Module 4

Leading Change: Why Transformation Efforts Fail??

Successful leaders recognize and understand the opportunities and challenges that come with
change. Whether its significant growth on a global scale or an adjustment to key processes,
change can be unsettling to employees and must be thoroughly planned for with clear
communication of the rationale and anticipated benefits

Businesses hoping to survive over the long term will have to remake themselves into better
competitors at least once along the way. These efforts have gone under many banners: total
quality management, reengineering, rightsizing, restructuring, cultural change, and turnarounds,
to name a few. In almost every case, the goal has been to cope with a new, more challenging
market by changing the way business is conducted. A few of these endeavors have been very
successful. A few have been utter failures

John P. Kotter is renowned for his work on leading organizational change. Unsuccessful
transitions almost always founder during at least one of the following phases: generating a sense
of urgency, establishing a powerful guiding coalition, developing a vision, communicating the
vision clearly and often, removing obstacles, planning for and creating short-term wins, avoiding
premature declarations of victory, and embedding changes in the corporate culture.

Kotter presents eight critical steps to implementing change in an organization, principles that
Navigate incorporates regularly as we guide our clients through transformation. While some of
the ideas might seem simple or obvious, their value cant be underestimated or overlooked
during a transition. To start with, Kotter stresses the importance of establishing a sense of
urgency. Without an explanation of the conditions or difficulties that are driving the change, it
will not be easy to inspire motivation. Similarly, developing and communicating a vision helps
employees better understand the objectives and expectations of the change. Along the way,
Kotter points out the motivating power of short-term wins, and how formalizing new processes
and procedures works to ensure the positive results continue.

An important lesson learned from Kotters viewpoint is that ample time must be allotted for
each phase of the change process. Trying to rush it or cut corners can have a devastating impact,
slowing momentum and negating hard-won gains. Again we see how, despite advances in
technology and the ups and downs of the economy, some business principles continue to stand
the test of time.

Mind-sets Create Resistance to Change

8 most common belief that people resist to change:

There isnt any real need for the change
The change is going to make it harder for them to meet their needs
 The risks seem to outweigh the benefits
They dont think they have the ability to make the change
They believe the change will fail
Change process is being handled improperly by management
The change is inconsistent with their values
They believe those responsible for the change cant be trusted

To understand how to facilitate change, we have to understand how our minds react to change.
Change, no matter how important or inevitable, is frequently viewed as negative. Because its
uncomfortable to change the status quo, change is fiercely resisted.

A mind-set is the way we see things, the way we think about the world. The brain is designed to
lock into these patterns and systems, so that even if we have a desire to change, we dont.
Because of this, giving someone a whole lot of facts about why they should change dont make
change happen. If the fact doesnt fit the current mind-set, it gets rejected instantly.

Organizations and even entire industries can get locked into their mind-sets, to a point that they
become self-reinforcing. No one questions the prevailing thinking, and any other view gets
discounted or ignored. This is why radical change often comes from outside an industry or from
those who bring a different mind-set and dare to think differently.

How to Change Your Approach to Change

The business world is fascinated by culture. Academics have studied it. Authors have written
about it. Great leaders know how to leverage culture to ensure wildly successful business
outcomes. Conversely, well-documented case studies demonstrate how incorrect assumptions
about organizational values can lead to misunderstandings at best and failed projects and lost
profit at worst. In the frenzied quest for a silver bullet to understand what culture tells us about
the way business should be conducted, there is little debate that organizational value systems
have a powerful influence.

As a change manager, one key fact about culture stands out: organizational value systems impact
the way change happens. What is important to our organization? How are decisions made? Who
is in charge? How do I relate to other employees and groups within our organization? What
behaviors are rewarded and recognized? What is compensation based upon?

The answers to these questions vary from country to country, from industry to industry, from
organization to organization and from department to department. It is critical for all change
managers to understand the underlying values of their organizations because these factors
directly influence the way change will be accepted and how much work will ultimately be
required to ensure successful outcomes for the business.
 As a starting point, consider these four questions, which are essential to implementing a
successful change process:

1. What is the business case for change? (A quadrant analytical thinking

2. What is the vision of the new future state? (D quadrant future-focused thinking)
3. How can you mobilize energy and move forward to make it happen? (B quadrant execution-
focused thinking)
4. Who needs to be involved? What partnerships need to be developed? (C quadrant people-
focused thinking).

8- Stage Process for Change

Create a sense of urgency. ...

