Crafting and communicating a vision that can be shared by all individuals in the organization is an essential element of any change plan. This “binding people together around a common identity and sense of destiny” is one of the galvanizing forces Senge discusses. This discipline “fosters genuine commitment and enrollment rather than compliance.”1 Leaders of change in an organization need to create a vision that is consistent with the outcome they desire—a “guidepost” to direct individuals to the outcomes being sought. In organizational learning, a vision is considered a personal attribute, something that each individual voluntarily decides to hold. A vision is shared when others hold a similar personal desire to see the same end state. Therefore, it is very important that leaders develop effective means to communicate their vision and also understand that each individual’s vision is based on free will. Another of the five disciplines from Senge is personal mastery, or the “discipline of continually clarifying and deepening personal vision, focusing energies, developing patience, and seeing reality objectively.”2 Leaders should foster communication processes that surface, mold, and integrate the personal visions of individuals into the collective whole. One additional term is worthy of further clarification in reconciling and consolidating individual visions into an organizational vision. Current reality is the state of things in the present moment, and relates to the initial state in a change model. A commitment to the truth with respect to current reality is critical for real change. Often we understand our current reality only partially, or we are uncomfortable acknowledging it. However, time invested here is important, because progress toward an end state must be evaluated in relation to an initial baseline state. According to Senge, “Our vision is something that we aspire to become,” and as he quotes from Robert Fritz, author of The Path of Least Resistance for Managers, “It is something we do for its own sake.”3

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We cannot force our vision onto others and expect them to be committed to it. How do we then create a shared vision? Only by living our vision and effectively communicating its values can we lead others to it. Ultimately it is each individual’s decision whether to share in that vision and to have a shift in his or her personal mindset to adopt it. In developing a shared vision, it is critical for leaders to be personally committed to their vision. A personal commitment of this nature requires honesty and developing trust with others as the vision is articulated and put into practice. Only by action and doing are artifacts of the vision created that can be seen and used by others who you want to share the vision. Kazuo Inamori is an entrepreneur who founded Kyocera and built it into one of the world’s largest manufacturers of ceramic and electronic components. He tells us that “it is not what a vision is, it is what a vision does.”4 A meaningful vision creates a sense of purpose that stimulates action in the learning organization.

Commitment to the Truth In addition to having a vision that can help guide and motivate us as we move into the future, we also need to have a baseline from which to measure future progress toward that vision. In establishing a baseline we develop a deeper understanding and seek the truth of our current state. One method of exploring the future state is by having productive dialogue with others to discern a higher level of understanding of the current reality. Only by understanding and truthfully characterizing our current state can we hope to take steps that will move us toward our vision. At times, our current reality can be difficult to face. Some people may find the vast number of issues and constraints they see around them as too numerous or too discouraging to acknowledge. We have all experienced the inertia of analysis paralysis. However, commitment to the truth of our current reality is necessary to gain the trust of others, and it is essential to developing a shared vision. Others are aware of and have experiences in our shared current state. Truthful acceptance of the current reality is a major step in helping to establish a shared vision. It is critical to have a realistic picture of where we are in order to set the tone and direction of a future desired state.

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In change, it is important to understand the differences among compliance, enrollment, and commitment of others related to a change effort. Many times change efforts seek compliance of the people in the organization to adapt to a change. Individuals comply to meet the minimal requirements of a task and to receive something in return for that compliance. Sometimes this is all that is required, but often it is not sufficient to sustain a significant change initiative. An enrolled individual will support an effort but does not have a personal investment in its success. The committed individual shares the vision of achieving the end state and will do everything necessary to see it happen. (See also Chapter 7 for more information on this topic.)

Maintaining Creative Tension Tension is expected when we consider both the vision and the current state at the same time. When we can perceive this tension as a good thing, we call it creative tension. Creative tension is what we feel when we see the vision and it energizes us to aspire to achieve it. Of course, it can also be stressful, or what we can call negative emotional tension. Emotional tension is the stress we feel when the path between current reality and our vision weighs us down, appears very formidable and unappealing to pursue. Absence of tension represents the status quo; presence of tension can create dynamic movement toward the vision. Successful change leaders are able to develop and maintain a state of creative tension during change efforts. Change occurs when the individual moves current reality toward the vision and does not allow the vision to be relaxed. Developing skills that can help sustain creative tension in yourself and your team will bring hope and aspiration to meet your vision. Sustaining creative tension is critical to a successful change effort.

Building Capacity in Others Change is usually seen as something that we or others are asked or told to do. As Peter Senge notes, if we tell people they have to change, their immediate response is often defensive and they ask “Why me?”5

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Change efforts are most effective if they build capacity, or allow for growth and personal mastery of the individuals involved. People build their capacity through learning. In other words, we want to create the opportunity for growth and show that the change effort will give people the capacity to do new things. As we know, learning is an iterative process of trial and error. People need to be motivated to learn and need to have a safe place to practice the new capability. We can characterize the desired change in the personal mindset by the ah-ha! feeling—that state of recognition that we get when we begin to see and understand things in a new way. This is the outcome we are looking for in building capacity through learning. The fundamental learning unit in the organization is teams. Team learning, another of the five disciplines, leverages the capabilities and intelligence of the entire team, where the synergy is greater than the sum of its individual parts. One of the fundamental tools in team learning is the use of dialogue—the ability of teammates to suspend judgment and hold assumptions at bay to reach shared understanding. The next section describes this technique in more detail.

Effective Conversations and Building Trust Building an environment for change requires building trust through effective conversations. The goals of our conversations and the patterns that we use can increase our ability to develop this trust. (Please also refer to Chapter 14 for more information on this topic.) Conversation is needed for us to understand the different points of view that we and others hold with respect to the change initiative in an organization. It helps to keep in mind that the mental models we hold define our individual and organization’s view and help to establish the norms of behavior of its members. One of Senge’s five disciplines for learning organizations, mental models, are the paradigms, attitudes, and perceptions that comprise our behaviors and actions. Communicating effectively among individuals requires that we understand where we are all coming from and uncover and respect each other’s points of view. Mental models are people’s interpretations of the world around them. People can process only limited information that their senses take in and must make assumptions to fill in the blanks about the rest

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of the world they cannot perceive. In this way, information is distilled or filtered into representations we hold and interpret as the truth. Understanding that we all have mental models helps us build strategies among individuals to move forward in the change activity, in both the personal and the organizational mindset. Dialogue, as described by Senge, creates the opportunity to share and build a more complete understanding of the issues within a change initiative. By practicing dialogue, we provide a safe environment in which personal views and assumptions can be aired and shared. This practice provides the ability to correct misperceptions or build on rich learning opportunities. Dialogue is a communication process that can help facilitate deep understanding and team learning. This in turn facilitates changes in the personal mindset. Dialogue is different from having a discussion. Dialogue allows the free exchange of ideas and builds our mutual understanding about all elements of the change activity. Discussion usually involves defending a viewpoint and trying to reach a compromise. This is not the goal of having dialogue, which seeks the deeper common understanding of an issue. Use of dialogue can deepen the communication and the resulting understanding of a change initiative. Dialogue requires that people suspend their assumptions and look for a deeper understanding of the truth and nature of a given topic. In doing so, they may modify their mental models. In the book How the Way We Talk Can Change the Way We Work, Kegan and Lahey describe key practices that can help us develop more meaningful interpersonal and group encounters in a change initiative.6 Without going into detail, here is an overview of their Seven Languages of Transformation: 1. From the Language of Complaint to the Language of Commitment 2. From the Language of Blame to the Language of Personal Responsibility 3. From the Language of New Year’s Resolutions to the Language of Competing Commitments: Diagnosing the Immunity to Change 4. From the Language of Big Assumptions That Hold Us to the Language of Assumptions We Hold: Disturbing the Immunity to Change

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5. From the Language of Prizes and Praising to the Language of Ongoing Regard 6. From the Language of Rules and Policies to the Language of Public Agreement 7. From the Language of Constructive Criticism to the Language of Deconstructive Criticism We suggest that you read Kegan and Lahey’s book for more information on building organizational capabilities and capacities. Their framework clarifies those things to which people are committed with regard to their internal assumptions. You can use it to gain a better understanding of your underlying assumptions and how you can challenge them to develop a new point of view. You can also use it to develop communication skills that can enable more effective relations among individuals. Through using the tools of dialogue and by transforming the context of language, trust can be built. Individuals can then begin to see change as something that will increase their own capacity.

Action Leads to Learning Learning and leading change do not happen in our heads. Action is needed to start and continue the process of change and the feedback that is required for learning. In the process of learning, the immediate result is not necessarily success. Learning, after all, is an iterative process. Organizational learning occurs through a series of actions by individuals who risk failure, respond to feedback, and adapt their strategies to meet their objectives. Within the organizational mindset, leaders must address the often submerged and deeply held organizational assumptions that may challenge the change initiative. The key to moving forward in the organizational mindset is to find ways to build reinforcing feedback for the change in the organization. This feedback comes from the practice of taking action and building on the learning process. Systems thinking is the final discipline in The Fifth Discipline, and it can contribute to enhancing and accelerating action learning. Systems thinking is the practice that integrates the other disciplines holistically.

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Organizations are comprised of human systems bound by their interrelationships. These interrelationships play out in subtle ways in the organization, and it may take years to see patterns emerge that contribute to understanding these human systems. Systems thinking looks at the bigger picture and considers the interfaces and interactions between elements of the organization as these activities relate to the change activity. It sees the organization as a whole and as a series of events. Systems thinking is a conceptual framework and tool that facilitates knowledge of the patterns of relational interactions and how they can contribute to effective change. These interactions provide the feedback loops that can positively reinforce or have a negative impact on an initiative.

Identifying and Working with Partners To have a fighting chance with any change, you need a team. Senge tells us in The Fifth Discipline that a minimum of two to three partners is necessary for a successful change effort. Proactive teaming reinforces the concept of learning and developing a shared vision, even if it starts with a small group that shares a common interest. Within an organization, it is useful to develop a pilot group to get started. These individuals will work on developing a shared vision and have the potential of energizing those around them. Within the group, the opportunity to use dialogue will strengthen their understanding of all elements of their change initiative.

Impact Organizational learning should be considered a key cultural change enabler in any organization that desires to grow and provide opportunities for its stakeholders. Organizations are living systems that will evolve on their own. Using the organizational learning capability and its practices as an internal guidance system facilitates building change capacity. Application of the tools and techniques of organizational learning spell the difference between responding proactively to environmental

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challenges with a continuous improvement mindset and reacting in an unplanned manner, with no regard for prior lessons learned.

Relationships to Other Capabilities Organizational learning is a critical capability for any organization that espouses to be change resilient. It is a discipline and a methodology for continuously building and stretching organizational capabilities: • Creating an innovative environment where organizational learning thrives is the responsibility of leadership. • The learning organization is sustained through empowerment and autonomy and fully accountable for its actions. • A learning organization is risk tolerant within specified parameters and forward thinking. • Organizational learning principles foster communication, trust, commitment, and tenacity. • Capabilities of diversity and inclusion provide a basis for dynamic stability and creative adaptation for the organization.

Capability Assessment Table To measure your effectiveness in adopting organizational learning, consider how well you and your organization have embraced the characteristics described in this chapter. The level at which they are practiced by individuals within the organization determine how well the organization has implemented a learning environment. Keep these tenets of organizational learning in mind as you evaluate your organizational capability in this area: • • • • • • •

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Establish a shared vision. Commit to the truth and acknowledge current reality. Establish and harness creative tension. Initiate effective conversations and build trust through dialogue. Identify and work with your partners. Implement action-oriented change that leads to learning. Focus on building capacity.

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Capability Assessment Table Level

Organizational Learning

Scenarios (for each level)

1

Absence of capability

Multiple visions are represented by individuals, such that no shared vision exists across the organization. There is fierce allegiance to the status quo and “if it ain’t broke, don’t fix it!” No focus on building organizational learning capacity is observed. Organizational conversations lack a ring of authenticity and are usually one-way, breeding distrust. Little to no use of partnering alliances exists. Organizational actions are reactive in nature.

2

Minor evidence of capability

A beginning coalition of perspectives and viewpoints is starting to emerge. Slight movement away from “business as usual” can be seen. Organizational conversations are beginning to deepen along with consideration of other points of view; however, distrust is still predominant. Discussion of need for learning capacity growth begins. Little to no use of partnering alliances exists. Actions are still primarily reactive in nature.

3

Moderate evidence of capability

Efforts are under way toward creation of an enterprise-wide vision. Some leaders understand that the current reality calls for a need for change and growth in learning capacity to move toward the vision. The organization shows beginning signs of opening up to a commitment to truth through more open and honest discussions. Beginning programs to foster alliances with partners emerge. Actions are planned and more proactive, along with crisis management contingency planning efforts. (Continued)

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Level

Organizational Learning

Scenarios (for each level)

4

Considerable evidence of capability

An organizational shared vision is in place, with plans to integrate it into performance management systems. Objectives are being set for organizational learning, and growth capacity increases. Evidence of use of dialogue, openness, and team learning is observable. A partnering and alliance program is being formalized and institutionalized. Operations are now more proactive and planned than reactive.

5

Fully implemented capability

A single and comprehensive shared vision for change drives the organization forward proactively and is integrated with objectives throughout the enterprise. Building organizational learning capacity is reinforced through reward systems and personal development programs. Dialogue and a commitment to truth foster an open and trusting organizational environment. A robust partnering and alliance program is in place to further extend organizational capabilities through productive relationships with customers and vendors. Organizational learning elements are proactively embedded within the organization, and continuous incremental improvement is considered a competitive advantage.




Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)
Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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How do you create trusting, supportive, productive interpersonal relationships at work? What I dreamed of doing was finding a way to change the interpersonal atmosphere in the workplace from one of mistrust, fear, cynicism, dirty competition, and a sense of helplessness and powerlessness, to one filled with joy, enthusiasm, cooperation, shared power, and mutual trust. Back in the late 1970s and early ’80s, my dream was just that. A dream. At that time, I could find little or nothing truly useful and practical in the organizational literature and only bits and pieces of what I wanted in psychological publications. I attended at least 150 training events in those early years and still found little of what I was looking for. That’s when I started The Atlanta Consulting Group. Because the techniques and skills we were seeking were not then to be found in the business world, we decided not to study executives and managers but to look for high-performing people in organizations. From exploring the dynamics of the relationships these performers had with their bosses, we began to uncover what we needed. One great discovery was that mutual trust was at the bottom of it all. With a team of trainers and researchers throughout the 1980s and ’90s, I helped develop people-skills training around the topic of trust building and teamwork. We discovered if you could build trust into a relationship, it served as the oil that allowed all the machinery to work. And you’d better not be a quart low. Bracey Hyler, The Atlanta Consulting Group

Notes 1. 2. 3. 4.

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Peter Senge, The Fifth Discipline (New York: Doubleday, 1990), 9. Senge, The Fifth Discipline, 7. Senge, The Fifth Discipline, 153. Kazuo Inamori, “The Perfect Company: Goal for Productivity,” presentation at Case Western Reserve University, Cleveland, OH, June 5, 1985.

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5. Peter Senge, from video On Change and Learning, Pegasus Communications, Inc., and the Society for Organizational Learning, 2003. 6. Robert Kegan and Lisa Laskow Layhe, How the Way We Talk Can Change the Way We Work: Seven Languages for Transformation (San Francisco: Jossey-Bass, 2001).

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Chapter 14 Trust

Trust is the conviction that the leader means what he or she says. It is a belief in two old-fashioned qualities called consistency and integrity. Trust opens the door to change. Peter Drucker

Background With the crash of ethics in corporate America over the past few years and the resulting financial improprieties, some studies show that chief executives have a trust factor just above that of the used car salesman. What are the long-term implications of this lack of trust in our leaders, both private and public sector, for our organizations and institutions? Is there any correlation between this absence of trust and the deep division among people, where differences are judged and disrespected as opposed to valued? Even with the regulatory reforms that have been imposed, some organizations are still playing things a little too fast and loose. 135

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For proof, we have to look no further than the recent exposure of subprime lending practices in the financial sector. Remember the days of quality programs, such as total quality management (TQM)? Many of these programs had exceptional theory combined with years of experience, yet still failed. Why? Perhaps these programs required a foundation of teamwork and high trust to be effective.

In most cases the necessary atmosphere was not present. Workers did not trust these new quality ideas, because the words and actions of their managers and executives were self-contradictory. Commandand-control behavior that instilled fear in the ranks didn’t match the pretty words promising respect and involvement of workers and a workplace atmosphere free from fear, punishment, and judgment. Bracey Hyler, Building Trust: How to Get It! How to Keep It!

Definition For an organization to successfully initiate and sustain a change program, it must have trust engrained within its people, the organization, and culture. Trust provides the organization with a culture of honesty, dependability, and strength in the character of the staff and its leaders. “To trust someone is to place your faith or confidence in them.”1 Leaders must trust staff will move forward on their initiatives and direction, while staff need to trust that leaders have their and the company’s best interests at heart. Otherwise, instead of a culture of trust, honesty, and integrity, a company can fall into a culture of sabotage, backstabbing, and personal gain. The concept of return on trust is an interesting one. In his book The Speed of Trust, Stephen M. R. Covey (son of Stephen R. Covey) contends that organizational trust can be an extremely valuable asset; trust enables an organization to work more efficiently and effectively because employees can focus on the business rather than conflict and politics. Covey identifies the inherent qualities of trust as either absent, invoking a “tax,” or present, enabling a “dividend” on operational performance.

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Trust

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Clearly, quantifying the cost of dysfunctional activities due to lack of trust and the resultant impact on the bottom line speaks volumes regarding valuing trust as an organizational asset.

The quality of a company’s work and the quality of internal trust are related. Trust is one of the most valuable, and vulnerable assets of any organization. When people trust one another, they can work through disagreements—both personal and professional—successfully in the context of the greater fabric of the organization. With trust, employees and leaders work with purpose toward company goals. Over the long term, trust may be the single most significant determinant of a company’s success. Robert Galford and Anne Seibold Drapeau, The Trusted Leader

Core Elements Robert Galford is the managing partner of the Center for Executive Development in Boston and Anne Seibold Drapeau is the chief people officer of Boston-based Digitas. In The Trusted Leader they describe three kinds of trust: strategic trust, organizational trust, and personal trust.2 1. Strategic trust. Trust people have in the ability of the organization to be successful. It’s about their faith in the mission of the organization and the organization’s ability to execute on and perform the mission. 2. Organizational trust. The employees’ trust that the organization is truly what it purports to be—that it makes good on its promises. It is an aggregate of personal trust. 3. Personal trust. The level of trust that employees will be treated fairly by their leaders and an assumption that leaders care for their well-being. Although it is possible to have strategic trust without either organizational or personal trust, at least some personal trust is needed to have organizational trust. Galford and Drapeau caution those leaders who

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only have strategic trust to be aware that they are “rapidly heading for rough waters.” Just as there is no silver bullet for change, there is no silver bullet for trust. However, for dialogue and activities to build organizational trust, these two thought leaders have derived a formula to demonstrate how organizational trust (T ) is built:3 T ⫽ (A1 ⫹ A2 ⫹ A3) ⫻ (A4 ⫹ A5) R Where: A1 represents aspirations, or the beliefs of the organization and what it stands for—a reason for people to want to trust one another. A2 is abilities—the collective knowledge, skills, tools, and systems that enable the organization to aspire to do great things. A3 characterizes the actions that an organization brings to leverage its abilities and aspirations. A4 signifies consistency among actions, abilities, and aspirations. A5 stands for articulation. Everyone in the organization understands and knows the importance of all of the preceding factors. R represents the ever-present and natural resistance to change. Galford and Drapeau describe four types of resistances. 1. Healthy skepticism (overcome by frankness and open dialogue) 2. Fear of negative consequences (overcome by inviting people into the process) 3. Frustration from people feeling micro- or macromanaged, underutilized, or undervalued (overcome through dialogue to address perceptions) 4. Embedded “we/they” mindsets (overcome by encouraging resisters to behave like owners and rewarding them when they do) To help you assess and build organizational capability, Galford and Drapeau list a number of penetrating questions and self-assessment tools in their book The Trusted Leader, which could be a rich resource for you.

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Trust

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Impact It takes time to build trust personally and organizationally, but trust can be destroyed in an instant by a word, a look, or an action. At an organizational level, trust is a by-product of the aggregate of trust on individual and personal levels. Trust has much to do with the reliability that people will do what they say they will do. It extends itself in how organizations deal with their stakeholders, including customers and suppliers. Absence of trust can be one of the most damaging and dysfunctional conditions an organization can experience.

Relationships Trust rarely happens in an organization that does not fully empower its people. In a command-and-control structure, a charismatic leader with a singular objective can inspire trust with a take-the-hill mindset. But even in that situation, leadership is not the only capability in play, because empowerment exists as the members of the unit rely on one another for survival. Because reward systems influence desired behavioral outcomes, transparency and openness are important sources for building trust effectively. Without openness and transparency, inconsistent behaviors develop, and visibility is constricted. Accountability suffers and trust plummets. Hand in hand with trust is the capability of open and honest communications. Without trust, communications will not be heard or believed. David Stauffer, author of “How to Win the Buy-In: Setting the Stage for Change,” discusses the importance of telling it like it is. Companies that are able to achieve breakthrough results instill the decision making process with “the brutal facts of reality.”4 Stauffer goes on to say that when you begin with a quest for the truth in a situation, the right decisions become self-evident. In a case study Stauffer provides, John T. Malone, president and chief executive of Hamot Health Foundation (Erie, PA), states that the single most influential factor in a change initiative is the extent to which leaders commit from the onset to open, honest, and complete disclosure.

