“Any change, even a change for the better, is always accompanied by drawbacks and discomforts,” English novelist Arnold Bennett once lamented. That’s why we don’t like change, and the sentiment is no different for companies.
Organizational change can be difficult, but a University of Iowa professor says strong leadership that clearly communicates the new strategy and why the outcome will be better can pave the road to a successful transition.
Sara Rynes-Weller, John F. Murray professor of management and organizations in the Tippie College of Business, believes change is the most important challenge many businesses face today because the pace of change is rapid.
“How do you ensure that large organizations will be able to deal with that faster and faster pace?” asked Rynes-Weller.
“Many leaders think they can change the strategy in closed meetings, announce the changes, give people a few orders, and the changes will occur. It doesn’t work that way.”
On the bus
Rynes-Weller said a strong leader invites information from the outside and communicates why things need to change throughout all levels of an organization.
“You have to explain why the new strategy and vision are important,” she said. “The most successful companies go through a process of bringing the people into that.
“Their leading team has some powerful people on it, but it also has some frontline people, younger people, and employees who know what’s happening on the floor. You need a leader who is really open to hearing bad news.
“Most people will just keep doing what they’ve always done unless they are given clear, consistent, and continuing information about the need for change, as well as support for making those changes happen.”
Even the best attempts to inform and motivate employees to embrace change sometimes still will fail, according to Maggie Mowery, owner of Consensus Change Consulting in Iowa City.
“You can invite people into the change process, but it’s still their individual decision whether to become part of it,” Mowery said. “Companies should not prejudge who will accept change and who will resist it.
“Someone you least suspect will jump on the bus, as author Jon Gordon writes in his book ‘The Energy Bus.’ And someone that you thought would jump on the bus will decide not to do it.”
Unfortunately, organizational change often fails because leadership spends too much time and energy trying to win over the naysayers, according to Patrick Lyons, owner of Culture by Design in North Liberty.
“The people in the front of the bus or boat see where the company is going and can’t wait to get there,” Lyons said. “The people in the middle are interested in getting there, but they’re not leading the charge.
“The people in the back are along for the ride. And then there are the people standing outside holding onto the bus or boat, trying to keep it from moving.
“When leadership spends too much time on them, the people in the front get discouraged and move to the middle, and the people in the middle move to the back. That causes more people to get out and change fails.”
When you’re considering organizational change, Mowery said, “Everything should start with the individual employee. Individuals all adapt to change differently in terms of strengths, talents and abilities.”
Rynes-Weller noted that many businesses are reluctant to change because they cling to what made them successful. She cited IBM as an example, saying it refused to seriously enter the personal computer business because it was still making money developing and selling large mainframe computers.
“As everything started getting smaller and getting networked, IBM was slow to change because the new businesses were cannibalizing how it made its money,” Rynes-Weller said. “They also looked at the PC as a very inferior product to a mainframe: ‘It can’t do much. It’s going to be used by a bunch of hobbyists. Nobody who’s really serious will want anything but the most powerful computers.’”
Then Louis Gerstner was brought in to turn IBM around. He was expected to break the company up and sell the pieces.
“Rather than devising strategy in a closed room with only a few other top managers, Gerstner asked a ton of questions from customers to find out what they wanted,” Rynes-Weller said. “He surrounded himself with people who would tell him the hard truth. He told them he really hated surprises and would fire anyone trying to suck up to him.
“In the end, Gerstner successfully shifted IBM from being mostly a hardware company to one focused on global information services.”
Lessons not learned
Rynes-Weller said IBM was a classic example of the disruptive innovation that many industries are facing today. She noted that Blockbuster did not react fast enough when Netflix began streaming movies to the home over the Internet, and Redbox kiosks began popping up at local retail outlets.
“American automakers dismissed cars made by Honda and Toyota when they first began showing up here because they were smaller and of lower quality than cars made in Detroit,” Rynes-Weller said. “They were still making so much profit from big cars, which didn’t cost them all that much more to manufacture.
“They didn’t realize that in 10 years when gasoline would become much more expensive, Americans would be looking at fuel efficiency. They also would be looking at reliability, and the ‘weak sister’ product of the past would become the desired product in the future.”
Rynes-Weller said General Motors had an opportunity to learn about the future power of disruptive innovation during a joint venture with Toyota, from 1984 to 2010, operating the New United Motor Manufacturing Inc. plant in Fremont, Calif., to make a small car.
“They used the same workers who had worked there before in an awful demoralized, unionized plant,” Rynes-Weller said. “Toyota retrained the workers, cleaned up and re-laid out the plant, and completely changed that production facility.
“GM never learned from it. The managers tried to get GM to learn what was happening there, but no one cared higher up in the organization.
“All they wanted was help producing a small car, which they were no longer good at doing. They didn’t realize that the value there was the Toyota production system.”
Organizations are like people in that when faced with major change, they tend to retreat into denial. Rynes-Weller cited research from Johns Hopkins showing 9 out of 10 people will not change their eating habits and lifestyles after having open heart surgery — despite knowing the potential consequences.
“That’s not because they’re comfortable,” she said. “It’s more because they are scared and in denial.
“Companies that have enjoyed years of profits from a particular product are very reluctant to risk making a change when faced with disruptive innovation. By the time they finally realize that change must occur, it may be too late.”
Today’s profit versus future growth
Rynes-Weller pointed to Polaroid, an innovator in “instant” photography that failed to realize the impact of digital cameras until it was too late to become a major player in the consumer market. Likewise Kodak, a name synonymous with film and photography for more than a century, did not comprehend the disruptive effects of the digital revolution.
“Ironically, Kodak invented a lot of the underlying technology that disrupted the company,” Rynes-Weller said. “The Swiss invented digital watch technology, but they felt it was so inferior to those beautiful quartz movement watches that they took the digital technology to trade shows and didn’t bother to patent it.
“Japanese firms like Casio were there and the rest is history. The Swiss are still involved in the watch market, but they have a much smaller market share.”
A focus on short-term profit at the expense of future growth also has prevented innovative change at many companies, according to Rynes-Weller.
“Many leaders are focused too much on quarterly reports and short-term stock prices,” she said. “In many cases, they’ve been forced into it because of the shareholder rights movement and pressure from investors for higher returns.
“Pension funds and investment banks move money around based on nothing more than current share price, and the needs of constituents other than shareholders are ignored. Businesses do things to make the short-term financials come out right while destroying future capabilities through cuts to research, investment, and training.”
Rynes-Weller said higher education appears to be another business moving toward innovative disruption.
“Companies like the University of Phoenix are offering classes online at lower prices than traditional colleges and universities,” she said. “There are still lots of things to be worked out before online higher education will truly disrupt on a large scale, but their likely impact should not be underestimated.”
While building consensus and support for change throughout the organization is preferred, Consensus Change’s Mowery said the rules change when an imminent crisis threatens the very existence of an organization.
“It has to be top-down direction if you’re in crisis management mode,” she contended. “If you need to change your company tomorrow to survive, that’s when I would tell you to get your key people together and say, ‘This is what we’ve got to do. Otherwise, the doors of this company are going to close.’”