Obstacle or Opportunity: Leading Change

by Professor Richard Pai

Should uncertainty be viewed as an obstacle or as an opportunity?

Entrepreneurs are born during periods of uncertainty.

Businesses don't have to be in a slump for turnaround initiatives. Uncertainty affects both weak and strong companies. Challenges may even be greater for successful companies because of their higher opportunity costs. There is no incentive to take risks during prosperous times.

Uncertainty creates a sense of vacuum and the natural reaction is to fill it with a change, any change. Wouldn't it be more appropriate to ask why change is needed?

When change is necessary, wouldn't it be more appropriate to explore what kind of change and where it is needed? Only then is a company truly ready to take action.

The Challenge

Adapting to change is not technical but psychological. It is not easy to change the attitudes of successful companies or standing business models.

Corporate executives have egos that don't allow them to admit that they have a problem. Arrogance at IBM led to their refusal to accept the PC for a full two years after it was introduced by Apple. Core competency can end up being a core rigidity.

The fear of the unknown also pushes people to cling to what is familiar. The fear is reinforced when change is introduced without an adequate explanation as to why change is needed. Selective perception is a common weakness that reinforces pre-existing beliefs.

The failure of many change initiatives can be attributed to three main reasons of not understanding:
Why the change is needed?
Where in the organization it is to be introduced?
How it is to be implemented?

What to Change

Uncertain times by definition do not make it easy to get a clear view of the future course. To find direction, start from an industry analysis.
The visible signs of a downturn are most often reflected in declining revenues. However, the causes could be many, and not all related to the internal functioning of the company.

The knee jerk reaction at such times is to turn to marketing. Uncertainty by definition indicates that there is no clear cause and effect relationship established. In such circumstances how can a company decide what kind of change would be productive? Very often the symptoms are mistaken for causes. A drop in sales is automatically answered by a greater marketing effort. Funds are shifted from earlier earmarked projects such as R+D or HR development which could have dramatic consequences for the future viability of the company.

Subjecting the entire organization to the stress of a change program may not be justified and may even turn out to be counterproductive. Get a thorough understanding of your company's value chain and see how it needs to be reconfigured to fit in with the altered sources of competitive advantage of your industry.

In any business downturn the focus of attention inevitably gets directed towards the need to manage costs of operations. However, an indiscriminate cutting of costs can be counterproductive.

Economic downturns are cyclical and are eventually followed by upturns. Any restructuring undertaken during a downturn should not trap the organization into a surprise when the inevitable upturn arrives as it eventually will.

Do not succumb to the temptation to focus on the immediate short term at the expense of long term viability. Is professional development a luxury at downturns?

How to Change?

The challenge for management during a business slump is to remind the organization that there is a butterfly within each one of us. The process of change may be painful and ugly, but the end result could be exciting, very much like a caterpillar turning into a butterfly.

Employees will be skeptical. Management must 'walk the talk.' Employees have legitimate concerns and they must be addressed. “My door is open” sounds hollow when management only wants a captive audience for its monologue!

How do you get an organization behind you at such trying times?

Clarify the issues and get a 'buy in' from the organization before trying to implement the change. Leadership is about managing energy.
“If leaders don't manage people's energy and their emotion and their fear, then what is going to happen is very predictable” explains Management Consultant Blanchard. Employees will spend more energy worrying about things they cannot control.

Be open with information even if it is bad. In the absence of information employees create their own conclusions. At the same time do not forget the bright spots. Let people know that all is not gloom and doom.

Rally the entire organization behind one objective of the need for change. While this idea is indisputably valid, achieving organizational cohesion is not easy particularly at uncertain times.

Change is viewed differently by individuals. The perceived impact on themselves of the change results in the energy of response which is not uniform throughout the organization.

Paul Strebel, an IMD prefessor refers to “Response Clusters” within organizations and identifies four typical clusters in most business organizations. These are change agents, traditionalists, bystanders and resistors. Each of these clusters is different in terms of their perceptions of change and the intensity of their response.

The two clusters that are critical in any organization, and of particular interest in turnaround situations, are the change agents and the resistors. Identify the change agents early on and let them be the apostles for spreading the message of change. The resistors are not to be despised either. They could be the staunchest supporters once converted to the idea of change.

Remember that change fails when management is more focused on increasing the pressure for change rather than reducing the resistance.