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Trust is one of those intuitive change characteristics that can be difficult to measure and is integrated with the other capabilities in these ways: • Trust is inherent with strong leadership, because without trust the leader will not be believed, or followed. • For managing risks, there must be a culture that does not include finger-pointing in risk management. There must be trust that the risks are actual risks and that mitigation strategies are executable and actionable. • Trust is inherent in effective forward thinking; staff members need to believe that leaders will take action on the information and make suitable adjustments without fear of retribution. • Within the concept of empowerment, the manager must trust that the employee acts appropriately and in the best interests of the organization, and employees must believe that they have this trust and power to act. • Without trust there is no accountability, because there is no responsibility for action.

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Capability Assessment Table Level

Trust

Scenarios (for each level)

1

Absence of capability

There is no awareness of the potential benefits and limitations of trust within the organization; it’s every person pursuing his or her own agenda. In an organizational climate where people are out for themselves, widespread distrust produces significant conflict.

2

Minor evidence of capability

Awareness is dawning on the destructive impact of the lack of organizational trust. Internal discussions on the need for developing trust and facilitating teamwork at the departmental level are under way. Current results produced tend to be at the level of the best team member, as no synergy is possible.

3

Moderate evidence of capability

Successful cultivation of personal trust within a few departments is observable. Initial efforts are under way to plan to extend trust building to all levels in organization.

4

Considerable evidence There is an observable absence of political of capability dissonance and self-interest agendas. The trust level within divisions is increasing as collaborative opportunities produce measurable results. The organization has committed to planned activities to increase the level of trust enterprise-wide.

5

Fully implemented capability

Open and honest communication is the rule, and transparency is an esteemed cultural value. The capability is embedded across the three levels of trust within the enterprise. High trust is considered a key cultural identifier and competitive advantage.




Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)
Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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Tremendous energy is unleashed within constituents when they have confidence in their leaders. They feel liberated, self-confident, and secure enough in their relationships to explore new territories and opportunities and take on fresh challenges. In this way, trust is the lubricant for individual and organizational change. James M. Kouzes and Barry Z. Posner, Credibility

Notes 1. Bracey Hyler, Building Trust: How to Get It! How to Keep It! (Taylorsville, GA: HB Artworks, Inc., 2002), 1. 2. Robert Galford and Anne Seibold Drapeau, The Trusted Leader (New York: Simon & Schuster, 2002), 6–7. 3. Galford and Drapeau, The Trusted Leader, 91–101. 4. David Stauffer, “How to Win the Buy-in: Setting the Stage for Change,” Harvard Management Update (June 2003): 3.

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Chapter 15 Diversity

To excel in the future, it is essential that we continually develop our company culture to harness the potential of every single employee, no matter what his or her position or level in our company. Diversity is key to tapping maximum motivation and maximum performance from our teams at every level, top to bottom; in all of our disciplines; across all of our properties and businesses. Our premise is simple: an organization that values the contributions of all people will derive the contributions of its entire workforce. Terry Lanni, MGM Mirage Chairman and CEO, from an Address at the Company’s Annual Diversity Meeting, May 10, 2006

Background On the Hershey Entertainment & Resort website, Monica Dixon, director of Diversity Development, recognizes the strategic edge that a diverse workforce provides Hershey. She identifies value, respect, recognition, 143

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and uniqueness as the organization’s primary ingredients for an engaged and effective workplace.1 The founder Milton S. Hershey once said, “Business is a matter of human service,” and the thematic tag line for this organization is “Many Faces . . . One Vision!” Hershey employees strive to mirror the expanding diversity of the company’s communities and markets. The company believes much of its success lies in the positive outcomes that result from their value of diversity in enhanced operations, products, the communities they live in, and the lives of their employees. In forward-thinking organizations, diversity as a corporate initiative has progressed far beyond ensuring equal opportunity based on gender and race. These organizations respect, value, and leverage all differences in order to bring the full engagement of the workforce to the service of creating customer value.

Definition Corporate diversity, or differences in an organization, can be described as the varied perspectives, experiences, knowledge, skills, talents, and abilities of coworkers, employees, managers, and leaders. Leveraging this heterogeneous resource pool allows businesses to expand their thinking and mindset when developing and deploying solutions. Most organizations realize the competitive advantage associated with employing a diverse workforce. Competitors are connecting with markets that demand diversity, but many find achieving diversity difficult. To embrace diversity, an organization must have both the capacity and the capability to create an environment that accepts and welcomes these differences. Organizations must have both the knowledge and the resources to plan and deploy diversity effectively. Inclusion is a process whereby everyone is invited to contribute. Often the distinctive difference between compliance and enrollment—just doing what’s required versus being completely committed—may boil down to how valued the individual employee feels. Leaders that foster a diverse work environment actively demonstrate that they value differences in skills, knowledge, and abilities in the way diversity integrates and welcomes different individual contributions to the organization.

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145

Diversity and Change To be flexible during change initiatives, organizations must learn to adapt to environmental changes and help their employees and management develop the skills and strategies necessary to manage change effectively. Once an organization has determined the vision, goals, and desired outcomes of an initiative, it must call on all its resources to create an effective change strategy that educates, inspires, supports, and develops its workforce. This can be a difficult challenge. Most people react initially to the prospect of a proposed business change by resisting and holding on to what they have and know, because it’s what makes them feel safe. Nurturing an environment that is comfortable with different perspectives and approaches keeps an organization and its employees open to differences and ready for change. Diversity is essential for changing institutional norms based on previous assumptions. Diversity is essential for change. Once an organization makes a commitment to diversity, the challenge of change management presents itself on both an organizational level and a personal level. Managers who integrate diversity into their change initiatives may achieve higher levels of success by building a strong, stable, productive, and diverse workforce. Some of the key preliminary actions leaders can take are to: • Identify existing attitudes toward diversity. • Understand and manage resistance to diversity. • Determine the aptitude for diversity. By taking these actions, a leader can then start to focus on the diversified strengths that exist in the organization and identify the limitations caused by unproductive perspectives and behaviors toward diversity.

Core Elements The organization that embraces the capability of diversity and promotes inclusion: 1. Values strengths and differences in each employee by rewarding skills and leveraging differences in a professional arena to capitalize on opportunities to thrive

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2. Fosters mutual respect among employees from different backgrounds through strong diversity initiatives and campaigns that challenge intolerance and bias 3. Develops awareness and appreciation of differences among employees, leadership, and clients through company profiles and marketing campaigns 4. Instills employee partners with a sense of pride and unity of purpose by making diversity a key strength and strategic goal 5. Champions diversity through strong internal communication efforts, making sure that each employee is presented with equal opportunities for understanding and expression Diversity is a practice at the organizational level. Inclusion makes it personal. According to Annette Merrit Cummings, vice president and national director of Diversity Services, Bernard Hodes Group, an integrated talent solutions and recruitment company: When an organization makes a commitment to diversity, the challenge of change management presents itself on both an organizational level and a personal level. Managers who master the process of change management on both fronts stand the greatest chance of success in building a strong, stable, productive and diverse workforce.2

Impact Many organizations understand the value of acquiring other companies in order to balance the portfolio of products and services they offer to their customers. Phrases like a “marriage of equals” underline the realization that bringing together complementary resources can strengthen the value provided to customers through diversification. Organizations are comprised of people. Proactively orchestrating diverse skills and human uniqueness through inclusive processes instead of the politics of exclusion enables organizations to leverage the hearts and minds of employees more easily. Other considerations are: • Lack of diversity encourages conformity and uniformity of effort to establish the mentality of “That’s just the way things are done around here.”

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Diversity

147

• Lack of diversity may lead to weak employee unity and sense of value. • The practice of inclusion potentially increases positive workplace behavior. • Interdisciplinary skills in diverse areas diversify a company’s approach. • Diverse employees have unique backgrounds and skills that can be applied and leveraged to diversify product and service line offerings.

Relationships Diversity is most closely related to other capabilities in these ways: • Diversity encourages innovation; more perspectives typically yield more optimal solutions. • Diversity is championed through trust, empowerment, and autonomy. • Diversity relies on strong communication efforts to enable mutual respect. • Diversity is modeled by leadership. • Diversity issues require accountability to be dealt with properly.

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Capability Assessment Table Level

Diversity

Scenarios (for each level)

1

Absence of capability

No evidence of diversity is observed. Management does not recognize the need for or actively lobby for diversity in experience, knowledge, and capabilities among employees. The number of fragmented and misaligned initiatives indicates a policy of exclusion via political silos, not inclusion. The organizational resource pool is homogeneous.

2

Minor evidence of capability

Some evidence of diversity is evident in employee background and service/product offerings. The organizational resource pool is heterogeneous.

3

Moderate evidence of capability

Evidence of diversity exists at management and executive levels. Management has established objectives, responsibilities, and initiatives related to diversity. The organizational resource pool is heterogeneous.

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4

Considerable evidence Diversity is accepted and valued at both the of capability individual and organizational levels. A diversity campaign is launched and supported. Evidence of strong teamwork demonstrates inclusion principles.

5

Fully implemented capability

All executives, managers, and employees actively encourage diversity in staffing, approach, and behavior. Diversity objectives are integrated into the performance management system and part of key performance indicators enterprise-wide.

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Diversity Level

Diversity

149

Scenarios (for each level)

Significant evidence of inclusion is seen in the active engagement of all employees in strategic and tactical initiatives. Diversity is leveraged and marketed in the organization and to the clients.


Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)
Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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The problem with empowerment is that it suggests that this is something leaders magically give or do for others. But people already have tremendous power. It is not a matter of giving it to them, but of freeing them to use the power and skills they already have. James M. Kouzes and Barry Z. Posner, Credibility

Notes 1. www.hersheypa.com/hershey_ jobs/diversity/index.html. 2. “Achieve Diversity through Change Management,” Black Enterprise ( July 2002).

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Chapter 16 Empowerment

Rather than forcing or pushing people to change, empowerment provides a mechanism for attracting people to want to change because they have ownership of the change process. Gretchen M. Spreitzer, Professor of Management and Organizations, University of Michigan

Background We have suggested that in best practice and designed-for-change organizations, people don’t have to be in senior management positions to exhibit and contribute as leaders. Leadership can, and should, be found at all levels of an organization. However, ensuring that leadership contributions occur throughout a workforce requires individuals who are empowered and have the opportunity to work in a self-directed fashion that allows them to embark on and successfully sustain change initiatives. 151

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As Peter Senge states in The Dance of Change, “People need to have the means to influence their own environment in order to initiate and create change.”1 Individuals need to be empowered to some extent and be able to work autonomously to have any leverage to implement something new. Change requires that people try new things, take responsibility, and know that their efforts can positively impact the organization. That won’t readily happen if people are constrained by fear of retribution, should they not perform up to expectations. A major study was conducted in 2001 by Edward Lawler, Susan Mohrman, & George Benson, that measured the growth in empowerment practices over the previous fifteen years. Their work is cited by Gretchen Spreitzer and David Doneson, co-authors of “Musings on the Past and Future of Employee Empowerment, who said, “More than 70% of organizations surveyed have adopted some kind of empowerment initiative for some portion of their workforce.” However, “More than 25% of the surveyed companies still report no significant empowerment-oriented practices anywhere in their organizations.”2

Definition In Deep Change, Robert Quinn, professor of Organizational Behavior and Human Resource Management at the Graduate School of Business, University of Michigan, states: “Empowerment is a commonly used buzzword. Everyone is for it. However, problems often arise when we attempt to define the concept and begin its implementation in the workplace. . . . Differing philosophical assumptions often collide.”3 Quinn illustrates this difference with two perspectives on empowerment, the mechanistic and the organic, as illustrated in Exhibit 16.1.4 Relative to these two views of empowerment, an “either/or” perspective might not serve your organization well. There are clearly valuable attributes in both views, and staking claim to one versus the other could bring unintended consequences and additional risk. We recommend that you look at the characteristics that resonate within your organization in light of the demand for change and let those

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Empowerment Exhibit 16.1

153

Two Views of Empowerment

Mechanistic View of Empowerment

Organic View of Empowerment

Start at the top. Develop a clear vision, plans, and assignments. Move decisions to the appropriate levels. Provide necessary information and resources. Encourage process improvement.

Start with the needs of the people. Expose the difficult issues. Model integrity through risk taking. Build credibility through small wins. Encourage initiative. Build teamwork.

In short, empowerment is about clarity, delegation, control, and accountability.

In short, empowerment is about risk, growth, trust, and teamwork.

Source: Robert E. Quinn, Deep Change (San Francisco: Jossey-Bass, 1996), 223.

attributes guide your organizational change response. In many cases, empowerment can, and should, be part of both of these views. In recent years, the word empowerment has come to broadly refer to an ability to influence one’s future or destiny. In one view, the organizational context for empowerment is “to invest with power, especially legal power or official authority.”5 Another view might say that empowerment refers to increasing the spiritual, political, social, or economic strength of individuals and communities. Empowerment often involves increased confidence in one’s own capabilities. Empowered persons or groups have primary control and ownership of the decisions which impact their life. Regardless of the particular viewpoint, we define empowerment as the capability of individuals in the organization to independently take responsibility and action that will influence the outcome of the organization. Developing an empowered and autonomous workforce requires that the organization promote and enable this confidence in action and ensure that individuals have the proper skills and motivation to exercise that responsibility appropriately. Empowerment and autonomy are often seen as two sides of the same coin. Empowerment usually refers to actions taken by leadership extending authority and enabling individuals and teams to have more decision-making responsibility. Autonomy is viewed from the position

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of the individual or team that has taken the responsibility to govern itself according to its own charter within the constraints of authorities granted. Here we look more closely at how empowerment and autonomy can be decomposed into these perspectives. The goal is to describe empowerment as a capability of an organization and to determine the maturity level at which the organization is operating. We also describe several practices that may help an organization improve its empowerment capability. To make change happen, an organization needs people to be actively engaged and committed to results. Commitment can be required at many levels. The chief executive may direct an initiative to decentralize control in a major corporation. He or she may want to empower a major division to operate as an autonomous business unit. A new CEO’s goal may be to implement a set of cost reduction initiatives; which may require empowering major teams to take action. Perhaps a local manufacturing line leader sets in motion a process change, with the desire to empower individual team members to collaborate on its lean manufacturing implementation. In all of these cases, leaders want to distribute decision-making, responsibility, and accountability to subordinates. In other words, they want to empower the workforce. But how do change leaders best empower their people? How do they effectively balance local autonomy with adequate oversight to meet their overarching objectives?

Core Elements As stated earlier, building the organizational capability of empowerment can be best understood by seeing how the capability is viewed in the organization. Additionally, techniques on how to develop an empowered organization, including characteristics of an empowered individual and the responsibilities of senior leadership in supporting empowerment, are important considerations.

Views of Empowerment To help define the ways in which empowerment can be constructed as a capability, we can look at it from three other viewpoints. With these

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155

views come different perspectives of how empowerment is working in an organization and methods and approaches to deploy in order to become more effective. 1. The “top-down” or leadership view of empowerment. This view is taken from the perspective of the organization. It is the view from leaders as they pass down information and potential responsibility to the business units, teams, or individuals. This view is the more traditional way that leaders create and acknowledge an empowerment initiative and “push” it out to their teams and people. As indicated in the work of Gretchen M. Sprietzer, the top-down approach has management providing “power, information, knowledge, and rewards” to its members.6 These provisions can be seen as the mechanisms that management uses to help share artifacts of the organization and its change efforts with the goal of empowering workers. Communicating and initiating actions to provide these top-down elements to the workforce is an important step to take. Communication shapes the content of the business issues being addressed and provides opportunities for others to have access to key information. The leadership view also states the intention of leaders that they are promoting empowerment as an initiative. The top-down view has similar characteristics to the Physical or Infrastructure dimension of the Change Challenge Framework, as it would be applied to an organization’s initiative to empower its people. When management provides their perspective to employees, it opens the door and shares insights that others can use. However, just as infrastructure is only a partial implementation of any successful change initiative, focusing on this dimension in isolation is limited in its effectiveness to meet goals of empowering members of an organization. Unless leaders are careful, the top-down view can become an enabler of a limited command-and-control mind set. 2. The “bottom-up” view of empowerment. This view is taken from the perspective of the individual or local team. It brings in characteristics that enable people to work in a more autonomous fashion. From the bottom-up view, individuals and teams need to have “meaning, competence, self-determination, and choice,” says Sprietzer.7 These options build the capability of the members of the

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organization and help increase their ability to function autonomously. When an individual or local team is autonomous, members feel they have the ability and authority to make decisions and lead change at their level. People must have the clear understanding that they are able to use their own resources to effectively influence their piece of the organization. From the bottom-up view, empowerment addresses how the capability is experienced by the individuals in the organization. The word experience is very important; this is the viewpoint and characteristics of what is really happening in the individual or team being empowered. The bottom-up view has characteristics similar to the Personal Mindset dimension of the Change Challenge Framework. Many of the same factors that characterize change in the personal mindset are important to empowerment of the individual. Viewed from the individual’s point of view, empowerment addresses issues that will help people feel a greater sense of commitment to the effort. 3. Look at where “real power” lies. This perspective considers how rules and decisions are made and who really has authority and power in the organization. As Sprietzer states, “Feeling empowered is not the same as being empowered.”8 Where do real ownership and control of decisions in the firm reside? From this viewpoint, we are looking for evidence that both the written rules of the organization and the underlying cultural assumptions support the shift from a bureaucratic mindset to one that embraces distributed power to teams and individuals. This view is closely related to the Organizational Mindset dimension of the Change Challenge Framework. Challenges in shaping the cultural assumptions held by those in the organization are critical to this view. Developing meaningful rules of governance based on well-supported ideas support the assumptions held by the organization. Many centralized organizations tend to hold this real power and authority at the top. By changing tangible rules, organizations can enable local teams and individuals to share and participate in the decision-making process and, as a result, influence organizational assumptions and norms. In summary, the top-down view focuses on the organization. The bottom-up view drills down to the individual and his or her experience on a personal level. The real power view focuses on the political and cultural nature of empowerment and the potential for

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domination. Sustained, genuine empowerment involves practices that cut across all three empowerment perspectives.

Developing an Empowered Organization These perspectives lead us to develop approaches that can be used to build the empowerment capability. Many people tend to rely on one perspective more than others. Some additional ways to help balance and provide enablers with the capability of empowerment are identified next. These factors often cut across the views that have been described. • Ideals, governance, and rules. Peter Senge, author of The Fifth Discipline, mentions two primary governing principles that have been used successfully.9 The first is “locality,” or moving authority and decision-making responsibility to lower levels of the organization. This puts decisions in the hands of the teams and individuals, which is one of the primary objectives of leadership and decentralizing control. The second is “merit,” when the primary objective of any decision is doing what is best for the company as a whole. Locality creates tension that must be faced with hard decisions at any level but is one of the ultimate goals of empowerment. The goal is to have these principles of governance promoted, understood, and continually reinforced at all levels of the organization. Governance is certainly an element of our infrastructure dimension or top-down view of empowerment. However, it can also go a long way toward influencing the view of where the real power lies in the organization and the organizational assumptions held by members if it is carried out and supported. • Empowered mindset. Developing the empowered personal mindset in individuals is critical to the successful implementation of new initiatives. This is a joint responsibility of leadership and the individual. An empowered mindset creates capacity to support the bottom-up view of empowerment. To paraphrase Spreitzer in the opening quote to this chapter, “Empowerment helps create change through ownership of the change process.” Ownership is key; and empowerment without accountability is a shortcut to chaos. Unless specific individuals accept responsibility for action, no one will own it.

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Core Characteristics of an Empowered Individual In the book Build the Bridge as You Walk on It, Quinn considers the traits of individuals who provide leadership in an organization.10 He describes people exhibiting these traits as having entered the fundamental state of leadership. Some characteristics of this state include being: • Inner directed. Closing gaps between personal values and behavior. • Other focused. Putting the common good and welfare of others first, increasing authenticity and trust. • Purpose centered. Driven by a central purpose. • Externally open. Moving outside of one’s comfort zone and reaching for higher levels of competence and vision. As Quinn describes, people tend to dwell in the “normal state,” which is not a state that facilitates deep change or empowered action. The normal state includes being directed by others and not taking responsibility for one’s own vision and actions. People in the normal state are focused on themselves and what will make their own routine more comfortable. The normal state provides a safe and comfortable dwelling place, which is often sought in a work environment. However, change requires calculated risks and, as the title of Quinn’s book implies, requires the leader to “build the bridge as you walk on it.” An empowered person in an organization is one who is respected for leadership capabilities at any level. Many say that it is not what the leader “does” but what the leader “is” that makes the difference.

Management Support of an Empowered Workforce To enable the empowerment capability, the organization needs to support a safe environment that promotes individuals to have opportunities to grow and take on risks. John Kotter, leadership expert at the Harvard Business School and author of several books on change, describes characteristics of organizations that support an empowered workforce.11 These organizations: • Get rid of obstacles to change. • Change systems or structures that seriously undermine the vision. • Encourage risk taking and nontraditional ideas, activities, and actions.

