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Change is the one constant in business, and we must adapt or face obsolescence. Yet certain challenges never go away. That’s what makes this book a “must read.” These are 10 seminal articles by management’s most influential experts, on topics of perennial concern to ambitious managers and leaders hungry for inspiration—and ready to run with big ideas to accelerate their own and their companies’ success.

If you read nothing else—full stop—read: • Michael Porter on competitive advantage • John Kotter on leading change • Daniel Goleman on emotional intelligence • Peter Drucker on managing your career • Clay Christensen on disruptive innovation • Tom Davenport on analytics • Robert Kaplan and David Norton on the Balanced Scorecard • Rosabeth Moss Kanter on innovation • Ted Levitt on marketing • C.K. Prahalad and Gary Hamel on core competence

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Other books you may be interested in: Harvard Business Review on Finding & Keeping the Best People

Harvard Business Review on Building Better Teams

Harvard Business Review on Making Smart Decisions

Harvard Business Review on Communicating Effectively

Harvard Business Review on Winning Negotiations

Harvard Business Review on Inspiring & Executing Innovation

Harvard Business Review on Collaborating Effectively

Harvard Business Review on Rebuilding Your Business Model

HBR’s 10 Must Reads: Classic ideas, enduring advice, the best thinkers

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

OVER THE PAST DECADE , I have watched more than 100 companies try to remake themselves into significantly better competitors. They have included large organizations (Ford) and small ones (Landmark Communications), companies based in the United States (General Motors) and elsewhere (British Airways), corporations that were on their knees (Eastern Airlines), and companies that were earning good money (Bristol-Myers Squibb). These efforts have gone under many banners: total quality management, reengineering, rightsiz- ing, 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 success- ful. 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 envi- ronment 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 re- sult. A second very general lesson is that critical mistakes in any of the phases can have a devastating impact, slowing momentum and

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1 Establishing a sense of urgency • Examining market and competitive realities • Identifying and discussing crises, potential crises, or major opportunities

2 Forming a powerful guiding coalition • Assembling a group with enough power to lead the change effort • Encouraging the group to work together as a team

3 Creating a vision • Creating a vision to help direct the change effort • Developing strategies for achieving that vision

4 Communicating the vision • Using every vehicle possible to communicate the new vision and strategies • Teaching new behaviors by the example of the guiding coalition

5 Empowering others to act on the vision • Getting rid of obstacles to change • Changing systems or structures that seriously undermine the vision • Encouraging risk taking and nontraditional ideas, activities, and actions

6 Planning for and creating short-term wins • Planning for visible performance improvements • Creating those improvements • Recognizing and rewarding employees involved in the improvements

7 Consolidating improvements and producing still more change • Using increased credibility to change systems, structures, and policies that don’t fit the vision • Hiring, promoting, and developing employees who can implement the vision • Reinvigorating the process with new projects, themes, and change agents

8 Institutionalizing new approaches • Articulating the connections between the new behaviors and corporate success • Developing the means to ensure leadership development and succession

Eight steps to transforming your organization

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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 dra- matically, 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 aggres- sive 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

Idea in Brief Most major change initiatives— whether intended to boost quality, improve culture, or reverse a corporate death spiral— generate only lukewarm results. Many fail miserably.

Why? Kotter maintains that too many managers don’t realize transformation is a process, not an event. It advances through stages that build on each other. And it takes years. Pressured to accelerate the process, managers skip stages. But shortcuts never work.

Equally troubling, even highly ca- pable managers make critical mis- takes—such as declaring victory too soon. Result? Loss of momen- tum, reversal of hard-won gains, and devastation of the entire transformation effort.

By understanding the stages of change—and the pitfalls unique to each stage—you boost your chances of a successful transformation. The payoff? Your organization flexes with tectonic shifts in competitors, markets, and technologies—leaving rivals far behind.

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Idea in Practice To give your transformation effort the best chance of succeeding, take the right actions at each stage—and avoid common pitfalls

Stage Actions needed Pitfalls

Establish a sense of urgency

• Examine market and competitive realities for potential crises and untapped opportunities.

• Convince at least 75% of your managers that the status quo is more dangerous than the unknown.

• Underestimating the difficulty of driving people from their comfort zones

• Becoming paralyzed by risks

Form a powerful guiding coalition

• Assemble a group with shared commitment and enough power to lead the change effort.

• Encourage them to work as a team outside the normal hierarchy.

• No prior experience in teamwork at the top

• Relegating team leader- ship to an HR, quality, or strategic-planning executive rather than a senior line manager

Create a vision • Create a vision to direct the change effort.

• Develop strategies for realizing that vision.

