The Alchemy of Corporate Change
Luis Santana
Senior Consultant for Change Management & Implementation, DSI
You see things; and you say,“Why?”
But I dream things that never were;
and I say, "Why not?"
-- George Bernard Shaw, "Back to Methuselah" (1921), part 1, act 1
Avoiding the Traps
At a change workshop that I conducted for a multinational firm in Lisbon, Portugal, one participant told me: “When I was a baby, my parents had to immigrate to Angola. Then we went to live in South Africa. My parents always taught me that change is as good as a holiday.” I love the power of the image. Unfortunately she was an exception, one of about 7,000 managers. Most executives I have surveyed in change workshops do not see change as a holiday. They see change as a burden. They have not achieved a real change attitude. They have not come to appreciate what I call the alchemy of corporate change.
Alchemy may seem like an unusual word to apply to business. Alchemy is used to designate the pseudoscientific predecessor of chemistry. Alchemists sought a method of transmuting base metals into gold, an elixir to prolong life indefinitely, a panacea or universal remedy, or universal solvent.1
Some leaders may think of the change process as any other organizational process that should be analytically managed and measured. While there is a place for analysis, there is also a healthy need for alchemy. Research has found that 70 percent of change initiatives fail.2 What is the “magic” that separates the “base metal” organizational transformations from the ones that turn to gold? How do successful change initiatives motivate and engage employees in the change so they see it as learning experience, even a holiday, rather than a burden? In this article, we examine some of the key aspects of this organizational alchemy that leads to successful change.
Change is the Natural State of Things
First, we need to recognize that change is not an anomaly to be controlled but rather the natural state of things. Twenty-seven centuries ago Greek philosopher Heraclites stated that “nothing endures but change.” Time has proven his statement true. Life and also the future are unknown and uncertain. Change and uncertainty are constants in human affairs.
More than ever, today’s world is shaped by many tremendous upheavals in many areas: social, economic, technological, ethical or governmental. Just to name a few, there is globalization, disruptive technologies, security and terrorism worries, environmental concerns, emerging economies, deregulation, inter-connectivity and ecommerce, shifts in customer expectations, and the collapse of giants such as Enron, Barings, WorldCom and others.
The corporate environment has become more and more uncertain, complex and ambiguous. One feature of present turbulent times is an increasing rate of change. Experience suggests that some acceleration has taken place. Relative volatility of the NASDAQ index rose from 6 percent in 1984 to 74 percent in 2001.3 These changes are forcing corporations to transform and renew themselves to profit or, sometimes even to survive.
Nevertheless organizations have not achieved a real change attitude yet. Most of the executives I have surveyed in change workshops do not experience joy when they are in the face of change. While change is all around them, and unavoidable, most have not embraced a change mindset to recognize that change is the natural state of things.
Driving or Reacting to Change
Change occurs for two primary reasons: either because we make it happen or because others are creating it. The latter is most often the case. External change may be intended or not. It may be driven by competitors, some outlier or unexpected effects of events such as the oil price shock or 9/11 attacks. In the face of change, executives either react to it or anticipate it depending on whether the change has already occurred or it is forthcoming.
Most managers react to changes rather than molding the future or driving change. Executives spend only about 3% (the majority only 1%) of their time thinking of how present information and activities may shape the future.4
Why don’t managers invest more time in envisioning the future? They often fall victims of a vicious circle: When they don’t anticipate the future, they spend more and more of their time reacting to problems of the past caused by this lack of foresight. Often tomorrow’s change is right in front of us if we look carefully, but there are many reasons why we fail to see these signals from the periphery. By recognizing this, we can structure systems to develop our peripheral vision, sensing and acting on weak signals to capture the potential value of change.5
Understand the Three-Phase Change Process
Intentional organizational change addresses two levels: transformational or fundamental (big picture, strategy, mission, culture) and transitional (how things get done, reward systems, structure) 6 change. It is typically modeled as a three-part process that takes the flawed organization, moves it through an arduous transition stage, and deposits it at the end in the enriched, desired state. Whether the three phases are called unfreezing, changing, refreezing 7, a three-act drama 8, or a transition from current state to future state 9, the same major themes emerge:
- The organization must be awakened to a new reality and must disengage from the past, recognizing that the old way of doing things is no longer acceptable.
- Next, the organization creates and embraces a new vision of the future, uniting behind the steps necessary to achieve that vision.
- Finally, as new attitudes, practices and policies are put in place to change the corporation, these must be refrozen (as Lewin put it) or solidified.10
Change is not an event; it is a process. By understanding this process, managers can better anticipate the mindsets and actions that are needed at each phase.