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Impact Organizations often attempt to create an empowered workforce in response to business challenges. Many companies strive to empower teams and individuals to enable them to facilitate and lead change. However, many of these initiatives fail to create the desired impacts. The challenge, as indicated by a thorough study conducted by Sprietzer, is “overcoming the debilitating psychological effects of traditional bureaucracies. Empowerment strives to create high-involvement organizations that enable employees to be part of the decision-making process. The goal is to break out of stagnant mindsets and try something new.”12 She continues: “What managers and organizations can do is to create environments where people are more likely to empower themselves. It’s not so much about ‘empowering’ the workforce, but instead to release the power in the workforce so they can take initiative.”13 Positive impacts of supporting an empowered workforce include having a proactive set of individuals who can influence outcomes within the organization and who can lead and respond to change.

Relationships Empowerment and autonomy are closely related to other capabilities. • A state of empowerment and autonomy in an organization does not come about without enlightened and purposeful leadership. • Innovation and increased yet measured tolerance for risk can be seen as by-products resulting from this capability. • Key enablers of empowerment and autonomy include trust, commitment and tenacity, forward thinking, and a healthy confidence to adapt where necessary in order to address whatever challenges the environment poses. • With that adaptation, the organization gets better through continuous learning and maintenance of a state of dynamic and flexible stability. • The empowerment capability must have a direct relationship with the accountability capability, because without accountability, empowerment and autonomy could lead to chaos and total disregard for team spirit as individuals pursue individual or departmental agendas.

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Capability Assessment Table

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Level

Empowerment

Scenarios (for each level)

1

Absence of capability

The existing organizational environment is hierarchical; power resident in leaders is highly concentrated at the top of the structure. Power, information, and knowledge are retained at the highest levels feasible; delegation of authority is minimized wherever possible. Use of discretion and failure to fully comply with formal written policy is prohibited. Compliance with policy and procedure is valued above achievement of results, even when divergence from policy is consistent with core values and regulatory mandates. Innovation and change not driven by the highest levels of the organization and passed down through the organizational structure are actively discouraged. A general lack of trust of subordinates to use judgment in making decisions results in requiring multiple levels of coordination when departing from standard policies and procedures. Stepping into new roles and stretching job responsibilities are minimal at lower levels of the organization, as employees choose to play it safe. Maintaining the status quo and doing what you are told is the rule rather than the exception.

2

Minor evidence of capability

Dissemination of power, information, and knowledge to lower organizational levels is limited to selected, high-priority areas. Delegation of authority is highly limited in terms of level of the organization, functional area, or business unit.

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Empowerment Level

Empowerment

161

Scenarios (for each level)

Use of discretion and failure to fully comply with formal written policy is limited. Some parts of the organization are resultsdriven, but most feel greater allegiance to strict compliance with formal policy and procedure. Innovation and change is predominantly driven from the top and passed down. Innovation at lower organizational levels is tolerated within limits but seldom encouraged. Decisions, unless routine and preapproved, are often delayed due to multiple approval levels. 3

Moderate evidence of The organization publicly acknowledges a capability need to disseminate power, information, and knowledge to lower levels. However, results are spotty and inconsistent. The organization generally seeks to delegate authority to at least midlevel management. Policies are in place to guide and constrain use of individual discretion, but discretion is generally accepted and rewarded only if the results are positive. The organization acknowledges a need to balance policy compliance with business results, but policies and systems to achieve this balance are not generally in place. Innovation at lower organizational levels is accepted after receiving higher-level approval but is not actively encouraged. Authority for making various types of decisions at different organization levels is detailed within written policies, and exceptions are not generally allowed.

4

Considerable evidence of capability

The organization is generally effective at disseminating power, information, and knowledge. Decision-making authority for routine exceptions to policy is vested in lower organizational levels. (Continued)

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162 Level

chasing change Empowerment

Scenarios (for each level)

The organization acknowledges a need to balance policy compliance with business results, and policies and systems to achieve this balance are generally in place. Individuals and organizational elements are measured primarily on results, so long as results are achieved consistent with laws, sound ethics, and organizational core values. Policies and systems are in place to ensure decisions and actions are consistent with organizational core values, legal requirements, and sound business ethics; outside of these constraints, delegation of authority is readily accepted and provided. The organizational structure begins to flatten in terms of levels as greater empowerment is institutionalized culturally. 5

Fully implemented capability

Training in organizational core values is provided to all personnel, who are encouraged to act creatively consistent with these core values in order to achieve results. Employees are encouraged to think like entrepreneurs, taking responsibility for both their actions and their results. The organization actively empowers personnel at all levels to apply this entrepreneurial spirit. Policies are viewed as guidelines to keep decisions within the bounds of core values. Approvals for exceptions to policy that are consistent with core values are quickly reviewed and approved as appropriate at the lowest level reasonable.




Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)
Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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Empowerment

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Modeling principle-centered trustworthy behavior inspires trust without “talking it.” Pathfinding creates order without demanding it. Aligning nourishes both vision and empowerment without proclaiming them. Empowerment is the fruit of the other three. It is the natural result of both personal and organizational trustworthiness, which enables people to identify and unleash their human potential. Stephen R. Covey, The Eighth Habit

Notes 1. Peter Senge et al., The Dance of Change: The Challenges to Sustaining Momentum in Learning Organizations (Prince Frederick, MD. Recorded Books, Inc., 1999). 2. Gretchen M. Spreitzer and David Doneson, “Musings on the Past and Future of Employee Empowerment,” In T. Cummings (Ed.), Handbook of Organizational Development (Chapter 17), 2007 Thousand Oaks, CA: Sage, www.bus.umich.edu/Positive/PDF/Spreitzer - musing%20on%20 Empowerment%20Hdbk%20Org%20Devel.pdf , 1. 3. Robert E.Quinn, Deep Change (San Francisco: Jossey-Bass, 1996), 222–223. 4. Robert E. Quinn, Deep Change (San Francisco: Jossey-Bass, 1996), 223. 5. Dictionary.com. The American Heritage® Dictionary of the English Language, 4th ed. (Boston: Houghton Mifflin Company, 2004). http://dictionary.reference. com/browse/empowerment (accessed: June 6, 2008). 6. Spreitzer and Doneson, “Musings on the Past and Future,” 5. 7. Spreitzer and Doneson, “Musings on the Past and Future,” 7. 8. Spreitzer and Doneson, “Musings on the Past and Future,” 10. 9. Peter Senge et al., The Dance of Change (New York: Random House, 1999), 375. 10. Robert E. Quinn, Building the Bridge as You Walk on It (San Francisco: JosseyBass, 2004), 22. 11. John P. Kotter, Leading Change (Boston: Harvard Business School Press, 1996), 21. 12. Spreitzer and Doneson, “Musings on the Past and Future,” 1. 13. Spreitzer and Doneson, “Musings on the Past and Future,” 20.

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Chapter 17 Adaptation

Enjoying success requires the ability to adapt. Only by being open to change will you have a true opportunity to get the most from your talent. Nolan Ryan, Major League Baseball Hall of Fame Pitcher

Background For any change to occur, people and organizations must adapt to the new environment. Otherwise there is no change. Adaptation and organizational agility can provide a powerful organizational advantage and be the primary difference between whether an opportunity is acted on or not. Having the capability to adjust organizational responses to external threats also is a key element of change, and the act or process of adapting is in itself change.

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Definition Adaptation is an adjustment to an environmental stress or pressure. Much like the vital sensor cells in the retina of the human eye that contract or relax the pupil in response to the presence or absence of light, adaptation can be a critical organizational capability. In today’s fiercely competitive environment, some industries, organizations, and people are more adaptive than others. In the telecommunications industry, where technological change is frequent and significant, change is a prerequisite of survival. In other industries, such as power generation or coal mining, which aren’t driven as hard to change and evolve, the change requirement may not be as frequent or as intensive. Within an industry, some companies and some people are more adaptive than others.

Core Elements Core elements for adaptation include: • A clear grasp of what the environment requires of the organization, with enough detail to be able to understand the benefits of accepting the challenge to change and the potential penalties of not changing. • Structural, behavioral, or physiological adaptation.1 Clear parallels can be drawn between biological organisms and organizations. Biological adaptation is the way living organisms cope with environmental stresses and pressures. Organizational adaptation needs to address both the structural and behavioral aspects of change in order to respond successfully to the environment. • A mindset that accepts change as a constant and the need for adaptation as continuous. Much like biological organisms that fail to adapt to their environment, organizations can develop an adaptation capability or face extinction. Assessment of the organizational ability to build and leverage this capability can spell the difference between a successful and failed change initiative. Too many organizational change efforts are

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launched with a mental model that assumes the organization either already has the ability to adapt or will do so by fiat, when that may not be the case. Organizations with a deficiency in the adaptation capability tend to be more rigid in policy and emphasize strict compliance actions in response to threats rather than actively look for opportunities to capitalize on. An interesting framework for understanding the process of adaptation can be found in Daryl Conner’s book Leading at the Edge of Chaos.2 His appendix “The Mechanics of the Adaptation Reflex” is helpful in describing how we humans attempt to recover a sense of balance and control when our equilibrium gets disrupted. The adaptation reflex is an involuntary action that takes place when we begin to see signs that we are losing control in our environment. Conner suggests we progress through four steps in moving from a state of initial dynamic balance, encountering disruption and loss of control, and moving toward a new dynamic balance: 1. Recognition of the presence of unfamiliar data that could jeopardize previously established balance. 2. Rendering an interpretation or judgment as to the meaning of the new element. 3. Response to the situation by determining a strategy for restoring equilibrium. 4. Realignment of expectations and perceptions by applying the correct strategy. Conner states that we make conscious and unconscious decisions about our options as we progress through these steps in order to optimize probability of success. As we move through each decision step, we begin with undefined data, which we recognize and render into information. In doing so, we are able to respond and realign. This framework is another excellent tool to understand how to build capacity for agility in facing change demands. We highly recommend that you read Conner’s Appendix B in Leading at the Edge of Chaos in full. Another perspective on adaptation can be seen in Exhibit 17.1. In it Stephan Haeckel, President of Adaptive Business Designs and former director of strategic studies at IBM, contrasts the traditional decision process with the adaptive decision process.

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168 Exhibit 17.1

chasing change Two Views of the Decision Process Traditional Decision Process

Adaptive Decision Process

Frame

Strawman solution Selective, known facts Assumptions about the future

Broad range of alternatives Identification of unknowns Ranges of uncertainty

Results

“Pitch” showing detailed evaluation of recommended course of action

Shared learning about the sources of value and risk in each alternative

Purpose

Justify the recommended course New “hybrid” course of action of action combining most valuable elements of each alternative

Culture

Adversarial Distrustful

Cooperative Open and inquisitive

Quality

“Inspected in” after the fact Reviews

“Built into” the process Dialogues

Source: Stephan H. Haeckel, Adaptive Enterprise: Creating and Leading Sense-and-Respond Organizations (Boston: Harvard Business School Press, 1999), 226.

Impact In responding to the demands of the environment, every successful organization faces trade-offs in choosing which of the new realities it will execute. Some organizations could perceive the capability to adapt to change to be directly at odds with the notion of stability. By making change difficult to implement, an organization can encourage stability, but it does so at the cost of agility. Successfully adapting to the needs of a changing environment requires a constant rebalancing between stabilizing current efficient and effective operations and consciously breaking the chains of the status quo to move in new directions.

Relationships Adaptation has significant interdependence with other organizational capabilities and reinforces their value. The relationship to other capabilities and its individual purpose include:

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• The tone for being an adaptive and agile organization is set through the strategic intent of leadership. • Leadership and communications play a key role in creating the vision and need for change. It also helps to answer the question “What’s in it for me?” on organizational and personal levels. • Organizational learning is an enabler of adaptation, seeking to share knowledge across the enterprise about best practices and lessons learned. • A forward-thinking growth and development mindset facilitates adaptation in response to environmental demands and triggers innovation. • The amount of allowable organization adaptation is directly related to the organization’s tolerance for risk. • Successful adaptation stems from an organization that is committed, accountable, and continually learning and renewing its capabilities. • At its core, innovation requires an adaptive, flexible, and agile organization of people. Adaptation is the fuel for innovation. • Being adaptive is linked to trust. People and organizations are more likely to be adaptive if they trust their leaders. • Empowerment/autonomy and accountability are not absolute prerequisites and requirements for adaptation, but they certainly are critical supporting factors. • Having a diverse and inclusive organization can enable solicitation and acceptance of different viewpoints to enhance and promote organizational strategic responses in the process of adaptation.

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Capability Assessment Table

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Level

Adaptation

Scenarios (for each level)

1

Absence of capability

Due to its mission, or products and services, the organization is fairly isolated from significant environmental demands, and there is no current need for adaptation capabilities OR: The organization is so rigid in operations or limited in market that it tends to be disrupted by waves of unaddressed environmental impacts.

2

Minor evidence of capability

Due to significant current or expected environmental impacts, internal discussions have begun on the need to be more proactive in initiating change and improving the organizational capability to adapt. Discussion on establishing an organizational role to conduct monitoring of environmental conditions and forecasting potential impacts is under way.

3

Moderate evidence of An organizational role for surveying and capability monitoring environmental conditions is established, but it is a singular, one-person perspective and is limited in scope and reach. Operational strategies are crafted to provide increased responsiveness to environmental demands. Recognition that much more flexibility is needed to respond more effectively to environmental demands is publicly acknowledged.

4

Considerable evidence of capability

A cross-organizational team of people is established to continuously monitor the pulse of the external environment and to gather intelligence on how and when to respond most effectively. Organizational experience is building in responding to environmental pressures to implement significant change initiatives, and the speed and depth of adaptation is increasing through focus and development efforts.

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Adaptation Level

Adaptation

171

Scenarios (for each level)

At an individual level, employees are becoming more resilient and acclimated to shifting priorities and multiple demands. 5

Fully implemented capability

Change is viewed as a constant operational challenge and accepted as offering significant opportunities for organizational growth. The environmental intelligence team is a standing member of any strategic planning initiative and is relied on to provide comprehensive information on existing and forecasted environmental demands. There is widespread internal recognition that a strong adaptation capability is culturally embedded in the organization and a source of competitive advantage. Individual employees are flexible in their perspectives and change their responses based on actual or expected demands. Stakeholders and employees view the organization as agile and quick to adapt to change to proactively exploit opportunities and mitigate threats.




Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)
Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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In the dynamic contemporary environment, only adaptive individuals and organizations will survive. James M. Kouzes and Barry Z. Posner, The Leadership Challenge

Notes 1. http://en.wikipedia.org/wiki/Adaptation. 2. Daryl R. Conner, Leading at the Edge of Chaos (New York: John Wiley & Sons, 1998), 310–328.

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Chapter 18 Dynamic Stability

You could interpret the term stability to mean things staying the same, which is the opposite of change. Stability in the context of change is the ability to hold steady amidst the disruption of moving forward.1 Dean Anderson, President of Being First, Inc., and Co-Author of BEYOND CHANGE MANAGEMENT

Background According to Fortune magazine in March of 2007, Toyota was the most profitable automobile company on Earth. The automotive industry builds giants and then slays them regularly. Yet Toyota has managed to press forward relentlessly. One of the keys to the company’s success is stability. However, when we think of stability, we usually think of entropy or equilibrium, which doesn’t really encourage continuous, improving change. So we need to rethink stability in an organizational context. Dr. Sheila Sheinberg, of the Center for Life Cycle Sciences, 173

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tells us we need “bounded instability” in order to become a learning organization. That bounded instability keeps us “on the edge of chaos,” which drives the learning engine in the organization.

Definition Stability is “the property of a body that causes it when disturbed from a condition of equilibrium or steady motion to develop forces or moments that restore the original condition.”2 Stability can certainly be a significant cultural asset in times of change, as it can thwart chaos. Dynamic is defined as “marked by continuous productive activity or change.”3 While it is not our intention to create some sort of oxymoron here, the combination of these two words describes a desirable capability within a change-resilient organization. This dynamic stability provides some level of security for organizational members while allowing flexibility to respond to demanding changes in the environment.

Core Elements In a progressive, learning organization, we reach stability through four primary vehicles: commitment, awareness, empowerment, and trust. These elements work together to create a work environment that is at once remarkably stable and predictable yet flexible and ever-changing. • Commitment. The success of any organization depends on its people. If we want to effect permanent change (improvement), we require the commitment of both leaders and collaborators. For collaborators, their level of commitment is that they will come to work, do the work, and think about ways to make the work better. Leaders have a more substantial burden, because they shape the organization for the future. We expect leaders to demonstrate their commitment through sharing a compelling vision, through their presence in the work area, through their ability to communicate everyone’s value to the organization, and through creating a climate of discipline. The discipline we are seeking is not one that punishes but one that creates “disciples”—those lifelong learners

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who believe they are doing the right thing and who share what they learn. • Awareness. Awareness refers to understanding the work: what is required, who is doing what, and how well we are doing it. We gain that awareness through contact with people. It is through the relationships we establish that we learn what is required (from customers). It is through the relationships we establish that we determine who is capable of doing the work required, then channeling talent to task. And it is through relationships that we learn the truth about how well we are doing. • Empowerment. Empowerment has been an aspect of nearly every best practice change initiative in the last several decades, but the concept still seems to elude us. The problem stems from the failure of leaders to adequately prepare people to receive empowerment and from leaders’ general fear of giving up their power. It is also caused by individuals fearful of stepping up to the responsibility that comes with empowerment. It is much easier to sit back and wait for guidance from above than to take a risk of reaching too far. If we focus on understanding and relationships (awareness), we see leadership’s responsibility to train first and then empower. Empowerment is most effective when those receiving power can actually fulfill the needs of the organization. In other words, there can be no empowerment without trust. • Trust. Trust requires two things: clarity of expectations and open vulnerability. If leaders want to build trust (and they must if they are to build learning organizations), they must share their expectations with respect to the performance of others and then be willing to listen and understand the expectations others have of them.Trust comes through mutual work in meeting each other’s expectations.To build trust, both parties need to be vulnerable to the other, which is the most frightening aspect of building trust. It is counterintuitive for people to actually make themselves more vulnerable. Yet in many organizations, leaders capable of expressing their vulnerabilities receive much more loyalty and support from their teams than leaders who try to project an image of invincibility. It seems that everyone knows no one is invincible, and the more leaders act as if they are unassailable, the less believable they are. No one likes to follow a person who isn’t authentic and honest.

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The behaviors associated with enhancing dynamic stability in an organization also create people who believe they have the power to have a positive effect on the organization. They are confident and capable. Everyone becomes an entrepreneur, making adjustments to work little by little, finding improvements every day, and learning. Each person is proactively preparing for the earthquake that will come one day. Put another way, commitment, awareness, empowerment, and trust give the organization the capacity to handle constant, disruptive change. Just as a kayaker develops the skills to maintain a relatively stable position navigating “permanent whitewater,” so does the organization.

Impact Two McKinsey consultants, Richard Foster and Sarah Kaplan, published the book Creative Destruction in 2001, recommending wholesale transformation strategies not unlike the approach of Michael Hammer and his “clean sheet” reengineering of the 1990s. Professor Eric Abrahamson, in Change Without Pain challenges this approach for some types of change, claiming that alternative approaches provide dynamic stability and more sustained results. He discusses how what he refers to as “repetitive change syndrome” has actually produced change fatigue and suboptimal results.4 Abrahamson advocates creative recombination as an adaptive strategy in which an organization assumes it has all the “people, processes, structures, cultures, and social networks they need to bring about change.”5 Creative recombination is about learning, optimizing, and effectively deploying what already exists. Any organization that blindly adheres to the status quo is ripe for extinction. There are too many changes percolating in the environment for any organization to allow the natural tendency of homeostasis to become the norm. The old country song lyric “If you’re standin’ still, you’re backin’ up” comes to mind. Organizations must learn to creatively recombine all their capabilities to be able to respond to change demands in a continuous renewal mindset. Becoming change-ready and changeresilient must be the new routine, and the creative tension discussed in organizational learning must become culturally comfortable.

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Relationships Dynamic stability is related to the other organizational capabilities in these ways: • Dynamic stability is a cultural attribute proposed, modeled, and reinforced by leadership. • Innovation is more readily leveraged in an organization with dynamic stability that is risk tolerant and forward thinking. • A state of dynamic stability is not as easily sustained in an organization where trust, commitment, empowerment, and organizational learning are absent. • Adaptation is the result of a strategic intent to achieve dynamic stability.

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Capability Assessment Table Level

Dynamic Stability

Scenarios (for each level)

1

Absence of capability

The organizational identity is perceived to be a somewhat closed system in that it is isolated from and immune to environmental impacts. Predictability is valued as an organizational asset more than flexibility. Emphasis is on preservation of the status quo through rigid adherence to controls and multiple oversight levels.

2

Minor evidence of capability

Organizational awareness is beginning to surface to recognize environmental impacts and the need for flexibility, but no strategy or vision has been articulated to begin building this capability. Responses to environmental opportunities and threats tend to be reactive in nature, with minimal proactive assessments. Performance metrics continue to perpetuate stability, with small incremental growth.

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3

Moderate evidence of capability

Strategic intent for building proactive capacity for agility is acknowledged and formally documented. The organization is able to respond to environmental opportunities and threats more easily than in the past. Performance metrics are in the process of being modified to reward proactive steps toward building this capability.

