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LEADERSHIP

The Tools of Cooperation and Change by Clayton M. Christensen, Matt Marx, and Howard H. Stevenson

FROM THE OCTOBER 2006 ISSUE

The primary task of management is to get people to work together in asystematic way. Like orchestra conductors, managers direct the talents andactions of various players to produce a desired result. It’s a complicated job, and it becomes much more so when managers are trying to get people to

change, rather than continue with the status quo. Even the best CEOs can stumble in

their attempts to encourage people to work together toward a new corporate goal.

In 1999, for example, Procter & Gamble’s Durk Jager, a highly regarded insider who

had recently been promoted to CEO, announced Organization 2005, a restructuring

program that promised to change P&G’s culture. However, not everyone at P&G

agreed that such sweeping change was necessary or that the way to achieve it was to

reduce investments in the company’s core brands in order to fund radical, new

products. The organization rebelled, and Jager was forced to resign only 17 months

after taking the helm.

The root cause of Jager’s very public failure was that he didn’t induce P&G

employees to cooperate—a requirement of all change campaigns. To achieve such

cooperation, managers have a wide variety of tools at their disposal, such as

financial incentives, motivational speeches, training programs, and outright threats.

But although most competent managers have a good grasp of what cooperation

tools are available, we’ve observed that they may be less sure about which to use.

The effectiveness of a given tool depends on the organization’s situation. In this

article, which employs some ideas from Do Lunch or Be Lunch, by Howard

Stevenson and Jeffrey Cruikshank, we explain how to choose the right tools and

offer advice for managers contemplating change.

Assessing the Existing Level of Agreement

Over our many years observing management successes and failures up close, we’ve

found that the first step in any change initiative must be to assess the level of

agreement in the organization along two critical dimensions. The first is the extent

to which people agree on what they want: the results they seek from their

participation in the enterprise; their values and priorities; and which trade-offs they

are willing to make in order to achieve those results. Employees at Microsoft, for

instance, have historically been united around a common goal: to dominate the

desktop. While of course there will always be pockets of employees who are an

exception, this theme has defined the company’s culture. The second dimension is

the extent to which people agree on cause and effect: which actions will lead to the

desired outcome. When people have a shared understanding of cause and effect,

they will probably agree about which processes to adopt—an alignment that was

clearly absent at P&G as Jager attempted to transform the company.

The Agreement Matrix Leaders who want to move their organizations in a new direction must first understand the degree to which employees agree on two dimensions: what they want out of working at the company and cause and effect, or how to achieve what they want. A high level of agreement on both dimensions, such as exists at Apple Computer, requires a completely different set of change tools than leaders will need in, for instance, low-agreement environments.

The exhibit “The Agreement Matrix” depicts these dimensions. The vertical axis

shows agreement by an organization’s members on what they want; the horizontal

axis shows their agreement on cause and effect. Employees in organizations in the

upper-left quadrant share hopes for what they will gain from being part of the

organization, even though each might have a different view of what actions will be

required to fulfill those hopes. Microsoft found itself in this situation in 1995, when

Netscape was threatening to become the primary “window” through which people

would use their computers. Everyone in the company wanted the same thing—to

preserve Microsoft’s domination of the desktop—but initially there was little

consensus about how to do that.

Many companies that employ

independent contractors and unionized

workers, in contrast, are in the lower-right

corner. These employees may have little

passion for the goals of the company but

are willing to follow prescribed

procedures if they agree that those

actions will produce the needed results.

In the upper-right quadrant are

companies whose employees agree on

what they want and how to get there.

Clear consensus on both dimensions

makes these organizations’ cultures

highly resistant to change: People are

generally satisfied with what they get out

of working in the organization and agree

strongly about how to maintain that

status quo.

The final scenario is the lower-left

quadrant of the agreement matrix, where

participants do not agree either on what

they want or on how the world works. The perpetually warring nation-states of the

Balkan Peninsula exemplify this lack of agreement. We will return to each situation

in the following pages.

It’s important to note that there is no “best” position for managers to aspire to in the

agreement matrix. To choose the right tools for fostering cooperation among

employees, however, managers must assess where their organization lies. The tools

that will induce employees in one quadrant to cooperate with a change program

may well misfire with employees in a different quadrant. In fact, in any given

situation, most tools for eliciting cooperation will not work.