Engage Others
One of the key issues critical to a successful change process is how people react to it. All change is self change Changing attitudes, beliefs and behavior takes time. The sooner people change, the sooner the firm will start to profit from the new situation and obtain the returns on the change efforts. Emotional reactions to change go through different stages: the first reaction, oriented towards the past, usually includes shock, denial, anger, seeking a culprit, or confusion. Then people move on to acceptance, and finally an orientation towards the future, a problem-solving approach, and taking action.
Any intended organizational change process can expect a certain amount of resistance to change. Experience suggests that people feel a sense of loss and the reaction may vary from skepticism to active resistance. For example, a Senior Vice President of a well known firm said that if the CEO decided to start a change process that he did not agree with, he would align his team to fight against the decision. I do not know how long he stayed in the job but no firm can afford such a loss of energy. Sooner or later, it will pay a high cost in the marketplace.
If we look more carefully at these reactions, we see that people are not reluctant to change but they despise being changed. The real challenge in involving people in the change process is not forcing them to change but changing ourselves first. When managers walk the talk (the manager is always an example but seldom exemplary), this leaves people the freedom to choose to jump onboard.
To get employee involvement in the change process most managers tend to be too rational whereas reactions to change are more emotional than rational. The flow of see-feel-change is more powerful than of analysis-think-change. These distinctions between seeing and analysis, between feeling and thinking, are critical, because, for the most part, we use the latter much more frequently, competently, and comfortably than the former.11
Fears, lack of self-confidence, lack of positive self-identity or mutual distrust between supervisor and subordinate are some of the difficulties that prevent organizations from taking advantage of the potential benefits of change. Unlocking this creative engagement is vital. In a changing environment, knowledge becomes rapidly obsolete. Thriving through this chaos will depend less on what people know than on their capacity to create, invent, envision, learn and see new possibilities. Catalyzing those behaviors is the true alchemy.
There is typically tremendous heterogeneity in how change is received in different parts of the organization. What is key for the organization’s survival may not be a concern for some divisions or business lines. Likewise certain groups of people or individuals will feel the need for change more emphatically. This asymmetry requires a flexible leadership not to jeopardize the change process. Communicating a galvanizing vision of the desired future and getting maximum involvement from people are critical to the process. I have seen many organizational transformation efforts not succeed just because only a few constituencies bought into change.
Allow People To Make Mistakes
The real core competence in fast change is the ability to unlearn the past, change and learn quickly. Managers must embrace change and uncertainty, challenge conventional corporate wisdom, constructively confront others’ views, foster an appealing vision of the desired future, build a significant amount of support, walk the talk and create the environment needed to facilitate change and learning. Organizations need to put in place a psychological safety net that allows people to experience trial-and-error approaches to learning. They need to be able to make mistakes.
An opposite example is a multinational retail firm I worked for where executives complained about the systematic lack of initiative employees showed. They said that no one dared to challenge the status quo by trying different and innovative ideas. I asked them what their reaction was when someone made a mistake. Their answer did not disappoint my educated guess: “We fire him/her.” How can employees see change as an opportunity to learn if they feel their first mistake will lead to dismissal?
Choose the Right Time
Another part of the alchemy of change is the timing of the process. Many companies wait until they are forced to change by circumstances. They may be undergoing a crisis or even be close to bankruptcy. Survival is a good motivator for organizations to change and there are good examples of successful change under these circumstances, such as BP under John Browne or Apple under Steve Jobs. Nevertheless, undertaking transformation under these circumstances is hard. First, the organization is not in the best economic situation and second, there is the unmeasured costs of living a very stressful situation with uncertain outcomes. Sometimes a crisis leads to successful change, but other times, the organization is simply wiped out.
Intel’s ex-CEO Andy Grove suggests that the best moment to bring transformation and renewal is when the company is enjoying success. Change should be made at the top of the organization’s game because the company has the cash and people have the energy to do it successfully. Some resistance can be expected, however, because the intended change is perceived by most stakeholders as unnecessary.
Whatever, the timing, managers need to recognize that changes will not happen overnight because of organizational inertia. Like an oil tanker, changing an organization’s course, even when commitment is gained, is not immediate. At best, a crash-avoidance maneuver -- from full ahead' to 'full reverse' -- can stop a fully loaded super tanker within approximately three kilometers, which takes about 14 minutes. A tanker’s turning diameter is almost two kilometers (of course, these values vary according to ship size, weight, water depth, etc.) The point is that organizations, like supertankers, cannot change speed or direction easily. All changes take time. This is also part of the alchemy of change.
