1
Asda
Asda, the grocery store chain that Archie Norman had just been hired to lead,
teetered on the edge on bankruptcy and ruin. While Asda had enjoyed a long run of
success in the United Kingdom, upscale competitors and down-market deep discounters had sharply eroded its customer base. Norman, an outsider to Asda who
had never run any retailing operation, believed that Asda could not afford the luxury
of piecemeal or incremental improvement. Everything about the organization - from
the way they purchased and displayed products to the way store managers interacted with shop-floor employees - would have to change. Everything.
Company Background
With 65,000 employees in 205 Asda stores and another 2,000 at corporate
headquarters, Asda was the fourth largest grocery store chain in its home country.
Asda enjoyed annual sales of $6 billion,1 and claimed 8 percent of the supermarket
business, ranking fourth in market share.
Starting in the late 1960s, Asda pioneered within the country the concept of
large supermarkets located outside of downtown areas with expansive parking lots
and low prices. Flourishing particularly in working class areas, Asda became known
as a blue-collar store, specializing in low prices in a warehouse-like atmosphere (“Pile
it high and sell it cheap” was a phrase commonly associated with this type of operation). The demographics of their customer base was decidedly “down market.” In
that niche, Asda was quite successful, operating without any real competition. The
larger grocery store chains vied for more up-scale (i.e., wealthy) customers, and
simply couldn’t compete with Asda on price.
Asda problems began when top management embarked on two equally disastrous paths. First, they diverted much of the profit from the grocery operations into
non-food acquisitions: retail operations like furniture and carpeting. And second,
management moved to change their customer base from blue-collar to more up-scale
shoppers. As part of that up-scale strategy, Asda moved out of their traditional bluecollar strongholds into wealthier suburban locations. That move had two negative
effects:
1. In the wealthy suburbs it placed them in competition with chains not burdened
with the reputation of being blue-collar warehouse stores.
2. In their traditional working-class areas, they allowed competitors to steal market
share from the very blue-collar base that Asda seemed to be abandoning.
Top management exacerbated the problem by spending lavishly on themselves: corporate jets, high style corporate offices, and the like. Soon Asda products
were actually pricier than its competitors. Asda began to spiral downward. While
the company borrowed money to expand into new markets and open new stores,
same-store sales declined and overall growth slowed. In response, Asda board of
directors fired its chief executive and brought in Archie Norman to turn Asda around.
1
All figures are given in equivalent US dollars.
2
Enter Archie Norman
Thirty-seven year old Archie Norman was a Harvard Business School MBA who
joined the McKinsey consulting organization after graduation to work in their retail
division. From McKinsey he moved to a large retail operation where he served as
chief financial officer. Norman arrived at Asda with no specific experience in the grocery business, and no general management experience aside from his graduate
school training.
What Norman found when he arrived at Asda was complete demoralization of
the work force; a highly politicized central headquarters divided into factions based
on who you supported from the previous regime; people caught up in their “chimneys” - operations people didn’t talk to the trading people, and nobody listened to
the marketing people. It was a place, noted one observer, completely bereft of any
notion of where it was headed or how it might weather the crisis. And that crisis was
deeper and more profound than Norman had expected:
We were nearly $2 billion in debt and thought we would be in breach of our
loan covenants shortly. We had done a stock issuance just months before I
arrived and it turned out all the projections made at the time were erroneous.
Our sales were running at 2 percent below the industry like for like, and the
trend was heading south. We had, if anything, worse value than our competitors. And while everyone was very loyal about it, morale was actually quite
poor.
Norman inaugurated his intervention by reaching an understanding with his
Board of Directors. The turnaround would not happen overnight, they agreed. If the
Board would tolerate Norman’s investments in renewing the chain, he would deliver
significant return by the end of the third year:
I told the stockholders and the market analysis, that I had a three year plan,
that Asda should be returned to profitability and growth within that time
frame. The stockholders agreed to let me make short-term sacrifices for longterm profitability.”
Building a Top Team
Norman immediately set out to attract other outsiders to the top management
team. Over a 6 month period, he replaced four of his five direct reports,2 creating a
team that consisted of:
Allen Leighton, vice president, marketing
Phil Cox, chief financial officer
Tony Campbell, vice president, trading
Jonathan Priestly, vice president, operations
Of his 4 direct reports, only Campbell was a holdover from the previous Asda regime.
His past position had been vice president of operations. None of the new hires had
any previous retail experience.
2
Before walking in the door on his first day, Norman had decided to fire the current
CFO and had already reached an agreement with Phil Cox to join the company
3
Among his direct reports, Allen Leighton was the first among equals. He was
friendly, outgoing, dynamic, expansive, bright, and creative - a complement to the
generally more cerebral and contained Norman. Top managers suggested that nothing of significance occurred in the organization without the direct involvement and
approval of Norman and / or Leighton.
The First Six Months
Norman felt his first task was to pull the organization back from disaster.
“Archie had to convince people that there was a problem,” said Phil Cox, “that our
poor performance wasn’t just a momentary hiccup.” In speech after speech, to employees as well as investors, Norman laid out the details of what he referred to as
Asda’ “dark moment.” He ignored frequent advise that he soften his blunt message
of “gloom and doom.” A regional manager shook his head after one such speech,
admitting:
None of us understood how serious our financial difficulties were. When
Archie brought all this out into the open, it finally dawned on people just how
close to the edge we’d been. It became clear that we couldn’t just wave a
magic wand and make all things right.