Moving from Agreement to Cooperation

The tools of cooperation can be grouped into four major categories: power,

management, leadership, and culture. In the exhibit “The Four Types of

Cooperation Tools,” we’ve matched each category with a quadrant of the agreement

matrix. While the boundaries are not rigid, the broad labels can give managers a

sense of which tools are likely to be effective in various situations.

The Four Types of Cooperation Tools When people in an organization disagree on what they want and on how to achieve desired results, the only tools that induce cooperation are “power tools,” which are essentially variations on coercion and fiat. If people want the same thing but disagree on how to achieve it, “leadership tools” such as role modeling and charisma can move them toward a consensus. If people agree strongly on cause and effect but little on what they want, leaders can employ “management tools” such as training and measurement systems. Companies where employees agree on both dimensions of the matrix, and so are generally happy with the status quo, have very strong cultures that are difficult to change. In such circumstances, it is possible only to tweak direction, using such “culture tools” as rituals and folklore. Managers do have other tools at their disposal—such as negotiation and financial incentives—but these will work only when there is a certain level of agreement on both dimensions of the matrix.

Power tools.

When members of an organization share

little consensus on either dimension of

agreement, the only tools that will elicit

cooperation are “power tools” such as

fiat, force, coercion, and threats. Marshal

Josip Broz Tito, the leader of Yugoslavia

during most of the Cold War, wielded

power tools effectively. He herded the

disparate and antagonistic ethnic groups

of the Balkan Peninsula into a more or

less artificial nation and said, in effect, “I

don’t care whether you agree with me or

with one another about what you want

out of life or about how to get it. What I

want is for you to look down this gun

barrel and cooperate.” His approach

worked, and the Balkan nations lived in

relative peace for several decades.

This is not to suggest, of course, that

managers bring firearms to the office. But

when organizational factions can’t agree

on what they want or what to do, power

tools are the only ones that work. Jamie Dimon, currently the CEO of JPMorgan

Chase, used these tools during the bank’s integration with his previous company,

Bank One. Convinced that pay had gotten out of control (the head of HR at Bank One

was paid more than $5 million), Dimon met with executives individually to tell

them they were vastly overpaid and slashed hundreds of salaries by 20% to 50%. He

drove a replacement of the firm’s myriad IT systems with a single platform,

threatening to make all the decisions himself if the IT staff didn’t reach any

decisions in six weeks. He yanked hundreds of unvisited small-to-midsize

businesses from the investment bank’s “prospects” list so that the commercial bank

could have the chance to work with them. Dimon also reconfigured control systems

so that retail branch managers, who had received modest bonuses for meeting sales

quotas on mortgages and other products, now stood to lose their jobs for missing

quotas.

We have included three tools in the exhibit—negotiation, strategic planning, and

financial incentives—to make a point. These tools will work only when there is a

modicum of agreement on both dimensions of the matrix. In environments of

antagonistic disagreement—whether in the Middle East or in the infamous clashes

between Eastern Air Lines’ management and its machinist union—negotiation

generally doesn’t work. A leader might use strategic planning to figure out where the

organization ought to go next, but in the absence of the requisite degree of

agreement on both dimensions, the strategic plan itself won’t elicit the cooperative

behavior required to get there.

And using financial incentives—essentially paying employees to want what

management wants—may backfire in an environment of low consensus. Consider,

for example, the world of K-12 public education, which is decidedly in the lower-left

quadrant of the agreement matrix. Teachers, taxpayers, administrators, parents,

students, and politicians have divergent priorities and disagree strongly about how

to improve. Most pay-for-performance schemes have failed miserably in producing

enduring change in schools, because financial incentives are a tool that just won’t

work in this situation.

Power tools can be extremely effective in low-agreement situations. The key is

having the authority to use them. Managers sometimes find themselves in

balkanized circumstances without the power to wield the only tools that will induce

cooperation under those conditions. If managers are asked to lead a matrixed or

“lightweight” project team whose members’ loyalties are in conflict with the

objectives of the project, for instance, the road to success will be tortuous. Just as a

carpenter would never undertake a job without having the requisite tools in his or

her toolbox, a wise manager in a low-consensus environment would not agree to

lead a change program without the authority to wield the right power tools.

