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Copyright
Copyright 2011 Harvard Business School Publishing Corporation
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First eBook Edition: March 2011
ISBN: 978-1-4221-5800-5
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Contents
Copyright
Leading Change: Why Transformation Efforts Fail
John P. Kotter
Change Through Persuasion
JDavid A. Garvin and Michael A. Roberto
Leading Change When Business Is Good: An Interview with Samuel J. Palmisano
Paul Hemp and Thomas A. Stewart
Radical Change, the Quiet Way
Debra E. Meyerson
Tipping Point Leadership
W. Chan Kim and Renée Mauborgne
A Survival Guide for Leaders
Ronald A. Heifetz and Marty Linsky
The Real Reason People Won’t Change
Robert Kegan and Lisa Laskow Lahey
Cracking the Code of Change
Michael Beer and Nitin Nohria
The Hard Side of Change Management
Harold L. Sirkin, Perry Keenan, and Alan Jackson
Why Change Programs Don’t Produce Change
Michael Beer, Russell A. Eisenstat, and Bert Spector
About the Contributors
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Leading Change
Why Transformation Efforts Fail. by John P. Kotter
OVER THE PAST DECADE,
I have watched more than 100 companies try to remake
themselves into significantly better competitors. They have included large
organizations (Ford) and small ones (Landmark 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, rightsizing, restructuring, cultural
change, and turnaround. But, in almost 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 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 increasingly 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, usually require a
considerable length of time. Skipping steps creates only the illusion of speed and
never produces a satisfying result. A second very general 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 organizations, even very capable people often make at least one big
error.
Eight steps to transforming your organization
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Idea in Brief
Most major change initiatives—whether intended to boost quality, improve
culture, or reverse a corporate death spiral—generate only lukewarm results.
Many fail miserably.
Why? Kotter maintains that too many managers don’t realize transformation is
a process, not an event. It advances through stages that build on each other.
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And it takes years. Pressured to accelerate the process, managers skip stages.
But shortcuts never work.
Equally troubling, even highly capable managers make critical mistakes—such
as declaring victory too soon. Result? Loss of momentum, reversal of hardwon gains, and devastation of the entire transformation effort.
By understanding the stages of change—and the pitfalls unique to each stage—
you boost your chances of a successful transformation. The payoff? Your
organization flexes with tectonic shifts in competitors, markets, and
technologies—leaving rivals far behind.
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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 declining 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 requires
the aggressive cooperation of many individuals. Without motivation, people won’t
help, and the effort goes nowhere.
Compared with other steps in the change process, 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 underestimate how hard it
can be to drive people out of their comfort zones. Sometimes they grossly
overestimate how successful they have already been in increasing urgency.
Sometimes they lack patience: “Enough with the preliminaries; let’s get on with it.”
In many cases, executives become 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.
Idea in Practice
To give your transformation effort the best chance of succeeding, take the right
actions at each stage—and avoid common pitfalls
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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 until enough real leaders are promoted or hired into senior-level
jobs.
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 champions, 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 performance or bad, in the more
successful cases I have witnessed, an individual or a group always facilitates 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 declining 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,
customers, and consultants can all be helpful in this regard. 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 engineered 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 cannot succeed,
and the long-term future of the organization 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. Anything less can produce very serious problems
later on in the process.
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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 supporter. What I am talking about goes far beyond that. In
successful transformations, the chairman or president or division general manager,
plus another five or 15 or 50 people, come together and develop a shared
commitment to excellent performance through renewal. In my experience, this group
never includes all of the company’s most senior executives 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 successful 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 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
customer, 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 definition. This
can be awkward, but it is clearly necessary. 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
boundaries, expectations, and protocol.
A high sense of urgency within the managerial ranks helps enormously in putting
a guiding coalition together. But more is usually required. Someone 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
accomplishing this task. I have seen many groups of five to 35 executives attend a
series of these retreats over a period of months.
Companies that fail in phase two usually underestimate the difficulties of
producing change and thus the importance of a powerful guiding coalition.
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 resources, quality, or strategic planning instead of a key
line manager. No matter how capable or dedicated the staff head, groups without
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strong line leadership never achieve the power that is required.
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 together and
stops the change.
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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 employees. 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 individual. It is usually a bit blurry, at least
initially. But after the coalition works at it for three or five or even 12 months,
something much better emerges through their tough analytical thinking and a little
dreaming. 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 transformation 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
resources 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, directives, and
programs but no vision. In one case, a company gave out four-inch-thick notebooks
describing its change effort. In mind-numbing 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
employees 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.
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. Recently, I asked an
executive in a midsize company to describe 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.
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Error 4: Undercommunicating the Vision by a Factor of Ten
I’ve seen three patterns with respect to communication, all very common. In the
first, a group actually 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 0.0001% of the yearly intracompany
communication, the group is startled when 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 0.0005% 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 belief 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 communication, 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. Gaining understanding and support is tough when downsizing is a part
of the vision. For this reason, successful visions usually include new growth
possibilities and the commitment to treat fairly anyone 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
appraisal, they talk about how the employee’s behavior 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
transformation. In a routine Q&A with employees at a company facility, they tie
their answers back to renewal goals.
In more successful transformation efforts, executives use all existing
communication channels to broadcast the vision. They turn boring, unread company
newsletters into lively articles about the vision. They take ritualistic, tedious
quarterly management meetings and turn them into exciting discussions of the
transformation. They throw out much of the company’s generic management
education and replace it with courses that focus on business problems and the new
vision. The guiding principle is simple: Use every possible channel, especially
those that are being wasted on nonessential information.
Perhaps even more important, most of the executives I have known in successful
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cases of major change learn to “walk the talk.” They consciously attempt to become
a living symbol of the new corporate 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 urgency 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 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.
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Error 5: Not Removing Obstacles to the New Vision
Successful transformations begin to involve large numbers of people as the process
progresses. Employees 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 communicating 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
person’s head, and the challenge is to convince the individual that no external
obstacle exists. But in most cases, the blockers are very real.
Sometimes the obstacle is the organizational structure: Narrow job categories
can seriously undermine efforts to increase productivity or make it very difficult
even to think about customers. Sometimes compensation or performance-appraisal
systems make people choose between 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 behavior or encourage his managers to change. He did not reward
the unconventional ideas called for in the vision. He allowed human resource
systems to remain intact even when they were clearly inconsistent with the new
ideals. I think the officer’s motives were complex. To some degree, he did not
believe 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 operating 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 organization has the momentum, power,
or time to get rid of all obstacles. But the big ones must be confronted and removed.
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If the blocker is a person, it is important that he or she be treated fairly and in a
way that is consistent with the new vision. Action is essential, both to empower
others and to maintain the credibility of the change effort as a whole.
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Error 6: Not Systematically Planning for, and Creating, ShortTerm Wins
Real transformation takes time, and a renewal effort 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 compelling evidence in 12 to 24 months that the journey is
producing expected results. Without short-term wins, too many people give up or
actively join the ranks of those people who have been resisting change.
One to two years into a successful transformation effort, you find quality
beginning to go up on certain indices or the decline in net income stopping. You
find some successful new product introductions 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 hoping for short-term wins. The latter
is passive, the former active. In a successful transformation, managers actively look
for ways to obtain clear performance improvements, establish goals in the yearly
planning system, achieve the objectives, and reward the people involved with
recognition, promotions, and even money. For example, the guiding coalition at a
U.S. manufacturing company produced 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 relatively 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-development 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 pressure can be a useful element in a change effort. 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 analytical thinking that can clarify or revise visions.
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Error 7: Declaring Victory Too Soon
After a few years of hard work, managers may be tempted to declare victory with
the first clear performance improvement. While celebrating a win is fine, declaring
the war won can be catastrophic. Until changes sink deeply into a company’s
culture, 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 expensive
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 disappeared. 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, organizational 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 celebration 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 premature 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 celebration 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 themselves 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 confronted before. They pay great attention to who is promoted, who is hired,
and how people are developed. They include new reengineering projects that are
even bigger in scope than the initial ones. They understand that renewal efforts take
not months but years. In fact, in one of the most successful transformations that I
have ever seen, we quantified 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.
