300 words

Key terms

collaboration p. 469

direction p. 471

forcefield analysis p. 475

leadership 466

organisational ambidexterity p. 487

participation p. 469

situational leadership p. 468

turnaround strategy p. 484

14 LEADING STRATEGIC CHANGE

Learning outcomes After reading this chapter you should be able to:

● Identify and assess different styles of leading strategic change.

● Analyse how organisational context might affect the design of

strategic change.

● Undertake a forcefield analysis to identify forces blocking and

facilitating change.

● Assess the value of different levers for strategic change.

● Identify types of required strategic change.

● Identify the approaches, pitfalls and problems of leading

different types of strategic change.

Strategic Position

Strategic Choices Strategy

in Action

Evaluating

Processes Organising

Changing Practice

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INTRODUCTION 465

14.1 INTRODUCTION

The global insurance business, Aviva, had been underperforming for years when Mark Wilson was appointed as Chief Executive in November 2012. Following the departure of the previous Chief Executive (see Illustration 11.1 ) there had been a review of the company’s strategy which concluded that it needed to focus more on business segments in which it could succeed and make higher returns. Mark Wilson’s priority was to implement that strategy and make the strategic changes necessary to improve performance. Managing strategy is not just about making strategic decisions; it is about leading strategic change, which is the focus of this chapter.

The theme of strategic change runs through much of this part of the text. Chapter 11 posed questions about the feasibility of strategies; could changes of strategy work in practice? Chapter 12 provided different explanations of how strategies develop. Chapter 13 addressed issues to do with organising to deliver strategies. However, central to strategic change are the leadership tasks of convincing people of the new strategy and enabling and ensuring that what they do delivers the strategy. While this leadership role is most often associated with chief executives it may, in fact, occur at different levels in organisations: other senior managers and middle managers too may take leadership roles in change.

Figure 14.1 provides a structure for the chapter. The chapter opens ( section 14.2 ) by explaining different roles of leaders of strategic change , the different styles of change leadership and how these might be suited to different circumstances. Section 14.3 then reviews important issues that need to be considered in diagnosing the context leaders face when embarking on strategic change and, again, how their styles of change need to align with that context. Section 14.4 then considers what change leaders might do to effect strategic change, fi rst by identifying forces blocking or facilitating change , then by considering the levers for change they might use. Section 14.6 draws all this together by considering what overall lessons can be drawn about leading different types of strategic change programmes and the common reasons for the failure of strategic change programmes .

In doing this the chapter builds on three key premises:

● Strategy matters . What has been written in Parts I and II of the text should be seen as essential in identifying the need for and direction of strategic change. So it is important to be clear about:

● Why strategic change is needed (discussed in Chapters 2 to 5 ).

● The bases of the strategy in terms of strategic purpose, perhaps encapsulated in a statement of vision or mission ( section 4.2 ) and bases of competitive advantage ( Chapter 6 ).

● What the strategy is in terms of strategy directions and methods ( Chapters 7 to 10 ).

● Context matters . The approach taken to managing strategic change needs to be context- dependent . There is, therefore, no ‘one right way’ of leading strategic change. Managers need to consider how to balance different approaches according to the circumstances they face.

● Inertia and resistance to change are likely. A major problem in leading change is the tendency of people to hold on to existing ways of doing things. Much of Chapter 5 and the discussion of the experience lens in the Commentary at the end of Part I explain why this is so.

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466 CHAPTER 14 LEADING STRATEGIC CHANGE

14.2 LEADERSHIP AND STRATEGIC CHANGE

Leadership is the process of infl uencing an organisation (or group within an organisation) in its efforts towards achieving an aim or goal. 1 Without effective leadership the risk is that people in an organisation are unclear about its purpose or lack motivation to deliver the strategy to achieve it. Harvard’s John Kotter argues that ‘good management’ is about bringing order and consistency to operational aspects of organisations, such as quality and profi tability of prod- ucts and services. Leadership, ‘by contrast is about coping with change’. 2 Strategic change is therefore central to leadership.

14.2.1 Strategic leadership roles

While leading strategic change is often associated with top management, and chief executives in particular, in fact it involves managers at different levels in an organisation.