Management tools.

A wise manager in a low-consensus environment would not agree to lead a change program without the authority to wield the right power tools.

The tools of cooperation that drive change in the lower-right quadrant of the

agreement matrix focus on coordination and processes. These “management tools”

include training, standard operating procedures, and measurement systems. For

such tools to work, group members need to agree on cause and effect but not

necessarily on what they want from their participation in the organization.

For example, in many companies the reasons unionized manufacturing workers

come to work are very different from the reasons senior marketing managers do. But

if both groups agree that certain manufacturing procedures will result in products

with targeted levels of quality and cost, they will cooperate to follow those

procedures.

Measurement systems can also elicit cooperation in such situations. During Intel’s

first two decades, gross-margin-per-wafer-start was the widely agreed-upon metric

for profitability. In the 1980s, the company’s DRAM products, which had enjoyed

high gross margins in the 1970s, were withering under Japanese competition.

Focused on the accepted metric—and even without an explicit executive mandate—

middle managers in disparate parts of the organization cooperated to shift

manufacturing emphasis from DRAMs to microprocessors, which had become

higher-margin products.

Leadership tools.

The tools useful in the upper-left quadrant of the agreement matrix tend to be

results oriented rather than process oriented. Such “leadership tools” can elicit

cooperation as long as there is a high level of consensus that a change is consistent

with the reason employees have chosen to work in the enterprise—even if consensus

is low on how to achieve the change. Charismatic leaders respected by employees,

for example, often do not address how to get things done. Instead, they motivate

people to “just go out and do it.” Good sales managers employ these tools skillfully.

Bill Gates used the leadership tool we call vision in his 1995 Internet Tidal Wave

memo, which helped Microsoft’s employees see that maintaining the company’s

dominance in the software industry (what they wanted) required an aggressive

acknowledgment that the nascent World Wide Web would become an integral part

of computing rather than a sideshow to the then-dominant desktop applications—an

acknowledgment that ran counter to most employees’ deeply held beliefs. The fierce

response of the company’s Internet Explorer team crippled Netscape and won

Microsoft a more than 90% share of the browser market. Faced with stiff

competition from Google in late 2005, Gates reemployed this technique in his memo

regarding a “services wave,” calling for a shift from sales of shrink-wrapped software

to sales of subscriptions.

The same actions viewed as inspiring and visionary among employees in the upper-

left corner of the matrix can be regarded with indifference or disdain by those in the

lower quadrants. Consider vision statements. When members of a group agree on

what they want to achieve, statements that articulate where the organization needs

to go can be energizing and inspiring. But if employees don’t agree about what they

want, vision statements won’t help much in changing their behavior—aside from

inducing a collective rolling of eyes.

Culture tools.

In organizations located in the upper-right quadrant of the matrix, employees will

cooperate almost automatically to continue in the same direction. Their deep

consensus on priorities, and on what set of actions will allow the company to

achieve those priorities, is the essence of a strong culture. As MIT’s Edgar Schein

wrote in Organizational Culture and Leadership, culture is “a pattern of shared basic

assumptions that was learned by a group as it solved its problems of external

adaptation and internal integration, that has worked well enough to be considered

valid and, therefore, to be taught to new members as the correct way to perceive,

think, and feel in relation to those problems.” In organizations with strong cultures,

people instinctively prioritize similar options, and their common view of how the

world works means that little debate is necessary about the best way to achieve

those priorities. Companies with strong cultures in many ways can be self-

managing.

But this very strength can make such organizations highly resistant to change. So-

called culture tools—such as rituals and folklore—only facilitate cooperation to

preserve the status quo; they are not tools of change. Leadership and management

tools can also be used in this quadrant to foster cooperation, but only in order to

reinforce or enhance the existing culture. A manager of such a company might see

herself as a visionary leader wanting to chart a new course for the organization. She

may want to use a vision statement as a tool for analyzing and refining the vision in

Deep consensus on priorities, and on what set of actions will allow the company to achieve those priorities, is the essence of a strong culture.