In the first six months of Norman’s tenure, all of the top management team
took up residence in a local hotel. They were often joined by Chrispen Tweddle, a
consultant hired by Norman with considerable retail experience. During the day, Cox
focused on Asda financial crisis3, while Norman toured the stores, talking to employees at all levels and taking copious notes. Then the team would sit up together until
past midnight talking about a vision for a new Asda.
Every discussion was based on the shared assumption that the total organization was dysfunctional. Said Norman:
We wouldn’t survive if we simply created a little change. We had to revitalize
the entire organization. We had to take the organization paradigm, which was
over here, and move it over there. We assumed that however the organization worked when we got here was wrong.
In particular, the team believed they needed to address Asda’s stove-piped functional
culture, which made company-wide collaboration a virtual impossibility. Observed
Norman:
The whole place was dysfunctional. The top management never met together
except once a month at a board meeting. They never talked from week to
week. And the whole organization ran down these functional pipelines.
Renewal
The process of transformation, which the top team came to refer to as “renewal,” would occur within the 205 stores. But the team provided guidance to the
3
A number of steps were taken to raise money. Non-food operations were either
sold off or, failing that, shut down; headcount at corporate headquarters was reduced by 30%; in-store middle manager positions were cut by 10%; and an 18
month pay freeze was initiated for all employees.
4
renewal process in three forms: a statement of corporate strategy, an articulation of
company values, and a blue-print for what came to be known as the Asda Way of
Working.
Strategy Change. Norman called on experts from the McKinsey consulting
organization to help him and his team formulate a strategic position. Their deliberations started with gaining a thorough understanding of the grocery industry and Asda
position in it. They then formulated a strategy statement: “We will supply the weekly shopping needs of ordinary working families.”
Culture Change. The team realized early on that they would have to do
more than change the old Asda culture; they would have to shatter it, and then rebuild it from the ground up. To set the parameters for that new culture, they drew
up a statement of company values (see Exhibit 1), plus a set of operational concepts
known as the Asda Way of Working. Store-based renewal would flow from a few key
concepts: greater autonomy to store management in making operational decisions;
and, within the stores, self-managed autonomous teams focusing on particular product lines like produce, bakery goods, etc.
In a speech laying out the Asda Way of Working to store managers, Norman
said, “I see a day when our stores consist of clusters of businesses, each with their
own profit-and-loss responsibilities.” A store manager, who had been with Asda in
the pre-Norman era, reflected on the message he heard concerning the Asda Way of
Working: “What they told me was to involve everybody in everything. As long as
you’re doing that, you’re going to get the best out of people.”
This sense of empowerment and responsiveness "will be a unique source of
advantage," insisted Norman, "against the militarized and straight-jacketed competition.”
Moving Renewal into the Stores
With his top management team in place to provide a general sense of direction, Norman turned his attention to the 205 stores. While Norman had created a
new top management team, he retained virtually all of the next level of management
- the 16 managers of key corporate departments who reported directly to the top
team - through the first year. To eliminate the possibilities of resistance to change
from that key group, Norman altered the job responsibilities of each and every manager:
I changed everybody's job a little. Of all the people who stayed, nobody had
quite the same job. Some even changed completely. Let me give you an example. I took the fellow who headed store design in the past and gave him a
completely new job. I knew that the store design would have to change drastically, and I couldn't have him worry about whether the new design reflected
badly on decisions he had made in the past.4
Expanding on his belief in cross-functional solutions to organizational problems, Norman created 10 Positive Action Groups to deal with significant, strategic
issues. The teams focused on product lines such as produce, confectioneries, and
toiletries.
4
By the end of 5 years Norman had replaced 13 of the managers at this level.
5
Store-Based Renewal
As Norman approached rolling renewal out into the 205-store Asda chain, he
determined that the required physical overhaul of the stores would be accompanied
by the culture change embodied in the Asda Way of Working:
To do what we were trying to do, we had to fracture the culture each time, to
really break it. The physical change was a good catalyst to break it. The
people saw this an event around which we could change everything.
Overseeing and coordinating this “fracturing” of store culture would be a 20
person cross-functional Renewal Team. Their explicit charge was “to start with a
clean sheet of paper” in imagining and then creating the “store of the future.” CFO
Phil Cox described the make-up of that team:
We brought together the best internal people and had them working with consultant Chrispen Tweddle and with consultants from McKinsey. Tweddle
helped the team learn how to listen to customers, while the McKinsey consultants offered data on what was happening out there in the industry. The team
members represented all the different functions and different management
levels as well.
To underscore Norman's direct and immediate interest in renewal, he met weekly
with the team.
One of the first team decisions was to target three stores over a six month
period. The experience gained from this small target group would then be diffused to
40 stores in the following 12 months. The Renewal Team would completely redesign
the three pilot stores “from the ground up.” Roles and responsibilities of all store
employees, from the store manager to the managers of the multiple departments
within the stores, down to the part-time clerks would be examined. The accompanying physical revamp allowed the Renewal Team to completely alter the image of the
stores: emphasizing, for instance, fresh produce and bakery products in a clean, spacious environment.