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Error 8: Not Anchoring Changes in the Corporation’s Culture
In the final analysis, change sticks when it becomes “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 institutionalizing 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 create very inaccurate links.
For example, because results improved while charismatic Harry was boss, the
troops link his mostly idiosyncratic style with those results instead of seeing how
their own improved customer service and productivity were instrumental. Helping
people see the right connections requires communication. Indeed, one company was
relentless, and it paid off enormously. Time was spent at every major management
meeting to discuss why performance was increasing. The company newspaper ran
article after article showing how changes had boosted earnings.
The second factor is taking sufficient time to make sure that the next generation
of top management 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
renewal effort. In at least three instances I have seen, the champion for change was
the retiring executive, and although his successor was not a resistor, he was not a
change champion. Because the boards did not understand the transformations in any
detail, 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 transformation. In the other two cases, the
CEOs did not resist the boards’ choices, because they felt the transformation could
not be undone by their successors. They were wrong. Within two years, signs of
renewal 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
relatively simple vision is needed to guide people through a major change, so a
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vision of the change process can reduce the error rate. And fewer errors can spell
the difference between success and failure.
Originally published March 1995. Reprint R0701J
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Change Through Persuasion
by David A. Garvin and Michael A. Roberto
for massive change, most managers respond predictably.
They revamp the organization’s strategy, then round up the usual set of suspects—
people, pay, and processes—shifting around staff, realigning incentives, and
rooting out inefficiencies. They then wait patiently for performance to improve,
only to be bitterly disappointed. For some reason, the right things still don’t
happen.
Why is change so hard? First of all, most people are reluctant to alter their
habits. What worked in the past is good enough; in the absence of a dire threat,
employees will keep doing what they’ve always done. And when an organization
has had a succession of leaders, resistance to change is even stronger. A legacy of
disappointment and distrust creates an environment in which employees
automatically condemn the next turnaround champion to failure, assuming that he or
she is “just like all the others.” Calls for sacrifice and self-discipline are met with
cynicism, skepticism, and knee-jerk resistance.
Our research into organizational transformation has involved settings as diverse
as multinational corporations, government agencies, nonprofits, and highperforming teams like mountaineering expeditions and firefighting crews. We’ve
found that for change to stick, leaders must design and run an effective persuasion
campaign—one that begins weeks or months before the actual turnaround plan is set
in concrete. Managers must perform significant work up front to ensure that
employees will actually listen to tough messages, question old assumptions, and
consider new ways of working. This means taking a series of deliberate but subtle
steps to recast employees’ prevailing views and create a new context for action.
Such a shaping process must be actively managed during the first few months of a
turnaround, when uncertainty is high and setbacks are inevitable. Otherwise, there
is little hope for sustained improvement.
Like a political campaign, a persuasion campaign is largely one of
differentiation from the past. To the typical change-averse employee, all
restructuring plans look alike. The trick for turnaround leaders is to show
employees precisely how their plans differ from their predecessors’. They must
convince people that the organization is truly on its deathbed—or, at the very least,
that radical changes are required if it is to survive and thrive. (This is a particularly
difficult challenge when years of persistent problems have been accompanied by
FACED WITH THE NEED
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few changes in the status quo.) Turnaround leaders must also gain trust by
demonstrating through word and deed that they are the right leaders for the job and
must convince employees that theirs is the correct plan for moving forward.
Accomplishing all this calls for a four-part communications strategy. Prior to
announcing a policy or issuing a set of instructions, leaders need to set the stage for
acceptance. At the time of delivery, they must create the frame through which
information and messages are interpreted. As time passes, they must manage the
mood so that employees’ emotional states support implementation and followthrough. And at critical intervals, they must provide reinforcement to ensure that the
desired changes take hold without backsliding.
In this article, we describe this process in more detail, drawing on the example
of the turnaround of Beth Israel Deaconess Medical Center (BIDMC) in Boston.
Paul Levy, who became CEO in early 2002, managed to bring the failing hospital
back from the brink of ruin. We had ringside seats during the first six months of the
turnaround. Levy agreed to hold videotaped interviews with us every two to four
weeks during that period as we prepared a case study describing his efforts. He
also gave us access to his daily calendar, as well as to assorted e-mail
correspondence and internal memorandums and reports. From this wealth of data,
we were able to track the change process as it unfolded, without the usual biases
and distortions that come from 20/20 hindsight. The story of how Levy tilled the
soil for change provides lessons for any CEO in a turnaround situation.
Idea in Brief
When a company is teetering on the brink of ruin, most turnaround leaders
revamp strategy, shift around staff, and root out inefficiencies. Then they wait
patiently for the payoff—only to suffer bitter disappointment as the expected
improvements fail to materialize.
How to make change stick? Conduct a four-stage persuasion campaign: 1)
Prepare your organization’s cultural “soil” months before setting your
turnaround plan in concrete— by convincing employees that your company can
survive only through radical change. 2) Present your plan—explaining in
detail its purpose and expected impact. 3) After executing the plan, manage
employees’ emotions by acknowledging the pain of change—while keeping
people focused on the hard work ahead. 4) As the turnaround starts generating
results, reinforce desired behavioral changes to prevent backsliding.
Using this four-part process, the CEO of Beth Israel Deaconess Medical
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Center (BIDMC) brought the failing hospital back from near-certain death.
Hemorrhaging $58 million in losses in 2001, BIDMC reported a $37.4 million
net gain from operations in 2004. Revenues rose, while costs shrank. Morale
soared—as reflected by a drop in nursing turnover from between 15% and
16% in 2002 to just 3% by 2004.
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Setting the Stage
Paul Levy was an unlikely candidate to run BIDMC. He was not a doctor and had
never managed a hospital, though he had previously served as the executive dean
for administration at Harvard Medical School. His claim to fame was his role as
the architect of the Boston Harbor Cleanup, a multibillion-dollar pollution-control
project that he had led several years earlier. (Based on this experience, Levy
identified a common yet insidiously destructive organizational dynamic that causes
dedicated teams to operate in counterproductive ways, which he described in “The
Nut Island Effect: When Good Teams Go Wrong,” March 2001.) Six years after
completing the Boston Harbor project, Levy approached the BIDMC board and
applied for the job of cleaning up the troubled hospital.
Idea in Practice
Use these steps to persuade your workforce to embrace and execute needed
change:
Set the Stage for Acceptance
Develop a bold message that provides compelling reasons to do things
differently.
Example: On his first day as Beth Israel Deaconess Medical Center’s
CEO, Paul Levy publicized the possibility that BIDMC would be sold to
a for-profit institution. He delivered an all-hands-on-deck e-mail to the
staff citing the hospital’s achievements while confirming that the threat of
sale was real. The e-mail also signaled actions he would take, including
layoffs, and described his open management style (hallway chats, lunches
with staff). In addition, Levy circulated a third-party, warts-and-all
report on BIDMC’s plight on the hospital’s intranet—so staff could no
longer claim ignorance.
Frame the Turnaround Plan
Present your turnaround plan in a way that helps people interpret your ideas
correctly.
27
Example: Levy augmented his several-hundred-page plan with an e-mail
that evoked BIDMC’s mission and uncompromising values and
reaffirmed the importance of remaining an academic medical center. He
provided further details about the plan, emphasizing needed tough
measures based on the third-party report. He also explained past plans’
deficiencies, contrasting earlier efforts’ top-down methods with his
plan’s collaborative approach. Employees thus felt the plan belonged to
them.
Manage the Mood
Strike the right notes of optimism and realism to make employees feel cared
for while also keeping them focused on your plan’s execution.
Example: Levy acknowledged the pain of layoffs, then urged employees
to look forward to “[setting] an example for what a unique academic
medical center like ours means for this region.” He also issued progress
updates while reminding people that BIDMC still needed to control
costs. As financial performance picked up, he lavishly praised the staff.
Prevent Backsliding
Provide opportunities for employees to practice desired behaviors repeatedly.
If necessary, publicly criticize disruptive, divisive behaviors.