The Tools of Politics

her mind. But as a tool of change? Employees in the upper-right strong-culture

quadrant are unlikely to cooperate with any strategy that is at odds with their deeply

shared beliefs about what they want and what must be done. Hewlett-Packard’s

Carly Fiorina learned this the hard way when she tried to challenge the so-called HP

Way. Her very public clashes with HP’s employees and board led to her ouster in

2005, following the company’s controversial merger with Compaq. Essentially, as

P&G’s Durk Jager needed to recognize, the only tools that can be wielded are those

that are effective in the domain where the employees are—and in strong cultures, the

tools in the upper-right quadrant lead to cooperation in gradual change, at best.

What Managers Can—and Cannot—Do

We noted earlier that there is no “best” position in the matrix of agreement; each

quadrant carries its own challenges. A company’s position may reflect where it is in

its life cycle and is largely determined by how successful it has been. Most

organizations start at the left and often at the bottom of the matrix, where the

founder’s fiats drive much of what gets prioritized and how it gets done. If

employees develop effective methods that result in success, consensus will begin to

coalesce on the horizontal dimension of agreement—what actions yield the desired

results. As the company succeeds, employees who fit with these ways of working,

and who want what senior management wants, tend to be promoted. Those who

don’t tend to leave. Hence, success is the mechanism that builds consensus around

what people want and how they can get it. Success shifts the organization toward

the upper-right quadrant.

In institutions with well-established cultures (those in the upper-right portion of the exhibit “The Agreement Matrix”), democracy can be used as a tool to encourage cooperation. An important insight from this model is that democracy will not work except where people agree strongly on both dimensions of the matrix: what they want and the rules of cause and effect. The very functioning of democracy depends upon the existence of strong cultural beliefs that are often rooted in the teachings of certain religions. The religious institutions at the root of these cultures have taught that people are meant to be free and that they should voluntarily be honest and respect the life, property, and equal opportunity of others —because even if the police don’t catch and punish them, they will be rewarded or punished in some way in the afterlife. The successful practice of these beliefs— together with a shared value that every person should be allowed to worship God in his or her own way—has created successful societies in places such as India, Japan, the United States, and Western Europe. The practices have become so deeply embedded over so many years that almost all people in these societies, regardless of religious belief, now strongly share these values and are ensconced in the upper-right quadrant of the agreement matrix. The vast majority of people living in these cultures obey the law voluntarily—and, as a result, democracy works.

On occasion, Americans in particular have tried to impose democracy on countries whose populations are not in the upper- right corner of the agreement matrix— where religious or other institutions have not built the type of cultural consensus

Crisis and failure, in contrast, can destroy

that consensus, plunging the organization

toward the lower-left quadrant.

Employees in crisis are no longer certain

or unanimous in their beliefs about what

actions are necessary. Managers who are

able and willing to use power tools during

crises can get employees to cooperate in a

remedial course of action, provided those

managers know where the organization

needs to go and what must be done to get

there. Indeed, scholars of organizational

change frequently prescribe “creating a

crisis” because it forces employees into a

situation where they can be compelled to

cooperate.

While there is merit to the create-a-crisis

strategy, there’s a rub to this simple

solution: What if the CEO sees the need to

change direction while the business is still

healthy—when the crisis is in the future,

not the present? And what if this healthy

company also has an extremely strong

culture? That was the situation facing

that is consistent with democratic principles. When America has essentially snapped its fingers at these countries, ordering them to establish stable democracies—and quickly—chaos typically has ensued. The crime, corruption, and tax evasion that characterize much of Russia; the collapse of civil order that torments Haiti; and the costly, tragic dilemma that America now faces in Iraq—all are testaments to the fact that democracy doesn’t work when the enabling preconditions don’t exist.

John Sculley, CEO of Apple Computer

from 1983 until 1993. Fresh from a

triumphant career at PepsiCo, Sculley was

an exceptional executive. During his first

several years at Apple, the company

continued to prosper. By the late 1980s,

however, Sculley sensed trouble over the

horizon and saw the need to change

strategy in three specific ways. First, he

saw fledgling low-cost computer makers,

such as Dell, menacingly exploring how to make higher-performance computers

within their low-cost business models. Sculley declared that Apple needed to move

down-market aggressively, reducing its prices by as much as 75% in order to blunt

this disruptive attack. Second, before Microsoft introduced its Windows operating

system, Sculley urged Apple to open its proprietary product architecture and begin

selling its vaunted operating system. Third, he saw that portable, handheld devices

would become an important growth market. In retrospect, Sculley saw the future of

his industry with remarkable clarity.