Five years after assuming the helm at Asda, Archie Norman moved from Chief
Executive to Chairman of the Board, turning the Chief Executive duties over to Allen
Leighton. Starting in the third year of Asda’ turnaround effort, Norman had decoupled the physical revamp of the stores from the cultural transformation. Adoption of
the Asda Way of Working became the responsibility of the store managers. Only
stores that proved to Asda’ management team that they had successfully adopted
the Asda Way of Working would receive the infusion of cash necessary for the physical revamp. The top management team counted on the 16 regional managers (the
management layer between the stores and corporate) to spread best practice across
the chain.
As Norman ascended to the chairmanship, he could point to numerous milestones of success.
overall sales had increased 33% while same-store sales were increasing at 9%
(compared to 1-2% for competitors)
the stock price had climbed 300%
6
Asda was the fastest growing retailer in the country
over 120 stores had been renewed
Two years after Leighton’s ascension to the Chief Executive position, U.S. discount giant Wal-Mart purchased Asda for approximately $11 billion. Leighton remained as Chief Executive while also assuming control of Wal-Mart’s European operations. Asda continued to grow, opening 12 new stores, adding 6,000 employees,
and boosting its internet-based home shopping service.
7
Exhibit 1
Statement of values:5
1. Equality. Our staff are our colleagues and our colleagues are our staff. We
need to start treating our people differently. Toughness and hierarchy must not get
in the way of our need to develop people and involve them in our business: quite
simply to make Asda a better place to work. The time has come to recognize that
the world is changing. We cannot deliver better sales and better service without our
staff. They demand respect. They want involvement. The are our competitive advantage. But they will only be our competitive advantage if they think of Asda as the
best place to work because of what we can offer them, and I don't mean money.
Paying people money is the easiest thing in the world, but it is not management. We
must offer them a better place to work they can feel part of, a place they can believe
in.
And to reinforce the change, I want to ensure today that we burn the symbols
of the past. Let's start with our language: we talk about staff as if they are a different breed from management. We are all in this together, and these hierarchical distinctions must go. From now on there is one word and one word only for people employed at Asda. It is colleagues.
2. Sales. Selling will be a universal Asda responsibility. Every one of our
65,000 employees is here to help the selling effort. Asda is a natural selling company. It is what we used to be about and it is what we will be about again. It fits with
the idea of how we will run our stores and it fits with the spirit of the company. We
have to get away from the idea that grocery is a commodity. There is no such thing
as a commodity in our business. Selling and service can make anything special.
It is vital to remember that selling is the only real motivation in retail. There
is no fun in pushing paper. There is no fun in just enforcing disciplines unless they
are going to drive the sales. That is why I want every one of our 65,000 colleagues
to know that selling is the most important thing we do. And I want every colleague
in every area of the business to know how the sales are going in his or her store or
trading area and for the company as a whole.
3. Service. Through selling we will serve our customers better. We need not
just good but legendary customer service, service that constantly amazes out customers. How do we achieve this? The only way to do it is to recruit the right staff
and motivate them to sell.
4. Value. What we sell is better value. We can believe in it because by selling it we are doing our customers a favor.
5. Cost. We hate waste of any kind. Waste is not an allowable option. We
must reduce waste - to be lower cost, to provide better value.
6. Improvement. Our job is to improve the business. Everyone is here to
help improve the business every day and in every way. That's the one job description that really matters. This is your obligation and your duty. I want to see every
aspect of our business moving forward. We have lost the habit of innovation in this
5
This statement of Asda Values comes from a speech delivered by Norman to
regional managers.
8
company. Why? Because innovation is risky. If you innovate, you make mistakes.
We got into the habit when mistakes were made of looking for a head in the basket.
Let me be clear: if you are not making mistakes, you are not innovating. And that's
the time you should worry.
Learning to lead:
Real leaders say, “I don’t have the answer.”
As the downfalls of CEOs in the past three years
illustrate, staying the course can lead to disaster.
The times are certainly challenging, but today’s
leader can succeed only be creating and
promoting an environment in which he or she –
and managers – learns to respond in new ways,
in effect unlearning traditional responses,
especially the one that sees the CEO say, “No,
problem. I’ll fix it.”
between technical and adaptive work. The first
distinction provides a framework for developing
leadership strategy, given one’s placement in a situation,
with or without authority. The second points to the
differences between expert and learning challenges, and
the different approaches and operating styles that each
requires. Clarifying these two distinctions enables us
to understand the classic error that people in top
positions of authority often make, and that makes them
failed leaders: They treat adaptive challenges as if they
were technical problems.
By Ronald A. Heifetz and Donald L. Laurie
Ronald A. Heifetz is a principal of Cambridge
Leadership Associates and the co-founder of the
Center for Public Leadership, John F. Kennedy
School of Government, Harvard University. He is
also co-author of Leadership On the Line: Staying
Alive Through the Dangers of Leading (Harvard
Business School Press, 2002).
In mistaking technical problems for adaptive
challenges, we really are looking for the wrong kind of
leadership. We call for someone with answers,
decisiveness, strength and a map of the future, someone
who knows where we ought to be going—in short,
someone who can make difficult problems simple. But
instead of looking for saviours, we should be looking
for leaders who can move us to face the problems for
which there are no simple, painless solutions—the
challenges that require us to learn new ways.
Donald L. Laurie is Chief Executive of Oyster
International, a Boston-based management
consultancy, and the author of The Real Work of
Leaders, Perseus Books. With Ronald A. Heifetz,
he is co-author of the article, “The Work of
Leadership”, a Harvard Business Review Classic,
on which this article is based.