Example: Levy had established meeting rules requiring staff to state their
objections to decisions and to “disagree without being disagreeable.”
When one medical chief e-mailed Levy complaining about a decision
made during a meeting—and copied the other chiefs and board chairman
—Levy took action. He responded with an e-mail to the same audience,
publicly reprimanding the chief for his tone, lack of civility, and failure
to follow the rule about speaking up during meetings.
Despite his lack of hospital management experience, Levy was appealing to the
board. The Boston Harbor Cleanup was a difficult, highly visible change effort that
required deft political and managerial skills. Levy had stood firm in the face of
tough negotiations and often-heated public resistance and had instilled
accountability in city and state agencies. He was also a known quantity to the
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board, having served on a BIDMC steering committee formed by the board
chairman in 2001.
Levy saw the prospective job as one of public service. BIDMC was the product
of a difficult 1996 merger between two hospitals—Beth Israel and Deaconess—
each of which had distinguished reputations, several best-in-the-world departments
and specializations, and deeply devoted staffs. The problems began after the
merger. A misguided focus on clinical practice rather than backroom integration, a
failure to cut costs, and the repeated inability to execute plans and adapt to
changing conditions in the health care marketplace all contributed to BIDMC’s
dismal performance.
By the time the board settled on Levy, affairs at BIDMC had reached the nadir.
The hospital was losing $50 million a year. Relations between the administration
and medical staff were strained, as were those between management and the board
of directors. Employees felt demoralized, having witnessed the rapid decline in
their institution’s once-legendary status and the disappointing failure of its past
leaders. A critical study was conducted by the Hunter Group, a leading health-care
consulting firm. The report, detailing the dire conditions at the hospital and the
changes needed to turn things around, had been completed but not yet released.
Meanwhile, the state attorney general, who was responsible for overseeing
charitable trusts, had put pressure on the board to sell the failing BIDMC to a forprofit institution.
Like many CEOs recruited to fix a difficult situation, Levy’s first task was to
gain a mandate for the changes ahead. He also recognized that crucial negotiations
were best conducted before he took the job, when his leverage was greatest, rather
than after taking the reins. In particular, he moved to secure the cooperation of the
hospital board by flatly stating his conditions for employment. He told the
directors, for example, that should they hire him, they could no longer interfere in
day-to-day management decisions. In his second and third meetings with the
board’s search committee, Levy laid out his timetable and intentions. He insisted
that the board decide on his appointment quickly so that he could be on the job
before the release of the Hunter report. He told the committee that he intended to
push for a smaller, more effective group of directors. Though the conditions were
somewhat unusual, the board was convinced that Levy had the experience to lead a
successful turnaround, and they accepted his terms. Levy went to work on January
7, 2002.
The next task was to set the stage with the hospital staff. Levy was convinced that
the employees, hungry for a turnaround, would do their best to cooperate with him
if he could emulate and embody the core values of the hospital culture, rather than
impose his personal values. He chose to act as the managerial equivalent of a good
doctor—that is, as one who, in dealing with a very ill patient, delivers both the bad
news and the chances of success honestly and imparts a realistic sense of hope,
29
without sugar coating.
The four phases of a persuasion campaign
A typical turnaround process consists of two stark phases: plan development,
followed by an implementation that may or may not be welcomed by the
organization. For the turnaround plan to be widely accepted and adopted,
however, the CEO must develop a separate persuasion campaign, the goal of
which is to create a continuously receptive environment for change. The
campaign begins well before the CEO’s first day on the job—or, if the CEO is
long established, well before formal development work begins—and continues
long after the final plan is announced.
Like any leader facing a turnaround, Levy also knew he had to develop a bold
message that provided compelling reasons to do things differently and then cast that
message in capital letters to signal the arrival of a new order. To give his message
teeth, he linked it to an implicit threat. Taking his cue from his private discussions
with the state attorney general, whom he had persuaded to keep the hospital open
for the time being, Levy chose to publicize the very real possibility the hospital
would be sold. While he realized he risked frightening the staff and the patients
with this bad news, he believed that a strong wake-up call was necessary to get
employees to face up to the situation.
30
During his first morning on the job, Levy delivered an all-hands-on-deck e-mail
to the staff. The memo contained four broad messages. It opened with the good
news, pointing out that the organization had much to be proud of (“This is a
wonderful institution, representing the very best in academic medicine: exemplary
patient care, extraordinary research, and fine teaching”). Second, Levy noted that
the threat of sale was real (“This is our last chance”). Third, he signaled the kinds
of actions employees could expect him to take (“There will be a reduction in
staff”). And finally, he described the open management style he would adopt. He
would manage by walking around—lunching with staff in the cafeteria, having
impromptu conversations in the hallways, talking with employees at every
opportunity to discover their concerns. He would communicate directly with
employees through e-mail rather than through intermediaries. He also noted that the
Hunter report would be posted on the hospital intranet, where all employees would
have the opportunity to review its recommendations and submit comments for the
final turnaround plan. The direct, open tone of the e-mail memo signaled exactly
how Levy’s management style would differ from that of his predecessors.
In the afternoon, he disclosed BIDMC’s situation in interviews with the Boston
Globe and the Boston Herald, the city’s two major newspapers. He told reporters
the same thing he had told the hospital’s employees: that, in the absence of a
turnaround, the hospital would be sold to a for-profit chain and would therefore
lose its status as a Harvard teaching hospital. Staving off a sale would require
tough measures, including the laying off of anywhere from 500 to 700 employees.
Levy insisted that there would be no nursing layoffs, in keeping with the hospital’s
core values of high-quality patient care. The newspaper reports, together with the
memo circulated that morning, served to immediately reset employee expectations
while dramatically increasing staff cooperation and willingness to accept whatever
new initiatives might prove necessary to the hospital’s survival.
Two days later, the critical Hunter report came out and was circulated via the
hospital’s intranet. Because the report had been produced by an objective third
party, employees were open to its unvarnished, warts-and-all view of the hospital’s
current predicament. The facts were stark, and the staff could no longer claim
ignorance. Levy received, and personally responded to, more than 300 e-mail
suggestions for improvement in response to the report, many of which he later
included in the turnaround plan.
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Creating the Frame
Once the stage has been set for acceptance, effective leaders need to help
employees interpret proposals for change. Complex plans can be interpreted in any
number of ways; not all of them ensure acceptance and favorable outcomes. Skilled
leaders therefore use “frames” to provide context and shape perspective for new
proposals and plans. By framing the issues, leaders help people digest ideas in
particular ways. A frame can take many forms: It can be a companywide
presentation that prepares employees before an unexpected change, for example, or
a radio interview that provides context following an unsettling layoff.
Levy used one particularly effective framing device to help employees interpret
a preliminary draft of the turnaround plan. This device took the form of a detailed
e-mail memo accompanying the dense, several-hundred-page plan. The memo
explained, in considerable detail, the plan’s purpose and expected impact.
The first section of the memo sought to mollify critics and reduce the fears of
doctors and nurses. Its tone was positive and uplifting; it discussed BIDMC’s
mission, strategy, and uncompromising values, emphasizing the hospital’s “warm,
caring environment.” This section of the letter also reaffirmed the importance of
remaining an academic medical center, as well as reminding employees of their
shared mission and ideals. The second part of the letter told employees what to
expect, providing further details about the turnaround plan. It emphasized that tough
measures and goals would be required but noted that the specific recommendations
were based, for the most part, on the advice in the Hunter report, which employees
had already reviewed. The message to employees was, “You’ve already seen and
endorsed the Hunter report. There are no future surprises.”
The third part of the letter anticipated and responded to prospective concerns;
this had the effect of circumventing objections. This section explicitly diagnosed
past plans and explained their deficiencies, which were largely due to their having
been imposed top-down, with little employee ownership, buy-in, or discussion.
Levy then offered a direct interpretation of what had gone wrong. Past plans, he
said, had underestimated the size of the financial problem, set unrealistic
expectations for new revenue growth, and failed to test implementation proposals.
This section of the letter also drove home the need for change at a deeper, more
visceral level than employees had experienced in the past. It emphasized that this
plan was a far more collective effort than past proposals had been, because it
incorporated many employee suggestions.
