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As Rita McGrath tells it, it was a great strategy for a firm that needed one. For years a U.S.-based multinational company had been focused on selling commodity chemicals while giving away the expertise on how to use them for free. Now it planned to flip that business model on its head, developing long-term consulting contracts with its customers to capitalize on that highly valued advice. Projections showed that the firm could increase its profits from around 5 percent of sales to around 30 percent of sales.
But the reality never quite turned out that way. For two years the sales force never focused on creating consulting contracts—it just kept doing what it had been doing for years, selling as many tons of chemicals as possible.
McGrath, a professor at Columbia Business School, came in and quickly diagnosed the problem. The company hadn’t made the structural adjustments needed to pull off its grand strategy. That inflexibility brought everything to a standstill. “It’s inertia,” McGrath says. “People like to continue to do what they’re doing.”
In today’s ever-shifting global economy, brilliant minds are coming up with great strategies to get ahead. Yet an overwhelming number of these business innovations, cultural transformations and other great-on-paper ideas fail. Leaders will often publicly blame the economy, an upstart rival, the political environment or even the weather. But the truth is a lot simpler: Many of these plans start, but the firms and their leaders aren’t agile enough to make them stick.
Indeed, 44 percent of corporate executives say that their big changes didn’t stick, according to a study co-sponsored by the Economist Intelligence Unit and the Project Management Institute. (Other groups place the failure rate at 70 percent or higher.) Even more startling, nearly half of senior managers admit that the change efforts most commonly fail at the execution phase, according to consulting firm Robert Half International. Yet that awareness clearly doesn’t lead to better results. “Companies are really good at saying ‘you better act this way,’ and not so good at figuring out what they need to do to help people act in that way,” says Greg Shea, a professor at the Wharton School of Business. “That’s hard work.”
It’s also work that is fast becoming a matter of survival in today’s world. Over the last decade, the landscape has become littered with firms that had great ideas to change and still failed. Blockbuster tried to adapt to on-demand video but still went out of business. DaimlerChrysler had a great plan to create the dominant auto company but failed spectacularly executing that plan. Kodak saw the era of digital photography coming, but couldn’t keep itself as the premier name in cameras. (To its credit, Kodak is still around.)
Still, there are leaders who have been able to get their organizations to transform successfully. GE wanted to become more of a global industrials business, so it successfully shed its finance, media and other divisions, and now 70 percent of its business is outside the United States. Coca-Cola reimagined itself as a beverage company, not just soda, and has grown profits by nearly 50 percent over the last decade, even as people in many parts of the world have cut back on drinking Coke. At a basic level, leaders at firms like these have been able to outline a strategy, motivate others to embrace the strategy and put the systems in place to help everyone successfully implement the change. “That’s the magic formula for getting change to happen and getting it to stick,” says Jane Stevenson, global leader for CEO Succession and vice chairman, Board and CEO Services, at Korn Ferry.
The ability to follow through on change—and being agile enough to shift constantly—wasn’t quite so important for most of the 20th century. U.S. automakers had no competition from the 1930s through the 1970s. Telecommunications was strictly regulated for more than a century and dominated by one unchanging firm. Even Western Union was still sending telegrams until 2006. The story wasn’t much different in other developed markets either. Japan built a strong economy based on innovative export-driven firms offering lifelong employment. South Korea had its multi-industry mega-oligopolies. Germany did just fine with its backbone of family-owned small- and mid-sized businesses.
But now upheaval is the norm, not the exception. Every single business sector has gone through strategic shifts, reorganizations, business model reviews and other transformations, usually more than once, in the last 15 years. The rapid evolution in technology is forcing much of the shifting, of course, but there are plenty of other factors, too—including aging baby boomers, the growth of emerging markets and the nature of how people work. Even the once-staid utility sector has embraced change, as the old model has splintered into different organizations generating, transmitting and marketing electricity.
Unfortunately, just because organizations have seen the light on change doesn’t mean they’re particularly good at it. Mergers and acquisitions, some of the most public of big changes, fail to create value anywhere from 70 percent to 90 percent of the time, according to multiple studies (think AOL Time Warner, Sprint Nextel or, for an outside-the-U.S. example, Tata Steel and Corus). Often the obstacles to change are easy to spot. Consultants can lay out one example after another where the execution didn’t match the strategy. There’s the company that wanted to be more client-focused but didn’t ask clients for feedback, or the CEO who wanted to develop a results-oriented culture in his firm but didn’t invest in teaching the employees how to become focused on results.
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In McGrath’s case, her chemicals company made inroads on many other procedures to help it become more of a consultant-driven business model, but it didn’t make any changes to the compensation system. People were still getting bonuses based on the amount of product they sold, so they kept pushing products, not services. To be fair, company executives knew they had to get to compensation, McGrath says, but they were holding off because they knew that changing that would be complex. In the end, it would take another year to implement an incentive plan to get the sales force to start building consulting relationships with customers.