Create a guiding coalition. ...
Create a vision for change. ...
Communicate the vision. ...
Remove obstacles. ...
Create short-term wins. ...
Consolidate improvements. ...
Anchor the changes

Cracking the Code of Change

Each business change is unique but each change is a variant of one of two archetypes. These
archetypes are based on different and unconscious assumptions by senior executives and the
consultants and academics advising them. The two theories are Theory E and Theory O. Theory
E is change based on economic value. Theory O is change based on organizational capability.

Theory E change strategies are ones that make all the headlines. In this hard approach to
change, shareholder value is the only legitimate concern. Change usually involves heavy use of
economic incentives, drastic layoffs, downsizing, and restructuring. E change strategies are more
common than O change strategies among companies in the United States.

Managers using Theory O believe if they focus exclusively on the price of their stock, they might
harm their organizations. In this soft approach to change, the goal is to develop corporate
culture and human capability through individual and organizational learning. This theory is the
process of changing, obtaining feedback, reflecting, and making further changes. Companies that
enact this strategy have a strong, long-held, commitment-based psychological contract with their
employees.

The key differences between Theory E and Theory O are:

The problem is that companies cannot enact just one of these theories when trying to change
their organization. Rather, companies combine the theories and lose focus. Because the theories
are so different, managers cannot juggle them simultaneously and the resulting mess leaves the
company no better off. Worse, the employees lose any trust for the company and management
whatsoever.

Equally said, a company who enacts only Theory E ignores the feelings and attitudes of their
employees. These companies lose the commitment, the coordination, the communication, and the
creativity needed for sustained competitive advantage. Companies who only enact Theory O
never have the impetus to make hard and bitter decisions. Therefore, these companies hope their
rising gains in productivity outdistance their business situation. This is a losing situation because
however high the gain in productivity a company experiences cannot overcome losing market
share and consumers. Additionally, the company enacting Theory O gains productivity but does
not gain economic value beyond the gains in performance measures.

Companies can enact Theory O and Theory E in sequence. For example, a company can first lay-
off employees (Theory E) and then cut down organizational hierarchy and improve
communication (Theory O). However, it is often too hard to manage even this circumstance
because it takes years to fully implement. Additionally, if there is a change in senior
management during the process the program of sequencing may lose momentum and direction.
This lack of speed and possible loss of direction can cause doubt and disillusionment with the
process. Finally, if the entire strategy is not well thought out it may cause more trouble than it is
worth. For example, if Theory E (Employees last policy) follows Theory O (Employees first
policy) policies, employees and managers may feel betrayed.

Before You Make That Big Decision

A lot of biases creep into every day decision making

 Confirmation Bias ignore evidence that contradicts preconceived notions
Anchoring weightage to one piece of information
Cognitive bias
Loss Aversion

An executive cannot recognize his bias but can recognize those of their team. Biases can distort
reasoning and decision-making in business. We know we have biases but cannot eliminate them,
hence taking wrong decisions at critical junctures.

Challenges in avoiding bias

Two modes of thinking:

Intuitive Not consciously focusing but it gets done
Reflective activated when stakes are high or there is an error
Intuitive thinking wraps stories around context that it suppresses everything
Individual to collective and decision maker to the process of decision making
Apply rational thought to detect others faulty intuition

When an executive makes a big bet, he or she typically relies on the judgment of a team that has
put together a proposal for a strategic course of action. After all, the team will have delved into
the pros and cons much more deeply than the executive has time to do. The problem is, biases
invariably creep into any teams reasoningand often dangerously distort its thinking. A team
that has fallen in love with its recommendation, for instance, may subconsciously dismiss
evidence that contradicts its theories, give far too much weight to one piece of data, or make
faulty comparisons to another business case.

Thats why, with important decisions, executives need to conduct a careful review not only of
the content of recommendations but of the recommendation process. To that end, the authors
Kahneman, who won a Nobel Prize in economics for his work on cognitive biases; Lovallo of
the University of Sydney; and Sibony of McKinseyhave put together a 12-question checklist
intended to unearth and neutralize defects in teams thinking. These questions help leaders
examine whether a team has explored alternatives appropriately, gathered all the right
information, and used well-grounded numbers to support its case. They also highlight
considerations such as whether the team might be unduly influenced by self-interest,
overconfidence, or attachment to past decisions.

Executives build decision processes over time that reduce the effects of biases and upgrade the
quality of decisions their organizations make. The payoffs can be significant: A recent McKinsey
study of more than 1,000 business investments, for instance, showed that when companies
worked to reduce the effects of bias, they raised their returns on investment by seven percentage
points.
Executives need to realize that the judgment of even highly experienced, superbly competent
managers can be fallible. A disciplined decision-making process, not individual genius, is the
key to good strategy.