Talking Change is Easier than Walking Change

The phone rang – a friend who had taken an enterprise turnaround assignment.

Me:                  How is the new assignment going? You have been there two weeks now, right?”

Friend:            “It came to abrupt end this morning.”

Me:                  “What happened? You spend the best part of several days talking with the firm’s owner before you took the assignment. She seemed ready to do what was needed to turn the place around.”

Friend:            “Yes but …. You know what we say – Talking change is easier than walking change. First simple thing that I tried to do to start signaling that we are going to make some change in the place, and she balks.”

Me:                  “You have managed resistance to change below. How did it come to an end so abruptly?

Friend:            “It was clear after a week that she really did not want to make any of the changes we had talked about. She wanted the appearance of change for her customers and her bank. She really wanted an advertising campaign about change, not actual change. So we agreed to disagree.”

My friend is very experienced at what he does. He has turned around 4 businesses in the past 15 years, in each case growing their sales 5x to 10x, while improving their internal units costs dramatically. His focus is firms with sales in the multi-million to tens of million dollar range.

My transformation change experience is in large corporate organizations. I have lead major change programs in groups with operating budgets from tens of to hundreds of millions of dollars. Recently, like my friend, I have started to do enterprise turnarounds.

We often talked about our experiences over wine and food. Our reminiscing has uncovered a surprising number of parallels. I have summarized them into a set of 12 change axioms.

My friend and I often talk about the way that people treat “change” as a fad. People love to talk about change. They present themselves as wanting it and as doing it. But when we dig a little, we often find that there is little below the surface talk. When we probe folks about their experiences covered by the 12 change axioms, people often do not know what we are talking about.

1. “Follow the virus model of change, not the plop in the pond model.”

Change in an organization spreads from person to person. One person influences two or three others with new ideas or ways of doing things. Each of these people in turn impact two or three others.

Change can spread surprisingly rapidly through an organization, especially in this age of technological connection. This spread mimics the spread of a virus in a population. Use this model explicitly in planning the implementation of change initiatives. Identify the key initial influences in each area of change. Work at getting them on board. Engage them in identifying the important next group of individuals to be impacted. Engage the first group in influencing this group. Keep up this sequence to spread the change through the organization.

By comparison, the “Plop in the Pond” model of change starts with a big announcement that the organization is going to change in some way. The message spread outs and ripples through the organization. It also dies out by the time it gets to the edge of the organization, just as the waves do when you toss a bit stone into the center of a pond.

2. “Start multiple change initiatives. Move them forward concurrently.”

Transformational change at enterprise level is never simple and is never achieved by doing only one or a few things. By starting multiple initiatives, and COORDINATING THEM AT THE PEOPLE (who), PROCESS (how to) and TOOLING (physical or computer application tools) levels, you have a better chance of creating the constant momentum needed to move the overall effort forward.

Starting multiple current change initiatives also has other benefits that will become clearer later in this list of change axioms.

3. “Find an external reason for the change. Publicize it, publicize it, publicize it!”

People never like to be told that they were not doing something well or that they are not competent at their jobs. They resent it. Resentful people do not change easily. So don’t do this.

Always find an external reason to justify the change – competition, external auditors, societal change, new technology, changes in the industry, government pressure … … . It does not matter what it is, as long as it is BELIEVABLE AND CREDITABLE.

Then tell the story about this being the reason for the need to the change constantly and continuously. Create a believable myth that allows the people in organization to come together and unite as they take on the task of implementing the various change initiatives.

4. “Support the hell out of the early adopters; shame the laggards later.”

You can never tell why people buy into change initiatives. Sometimes they do it because they believe in the change. Sometimes they do it because they are ambitious. Sometimes they do it for reasons that you will never know, or understand if you did.

Early adopters are worth their weight in gold, even in platinum. Support them in every way possible. Make sure they succeed. They are the best thing that happens to a change sponsor and a change initiative team.

Don’t worry about the laggards till later. Eventually the success of the early adopters will create social shame that impacts these laggards. Their peers will start to pressure them to change. That often creates more motivation to change on the part of the laggards than appeals by the change team or the change sponsor.

5. “Know which of your change initiatives are 20/80. Start them early. Load them for success.”

Some change initiatives produce 80% of their benefit for 20% of the effort. Others will not produce beneficial results until they are further along in their life, or until they are completely implemented.