In our work with both large multinationals and small
start-ups, we have seen a very strong tendency for
leaders to focus on the technical aspects of work required
to solve a problem — that is, the work that they either
know how to do because there are prescriptions for doing
it, or for which they can hire experts to find a solution.
We no longer live in a world where we can expect
authorities to know the answers. While businesses today
face challenges that can be met by applying technical
expertise, they also face challenges that require many
people in the organization to learn new habits, attitudes
and values. These are adaptive challenges, problems for
which there are no ready-made solutions, and problems
that themselves challenge leaders to learn and develop
untraditional, but decidedly dynamic approaches to
improving their organization’s performance.
.
Effective leadership demands that we make two
distinctions — between leadership and authority, and
Yet management cannot solve strategic or operating
problems without undertaking adaptive work, that for
which no satisfactory response has yet been developed,
no plan of action specified, no technical expertise shown
to be fully adequate. These are problems that require
new adaptations and the learning of new organizational
roles. Adaptive work is challenging because it requires
that we relinquish some of our deeply held beliefs and
learn new skills where old ones are insufficient.
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Ivey Business Journal January/February 2003
We believe that the prevailing notion that leadership
consists of having a vision and aligning people with it
is bankrupt because it continues to treat adaptive
situations as if they were technical: The authority figure
is supposed to divine “where we’re going.” Leadership
is reduced to a combination of omniscience and
salesmanship. But adaptive problems are often
intractable and not amenable to solutions that company
“leaders” issue from on high; instead, they require
disseminated experimentation and disseminated
responsibility. For example, the lifting of protective
tariffs generates an adaptive challenge that requires
leaders to change a great number of structures and
internal processes at the same time that they refashion
their strategies. None of this will work unless both
managers internalize the need for change and the
changes themselves and workers, who must, in the end,
implement the new way.
as fast as others in the industry. The future looked
uncertain. In spite of those trends, KPMG had a record
financial year in 1994, commanded its clients’ respect,
and stood as one of the best-managed companies in the
Netherlands.
Ruud Koedijk, chairman of KPMG Netherlands,
believed the company needed to rethink its future and
develop a strategy to reinvent the firm, becoming “a
class apart.” With a new architecture, KPMG would
migrate from audit to assurance, from operations
consulting to a focus on strategy and ambition, from
p r o c e s s
reengineering
to
helping
instead of
clients develop
looking for
and manage
saviours, we
competencies,
should be
and from skilllooking for
based training
leaders who can
to
creating
move us to face
organizational
learning.
the problems
Under this new
for which there
organizational
are no simple,
architecture,
painless
K P M G
solutions—the
identified six
challenges that
major
new
require us to
business
opportunities.
learn new ways
In this article, we describe five principles that leaders
can use to mobilize people to do adaptive work:
1. Identify the adaptive challenge.
2. Regulate distress.
3. Maintain disciplined attention.
4. Give the work back to people.
5. Protect leadership below.
These principles are interdependent. Managers cannot
subscribe to one and exclude the others. They cannot
say, “We will accept every one but not give the work
back to people,” or “Fine, but we can’t afford to protect
dissidents.” Adaptive work is difficult because it asks
each manager to tackle business problems, hold people’s
attention to the tough work issues, and be present for
everyone as the work goes forward.
All of that was the good news. The “bad news” came
in the form of self-doubt: “Are we capable of doing
this?” KPMG’s board acknowledged that the
organization usually had problems accommodating
change and that it had a hard time discovering and
exploiting new possibilities. The unstated ground rule
was that no one should trespass on another individual’s
turf. Accordingly, people either were unwilling or
unable to collaborate with individuals from other units.
KPMG was not a team of 300 partners pulling together.
1. Identify the Adaptive Challenge
Many businesses risk extinction because they cannot
learn to adapt to a new, adaptive challenge quickly
enough. Clearly, the first task in adaptation is to spot
the challenge and identify its implications for the
organization. The following illustrations describe such
a case.
As strategy development proceeded, each individual
felt more inclined to assert a favourite solution to a
problem rather than listen to the underlying assumptions
of a competing perspective. At the same time, people
avoided conflict; they simply did not want to discuss
Clients of KPMG Netherlands had come to see
auditing as a commodity and began to negotiate
substantially reduced fees. At the same time, KPMG’s
operations-focused consulting business was not growing
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Ivey Business Journal January/February 2003
those far-reaching problems. Senior partners on the
strategy integration team and cross-functional groups
themselves grew more dysfunctional. Although the
problem could be described, it became clear that these
good people did not know how to solve the systemic
problems they faced.
Fourth, at KPMG, the executive team’s competing
values and norms impeded people below from
collaborating across functions and units. No one wanted
to make any concessions. Thus, the top team had to do
its share of adaptive work. If the top team cannot work
its internal conflicts productively and therefore present
more adaptive behaviours that can be emulated, the rest
of the organization will languish.
To once again make KPMG a smoothly functioning
organization, Koedijk had to do four things. First, he
had to mobilize a team to assess the environment and
discern the nature of the threat: Did it represent a
Respect for conflict, starting at the top, allows people
technical or an adaptive challenge? Would adjustments
to learn from diverse perspectives. When each person
within the basic routines suffice to sustain success, or
defends a personalized, and therefore partial, view of
would people throughout the company have to learn new
the systemic challenges that the group faces, then
ways of doing business, develop new competencies, and
leadership is rendered ineffective. The organization
work collectively?
loses any chance
Koedijk had to get
to
harness
Figure
1
people to grasp the
creativity and
difference between
rigorously assess
Technical Problem or Adaptive Challenge ?
technical and adaptive
the
business
Disequilibrium
work, and shift modes
environment.
of operating.