But being a visionary leader isn’t all it’s cracked up to be. When leaders like Sculley

conclude that their organization’s course must change, they need to consider where

the rest of the employees are in the agreement matrix. At Apple, they were

decidedly in the upper-right quadrant—some said that Apple put the “cult” in

“culture.” Sculley tried reorganization, firings, control systems, financial incentives,

training, measurement systems, standard procedures, vision statements,

salesmanship, strategic planning, and many more tools to elicit cooperation behind

the changes he envisioned. But none worked. The Apple employees wouldn’t listen.

Sculley gradually lost credibility with his board and employees as tool after tool

failed to produce the changes he desired, and he was ousted in 1993. Apple’s board

then appointed Michael Spindler, head of the company’s successful European

operations, as CEO. Spindler also found that the only tools of cooperation at his

disposal were those that reinforced Apple’s culture, and he was dismissed after

three years. The board then brought in Gil Amelio, who had turned around the

deeply troubled National Semiconductor—expecting that he could do the same at

Apple. He couldn’t and was gone in 18 months.

Unable to recruit another qualified CEO, Apple’s board turned in desperation to

ousted Apple founder Steve Jobs as interim CEO. Jobs essentially stopped trying to

change the company and instead encouraged the troops to resume designing cool,

innovative, high-end products such as the iMac and iPod. Apple now dominates the

digital music industry. But if there had been any tools to wield within this strong

culture to elicit cooperation behind the new direction Sculley foresaw, Apple might

have captured much of the fruit that ultimately fell into the hands of Compaq, Dell,

and Microsoft.

The Tool of Disaggregation

All is not lost for managers who see the need to change a successful company before

the onset of a crisis. They can wield the tool of disa�regation—the separation of

organizations into units. This allows managers at the new unit to build a different

consensus among its employees regarding what they want and how to get there,

while the prior culture continues to thrive in the original unit.

Disaggregation works by eliminating the need for cooperation between groups with

opposing goals. This is how Hewlett-Packard succeeded in the disruptive ink-jet

printer business even while its laser-jet printer business was prospering with a very

different profit model. HP disaggregated the printer business, leaving the laser-jet

unit in Boise, Idaho, and setting up the ink-jet unit in Vancouver, Washington.

Likewise, IBM stayed strong in computers for many years, whereas all its mainframe

and minicomputer rivals failed, because it used the tool of disaggregation. When

minicomputers began disrupting mainframes, IBM created a separate business unit

in Rochester, Minnesota, to focus on minicomputers, which had to be designed,

built, and sold within a very different economic model than mainframes. When

personal computers disrupted minicomputers, IBM disaggregated again, setting up

in Boca Raton, Florida, another freestanding unit, which developed a business

model tailored to PCs. Had IBM executives tried to convince the managers and

employees of the original computer business to cooperate on a strategy, economic

model, and culture to succeed simultaneously in mainframes, minicomputers, and

PCs, the company would have failed.

Mastering the Tools of Cooperation at Continental Airlines

It would be rare, of course, for all employees in a company to be in one place in the

agreement matrix at a given time or across time. While the founding group of senior

managers may be in the upper-right quadrant, manufacturing employees may be in

the lower-right. Those in sales and creative design might be in the upper-left,

sharing an understanding of what is important but unwilling to subject themselves

to the sorts of standards and processes that are effective in the lower-right quadrant.

Most managers, unfortunately, have a limited tool kit and thus can successfully

manage only in certain types of situations. One of the rarest managerial skills is the

ability to understand which tools will work in a given situation—and not to waste

energy or risk credibility using tools that won’t.

Gordon Bethune, CEO of Continental Airlines from 1994 until 2004, was such a

manager. Bethune was the airline’s tenth CEO in ten years, following a disastrous

run including industry worsts in lost baggage, customer complaints, overbooking,

and on-time departures. Moreover, Continental had declared bankruptcy twice

during the previous decade and was losing $55 million per month despite years of

cost cutting.