Pay a great deal of attention to these “20% of the effort for 80% of the benefit” initiatives. They start the momentum you need to get the overall transformation going. They get people believing that the change program has benefits for them.

So nurture these initiatives. Scope them down into a progressive set of doable chunks. Make sure that the first (or the first two) of these doable chunks contain the 20% effort that produces 80% of the results. Put your best people on them – even if you have to take these folks off these projects once the first one ot two chunks are done.

Make sure these first initiative chunks are not under resourced. Put explicit risk management in place for them. Do everything you can to make sure they succeed. Load them for success. Get the 20% done as quickly as you can.

6. “Work around resistance.”

Effectively dealing with resistance to change is one of the reasons it is so important to start multiple concurrent change initiatives. If you get serious resistance to one of the initiatives, NEVER, NEVER openly push back. Allow the initiative to relax. Put energy into your other initiatives that are not being resisted. Move the overall change program forward.

While doing this, understand the reasons why the people are resisting a particular change initiative. (See “A Manager’s Short Primer on Resistance to Change in Organizations” – http://www.wciltd.com/pdfquark/Resistance.pdf).   Deal with underlying people issues that are the reason for the resistance. Put energy back into the initiative when you have resolved these people dynamics.

7. “Ignore the 5 People F’s at your peril”

“Family, Friends, Fence-sitters, Foes, Fiends[1]”

Everyone you deal with during your change work will fit somewhere in this model for each of your change initiatives. You need to identify the key people that need to support and are going to be impacted by each change initiative. They (and the key players on the change initiative project team) need to understand where these people fit on the 5 People F’s model with respect to the initiative. Once you do, you and the team can shape their interaction with them accordingly.

Don’t expect people to be at same place in the 5 People F model with respect to different initiatives. Don’t expect people to stay in the same place over time around any one initiative. People change for reasons that you may not know, or understand if you did. Family can become fiends, and vice versa. STAY on top of these dynamics, and carry out your interaction and your communication accordingly.

8. “Show constant visible progress.”

Transformational change requires that you convince all kinds of people that the trouble, turbulence and effort they must go through during the change is worth it. They need constant re-assurance on this.

The only reassurances which count are constant visible, recognized, signs of progress. Break your change initiatives down into doable chunks with milestones. Keep the chunks short (max of 90 days). Ensure that each chunks produces some clear sign of progress that is visible in the organization. When initiatives reach milestones, celebrate the success publicly, in ways that are communicated to the whole organization, even if only in small ways. Communicate the accomplishment to EVERYONE.

Spread benefits achieved by a chunk around as fast as you can.  That way everyone‘s working life constantly gets better and easier in some way over the life of the overall change project.

Avoid big bang change initiatives and projects that do not deliver useful results until their end unless you have absolutely no choice. The extra expense involved in phasing these projects into doable chunks with partial results that produce useful benefits will be more than returned in the involvement and commitment you build throughout the organization. This will also allows you to do much more effective risk identification and mitigation.

9. “Three steps forward, one step back.”

Transformational change never goes as planned. It’s too complex. There are too many interactions that produce results that you cannot anticipate.

Message your expectation that there will be setbacks from Day One. Feature them as opportunities to learn. Treat them as ways to get better.

Create risk identification and mitigation plans that anticipate what could go wrong. Communicate them to all those involved. When setbacks occur that are not anticipated by these plans, get folks together and evaluate whether or not there is a need to alter the change initiative in ways that more effectively address the reasons for the setback. Make backwards steps a normal, productive part of change. Do not let their inevitable occurrence create demoralization.

10.  “Manage your hires, fires and promotions very thoughtfully. They tell the real story about your change.”

People watch these people events very closely.  They interpret them as the real truth about what you intend to do during the change.

You may terminate a person because they cannot or will not get with the change agenda. If you pick the right people, there will be an UNSTATED sigh of relief in parts or all of the organization. Collectively, people know who is on board and who is not. If you pick the wrong people to terminate, for reasons that have more to do with personality conflict than commitment to the change agenda, or ability to contribute to its forward movement, people will implicitly begin to doubt your commitment to your own change agenda. Make it a pattern, and their willingness to go along with the change agenda will collectively evaporate.

You may hire or promote a person because you have worked with the person before, and know that they are loyal to you. But that individual’s behavior had better be completely aligned with change messages you are sending into the organization. If they are not, people well know that loyalty to you as the change sponsor is more important to you than your change agenda. This will de-motivate them when it comes time for them to change their personal behavior to align with the change.