4

Considerable evidence of capability

The organization has an established team of people who meet regularly to evaluate the choices and trade-offs between opportunities and threats. Evaluation choices are communicated throughout the organization to further build organizational resilience and organizational knowledge.

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Dynamic Stability Level

Dynamic Stability

179

Scenarios (for each level)

Metrics are established to measure desired behaviors and surface exceptions. 5

Fully implemented capability

The organizational identity is identified as that of a “living system” in continuous renewal, with the full capability to respond to environmental demands. Proactive response teams assess and evaluate environmental demands in a systematic and focused process approach. Reward systems reinforce fully integrated performance metrics for organizational resilience and opportunity exploitation.




Required or expected level of capability mandated by the environment (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)
Assessment of current capability within the organization (Note: Transfer this score to the Organizational Self-Assessment Master Grid.)

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A system that is dynamically stable is one that is relatively immune to disturbance. A rapidly spinning gyroscope is dynamically stable because the gyroscopic forces that it generates resist external forces that would alter its plane of rotation. Kent Holsinger, professor at the University of Connecticut and former President at American Institute of Biological Sciences. From a lecture to students. darwin.eeb.uconn.edu/eeb310/lecture-notes/diversity-stability/node6.html

Notes 1. Dean Anderson and Linda S. Ackerman Anderson, “Ensuring Stability During Change,” Results from Change electronic newsletter from Being First, Inc., Issue #40, November 2006. 2. Webster’s New Collegiate Dictionary (Springfield, MA: G. & C. Merriam Co., 1980), 1122. 3. Webster’s New Collegiate Dictionary, 352. 4. Eric Abrahamson, Change Without Pain: How Managers Can Overcome Initiative Overload, Organizational Chaos, and Employee Burnout (Boston: Harvard Business School Press, 2004), 3–4. 5. Abrahamson, Change Without Pain, xii.

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Chapter 19 Change Journey and the Orchestration Process

Like an anthill, or a rain forest, any human organization is made up largely of interdependent living elements, and these elements coordinate in a mosaic that is much more complex than the linear structure of a machine. Peter Kline and Bernard Saunders, TEN STEPS TO A LEARNING ORGANIZATION

T

here are many skeptics when it comes to the subject of change. So many people have been adversely affected by adoption of the latest management fad-of-the-month initiative that pursuing change is the choice of last resort. In his bestselling book Good to Great, Jim Collins even states: “The good-to-great companies paid scant attention to managing change, motivating people, or creating alignment. Under the right conditions, the problems of commitment, motivation, 181

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and change largely melt away.”1 The insight that Collins and his research team provide regarding corporate performance is compelling. Their “Level 5 Leadership” model details important concepts that can produce superior performance through disciplined people, disciplined thought, and disciplined action. However, much like the Built to Last and In Search of Excellence companies in previous decades, touted as great organizations based on in-depth research studies, some members of this select group of good-to-great companies have suffered extended setbacks. These examples are intended to illustrate the criticality of constant attention to environmental factors, and the time it takes for an organization to rebound from a setback, when it has the capabilities to do so. • Fannie Mae restated its financial results from 2002 through 2006, and federal regulators filed civil charges against some members of the executive team at the end of 2006. In July, 2008, Fannie Mae lost nearly half its stock value, prompting a bailout by the U.S. Government of Fannie Mae and Freddie Mac in order to avert a major systemic failure with far-reaching negative impact on the stock market. • Gillette’s financial performance had dwindled to the extent that it became an acquisition target and was acquired by Procter & Gamble in 2005. • Net income for Kimberly Clark dropped 13% in 2005 over the previous year. Revenue growth in 2006 and 2007 brought the company back to 2004 levels, however net income in 2007 declined 2% on roughly the same revenue attained in 2004. • After net losses in 2003 and 2004, Abbot Laboratories showed a positive net income in 2005, and has sustained that growth through 2007. • Kroger’s performance was lower than its peer group and the S&P Index from 2002 to 2005. Since implementing a “Customer 1st” strategy after hearing the wakeup call, their financial performance has improved and market share has increased over the past several years. • Wells Fargo had experienced double-digit compound growth for over twenty years, yet incurred a 4% net income loss in 2007, as a result of the collapse in trust and confidence in the financial securities marketplace.

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• After three consecutive years of growth in excess of 30%, Nucor faced market challenges in 2007 from a slower U.S. economy, increased scrap prices, and record imports. However, in spite of these challenges, Nucor still had the second-best earnings year in its history. • Walgreens completed its 33rd year of consecutive record sales and earnings in 2007. Performance excellence is difficult to sustain in any environment, but especially in one of rapid and relentless change. Cost management remains a primary driver of change, whether the organization’s stakeholders are motivated by profit or not-for-profit considerations. Each of the often-cited studies has proven that specific management techniques can be effective at a specific point in time and even over a period of time. However, documented performance is only a snapshot, and the environment continues to challenge even the most excellent organizations. Like it or not, change happens. Consistent and quality performance in demanding times remains challenging. Performance levers that were critical success factors yesterday can quickly change. What should not change, however, are the organization’s core capabilities. Although the demands of the environment may call for a shuffling of priorities and an understanding of the change gap, integration of core capabilities to achieve strategic intent remains the most important thing an organization can do. Change is a journey that never ends. Along the way, while it is helpful to understand the gaps between current and required organizational capabilities, it is critical to be proactive in bringing them all together into sustained action that produces sustainable value. Consistently high-performing organizations have a conscious and purposeful practice of designing for change. Earlier in the book, we referred to ideas from Daniel Pink in A Whole New Mind. Pink suggests that the process of designing the future will be critical to maintaining competitive strength. With America becoming less and less of a manufacturing economy due to cost pressures and overseas outsourcing, leveraging the communities of knowledge in designing the future is taking center stage. It will only be a matter of time before other countries recognize this same need. In fact,

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in every country global organizations are leveraging their capabilities to produce appealing, quality products and services that are swiftly delivered at the lowest competitive cost. In the future, organizations that excel will consciously design for change by continuously assessing the environment for threats and opportunities and implementing processes to respond efficiently and effectively. The type of change response required becomes important in this design process. Some responses may require only minor tweaks and modifications to current processes, policies, and systems. Other opportunities may mandate a shift to a completely new method of operation—a shift that should be detailed in a comprehensive implementation plan. Some threats may turn the organization inside out and force it to radically change the way it does business, resulting in transformational change to a new organizational identity. A well-crafted and articulated vision is critical in this scenario, as the end state cannot be defined precisely. There are simply too many factors swirling within the environment to define an exact destination—emergent project and change plans have to evolve as the environment around them changes. Mindset is a critical factor in all three types of change, increasing in importance from incremental, through transitional, to transformational change. The key to success is the degree to which people invest their hearts and minds in the change. The most critical capability for enabling this change in mindset is the coordination and alignment of core capabilities in order to create synergistic results. Lawler and Worley describe the orchestration process in Built to Change: The orchestration element is particularly important because it is both an element of strategic intent and a capability. On the one hand, orchestration represents a planning process for how different strategic and organizational initiatives are sequenced. It refers to how changes in breadth, aggressiveness, and differentiation are managed together to bring the organization into proximity with environmental demands over time. On the other hand, orchestration is a capability that must effectively coordinate communications, actions, decisions, and events to implement change.

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The orchestration process needs to coordinate changes not only in the elements of strategic intent but also in the processes for designing and creating value. It is no wonder that orchestration is the biggest challenge for most organizations. At best, the process is usually conceived of in cut-and-paste terms: “We’ll just introduce some new products and run an advertising campaign”—as if either could happen at any time and in any sequence. At worst, orchestration is an afterthought. A traditional organization must know how to disrupt the strong inertial forces in it that favor the status quo. Few organizations have a change capability, much less the inclination to change, so they fail to invest in orchestration. Having the ability to orchestrate strategic intent elements and the capability to manage change is the single most important investment a company can make if it wants to become a b2change2 organization.3 The orchestration process is the single most important change process and the most critical capability for an organization to possess. If the orchestration process is done effectively, it knits together the intersection of all three dimensions of the change response: infrastructure, organizational mindset, and personal mindset. The orchestration process should prioritize and operationalize the strategic intent of the organization by closing critical capability gaps and facilitating organizational learning.

Notes 1. Jim Collins, Good to Great: Why Some Companies Make the Leap . . . and Others Don’t (New York: HarperCollins, 2001). 2. Built to Change. 3. Edward E. Lawler III and Christopher G.Worley, Built to Change (San Francisco: Jossey-Bass, 2006 65–67.

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Part Three

ASSIMILATION

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Chapter 20 Executing the Change Plan

Everybody talks about change. In recent years, a small industry of changemeisters has preached revolution, reinvention, quantum change, breakthrough thinking, audacious goals, learning organizations, and the like. We’re not necessarily debunking this stuff. But unless you translate big thoughts into concrete steps for action, they’re pointless. Without execution, the breakthrough thinking breaks down, learning adds no value, people don’t meet their stretch goals, and the revolution stops dead in its tracks. What you get is change for the worse, because failure drains the energy from your organization. Repeated failure destroys it.1 Larry Bossidy and Ram Charan, Authors of EXECUTION:THE DISCIPLINE OF GETTING THINGS DONE

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o far we have introduced a conceptual framework for thinking about and understanding change and a concrete approach for measuring the organizational and individual change management 189

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gap that likely exists within your organization. Along the way, we have talked about the various approaches to change—incremental, transitional, or transformational—for closing this gap. However, how does an organization actually move forward with executing this change plan? As already noted, real change is always occurring. As dynamic beings, we are always moving and growing. Also, the environment is in a constant state of flux, drifting closer or farther away from the capabilities and intended design of our organization. Such misalignment between the needs of the external environment and the capabilities of the organization can be triggered by events within external or internal environments: • In the external environment, organizations receive pressure from competitors, suppliers, and customers. Prices, demands, and expectations constantly move. Businesses that lag in their response to changes in the external environment almost always experience a gap between their organization and the surrounding environment. • In the internal environment, business productivity demands, management decisions, human resource demands, the internal business culture, and operations may become outdated and shift away from the expectations of clients, employees, and customers. Again, this misalignment of the business organization from the environment creates a gap. Changes in either of these environments will drive the FirstOrder Change Gap and consequently should influence the Second-Order Change response. A business organization that recognizes the difference between the needs imposed by the external environment and the current business practices has identified a First-Order Change Gap, resulting from the shift between the organization and the external environment.

Case for Change: First-Order Change The starting point for implementing a change plan is first to identify the change that is needed. Doing this requires scanning the environment to understand the conditions in the environment that have

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changed or are in the process of changing, and that contribute to a gap between the requirements of the environment and the capability of the organization. An organization’s strategic planning process is crucial to gathering external information and allowing the needs of the environment to be compared to the capabilities of the organization. Similarly, how have shifts internal to the organization impacted its ability to meet environmental needs? Is an aging workforce, increasingly approaching retirement age, putting future personnel resources at risk? Are the skills and technical knowledge of the workforce keeping pace with the needs of the environment? How closely do operational practices resemble best practices? Have antagonistic labor-management relations put an additional burden on the organization and constrained its ability to adapt? By comparing shifts between the external environment and the organization, a gap that may well pose risks to achieving organizational objectives can be identified. Will the organization succeed, or even continue in existence, if this gap is not closed or at least narrowed? To what degree will maintenance of the status quo impact mission, profits, return on investment, or other measures of success if closing this gap is not addressed in the future? Answers to such questions characterize the nature of this First-Order Change Gap and form the basis for a compelling case for change. No one test can definitively show that a change is critically needed or that the organization is ready for that change. However, there are some observable indicators. Example red flags might include: • Attitudes and behaviors of employees negatively impacting work effectiveness or efficiency. • Stakeholders voice concerns with current practices. • The organization is underperforming compared to competitors. • Customers are unsatisfied and defecting. • Management and employee actions are inconsistent with stated business values. Sometimes the change gap is so obvious that there can be agreement for change without having to understand it at a detailed level. However, most likely you will need to build consensus for the change by asking basic vital questions about the purpose, customers, products

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and services, and business. This process of establishing consensus brings everyone together, agreeing on the need for change and forming a unified body focused on one common idea: change.

Defining the Scope: Targeted Change Gap Besides identifying the First-Order Change Gap, an important part of the strategic planning process is to identify the Targeted Change Gap—the portion of the First-Order Change Gap that the leadership has decided to close with specific Second-Order Change responses. Closure of the Targeted Change Gap is the end objective for the Second-Order Change response. How the gap is filled depends on the situation. Ideally, every organization should strive to keep any gap to a minimum. Organizations generally will seek to close the entire identified First-Order Change Gap. However, while this may be a long-term goal, it is not always feasible in the near term for any number of reasons. Therefore, some organizations may choose to fill only part of the gap during any one strategic planning cycle. They make this choice in recognition of the fact that an organization cannot do everything at once and because constraints and trade-offs typically rule the day. In Chapter 3, we suggested a number of factors that should be a part of the discussion regarding selection of the Targeted Change Gap. To review, these considerations included: • • • • •

Budget Organizational capabilities Risk tolerance Schedule Uncertain direction of change

This list is not exhaustive. For example, current limitations in technology or operational capabilities may place certain constraints on the feasibility of closing the entire First-Order Change Gap. Commitment to current business plans, some of which may be legally binding considerations, may need to be resolved before implementing certain

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Second-Order changes. In any case, decision makers involved in the strategic planning process must carefully consider what portion of the First-Order Change Gap to close in the near term through specific Second-Order Change responses. This does not mean that management will not continue to monitor and reassess from time to time the remaining gap that is not targeted for closure. It simply means that no concrete plans have been made for closure of that portion of the gap at this time.

Closing the Gap: Second-Order Change How the business chooses to respond to this targeted change gap is what we have termed the Second-Order Change. It is through SecondOrder Change that leaders exercise their responsibility for bringing the organization into closer alignment with the environment. Crafting a Second-Order Change response typically involves two broad sets of actions: 1. Those actions the organization will take to close the targeted change gap, bringing the organization and the external environment into closer alignment 2. Those actions and techniques the organization will employ to mitigate the risk of not addressing that portion of the First-Order Change Gap that was not included in the Second-Order Change response How an organization responds to these two broad issues should strongly influence the formulation of strategic goals and strategies. Once formulated, the strategies and plans designed to close the Targeted Change Gap constitute the Second-Order Change and are represented by the downward-pointing arrows in Exhibit 3.6.

Project Plan:Traditional Response to Change If project plans set in place to execute Second-Order Change and designed to close the Targeted Change Gap were generally fully

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effective, there would be little reason for this book. We would also expect to see failure rates of projects and initiatives much less than the 70% to 75% that is often reported. As Exhibit 3.7 suggested, a major source for the high failure rate of change initiatives can be attributed to a focus on the physical dimension of change and a relatively cursory consideration of organizational and individual behavioral change. In other words, there exists yet another gap, this time a gap in the adequacy of the response to implementing Second-Order Change. This is reflected in the Second-Order Change Gap illustrated in Exhibit 3.8. To give due credit to the typical project management approach to change, some degree of behavioral change management is often included. However, the usual approach to change management is limited and often inadequate. This minimalist approach ignores the organizational diagnosis as presented in this book and often focuses solely on two areas: 1. Stakeholder analysis 2. Communication

Stakeholder Analysis The notion of stakeholder analysis is not new to project managers and those responsible for implementing change. It is based on the notion that significant change impacts different stakeholders in multiple ways. For example, managers, employees, customers, and stockholders (in a publicly traded company) all have different vested interests in an organization. Consequently, any one significant change may impact any or all of these groups differently. Any one change may cause one group to be a strong supporter while another group may seek to obstruct or undermine the intended change. Analyzing the various vested interests of different stakeholders can provide important, and sometimes critical, insights. An understanding of these different and potentially conflicting interests is a first step in defining strategies to overcome objections and gaining necessary support from various parties.

Communication Once you identify a change that meets organizational needs and gains the required stakeholder support, the change needs to be communicated

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to those involved. This is the role of the communication plan. This plan often starts with the case for change and a call to action. Business changes are almost always larger than one person’s workload. To make business changes, you need the support of all those impacted by the change. You must consider their feelings, concerns, questions, roles, and responsibilities when forming your case for change. In order to do this, your case for change should address and answer four questions: 1. What is the change? 2. Why do we need a change? 3. How does it affect the stakeholders? 4. What support is needed? In a sense, your company’s change is a product and you are the salesperson responsible for the marketing campaign—it is your job to sell the consumers through your case. Making a case for change is not easy. It requires a lot of patience, thoughtfulness, vision, and effort. However, if you maintain open and honest dialogue and lay out realistic reasons for change, a rational process, and a clear set of expectations, you will likely experience less resistance from stakeholders in your efforts to close the identified organization/environment gap. Change can awaken dormant uncertainties for employees, customers, and suppliers. A communication plan helps you to guide your organization’s communication efforts during periods of change by targeting sentiments and needs of diverse audiences and relating key business objectives and intentions. A basic communication plan should: • • • • • • • •

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Address employee concerns. Fit the audience. Align with and support other business activities. Support customer needs. Present clear and simple messages. Diffuse unproductive conversation. Organize effective communication strategies. Use effective forms of media and presentation.

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A communication plan should be sufficiently comprehensive to address all important media and channels. Although training may be thought of apart from a communication plan, any plan should consider the degree to which training is needed to address the case for change.

Project Plan Shortcomings In an ideal change management world, the project plan would consider fully all three dimensions of change: physical, organizational, and individual. However, traditional project planning typically pays limited attention to the required behavioral aspects of a change initiative. Filling this shortcoming is the primary objective of the Change Challenge Framework and the 13 change capabilities. You can incorporate the necessary response to gaps in organizational change management capabilities in two ways: by inclusion into a separate change management plan or by building a more robust project plan that incorporates the necessary implementation considerations for organizational and behavioral change. Where that response is placed—whether in a separate change management plan or as part of a more comprehensive project plan—is not nearly as important as that the organizational and individual dimensions of change are explicitly addressed.

Change Plan: Applying the Organizational Self-Assessment Some changes are so small and limited that it makes little sense to develop an elaborate change management plan. We all make changes every day in which we pay little heed to organizational change. However, as changes grow in scope and complexity, their impact on organizational and individual behavior becomes increasingly important. Important change generally has significant impact on people. At some point, addressing this impact becomes crucial to the success of the change initiative. This is the purpose of a change plan, whether it is incorporated into the project plan or published as a separate change management plan. Understanding the organization’s readiness to change is essential for any major change initiative. A proper change readiness assessment reviews the ability of a business to change across the organizational

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and individual dimensions while taking the current business situation into account. A broad view of readiness for change from the different areas of your business will give you a clearer picture of how fit your business is for change. Use the results of the capability assessment tables, included in each of the core capabilities chapters, to understand where your organization is at this point in time. As part of a survey to collect opinions on the current capabilities and required capabilities in the organizational self-assessment, it may be interesting to understand the general mindset of individuals being surveyed relative to change. Some individuals are aggressive change leaders, others resist change at any cost, and most fall somewhere in between. Understanding the change orientation profile of those being surveyed can provide an interesting perspective on those people and presumably on the overall organization as well. To generate such a profile, we suggest you administer the presurvey question (Exhibit 20.1) as part of the overall organizational self-assessment. Whether you include the presurvey question as part of the overall survey or not, organizational capabilities should be the basis for a survey of employees or key staff to assess their opinions on the current and required organizational capabilities. Use the Organizational Self-Assessment Master Grid in Exhibit 20.2 to capture the baseline, or current state of capabilities in the organization by posting the scores from each of the capability assessment tables to it. Follow the instructions below the grid to obtain the most value from the assessment. As an example, a completed Organizational Self-Assessment Master Grid may look like the one in Exhibit 20.3. Completing the Organizational Self-Assessment should give you a better idea of how fit your organization is for change. Keep in mind that what is important is not the absolute value of change readiness for any particular capability but the gap between what is required and what is currently available. If most of your answers have significant gaps (perhaps three or greater) or if there are very large gaps in one or more capabilities critical to the change in question, you should be particularly cautious of undertaking major change. The greater the individual capability gaps present, the more critical to the ultimate success of the change effort will be addressing the closure of these gaps.

