Leading change why transformation efforts fail

Evaluate A Failed Organizational Change, Identify A Theory That Could Have Been Used To Develop The Change, And Aapply That Theory To The Failed Change. The Paper Must Follow These Standards:

This paper will give you an opportunity to evaluate a failed organizational change, identify a theory that could have been used to develop the change, and aapply that theory to the failed change. The paper must follow these standards:

be 8-10 pages of content in length
have at least three outside professional resources
follow APA standards
A PowerPoint of the paper is attached as well as the PowerPoint and the docuemtns discussing organizational change.

Leading Change: Why Transformation Efforts Fail

Harvard Business Review

by John P. Kotter

Reprint 95204

MARCH-APRIL 1995

Reprint Number

JOHN P. KOTTER LEADING CHANGE: WHY TRANSFORMATION EFFORTS FAIL 95204

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B. JOSEPH PINE II, DON PEPPERS, DO YOU WANT TO KEEP YOUR CUSTOMERS FOREVER? 95209 AND MARTHA ROGERS

A. CAMPBELL, M. GOOLD, CORPORATE STRATEGY: 95202 AND M. ALEXANDER THE QUEST FOR PARENTING ADVANTAGE

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PERSPECTIVES REDRAW THE LINE BETWEEN THE BOARD AND THE CEO 95208 JOHN G. SMALE • ALAN J. PATRICOF • DENYS HENDERSON • BERNARD MARCUS • DAVID W. JOHNSON

HarvardBusinessReview

Leading Change:

Why Transformation Efforts Fail by John P. Kotter

HBR M A R C H - A P R I L 1 9 9 5

Over the past decade, I have watched more than 100 companies try to remake themselves into sig- nificantly better competitors. They have included large organizations (Ford) and small ones (Land- mark Communications), companies based in the United States (General Motors) and elsewhere (British Airways), corporations that were on their knees (Eastern Airlines), and companies that were earning good money (Bristol-Myers Squibb). These efforts have gone under many banners: total quality management, reengineering, right sizing, restruc- turing, cultural change, and turnaround. But, in al- most every case, the basic goal has been the same: to make fundamental changes in how business is conducted in order to help cope with a new, more challenging market environment.

A few of these corporate change efforts have been very successful. A few have been utter failures. Most fall somewhere in between, with a distinct

DRAWINGS BY KURT VARGO Copyright © 1

tilt toward the lower end of the scale. The lessons that can be drawn are interesting and will probably be relevant to even more organizations in the in- creasingly competitive business environment of the coming decade.

The most general lesson to be learned from the more successful cases is that the change process goes through a series of phases that, in total, usual- ly require a considerable length of time. Skipping steps creates only the illusion of speed and never produces a satisfying result. A second very general

John P. Kotter is the Konosuke Matsushita Professor of Leadership at the Harvard Business School in Boston, Massachusetts. He is the author of The New Rules: How to Succeed in Today’s Post-Corporate World (New York: Free Press, 1995), Corporate Culture and Performance, coauthored with James L. Heskett (New York: Free Press, 1992), and A Force for Change: How Leadership Differs from Management (New York: Free Press, 1990).

995 by the President and Fellows of Harvard College. All rights reserved.

LEADING CHANGE

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lesson is that critical mistakes in any of the phases can have a devastating impact, slowing momentum and negating hard-won gains. Perhaps because we have relatively little experience in renewing organi- zations, even very capable people often make at least one big error.

Error #1: Not Establishing a Great Enough Sense of Urgency

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 de- clining 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 re- quires the aggressive cooperation of many individu- als. Without motivation, people won’t help and the effort goes nowhere.

Compared with other steps in the change pro- cess, phase one can sound easy. It is not. Well over 50% of the companies I have watched fail in this first phase. What are the reasons for that failure? Sometimes executives underesti- mate how hard it can be to drive people out of their comfort zones. Sometimes they grossly overesti- mate how successful they have al- ready been in increasing urgency. Sometimes they lack patience: “Enough with the preliminaries; let’s get on with it.” In many cases, executives be- come 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 un- til enough real leaders are promoted or hired into senior-level jobs.

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Transformations often begin, and begin well, when an organization has a new head who is a good leader and who sees the need for 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 champi- ons, 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 perfor- mance or bad, in the more successful cases I have witnessed, an individual or a group always facili- tates 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 de- clining 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, custom-

ers, and consultants can all be helpful in this re- gard. 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 engi- neered 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 full 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

ne chief executive officer liberately engineered the est accounting loss in the

history of the company.