Figure 14.1 Key elements in leading strategic change

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LEADERSHIP AND STRATEGIC CHANGE 467

Top managers There are three key roles that are argued to be especially signifi cant for top management, espe- cially a CEO, in leading strategic change:

● Envisioning future strategy . 3 Effective strategic leaders at the top of an organisation need to ensure there exists a clear and compelling vision of the future and communicate clearly a strategy to achieve it both internally and to external stakeholders. In the absence of their doing so, those who attempt to lead change elsewhere in an organisation, for example middle managers, are likely to construct such a vision themselves. This may be well intentioned but can lead to confusion. This is an issue picked up in the Key Debate at the end of the chapter.

● Aligning the organisation to deliver that strategy. This involves ensuring that people in the organisation are committed to the strategy, motivated to make the changes needed and empowered to deliver those changes. In doing so, there is a need for leaders to build and foster relationships of trust and respect across the organisation. It can, however, also be necessary to change the management of the organisation to ensure such commitment, which is a reason that top teams often change as a precursor to or during strategic change.

● Embodying change . A strategic leader will be seen by others, not least those within the organ- isation, but also other stakeholders and outside observers, as intimately associated with a future strategy and a strategic change programme. A strategic leader is, then, symbolically highly signifi cant in the change process and needs to be a role model for future strategy (see section 14.4.5 below on symbolic levers for change).

Middle managers A top-down approach to managing strategy and strategic change sees middle managers as implementers of top management strategic plans. Here their role is to ensure that resources are allocated and controlled appropriately and to monitor the performance and behaviour of staff. However, middle managers have multiple roles in relation to the management of strategy (see section 15.2.3 ). 4 In the context of managing strategic change there are four roles to emphasise:

● Advisers to more senior management on requirements for change within an organisation. This is because they are often the closest to indications of market or technological changes that might signal the need for change. They are also well placed to be able to identify likely blockages to change. Middle managers may also provide a useful variety of experience and views that can stimulate thinking on strategy. 5

● ‘ Sense making ’ of strategy. Top management may set a strategic direction, but how it is explained and made sense of in specifi c contexts (e.g. a region of a multinational or a func- tional department) may, intentionally or not, be left to middle managers. If misinterpreta- tion of that intended strategy is to be avoided, it is therefore vital that middle managers understand and feel an ownership of it. They are therefore a crucial relevance bridge between top management and members of the organisation at lower levels. 6

● Reinterpretation and adjustment of strategic responses as events unfold (e.g. in terms of rela- tionships with customers, suppliers, the workforce and so on); this is a vital role for which middle managers are uniquely qualifi ed because they are in day-to-day contact with such aspects of the organisation and its environment.

● Local leadership of change : middle managers therefore have the roles of aligning and embody- ing change, as do top management, but at a local level.

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468 CHAPTER 14 LEADING STRATEGIC CHANGE

The Key Debate at the end of the chapter takes this into account and considers strategic change in relation to a top-down perspective, but also in relation to roles played by middle managers and to a more ‘bottom-up’ view of change.

14.2.2 Leadership styles Leaders are often categorised in two ways:

● Transformational (or charismatic ) leaders , whose emphasis is on building a vision for the organ- isation, an organisational identity around collective values and beliefs to support that vision and energising people to achieve it. There is evidence that suggests that this approach to leader- ship has benefi cial impact on people’s motivation and job performance 7 and wider business performance when the people who work for them see the organisation facing uncertainty. 8

● Transactional leaders , who focus more on ‘hard’ levers of change such as designing systems and controlling the organisation’s activities. The emphasis here, then, is more likely to be on changes of structures, setting targets to be achieved, fi nancial incentives, careful project management and the monitoring of organisational and individual performance.

One view would be that these styles are a matter of personal attributes. If so then what matters is that in situations of change, people with appropriate styles to the context of that change are appointed to lead it. Another view is that successful strategic leaders adjust their leadership style to the context they face . 9 This has become known as ‘ situational leadership ’. Here this is explained, fi rst by reviewing styles of strategic leadership more specifi cally, then by considering how these may need to differ by context.

Table 14.1 summarises four styles of leading strategic change: 10

Style Description Advantages Disadvantages

Persuasion Gain support for change by generating understanding and commitment through e.g. small-group briefings and delegation of responsibility for change.

Develops support for change and a wide base of understanding.

Time consuming. Fact-based argument and logic may not convince others of need for change. Or may gain notional support without active change.