• Presenting a vision that’s too complicated or vague to be commu- nicated in five minutes

Communicate the vision

• Use every vehicle possible to communicate the new vision and strate- gies for achieving it.

• Teach new behaviors by the example of the guiding coalition.

• Undercommunicating the vision

• Behaving in ways anti- thetical to the vision

fail in this first phase. What are the reasons for that failure? Some- times 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. Some- times they lack patience: “Enough with the preliminaries; let’s get on

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Empower others to act on the vision

• Remove or alter systems or structures undermining the vision.

• Encourage risk taking and nontraditional ideas, activities, and actions.

• Failing to remove powerful individuals who resist the change effort

Plan for and create short-term wins

• Define and engineer visible performance improvements.

• Recognize and reward employees contributing to those improvements.

• Leaving short-term suc- cesses up to chance

• Failing to score successes early enough (12–24 months into the change effort)

Consolidate improvements and produce more change

• Use increased credibility from early wins to change systems, structures, and policies undermining the vision.

• Hire, promote, and develop employees who can implement the vision.

• Reinvigorate the change process with new projects and change agents.

• Declaring victory too soon—with the first per- formance improvement

• Allowing resistors to convince “troops” that the war has been won

Institutionalize new approaches

• Articulate connections between new behaviors and corporate success.

• Create leadership development and succession plans consistent with the new approach.

• Not creating new social norms and shared val- ues consistent with changes

• Promoting people into leadership positions who don’t personify the new approach

with it.” In many cases, executives become paralyzed by the down- side possibilities. They worry that employees with seniority will be- come 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.

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A paralyzed senior management often comes from having too many managers and not enough leaders. Management’s mandate is to mini- mize risk and to keep the current system operating. Change, by defini- tion, 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 organiza- tion 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 atten- tion. But it also gives less maneuvering room. With good business re- sults, 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 al- ways 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 in- dices 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 com- pany, is “to make the status quo seem more dangerous than launch- ing 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

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would be terrible. He then made these findings public. On the sur- face, such moves can look unduly risky. But there is also risk in play- ing 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 hon- estly convinced that business as usual is totally unacceptable. Any- thing 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 five or 15 or 50 people, come together and develop a shared commitment to excel- lent 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 re- newal 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

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hierarchy by definition. This can be awkward, but it is clearly neces- sary. If the existing hierarchy were working well, there would be no need for a major transformation. But since the current system is not working, reform generally demands activity outside of formal boundaries, expectations, and protocol.

A high sense of urgency within the managerial ranks helps enor- mously 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 op- portunities, and create a minimum level of trust and communica- tion. Off-site retreats, for two or three days, are one popular vehicle for accomplishing this task. I have seen many groups of five to 35 ex- ecutives attend a series of these retreats over a period of months.

Companies that fail in phase two usually underestimate the diffi- culties 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 exec- utive 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 opposi- tion gathers itself together and stops the change.

Error 3: Lacking a Vision

In every successful transformation effort that I have seen, the guid- ing coalition develops a picture of the future that is relatively easy to communicate and appeals to customers, stockholders, and employ- ees. A vision always goes beyond the numbers that are typically found in five-year plans. A vision says something that helps clarify the direction in which an organization needs to move. Sometimes the first draft comes mostly from a single individual. It is usually a bit blurry, at least initially. But after the coalition works at it for three

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or five or even 12 months, something much better emerges through their tough analytical thinking and a little dreaming. Eventually, a strategy for achieving that vision is also developed.

In one midsize European company, the first pass at a vision con- tained two-thirds of the basic ideas that were in the final product. The concept of global reach was in the initial version from the begin- ning. 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 pe- riod of several months.

Without a sensible vision, a transformation effort can easily dis- solve 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 depart- ment, 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, direc- tives, 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 state- ment of where all this was leading. Not surprisingly, most of the em- ployees 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 de- scribe his vision and received in return a barely comprehensible 30- minute lecture. Buried in his answer were the basic elements of a sound vision. But they were buried—deeply.

A useful rule of thumb: If you can’t communicate the vision to someone in five minutes or less and get a reaction that signifies both understanding and interest, you are not yet done with this phase of the transformation process.

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Error 4: Undercommunicating the Vision by a Factor of Ten

I’ve seen three patterns with respect to communication, all very common. In the first, a group actually does develop a pretty good transformation vision and then proceeds to communicate it by hold- ing a single meeting or sending out a single communication. Having used about 0.0001% of the yearly intracompany communication, the group is startled when few people seem to understand the new approach. In the second pattern, the head of the organization spends a considerable amount of time making speeches to employee groups, but most people still don’t get it (not surprising, since vision captures only 0.0005% of the total yearly communication). In the third pattern, much more effort goes into newsletters and speeches, but some very visible senior executives still behave in ways that are antithetical to the vision. The net result is that cynicism among the troops goes up, while belief in the communication goes down.