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Recognizing that none of these statements may exactly fit your feelings about change, which set of statements most closely reflects your point of view on organizational change (changing what the organization does or how the organization does it)? • Change almost always results from a not-invented-here syndrome. People generally want to change things simply to make it easier on themselves or to better align with their thinking. Rarely does change result in any true, long-lasting improvement. • Changes in what we do or how we do it can be beneficial for both the customers of an organization and the staff. However, more often than not, unintended consequences mean that improvements in one area—such as customer service—are counterbalanced by sacrifices on the part of the workforce. • Organizational change is frequently as positive as it is negative. Although change too often results from poor planning and premature action, well-thought-out changes in what we do and how we work can have a positive impact on providing both customer value and employee satisfaction. • Organizational change generally represents a step forward. There is risk in implementing change, and sometimes that risk is reflected in undesired outcomes. However, the downside of change is sufficiently small compared to the potential benefits that we should carefully consider in opportunities to change. • Change results, in part, from learning to do things in new ways that provide better outcomes or better use of resources. I generally welcome change. Because I also believe change is inevitable, I like to get on board early in order to better position myself for the future. Exhibit 20.1

Change Readiness Assessment Tool: Presurvey Question

Executing the Change Plan: Roles and Responsibilities To execute the change plan, either as part of the project plan or of a stand-alone plan, you need to identify people to lead and support the effort.You also need to identify how much time they will need to commit to its execution. You must consider how they will communicate

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Evaluating Core Capabilities for Change Level

1

2

3

4

5

Leadership and Purpose Commitment/Tenacity Trust Accountability Communication Organizational Learning Diversity and Inclusion Empowerment/Autonomy Forward Thinking Innovation Risk Tolerance Adaptation Dynamic Stability Low

Exhibit 20.2

High

Organizational Self-Assessment Master Grid

Instructions for Completing the Organizational Self-Assessment Master Grid: 1. This assessment is designed to provide an overview of specific organizational capabilities that are important areas to address in implementing change. 2. The easiest way to complete this chart is to transfer the values from the Capability Assessment Tables at the end of each capability chapter. (If you haven’t completed these tables as you read the book, go to step 3.) 3. First evaluate the required level of each organizational capability on the scale of 1 ( low) to 5 ( high) by inserting “R” in the appropriate cell. This evaluation may be undertaken in two stages. a. Respond in the context of the organization’s current environment and strategies. This optional baseline assessment is a useful input to the strategic planning process. b. Then assess the capabilities requirements that apply to selected SecondOrder Change responses. 4. Next evaluate the current level of each capability from high to low by inserting “C” in the appropriate cell. 5. The findings from this exercise are primary inputs to your change plan.

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chasing change Evaluating Core Capabilities for Change Level

Illustrative Scenario: R ⫽ Required or expected level of capability to close gap C ⫽ Current level of capability

3

4

Leadership

1

C

R

Commitment

C

Accountability

C

Forward Thinking

C

Innovation

C

Communication

C

Risk Tolerance

C

Organizational Learning

C

Trust

5 R

R R R R R R

C

Diversity

R

C R

Empowerment

C

Adaptation

C

Dynamic Stability

C Low

Exhibit 20.3

2

R R R High

Illustrated Use of the Organizational Self-Assessment Master Grid

participation to the rest of the organization and the expectations associated with that participation in the change plan. Exhibit 20.4 suggests roles and responsibilities for a generic change initiative. As you review these roles and responsibilities, understand that appropriate resourcing is critical to the success of the initiative. The appropriate level of staffing will vary by organization and size of the change response undertaken; in addition, the level of resource commitment may vary from part time to full time.

The “Big Picture” The change plan is an integral part of project success. It links with other organizational needs that typically are not addressed in the traditional change plan. Although these needs are not the only areas to

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Exhibit 20.4 Change Roles and Responsibilities Role

Responsibility

Change Sponsor

Champion the change. Assign a change leader. Assume responsibility for success or failure. Determine the critical success factors. Develop the vision, mission, and scope.

Change Leader

Oversee the execution of the change plan. Facilitate the development of the vision, mission, and scope. Develop the plan. Assign resources. Implement the plan.

Change Team

Implement assigned portions of the plan. Identify barriers and enablers to success. Analyze current environment. Identify resource needs. Communicate status and results.

Change Agent

Communicate compelling case for change to stakeholder communities. Monitor change buy-in. Lead special initiatives. Answer stakeholder questions. Identify and remove barriers to success.

Change Target

Embrace change strategy. Participate in change activities. Communicate issues and concerns. Elevate questions.

address in a comprehensive change strategy, the change plan gives change sponsors and leaders a broader view on the components and increases project success. To appreciate the role of the change plan in achieving successful change, it is helpful to consider change management in the broader context of overall organizational change. Exhibit 20.5 illustrates some of the key concepts we have discussed arrayed against key strategic planning and implementation tasks. To leverage the Change Challenge

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Environmental scan Internal scan First-Order Change Gap Change capability assessment Targeted Change Gap Project plan (Second-Order Change response) 7. Change capability assessment 8. Change plan 9. Project/Change Management Implementation

Create current capability baseline

1. 2 2. 3. 4. 5. 6.

Exhibit 20.5

Understand type of change response Build change team Create communications plan

Project Implementation Strategic Planning

Business Planning

Business Operations

Notional Timeline

Framework and the accompanying change capabilities, you must integrate these concepts into both the strategic planning process and the business processes that implement the chosen strategies.

Note 1. Larry Bossidy and Ram Charan, Execution: The Discipline of Getting Things Done (New York: Random House, 2002), 19.

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Chapter 21 Candor Bank

A

n organizational capability assessment provides value only when it is used to take action that increases the probability of success in strategies, projects, and initiatives toward meeting organizational goals and objectives. Gaps identified in change capacities must be integrated back into the strategic planning process by incorporating organizational and personal behavioral change initiatives into the business plans that implement Second-Order Change. These business plans may be composed of separate project and change management plans, or the organization may take a more integrated approach, integrating the project and change management plans into a single document.

Definition Just to review, the overall change gap (resulting from First-Order Change) is defined as the difference between: • The current capabilities of the organization, and • The current demands placed on the organization by its external environment.

203

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Second-Order Change is the organization’s response to the misalignment between the organization and the environment. This change response typically is comprised of initiatives at organizational and personal levels and is designed to close as much of the First-Order Change Gap as feasible, given limited resources and the urgency of the demands to change.

Core Elements The strategic planning process initially selects Second-Order Change initiatives in order to close the Targeted Change Gap. Strategies typically focus initially on the Physical Dimension of change: those financial, marketing, technology, organizational, and other tangible facets of change that can be readily seen. However, these changes often ignore or under-value the importance of the personal and organizational dimensions of change. A more complete strategic planning process therefore considers whether or not a Second-Order Change Gap exists due to inadequate change capability in the organizational and personal mindset dimensions. Whether additional strategies are formulated to close this remaining Second-Order Change Gap, or the gap is narrowed by modifying the existing strategies to better close it is not critical. What is critical is that strategies selected to close the Targeted Change Gap expressly consider the Personal and Organizational/Behavioral Change Dimensions, and incorporate changes as needed to provide a complete Second-Order Change capability. Ideally, the strategic planning process does not treat closure of personal and organizational behavioral change gaps as an independent and secondary process, but rather an inherent part of the strategy formulation process. For example, if two approaches to Second-Order Change are available to accomplish the same end objective, clarifying the organizational and personal capacities to implement the change alternative would be relevant and potentially important. Ignoring the implications of the organizational and personal change requirements could easily lead to selecting an implementation approach that is more difficult than necessary, which would result in higher cost and time requirements and would reduce the overall probability of success.

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Organizational and personal capacities to change are not the only relevant considerations in reviewing and selecting alternative SecondOrder Change initiatives. However, they are the foundation for designing a successful organizational and personal change program. In practice, the change leader should follow six steps to incorporate change initiatives into the strategic planning process: Step 1. Establish a baseline by assessing the organization’s current capability gap in applying current policies and procedures before developing Second-Order Change initiatives. Step 2. Develop candidate Second-Order Change strategies and plans. Step 3. Evaluate candidate strategies in light of existing change capabilities and known capability gaps requiring closure. Step 4. Select strategies and define implementation plans, considering organizational and personal behavioral change gap requirements and associated costs. Step 5. Reassess the capability gap for selected strategies. Step 6. Implement a plan to close identified change gaps in parallel with implementation of the project plan. Note that both steps 1 and 5 call for capability gap assessments. The first assessment in step 1 compares the current capability against the current operational environment. This gap is not the organizational and personal change gap between where you are and where you ultimately want to be as a result of a successful strategic planning initiative. It is simply the gap between the current organizational and personal behavior and the behavior that is needed in the current environment employing current strategies. In other words, this is the gap in terms of personal and organizational behavior between what you currently have today, and what you ideally need to implement existing strategies. Although step 1 does not describe the gap that evolves as a result of a strategic planning process, it is a useful starting point for understanding the degree to which various candidate strategies will be accommodated by current organizational and personal behavior. Where existing behavioral capabilities do not support potential change strategies, a cost and time commitment is required to change behavior to support selected strategies. Identify these costs in advance and address them as part of the costbenefit analysis in selecting various strategies for implementation.

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The second assessment in step 5 assesses the gap between current organizational and personal behavioral change capabilities and those required to successfully implement the Second-Order Changes resulting from the strategic planning process. Individuals who contributed to the assessment in step 1 would have no way of knowing what strategies would be selected in step 4. Providing them the opportunity to reassess the behavioral change gap in light of selected strategies will improve the organization’s ability to address behavioral change requirements given these new strategies.

Case Study: Linking Change Management to Strategic Planning Dawn Dempsey was excited as she looked ahead to opportunities and challenges in her new role as the chief executive officer (CEO) of Candor Bank, a $1 billion community bank. As a former vice president of operations in a larger bank, Dawn felt well prepared to take on the leadership role in the organization. However, she also understood that she had some real hurdles to overcome if the bank was to survive and prosper. Increasing competition was putting the survival of smaller banks increasingly in doubt. Dawn was convinced that overcoming these challenges was essential in order for the bank to provide both value to its customer base and job security for her and her 350 employees. Dawn had been selected for the job by the bank’s board of directors partly because of her senior management experience in banking. However, key in her selection as the new CEO was the vision for change that she had presented to the board during the interview process. She explained that today there are only half as many banking institutions as there were in 1980. Of all loans made by the approximately 8,000 banks in the United States, 90% were made by the top 25 banks. Moreover, this consolidation phenomenon was continuing unabated as larger financial institutions gobbled up more and more small community ones. “The message is clear,” she told the board. “Either grow or perish. If no action is taken, the only question will not be if, but when.” The board was moved by Dawn’s presentation and by her apparent understanding of the underlying issues. They wanted to survive as

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a bank and offered Dawn the opportunity to lead the way. Now the responsibility was on Dawn’s shoulders to deliver on that vision. In preparing to move into her new role, Dawn had asked the staff to send her a copy of the bank’s strategic plan. What she received by mail was instead simply projections of end-of-year results. Dawn decided she would follow-up with the staff once she got on the job. When Dawn arrived on her first day, she discovered that her staff had already arranged for—subject to her approval—an entire set of briefings over the coming days on bank operations, finances, marketing, and human resources. However, she was uncomfortable that she saw nowhere on her calendar for the week the word strategy. When she asked her staff about this, she learned the closest the bank came to strategic planning was the approval of end-of-year operating targets—those performance targets that she had previously been provided by mail. Dawn decided at that point that implementing a formal strategic planning process would be very high on her agenda. Dawn began the work of pulling together a strategic planning session in which she, her board of directors, and her executive staff could undertake a formal strategic planning process. However, Dawn also realized that, as the new CEO, she did not yet have an in-depth understanding of the bank’s organizational culture and capabilities to undertake strategic change. The bank did not have a track record of reviewing strategy and undertaking major change initiatives; Dawn was concerned about how ready the staff would be to implement changes resulting from a strategic planning session. She had witnessed other organizations that had announced major changes that either withered away or had drastic, unintended consequences. She did not want either of those alternatives happening at her bank. Dawn knew she had a lot of work to do to prepare for a strategic planning session. She decided to begin work in four areas. First, she needed to pull together a strategic planning team. At her next staff meeting, she announced her intent to engage in a formal strategic planning process. After asking for volunteers to coordinate the effort, she picked Bill Hartley, a branch manager whom she knew had both interest and training in strategic planning. However, Bill was only to be the coordinator for this overall effort. Dawn stated that all functional leads and bank executives would be participants in the strategic planning process.

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She wanted the entire team to collectively take ownership of the planning process and the resulting strategic plan. Second, Dawn knew that the strategic planning workshop would require participants to have an understanding of the external environment in which the bank operated. Although some managers had bits and pieces of this information, no one individual had an adequate grasp of all the critical aspects of the external environment that impacted the bank. Dawn wanted all key leaders to participate, but she did not want them simply arguing for their respective functional priorities and biases. She needed participants to be broadly informed on the challenges the bank faced and the opportunities and threats the bank needed to address to remain successful. She asked Bill to coordinate with other staff to pull together a presentation on the various issues facing the bank related to the external environment. Economic and interest rate predictions, an understanding of the impact of an aging population on saving and lending habits, new competition from local banks and credit unions, and potential regulatory changes from the Federal Deposit Insurance Corporation (the bank’s regulator) were but a few of the items that needed further research in preparation for the strategic planning session. Next, Dawn believed that a good understanding of the internal environment was equally important. Knowing how the external environment was changing was only half of the challenge. The other half was knowing how to respond, which was of course dependent on the bank’s internal resources. Again, Bill coordinated with key managers to gather information related to bank resources, including its various strengths and weaknesses. Examples included benchmark information that compared Candor Bank to others on operating margins between loan rates and interest rates paid on savings, efficiency measures such as the cost of operations as a percentage of assets, and the risk associated with losing a number of key individuals already eligible for retirement. Finally, Dawn needed an outside facilitator to conduct the workshop because she believed that using a staff member to facilitate the meeting would introduce complications. First, an internal facilitator might be perceived as having certain biases regarding the outcome of discussions at the workshop. Worse yet, such a person might indeed have such biases and work to sway the outcome. Dawn thought about

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acting as facilitator herself but quickly decided against it. She wanted participants to freely express their opinions, and her leading the discussion might get in the way of such openness. Moreover, she wanted to be able to contribute as a participant. Having facilitated groups in the past, she knew there was an inherent conflict between being a meeting participant with certain interests in the outcomes and a meeting facilitator who concentrates on the process and is totally independent of the outcome. Dawn’s final reason for hiring an external facilitator was the additional benefit from integrating the facilitator’s external industry expertise and benchmarking data back into the planning process. A facilitator experienced in strategic planning could also be used to help with the data collection and subsequent analysis, a particular benefit for the collection of information on the internal environment. Dawn wanted candid assessments of the bank’s internal strengths and weaknesses. Some of this information would become evident simply by pulling together relevant data, such as benchmarks of other banks and credit unions. However, Dawn believed that internal assessments also required knowing where to look for data and knowing where to find the organization’s sacred cows—those issues that are immune from examination or criticism. This aspect of data collection was not so much asking for personal opinion as is was tapping into the institutional knowledge of many long-term employees. The problem was that individuals might only want to share some of this knowledge on an anonymous, non-attribution basis. Overcoming such concerns meant using an outside party to interview staff members and promising anonymity to all interviewees. As a result, Dawn requested Bill to identify a contractor who could both facilitate the workshop and participate in the data collection. Bill ultimately selected Kathy, a management consultant with considerable strategic planning and facilitation experience. Bill scheduled interviews for Kathy with all of the functional leads and workshop participants. These interviews were designed to collect personal opinions on organizational strengths, weaknesses, opportunities, and threats through a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats). Although these interviews would not directly decide what was included in the analysis they would help Kathy to understand the potential issues facing the bank and enable her to stimulate conversation and guide areas of discussion during the workshop.

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Dawn was relieved to have set in motion the wheels for developing a strategic plan. However, she also knew that the success rate in many organizations for undertaking major projects was unacceptably low. She recalled having read different studies claiming limited success in implementing projects. One study indicated that only a third of information technology (IT) projects are deemed to be truly successful; another study indicated that only half of projects met objectives. Still another stated that nearly 90% of IT projects were ultimately over budget. Thinking over the organizational change projects she had witnessed in the past, Dawn realized that these challenges in implementing change extended far beyond IT projects. She wanted to avoid having a potentially great strategic plan, only to see its implementation fail due to internal resistance to change. Dawn had a technically competent staff. However, she suspected that asking her senior vice president or other key executives about the organization’s ability to undertake change would provide more personal opinions than objective information on which to base key strategic changes. How could she undertake potentially major changes while avoiding having staff jump ship or having the ship never leave port due to the crew resistance? Dawn had learned of the Chasing Change Organizational Change Capabilities Self-Assessment tool and decided this was a perfect opportunity to give it a try. She wanted an assessment of her organization’s ability to adapt to change but was reluctant to simply ask for others’ opinions. She knew that a capability to adapt to change was a very personal issue for many people. Dawn understood that some people sought change, others accepted change, and still others typically fought change. However, she suspected that the resisters were not necessarily vocal about their resistance. Because people often keep individual biases for change private, merely asking for other’s opinions about the organization might not prove useful. Dawn shared with Kathy her concerns that a strategic plan is only as good as its ability to be implemented. Kathy agreed that poor strategy implementation was often the result of inadequately considering the implications of organizational and personal behavioral change. Both thought it would be helpful at the strategic planning workshop if they had some insight into the organization’s capacity to change. In order to

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develop such baseline insight in advance of the workshop, they decided to distribute the Organizational Change Capabilities Self-Assessment tool for completion by everyone who was to participate in the workshop. Dawn provided the assessment tool to these people and asked that they return their completed tools to Kathy a few days prior to the workshop. Kathy would aggregate all data before presenting the results to Dawn or anyone else in the bank and would only record at an individual level whether the survey was submitted or not. In this way, anonymity of individual responses could be provided while ensuring 100% return of surveys. In addition to the organizational assessment gap, Dawn also wanted to have an overall sense of staff willingness to accept change. She therefore asked everyone taking the assessment to also rank themselves on their overall view of change. Dawn thought it would be interesting to see what correlation existed, if any, between a person’s self-assessment on his or her view of change and on how the person scored both the organization’s current change readiness capability and the change readiness capability perceived to be needed for success in the current environment. Dawn and Kathy recognized that survey results submitted prior to the workshop would only indicate individual opinions on the gap between current understanding of the environment and existing strategies and change initiatives. However, part of the initial discussion at the workshop would be on how to close any existing gaps. Moreover, any discussion on new strategic goals and initiatives, as well as action plans to achieve goals and objectives, would need to recognize the implications for organizational and personal behavioral change if any of the initiatives were to succeed. Although Dawn eventually wanted to see the results of an organizational assessment gap addressing implementation of strategies resulting from the workshop, an initial gap assessment would set a baseline change capability that reflected today’s organization and today’s strategies. Two weeks prior to the strategic planning workshop, Dawn distributed the assessment survey to the workshop attendees. During Kathy’s interview process in advance of the workshop, she collected individual attendees’ responses. After Kathy had compiled all of the results, she developed Exhibits 21.1 to 21.4.

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Exhibit 21.1 shows the survey results for what respondents believed was the organization’s current capacity for change in each of the change capabilities. In displaying the results, Kathy wanted to show not only the average response but the diversity of responses. To do this, she chose to calculate a standard deviation for the responses against each capability. She then charted the mean (or average) response for each capability, plus and minus one standard deviation. As a result, Kathy was able to show graphically not only the average for all responses on each capability but also the spread of the responses. She knew that approximately 68% of responses would be found within the limits calculated as plus or minus one standard deviation from the mean. Knowing what the staff thought about the current organization’s capacity for change was important. However, some insight into where the improvements in change capacity were needed was required. To gain such insight, Kathy needed to also understand the required level of capacity for each capability as assessed by the team members. She therefore built a chart to show just this (see Exhibit 21.2). “Interesting,” she thought. At a quick glance, respondents felt the organization required more capacity for change than currently existed. However, just where did the requirement for added capacity lay? Kathy

Behavioral Change Capability 1 Leadership Commitment Accountability Forward Thinking Innovation Communication Risk Tolerance Organizational Learning Trust Diversity Empowerment Adaptation Dynamic Stability

2

Change Capability Scale 3 4

5

Current Capability Minus 1 Std. Dev.

Exhibit 21.1

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Mean Response

Plus 1 Std. Dev.

Current Capacity for Behavioral Change

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Behavioral Change Capability 1 Leadership Commitment Accountability Forward Thinking Innovation Communication Risk Tolerance Organizational Learning Trust Diversity Empowerment Adaptation Dynamic Stability

2

213

Change Capability Scale 3 4

5

Required Capability Minus 1 Std. Dev.

Exhibit 21.2

Mean Response

Plus 1 Std. Dev.

Required Capacity for Behavioral Change

decided to overlay the two charts and graph the gaps between current and required capacity for each change capability. The composite chart that resulted is illustrated in Exhibit 21.3. Kathy began to get excited. Clearly some gaps were larger than others. She felt the identified gaps could not only help Dawn and her team understand the barriers they would face in making significant change, but also where behavioral change initiatives should be focused. As a final step, Kathy decided to simplify the chart for presentation to Dawn (Exhibit 21.4). Although the current change capacity and required change capacity for each capability are important, it is ultimately that gap between the two that must be addressed. Kathy therefore decided to develop a chart showing only the gap. She also added a number to the right of each gap illustration to show its numerical size. Kathy believed this display would be useful to Dawn and her planning team. Kathy was surprised by some of the results. However, she knew that it was Dawn and her team that would be required to interpret and take ownership of the results, and turn the gap assessments into meaningful action. The next day Dawn and Kathy met to prepare for the strategic planning workshop. Kathy showed Dawn the charts she had prepared.

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Behavioral Change Capability Leadership Commitment Accountability Forward Thinking Innovation Communication Risk Tolerance Organizational Learning Trust Diversity Empowerment Adaptation Dynamic Stability

1

Change Capability Scale 3 4

2

5

Current Capability Required Capability Minus 1 Std. Dev.

Mean Response

Plus 1 Std. Dev.