Collaboration Widespread involvement of employees on decisions about both what and how to change.

Spreads not only support but ownership of change by increasing levels of involvement.

Time consuming. Little control over decisions made.

Participation Change leaders retain overall coordination and authority but delegate elements of the change process.

Spreads ownership and support of change, but within a controlled framework. Easier to shape decisions.

Can be perceived as manipulation.

Direction Change leaders make most decisions about what to change and how. Use of authority to direct change.

Less time consuming. Provides a clear change direction and focus.

Potentially less support and commitment, so changes may be resisted.

Source : Adapted from J. Balogun and V. Hope Hailey, Exploring strategic change , 3rd edn, Prentice Hall, 2008.

Table 14.1 Styles of leading change

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LEADERSHIP AND STRATEGIC CHANGE 469

● Persuasion of the need for and means of strategic change. Four phases of this style of change leadership have been advocated: 11

● Convince employees that change is imperative and why the new direction is the right one. Again this emphasises the necessity for clarity of future vision and strategy.

● Since change is likely to be interpreted differently throughout the organisation, frame the changes in ways relevant to the different groups and functions that have to enact the change and gather feedback on how this is understood and communicated within those groups.

● Ensure ongoing communication of the progress of change.

● Reinforce behavioural guidelines in line with the change and reward the achievement of change goals.

However, there are problems here. The assumption that reasoned argument in a top-down fashion will overcome perhaps years of embedded assumptions about what ‘really matters’ may be optimistic. There may be apparent acceptance of change without its actually being delivered. Such an approach to change can also take a long time and be costly, for example in terms of training and management time.

● Collaboration 12 in the change process is the involvement of those affected by strategic change in setting the change agenda ; for example, in the identifi cation of strategic issues, the strategic decision-making process, the setting of priorities, the planning of strategic change or the drawing up of action plans. Such involvement can foster a more positive attitude to change. People may also see the constraints the organisation faces as less sig- nifi cant and feel increased ownership of, and commitment to, a decision or change process. It may therefore be a way of building readiness and capability for change. However, there are potential problems here too. People may come up with change solutions that are not in line with, or do not achieve the expectations of, top management or key stakeholders. For example, there is the risk that solutions will be limited to those in line with the existing cul- ture or that the agenda for change will be negotiated and may therefore be a compromise. A strategic change leader who takes this approach may, therefore, need to retain the ability to intervene in the process, though this runs the risk of demotivating employees who have been involved in the change process.

● Participation retains the coordination of and authority over processes of change by a stra- tegic leader who delegates elements of the change process while retaining overall respon- sibility for that change, monitoring its progress and ensuring it occurs. Particular stages of change, such as ideas generation, data collection, detailed planning, the development of rationales for change or the identifi cation of critical success factors, may be delegated to project teams or task forces. Such teams may not take full responsibility for the change pro- cess, but become involved in it and see their work building towards it. An advantage is that it involves members of the organisation, not only in originating ideas, but also in the partial implementation of solutions, helping build commitment to the change. For example, it has been shown that transformational leaders can effectively motivate employees by facilitating their interaction with benefi ciaries (e.g. customers) as a way of showing how a strategic vision has meaning to those benefi ciaries. 13 It may also be that the retention of the agenda and means of change by the strategic leader reduces the possibility of a negotiated compro- mise and means that more radical change can be achieved. The potential problem is that employees may see this approach as manipulation and consequently become disenchanted and demotivated.

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470 CHAPTER 14 LEADING STRATEGIC CHANGE

ILLUSTRATION 14.1

Styles of leading change

Successful top executives highlight lessons for leading change.

Vision is central

‘Good business leaders create a vision, articulate the

vision, passionately own the vision, and relentlessly

drive it to completion.’

Jack Welch, Chairman and CEO of

General Electric 1981–2001

Don’t noodle

Terry Lundgren, CEO of Macy’s and Bloomingdales

departmental stores:

‘I have always been a pretty good listener, and I am

quick to admit that I do not have all the answers. So I

am going to listen. But shortly after I listen, the second

piece is to pull the trigger. I have all the input, and

here is what we are going to do. People need closure on

a decision. If you listen and then noodle on it, people

get confused, and that’s not effective leadership’. 1

Coach but don’t coddle

Allan G. Laffley, Chairman, President and CEO of Procter

& Gamble till 2010:

‘My approach to leadership is to raise aspiration and

then achieve great execution . . . communicate priorities

clearly, simply and frequently . . . to a large degree our

division leaders must define their own future. I play

the role of coach; but coaching doesn’t mean coddling.