Resistance to the change agenda is also often expressed through hires or promotions that place people who are not committed to the change agenda in key roles.

So the change sponsor must be in a position to control hires, fires and promotions during the change period. This control must be exercised in a way that is perceived to be both fair and completely aligned with change agenda. That requires a great deal of care and thoughtfulness.

11. “Communicate, communicate, communicate … …”

You can never communicate too much during transformational change. The inevitable pressure of events, and the work load involved, will impinge on the time that you and your change teams have available for communication. So never be concerned about doing too much communication. You won’t.

Don’t just use formal communication challenges. Walk the floors. Listen to everyone, from every place and from every level in the organization. Join folks as they have lunch and as they relax.

Patterns in the informal dialog and gossip will tell you as much about the status of the change, its successes and its failures, as the more structured metrics embedded in change initiatives.

12. “Do it urgently. Keep it urgent!”

People really don’t like change. They will tolerate it, and engage in it, and live through it, if they can see an end to it. Their tolerance for change normally lasts anywhere from a few months to 24 months. If they don’t see an end to it, especially if the change period approaches 24 months, they will start to disengage, no matter how much the change makes their day to day life easier.

So urgency is key. Get change going. Make some things happen quickly. Demonstrate constant visible progress. Do change as quickly as you can while maintaining the quality.

If an initiative will take longer than a few months, break it into shorter chunks. Accomplish something through each chunk. Let people use the results of a change for a short period of time (weeks, a month or so) and then start the next chunk.

If your change program includes people components, do them early. If you have to change out leaders, or lay off staff, or replace groups of individuals, do it as soon as possible in the overall change plan. Keep the staffing turbulence to as defined a period as possible. Otherwise, anxiety takes over. Concern about one’s personal future diverts energy needed for the personal learning necessary to get aligned with the change.

Have a clear sunset target for the overall change program. Bring the period of major change to an end at some point. Declare victory. Celebrate the success. Tell people that it is now time to reap the rewards and to work on stabilizing the results of the change. Localized upgrades to finalize the process improvements and tooling changes can still occur as part of the stabilization period.

12 “experience based” axioms for transformational change

Those of us who have managed such change know the reality of living by these axioms in our hearts and minds. We don’t just talk change. We make it happen. It is not easy. But it is necessary if you walk change.

---

[1] Family are bought into the change, and will support you even if they think you are wrong in some areas.

Friends are on your side, and will say so as long as things a re moving forward. They may become silent if there are setbacks.

Fence-sitters can go either way. They are not convinced of anything. They may go either way, depending on how well you are doing with the change, or based on things that are important to them that you have no, and may never have, any awareness of.

Foes are exactly. They are publicly against you. As least, you know this, and can take it into account.

Fiends look and act like family or friends, but are actually hidden foes. They will stab you in the back privately every chance they get.

This little model has been in use in the organizational change / organizational development / organizational effectiveness community for years. I have googled it several times over the past years, but never found an original source. Maybe you can.

Financial Disaster and Executive Compensation Structures

Last week was a great week – only 4 days of work and then a 4 day long weekend. During the week, I went to a meeting this week which changed my perspective on events in the financial community on the past 6 months dramatically. Our outside investment adviser did a report on the portfolio he manages for us. We need to be extremely financially conservative in this group, so our directives to him are very simple – 1st: “preserve the capital value of the funds”, and 2nd: “earn us some income”. He’s pretty good at “preserving wealth”, and perhaps not as good at “making money” as some of the other members of the group would like. The capital value of our funds has stayed solid, although our anticipated income has gone down.

I think he is the right choice as an investment adviser for us. But I guess he was feeling that some of my peers had wanted more income, because he was fairly defensive when he presented his results. At the end, he sensed the positive mood around the table. He relaxed and started to “wax decisively” on the state of the world.