HARVARD BUSINESS REVIEW March-April 1995

HARVARD BUSINESS REVIEW March-April 1995 61

1 2 3 4 5 6 7 8

Eight Steps to Transforming Your Organization

Establishing a Sense of Urgency Examining market and competitive realities Identifying and discussing crises, potential crises, or major opportunities

Forming a Powerful Guiding Coalition Assembling a group with enough power to lead the change effort Encouraging the group to work together as a team

Creating a Vision Creating a vision to help direct the change effort Developing strategies for achieving that vision

Communicating the Vision Using every vehicle possible to communicate the new vision and strategies Teaching new behaviors by the example of the guiding coalition

Empowering Others to Act on the Vision Getting rid of obstacles to change Changing systems or structures that seriously undermine the vision Encouraging risk taking and nontraditional ideas, activities, and actions

Planning for and Creating Short-Term Wins Planning for visible performance improvements Creating those improvements Recognizing and rewarding employees involved in the improvements

Consolidating Improvements and Producing Still More Change Using increased credibility to change systems, structures, and policies that don’t fit the vision Hiring, promoting, and developing employees who can implement the vision Reinvigorating the process with new projects, themes, and change agents

Institutionalizing New Approaches Articulating the connections between the new behaviors and corporate success Developing the means to ensure leadership development and succession

LEADING CHANGE

cannot succeed and the long-term future of the or- ganization is put in jeopardy.

When is the urgency rate high enough? From what I have seen, the answer is when about 75% of a company’s management is honestly convinced that business-as-usual is totally unacceptable. Any- thing less can produce very serious problems later on in the process.

Error #2: Not Creating a Powerful Enough Guiding Coalition

Major renewal programs often start with just one or two people. In cases of successful transformation efforts, the leadership coalition grows and grows over time. But whenever some minimum mass is not achieved early in the effort, nothing much worthwhile happens.

It is often said that major change is impossible unless the head of the organization is an active sup- porter. What I am talking about goes far beyond that. In successful transformations, the chairman or president or division general manager, plus an- other 5 or 15 or 50 people, come together and devel- op a shared commitment to excellent performance through renewal. In my experience, this group nev- er includes all of the company’s most senior execu- tives because some people just won’t buy in, at least not at first. But in the most successful cases, the coalition is always pretty powerful – in terms of titles, information and expertise, reputations and relationships.

In both small and large organizations, a success- ful guiding team may consist of only three to five people during the first year of a renewal effort. But in big companies, the coalition needs to grow to the

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In failed transformations, you often find pl

20 to 50 range before much progress can be made in phase three and beyond. Senior managers always form the core of the group. But sometimes you find board members, a representative from a key cus- tomer, or even a powerful union leader.

Because the guiding coalition includes members who are not part of senior management, it tends to operate outside of the normal hierarchy by defini- tion. This can be awkward, but it is clearly neces- sary. If the existing hierarchy were working well, there would be no need for a major transformation. But since the current system is not working, reform generally demands activity outside of formal bound- aries, expectations, and protocol.

A high sense of urgency within the managerial ranks helps enormously in putting a guiding coali- tion together. But more is usually required. Some- one needs to get these people together, help them develop a shared assessment of their company’s problems and opportunities, and create a minimum level of trust and communication. Off-site retreats, for two or three days, are one popular vehicle for ac- complishing this task. I have seen many groups of 5 to 35 executives attend a series of these retreats over a period of months.

Companies that fail in phase two usually under- estimate the difficulties of producing change and thus the importance of a powerful guiding coali- tion. Sometimes they have no history of teamwork at the top and therefore undervalue the importance of this type of coalition. Sometimes they expect the team to be led by a staff executive from human re- sources, quality, or strategic planning instead of a key line manager. No matter how capable or dedi- cated the staff head, groups without strong line leadership never achieve the power that is required.

HARVARD BUSINESS REVIEW March-April 1995

enty of plans and programs, but no vision.

v

Efforts that don’t have a powerful enough guiding coalition can make apparent progress for a while. But, sooner or later, the opposition gathers itself to- gether and stops the change.

Error #3: Lacking a Vision In every successful transformation effort that I

have seen, the guiding coalition develops a picture of the future that is relatively easy to communicate and appeals to customers, stockholders, and em- ployees. A vision always goes beyond the numbers that are typically found in five-year plans. A vision says something that helps clarify the direction in which an organization needs to move. Sometimes the first draft comes mostly from a single individu- al. It is usually a bit blurry, at least initially. But after the coalition works at it for 3 or 5 or even 12 months, something much better emerges through their tough analytical thinking and a little dream- ing. Eventually, a strategy for achieving that vision is also developed.