2.
Regulate
distress
Second, he and his
imit of Tolerance
Tolera
Productive
executive team had to
Range of
People can learn
identify the relevant
Distress
only
so much so
community of interests
Threshold
of Learning
fast, both to
and key stakeholders.
absorb the losses
What changes in
and to take on
values,
beliefs,
n
e
w
Time
attitudes,
or
responsibilities.
behaviours would
We need to
promote progress on Source: Leadership On the Line: Staying Alive Through the Dangers of
prioritize issues
these issues? What Leading (Harvard Business School Press, 2002).
and structure the
would be the losses?
process. Experienced cooks know that they have to heat
Which units would have to shift priorities, resources,
the pressure cooker gradually to avoid an explosion.
and relinquish some power?
As depicted in fig. 1, every organization has a productive
range of distress and a limit to its capacity to tolerate
Third, Koedijk and his team recognized that the initial
disruption. A key leadership task is to keep people’s
conflicts were merely symptoms of distress that required
attention and responsibility focused on the tough
adaptive solutions. Those superficial conflicts included
questions through a sustained period of disequilibrium
issues such as procedures, scheduling, structure, and
during which they learn to achieve a better way of
lines of authority. These seemed merely technical
operating, i.e., a new adaptation. We describe such a
issues, but they were proxies for deeper conflicts in
case below.
values and norms. Strategy development became part
of the adaptive solution because no sharp distinction
could be drawn between developing the required
strategic understanding of the issues and implementing
During his first two months as CEO of British
the strategic change.
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Ivey Business Journal January/February 2003
Airways, Colin Marshall assessed the readiness of BA’s
top 160 managers to become more customer-responsive.
On what the British press called “the day of the long
knives,” Marshall fired 60 of those managers, convinced
that they were neither ready nor willing to make the
necessary adaptive changes. Predictably, the level of
distress within BA rose significantly.
priorities, and foster openness across units. He used
newsletters, videos, and other media to improve internal
communications, and spoke frequently with the press
— not only to establish new customer expectations, but
also to generate external reinforcement for the internal
change. Employees thus found another reason to trust
Marshall’s commitment to change, and his public
pronouncements legitimized their efforts to work
adaptively in daily interactions with customers and
colleagues.
Recognizing that few people undertake adaptive work
if they don’t have to, Marshall made it clear throughout
BA that the adaptive pressures in the marketplace
demanded adaptive responses from within. Firing a
large number of change-resistant managers delivered
that message. But Marshall also had to have the personal
credibility to persuade people that BA’s distress was
caused not simply by pressure from top management,
but by the market environment that posed new
challenges for both the business and the people at British
Airways. Yesterday’s technical solutions and norms
would be insufficient if the company were to thrive in
the future.
As Marshall put it, “You have to let people know
you are taking a real interest. You need to be visible —
my way is to go around and meet people.” Accordingly,
Marshall listened to employees talk about their main
concerns. He met with flight crews, sometimes showing
up in the 350-person reservation center in New York,
wandering around the baggage area in Tokyo, or visiting
the passenger lounge in London or Moscow. Both
customers and employees of BA began to feel some
relief from the stress of change, for the mere physical
presence of the senior authority figure made them feel
less disoriented in the changed work environment.
Marshall needed to give people a reason to make
sacrifices. “Why suffer?” they asked. As Marshall put
it, “You have to get people to understand and believe in
their work — giving people confidence to do the things
they know need doing.” Although people at BA were
pessimistic and morale was low, Marshall saw that they
were deeply loyal to the company and strongly desired
it to succeed. “People,” he said, “want to work for a
successful company.”
Marshall had to pace the work. From the inside, it
seemed as if everything at BA was being tackled at once.
In fact, the strategic change took place over a five-year
period. Early on, Marshall and his executive team
decided to shift BA’s focus from the organization to
customers. That change took place on many fronts,
including working with the British government to
privatize the airline, building a credible team of
managers, mobilizing a highly fragmented organization,
and defining new measures of performance and
compensation. Information systems had to change as
well. This unit played a particularly important role in
managing the customer base and monitoring the
performance of the business.
Moreover, they wanted to work for a company that
stood for something. Marshall initiated a transformation
that embodied new, explicit values, that moved and
taught BA personnel how to serve customers, respect
individuals, and work as team members across
traditional business functions.
Marshall established this new orientation by
identifying the disparity between the company’s current
operating norms and the values it had to adopt in order
to become “the world’s favourite airline.” That
diagnosis helped the people at BA recognize what
changes in behaviour they had to make. Performance
reviews, for instance, became a fact of BA life. Marshall
brought the top 150 managers together each quarter, at
a minimum, to explain the ongoing changes, maintain
commitment, focus on the next set of problems, set
People in operations and functions, areas in which
formal rules and regulations had dominated thinking
for years, felt the stress of change the most. In contrast,
customer-oriented people scattered throughout the
organization found the adaptive changes particularly
refreshing. Indeed, some had been waiting a long time
to take responsibility for doing the work that would
warrant the slogan of “the world’s favourite airline.”