Unlearn the Past and Invent the Future
Nothing fails like success. The stultifying, innovation-numbing effects of success are a global phenomenon. This paradoxical pattern in which winners, with all their competencies and assets often become losers is found across industries and countries. It seems that building core competencies and managing through continuous improvement are not sufficient for sustained competitive advantage. Worse, under a remarkably common set of conditions, building on core competencies and engaging in continuous, incremental improvement actually traps the organizations in its distinguished past. This leads to catastrophic failure as technologies and, in turn, markets shift. Core competencies often turn into core rigidities.12
Executives need to unlearn the past as part of the change process. Addressing current challenges using past solutions is like traveling through the tropical forest dressed to trek the Himalayas. The climbing and low-temperature gear that were crucial to making the summit may be useless – even a burden – in the rain forest. No one can live and work by yesterday's reality. Intel founder Gordon Moore advises not to carry the heavy burden of the past and instead to go out to the market and to do a big thing.13 We need to focus on the future to come, visualizing it and then taking the necessary actions to create a present that will be the consequence of the envisioned future.
Pay Attention in the Midst of Complexity
Executives must continuously scan the environment to collect those inputs that can create opportunities for future change. The challenge today is that there is overwhelming information available. According to D. J. S. Price, science information will double every ten years. In the field of chemistry alone, more than half a million new works are published every year. So what are the inputs you should collect? What selection criteria should you use?
- Listen to what you do not like. This is an easy-to-use discrimination system, a kind of “what is in it for me?” approach with a bias on those inputs that generate discomfort. If something disturbs you, it is probably signaling that your framework and knowledge are being challenged, that the selected information does not fit in your view of the world. Pay attention to these uncomfortable inputs, because there is usually some learning hidden in them.
- Select without analysis. Select your inputs with no analysis to prevent emotions from affecting your decisions. Later on, at the earliest convenience, you can allocate the appropriate time to think on the future. In a more neutral emotional mood, you can unveil the value that those inputs could have in influencing change.
- Modify, adjust or include new inputs in the current vision or craft a new vision. The analysis of the selected inputs provides three possible outcomes: it affects current vision but can be included, it demands a new vision or the input is deemed to be irrelevant and therefore rejected. (The input also could be kept for a future analysis when further information is gathered.)
Achievements Start with Small Steps
Swedish author L. Elsenbeg wrote that the smallest action is better that the biggest intention. To translate vision into action, people need to move forward and need a clear sense of direction in which to invest their efforts and energy. Corporations provide the means for channeling people’s energy and transforming their energy into action through specific objectives.
Change management, like alchemy, it is neither a craft nor a science. Research has found that only 30 percent of the change processes undertaken by Fortune 100 firms between 1980 and 1995 had an impact on the bottom line.14 Change provides people the opportunity to grow, improve, learn, transform and give their best. Unlocking this organizational energy and avoiding the negative impact of change is not an easy process by any means. To make the change initiatives work, managers need to be willing to change themselves and understand the distinctive mindsets, approaches and alchemy that are needed for successful transformations.
Notes
1 Collins Dictionary of the English Language (1979). Glasgow. William Colling Sons & Co. Ltd, 1979.
2 Bee, Michael and Nitin Nohria (2000). Cracking the code of change. Boston, Harvard Business Review.
3 Schoemaker, Paul J.H. (2002). Profiting from uncertainty. New York, The Free Press.
4 Hamel, Gary and C.K. Prahalad (1994). Competing for the future. Boston, Harvard Business School Press.
5 Day, George and Paul J.H. Schoemaker (2004). "Peripheral vision." Long Range Planning Journal.
6 Burton, Warner and W. Trahant (2000). Business climate shifts: Profiles of change makers. Woburn, Butterworth Heinzmann.
7 Lewin, Kurt. (1947). "Frontiers in group dynamics." Human Relations. Vol 1. No. 1.
8 Tichy, N.M. and Devanna, M.A. (1986). "The transformational leader." Training and Development journal.
9 Beckhard, R. and Harris, R.T (1987). Organizational Transitions: managing complex change. Reading, MA. Adisson-Wesley.
10 Kanter, Rosabeth Moss, Barry A. Stein, and Todd D. Jick (1992). The challenge of organizational change. New York, The Free Press.
11 Kotter, John P. and Dan S. Cohen (2002). The heart of change: Real life stories of how people change their organizations. Boston, MA, Harvard Business School Press.
12 Tushman, Michael L., Philip Anderson, and Charles O’Reilly (1997). "Technology cycles, innovation streams and ambidextrous organizations." Managing Strategic Innovation and Change. Oxford, Oxford University Press.
13 Barret, Craig (2004). speech when appointed honorary MBA at IE Business School, Madrid.
14 Pascale, Richard T., Mark Milemann, and Linda Gioja (1997). Changing the way we change. Harvard Business Review.
