12 Feb 2009
They either respond to a change in the external environment without thinking of the internal repercussions or attempt to force through changes that make sense internally but no longer fit the context. It doesn't have to be this way. In his new book, Changeability, Michael Jarrett argues the case for being ready for change -- always.
My research shows that the best predictor of the success or failure of organisational change is readiness for change. What do I mean by this term? Readiness for change applies at the philosophical level - being open to and prepared to embrace change; but it also applies at the practical level. Readiness applies to those organisations that have developed a set of core dynamic and internal capabilities that allow them to adapt when faced by external demands. It is the precursor to those organisations that gain strategic agility. Basically, successful change is a function of how well an organisation's internal capabilities - its management capacity, culture, processes, resources and people - match the requirements of its external environment, the marketplace.
The secret to the management of change is not only what happens on the outside - it is how we respond on the inside: as leaders and as organisations. This is the essential lesson of managing change. To make change stick, we must have organisational readiness. It is also true that organisations with high levels of readiness favour change.
So if you want to succeed at introducing change, you need to understand that different situations demand different strategies of change. Simply put, you need to appreciate the change equation: internal capabilities + external environment + strategic leadership = a change strategy.
There are a number of different types of external challenge. They include the following:
Failure to keep up with changes in disruptive technology For example, Polaroid's failure to respond to the threat of digital photography led directly to the company's decline. Failing to keep pace with changes in your industry can take you by surprise and lead to competitive advantage suddenly disappearing. Look at how IBM lost its advantage in its traditional hardware market. Even so, it is a positive role model for what can be achieved through change - witness its reinvention over the last decade from hardware to consulting.
Reliance or dependency on other organisations for crucial resources or assets Think of outsourcing: you can find yourself locked into particular situations and expectations in which who owns what and who is responsible may be impossible to establish. This happens more regularly than you might think. A rail company with which I worked had previous and long-standing investments that meant that the infrastructure was slow to respond to new demands in transport. The company couldn't do what it wanted.
Political and legislative demands can leave you out in the cold Deregulation in the US airline industry led to established companies such as TWA failing to survive. The Sarbanes-Oxley Act of 2002 increased industry concentration among the major US accounting firms. Privatisation in some countries is a shock to the system for public-sector organisations.
Underestimating increasing competition from unexpected places Many petrol stations now offer food, for example, and compete directly with small grocery shops. Microsoft developed the Xbox in part to stop Sony coming into its space through the back door of the online Sony PlayStation. Microsoft (with some $60 billion in revenue) did the same in bidding for Yahoo against Google, a company that is considerably smaller (around $20 billion) but one that continues to be perceived as a strategic threat. Some of the biggest threats to financial-service organisations in the United Kingdom come from large supermarkets like Asda, Tesco and Marks & Spencer. These high-street brands can offer retail lending to consumers much easier than traditional channels can.
Environmental volatility, market and economic trends and other contingencies Some people argue that the environment is everything. Individual firms have little or no control over their fortunes, and it is industry or economic shock waves that finally determine those parts of the market that survive and those that die. There are many recent stories which illustrate this. Think of the insurance company, AIG. It saw rapid changes at the top. Bob Willumstad, stepped into the CEO's role in early 2008. But he was not ready for the onslaught of change and the loss of 98 per cent from the company's share value. By the autumn, Ed Liddy replaced him place as CEO and chairman. If your organisation does not possess changeability, heads will roll - they always do.
These are just five of the innumerable external factors that can directly influence a change strategy. While no company or its leaders can alter, for example, the devaluation of a national currency, what's critical is for leaders to be aware of - and be ready to compensate for - such major external events. A ship that leaves port with no plan or provisions for a major storm is a doomed vessel.
Myth of change
The myth of change is that it can be done in a series of steps. This assumes it is a planned process and that it can be controlled. My experience has been quite the reverse. Major change is interactive, complex and nonlinear, undermining all of the traditional assumptions of change management. Emotions will run high, as will some of the political machinations. Change, I have found, is emergent. It is political; it cannot be controlled.
Starting today, you can forget the books and articles that espouse that change is easily managed. This view of change is based on fundamental assumptions about the world: stability, certainty, homogeneity, and centralised sources of power and authority. The trouble is that we now live in a fast-changing, post-modernist world in which complexity, uncertainty and difference are parts of the norm. Sources of power as well as expectations of employees and consumers have shifted; today, emergent, interactive processes yield results. Wise leaders avoid a simple step-model approach. It simply cannot account for the complexities of change.
We are living in a world in which the environmental landscape can shift quickly and unexpectedly. Models of change that use recipes provide useful frameworks but are insufficient. They can be static, unresponsive to outside influences and oversimplified. They can miss many of the subtleties and undercurrents of changes. In some cases, following these steps can do more harm than good. Thus, change models need to be contingent upon a firm understanding of the external environment and a grasp of your internal choices. Change is a function of external dynamics and internal capabilities; and, significantly, success or failure is often determined by the interaction between the two. Strategic leadership must be present, or the interaction between external events and internal capabilities will never synchronise into corporate success. There is, indeed, no easy formula for managing change. This, however, is the new change equation.
Michael Jarrett (firstname.lastname@example.org) is an Adjunct Professor in Organisational Behaviour at London Business School and a founding partner of Ilyas Jarrett & Company, a research and management consultancy. His book, Changeability, is published by FT Prentice Hall.