Every manager must regulate stress by attending to
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Ivey Business Journal January/February 2003
the social responsibilities of authority: direction,
protection, orientation, conflict control, and norm
maintenance. Effective leadership — mobilizing
adaptive work — demands that managers fulfill these
responsibilities differently than they would with
technical problems. That is, in adaptive situations, those
who lead provide direction by articulating key questions,
clarifying issues, and presenting facts (not by issuing
directives). Likewise, a manager who leads provides
protection, paradoxically, by keeping people within an
energizing discomfort zone, pacing their work, and
sequencing the issues so that they can still be productive
(not by sheltering them from threatening change.) A
manager who leads orients people, not to the old
procedures and role relationships, but to the realities
that must drive the development of new role
relationships and procedures. With adaptive leadership,
a manager surfaces and orchestrates conflict, rather than
squelches it, because conflict is the engine of creativity
and learning. Finally, a manager mobilizing adaptive
work gets people to distinguish those norms and values
worth preserving from those that have become
antiquated and dysfunctional.
3. Maintain disciplined attention
People in an organization bring diverse values,
beliefs, and behaviours to their work. That is as it should
be. Innovation and learning are products of differences.
No one learns anything new without encountering a
different point of view. Yet adaptive work requires a
context: If diverse points of view are to lead to
innovation, the innovators must have an orientation.
Adaptive leadership, in other words, must be disciplined
and pay constant attention to the central issues
confronting the business. Otherwise, the collaborative
effort can fragment into petty rivalries and secondary
concerns.
Jan Timmer, the former chairman of Philips
Electronics, describes the challenge of getting people
to do adaptive work as both an intellectual and an
emotional one: “At the intellectual level, you need
programs, milestones, and discipline. At the emotional
level, you need each person to put heart and soul into
the effort. Engineers see “visions” as a waste of time.
They have a bias towards “fixing” the current critical
problem. “We’re macho, tough, numbers guys,” they
say. “The other types really shouldn’t be here!” On the
other hand there are the visionaries, who are more
conceptual and have a sense of duty to shape the
company for the longer term. They know that they
cannot shape the company for the longer term if they
control only today’s operations.
“Fire the engineers and you get harmony and daydreaming,” Timmer warns. Every business leader needs
the cold shower of the engineering type’s numbers.
Eliminate the visionaries and you have a business
oriented to financial and production controls, but often
without a clear purpose or meaningful work. Controloriented people are highly suspicious. If something can’t
be measured, it is not meaningful. The numbers people
are much less at ease with discussions on how to satisfy
the customer and mobilize everyone in the organization
toward a common goal. The inevitable tension between
the engineers and the visionaries seems to militate
against complete consensus. My work as the leader is
to help people understand the underlying logic of those
competing perspectives and to move forward with the
best possible decision.”
The dynamic tension and conflict, however, have to
be actively orchestrated into a dialogue focused on the
central issues; otherwise, work will be avoided as the
conflicts remain beneath the surface and turf boundaries
are reinforced.
4. Give the work back to the people
The story of Scandinavian Airways (SAS) shows how
CEO Jan Carlzon coordinated the adaptive process by
giving the work back to the people.
After 17 years of profits and growth, SAS
sustained $30 million in losses in 1979 and 1980.
Carlzon saw those losses as a sign of something very
different than “poor cost control” or “flabby middle
management.” To him, they signified fundamental
changes in the industry. Rather than responding to losses
in the usual way — looking for specific sources of waste
and inefficiency — Carlzon began a campaign, not only
to keep old customers, but also to win new customers
from other airlines. For Carlzon, that meant SAS had
to become much more responsive to customers’ needs.
Thus, in 1981, he implemented a strategy for adaptive
work aimed at promoting leadership on the front line
and across the boundaries between divisions within SAS.
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Ivey Business Journal January/February 2003
customer. While senior executives diagnosed
overarching trends of the market — economic patterns,
regulatory policies, the actions of competing companies,
front-line workers diagnosed the specific situations in
the market. Sometimes, people on the front line saw a
new pattern of customer need emerging, one that
required an organizational response — a new policy, a
change in organizational structure, or a shift in the
allocation of resources. In such cases, the ticket agent
would report the need to middle management and
mobilize the organization to respond adaptively. In
short, the ticket agent would lead the organization from
below.
Meeting the needs of customers in a highly
competitive environment presented both technical and
adaptive challenges. They also had some technical
components, which were amenable to routine response:
Carlzon could rely on market research to assess general
patterns of need and set general market strategy. Should
SAS go after the vacationing traveler or the business
traveler? What schedules would meet those needs?
What routes of travel were in greatest demand?
Yet adaptive problems surfaced in the analyses of
particular customers, who came in all shapes and sizes,
all ages and incomes. In other words, particular
customers looked nothing like the profile of the average
customer market research had generated. Carlzon knew
that SAS had to acquire a new approach to gathering
information about customers in order to appeal to their
specific needs.
A manager who
Each individual
leads orients
in the organization
people, not to
had special access
the old
to information that
procedures and
was gathered from
his or her vantage
role
point. Each saw
relationships,
different needs
but to the
and opportunities
realities that
to fulfill. Frontmust drive the
line workers might
development of
not be able to
new role
assess changes in
relationships
European politics
that would lead to
and procedures
a i r l i n e
deregulation in
Europe during the 1990s; by the same token, however,
senior management was not in the best position to assess
information from front-line workers that indicated a
need for systemic change. That was the job of middle
managers. But even the most astute middle manager
could not see the faces of individual customers and have
intimate knowledge of their needs. That was the job of
the front-line employee.