In one midsize European company, the first pass at a vision contained two-thirds of the basic ideas that were in the final product. The concept of global reach was in the initial version from the beginning. So was the idea of becoming preeminent in certain businesses. But one central idea in the final version – getting out of low value-added activities – came only after a series of discussions over a period of several months.

Without a sensible vision, a trans- formation effort can easily dissolve into a list of confusing and incompatible projects that can take the organization in the wrong direction or nowhere at all. Without a sound vision, the reengineering project in the accounting department, the new 360- degree performance appraisal from the human re- sources department, the plant’s quality program, the cultural change project in the sales force will not add up in a meaningful way.

In failed transformations, you often find plenty of plans and directives and programs, but no vision. In one case, a company gave out four-inch-thick note- books describing its change effort. In mind-numb- ing detail, the books spelled out procedures, goals, methods, and deadlines. But nowhere was there a clear and compelling statement of where all this was leading. Not surprisingly, most of the employ- ees with whom I talked were either confused or alienated. The big, thick books did not rally them together or inspire change. In fact, they probably had just the opposite effect.

A clari an or

HARVARD BUSINESS REVIEW March-April 1995

In a few of the less successful cases that I have seen, management had a sense of direction, but it was too complicated or blurry to be useful. Recent- ly, I asked an executive in a midsize company to de- scribe his vision and received in return a barely comprehensible 30-minute lecture. Buried in his answer were the basic elements of a sound vision. But they were buried–deeply.

A useful rule of thumb: if you can’t communicate the vision to someone in five minutes or less and get a reaction that signifies both understanding and interest, you are not yet done with this phase of the transformation process.

Error #4: Undercommunicating the Vision by a Factor of Ten

I’ve seen three patterns with respect to commu- nication, all very common. In the first, a group ac- tually does develop a pretty good transformation vision and then proceeds to communicate it by holding a single meeting or sending out a single communication. Having used about .0001% of the yearly intracompany communication, the group is startled that few people seem to understand the

new approach. In the second pattern, the head of the organization spends a considerable amount of time making speeches to employee groups, but most people still don’t get it (not surprising, since vision captures only .0005% of the total yearly communication). In the third pattern, much more effort goes into newsletters and speeches, but some very visible senior executives still behave in ways that are antithetical to the vision. The net result is that cynicism among the troops goes up, while be- lief in the communication goes down.

Transformation is impossible unless hundreds or thousands of people are willing to help, often to the point of making short-term sacrifices. Employees will not make sacrifices, even if they are unhappy with the status quo, unless they believe that useful change is possible. Without credible communica- tion, and a lot of it, the hearts and minds of the troops are never captured.

This fourth phase is particularly challenging if the short-term sacrifices include job losses. Gain-

ision says something that fies the direction in which ganization needs to move.

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LEADING CHANGE

t

ing understanding and support is tough when downsizing is a part of the vision. For this reason, successful visions usually include new growth pos- sibilities and the commitment to treat fairly any- one who is laid off.

Executives who communicate well incorporate messages into their hour-by-hour activities. In a routine discussion about a business problem, they talk about how proposed solutions fit (or don’t fit) into the bigger picture. In a regular performance ap- praisal, they talk about how the employee’s behav- ior helps or undermines the vision. In a review of a division’s quarterly performance, they talk not only about the numbers but also about how the division’s executives are contributing to the trans- formation. In a routine Q&A with employees at a company facility, they tie their answers back to renewal goals.

In more successful transformation efforts, execu- tives use all existing communication channels to broadcast the vision. They turn boring and unread company newsletters into lively articles about the vision. They take ritualistic and tedious quarterly management meetings and turn them into exciting discussions of the transformation. They throw out much of the company’s generic management edu- cation and replace it with courses that focus on business problems and the new vision. The guiding principle is simple: use every possible channel, es-

pecially those that are being wasted on nonessen- tial information.

Perhaps even more important, most of the execu- tives I have known in successful cases of major change learn to “walk the talk.” They consciously attempt to become a living symbol of the new cor- porate culture. This is often not easy. A 60-year-old plant manager who has spent precious little time over 40 years thinking about customers will not suddenly behave in a customer-oriented way. But I have witnessed just such a person change, and change a great deal. In that case, a high level of ur- gency helped. The fact that the man was a part of the guiding coalition and the vision-creation team also helped. So did all the communication, which

Worst of all are bosses who refuse to change and who m demands that are inconsis with the overall effort.

