Leading Change - The Art of Change Management

October 4, 2010

This is a continuation of my previous blog: Leading Change - Part 1 of a Series

I am currently working with a few small companies that are introducing significant changes in their business. The drivers forcing these strategy changes are unique to each business; some being driven by external forces such as markets, technology advancement or competition while other are internally driven by the need to change cost structures or to improve execution capabilities. Regardless, the consequences of not executing on these strategy changes range from decreased profitability, declining growth or even threats to corporate viability. On the other hand, the benefits of a change in strategy could propel the companies forward and create large amounts of wealth. Needless to say, the table stakes are high.

During my career, I have been involved in multiple "Go Big or Go Home" strategy plays and have learned what works and what doesn't. Most of my experience was gained at IBM and PeopleSoft as those companies shifted their businesses, often in urgent time-constrained situations.  The lessons learned from these large companies are as applicable to small start-up businesses as they are in large multi-nationals.

In the early 1990's, IBM's business was struggling. IBM Canada fell into the crapper earlier than the parent company. Either that, or as a smaller company, it just became obvious earlier. At the time, IBM had 14 business units. Each business unit competed against a series of best of breed competitors such as IBM Mainframes versus Amdahl and Hitachi, IBM Mid-range against DEC and HP, IBM Personal Computers against Compaq and Dell, and so on. To establish the need for change, IBM Canada studied their top 14 best of breed competitors, accumulating publically available statistics such as number of employees, revenue per employees, and other common benchmark metrics. They aggregated the 14 companies into one hypothetical competitor and compared the metrics against IBM Canada. The study became known as the Frankenstein project because "it was IBM's worst nightmare".

The results were startling. Using almost any set of comparisons, the aggregate competitor was significantly better. It was obvious to all that if IBM didn't act, it was headed out of business. Drastic action was required at a time when IBM was still a large, bureaucratic, paternalistic employer and whose employee culture was one of "no layoffs and life-time employment".   The result of the Frankenstein project led to the first layoff in IBM Canada's history, a 25% reduction in headquarters and field personnel.  So how did senior management sell employees on the need for 1 out of 4 employees to lose their jobs?

Then Canadian CEO, Bill Etherington conducted a cross-Canada roadshow, presenting to employee meetings in every office. The hard data was presented and the message was blunt that either we cut and change or no one will have a job. Following this message, Bill presented a specific set of actions that set a new vision. Part of this vision described a new way to do business, including empowering employees by decentralizing decision making. For some reason, Bill's presentation spoke to me. I left the meeting more energized about my job and the future of IBM.  I also felt more confident about the capabilities of IBM leadership to execute. I believe if Bill had try to BS the employees or "spin" the bad news, he would have had little support. As it was, no one liked the news, but people respected the leadership and many were ready to follow.   

Soon after, IBM Corp was forced to also make drastic cuts and changes to their business. John Akers (then Chairman and CEO) retired in 1993 and Lou Gerstner joined. In his book, "Who Says Elephants Can't Dance", Gerstner does a masterful job of describing the changes IBM underwent from 1993 through the remainder of the 90's. In reading Gerstner's book, I was reminded of the great job that he and other IBM leaders did in communicating directly to employees, updating them on changes and progress. In Appendix A, Gerstner reprints many of his employee emails regarding crisis, culture, strategy and organization. If you are looking for a good case study in leading change, give Gerstner a read.

From those IBM years, I learned two important lessons. First was bad news does not age well. Employees are smart and will figure "it" out. It is better to get bad news out there early and get control of the message than try to damage control "it" later. The second lesson was that regardless of the bad news, people will follow leaders that they trust to have a vision to make the future better. How you disclose news and how you paint your plan to recover is a big part of how you generate trust.

Next time, the story of PeopleSoft changing while in the middle of a Perfect Storm.


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