By framing the turnaround proposal this way, Levy accomplished two things.
First, he was able to convince employees that the plan belonged to them. Second,
the letter served as the basis for an ongoing communication platform. Levy
reiterated its points at every opportunity—not only with employees but also in
32
public meetings and in discussions with the press.
33
Managing the Mood
Turnarounds are depressing events, especially when they involve restructuring and
downsizing. Relationships are disrupted, friends move on, and jobs disappear. In
such settings, managing the mood of the organization becomes an essential
leadership skill. Leaders must pay close attention to employees’ emotions—the ebb
and flow of their feelings and moods—and work hard to preserve a receptive
climate for change. Often, this requires a delicate balancing act between presenting
good and bad news in just the right proportion. Employees need to feel that their
sacrifices have not been in vain and that their accomplishments have been
recognized and rewarded. At the same time, they must be reminded that
complacency is not an option. The communication challenge is daunting. One must
strike the right notes of optimism and realism and carefully calibrate the timing,
tone, and positioning of every message.
Paul Levy’s challenge was threefold: to give remaining employees time to
grieve and recover from layoffs and other difficult measures; to make them feel that
he cared for and supported them; and to ensure that the turnaround plan proceeded
apace. The process depended on mutual trust and employees’ desire to succeed. “I
had to calibrate the push and pull of congratulations and pressure, but I also
depended on the staff’s underlying value system and sense of mission,” he said.
“They were highly motivated, caring individuals who had stuck with the place
through five years of hell. They wanted to do good.”
The first step was to acknowledge employees’ feelings of depression while
helping them look to the future. Immediately after the first round of layoffs, people
were feeling listless and dejected; Levy knew that releasing the final version of the
turnaround plan too soon after the layoffs could be seen as cold. In an e-mail he
sent to all employees a few days later, Levy explicitly empathized with employees’
feelings (“This week is a sad one...it is hard for those of us remaining...offices are
emptier than usual”). He then urged employees to look forward and concluded on a
strongly optimistic note (“...our target is not just survival: It is to thrive and set an
example for what a unique academic medical center like ours means for this
region”). His upbeat words were reinforced by a piece of good luck that weekend
when the underdog New England Patriots won their first Super Bowl championship
in dramatic fashion in the last 90 seconds of the game. When Levy returned to work
the following Monday, employees were saying, “If the Patriots can do it, we can,
too.”
The next task was to keep employees focused on the continuing hard work
ahead. On April 12, two months into the restructuring process, Levy sent out a
“Frequently Asked Questions” e-mail giving a generally favorable view of
progress to date. At the same time, he spoke plainly about the need to control costs
34
and reminded employees that merit pay increases would remain on hold. This was
hardly the rosy picture that most employees were hoping for, of course. But Levy
believed sufficient time had passed that employees could accommodate a more
realistic and tough tone on his part.
A month later, everything changed. Operational improvements that were put in
place during the first phase of the turnaround had begun to take hold. Financial
performance was well ahead of budget, with the best results since the merger. In
another e-mail, Levy praised employees lavishly. He also convened a series of
open question-and-answer forums, where employees heard more details about the
hospital’s tangible progress and received kudos for their accomplishments.
Dysfunctional Routines
Six Ways to Stop Change in Its Tracks
Just as people are creatures of habit, organizations thrive on routines. Management
teams, for example, routinely cut budgets after performance deviates from plan.
Routines—predictable, virtually automatic behaviors—are unstated, selfreinforcing, and remarkably resilient. Because they lead to more efficient cognitive
processing, they are, for the most part, functional and highly desirable.
35
Dysfunctional routines, by contrast, are barriers to action and change. Some are
outdated behaviors that were appropriate once but are now unhelpful. Others
manifest themselves in knee-jerk reactions, passivity, unproductive foot-dragging,
and, sometimes, active resistance.
Dysfunctional routines are persistent, but they are not unchangeable. Novelty—the
perception that current circumstances are truly different from those that previously
prevailed—is one of the most potent forces for dislodging routines. To overcome
them, leaders must clearly signal that the context has changed. They must work
directly with employees to recognize and publicly examine dysfunctional routines
and substitute desired behaviors.
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Reinforcing Good Habits
Without a doubt, the toughest challenge faced by leaders during a turnaround is to
avoid backsliding into dysfunctional routines—habitual patterns of negative
behavior by individuals and groups that are triggered automatically and
unconsciously by familiar circumstances or stimuli. (For more on how such
disruptive patterns work, see the sidebar “Dysfunctional Routines: Six Ways to
Stop Change in Its Tracks.”) Employees need help maintaining new behaviors,
especially when their old ways of working are deeply ingrained and destructive.
Effective change leaders provide opportunities for employees to practice desired
behaviors repeatedly, while personally modeling new ways of working and
providing coaching and support.
In our studies of successful turnarounds, we’ve found that effective leaders
explicitly reinforce organizational values on a constant basis, using actions to back
up their words. Their goal is to change behavior, not just ways of thinking. For
example, a leader can talk about values such as openness, tolerance, civility,
teamwork, delegation, and direct communication in meetings and e-mails. But the
message takes hold only if he or she also signals a dislike of disruptive, divisive
behaviors by pointedly—and, if necessary, publicly—criticizing them.
At Beth Israel Deaconess Medical Center, the chiefs of medicine, surgery,
orthopedics, and other key functions presented Levy with special behavioral
challenges, particularly because he was not a doctor. Each medical chief was in
essence a “mini-dean,” the head of a largely self-contained department with its own
faculty, staff, and resources. As academic researchers, they were rewarded
primarily for individual achievement. They had limited experience solving business
or management problems.
In dealing with the chiefs, Levy chose an approach that blended with a strong
dose of discipline with real-time, public reinforcement. He developed guidelines
for behavior and insisted that everyone in the hospital measure up to them. In one of
his earliest meetings with the chiefs, Levy presented a simple set of “meeting
rules,” including such chestnuts as “state your objections” and “disagree without
being disagreeable,” and led a discussion about them, demonstrating the desired
behaviors through his own leadership of the meeting. The purpose of these rules
was to introduce new standards of interpersonal behavior and, in the process, to
combat several dysfunctional routines.
One serious test of Levy’s ability to reinforce these norms came a month and a
half after he was named CEO. After a staff meeting at which all the department
chairs were present, one chief—who had remained silent—sent an e-mail to Levy
complaining about a decision made during the meeting. The e-mail copied the other
chiefs as well as the chairman of the board. Many CEOs would choose to criticize
37
such behavior privately. But Levy responded in an e-mail to the same audience,
publicly denouncing the chief for his tone, his lack of civility, and his failure to
speak up earlier in the process, as required by the new meeting rules. It was as
close to a public hanging as anyone could get. Several of the chiefs privately
expressed their support to Levy; they too had been offended by their peer’s
presumptuousness. More broadly, the open criticism served to powerfully reinforce
new norms while curbing disruptive behavior.
Even as they must set expectations and reinforce behaviors, effective change
leaders also recognize that many employees simply do not know how to make
decisions as a group or work cooperatively. By delegating critical decisions and
responsibilities, a leader can provide employees with ample opportunities to
practice new ways of working; in such cases, employees’ performance should be
evaluated as much on their adherence to the new standards and processes as on
their substantive choices. In this spirit, Levy chose to think of himself primarily as a
kind of appeals court judge. When employees came to him seeking his intervention
on an issue or situation, he explained, he would “review the process used by the
‘lower court’ to determine if it followed the rules. If so, the decision stands.” He
did not review cases de novo and substitute his judgment for that of the individual
department or unit. He insisted that employees work through difficult issues
themselves, even when they were not so inclined, rather than rely on him to tell
them what to do. At other times, he intervened personally and coached employees
when they lacked basic skills. When two members of his staff disagreed on a
proposed course of action, Levy triggered an open, emotional debate, then worked
with the participants and their bosses behind the scenes to resolve the differences.