Bethune turned down the top job twice even though he was already serving as

Continental’s COO. The first offer was to be acting CEO during the existing CEO’s six-

month leave of absence, and the second was to serve in the office of the CEO after

that executive decided to retire. Although board members respected Bethune, they

believed that the only way to restore profitability was through further cost cutting—

a path Bethune was convinced would lead to disaster, not deliverance. Given the

One of the rarest managerial skills is the ability to understand which tools will work in a given situation—and not to waste energy or risk credibility using tools that won’t.

significant disagreement about how to restore profitability, Bethune knew he could

do nothing without the full authority that came with the top job, without the

qualifiers of “acting” or “office of.”

Even after the board approved Bethune as CEO, few within the company agreed

with his unconventional view that Continental needed to be less restrictive of its

employees and spend more in order to get out of bankruptcy. As Bethune wrote in

his book From Worst to First, when the operations staff rebuffed his instruction to

repaint all of the carrier’s more than 200 airplanes, he threatened to shoot them

unless they complied. Concerned that customer-service employees were

micromanaging customers by relying too heavily on a very thick instruction

manual, he set fire to a stack of manuals in the parking lot.

Having won some initial battles by sheer force, Bethune achieved preliminary

success and began to move the company out of the lower-left quadrant toward the

upper-right. As the company started to recover, Bethune began employing more

traditional management tools, including financial incentives. After he offered each

employee a $65 bonus every month that Continental placed among the top five for

on-time departures, Continental jumped to fourth the subsequent month and first

thereafter. Our model suggests that this incentive would not have worked in the

environment of distrust and disagreement that characterized the company when

Bethune began his work. By 1998, the company had posted 11 straight quarters of

improved profits and had won two consecutive J.D. Power and Associates’ awards.

Bethune spent the final years of his career using the tools in the upper-right

quadrant, working to reinforce what has become a very productive culture.

Bethune’s well-timed choice of tools mirrored that of Jack Welch at General Electric,

who started out as Neutron Jack, using power tools when the company was a

collection of businesses with vastly different cultures, operating procedures, and

expectations about growth and profitability. As he oriented the company around the

mantra of being first or second in each of the conglomerate’s businesses, GE moved

from the lower-left corner of the matrix toward the upper-right, and Welch shifted

his focus to culture-reinforcing activities, teaching up-and-coming managers at the

company’s Crotonville campus.

The success of Bethune and Welch, of course, is both good news and bad news for

their successors. As long as the shared purposes and unified view of how to achieve

them are appropriate for their companies’ challenges, Larry Kellner and Jeffrey

Immelt ought to be able to preside over continued success using the cooperation

tools handed to them on their arrival. However, if there are shifts in the competitive

environment that mandate significant changes either to what people want or to the

required actions, the two CEOs may find that the tools their predecessors used to

turn their organizations around cannot be wielded effectively in the strong-culture

quadrant.

For example, much has been written about former CEO Lou Gerstner’s success in

refashioning IBM from a “big iron” company to one built on services. Managing

change is always hard. But our model suggests that because he took IBM’s helm

when the company was in genuine crisis, losing billions of dollars, Gerstner was

fortunate. The situation demanded power tools. As IBM’s service businesses

mature, his successor, Sam Palmisano, may face the tougher challenge. There is no

current crisis that enables the effective use of power tools to marshal a cooperative

march in a new direction. He faces a cultural challenge that will likely prove more

difficult than the crisis Gerstner faced.

Bethune, Welch, and Gerstner were blessed with an instinct for choosing the right

tools at the right time. Our hope is that by making the instincts of effective

managers more explicit, even those of us who are not born knowing how to manage

change can learn to do so more effectively.

A version of this article appeared in the October 2006 issue of Harvard Business Review.

Clayton M. Christensen is the Kim B. Clark Professor of Business Administration at Harvard Business School.

Matt Marx is an associate professor at Boston University’s Questrom School of Business.

Howard H. Stevenson (hstevenson@hbs.edu) is the senior associate dean and the Sarofim-Rock Baker Foundation

Professor of Business Administration at Harvard Business School in Boston, and chair of the Harvard Business School

Publishing board.

Related Topics: STRATEGY | LEADING TEAMS | ORGANIZATIONAL CULTURE | CHANGE MANAGEMENT

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