He started off with: “It’s a strange world. I don’t get it. You know US banks on average were leveraged 30 to 1. That’s great as long as the market is on your side. You make money and look really good. You earn the big bonuses, especially if they are based on short term results. But look at the down side. All you need to make is a 3% mistake and you are insolvent. What happened to the people who ran these places? Just think of it in personal terms. You are worth a million bucks. You go out and borrow 30 million based on that. You invest in an up market and you predict that you will earn great returns. But just make a little mistake, and you are completely insolvent and that state of affairs lasts a long time. What happened to common sense? How did we get to a place where it was missing in so many of the folks in the executive suites and on the Boards of the Banks and insurance companies? I guess what let them think that taking this kind of risk was o.k. is that they were not playing with their own money. They were not running the risk of going down personally. But where is the decency in what they did? Cripes, they were supposed to be business leaders, not card sharks and gamblers!”

I thought about that as I drove back to the office from the meeting. How did so many well intentioned, law abiding, smart people get it wrong? How did we get involved in this kind of collective confusion about numbers? Most of us in business took stats in college. We understand probabilities. How did we collectively go so wrong? We have had to mortgage our childrens’ future to pay for our mistakes. That is what we are doing when we turn to the government to put money into the banks and other business to keep them from going insolvent. Taxes will rise to pay for all of this. We may some part of this increase ourselves, but it is more likely that our children will end up paying the majority of the increased taxes. That means that we are taking from our children, never a sound moral choice.

There are lots of reasons for our collective confusion. The events in the North American financial industry will no doubt become a fruitful source for Master’s and PHD dissertations to come. But I believe that at least part of the answer has to be with the fact that we got confused about the basic role of the executive management tier in our enterprises. We started to believe that their job was to meet the needs of only one group among an enterprise’s stakeholders.

A Simple Model of the Enterprise

This schematic, like all models, is simpler than the real world. But it also allows us to ask an insightful question. If this picture depicts the complex and often conflicting pressures on an enterprise, what is management’s role in dealing with them? The answer is straightforward to articulate and difficult to do: work through the competing and dynamic pressures coming from all the stakeholders in the environment in a way ensures that the enterprise survives now and into the future.

In a for profit enterprise, that means making money this year, but doing it in a way that ensures that the enterprise is still there to do it next year, and the year after that, and the year after that. Management has to be focused on the now and the future at the same time. Making money this year in a way that risks survival in the future is clearly a foolish MANAGEMENT thing to do.

But that is exactly what happened in our financial institutions. How did this come about? Our executive compensation practices of the last 20 years have something to do with this. The compensation gurus have argued that senior management should have “skin in the game”, that their compensation packages should be aligned with the interests of the shareholders and investors in the enterprise. In doing so, they have forgotten that the task of management is not simply to create benefit for external shareholders and investors. Bonus plans that focus on Earnings per Share, and compensation schemes that reward executive with share ownership, do exactly that. They distract management from its fundamental job.

Executive management must work through all of the competing external demands from the environment, and create strategic plans and executive tactical solutions that allow the enterprise to survive in a balanced way in both the short term and the long run. Our executive compensation practices have lost sight of this. They too closely align executives with external investors, who are only one of the external stakeholders who depend on the survival of the enterprise. So we have the consequences: group of extremely well compensated executive who were not committed to the long term survival of the enterprises they run. Short term results for both themselves and their investors became their primary focus. They took risks that could create tremendous short term financial results. But while doing so, they lost sight of their responsibility to ensure long term enterprise survival.

This is not the only reason for our collective lack of common sense. But it was one. It needs correction now. Executive compensation practices need to reflect management tasks. Some part of an executive’s pay need to reflect current profit. But other parts of an executive’s compensation package needs to be tied to profits that are yet to come: next year and conceivably over the next 10 years. Shares which executives come to own and can sell in their own right do not accomplish this. We need an executive compensation structure that is tied to the stream of profits that are actually experienced by a for profit enterprise over a 5 to 10 year time frame. This mechanism must work even if the individual executive has retired or moved on. Golden parachutes, short term bonuses and share ownership plans have not done the job. It is time for the executive compensation gurus to put their long term conceptual hats on, and come up with something better.

Selecting Senior Leaders: Is “Good Enough” good enough?

April has been a discouraging month. You would think that is would be different. Spring is finally here. Flowers are coming up in the yard. The grass has turned from brown to green. But … …

Anyone who has been listening to the news in North America is likely to share this feeling. This is especially true as the month ends off with the consistent news attention to the H1N1 (or swine flu) virus.

However, that is not what is discouraging me. During the month, I read two excellent reports published in Ontario. The first was the “Ontario Clean Technology Report”. I had a chance to listen to John Mertl, one of the co-authors of the report, speak at Guelph Partnership for Innovation monthly breakfast (Ontario, Canada), and then meet with John. It’s an impressive piece of work.