I expect our managers to make choices . . . to help

managers make these strategic choices leaders must

sometimes challenge deeply held assumptions . . .

Being a role model is vital . . . I know that I must be

ready for moments of truth that alert the organisation

to my commitment.’ 2

Clarity from the top and learning by doing Carlos Ghosn led successful change following his

appointment as CEO of Nissan and Renault. In a speech

at INSEAD Business School early in the change pro-

gramme (September 2002), Ghosn said:

‘If people don’t know the priority, don’t under stand

the strategy, don’t know where they are going, don’t

know what is the critical objective, you are heading

for trouble. Confusion is the first sign of trouble. It’s

(the leader’s) duty to clarify the environment, to make

sure there is maximum light in the company . . . The

biggest challenge is self confidence . . . (I had) to

help Nissan people believe they could do a great job

in this industry.’ 3

Developing antennae in the public sector

In 2010 Canadian Moya Greene took over as CEO of the

Royal Mail, the UK’s publically owned postal service

which faced major decline in revenue from its traditional

focus on letter mail and union opposition to privatisation.

By 2012 there were signs that this decline had been

halted and relationships with the unions much improved.

She highlighted a key lesson from leading change in the

public sector:

‘My public sector experience helped me understand

how easily sound policies can be derailed by small

symbolic things. It may not matter that the policy

change you are advocating is the product of fantastic

analytics or years of brilliant stakeholder manage-

ment; the tiniest spark can become a flash fire –

something that takes hold and transforms perceptions.

If you work in the public sector, you learn the value of

developing antennae for popular perceptions and

keeping them finely tuned.’ 4

Sources

1 . Interview by Matthew Boyle, in Fortune , 12 December 2005,

vol. 152, no. 12, pp. 126–7 .

2 . Leadership Excellence , November 2006, vol. 23, no. 11, pp. 9–10 .

3 . Reported in ‘Redesigning Nissan (A): Carlos Ghosn takes charge’,

K. Hughes, J.-L. Barsoux and J-F Manzoni, INSEAD, 2003.

4 . ‘Leading in the 21st Century: an interview with Moya Greene’,

McKinsey & Co., September 2012.

Questions 1 How would you describe the styles of leadership

illustrated here in terms of those explained in

section 14.2.1 ?

2 Compare the different accounts. Are there

commonalities and what are the differences?

3 Only some stakeholders are specifically mentioned

in the examples. Does this mean that the style

should be the same towards all stakeholders of

the organisation? If not, how would they differ?

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DIAGNOSING THE CHANGE CONTEXT 471

● Direction involves the use of personal authority to establish clarity on both future strategy and how change will occur . It is top-down management of strategic change where change ‘solutions’ and the means of change are ‘sold’ to others who are tasked with implementing them. The need here is for both clarity of strategic vision and the specifi cs of a change programme in terms of critical success factors and priorities. The approach may be needed if there is a need for fast change or control over the change agenda (e.g. to meet the expecta- tions of dominant external stakeholders). The danger is that it can result in explicit resist- ance to change or people going along with the rhetoric of change while passively resisting it. It is also worth noting that even where top management people see themselves adopting participative styles, their subordinates may perceive this as directive and, indeed, may welcome such direction if they see major change is needed. In its most extreme form direc- tion may take the form of coercion, the imposition of future strategy by the explicit use of power, but this is unlikely to be successful unless, for example, the organisation is facing a crisis.

It is important to point out that change leadership styles are not mutually exclusive. For example, change may be initiated with clear direction accompanied by the ‘hard levers’ of change associated with transactional leadership but be followed through with more the collaborative or participatory approaches more associated with transformational leadership. Moreover different styles may be needed in different parts of an organisation facing different circumstances or at different times as situations change. In short, required change leadership styles are likely to need to differ according to context. Illustration 14.1 provides examples of different strategic leadership styles.

14.3 DIAGNOSING THE CHANGE CONTEXT

Leading change in a small entrepreneurial business, where a motivated team is driving change, is different from trying to do so in a major corporation, or a long-established public- sector organisation, with long established routines and systems and perhaps a great deal of resistance to change. If it is to be effective, the approach to leading change will be different depending on the organisational context in which it occurs. 14 It is therefore useful to consider the appropriateness of different styles of leading change to different contexts.