Transformation is impossible unless hundreds or thousands of people are willing to help, often to the point of making short-term sacrifices. Employees will not make sacrifices, even if they are un- happy 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 sac- rifices include job losses. Gaining understanding and support is tough when downsizing is a part of the vision. For this reason, suc- cessful 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 busi- ness 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 exec- utives are contributing to the transformation. In a routine Q&A with

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employees at a company facility, they tie their answers back to re- newal goals.

In more successful transformation efforts, executives use all ex- isting communication channels to broadcast the vision. They turn boring, unread company newsletters into lively articles about the vi- sion. They take ritualistic, tedious quarterly management meetings and turn them into exciting discussions of the transformation. They throw out much of the company’s generic management education and replace it with courses that focus on business problems and the new vision. The guiding principle is simple: Use every possible channel, especially those that are being wasted on nonessential in- formation.

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 cor- porate culture. This is often not easy. A 60-year-old plant manager who has spent precious little time over 40 years thinking about cus- tomers 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 de- sired 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 ap- proaches, 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.

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To some degree, a guiding coalition empowers others to take ac- tion 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 ap- pears 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 produc- tivity or make it very difficult even to think about customers. Some- times 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 pub- licity 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 al- lowed 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 com- pany 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 of- ficers did virtually nothing to stop the one blocker. Again, the rea- sons were complex. The company had no history of confronting problems like this. Some people were afraid of the officer. The CEO was concerned that he might lose a talented executive. The net re- sult 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.

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In the first half of a transformation, no organization has the mo- mentum, 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 im- portant that he or she be treated fairly and in a way that is consistent with the new vision. Action is essential, both to empower others and to maintain the credibility of the change effort as a whole.

Error 6: Not Systematically Planning for, and Creating, Short-Term Wins

Real transformation takes time, and a renewal effort risks losing mo- mentum if there are no short-term goals to meet and celebrate. Most people won’t go on the long march unless they see compelling evi- dence in 12 to 24 months that the journey is producing expected re- sults. 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 in- come stopping. You find some successful new product introductions or an upward shift in market share. You find an impressive produc- tivity 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 trans- formation, managers actively look for ways to obtain clear perform- ance improvements, establish goals in the yearly planning system, achieve the objectives, and reward the people involved with recog- nition, 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 han- dled by a small team of people who were devoted to the new vision,

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it had upside potential, and the new product-development team could operate outside the established departmental structure with- out 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 pro- duce short-term wins help keep the urgency level up and force de- tailed 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 cele- brating 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 de- clared and the expensive consultants were paid and thanked when the first major project was completed after two to three years. Within two more years, the useful changes that had been introduced slowly disappeared. In two of the ten cases, it’s hard to find any trace of the reengineering work today.

Over the past 20 years, I’ve seen the same sort of thing happen to huge quality projects, organizational development efforts, and more. Typically, the problems start early in the process: The urgency level is not intense enough, the guiding coalition is not powerful enough, and the vision is not clear enough. But it is the premature victory celebration that kills momentum. And then the powerful forces associated with tradition take over.

Ironically, it is often a combination of change initiators and change resistors that creates the premature victory celebration. In their enthusiasm over a clear sign of progress, the initiators go

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overboard. They are then joined by resistors, who are quick to spot any opportunity to stop change. After the celebration is over, the re- sistors 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 reluc- tant 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 prob- lems. They go after systems and structures that are not consistent with the transformation vision and have not been confronted be- fore. 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 pe- riod. 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 cor- porate body. Until new behaviors are rooted in social norms and shared values, they are subject to degradation as soon as the pres- sure for change is removed.

Two factors are particularly important in institutionalizing change in corporate culture. The first is a conscious attempt to show people how the new approaches, behaviors, and attitudes have helped improve performance. When people are left on their own to make the connections, they sometimes create very inaccurate links. For example, because results improved while charismatic Harry was

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boss, the troops link his mostly idiosyncratic style with those results instead of seeing how their own improved customer service and pro- ductivity were instrumental. Helping people see the right connec- tions requires communication. Indeed, one company was relentless, and it paid off enormously. Time was spent at every major manage- ment meeting to discuss why performance was increasing. The com- pany 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 organiza- tion can undermine a decade of hard work. Poor succession deci- sions are possible when boards of directors are not an integral part of the renewal effort. In at least three instances I have seen, the cham- pion for change was the retiring executive, and although his succes- sor 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 exec- utive in one case tried unsuccessfully to talk his board into a less sea- soned 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 succes- sors. 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.

Originally published March 1995. Reprint R0701J

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