Thus, Carlzon turned his company on its head, giving
people on the front lines much greater latitude for
decision-making. Also, middle and senior management
would now support the front line instead of controlling
it. Carlzon’s reasoning was elegant and simple. The
front-line people knew the most about the needs of
individual customers. Ticket agents, baggage handlers,
and flight attendants were in the best position to discover
the needs of real people.
Apart from having critical information about their
customers, people on the frontline were in the optimal,
and often only, position to respond to customers’ needs.
They had to take action. There was no time to go up the
line for permission to act when the customer was
standing right in front of you waiting. Front-line
employees had to define and solve problems in 15
seconds or so while customers were in direct contact
with the company. Carlzon called these encounters
“moments of truth.” SAS would succeed or fail each
day during those 140,000 moments of truth when
customers would be won or lost.
In most organizations, developing widespread
responsibility is a central feature of achieving a new
adaptation. At SAS, letting the front line take the
initiative in defining and solving customer problems
meant reorienting much of management from a control
to a support mindset, thereby establishing new norms
and values for people throughout the organization.
To accomplish this adaptive work, Carlzon needed
to give the work back to people. He wanted ticket agents
and others close to customers to take responsibility for
making costly decisions on the spur of the moment, if
they saw the need to do so. The front-line employees
had to be able to take financial risks on behalf of the
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Ivey Business Journal January/February 2003
Carlzon built widespread acceptance of the new
approach by spending up to 50 percent of his time during
the first two years by communicating directly, in large
meetings, and indirectly, in workshops, brainstorming
sessions, learning exercises, public media exposure,
brochures, newsletters, and a variety of symbolic acts
(He redesigned the pretentious executive dining room,
for example). Finally, having identified the adaptive
challenge, he saw that his leadership task was one of
educating people, in the broad sense. He had an overall
business strategy that oriented people, but he also had a
host of questions requiring innovative approaches across
boundaries throughout the organization.
to tend to it fastidiously.
To manage the disequilibrium, Carlzon bolstered the
holding environment, the organizational space in which
the conflicts and stresses of adaptive work take place.
Perhaps most critically, Carlzon strengthened the
holding environment by developing a collective selfconfidence. As he often said, “People aren’t born with
self-confidence. It comes through success and
experience and the environment. Even the most selfconfident people can be broken. The most important
role of the leader is to create confidence among people.
Look at authority figures in a public organization. Do
they punish mistakes? Do they do nothing? The result
is inefficiency. The real challenge is to build a
management system related to the responsibility and
the authority you give away. Demanding that people
give good service, but then fixing severe limits on the
resources they need to provide those services just won’t
work.”
To strengthen his informal authority, Carlzon made
himself highly visible and ubiquitous, meeting with and
listening to people intently inside and outside the
organization. He wrote a book to explain his values,
philosophy, and strategy. “If no one else read it, at least
my people would,” he said. Moreover, he generated
trust by trusting others, by decentralizing the authority.
“The key is to prepare people’s mindset and let them
discover the problem. You won’t be successful if people
aren’t carrying the recognition of the problem and the
solution within themselves.”
Carlzon put it this way. “Before, leaders used to be
authoritarian (command and control); now their
emphasis is on vision, strategy, and having skilled
people everywhere. The leader communicates strategy
and objectives, and so the people take over. The leader
is no longer engaged in the act of managing the business
himself, but in creating an atmosphere and establishing
the values so people can do their work.”
In addition to establishing values and a norm of frontline responsibility taking, Carlzon strengthened the
containing vessel by bolstering his authority. To
strengthen his formal authority, he made sure that his
board of directors understood the magnitude of the
change and the cost. In his first year, when the company
was losing $20 million a year, Carlzon asked the board
to invest $50 million more in improvements, even
though he could not guarantee or predict how much
revenue the proposed changes and marketing
investments would bring in. He needed their
commitment and full authorization. Unlike many
leaders, Carlzon consulted openly and frequently with
his board. That strengthened his formal hand.
The purpose of the holding environment is not to
eliminate stress but to regulate and contain it so that it
does not overwhelm anyone. Eliminating the stress
altogether is counterproductive, for it removes the
impetus for undertaking adaptive work. In exercising
leadership, a major task is to maintain a tolerable level
of stress that encourages people to take responsibility.
The example of Jan Carlzon at SAS demonstrates how
productive such a holding environment can be.
5. Protect Leadership Below.
When Ruud Koedijk engaged 100 people in the
strategy creation process, they gave voice to people
below and throughout the organization. The same thing
occurred when Colin Marshall launched an initiative to
make British Airways more customer-responsive.
The holding environment is built on relationships
derived primarily from trust. If trust in Carlzon had
been poor, he would have had to reduce the pressure,
perhaps by slowing down the change process. Since
the degree of trust was high, Carlzon could afford to
turn up the heat by introducing tough challenges more
quickly. Trust provided a critical resource, and he had
In these strategy projects, leaders established a
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Ivey Business Journal January/February 2003
temporary structure in which the “architects” and
“explorers” could work. Authority figures engaged in
the work were expected to operate as part of the team;
by and large they did. Ideas and dialogue became
standards for measuring contributions. Openness
became the norm, so much so that people willingly
agreed that they could be open in ways not possible in
their working groups within the business, where they
had to have the right answers, avoid mistakes at any
cost, always be involved in operational issues and could
not exhibit curiosity or develop insights. People felt
pulled in two directions. In their strategy work, they
collectively stretched themselves; in their operating
work, they felt like individual units of production
performing tasks in a highly controlled environment.