At the next staff meeting, he praised the participants’ willingness to disagree
publicly, reemphasizing that vigorous debate was healthy and desirable and that
confrontation was not to be avoided. In this way, employees gained experience in
working through their problems on their own.
Performance, of course, is the ultimate measure of a successful turnaround. On
that score, BIDMC has done exceedingly well since Levy took the helm. The
original restructuring plan called for a three-year improvement process, moving
from a $58 million loss in 2001 to breakeven in 2004. At the end of the 2004 fiscal
year, performance was far ahead of plan, with the hospital reporting a $37.4
million net gain from operations. Revenues were up, while costs were sharply
reduced. Decision making was now crisper and more responsive, even though there
was little change in the hospital’s senior staff or medical leadership. Morale, not
surprisingly, was up as well. To take just one indicator, annual nursing turnover,
which was 15% to 16% when Levy became CEO, had dropped to 3% by mid2004. Pleased with the hospital’s performance, the board signed Levy to a new
three-year contract.
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Heads, Hearts, and Hands
It’s clear that the key to Paul Levy’s success at Beth Israel Deaconess Medical
Center is that he understood the importance of making sure the cultural soil had
been made ready before planting the seeds of change. In a receptive environment,
employees not only understand why change is necessary; they’re also emotionally
committed to making it happen, and they faithfully execute the required steps.
On a cognitive level, employees in receptive environments are better able to let
go of competing, unsubstantiated views of the nature and extent of the problems
facing their organizations. They hold the same, objective views of the causes of
poor performance. They acknowledge the seriousness of current financial,
operational, and marketplace difficulties. And they take responsibility for their own
contributions to those problems. Such a shared, fact-based diagnosis is crucial for
moving forward.
On an emotional level, employees in receptive environments identify with the
organization and its values and are committed to its continued existence. They
believe that the organization stands for something more than profitability, market
share, or stock performance and is therefore worth saving. Equally important, they
trust the leader, believing that he or she shares their values and will fight to
preserve them. Leaders earn considerable latitude from employees—and their
proposals usually get the benefit of the doubt—when their hearts are thought to be
in the right place.
Workers in such environments also have physical, hands-on experience with the
new behaviors expected of them. They have seen the coming changes up close and
understand what they are getting into. In such an atmosphere where it’s acceptable
for employees to wrestle with decisions on their own and practice unfamiliar ways
of working, a leader can successfully allay irrational fears and undercut the myths
that so often accompany major change efforts.
There is a powerful lesson in all this for leaders. To create a receptive
environment, persuasion is the ultimate tool. Persuasion promotes understanding;
understanding breeds acceptance; acceptance leads to action. Without persuasion,
even the best of turnaround plans will fail to take root.
Originally published in February 2005. Reprint R0502F
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40
Leading Change When Business Is Good
An Interview with Samuel J. Palmisano.
by Paul Hemp and Thomas A. Stewart
IN JULY 2003 ,
International Business Machines Corporation conducted a 72-hour
experiment whose outcome was as uncertain as anything going on in its research
labs. Six months into a top-to-bottom review of its management organization,
IBM held a three-day discussion via the corporate intranet about the company’s
values. The forum, dubbed ValuesJam, joined thousands of employees in a debate
about the very nature of the computer giant and what it stood for.
Over the three days, an estimated 50,000 of IBM’s employees—including CEO
Sam Palmisano—checked out the discussion, posting nearly 10,000 comments
about the proposed values. The jam had clearly struck a chord.
But it was a disturbingly dissonant one. Some comments were merely cynical.
One had the subject line: “The only value in IBM today is the stock price.”
Another read, “Company values (ya right).” Others, though, addressed
fundamental management issues. “I feel we talk a lot about trust and taking
risks. But at the same time, we have endless audits, mistakes are punished and
not seen as a welcome part of learning, and managers (and others) are
consistently checked,” wrote one employee. “There appears to be a great
reluctance among our junior executive community to challenge the views of our
senior execs,” said another. “Many times I have heard expressions like, ‘Would
you tell Sam that his strategy is wrong!!?’” Twenty-four hours into the exercise,
at least one senior executive wanted to pull the plug.
But Palmisano wouldn’t hear of it. And then the mood began to shift. After a
day marked by critics letting off steam, the countercritics began to weigh in.
While acknowledging the company’s shortcomings, they argued that much of
IBM’s culture and values was worth preserving. “Shortly after joining IBM 18
years ago,” wrote one, “I was asked to serve on a jury. When I approached the
bench and answered [the lawyers’] questions, I was surprised when the judge
said, ‘You guys can pick whoever else you want, but I want this IBMer on that
jury.’ I have never felt so much pride. His statement said it all: integrity,
excellence, and quality.” Comments like these became more frequent, criticism
became more constructive, and the ValuesJam conversation stabilized.
The question of what was worth preserving and what needed to be changed
41
was at the heart of ValuesJam. In 1914—when the company was making
tabulating machines, scales for weighing meat, and cheese slicers—president
Thomas Watson, Sr., decreed three corporate principles, called the Basic Beliefs:
“respect for the individual,” “the best customer service,” and “the pursuit of
excellence.” They would inform IBM’s culture, and help drive its success, for
more than half a century.
By 2002, when Palmisano took over as CEO, much had happened to Big Blue.
In the early 1990s, the company had suffered the worst reversal in its history and
then, under Lou Gerstner, had fought its way back, transformed from a
mainframe maker into a robust provider of integrated hardware, networking, and
software solutions. Palmisano felt that the Basic Beliefs could still serve the
company—but now as the foundation for a new set of corporate values that could
energize employees even more than its near-death experience had. Looking for a
modern-day equivalent, Palmisano first queried 300 of his senior executives,
then quickly opened up the discussion, through a survey of over a thousand
employees, to get a sense of how people at all levels, functions, and locations
would articulate IBM’s values and their aspirations for the company. Out of this
research grew the propositions that were debated in ValuesJam.
Idea in Brief
It’s easy to fire up employees’ passion for change when your business is about
to go up in flames. Lou Gerstner knew this when he seized IBM’s helm in
1993 and saved the faltering giant by transforming it from a mainframe maker
into a provider of integrated solutions.
But how do you maintain people’s commitment to change when business is
good? You know your company must constantly adapt if it wants to maintain its
competitive edge. Yet without an obvious threat on the horizon, your
employees may grow complacent.
How to build a workforce of relentless change agents? Replace commandand-control with values- based management: Instead of galvanizing people
through fear of failure, energize them through hope and aspiration. Inspire them
to pursue a common purpose based on values they help to define. Ask them
what’s blocking them from living those values—and launch change initiatives
to remove obstacles.
As enduring companies like IBM have discovered, values-based management
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enables your people to respond quickly, flexibly, and creatively to a neverending stream of strategic challenges.
After—and even during—the jam, company analysts pored over the postings,
mining the million-word text for key themes. Finally, a small team that included
Palmisano came up with a revised set of corporate values. The CEO announced
the new values to employees in an intranet broadcast in November 2003:
“dedication to every client’s success,” “innovation that matters—for our
company and for the world,” “trust and personal responsibility in all
relationships.” Earthshaking? No, but imbued with legitimacy and packed with
meaning and implications for IBM.
To prove that the new values were more than window dressing, Palmisano
immediately made some changes. He called on the director of a major business
unit—e-business hosting services for the U.S. industrial sector—and charged her
with identifying gaps between the values and company practices. He bluntly told
his 15 direct reports that they had better follow suit. Another online jam was held
in October 2004 (this one informally dubbed a “logjam”) in which employees
were asked to identify organizational barriers to innovation and revenue growth.
Idea in Practice
To create your values-based management system:
Gather Employees’ Input on Values
Assess the strategic challenges facing your company. Propose values you
believe will help your firm meet those challenges. Collect employees’
feedback on your ideas.
Example: IBM CEO Sam Palmisano knew that the IT industry was
reintegrating: Customers wanted packages of computer products and
services from single firms. Despite its far-flung, diverse 320,000-strong
workforce, the company had to offer customized solutions at a single
price. To achieve the required cooperation, IBM needed a shared set of
values to guide people’s decision making.
