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COMPETITIVE STRATEGY

Leading Change: Why Transformation Efforts Fail by John P. Kotter

From the May–June 1995 Issue

O ver 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, right sizing, 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

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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.

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.

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.

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 5 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

One chief executive officer deliberately

engineered the largest accounting loss in the

history of the company.

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 5 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 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.

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 3

or 5 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 and 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 vision says something that clarifies the

direction in which an organization needs to

move.

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.

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 .0001% of the yearly intracompany communication, the group is

startled that 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 .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 and unread company newsletters into

lively articles about the vision. They take ritualistic and 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 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.

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

Worst of all are bosses who refuse to change

and who make demands that are inconsistent

with the overall effort.

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. 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. But action is essential, both to empower others and to maintain the

credibility of the change effort as a whole.

Error #6: Not Systematically Planning For and Creating Short-Term 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 within 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.

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.

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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.

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

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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 vision of the change process

can reduce the error rate. And fewer errors can spell the difference between success and

failure.

A version of this article appeared in the May–June 1995 issue of Harvard Business Review.

John P. Kotter is a best-selling author, award winning business and management thought leader, business

entrepreneur and the Konosuke Matsushita Professor of Leadership, Emeritus at Harvard Business School. His

ideas, books, and company, Kotter, help people lead organizations in an era of increasingly rapid change.

Related Topics: Organizational Structure | Change Management | Business Processes

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