Capability Gap

Exhibit 21.3

Behavioral Change Gap (Detailed)

Behavioral Change Capability 1 Leadership Commitment Accountability Forward Thinking Innovation Communication Risk Tolerance Organizational Learning Trust Diversity Empowerment Adaptation Dynamic Stability

2

Change Capability Scale 3 4

5 1.4 1.1 1.1 1.0 1.1 1.0 0.6 1.5 1.6 1.2 1.1 1.2 1.6

Capability Gap

Exhibit 21.4

Behavioral Change Gap (Summary)

Kathy mentioned to Dawn that she had some concern over the validity of the results, because almost every change capability had a significant gap. Moreover, there seemed to be little variety in the size of the gaps; most fell in the 1.0 to 1.5 range. Dawn, however, was much less concerned that the charts did not immediately point to a few capabilities requiring most of the attention.

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“First,” she said to Kathy, “my team is not used to this assessment tool or even thinking in terms of these specific change capabilities. Some of these findings may simply reflect a broader view of a need for increased change capacity.” “However,” Dawn continued, “I certainly can guess at some of the rationale. I have heard from both the board and some of the staff about dissatisfaction with the prior CEO’s leadership style. There seemed to be a lack of trust in the organization, so I certainly understand the gap of 1.6 in the trust capability. “Of course I am going to immediately look at the leadership gap and wonder why. I’ve only been here a short time, so I hope that isn’t a response to me as a leader,” she said with a slight grin. “Knowing the size of the gap is interesting. But what is far more important to me is knowing why that gap exists and what we need to do to close it—or at least reduce it sufficiently to have a high opportunity for success with our change initiatives.” Kathy was relieved that Dawn was not taking this too personally and instead was focused on using the gap assessment as a tool for assessing strategic planning opportunities and for formulating strategies and action plans. The two agreed that the assessment results, while not necessarily providing any specific answers, would certainly facilitate some spirited dialogue at the workshop. With that, they ended the meeting. Dawn was full of excitement on the day of the workshop. Her experience in the industry provided great insights into the changing regulatory landscape, the increasing difficulty of competing successfully and providing shareholder value, and the importance of developing an efficient organization that was customer focused and well balanced in terms of financial risk. Dawn saw this strategic planning effort as a way of setting and communicating a new agenda for the bank that would increase the probability of organizational success in the coming years. After Dawn provided an overview of the foreseeable external environment and external changes expected in the next five years, she asked Kathy to facilitate a discussion of the internal environment, including both organizational strengths and weaknesses. To begin the discussion, Kathy presented the results of the Organizational Change Capabilities Self-Assessment tool that all workshop attendees had completed. It didn’t take long for a lively discussion to ensue.

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“Yes, risk capacity is relatively low for a bank, but we want it limited. We cannot afford to be gambling with our investors’ money, and that philosophy is ingrained in our organizational values,” said one attendee. “We shouldn’t want to change that capability much. That limited risk tolerance is what has kept us safe during the recent mess so many banks have found themselves in with subprime mortgages.” “I agree,” stated Dawn. “I suspect my caution to the board about risky industry lending practices during the interview process is part of the reason why I was offered this position. However, how about the gap in leadership? How should we interpret that?” “I don’t think a gap in leadership is aimed at you, Dawn,” said one participant. “Speaking only for myself, I responded that way in part because past leadership was not up to facing new challenges. Also, we have not yet put in place the processes and taken the actions to correct for a prior lack of effective leadership . . . although this strategic planning workshop certainly seems to be a step in that direction.” “I marked leadership down because prior leadership did not do a good job of communicating vision, reasons for changing course, or generally keeping staff informed,” said another. “Maybe I should have put that under communication instead, but some of these capabilities seem to run together in some cases.” “No problem,” said Dawn. “I understand your reasoning. Moreover, it’s important for all of you to understand that this assessment is not a report card. It is simply a tool to generate insights and to help take action on those insights. This assessment is intended to allow us to share these thoughts in a focused way. It can also specifically address how we work together to overcome the challenges we discovered.” Along with a discussion of the internal environment was a very passionate discussion of the external environment. “What are some of the key external environmental changes that are happening,” asked Kathy, “that might impede future success?” “Unfair competition from credit unions that don’t get taxed,” exclaimed one participant. “I don’t think so,” rebutted another. “We need to differentiate between industry challenges and challenges to us. We certainly don’t have any large credit unions that locally that are providing unusually tough competition. And as an industry, credit unions as a whole in

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the United States are very small compared to banks. I seem to recall a statistic that collectively, credit unions are only about 5 or 6% the size of the banking industry.” After pretty spirited discussion, the group concluded that the much larger threat to long-term success was the inability to compete with the large banks that seemed to be undergoing nonstop consolidation. Other opportunities and threats from the external environment were also discussed and added to the list to be considered in developing objectives and strategies. Kathy explained that understanding the external and internal environments was a critical step in any strategic planning process. However, that understanding was merely a stepping-stone toward developing appropriate objectives and supporting strategies. Most of the rest of the day was spent discussing and focusing on a few key strategic objectives and then beginning the discussion of the strategies that had to be set in place to achieve those objectives. As a result of seeking a solution to the threat of increasing competition from large national banks and industry consolidation, the group identified two strategic objectives. The first objective was to become more customer focused. “One of our weaknesses can be turned into a strength,” suggested one participant. “As a community bank, we are very small compared to our large national competitors. However, that means we are much closer to our customers and their needs than are the corporate headquarters of the largest banks. Even if their local branches understand local needs, they still have more of a bureaucracy to wade through in order to respond in a focused way. We, on the other hand, can make adjustments very quickly.” Consensus built quickly around a key objective of becoming very customer focused in terms of meeting locally specific needs, and for using this responsiveness and flexibility as a key differentiator in competition with large national banks. “How about other objectives in order to achieve our mission and vision?” asked Kathy. “Great customer focus certainly seems to be one relevant objective, but are there others?” “The idea of taking advantage of our smaller size gives me another idea,” a participant said. “We can become more innovative. That doesn’t mean to say that we are leading the innovation. After all, we have very

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limited resources. However, we could be much more aggressive in monitoring developments across the industry and being more proactive in implementing changes, such as taking better advantage of the Internet for marketing and customer transactions.” As the group further discussed this idea, they agreed that greater innovation on the part of Candor Bank could well become a strategic tool to fight competition. They agreed that being innovative didn’t necessarily mean they were inventing new technologies and practices but rather being more open to incorporating changes into their customer services and internal operations. Throughout the discussion, Kathy occasionally reminded the group of the organizational and personal behavioral gaps that had been identified. She reminded them that the organization’s capacity for various behavioral change capabilities serves as a constraint on what strategies the organization can implement effectively. She challenged the group to consider whether the strategies being discussed could be implemented within the bank’s current capacity for organizational and personal change. If not, a gap likely would remain in that state, unless it was specifically addressed. In fact, this gap might even widen, depending on the strategy chosen for implementation. This in turn would create a source of risk to the success of any strategy. Kathy urged the group to consider how to include increasing the capacity of the needed behavioral change capabilities within the strategic response wherever gaps were thought to exist. “Let’s review where we are for a moment,” she suggested. “If consolidation in the banking industry and inability to compete with the large banks is the primary external threat, how might you deal with that threat? It seems like you have some thoughtful responses identified. But how could existing individual and organizational behavior impact implementation of these strategies? Are the new strategies consistent with the existing culture and behavior? We know we already have gaps in organizational change capabilities. Would these gaps impede implementation of the identified strategies? Even worse, would the strategies potentially widen the gap between existing behavior and what is required for the strategies to be successful?” At first there was no response to Kathy’s questions. Everyone understood the basis of the questions, particularly given the earlier

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discussion of the current change capability gaps. However, the workshop participants were still new to incorporating this line of thinking into the planning processes. After a few moments, Dawn spoke up. “I think those are great questions, Kathy. While I have some initial thoughts, I’d like to hear what the others think.” “I think that the idea of being more customer focused makes sense, but I also think that won’t be such a challenge for us in terms of the 13 change capabilities that we discussed,” said one person. “While the survey shows we currently have gaps in every capability, I don’t really see those gaps growing as a result of this strategy. Also, I don’t expect the existing gaps will really stop us from implementing this strategy. Of course, we’d have to really look at how we propose implementing this strategy to finally answer the question. On the other hand, I think the strategy of increased innovation could be much more challenging. We’re used to being more of a follower—changing when we absolutely must—than we are being innovators. This strategy will certainly increase the gap in the innovation capability. However, it could well increase the capability gaps in risk tolerance, organizational learning, forward thinking, and perhaps others.” Once the discussion began, there was no lack of opinions on how strategies would affect, and be affected by, individual and organizational change capability gaps. In the end, the group agreed that existing change capability gaps would likely not be a major impediment to becoming more customer focused. However, the group also agreed that becoming more innovative would require a change in both individual and organizational behavior. As a result, the change capability gaps would widen in several areas. “What does it mean to you,” asked Kathy, “if several change capability gaps widen? Should we shelve the notion of becoming more innovative?” “Certainly not,” responded one individual.“But it does mean that we need to be very sensitive to these issues as we develop an implementation plan. Not only should such a plan seek to minimize the gaps where feasible, but it should probably include actions to close the gaps, such as providing for training, perhaps change individual performance standards to motivate desired performance, and similar actions.”

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Dawn nodded. “I’d hate to think that we wouldn’t consider strategic actions simply because they widen the existing change capability gaps. However, we’d be kidding ourselves on the challenges if we then ignored those gaps. We need to balance the benefits from new strategies and implementation plans with the costs associated with closing those gaps.” At the end of the day’s workshop, Dawn and Kathy sat down to discuss preliminary thoughts. “I like where we ended up,” said Dawn. “We tackled some tough issues today, and I think we made some real headway in addressing major issues we’ll be facing over the next few years.” “I agree,” responded Kathy. “While I don’t have the experience you have in running a bank, I do have a fair amount of experience in strategic planning. I have to say that I’ve never seen a group address the organizational and personal behavioral changes that will be required as explicitly as we did today. The organizational and personal capability assessment you suggested using really seemed to bring those issues into focus and get them considered in developing strategies.” Dawn agreed. “But we’re a long way from finishing work on organizational and personal behavioral change. Someone once said years ago that strategies fail more often from poor implementation than poor design. In other words, the bigger challenge is not sitting through a strategic planning workshop and selecting a strategy but rather implementing whatever strategy is chosen.” Kathy thought for a moment before responding. “I really believe that the dialogue today on your change capability gaps—and how the gaps tied in to the selected strategies—was invaluable. However, I think you’re right. If I understand your point correctly, the next challenge will be to make sure the supporting implementation plans for those strategies keep a focus on closing those gaps.” “Indeed,” said Dawn. “That’s why I believe this concern about organizational and personal change capability cannot end at a strategic planning workshop. It needs to be built into the annual business planning process, because that’s where much of the work on strategies is executed. Our annual planning process—from what I have seen so far— seems to be totally focused on budget estimates, financial results, understanding the impacts of interest rate changes on assets and liabilities, and

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the quantifiable side of the business. Nowhere has there been a focus on anything related to the capability gaps we have been discussing.” “Maybe you’ll need a separate change management program just to change how you do business planning.” Kathy grinned. Dawn chuckled. “Well, I don’t honestly don’t know at this point. What I do know is that the capability gap assessment and the discussion confirmed that we have capability gaps that need to be closed if we’re going to achieve our strategies. We need to develop concrete action plans for closing those gaps. As long as we do that, I’m less concerned whether those plans appear as part of the annual business plan, as part of supporting project plans, or as a separate change management plan.” “Maybe the complexity of the changes that have to occur and how those changes can be managed across a set of strategies might help you decide,” suggested Kathy. “What I mean is that if the relationship among strategies, capability gaps, and business plan elements gets complex, perhaps it won’t be enough simply to incorporate actions for gap closure in the business plan and supporting project plans. Keeping track of all the needed changes may call for a separate change management plan.” “Perhaps,” said Dawn. “Those kinds of considerations should be part of our discussion in how we roll out the implementation planning for making the needed change. I’m comfortable in knowing that we now have a vastly greater appreciation of what needs to be done in terms of addressing organizational and personal behavioral change. We’ll also need to reassess ourselves from time to time. Just like any project plan in which a project manager measures progress from time to time and takes corrective action as needed, we’ll need to do the same with our initiatives to assess and close behavioral capability gaps. A moment ago I said we needed to close the gaps in order to be successful. This is the simple response. Perhaps a more complete response is that gaps represent sources of risk to success. Some projects and organizations are successful despite these risks, but the majority is not. I believe we need to recognize the sources of failure in achieving strategies due to change capability gaps and then address those risks by closing the gaps in an appropriate fashion.” Kathy nodded. “Half the challenge of getting to a destination is knowing which road to take. I think you have a much clearer vision

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of your path than most organizations I’ve worked with. Reassessing yourselves from time to time will help ensure you stay on that path.” Over the course of the next several days, Dawn established small working groups to develop implementation plans for each of the strategies defined during the workshop. She attended many of these workshop meetings. She wanted to understand the future implications of the evolving implementation plans and also to assure herself that the groups were headed in a direction consistent with the intent of the strategies to be implemented. During the course of the meetings, Dawn observed different approaches from the working group leaders relative to behavioral change. For example, one strategy that evolved from the strategic planning process was to develop and use a risk-based budgeting process. This budgeting process would more discretely evaluate the risk to achieving overall bank strategic objectives as a result of individual budget decisions. Roy had been assigned as the leader of the working group with responsibility for drafting such a budgeting process. As Dawn observed Roy guide group discussions, she saw he seemed very sensitive to the implications of the change capability gap assessment. “How willing will people be to making meaningful risk assessments,” Roy asked the group. “Given our culture of being conservative on credit risk, will people making budget requests try to make the case that any unfunded budget request will represent high risk?” “I don’t think so,” said another group member. “Because we’re used to thinking about risk, I believe most managers understand the concept well and will be able and willing to adapt to this new budgeting process.” Dawn was glad to see that the gap assessment, such as the capability gap on risk, was part of the discussion and consideration of how this strategy would be implemented. However, in another case, a working group was hard at work developing an implementation plan for a strategy without specifically considering the identified capability gaps. Dawn immediately brought this fact to the attention of the group. “Folks, we all agreed during our strategic planning workshop that addressing the behavioral aspects of change needed to be considered,” she said. “However, none of the discussion I’ve heard so far has touched on the capability gaps, several of which seem to be applicable here.”

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“Hmmm . . . I think you’re right, Dawn,” responded the working group leader. “It’s just so easy to fall back into the traditional way of doing things. The topic of behavioral capability gaps seems to have gotten dropped along the way.” “I understand,” replied Dawn. “We haven’t done strategic planning this way before. Not only do we ultimately need to manage the behavior of bank employees in executing these strategies, but we also need to manage our own behavior in working to design strategy implementation approaches. Sometimes people willfully resist change. In our case, I suspect it is simply that we’re so used to doing things in a certain way. Changing ourselves to include the findings of the capability gap assessment means we need to make an extra effort to keep such considerations at the forefront of our thinking.” “You’re right. As you suggested, Dawn, sometimes a failure to change is more subconscious and not willful,” said a group member. Joe nodded. “We’ll certainly work to give more consideration to what implementation plans should include in order to address the behavioral capability gaps we identified.” Dawn thanked the group for their efforts and excused herself from the meeting to attend to other matters. Later that day, Dawn called Kathy to share her experiences with the working groups. “Kathy, I’m both pleased and slightly disappointed with our change management strategies,” began Dawn. “On one hand, everyone seems to have gotten on board with the need to consider behavioral gaps. In a way, that is almost common sense, so I haven’t gotten a lot of push back there.” “That’s good,” responded Kathy. “So where are you finding a problem?” “The problem doesn’t seem to be in the accepting but in the doing . . . at least in some cases. As I track the implementation working groups, some have really grasped the idea and integrated it into their discussions. Some, however, easily slip back into their old modes of planning, which is to say that they are ignoring the capability gaps.” “Did you bring this to their attention?” asked Kathy. “Of course, and they quickly acknowledged a need to keep capability gaps in mind,” responded Dawn. “As I said, it’s not that they are

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intentionally pushing back on the notion of addressing capability gaps. It’s simply that they’re conditioned to another way of thinking.” Kathy paused for a moment and thought. “You know, it’s difficult for you to be the traffic cop and attend every working group meeting to be sure behavioral change capability gaps are being addressed. I have a couple suggestions. First, you might simply require every group to include the status of actions to address behavioral change when they give you their weekly update at the staff meeting. Because they’ll have to be prepared to say something specifically regarding their progress on change capability gap closure, they’ll be much less likely to forget this issue during their working group discussion. In addition, if you find that there needs to be some coordination between the various working groups relative to their change capability gap closure efforts, you might consider appointing a person specifically to ensure coordination of efforts across the various groups.” “That makes sense,” said Dawn. “In a very large organization undergoing a large change, I could even envision an entire working group chartered only to coordinate the change capability gap efforts across other working groups. I don’t think our organization is sufficiently large, nor our strategies sufficiently complex, to justify this. However, I do see a need to better coordinate the behavioral change capability gap responses of the groups. Having a person assigned with this specific responsibility seems to make a lot of sense, and I think I know the perfect candidate.” Later that day Dawn caught Frank en route to lunch. “Frank,” shouted Dawn. “Have a moment?” “Sure thing, Dawn. What’s up?” “If you wouldn’t mind, I’d like to share some thoughts with you over lunch and see what you think.” Frank and Dawn agreed to talk over lunch. Dawn began by thanking him for his strong participation in the earlier strategic planning workshop but shared her concerns over the uneven application of change management within the working groups. “I think what we need, Frank,” said Dawn, “is someone to take an active role in ensuring the strategy implementation working groups keep change management in mind. They have all bought in conceptually to the idea of change management, but some don’t appear to be

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actively addressing the change capability gaps we previously identified. I noticed during the strategic planning workshop that you seemed to really grasp the concept and importance of the change capability gaps. What I need is someone to work with the various groups to be sure that they’re all considering these gaps in the planning process and crafting solutions for closing them. I think they’d all acknowledge the value, but some are falling back into familiar ways of doing business.” Frank appeared to think deeply for a moment, rubbing his chin. “You know, I really hadn’t thought that this would be a problem, but I can understand why it might be. Old habits can be such a hard thing to kick. What exactly did you have in mind?” “A couple things,” said Dawn. “First, I’d like to ask you to take on this new role. I certainly don’t see it as a full-time task in our case, but it would mean attending the various working groups, looking for consistent consideration given to change management and closure of capability gaps, and sharing thoughts with the groups that will help achieve the desired consistency. Part of this role would include you reporting at the weekly staff meetings on how consistently the groups are addressing change capability gaps. Second, I’m going to announce that we’ll resurvey the organization using the Organizational Capability Self-Assessment tool. However, this time the survey tool will compare where we are today in terms of change capabilities to where we need to be for the selected strategies to be successful. I expect to see some small change in our scoring of current capability, not only because employees now have a better understanding of what we mean by these capabilities but also because I hope we’ve been making some progress in closing gaps since our first survey. But I also expect to see changes in some required capabilities due to the strategies we have selected to pursue.” Frank nodded. “That makes sense to me. I’d be glad to take on this role, especially if I get some fancy title to go with it.” “How about change management czar?” joked Dawn. “Hey, that works.” Frank grinned. “Seriously though, I think this is important and will be pleased to help. Also, letting the working group leaders know that another change capability gap assessment is forthcoming will provide them with an incentive to keep closure of these gaps in mind as they build out their project plans for implementing

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strategies. It will also help fine-tune plans for closing gaps if we get updates a couple times a year on where the gaps currently stand.” “I agree,” said Dawn. “Also, I think our strategies are few and straightforward enough that we don’t need you to extract the change management efforts from each working group and place them into an integrated change management plan. That might be a worthwhile and even necessary step in a very large organizational change initiative with several independent initiatives. However, if simply providing oversight of individual working groups and reporting back at weekly staff meetings is insufficient, we can always turn to a more formally integrated approach.” “Sounds good to me,” Frank responded. “I look forward to the new role. Just don’t forget the fancy title.” Frank and Dawn laughed. Both felt that real progress had been made on establishing a process that would help make change management and change capability gap closure a meaningful part of their strategic planning process.

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Chapter 22 2005 Hurricane Katrina Catastrophe in New Orleans* Katrina will be known as the “Perfect Storm” when all elements came together to create the America’s greatest tragedy ever. —www.katrina-hurricane.biz/

A

ccording to the American Red Cross, “Katrina . . . pummeled an area the size of Great Britain. It demolished cities and towns, knocked out transportation, communication, and utility infrastructures and led to the dismantling of a major American city: 80% of New Orleans was flooded.”1 Katrina struck New Orleans on August 29, 2005. In that city alone, damages exceeded $81 billion, and over 1,300 lives were lost. Will Katrina serve as a major wakeup call for change? As the levees

*

This case study was written by Robert Thames, and the opinions stated herein are his and his alone. The primary purpose of this case study is to illustrate the change model and capability assessment, not to point fingers. The media has already attempted to assign the blame on who should have acted and when.