The new cultural norms by which strategy development
was recognized and treated as adaptive work clashed
with the old, prevailing norms that treated both adaptive
and technical challenges like technical problems.
In the new culture of BA, front-line people were
encouraged to take responsibility for, and act on behalf
of, the customer. At both BA and SAS, this adaptive
change created a revolution. The airlines created new
classes of service, improved food service and check-in,
lost fewer pieces of luggage, made special concessions
for elderly and handicapped passengers, and provided
all customers with more rapid and user-friendly
solutions. People in each airline felt listened to,
empowered to act, and responsible for improving service
and performance. They began finding their work more
meaningful and enriching. And management saw its
role as encouraging, supporting, and guiding the work,
not controlling it.
This is the foundation for that organization that wants
to experiment and learn. It is a necessary pre-condition
for being able to grow the business, not just manage the
cost-to-revenue ratios. In contrast, whistleblowers,
creative deviants, and other such voices routinely get
silenced in the traditional command-and-control
organization. Because these people generate
disequilibrium, those in power believe that the easiest
way to restore equilibrium is to neutralize them.
The voices from below might not be as eloquent or
articulate as one might wish. After all, people speaking
beyond their authority usually feel self-conscious, and
sometimes they generate “too much” passion in order
to gear themselves up for speaking out. Of course, that
often makes it harder for them to communicate
effectively. They pick the wrong time and place; they
neglect proper channels of communication and lines of
authority. But buried inside a poorly packaged
“outburst” may lie an important insight that needs to be
heard and respected. Tossing it off for its bad timing,
lack of clarity, or unreasonableness can eliminate
potentially important information and discourage
someone with the potential to be a leader in the
organization. Adaptive work cannot rely on “normal”
people alone.
One manager,
whom we will call
Michael, listened
Engaging key
when his seniors
managers with
encouraged people
different
in
a
large
styles and
manufacturing
agendas is
company to look
for
problems,
necessary to
speak openly, and
create
t
a
k
e
understanding,
responsibility.
generate
Believing in their
commitment,
sincerity, Michael
and solve
once raised an
complex
issue that was “too
hot to handle.”
problems
Swept under the
carpet for years,
the issue of the CEO’s pet project was tacitly
acknowledged in the company, but Michael knew that
maintaining this investment could damage or derail key
elements of the company’s strategy. He raised the issue
in a meeting with his boss and the CEO. He provided a
clear description of the problem, a representation of the
competing perspectives on the issue, and a summary of
the consequences if the project were to continue.
The CEO squelched the discussion. He reinforced
the positives of his pet project. He then asked Michael
if he had discussed this with a particular task force —
which he knew would shield him from this kind of
challenge. Michael had not. The CEO then handed the
problem over to Michael’s boss. The issue was not up
for discussion.
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Ivey Business Journal January/February 2003
When Michael and his boss left the room, his boss’s
disapproval became apparent. Why hadn’t Michael
discussed this with him before speaking to the CEO?
The boss attacked Michael personally: “Who do you
think you are, with your “holier-than-thou” attitude?”
The subject was closed.
Michael had greater experience and expertise than
either the CEO or his managers in this area. But they
showed no curiosity, no effort to examine Michael’s
reasoning, no sense that he was behaving responsibly
with the best interests of the company at heart. The
climate in the room had shifted from a friendly,
“everything-is-going-fine” mood to a chilly “don’t-everbring-that-up-again” atmosphere.
The CEO and Michael’s boss had squashed the
development of a potential leader. Clearly, then,
authority figures are constrained from exercising
leadership, not only by their own blind spots, but also
by expectations from key stakeholders to “keep the ship
on an even keel.” They must rely on others in the
organization to spot and raise questions that indicate,
early on, the presence of an adaptive challenge. They
have to provide cover for people who point out the
contradictions in the enterprise. These individuals often
will have the latitude to provoke the rethinking that the
people in authority do not undertake.
Adaptive problems have no ready solutions. They
require that people apply their collective intelligence
and skills to the work only they can do. This, in turn,
requires that they unlearn the habits of a lifetime spent
as a manager, learn to meet challenges that they cannot
meet with their existing skills, and develop the capacity
to explore and understand the competing values at stake.
Leading adaptive change requires that one develop a
strategy for learning. In order to learn the way forward,
each manager facing an adaptive challenge must ask,
“Who needs to learn what, and how?” The work begins
by framing the challenge and effectively holding the
people with the problem as they think together, engaging
their conflicts and differences, and learning from each
other. For this, those who have the courage to lead will
need to be ready with good questions and have the will
to manage uncertainty.
When an authority figure feels the urge to glare at or
otherwise silence someone, he or she has to stop for the
moment. That urge to restore the group’s equilibrium
is understandably quite powerful, and it happens fast.
But an authority figure who also wants to be an authentic
leader has to get accustomed to delaying the impulse,
and ask, “What is this person really talking about? Is
there something we’re missing?”
Focusing management teams and front-line workers
on recognizing and meeting the challenges of adaptive
change are among a leader’s most difficult tasks. Most
of the problems facing top management are highly
interrelated strategic or operating issues and adaptive
challenges that need to be viewed as systemic problems.
Engaging key managers with different styles and
agendas is necessary to create understanding, generate
commitment, and solve complex problems.
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Ivey Business Journal January/February 2003
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