Change management

Companies clearly need to make changes of their own to adjust to the new realities of competition.

The primary reason that many companies are unwilling to change in the face of new realities is that they become locked in certain orthodoxies and therefore do not take charge of their own destinies fast enough. When people or companies succeed by accident, they often become rigid about their belief system.

If the environment changes and a company practices status quo management, it goes on a slow, downward spiral.

The company continues to look inside-out rather than outside-in. If the company confronts a sudden threat, it goes into crisis management as a survival necessity. Such threat driven changes can prolong the survival of the company, but cannot ensure long-term growth or prosperity.

A company’s unwillingness to change comes from the myopia of its leadership. On the other hand, an inability to change comes from its processes. The larger the company and the longer its history, the more likely it is to exhibit this trait.

The companies that will thrive in the long run are the adaptive ones, that are willing and able to change as needed. Lou Gerstner did this at IBM, which was a bloated monster before he arrived as CEO.

He began the process of turning around the company when he realized he was not getting the right information from his managers and, instead, listened closely to his top 200 customers.

As a result, he transformed the company from a computer manufacturer into supplier of computer components and software, and in an even bolder move, a supplier of IT and management consulting services, which now accounts for almost half of its sales.

Change management is like a three-legged stool. The first dimension is mindset change. The second is some form of structural change. This includes eliminating or restructuring leadership responsibilities and restructuring the organization.

Finally, the most critical change is the reward system. This includes positive incentives to induce behavior in the direction the company wants to go and negative incentives to discourage behavior that perpetuates the status quo.

Most companies only focus on one of the three elements of culture change or go through these steps sequentially. However, for truly successful change management, companies must coordinate and execute all three dimensions of change in parallel.

So the key question is how change has to be brought about, not necessarily who is responsible for it. Here are some strategies that have worked well:

1. Identifying a smart, fast-rising executive who is a few levels below the CEO and then rapidly moving them around the company as preparation for assuming the top job.
2. Appointing as CEO an outside board member who is already a CEO at another company.
3. Taking the company private via a leveraged buyout. The private equity firm appoints a team to fix the problem, after which the company is often taken public gain.

Anticipatory management is proactive approach for shaping and controlling ones destiny in a changing market. It is most needed and works best when the external environment is undergoing rapid and discontinuous change.

Trends that are anticipated can be planned for and competitive advantage accrues to firms that do so better and earlier than their competitors.

Therefore, it is imperative that leaders try to anticipate environmental changes and proactively position the company to be even more successful under those altered conditions than it has under the status quo. This calls for a realignment of the company with the new environment, followed by the engagement of the company with the new environment facing the company.

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