Using feedback from top managers and employees, Palmisano’s team
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developed three working value statements—“Commitment to the customer,”
“Excellence through innovation,” and “Integrity that earns trust.” IBM posted
these on its intranet and invited employees to debate them. Over three days,
50,000 debated the merits of the value statements.
Analyze Employees’ Input
Examine employees’ input for themes.
Example: Many IBMers criticized the “integrity that earns trust”
statement as vague, outdated, and inwardly focused. They wanted more
specific guidance on how to behave with each other and with external
stakeholders.
Revise Your Values
Based on the themes in employees’ input, create a revised set of values.
Gather employees’ input again.
Example: Palmisano’s team revised the earlier value statements to read:
“Dedication to every client’s success,” “Innovation that matters—for our
company and for the world,” and “Trust and personal responsibility in all
relationships.” The team published the revised statements on the intranet
and once more invited feedback.
Identify Obstacles to Living the Values
Examine employees’ responses to identify what’s preventing your company
from living its agreed-upon values.
Example: IBMers praised the revised value statements— often in highly
emotional language—but wondered whether IBM was willing and able to
live those values. They understood the need to reintegrate the company
but lamented obstacles—such as frustrating financial controls—that
prevented them from serving customers quickly.
Launch Change Initiatives to Remove Obstacles
Initiate change programs that enable people to live the values.
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Example: IBM allocated $5,000 a year to individual managers to use, no
questions asked, in order to generate business, develop client
relationships, or respond to fellow IBMers’ emergency needs. A pilot
program run with 700 client-facing teams showed that they spent the
money intelligently. The program was expanded to all 22,000 IBM firstline managers. The initiative demonstrated to employees that IBM lives
by its values.
Although Palmisano, by his own account, is building on a strategy laid down
by Gerstner, the leadership styles of the two men are very different. Under
Gerstner, there was little expansive talk about IBM’s heritage. He was an
outsider, a former CEO of RJR Nabisco and an ex-McKinsey consultant, who was
faced with the daunting task of righting a sinking ship. In fact, he famously
observed, shortly after taking over, that “the last thing IBM needs right now is a
vision.” Palmisano, by contrast, is a true-blue IBMer, who started at the
company in 1973 as a salesman in Baltimore. Like many of his generation who
felt such acute shame when IBM was brought to its knees in the early 1990s, he
clearly has a visceral attachment to the firm—and to the hope that it may
someday regain its former greatness. At the same time, the erstwhile salesman is,
in the words of a colleague, “a results-driven, make-it-rain, close-the-deal sort
of guy”: not the first person you’d expect to hold forth on a subjective topic like
“trust.”
In this edited conversation with HBR senior editor Paul Hemp and HBR’s
editor, Thomas A. Stewart, Palmisano talks about the strategic importance of
values to IBM. He begins by explaining why—and how—hard financial metrics
and soft corporate values can coexist.
Corporate values generally are feel-good statements that have almost no effect
on a company’s operations. What made—what makes—you think they can be
more than this?
Look at the portrait of Tom Watson, Sr., in our lobby. You’ve never seen such a
stern man. The eyes in the painting stare right through you. This was not a soft
individual. He was a capitalist. He wanted IBM to make money, lots of it. But he
was perceptive enough to build the company in a way that would ensure its
prosperity long after he left the scene. His three Basic Beliefs successfully steered
this company through persistent change and repeated reinvention for more than 50
45
years.
An organic system, which is what a company is, needs to adapt. And we think
values—that’s what we call them today at IBM, but you can call them “beliefs” or
“principles” or “precepts” or even “DNA”—are what enable you to do that. They
let you change everything, from your products to your strategies to your business
model, but remain true to your essence, your basic mission and identity.
Unfortunately, over the decades, Watson’s Basic Beliefs became distorted and
took on a life of their own. “Respect for the individual” became entitlement: not
fair work for all, not a chance to speak out, but a guaranteed job and culturedictated promotions. “The pursuit of excellence” became arrogance: We stopped
listening to our markets, to our customers, to each other. We were so successful for
so long that we could never see another point of view. And when the market shifted,
we almost went out of business. We had to cut a workforce of more than 400,000
people in half. Over the course of several years, we wiped out the equivalent of a
medium-sized northeastern city—say, Providence, Rhode Island.
If you lived through this, as I did, it was easy to see how the company’s values
had become part of the problem. But I believe values can once again help guide us
through major change and meet some of the formidable challenges we face.
For instance, I feel that a strong value system is crucial to bringing together and
motivating a workforce as large and diverse as ours has become. We have nearly
one-third of a million employees serving clients in 170 countries. Forty percent of
those people don’t report daily to an IBM site; they work on the client’s premises,
from home, or they’re mobile. And, perhaps most significant, given IBM’s tradition
of hiring and training young people for a lifetime of work, half of today’s
employees have been with the company for fewer than five years because of recent
acquisitions and our relatively new practice of hiring seasoned professionals. In a
modest hiring year, we now add 20,000 to 25,000 people.
In effect, gradually repopulating Providence, Rhode Island!
Exactly. So how do you channel this diverse and constantly changing array of talent
and experience into a common purpose? How do you get people to passionately
pursue that purpose?
You could employ all kinds of traditional, top-down management processes. But
they wouldn’t work at IBM—or, I would argue, at an increasing number of twentyfirst-century companies. You just can’t impose command-and-control mechanisms
on a large, highly professional workforce. I’m not only talking about our scientists,
engineers, and consultants. More than 200,000 of our employees have college
degrees. The CEO can’t say to them, “Get in line and follow me.” Or “I’ve decided
46
what your values are.” They’re too smart for that. And as you know, smarter people
tend to be, well, a little more challenging; you might even say cynical.
But even if our people did accept this kind of traditional, hierarchical
management system, our clients wouldn’t. As we learned at IBM over the years, a
top-down system can create a smothering bureaucracy that doesn’t allow for the
speed, the flexibility, the innovation that clients expect today.
So you’re saying that values are about how employees behave when
management isn’t there, which it can’t be—which it shouldn’t be—given
IBM’s size and the need for people to make decisions quickly. You’re basically
talking about using values to manage.
Yes. A values-based management system. Let me cast the issue in a slightly
different light. When you think about it, there’s no optimal way to organize IBM. We
traditionally were viewed as a large, successful, “well-managed” company. That
was a compliment. But in today’s fast-changing environment, it’s a problem. You
can easily end up with a bureaucracy of people overanalyzing problems and
slowing down the decision-making process.
Think of our organizational matrix. Remember, we operate in 170 countries. To
keep it simple, let’s say we have 60 or 70 major product lines. We have more than
a dozen customer segments. Well, if you mapped out the entire 3-D matrix, you’d get
more than 100,000 cells—cells in which you have to close out P&Ls every day,
make decisions, allocate resources, make trade-offs. You’ll drive people crazy
trying to centrally manage every one of those intersections.
So if there’s no way to optimize IBM through organizational structure or by
management dictate, you have to empower people while ensuring that they’re
making the right calls the right way. And by “right,” I’m not talking about ethics and
legal compliance alone; those are table stakes. I’m talking about decisions that
support and give life to IBM’s strategy and brand, decisions that shape a culture.
That’s why values, for us, aren’t soft. They’re the basis of what we do, our mission
as a company. They’re a touchstone for decentralized decision making. It used to be
a rule of thumb that “people don’t do what you expect; they do what you inspect.”
My point is that it’s just not possible to inspect everyone anymore. But you also
can’t just let go of the reins and let people do what they want without guidance or
context. You’ve got to create a management system that empowers people and
provides a basis for decision making that is consistent with who we are at IBM.
How do the new values help further IBM’s strategy?
47
In two main ways. Back some 12 years ago, three-fifths of our business was in
computer hardware and roughly two-fifths was in software and services. Today,
those numbers are more than reversed. Well, if three-fifths of your business is
manufacturing, management is basically supervisory: “You do this. You do that.”
But that no longer works when your business is primarily based on knowledge. And
your business model also changes dramatically.