Julia Balogun and Veronica Hope Hailey’s ‘change kaleidoscope’ (summarised in Figure 14.2 ), provides a framework by which to identify contextual features to take into account in designing change programmes. Here are some examples of the contextual features shown in Figure 14.2 and how some might require different styles of leading change:

● The time available for change could differ dramatically. A business may face immediate decline in turnover or profi ts from rapid changes in its markets. This is a quite different context for change compared with a business where the management may see the need for change as years away and have time to plan it carefully. Persuasion or collaboration may be most appropriate where incremental change is possible, but where change has to happen fast, timing may demand a more directive style.

● The scope of change might differ in terms of either the breadth of change across an organisa- tion or the depth of culture change required. For example, the scope of change required in a global business with multiple brands and perhaps a long cultural heritage is likely to mean that the contribution of people throughout the organisation to a change programme will

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472 CHAPTER 14 LEADING STRATEGIC CHANGE

be necessary. In a successful small business where the breadth and depth of change will be much less, a more directive style may be possible.

● Preservation of some aspects of an organisation may be needed: in particular capabilities on which changes need to be based. Suppose, for example, that a computer software business needs to become more formally organised because of its successful growth. This could upset technical experts who have been used to a great deal of independence and ready access to senior management. Preserving their expertise and motivation could be vitally important, so involving them through collaboration or participation may well be important.

● A diversity of experience, views and opinions within an organisation may help the change process, but will require the involvement of people in that process. However, if an organisa- tion has followed a strategy for many decades, such continuity may have led to a very homogeneous way of seeing the world, which could hamper change. So means of challeng- ing taken-for-granted assumptions and routines will be needed.

● Capacity for change in terms of available resources will also be signifi cant: change can be costly, not only in fi nancial terms, but also in terms of management time. It is likely to be the responsibility of top management (or perhaps owners) to provide such resources.

● Who has the power to effect change? Often it is assumed that the chief executive has such power, but in the face of resistance from below, or perhaps resistance from external stakeholders, this may not be the case. It may also be that the chief executive supposes that

Figure 14.2 The change kaleidoscope

Source : Adapted from J. Balogun and V. Hope Hailey, Exploring Strategic Change , 3rd edn, Prentice Hall, 2008.

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DIAGNOSING THE CHANGE CONTEXT 473

others in the organisation have the power to effect change when they do not, or do not see themselves as having it. In organisations with hierarchical power structures a directive style may be common and it may be diffi cult to break away from it, not least because people expect it. On the other hand, in ‘ fl atter ’ power structures, a more networked or learning organisation described elsewhere in this text (see section 12.3.1 ), it is likely that collabora- tion and participation will be common, indeed desirable.

● Is there a capability of managing change in the organisation? There may be managers who have experience of leading change in the past, or a workforce that has seen the benefi ts of past changes, while people in another organisation may have little experience of change.

● What is the readiness for change? Is there a felt need for change across the organisation, widespread resistance, or pockets or levels of resistance in some parts of the organisation and readiness in others? Again different styles of leading change may be required in these different circumstances.

Illustration 14.2 gives an example of the contextual issues faced in trying to manage change in the UK Ministry of Defence (MOD).

Research on leadership has shown that leadership styles need to differ according, in par- ticular, to the ability and willingness of employees to change. Bearing in mind these two con- textual features, Figure 14.3 suggests that, where there is high readiness but low capability for change, then persuasion , involving education, training and coaching, may be appropriate. Where both readiness and capability are high, then collaboration may be possible and top management may be able to delegate much of the change agenda. Where capability is high but readiness is low, involving people in the change process while retaining overall central control ( participation ) may make sense. Where there is both low readiness and capability for change direction may be the most appropriate style if change is urgent or, it time is available to build capability and readiness, participation may be appropriate.

This consideration of context also raises an important overarching question: is one-off change possible or does it need to occur in stages? For example, in a study of attempts to manage change in hospitals 15 it was found that their governance and organisational structures pre- vented any clear authority to manage change. This, combined with the resource constraints

Figure 14.3 Styles of change leadership according to organisational capability and readiness

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