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kept reminding him of the desired behavior, and all the feedback from his peers and subordinates, which helped him see when he was not engaging in that behavior.

Communication comes in both words and deeds, and the latter are often the most powerful form. Nothing undermines change more than behavior by important individuals that is inconsistent with their words.

Error #5: Not Removing Obstacles to the New Vision

Successful transformations begin to involve large numbers of people as the process progresses. Em- ployees are emboldened to try new approaches, to develop new ideas, and to provide leadership. The only constraint is that the actions fit within the broad parameters of the overall vision. The more people involved, the better the outcome.

To some degree, a guiding coalition empowers others to take action simply by successfully com- municating the new direction. But communication is never sufficient by itself. Renewal also requires the removal of obstacles. Too often, an employee understands the new vision and wants to help make it happen. But an elephant appears to be blocking the path. In some cases, the elephant is in the per- son’s head, and the challenge is to convince the in-

dividual that no external obstacle ex- ists. But in most cases, the blockers are very real.

Sometimes the obstacle is the or- ganizational structure: narrow job categories can seriously undermine efforts to increase productivity or make it very difficult even to think about customers. Sometimes com- pensation or performance-appraisal systems make people choose be-

tween the new vision and their own self-interest. Perhaps worst of all are bosses who refuse to change and who make demands that are inconsistent with the overall effort.

One company began its transformation process with much publicity and actually made good progress through the fourth phase. Then the change effort ground to a halt because the officer in charge of the company’s largest division was allowed to undermine most of the new initiatives. He paid lip service to the process but did not change his behav- ior or encourage his managers to change. He did not reward the unconventional ideas called for in the vision. He allowed human resource systems to re- main intact even when they were clearly inconsis-

ake ent

HARVARD BUSINESS REVIEW March-April 1995

Too often, an employee understands the new vision and wants to help make it happen. But something appears to be blocking the path.

tent with the new ideals. I think the officer’s mo- tives were complex. To some degree, he did not be- lieve the company needed major change. To some degree, he felt personally threatened by all the change. To some degree, he was afraid that he could not produce both change and the expected oper- ating profit. But despite the fact that they backed the renewal effort, the other officers did virtually nothing to stop the one blocker. Again, the reasons were complex. The company had no history of confronting problems like this. Some people were afraid of the officer. The CEO was concerned that he might lose a talented executive. The net result was disastrous. Lower level managers concluded that senior management had lied to them about their commitment to renewal, cynicism grew, and the whole effort collapsed.

In the first half of a transformation, no organiza- tion has the momentum, power, or time to get rid of all obstacles. But the big ones must be confronted and removed. If the blocker is a person, it is impor- tant that he or she be treated fairly and in a way that is consistent with the new vision. But action is es- sential, both to empower others and to maintain the credibility of the change effort as a whole.

Error #6: Not Systematically Planning For and Creating Short-Term Wins

Real transformation takes time, and a renewal ef- fort risks losing momentum if there are no short- term goals to meet and celebrate. Most people won’t go on the long march unless they see com- pelling evidence within 12 to 24 months that the journey is producing expected results. Without short-term wins, too many people give up or active-

HARVARD BUSINESS REVIEW March-April 1995

ly join the ranks of those people who have been re- sisting change.

One to two years into a successful transforma- tion effort, you find quality beginning to go up on certain indices or the decline in net income stop- ping. You find some successful new product intro- ductions or an upward shift in market share. You find an impressive productivity improvement or a statistically higher customer-satisfaction rating. But whatever the case, the win is unambiguous. The result is not just a judgment call that can be discounted by those opposing change.

Creating short-term wins is different from hop- ing for short-term wins. The latter is passive, the former active. In a successful transformation, man- agers actively look for ways to obtain clear perfor- mance improvements, establish goals in the yearly planning system, achieve the objectives, and re- ward the people involved with recognition, promo- tions, and even money. For example, the guiding coalition at a U.S. manufacturing company pro- duced a highly visible and successful new product introduction about 20 months after the start of its renewal effort. The new product was selected about six months into the effort because it met multiple criteria: it could be designed and launched in a rela- tively short period; it could be handled by a small team of people who were devoted to the new vision; it had upside potential; and the new product-devel- opment team could operate outside the established departmental structure without practical problems. Little was left to chance, and the win boosted the credibility of the renewal process.

Managers often complain about being forced to produce short-term wins, but I’ve found that pres- sure can be a useful element in a change effort.

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While celebrating a win is fine, declaring the war won can be catastrophic.