For one thing, people—rather than products—become your brand. Just as our
products have had to be consistent with the IBM brand promise, now more than
ever, so do our people. One way to ensure that is to inform their behavior with a
globally consistent set of values.
Second, the IT industry has continued to shift toward reintegration. We all know
the story of how the industry fragmented in the 1980s and 1990s, with separate
companies selling the processors, the storage devices, and the software that make
up a computer system—almost killing IBM, the original vertically integrated
computer company. Now customers are demanding a package of computer products
and services from a single company, a company that can offer them an integrated
solution to their business problems. This is a big opportunity for IBM. We probably
have a wider array of computer products and services and know-how than anyone.
But it’s also a challenge. How can we get our people in far-flung business units
with different financial targets and incentives working together in teams that can
offer at a single price a comprehensive and customized solution—one that doesn’t
show the organizational seams?
Companies usually face the issue of workforce integration after a huge merger.
We needed to integrate our existing workforce as a strategic response to the
reintegration of the industry. It won’t surprise you that I didn’t think the answer lay
in a new organizational structure or in more management oversight. What you need
to foster this sort of cooperation is a common set of guidelines about how we make
decisions, day in and day out. In other words, values.
And what happens when the strategy changes?
Ah, that’s why the right set of values is so important. There’s always going to be
another strategy on the horizon as the market changes, as technologies come and go.
So we wanted values that would foster an organization able to quickly execute a
new strategy. At the same time, we wanted values that, like Watson’s Basic Beliefs,
would be enduring, that would guide the company through economic cycles and
geopolitical shifts, that would transcend changes in products, technologies,
employees, and leaders.
48
How did IBM distill new values from its past traditions and current employee
feedback?
The last time IBM examined its values was nearly a century ago. Watson was an
entrepreneur, leading what was, in today’s lingo, a start-up. So in 1914, he simply
said, “Here are our beliefs. Learn them. Live them.” That was appropriate for his
day, and there’s no question it worked. But 90 years later, we couldn’t have
someone in headquarters sitting up in bed in the middle of the night and saying,
“Here are our new values!” We couldn’t be casual about tinkering with the DNA of
a company like IBM. We had to come up with a way to get the employees to create
the value system, to determine the company’s principles. Watson’s Basic Beliefs,
however distorted they might have become over the years, had to be the starting
point.
After getting input from IBM’s top 300 executives and conducting focus groups
with more than a thousand employees—a statistically representative cross-section
—we came up with three perfectly sound values. [For a detailed description of
how IBM got from the Basic Beliefs to its new set of values, see the sidebar
“Continuity and Change.”] But I knew we’d eventually throw out the statements to
everyone in the company to debate. That’s where ValuesJam came in—this live,
companywide conversation on our intranet.
What was your own experience during the jam? Did you have the feeling you’d
opened Pandora’s box?
I logged in from China. I was pretty jet-lagged and couldn’t sleep, so I jumped in
with postings on a lot of stuff, particularly around client issues. [For a selection of
Palmisano’s postings during the ValuesJam, see the sidebar “Sam Joins the Fray.”]
And yes, the electronic argument was hot and contentious and messy. But you had to
get comfortable with that. Understand, we had done three or four big online jams
before this, so we had some idea of how lively they can be. Even so, none of those
could have prepared us for the emotions unleashed by this topic.
You had to put your ego aside—not easy for a CEO to do—and realize that this
was the best thing that could have happened. You could say, “Oh my God, I’ve
unleashed this incredible negative energy.” Or you could say, “Oh my God, I now
have this incredible mandate to drive even more change in the company.”
When Lou Gerstner came here in 1993, there was clearly a burning platform. In
fact, the whole place was in flames. There was even talk of breaking up the
company. And he responded brilliantly. Here’s this outsider who managed to
49
marshal the collective urgency of tens of thousands of people like me to save this
company and turn it around: without a doubt one of the greatest saves in business
history. But the trick then wasn’t creating a sense of urgency—we had that. Maybe
you needed to shake people out of being shell-shocked. But most IBMers were
willing to do whatever it took to save the company, not to mention their own jobs.
And there was a lot of pride at stake. Lou’s task was mostly to convince people that
he was making the right changes.
Once things got better, though, there was another kind of danger: that we would
slip back into complacency. As our financial results improved dramatically and we
began outperforming our competitors, people—already weary from nearly a decade
of change—would say, “Well, why do I have to do things differently now? The
leadership may be different, but the strategy is fundamentally sound. Why do I have
to change?” This is, by the way, a problem that everyone running a successful
company wrestles with.
So the challenge shifted. Instead of galvanizing people through fear of failure,
you have to galvanize them through hope and aspiration. You lay out the opportunity
to become a great company again—the greatest in the world, which is what IBM
used to be. And you hope people feel the same need, the urgency you do, to get
there. Well, I think IBMers today do feel that urgency. Maybe the jam’s greatest
contribution was to make that fact unambiguously clear to all of us, very visibly, in
public.
Continuity and Change
IBM’S NEW VALUES GREW OUT OF A LONG TRADITION.
In 1914, Thomas Watson, Sr.,
the founder of the modern International Business Machines Corporation, laid out
three principles known as the Basic Beliefs:
•
Respect for the individual
•
The best customer service
•
The pursuit of excellence
Although these beliefs played a significant role in driving IBM’s success over
most of the twentieth century, they eventually were subsumed—and, in effect,
redefined—by a sense of entitlement and arrogance within the organization. That,
according to CEO Sam Palmisano, contributed to the company’s failure to respond
50
to market changes in the early 1990s and to its near demise.
In February 2003, just under a year after taking over as CEO, at a meeting of
IBM’s top 300 managers, Palmisano raised the idea of reinventing the company’s
values as a way to manage and reintegrate the sprawling and diverse enterprise. He
put forth four concepts, three of them drawn from Watson’s Basic Beliefs, as
possible bases for the new values:
•
Respect
•
Customer
•
Excellence
•
Innovation
These were “test marketed” through surveys and focus groups with more than
1,000 IBM employees. The notion of “respect” was thrown out because of its
connotations of the past. It was also decided that statements rather than just words
would be more compelling.
Out of this process grew the three proposed values discussed during the July
2003 online forum, ValuesJam:
•
Commitment to the customer
•
Excellence through innovation
•
Integrity that earns trust
Using a specially tailored “jamalyzer” tool—based on IBM’s e-classifier
software, but turbocharged with additional capabilities designed to process
constantly changing content—IBM analysts crunched the million-plus words posted
during the ValuesJam. Some themes emerged. For example, many people said that a
silo mentality pitted the business units against one another, to the detriment of IBM
as a whole. Several people characterized this as a trust issue. But the proposed
value “integrity that earns trust” was criticized as being too vague. Some thought it
was just another way of saying “respect for the individual,” one of the original
Basic Beliefs that many now viewed as outdated. And the notion of trust was seen
as being too inwardly focused—management trusting its employees—and not
51
prescriptive enough in terms of how employees should behave with each other or
with parties outside the company.
Drawing on this analysis, the results of pre- and post-jam surveys, and a full
reading of the raw transcripts, a small team, with input from Palmisano, arrived at a
revised set of new corporate values:
•
Dedication to every client’s success
•
Innovation that matters—for our company and for the world
•
Trust and personal responsibility in all relationships
These were published on the company intranet in November 2003.
What were the chief points of debate—or contention?
There was actually remarkable agreement on what we all value. The debate, as it
turned out, wasn’t over the values themselves so much. The debate was about
whether IBM today is willing and able to live them.
For instance, people seemed to understand the need to reintegrate the company,
but there were complaints—legitimate complaints—about things that are getting in
the way. People would describe extremely frustrating situations. They’d say
something like: “I’m in Tokyo, prototyping software for a client, and I need a
software engineer based in Austin right now to help in a blade server
configuration. But I can’t just say, ‘Please come to Tokyo and help.’ I need to get a
charge code first so I can pay his department for his time!”
There’s a collective impatience that we’ve been tapping into to drive the change
needed to make IBM everything that all of us aspire for it to be. I’m convinced that
we wouldn’t have gotten to this point if we hadn’t found a way to engage the entire
IBM population in a genuine, candid conversation.
