Most successful change efforts begin when some individuals or some groups start to look hard at a company’s competitive situation, market position, technological trends, and financial performance. They focus on the potential revenue drop when an important patent expires, the five year trend in declining margins in a core business, or an emerging market that everyone seems to be ignoring. They then find ways to communicate this information broadly and dramatically especially with respect to crises, potential crises, or great opportunities that are very timely. This first step is essential because just getting a transformation program started requires the aggressive cooperation of many individuals. Without motivation people won’t help and the effort goes nowhere.
Compared with other steps in the change process, phase one can sound easy. It is not. Well over 50% of the companies have failed in this first phase. What are the reasons for that failure? Sometimes executives underestimate how hard it can be to drive people out of their comfort zones. Sometimes they grossly overestimated how successful they have already been in increasing urgency. Sometimes they lack patience:
Enough with the preliminaries let’s get on with it. In many cases, executives become paralyzed by the downside possibilities. They worry that employees with seniority will become defensive, that morale will drop, that events will spin out of control, that short term business results will be jeopardized, that the stock will sink and that they will be blamed for creating a crisis.
A paralyzed senior management often comes from having too many managers and not enough leaders. Management’s mandate is to minimize risk and to keep the current system operating. Change, by definition, requires creating a new system, which in turn always demands leadership. Phase one in a renewal process typically goes nowhere until enough real leaders are promoted or hired into senior level jobs.
Transformations often begin, and begin well when an organizations has a new head who is a good leader and who sees the need or a major change. If the renewal target is the entire company, the CEO is key. If change is needed in a division, the division general manager is key. When these individuals are not new leaders, great leaders, or change champions, phase one can be a huge challenge.
Bad business results are both a blessing and a curse in the first phase. On the positive side, losing money does catch people’s attention. But it also gives less maneuvering room. With good business results, the opposite is true: convincing people of the need for change is much harder, but you have more resources to help make changes.
But whether the starting point is good performance or bad, an individual or a group always facilitates a frank discussion of potentially unpleasant facts: about new competition, shrinking margins, decreasing market share, Flat earnings, a lack of revenue growth, or other relevant indices of a declining competitive position. Because there seems to be an almost universal human tendency to shoot the bearer of bad news, especially if the head of the organization is not a change champion, executives in these companies often rely on outsiders to bring unwanted information. Wall Street analysts, customers and consultants can all be helpful in this regard. The purpose of all this activity in the words of one former CEO of a large European company is to make the status quo seem more dangerous than launching into the unknown.
In a few of the most successful cases, a group has manufactured a crisis. One CEO deliberately engineered the largest accounting loss in the company’s history, creating huge pressures from Wall Street in the process. One division president commissioned first ever customer satisfaction surveys. Knowing fully well that the results would be terrible, he then made these findings public. On the surface, such moves can look unduly risky. But there is also risk in playing it too safe: when the urgency rate is not pumped up enough, the transformation process cannot succeed and the long term future of the organization is put in jeopardy.
When is the urgency rate high enough? From what is seen, the answer is when about 75% of a company’s management is honesty convinced that business as usual is totally unacceptable. Anything less can produce very serious problems later on in the process.