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crumbled, people’s spirits broke as well, and lives were lost or forever changed. Long-standing warnings from the Federal Emergency Management Agency (FEMA) and the Army Corps of Engineers did little to convince some residents that evacuation in advance of the storm was warranted. So why would we use Katrina as a case study on change? Why did it appear that all of the elements of the solution to this catastrophe were available, but completely failed to come together? If the Change, Adaptation, and Learning (CAL) team has learned anything about change, it’s this: Assuming that addressing the infrastructure dimension of any change challenge alone is the complete answer can be a recipe for disaster. Certainly infrastructure issues must be addressed, but doing so in isolation—without considering the interdependent effects of the organizational and personal mindsets—is an incomplete strategy. Just putting together a project plan to provide resources to the solution of a problem this large is inadequate. Since this national disaster occurred in 2005, a review of the process of the recovery of this great city contradicts the phrase that “time heals all wounds.” Strong hurricane seasons have the potential to happen in any year, and New Orleans was fortunately spared a direct hit from hurricane Gustav in 2008. A review of studies that have attempted to evaluate the New Orleans recovery since Katrina presents a jumbled set of perspectives and demonstrates the complexity of the factors involved in such a turnaround. This chapter provides an overview of the impacts of this catastrophe within the three dimensions of change of the Change Challenge Framework model. This discussion also serves to illustrate how the various capabilities within the dimensions of change may provide lessons and learning for future disasters and other change initiatives of a less dramatic nature. An illustrated Organizational Self-Assessment Master Grid for this case study appears at the end of this chapter.

Infrastructure Dimension The failures in the infrastructure dimension manifested themselves most visibly in the horrifying results that were broadcast by the international media. Some considerations include:

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• Private sector companies lost critical infrastructure in buildings, technology, and even the means to communicate with missing employees. • Not-for-profit organizations were overwhelmed with requests for aid to a scale never before experienced. • Expected stable elements of the infrastructure, such as all levels of government, law enforcement, communications, healthcare, education, and transportation, failed simultaneously. Rescue operations and first responders were not prepared for a disaster of this scale. • One of the most glaring examples of the breakdown of the infrastructure was the 5,000 FEMA trailers sitting empty in Hope, Arkansas, 500 miles away from the people who had their homes destroyed and truly needed shelter. People in St. Bernard Parish within New Orleans needed about 12,000 trailers alone. More than three months after the disaster, 1,400 trailers were actually sitting in St. Bernard Parish unused, because FEMA had not agreed to pay for them. • However, one FEMA spokesperson reported to CNN that the agency had provided rental assistance to over 500,000 families and had housed more than 40,000 in travel trailers. • Infrastructure is not rebuilt overnight. Some statistics: • According to a Brookings Institution study2 in 2008, New Orleans has recovered about 72% of its pre-Katrina population, and 90% of its sales tax revenues. • Only half of the number of pre-Katrina customers had electricity one year after Katrina. While that problem was remedied over time, the recent hurricane Gustav knocked out power to an estimated 43% of the population. • Six of nine hospitals remained shuttered one year after the catastrophe. While that statistic has improved to only three hospitals remaining closed, emergency room facilities remain scarce with only one trauma center in the city. The number of hospital beds is a fraction of the pre-Katrina levels. Perhaps more significant, the number of beds for psychiatric patients is almost nil, and presents a looming problem for the city. • Only 54 of 128 public schools planned to reopen one year after the storm. Three years later, the public school district has 59 operable buildings, versus 130 buildings before Katrina.

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• How much of the levee system that protects the city from flooding has been rebuilt depends on the source. One source reports that 85% has been rebuilt. In terms of the $14.8 billion project to finish the 100 year protection levee infrastructure, reports state that they are about 20% complete, as of 2008. Leakage in several parts of the levee system during Gustav provided some nervous moments as resources scrambled to plug the holes to avert disaster. With the possible exception of the levees, infrastructure, in and of itself, really cannot do anything. It has to be managed and coordinated by organizations and people. The root causes of the massive infrastructure failure and areas of opportunity for the future are discussed next.

Organizational or Cultural Mindset Dimension Certain results seen in the infrastructure breakdown were a direct result of contributing effects in the Organizational Mindset dimension. Factors and groups of people included: • New Orleans, more than almost any other city in America, is a community with rich cultural heritage and ethnic customs. From an economic standpoint, there was a clear dichotomy between the elite and prosperous members of the community and the predominant poor class. Many of the ancestors of these citizens came from a heritage of slavery under the French colonists, who released them to fend for themselves when they couldn’t afford to feed them in the early 1700s. • In addition to the original Indian inhabitants, the descendants of a variety of settlers, among whom were the French, Spanish, English, German, Acadians, West Indians, Africans, Irish, and Italians, originally settled in the Crescent City on the Mississippi River. The background of the individuals that made up the various communities, and drove some distinct cultural mindsets include: entitlement, aristocracy and privilege, serving and protecting others, and a fierce determination to survive on a personal level. From an individual or personal level, these cultural attributes manifested themselves at the community level.

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• Miscommunication and power struggles between (and within) hierarchical layers of government at the: • Federal level, which relied on the states’ right policy, deferring decision making to the state level. The blame game stretched from the president, through various agencies, including Homeland Security, culminating in the resignation of the head of FEMA. • State level, which unsuccessfully tried to walk the tightrope between relying on the federal agencies and maintaining its own political power. • Local level, characterized by indecision and miscommunication that contributed to compound the chaos. Certain portions of the local level infrastructure broke down, with law enforcement and health providers abandoning their responsibilities in favor of saving themselves and their families. • The “funding” mindset, which is a prevalent problem in bureaucratic battles between agencies, contributed to some of the fingerpointing and avoidance of responsibility. • Broadcast news and print media contributed to the hysteria and miscommunication by doing what it does best: sensationalizing the story. Although the exposure did propel some bureaucratic types into action, too much energy was invested in protecting reputation, assessing responsibility or blame, or spinning the story for political advantage. Many bureaucrats, including those at the highest levels of government, played into the hands of the media by creating photo opportunities. • One of the greatest assets America has is the generous and giving heart of its people. Millions of dollars were donated for disaster relief. Food and clothing drives were held to help those in need. Businesses permitted employee volunteers to transport donated products and services to impacted areas. Many Americans relocated to New Orleans to help others. Celebrities leveraged their fame to raise funds and volunteered time on the ground to assist the affected. • Unfortunately, another group of people used this tragedy to their advantage: the “opportunists.” • In an area where law enforcement had all but vanished, criminals who were incarcerated and suddenly freed either committed

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heinous crimes in the aftermath of the storm or moved to other states where they continued their criminal ways. For example, “Houston took in 150,000 evacuees. Houston police believe the evacuees wee partly responsible for a nearly 17% increase in homicides in 2006 over the same period in 2005. About 21% of Houston’s 232 homicides through July 25, 2006, involved an evacuee as either a suspect or victim.”3 • Some displaced residents fraudulently abused FEMA disaster relief for personal advantage, and some contractors saw the disaster as an opportunity to make a quick buck by delivering very little. • A bright spot in an otherwise dismal situation is that the management of Galatoire’s, a 101-year-old restaurant, whose Friday lunches are an institution for the well appointed, paid everyone who had been on the staff more than a year for the four months that the restaurant was shuttered for repairs. According to Melvin Rodrigue, general manager, they did so because their staff is “really the heart and soul of Galatoire’s.”4 • Finally, there are those of us that were mere observers of the tragedy while potentially playing other roles as charitable givers, volunteers, or helping those displaced by the disaster. It is also instructive to review the capabilities we have identified in successful change initiatives in light of what was present and missing in this catastrophe. Leadership was a clear requirement; however, the existing politics made alignment of expectations with responsibilities the core issue and exacerbated the problem instead of solving it. The true test of leadership is the behaviors it produces under stress, and, with a few exceptions, leadership was absent. Contradictions and poor communication, combined with the lack of strong leadership perpetuated shifting responsibilities and a lack of trust. Empowerment and autonomy primarily was exercised solely by criminals. While some citizens rose to the challenge, and others took advantage of the opportunity to commit criminal acts, the efforts to establish a community-wide empowered effort was spotty and fragmented at best. An incredible lack of forward thinking was demonstrated. Early in 2001, FEMA had stated that one of the three most serious threats

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to the nation was a major hurricane hitting New Orleans. In addition to FEMA, the Army Corps of Engineers, Louisiana Water Resources Research Institute at Louisiana State University, the Jefferson Parish Emergency Management Center, and the Louisiana Sea Grant Forum had reached the same conclusion years before Katrina struck. Underfunding of levee repairs had been debated for decades. During Gustav, a level 3 hurricane that landed west of New Orleans, deep concern about the levee structure still exists, as not all of the federal funds provided to fix this problem have been utilized. Finger-pointing continues between various political factions as to who is contributing to the delays. The debate over accountability for this massive failure of infrastructure continues to this day. The clear lines of responsibility between federal, state, and local governments have been clarified to some extent, but room for improvement remains. An encouraging display of coordination and cooperation came from the preparations for the recent Gustav hurricane event. Once Katrina struck and the size of the problem was seen, those on the ground were highly adaptive, showing a tenacious commitment to rescue as many citizens as possible. Innovation with respect to strengthening and stabilizing levees was relegated to the back burner due to funding choices and perceived priorities. Needless to say, in hindsight the tolerance for risk was much greater than it should have been. The depth of coordination and preparation in advance of hurricane Gustav has provided a glimmer of hope that some of the organizations charged with these responsibilities have had some significant organizational learning in the intervening years since Katrina. Perhaps the compound impacts of the cultural and personal dimensions of change from Katrina were severe enough to draw the appropriate level of attention to ensure this type of disaster does not reoccur. However, it appears that only the infrastructure, or physical dimension of change remains the primary approach, and the long-term effects in the organizational or cultural and personal dimensions of change continue to be an opportunity for the future in order to truly restore this great city to life.

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Personal Mindset Dimension Many of the effects seen in the interplay between the infrastructure and organizational/cultural dimensions stemmed from reactions within individual values and belief systems. • The lack of trust was probably the biggest factor of all, resulting in almost total breakdown of authority. Distrust of the government at all levels by the citizenry was rampant. Distrust between agencies themselves created a primitive survivalist mindset across the board. • From a status perspective, there was a wide gulf between the advantaged and disadvantaged in the community. A sad commentary on compassion was evidenced by the police line that kept evacuees from entering an advantaged neighborhood, forcing them to flee in a dangerous direction rather than to dry land. • Those with the I’ll-stick-it-out mindset must assume significant personal responsibility. Many of those people were too fearful to leave their homes, possessions, and pets; they had seen hurricanes before and had weathered previous threats. They believed this storm would be no different but didn’t take into consideration the compound effect of levee breaches with the storm. Those who survived have steadfastly said they will evacuate the next time they are advised to do so, as their belief systems have clearly heard the wakeup call. • It would be difficult to find a person in America that was not touched in some way by this tragedy. Even outside the United States, over seventy countries offered and/or provided assistance materially and financially. The giving heart, referred to earlier, came to the forefront, as it always does. • Unfortunate personality and political conflicts disrupted authentic communication and honest accountability. • Dissonance between Michael Brown, director of FEMA, and Secretary of Homeland Security Michael Chertoff was detailed in an interview with Michael Brown. He said that “Chertoff is a bright man, but he’s an appellate court judge. He tends to manage they way you do court decisions . . . You need more of a strategic point of view. You need dynamism, leadership, and a plan.”5 Whether Brown had a plan or not is not discernable from

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the resulting outcomes, and most certainly his leadership was questionable. • New Orleans Mayor Ray Nagin appeared to be at odds with Louisiana Governor Kathleen Blanco. Just after President Bush’s first visit to New Orleans after the storm, Nagin commented on CNN that Governor Blanco had been indecisive about coordinating with the federal government, saying she needed 24 hours to respond to the options President Bush has presented her. Nagin said that Bush told him he was ready to move that day, but the governor didn’t move on his recommendation, and more people died. • Democratic and Republican political sniping was rampant, as each side tried to leverage the tragedy and missteps for political gain. The spotlight was so intense that political sniping even occurred within the same political factions. • The absence of authentic leadership was another crippling factor. A few heroes with personal conviction did emerge as leaders, such as Lieutenant General Russel Honore, who, at the time commanded the 1st Army, based at Fort Gillem in Forest Park, Georgia, outside Atlanta. Honore directed 1,000 National Guard troops in the relief effort and calmed the city by ordering Guardsmen to point their rifles down and reminding them they were not in Iraq. Also, the United States Coast Guard, under the leadership of Thad Allen, of the United States Coast Guard led the rescue and recovery efforts during the catastrophe, and now serves as its Commandant. Results from this leadership have been recognized as contributing to one of the Coast Guard’s “finest hours.” What level of change was demanded by the environment? Was it transitional or transformational? What effect has it had? With people dislocated to 48 states, will the identity of New Orleans be forever changed? Three years later, these questions remain unanswered. Demands of the environment and events that occur in the infrastructure dimension are always viewed through the lens of the Personal Mindset dimension and interpreted or validated through the Organizational Mindset dimension. The organizational mindset can act to reinforce or alienate the personal point of view. It can also be leveraged and manipulated to support a distorted personal view or belief, as often happens in politics.

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What Will the Legacy of Katrina Be? Years later, the media is still spinning the stories, and some politicians are still playing the blame game by pointing fingers. Documentaries attempt to tell the story objectively but fail to separate personal bias from the coverage. The president’s statement that there will be enough blame to go around seems to have been the truest statement of all. A major economic renewal effort is under way, and tourists are returning to the Big Easy, but the struggle will be long and require a lot of collaboration. Some tough questions remain: • What are the long-term psychological effects on children of seeing a loved one drown? What is the legacy of having survived the terror of being attacked or witnessing crime within the Super Dome? • How deeply does living through such an experience instill hatred and ill will into belief systems? Can it ever be overcome? • What lessons can we learn about our own humanity when our institutions fail at every level yet the spirit of love and sacrifice emerges over fear and indecision to enable us to address the challenge before us? • Can a city be economically rebuilt if half its residents have already rebuilt their lives in other cities and refuse to return? • What are the correct priorities? The Super Dome is now rebuilt, and Monday Night Football was hosted there on September 25, 2006. Some of the displaced residents were even given tickets to the game, even though they were still homeless. With limited resources, it’s understandable that the economic base of the city will provide jobs and community revival, but some people must have been dismayed by the focus on sports revenue instead of helping them rebuild their communities. • However, the reemergence of sports in the epicenter of such a disaster can drag tourist and development dollars back to the community and kick-start an investment mentality. Many inner city slums in America have been replaced by thriving businesses through investments in new sports stadiums. Whether those investments are the appropriate priority is another debate, but it does demonstrate the power of a growth and development mindset in contrast to a fixed mindset, as explained in Chapter 2.

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• Roughly 75% of the hotels in the metro area have reopened, according to the Brookings Institution. • Journalist Joseph Guinto, a frequent visitor to New Orleans, gave this account of a visit in 2006: I found one thing I had not anticipated. Among the people who rushed back as soon as the city opened their ZIP code to repopulation, there is an undeniable, almost palpable sense of hope for the long term. There’s pessimism, sure. But from bartenders to waiters to shopkeepers to hotel proprietors and everyday residents, many who live and work here are convinced that New Orleans will soon be back to something close to normal—the “new normal,” as they are calling it. For these optimists, bringing the city back in whatever small way they can has become almost a calling. They figure that, in a country increasingly homogenized with the same old strip malls and McMansions, New Orleans is way too important to lose.6 • America has long had a love affair with New Orleans. It’s unlike any other place in the world. Its spicy foods, eclectic music, and entertainment will endure as unique cultural markers for this country. Shame on us as a society if we fail to support the city’s revival and rebuilding, including mitigating future catastrophe risks. Some sobering indicators from a Kaiser Foundation study7 conducted specifically in the New Orleans parish indicate a continuing, and growing problem emanating from ignoring the critical Personal Mindset dimension. The demographics of the population interviewed in this study included approximately 1300 randomly selected adults over the age of 18 residing in New Orleans parish, whose boundaries are the same as the city of New Orleans. These statistics provide insight into potentially negative outcomes if a more multi-dimensional change response is not addressed. • Perceived opportunity in New Orleans is diminished. • 56% say it is a bad time for children to grow up here • 61% say New Orleans career opportunities are ‘‘not so good to poor’’

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• 22% of residents are currently considering relocation out of the city, as opposed to 12% in 2006 • Even with the pessimism, 74% say they believe things will improve in New Orleans, a statement to being resilient and loyal, but perhaps unrealistic Perceived quality of local and federal assistance remains low. • 60% say rebuilding New Orleans is not a priority for Congress and the president • 65% believe that the Nation has forgotten or does not care about their plight • 75% believe the federal money provided for recovery has been misspent • 86% believe New Orleans has serious political corruption • 80% give insurance companies low ratings for their response Mixed results are stated with regard to media. • 51% give the National Media Good marks on their coverage • 45% give the National media “Not So Good” or “Bad” marks • 75% give the local media Good marks Immigration, race relations, and diversity are factors. • 58% see immigrants assisting in the rebuilding effort as good • 75% believe the diversity of racial and ethnic groups is good • 70% see New Orleans as divided by race and income 33% believe it is the divide between rich and poor, while only 15% say race causes this divide 55% of African Americans saw process of recovery as stacked against them in 2006, with only slight improvement in 2008 at 46% Personal disruption and stress levels are high, but posting slight declines. • 41% see their lives as disrupted by the Storm in 2008, versus 46% in 2006 (50% individuals are African American and 26% Caucasian) • 59% say they are at least close to back to normal Psychological impacts remain the biggest issue. • 53% say their lives are more stressful now than prior to Katrina • 40% say their mental and emotional health is worse • 25% with children in their home say their children’s mental or emotional health is worse

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• Quality of life ratings have not bounced back. • 40% say their financial situation is worse, with 53% of these being low income residents • 65% of residents said their life was very satisfying prior to the storm, and in 2006 and again in 2008, only 25% say their life is very satisfying • 48% say their housing situation is the same as pre-Katrina, 23% say it is better, and 27% say it is worse The critical takeaway from this high-level case study should be obvious. When the environment presents a major need to change or adapt, all three dimensions of change need to be orchestrated effectively in order to optimize performance and effective change responses. It’s not unlike an algebra equation: If one of the multipliers is zero, the resulting equation will be zero. Evaluation and planning for all three dimensions must be considered in the context of the project plan and the change plan. Our greatest vulnerabilities as a nation come from the either/or mindset and one-dimensional thinking. Events that are nonlinear in nature, such as Katrina, should teach us to think more expansively and evaluate all the dimensions of a problem or threat. How could the tragic outcomes of this disaster have been avoided? Exhibit 22.1 illustrates the core organizational capabilities that were needed and lacking in this situation. You can argue with the specific placement of both requirements and actual capabilities; however, it is clear that some lethal gaps occurred. When the environment presents us with our next challenge—and we all know it is coming—perhaps we will learn to consider these factors as we prepare for and put recovery plans in place. Let’s learn from our history rather than repeat it. We can plan our change responses by considering not only the infrastructure actions but how they can be supported with organizational and personal mindsets. Then we won’t have to test the American spirit and leverage hope and guts to forge ahead in spite of environmental challenges—or at least deploy them elsewhere for greater good. Exhibit 22.1, the completed master grid for the Katrina scenario, illustrates how the organizational self-assessment process can work. Any ranking of both actuals and requirements for change in this scenario is speculative and based on personal opinion, which is decidedly only one

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chasing change Evaluating Core Capabilities for Change Level

1

Leadership

2

Commitment

Katrina Scenario: R ⫽ Required or expected level of capability to close gap C ⫽ Current level of capability exhibited

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5 R

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Accountability

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C

R

Forward Thinking

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Innovation

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Communication

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Risk Tolerance

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Trust

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Adaptation

R C

Dynamic Stability

C Low

Exhibit 22.1

4

C

R R High

Katrina Catastrophe Change Assessment

individual point of view. Reading into this case study any indictment or criticism of public officials would be an unintended conclusion or consequence of this illustration.

Notes 1. www.redcross.org/sponsors/drf/stewardship/HurrStewRep06.asp. 2. Brookings Institution, “The New Orleans Index, Anniversary Edition, Three Years after Katrina,” August, 2008, 6. 3. Frederick(MD) News Post, August 29, 2006. 4. Joseph Guinto, “An Immovable Feast,” Southwest Airlines Spirit Magazine (November 2006): 172. 5. Interview with Michael Brown, Playboy Magazine (September 2006): 50. 6. Joseph Guinto, “ReNew Orleans,” Southwest Airlines Spirit Magazine (November 2006): 155. 7. Henry J. Kaiser Foundation, “New Orleans Three Years after the Storm: The Second Kaiser Post-Katrina Survey, 2008, publication #7789.