Sam Joins the Fray
52
was in China on business during ValuesJam, and he
logged on from there. Following are some of his comments (typos included) on a
number of topics raised by employees during the online forum:
IBM CEO SAM PALMISANO
YES,
values matter!!!!! (6 reply)
Samuel J. Palmisano 29 Jul 2003 20:00 GMT
Good discussion about the need for values/principles/belifes, etc. people can be
very cynical and sarcastic about this kind of topic,but I appreciate the thoughtful
constructive comments I’m seeing. Personaly, I believe “values” should embrace a
company’s broader role in the world —with customers, society, culture,etc. - as
well as how its people work together.. I hope this Jam elevates IBMs ambitions
about its mission inthe 21st century.. WE have a unique opprtunity for IBM to set
the pace for ALL companies, not just the techs.
doing the right thing for customers... (21 reply)
Samuel J. Palmisano 29 Jul 2003 20:07 GMT
Early in my career when I was in the field in Baltimore,one of our systems failed
for a healthcare customer. The customer went to manual processes,but said they
would start losing patients within hours if the system couldnt be fixed. The branch
mgr called one of our competitors and orderd another system. so two teams of
IBMERS worked side by side.. one to fix the system, the others to bring up the new
one. the mgr never asked Hq what to do.. it was a great lesson in how far this
company will go to help a customer in time of need. btw, we fixed the system in
time.
integrity/trust in ALL our relationships matter!!!! (44 reply)
Samuel J. Palmisano 29 Jul 2003 20:12 GMT
very interesting discussion... one thing I’m noticing, and it was in the broadcast
feedback too: not too many of you are talking about integrity and trust when it
comes to our OTHER relationships that are key to IBMs success—customers,
communities where we live, owners of the company etc. any thoghts on why thats
so? maybe we’re too inwardly focused?
a world without IBM???? (35 reply)
53
Samuel J. Palmisano 29 Jul 2003 20:20 GMT
No IBM? the industry would stop growing because no one would invent anything
that ran for more than THREE MINUTES.. no IBM means no grownups ... no IBM
means no truly global company that brings economic growth, respect progress to
societies everywhere... no iBM means no place to work for hundreds of thousands
of people who want more than a job, they want to ,MAKE A DIFFERENCE in the
world.
suggestion for Sam (9 reply)
Samuel J. Palmisano 29 Jul 2003 20:25 GMT
steve, you make good points about how/when we win... we can blow up more
burecracy if we all behave like mature adutls and take into account ALL OF THE
INTERESTS of IBm FIRST.. customers, employees, shareholders, doing whats
right for the LONG TERM intersts of the company. mgrs have an importrant role to
play in encouraing this kind of behavior... you have my support.
By the way, having a global, universally accessible intranet like ours certainly
helps, but the technology isn’t the point. I think we would’ve found a way to have
this companywide dialogue if the Web didn’t exist. [For an explanation of how the
jam worked, see the sidebar “Managing ValuesJam.”]
What happened after the jam?
Well, we got a mountain of employee comments. The team analyzed all of it, and it
was clear that the proposed value statements needed to change to reflect some of
the nuances and emotion people expressed. So, drawing on this analysis, along with
other employee feedback, a small team settled on IBM’s new corporate values.
The first value is “dedication to every client’s success.” At one level, that’s
pretty straightforward: Bring together all of IBM’s capability—in the laboratory, in
the field, in the back office, wherever—to help solve difficult problems clients
can’t solve themselves. But this is also a lot more than the familiar claim of
unstinting customer service. “Client success” isn’t just “the customer is always
right.” It means maintaining a long-term relationship where what happens after the
54
deal is more important than what happens before it’s signed. It means a persistent
focus on outcomes. It means having skin in the game of your client’s success, up to
and including how your contracts are structured and what triggers your getting paid.
The second is “innovation that matters—for our company and for the world.”
When employees talked about IBM making a difference in the world, they included
more than our work of inventing and building great products. They talked about
how their work touches people and society, how we can help save lives—say,
through our cutting-edge work with the Mayo Clinic or by helping governments
fight terrorism with our data technology. This kind of innovation is a major reason
we are able to attract great scientists. They can do cool stuff and maybe make more
money in Silicon Valley—for a while, anyway—but they can do work that actually
changes business and society at IBM. And it’s also about what I mentioned before:
a continually experimental attitude toward IBM itself. Over most of our 90 years,
with the exception of that one period when we became arrogant and complacent,
this company never stopped questioning assumptions, trying out different models,
testing the limits—whether in technology or business or in progressive workforce
policies. Employees reminded us that those things are innovations that matter at
least as much as new products.
The third value is “trust and personal responsibility in all relationships.”
There’s a lot in that statement, too. Interestingly, the feedback from employees on
this value has focused on relationships among people at IBM. But we’re also
talking about the company’s relationships with suppliers, with investors, with
governments, with communities.
We published the values in their final form—along with some elaboration on
them and some direct employee postings from the jam—in November 2003. Over
the next ten days, more than 200,000 people downloaded the online document. The
responses just flooded in, both in the form of postings on the intranet and in more
than a thousand e-mails sent directly to me, telling us in often sharp language just
where IBM’s operations fell short of, or clashed with, these ideals. Some of the
comments were painful to read. But, again, they exhibited something every leader
should welcome: People here aren’t complacent about the company’s future. And
the comments were, by and large, extremely thoughtful.
Managing ValuesJam
before with jam sessions—relatively unstructured
employee discussions around broad topics—both on the corporate intranet and in
face-to-face off-site brainstorming sessions. But the 72-hour ValuesJam, held in
July 2003, was the most ambitious, focusing as it did on the very nature and future
IBM HAD EXPERIMENTED
55
of IBM.
One thing was clear: You wouldn’t be able to orchestrate a forum like this, the
verbal equivalent of an improvisational jam session among jazz musicians. In the
words of CEO Sam Palmisano, “It just took off.” But, much like a musical jam, the
dialogue was informed by a number of themes:
Forum 1. Company Values
Do company values exist? If so, what is involved in establishing them? Most
companies today have values statements. But what would a company look and act
like that truly lived its beliefs? Is it important for IBM to agree on a set of lasting
values that drive everything it does?
Forum 2. A First Draft
What values are essential to what IBM needs to become? Consider this list: 1.
Commitment to the customer. 2. Excellence through innovation. 3. Integrity that
earns trust. How might these values change the way we act or the decisions we
make? Is there some important aspect or nuance that is missing?
Forum 3. A Company’s Impact
If our company disappeared tonight, how different would the world be tomorrow?
Is there something about our company that makes a unique contribution to the
world?
Forum 4. The Gold Standard
When is IBM at its best? When have you been proudest to be an IBMer? What
happened, and what was uniquely meaningful about it? And what do we need to do
—or change—to be the gold standard going forward?
What did you do with this feedback?
56
We collected and collated it. Then I printed all of it out—the stack of paper was
about three feet high—and took it home to read over one weekend. On Monday
morning, I walked into our executive committee meeting and threw it on the table. I
said, “You guys ought to read every one of these comments, because if you think
we’ve got this place plumbed correctly, think again.”
Don’t get me wrong. The passion in these e-mails was positive as well as
negative. People would say, literally, “I’m weeping. These values describe the
company I joined, the company I believe in. We can truly make this place great
again. But we’ve got all these things in our way... .” The raw emotion of some of
the e-mails was really something.
Now, if you’ve unleashed all this frustration and energy, if you’ve invited
people to feel hope about something they really care about, you’d better be
prepared to do something in response. So, in the months since we finalized the
values, we’ve announced some initiatives that begin to close the gaps.
One I have dubbed our “$100 million bet on trust.” We kept hearing about
situations like our colleague in Tokyo who needed help from the engineer in Austin,
cases in which employees were unable to respond quickly to client needs because
of financial control processes that required several levels of management approval.
The money would usually be approved, but too late. So we allocated managers up
to $5,000 annually they could spend, no questions asked, to respond to
extraordinary situations that would help generate business or develop client
relationships or to respond to an IBMe...
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