Other times, the barriers to successful change aren’t things that show up on a Gantt chart. These internal failures are more behavioral and relationship-driven, sending signals that undermine the intended change. A retailer, for example, could want its senior leaders to become more collaborative, but the individuals are working in an environment where board members openly fight with each other. Or a firm wants its employees to become more agile and empowered but sabotages itself because senior managers constantly point out employee mistakes. And there are plenty of examples of managers demanding improvements in quality standards but backing down the moment there’s a production delay.
Helen Vaid had a to walk a fine line in her position at Walmart. As VP for Digital Store Operations, Web and Mobile, she was responsible for the growth and profitability of the massive retailer’s online presence—but knew she needed managers of the physical stores to buy into her strategies. So she told her colleagues that changes were necessary to help solve one common customer complaint: in-store delays. “I have never found anyone who has ever said, ‘I love waiting for this,’ ” Vaid says. That was a purpose her colleagues, regardless of whether they worked for the online store or the bricks-and-mortar stores, could get behind.
Vaid also made it clear that she trusted her colleagues and empowered them to implement changes. Ironically, the less direct control Vaid had over the strategy, the better the results, she says. “On every single level, everyone actually makes more effort and puts a lot more diligence into the choices they are making because they know that the buck stops with them,” she says. The results were impressive. Walmart’s app had fewer than 5 million users in early 2014. By the middle of 2015, it had 22 million users. Vaid is trying for similar successes in her new role as Pizza Hut’s first-ever chief customer officer.
Vaid’s experiences highlight several of the tips that experts say can help make big changes stick. First off, a change program isn’t going to go anywhere if the people who are supposed to carry out the changes aren’t incentivized to actually change. As in many other situations, money talks. But there’s more to motivation than just simply paying people. Giving employees a common sense of purpose is what drives performance. Indeed, not being able to rally employees around a purpose is one of the main reasons big change drives fail. “To grow profits and revenues is not a strategy or a purpose,” says Korn Ferry’s Stevenson.
The purpose doesn’t necessarily have to be as grand as “save the world” or “reinvent capitalism,” either. For example, employees can become excited about cost savings if it means freeing up funds for future projects they want to pursue. And it helps to reinforce change with a set of simple signals sent from the boss. Lisa van den Berg, solutions leader, Korn Ferry’s Strategy Execution and Organizational Development in the Netherlands, suggests bosses boil that message down to five key areas—and deliver them in person when possible, as well as repeating them when problems pop up. “The extra effort has a cost in time and resources, but the impact can be huge,” van den Berg says.
But perhaps the biggest thing leaders can do to help make transformative changes stick is to develop an organization that is agile—both in the company’s structure and its people. The organization has to be designed in a way that lets employees implement big changes. Tweaks to an organization can come in many forms, from a radical redesign of a supply chain to simply a change of meeting times.
Shea, of the Wharton School, tells a story of a general foreman he got to know during a conference. The foreman was tasked with cutting down production problems on his factory line. Being in a unionized shop, he couldn’t necessarily order the workers to weed out problems or pay them more even if they did. But he tweaked the system by encouraging workers to write down common production problems on a flip chart in the break room, creating a way to routinely update which problems were getting fixed, and, as a bonus, he gave T-shirts to workers who were good at fixing problems. The foreman overseeing all this ended up “really working beyond his pay grade,” an impressed Shea says.
It also helps to have employees who are agile enough to pull off changes. Agile employees are unafraid to challenge the status quo, remain calm in the face of difficulty, take time to reflect on their experiences, are open to learning and often actively seek out challenging situations. In short, they’re perfect to be able to handle change, both now and in the future. Agility can literally pay for itself. A Korn Ferry study found that companies with the greatest rates of highly agile executives produced 25 percent higher profit margins compared with peer companies.
Leaders can go hire agile employees or they can develop them within their existing workforce, even as they are pushing a broader change. Marketing consultant Bonin Bough is devising a digital strategy from the ground up for a mid-sized consumer products firm based in the New York area. The 40-person marketing staff will work out of the offices of the firm’s digital ad agency for six months, and then it’ll spend six months working out of the offices of another digital marketing group. “We’re sitting in their culture, beginning to think like them,” Bough says.
Making transformative changes stick is still hard even with these factors in your favor—but without them, changes are going to be nearly impossible to execute, no matter how good the strategy. Paul Laudicina recognized that, when he was elected CEO of A.T. Kearney in 2006 after he and his fellow partners bought out the struggling consultancy from EDS. Laudicina not only had to re-establish A.T. Kearney’s reputation for high-quality consulting with clients but needed to reinvigorate the staff. He had a turnaround strategy but knew that it had no hope of being executed without getting everyone motivated to make it work. “Virtually no one gave us a chance of survival,” Laudicina says.
He first rallied the 2,500 employees by visiting all 34 offices worldwide and reminded them of the firm’s original purpose: do good work that will deliver value to clients, themselves and the world. He then pushed for a huge investment in employee training and development (much to the chagrin of many of his fellow partners, who only recently had written huge checks to buy the firm). The changes were all-encompassing. “There were not a lot of break-glass-and-pull-lever types of things,” Laudicina says.
But it worked. By the time Laudicina stepped down as CEO at the end of 2012, the firm had 3,000 employees and had grown its revenues by more than 33 percent.