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Chapter 23 Conclusion

Be the change you wish to see in the world. Mahatma Gandhi

T

he essence of the quotation from Mahatma Gandhi is that bringing about social change requires more than simply advocating and implementing new policies, structures, or other physical dimension changes. It also requires a behavioral change at the individual or personal level in order to engage the hearts and minds of people. In the context of organizations, change must address not only the physical dimension aspects of change but also its cultural and organizational behavioral dimensions. Although change management is a frequently discussed topic in modern management literature, the concern over change is not new. We have all heard the saying “The only constant in life is change”; few of us know, however, that this quote can be traced back to the time of

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Greek philosopher Heraclitus (ca. 535–475 bc), known for his belief that change was central to the universe. However, some 2,500 years later, we still ponder, debate, and fret over the idea of change. Most organizations today cannot endure philosophical debates over change. Instead, they must act. As the rate of change in the world continually increases, the urgency of adapting to changing demands and constraints becomes more pressing than ever. In many cases, organizational survival is ultimately dependent on an ability to change effectively. To gain an improved awareness and understanding of change, we first needed to define some terms. Simply talking about “change” was inadequate, because that word is used in multiple and often conflicting ways. For example, some say that change cannot be managed while others claim that change must be managed. Both of these statements are correct if we understand that they refer to different types of change. In this book we introduced the terms First-Order Change and SecondOrder Change to distinguish between change imposed on organizations by the external environment and change that the organization originates in response to misalignment between itself and the external environment. We also introduced the notion of a gap in both types of change. The First-Order Change Gap is what drives organizations to change in the first place; the Second-Order Change Gap is the gap in the organization’s response between what is ultimately required for success and what is typically offered as a change solution. We offered the Change Challenge Framework as a conceptual model to illustrate the relationship among these terms and to make the case that the reason why many change initiatives fail is due to inadequate consideration of organizational and personal behavioral change needs. The Change Challenge Framework provides a conceptual basis for understanding the drivers of organizational change and appreciating the shortcomings of traditional approaches focused almost exclusively on the physical dimensions of change. However, it does little to address what you need to do in your particular organization. It is the premise of this book that every organization’s First-Order Change Gap is unique to itself; consequently, every organization’s Second-Order Change Gap is unique as well. Understanding the particular nature of your organization’s SecondOrder Change Gap is essential to leveraging limited resources available for change in a manner that best addresses your unique challenges.

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In addressing the Second-Order Change Gap, you should conduct analysis of the required change response by evaluating all three dimensions of change: 1. The Physical, or Infrastructure dimension, comprised of organizational structure, technology, and systems 2. The Organizational Mindset dimension, comprised of the cultural attributes, shared beliefs, core processes, policies, and procedures 3. The Personal Mindset dimension comprised of individual beliefs, attitudes, behaviors, and habits The Organizational Self-Assessment Master Assessment Grid was developed and presented to help craft a tailored response to filling the Second-Order Change Gap. This capability assessment presented 13 change capabilities: 1. Leadership 2. Commitment 3. Accountability 4. Forward thinking 5. Innovation 6. Communication 7. Risk tolerance 8. Organizational learning 9. Trust 10. Diversity 11. Empowerment 12. Adaptation 13. Dynamic stability Most critical of all is the Orchestration Process, or the ability to harmonize and leverage all the core capabilities in a synergistic fashion to meet environmental challenges. Linking the results of the capability assessment to strategic initiatives provides the opportunity to leverage this important integrative process. Although we proposed 13 specific capabilities, there are other ways to decompose an organization into constituent organizational and individual or personal behavioral change components. Organizations may

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choose the Organizational Self-Assessment Master Grid as presented or tailor it as needed. What is important is to assess the organization relative to a holistic set of capabilities that are needed to implement and sustain change successfully. It is also critical to provide a level of understanding on where to target those change initiatives on an individual basis. By understanding the different gaps in each of the specified capabilities, an organization is able to develop a new level of insight into its change management needs relative to organizational and personal behavioral change. The set of 13 change capabilities described in this book will serve as a helpful tool in targeting the behavioral change needed in your particular organization, but do not forget that they are not the end objective of change. Improving capacity in these capabilities serves to help organizations and individuals move from a fixed mindset that tends to lock organizations into a commitment to the status quo to a more expansive growth and development mindset. Fixed mindsets resist change in hopes of maintaining stability and control. Growth and development mindsets are more open to change, viewing it as opportunity. Use of the Organizational Self-Assessment Master Grid allows this movement in mindset to be focused on those aspects of the organization that are most likely to lead to more successful change through identification of existing capability gaps. We believe that the traditional change management approach of applying a generic solution that ignores the unique, multidimensional needs inherent in driving successful organizational change is very limiting. A nonspecific, one-size-fits-all approach does not make best use of limited resources in meeting unique organizational change management challenges. Moreover, such a generic approach may jeopardize successful change by inadequately addressing the root causes of limitations on organizational change capability. We have also discussed how to integrate change management strategies within your strategic planning process. The fictionalized Candor Bank case study, for example, provided an example based on actual implementation experience. Understanding the organization’s current gaps in the 13 organizational and personal change capabilities is a useful input to the strategic planning process, as it augments the discussion of the traditional strengths, weaknesses, opportunities, and

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threats (SWOT) analysis. By considering the gaps in an organization’s current organizational change capabilities, strategic planners can have a more complete discussion of the risks associated with alternative strategies. Moreover, once a strategy is selected for implementation, the organization can reassess its organizational capabilities gap relative to that strategy. Doing this will ensure that project managers responsible for implementing various strategies are more fully informed of their organizational and individual change capability challenges. By understanding and addressing any remaining capability gaps, change managers can be more proactive in addressing the organizational and personal behavioral aspects of change. In this way, the likelihood of project success increases. Another important strategic choice in implementing change is the approach to selecting a Targeted Change Gap. Leaders must make a conscious choice among incremental, transitional, and transformational approaches to change. These three approaches have significant differences, each with its own set of advantages and disadvantages. Again, there is no one-size-fits-all approach to managing change. Similarly, no single approach (incremental, transitional, or transformational) to selecting and closing a Targeted Change Gap is best for all organizations. Only after analysis of the drivers of change and the organization’s constraints in responding to change can an informed selection be made. Simply jumping on the transformational change bandwagon because it is the latest buzz in change management literature can subject an organization to undue risk. This book has sought to present the drivers of change and to offer a practical toolset for meeting the change management needs of your specific organization. However, we recognize that it is not the final answer regarding what is important about organizational change; nor does it replace other existing literature on change. We have sought to provide a supplement to the current literature, one that allows you to understand that literature through a lens that helps you craft unique solutions to your particular change management challenges. If we have created in you an awareness of the importance of the human elements in organizational change and provided you a practical approach to tailoring your change needs to your organization, we have met our objectives. Change is a complex topic, regardless of whether

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you approach it on an incremental, transitional, or transformational basis. Just like physicians, who will advocate any number of treatments for a diagnosed illness, change experts have their own methodologies and recommended approaches, creating ample opportunities for valid skepticism. Even within the CAM-I Change, Adaptation, and Learning Interest Group, minor disagreement exists on which type of change is most beneficial to an organization in any particular instance. The correct answer—and it’s one that we have resounding agreement on—is that the most beneficial type of change is the one that works and can be sustained. To best position itself for successful change, an organization needs to be agile and ready to apply its core competencies and capabilities in whatever manner necessary to create the appropriate change response to environmental demands. The organizational dialogue about enhancing and deploying these capabilities can be more important than any methodology, technology, or technique you can find in a book—even this one. Creating a change-oriented mindset and the organizational discipline to continuously scan the environment for opportunities and threats is the key. Translating the knowledge gained from that process into action is paramount. The primary focus of this book has been on the organizational aspects of change, because that is where the results manifest themselves and, quite frankly, where we felt our collective knowledge could create the most value for our readers.The Price Waterhouse Change Integration Team summarizes this point well in one of its rules for managing chaos, complexity, and contradiction entitled “Drive Organizational Change through Personal Change”: Personal change is the prerequisite to organizational change. All the restructuring, reengineering, process change, compensation change, and communications programs in the world won’t change a thing unless individual behavior changes. Organizational transformation occurs one person at a time. Involve the total person in making change happen. Build real incentives for desirable behavior change; coach and train; measure results. And keep only those who adopt and adapt.1

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Although organizational change is the most visible in terms of outcomes, it is clearly constrained by the level of support on a personal level. One cannot be successful without the other. Expanding one’s awareness generally leads to a conclusion of how much more one needs to learn. We feel that we have learned a great deal about change and passed on our knowledge in this book. However, we also feel that we have only scratched the surface of this amazingly complex topic. We have aimed to raise your awareness of the importance of the human element of change, as it manifests itself on a personal level and collectively on an organizational level. We trust that we have created an appetite in you for additional learning, and recommend that you review other literature in your quest for personal mastery of change. In addition, we believe you and your organization will be well served through use of the Change Challenge Framework and the Organizational Capabilities Self-Assessment tool. Although it is not a precise instrument, it should provide you with a wealth of content and context for organizational dialogue and learning. We appreciate your company on this journey of change. We wish you the best in your change initiatives and invite you to direct any feedback you may have to: Bob Thames [email protected]

or

Doug Webster [email protected]

Note 1. Price Waterhouse Change Integration Team, The Paradox Principles: How HighPerformance Companies Manage Chaos, Complexity, and Contradiction to Achieve Superior Results (Chicago: Irwin, 1996), 268.

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About CAM-I

CAM-I is an international consortium of manufacturing and service companies, government organizations, consultancies, and academic and professional bodies that have elected to work cooperatively in a precompetitive environment to solve management problems and critical business issues that are common to the group. CAM-I’s Collaborative Model produces value for members through: Participative research. By working together, the participants understand the journey, the best practice path. Targeted intellectual efforts. Each program targets results and produces implementable deliverables by our members. Human networks. The overarching objectives are to develop, share, and challenge ideas in a collaborative environment, ensuring learning and application long beyond the end date of the specific result. By working together, we are able to provide significant leverage to ideas, concepts, and resources. CAM-I Sponsor Organizations (as of May 31, 2008) ABS Consulting ATI 249

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about cam - i

Avnet, Inc. BAE Systems Baker Tilly-Mexico Bank of America Bob Paladino & Associates, LLC Boeing Company Business Objects CALIBRE Systems CMA (Canada) CostVision Decimal Executive Management Associates Grant Thornton LLP IBM Corporation ICWAI (Institute of Cost and Works Accountants India) International Truck and Engine Co. MEDRAD Inc. ON Semiconductor Pilbara Group Inc. Pinnacle West Premier, Inc. Regence Rockwell Collins Royal Australian Navy SAP AG SAS Institute Shell Oil Company Synerma, Inc. Tata Consulting Services Limited U.S. Air Force U.S. Coast Guard U.S. Marine Corps U.S. Navy U.S. Patent and Trademark Office VEN International

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Index

A

B

Abbot Laboratories, 182 Abramson, Eric, 176 Accountability, 62, 79–83, 88, 97, 108, 117, 139, 140, 147, 153, 154, 157, 159, 169, 233, 234, 243 Activity-Based Management, 41 Adaptive behaviors, 93 Adaptation, 6, 60, 61, 97, 117, 130, 159, 165–172, 177, 243 Agility, 5, 45, 62, 114, 165, 167, 168, 178 AICPA, 80 Alignment, 23, 25, 26, 28, 29, 30, 34, 39, 43, 76, 77, 89, 95, 109, 114, 118, 167, 181, 184, 190, 193, 204, 242 Allen, Thad, 235 American Red Cross, 227 Anderson, Dean, and Linda Ackerman Anderson, 4, 7, 17, 18, 20, 173, 180 Army Corps of Engineers, 228

Barrett, Colleen, 50–51 Benchmarking, 89, 90, 93, 208, 209 Bennis, Warren, 58 Blanco, Kathleen, 235 Brookings Institution, 229, 237 Brown, Michael, 234 Budget, 27, 28, 44, 80, 192, 210, 220, 222 Burning platform, 42, 57, 68

C CAM-I, ix, x, xii, 4, 7, 35, 40, 42, 246, 249 Capabilities, organizational, 1, 3, 4, 5, 6, 22, 23, 28, 32, 33, 49–55, 57, 62–65, 68, 69, 76, 77, 80, 81, 82, 89, 90, 92, 94, 96–99, 103, 105, 109, 112, 114, 118, 119, 121, 122, 126, 129–132, 138, 139, 141, 144, 145, 148, 149, 153–162, 166, 167, 168, 170, 171, 174, 178, 184, 185,

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index

Capabilities, organizational (continued ) 191, 197, 199, 200, 203, 204, 205, 210–216, 219–227, 240, 243–245 Change: emergent, 43, 44, 84 external, 24, 25, 28, 215 First-Order, 25–27, 29, 30, 32, 33, 35, 202 incremental, 28, 31, 40, 42, 43, 44, 45, 60, 68, 183, 190, 245, 246 internal, 23, 25, 26 Second-Order, 29, 30–33, 201 transformational, 6, 40–45, 184, 190, 235, 245, 246 transitional, 6, 40–45, 184, 190, 235, 245, 246 Change, Adaptation, and Learning Group (CAL), x, 35, 41, 51, 228, 246 Change agents, 104, 105, 201 Change capacity, x, 2, 3, 5, 6, 87, 129, 214, 215 Change Challenge Framework, xii, 16, 21–35, 38, 39, 50, 54, 155, 156, 196, 201, 202, 228, 242, 247 Change management, 2, 30, 33, 241 Change plan, 4, 6, 34, 35, 38, 39, 49, 54, 123, 184, 189–201, 239 Change sponsors, 103, 200, 201 Change strategy, 18, 43, 52, 145, 201, 202 Change targets, 104, 201 Chertoff, Michael, 234 Collins, Jim, 181 CNN, 229, 235 Commitment, 53, 54, 59, 61, 62, 65, 67–78, 87, 93, 97, 107, 123–125, 127, 130–132, 145, 146, 154, 156, 159, 174, 176, 177, 181, 192, 199–201, 205, 212, 213, 233, 240, 243, 244 Communication, 3, 31, 34, 42, 49, 75, 88, 93, 97, 101–110, 123, 127, 128, 130, 139, 141, 146, 147, 155, 156,

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169, 184, 194–196, 216, 231, 232, 234, 243, 246 Communications program, 103, 108 Competencies (vs. capabilities), 50 Competition, 4, 91, 92, 133, 206, 208, 216–218 Compliance, 59, 67–69, 74, 76, 96, 107, 113, 123, 125, 144, 160–162, 167 Consortium for Advanced Management—International (see CAM-I) Conner, Daryl R., x, 68, 72, 73, 167 Continuous improvement, 40, 86, 87, 93, 105, 130 Control, 21, 25, 26, 29, 41–43, 53, 61, 63, 68, 76, 79, 91, 96, 114, 115, 136, 139, 153–157, 167, 178, 244 Covey, Stephen R., 71, 79 Covey, Stephen M. R., 136 Creative tension, 62, 125, 130, 176 Csobra, Les, 59 Cummings, Annette Merrit, 146 Customer needs, 23–26, 93, 97, 195

D Department of Homeland Security (DHS), 42, 231 Dialogue, 38, 52, 59, 63, 64, 69, 109, 124, 126-130, 132, 138, 168, 195, 215, 220, 246, 247 Digitas, 137 Dimensions of change, 2, 5, 19, 34, 38, 41, 43, 46, 50, 70, 71, 185, 196, 197, 204, 228, 233, 234, 239, 241, 242, 243 Diversity, 62, 97, 130, 143–150, 238, 243 Doneson, David, 152 Drucker, Peter, 57, 60, 122, 135 Duck, Jeannie, 74 Dweck, Carol, 16 Dynamic Stability, xii, 62, 117, 130, 173–180, 243

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Index

E Empowerment, 62–64, 75, 81, 88, 96, 117, 130, 139, 140, 147, 150–163, 169, 174–177, 232, 243 Enrollment, 69, 107, 123, 125, 144 Environment, external, 23–26, 38, 44, 49, 57, 86, 89, 97, 170, 190, 191, 193, 203, 208, 215–217, 242 Environment, Internal, 76, 87, 190, 208, 209, 215–217 Execution , 3, 31, 64, 95, 189, 198, 201, 202

F Fannie Mae, 182 Federal Emergency Management Agency (FEMA), 42, 228, 229, 231–234 Fifth Discipline: 58, 69, 122, 128, 129, 157 systems thinking, 122, 128–129 personal mastery, 122, 123, 126, 247 mental models, 58, 122, 126, 127 shared vision, 59, 64, 122–124, 129–132 team learning, 122, 126, 127, 132 Fortune Magazine, 173 Forward Thinking, 62, 85–90, 108, 117, 130, 140, 159, 177, 219, 232, 243 Foster, Richard, and Kaplan, Sarah, 176 Freddie Mac, 182 Freiberg, Kevin and Jackie, 74 Fritz, Robert, 123

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First-Order, 26, 27, 28, 29, 30, 31, 43, 44, 45, 193, 204, 242 Second-Order, 29, 30, 31, 32, 33, 34, 35, 51, 193m, 194, 204, 242, 243 Targeted, 27, 28, 29, 30, 31, 192, 193, 204, 245 Gardner, Howard, 105 General Electric, 122 Gillette, 182 Gladwell, Malcolm, 72 Guinto, Joseph, 237

H Haeckel, Stephan, 167–168 Hamel and Prahalad, 50 Hammer, Michael, 4, 91, 176 Heraclitus, 242 Hershey, 143–144 Honore, Russel , 235

I IBM Corporation, 15, 42, 167, 250 Inclusion, 19, 62, 97, 130, 144, 145, 146, 147, 148, 149, 196 Information overload, 15 Innovation, 5, 49, 75, 81, 87, 88, 91–100, 108, 113, 114, 117, 147, 159–161, 169, 177, 217–219, 233, 243 “Inside Innovation” publication, 92 Integration process (see Orchestration process)

K G Galford, Robert, and Drapeau, Anne Seibold, 137–138 Gap, Change, 22, 23, 52, 53, 54, 90, 158, 183, 185, 189, 190, 191, 193, 195, 196, 197, 203, 205, 206, 211, 214, 215, 218–226, 244, 245

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Kaiser Foundation, 237 Katrina, hurricane, 2, 6, 12, 227–240 Kegan, Robert, and Lisa Laskow Lahey, 70, 71, 127, 128 Kimberly Clark, 182 Kolbe, Kathy, 69–70 Kotter, John P., 158

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index

Kouzes, James M., and Posner, Barry Z., 59 Kroger, 182

Ownership, 93, 151, 153, 156, 157, 208, 214

P L Lawler, Edward E., and Christopher G. Worley, 37, 39, 49, 55, 152, 184 Leadership, 57–65 Living systems, 93, 129

M Malone, John T., 139 Mindset: emerging, 17–18 fixed, 16 growth and development, 17 industrial, 17–18 organizational, 5, 16, 19, 35, 41, 87, 127, 128, 156, 185, 230, 235, 243 personal, 19, 31, 33–35, 39, 41, 50, 105, 124, 126, 127, 156, 157, 185, 204, 228, 234, 235, 237, 239, 243

N Nagin, Ray, 235 Nokia, 42 Nucor, 183

O Oakley, Ed and Krug, Doug, 60 Orchestration Process, 6, 41, 181–185, 243 Organizational Capability Assessment Tool (see Organizational SelfAssessment Master Grid) Organizational learning, 5, 6, 62, 75, 81, 97, 117, 121–134, 169, 176, 177, 185, 219, 233, 243 Organizational Self-Assessment Master Grid, 6, 39, 52–54, 62, 197, 199, 200, 228, 239, 243, 244

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Performance management, ix, x, 39, 99, 132, 148 Pink, Daniel, 4, 183 PMBOK (Project Management Book of Knowledge), 3 Porter, Michael, 24 Price Waterhouse Change Integration Team, 72, 246 Productivity, 7, 80, 91, 93, 190 Project Management Institute (PMI), 3 Project Plan, 3, 30–32, 34, 40, 41, 193–196, 198, 202, 205, 221, 225, 228, 239

Q Quinn, Robert, 152, 153, 158

R Reengineering, 4, 40, 83, 121, 176, 246 Resilience, 19, 95, 178, 179 Resistance to change, 32 Return on investment, 37, 93, 112, 191 Risk tolerance, 28, 44, 53, 81, 87, 111–119, 192, 216, 219, 243 Risk premium, 112 Risk management, 87, 112, 113, 117, 119, 140 Risk, aggregating across divisional silos, 115 Rost, Joseph, 58

S Sarbanes-Oxley Act, 25, 113 Senge, Peter, 58, 60, 65, 67, 69, 121, 122, 123, 125, 126, 127, 129, 152, 157 Shapiro, Andrea, 72

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Index

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Sheinberg, Sheila, Center for Life Sciences, 173–174 Soft side of change, 33 Southwest Airlines, 50–51, 74 Spreitzer, Gretchen M., 152, 155–157, 159 Stakeholder analysis, 3, 31, 194 Status quo, 12, 17, 24, 28, 32, 63, 89, 96, 125, 131, 160, 168, 176, 178, 185, 191, 244 Stauffer, David, 139 Storytelling, 105, 106 Strategic intent, 46, 87, 96, 169, 177, 178, 183–185 Strategic Planning, 2, 6, 43, 45, 89, 90, 171, 191, 200–211, 214–217, 220, 222–226, 244 SWOT analysis, 86, 209, 245

Trust, 59, 60, 64, 69, 71, 75, 76, 81, 88, 96, 108, 115, 117, 124, 126, 128, 130–133, 135–142, 147, 153, 158, 159, 160, 163, 168, 169, 174–177, 182, 215, 232, 234, 243, 247

T

W

Teaching organization, 122 Time Warner/AOL, 42 Toyota, 173 TQM, 136

Walgreens, 183 Wells Fargo, 182 Wheatley, Margaret, 17 World Bank, 31

U Unisys, 42

V Vision, 22, 42, 43, 58, 59, 60, 61, 63, 64, 69, 74, 75, 85–86, 87, 88, 90, 101, 108, 122–125, 129, 130, 131, 132, 144, 145, 153, 158, 163, 169, 174, 178, 184, 195, 200, 206, 207, 216, 217, 221

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