When it becomes clear to people that major change will take a long time, urgency levels can drop. Commitments to produce short-term wins help keep the urgency level up and force detailed analyt- ical thinking that can clarify or revise visions.

Error #7: Declaring Victory Too Soon After a few years of hard work, managers may be

tempted to declare victory with the first clear per- formance improvement. While celebrating a win is fine, declaring the war won can be catastrophic. Until changes sink deeply into a company’s cul- ture, a process that can take five to ten years, new approaches are fragile and subject to regression.

In the recent past, I have watched a dozen change efforts operate under the reengineering theme. In all but two cases, victory was declared and the ex- pensive consultants were paid and thanked when the first major project was completed after two to three years. Within two more years, the useful changes that had been introduced slowly disap- peared. In two of the ten cases, it’s hard to find any trace of the reengineering work today.

Over the past 20 years, I’ve seen the same sort of thing happen to huge quality projects, organi- zational development efforts, and more. Typically, the problems start early in the process: the urgency level is not intense enough, the guiding coalition is not powerful enough, and the vision is not clear enough. But it is the premature victory celebra- tion that kills momentum. And then the powerful forces associated with tradition take over.

Ironically, it is often a combination of change initiators and change resistors that creates the pre- mature victory celebration. In their enthusiasm over a clear sign of progress, the initiators go overboard. They are then joined by resistors, who are quick to spot any opportunity to stop change. After the cele- bration is over, the resistors point to the victory as a sign that the war has been won and the troops should be sent home. Weary troops allow them- selves to be convinced that they won. Once home, the foot soldiers are reluctant to climb back on the ships. Soon thereafter, change comes to a halt, and tradition creeps back in.

Instead of declaring victory, leaders of successful efforts use the credibility afforded by short-term wins to tackle even bigger problems. They go after systems and structures that are not consistent with the transformation vision and have not been con- fronted before. They pay great attention to who is promoted, who is hired, and how people are devel- oped. They include new reengineering projects that are even bigger in scope than the initial ones. They

HARVARD BUSINESS REVIEW March-April 1995

LEADING CHANGE

understand that renewal efforts take not months but years. In fact, in one of the most successful transformations that I have ever seen, we quanti- fied the amount of change that occurred each year over a seven-year period. On a scale of one (low) to ten (high), year one received a two, year two a four, year three a three, year four a seven, year five an eight, year six a four, and year seven a two. The peak came in year five, fully 36 months after the first set of visible wins.

Error #8: Not Anchoring Changes in the Corporation’s Culture

In the final analysis, change sticks when it be- comes “the way we do things around here,” when it seeps into the bloodstream of the corporate body. Until new behaviors are rooted in social norms and shared values, they are subject to degradation as soon as the pressure for change is removed.

Two factors are particularly important in institu- tionalizing change in corporate culture. The first is a conscious attempt to show people how the new approaches, behaviors, and attitudes have helped improve performance. When people are left on their own to make the connections, they sometimes cre- ate very inaccurate links. For example, because re- sults improved while charismatic Harry was boss, the troops link his mostly idiosyncratic style with those results instead of seeing how their own im- proved customer service and productivity were in- strumental. Helping people see the right connec- tions requires communication. Indeed, one company was relentless, and it paid off enormously. Time was spent at every major management meeting

HARVARD BUSINESS REVIEW March-April 1995

to discuss why performance was increasing. The company newspaper ran article after article show- ing how changes had boosted earnings.

The second factor is taking sufficient time to make sure that the next generation of top manage- ment really does personify the new approach. If the requirements for promotion don’t change, renewal rarely lasts. One bad succession decision at the top of an organization can undermine a decade of hard work. Poor succession decisions are possible when boards of directors are not an integral part of the re- newal effort. In at least three instances I have seen, the champion for change was the retiring execu- tive, and although his successor was not a resistor, he was not a change champion. Because the boards did not understand the transformations in any de- tail, they could not see that their choices were not good fits. The retiring executive in one case tried unsuccessfully to talk his board into a less seasoned candidate who better personified the transforma- tion. In the other two cases, the CEOs did not resist the boards’ choices, because they felt the transfor- mation could not be undone by their successors. They were wrong. Within two years, signs of re- newal began to disappear at both companies.

There are still more mistakes that people make, but these eight are the big ones. I realize that in a short article everything is made to sound a bit too simplistic. In reality, even successful change efforts are messy and full of surprises. But just as a relative- ly simple vision is needed to guide people through a major change, so a vision of the change process can reduce the error rate. And fewer errors can spell the difference between success and failure. Reprint 95204

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