As well, I read the “Ontario in the Creative Age” report published by the Martin Prosperity Institute at the School of Management at the University of Toronto. Another impressive piece of work. (The Institute has a really innovative web site as well.)

All of this first class thinking should be inspiring. It is. But I was discouraged by it. Both reports commented on the lack of needed top management talent, and the risks that it created for Ontario’s future economic prosperity.

While I have been doing this reading, I have attending a lot of executive networking sessions. I have been visiting a number of the local college campuses. I have been learning more about Health Care Informatics, a topic that I have long been interested in. (See the COACH web site for some insight what’s happening there.) Talent, creativity and the willingness to learn at all ages were ever present in the time I spent in these activities.

What I am left with an impression that we as a society do not really know how to operationally step up to the challenges which face us. We do not know how to get the right people in the right top management spots to allow us to innovate in a risk managed way. As a result, we end up moving from economic crisis to societal crisis. Some part of this cycle is fueled by an inability of our top managers to see further than next quarter’s P & L or next year’s operating budget.

We are bound by the tribal nature of our social psychology. Our approach to leadership and top management is deeply conditioned by the genetics underlying our brain’s functioning. We depend more on implicit, emotional processes in these activities, than on rationally chosen ones.

The dialog at the executive networking sessions consistently comments on the fact that the executive search industry almost never present candidates who are not “true to type”. Executive recruiters who attend these sessions comment that their clients insist on “exact fit”, especially in these times, when there are so many candidates on the job market. The people who sponsor the networking sessions point out time and time again that the majority of executive jobs are filled through through networking, not the executive search industry or media advertising.

All of this sounds and feels like “a lot more of the same”, at the exact time when we need “different results and visions”. As an individual who has benefited from leading truly innovative, high performing management teams, and coaching superb individual managers, I find this discouraging.

Maybe it just the fact that it is a late spring. Maybe it is the fact that the world remains a very competitive and unpredictable place. Maybe it is the fact that we seem better at “commenting on” our social situation than at doing things which produce lasting and effective change. But all and all, April has been a month which has left me wondering if we are really ready as a society to tackle the massive amount of day to day concrete change that we must undertake to leave the world a better place for future generations. It has to start with doing a better job of aligning innovative proven performers with the change work that needs to be done in our institutions and enterprises. We will not face our challenges with “more of the same”.

Decades of leadership research, emotional intelligence work, competency modeling and employment interviewing research do not seem to have altered our fundamental commitment as a species to informal social processes for placing individuals into the majority of the leadership jobs in our society. We continue to do so even while we talk about more effective hiring processes. Something deep in our tribally based social psychology seems to lie behind these facts. Our rational fore minds cannot seem to get beyond the guidance of the more emotional parts of our brains.

We know that interview results are not an effective predictor of on-the-job performance. We know that hiring mistakes are costly in both real dollar and lost opportunity terms. We know that the “the tough interview questions” and the ways of preparing for them, have not changed in decades (see this link from January 1983). We know that on-the-job performance and peer ratings of past on-the-job performance are among the best, most consistent indicators of future on-the-job performance. (Ever since the OSS – Office of Strategic Services - conducted research on this during the Second World war). Yet we continue to use social networking and face-to-face conversations for selecting and placing people into most leadership jobs.

Are better ways? Yes. I attend networking sessions to watch people interact with other people, not to experience them interacting with me. The people with the capacity to listen accurately and to integrate what they hear into their interaction with others stand out. The ones who can present ideas clearly and persuasively stand out. The ones who can truly facilitate the interaction of the others there stand out.

Observation turns out to be a better tool than interviewing for me. It was in my own past recruitment practice as an executive. Watching a candidate interact with other people in the organization, especially if I could arrange short working sessions for them, turned out to be a very effective way of picking top flight candidates. It beat my recruitment interview ratings of candidates hands down.

Assessment center techniques, role play techniques and group interviewing techniques, coupled with structured ratings from with trained observers, do a better job than interviewing at identifying top performers and fit to an organization. Short on-the-job assignments followed by systematic data collection from those folks who worked with the candidate, work better than one-on-one interviewing too. Yet the people who seem to have least understanding of this are recruiters, both in HR departments and in search firms. By and large, they just offer us more of the same when it comes to recruiting and hiring.