Illustrate an Effective Change Management Strategy

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Chapter 11 Institutionalize and Leverage Change Imagine this scenario: Two companies implement the same IT system. They use the same vendors to manage the project and implement the changes. They use the same outsourcing and contract manufacturing companies. And yet, they achieve very different results. Five years out, company A has seen incredible, direct benefits from the change. Company B is struggling, hindered by the same problems the system was supposed to fix.

I've seen this happen many times, and the question becomes, how could two companies that implemented similar changes get such different results?

The answer often ends up being fairly straightforward: Company B changed the infrastructure but never changed the culture by making needed changes to processes, behaviors, organization charts, decision-making authority, and so on. Even small holdovers of the old ways can eat away at gains. For example, the ERP system we implemented at Medtronic made real-time information accessible to all. But we couldn't reap the benefits of that until we had also increased the decision-making authority of front-line people so that they could act on what they learned. Processes had to change, too. The system allowed us to increase the use of automated orders, at least in theory. But I sat down with a representative in our customer care group one day and found out that all those electronic orders were being manually reviewed before being released to the warehouse, eating up all the efficiency the streamlined system was intended to create.

Why Organizations Lose Their Focus To catch and follow through on all the changes, an organization needs long-term focus and real cultural change. Let's start by talking about the reasons why organizations lose their focus.

Short-Term Financial Distraction CEOs and boards have to balance the need to achieve short-term quarterly earnings against the demands of long-term strategic initiatives. If they don't do it well, the budget and man hours devoted to change initiatives are gutted to meet immediate financial priorities, and the longer- term, higher-value rewards never come to fruition.

This is nothing new. Experienced change agents manage expenses to protect their initiative from this threat. Budget for the best, but plan for the worst. “The worst” in this case is when management asks you to reduce the initiative's cost by 10 or 15 percent in order to meet Wall Street's quarterly earnings expectations. Not meeting expectations can result in a serious drop in stock price. If it happens several times, Wall Street and large shareholders start questioning the effectiveness of the company's leadership, and heads roll.

Dallas, H. J. (2015). Mastering the challenges of leading change : Inspire the people and succeed where others fail. Retrieved from http://ebookcentral.proquest.com Created from ncent-ebooks on 2020-07-22 13:41:47.

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When asked to reduce costs, be prepared; otherwise your boss can legitimately question how supportive you are to the overall success of the organization and not just the change initiative you are leading. The best way to pave the way for cost reductions that won't adversely impact the initiative is by making sure at least 25 percent of the resources working on it are contract employees rather than full-time employees. Reserve full-time staff for the most critical aspects of the initiative. With this kind of flexibility in the team, you can pull back as needed without shutting the project down. If you're working with a third party to bring in contractors, you'll need a strategic relationship to get past the normal stipulation of 60 to 90 days' notice before reducing employee numbers. That's not enough flexibility to reduce cost before the end of a quarter. By building a solid, forward-looking relationship, I've been successful in negotiating 15- and 30-day notice periods. That's a staffing model that provides the flexibility you need to support the company while maintaining the initiative's momentum.

Change Overload Another reason why change isn't sustained is that there are too many changes taking place at once. It reminds me of the lyrics in one of my favorite songs, which I'll paraphrase: I can't do what 10 people tell me, so I guess I won't change. People can only focus their attention on a few things at once. If there are too many “top priorities,” people will fall back on doing things the way they know. In other words, if everything is important, nothing is. A close relative of change overload is “change de jour,” when organizations pile on a new top priority annually before the previous ones have been implemented. People never fully engage because they know that something new is right around the corner.

To prevent overload from occurring, I have a “rule of three.” At any one time, my teams had three top strategic priorities, and each person had three individual priorities directly linked to the strategic priorities. The same goes for operational and tactical priorities. They don't change unless something material, like an acquisition or major quality issue, comes up.

Leadership Transitions It takes a good three to seven years to institutionalize change, especially transformational change. Trouble is, most senior executives don't stay in their positions that long, and there's no guarantee that new leadership will support your initiative. There are a couple of ways to protect yourself against this risk. One is to be on the watch for your boss's likely successor and start cultivating that relationship early. The other is to cultivate relationships across the executive level so that you have a strong base of support that can help to influence a new leader on the scene. For most large-scale change, you're lost without the support of the CEO, whose influence reaches beyond every functional barrier.

When I was interviewing with Medtronic, the CEO was more than five years into his tenure. Meanwhile, realizing the full benefits of the ERP system implementation at the center of my mandate would take five to seven years. As a result, I rested my decision on my evaluation of his successor more than on my evaluation of him. Medtronic made it easy for me because, at that time, they had a very orderly CEO succession process. When they named the CEO, they

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normally named the COO at the same time. When the CEO retired, the COO would succeed him, and the process would repeat itself. When interviewing with the COO, I asked enough questions to be sure that he supported implementing the ERP system, and not just because it was the politically correct thing to do as long as the current CEO was around.

I didn't stop there. I also evaluated the next most important and influential person in the company: the CFO, who was positioned to be there for a while. I was relieved to find he was the ERP system's most enthusiastic supporter. Since he had been with Medtronic for over 15 years, he also knew what the challenges would be in implementing it, especially in IT, which had been reporting to him while the company completed its CIO search. The CFO turned out to be a great business partner and trusted friend.

I knew that the challenge at Medtronic would be great, and I didn't want to take it on if I didn't believe it could be successful. All change agents need to make that kind of evaluation when considering a new campaign. If evidence mounts that success is unlikely in your current environment, you're better off taking your ambitions elsewhere.

Continued Resistance Even years into an initiative, those people who fought you, in particular the Machiavellis, will continue to resurface. They'll take action any time there's a business challenge that can be linked, however remotely, to the change you achieved. At this later stage in the game, they have a whole new set of tactics. Here's what to watch for and how to persevere.

The money pit: The instigator exaggerates the costs of the initiative and underestimates the benefits, arguing that to continue would be throwing good money after bad. This is when having the CFO as your partner saves you. His numbers are the ones the top brass listen to.

The revisionist history: This tactic, used by a lot of people who were firefighters in the old culture, involves spreading a revisionist history of the organization prior to the change, at which time things were “so much better.” They have either conveniently forgotten about or minimized the big fire that was the catalyst for change in the first place. Don't try to address this yourself; your version of history, however accurate, will be seen as biased and self-serving. Instead, punt this one once more to the CFO. He or she has the numbers and the high-level perspective to remind people how bad things really were.

The chicken dance: Chicken Littles want to convince everyone the sky is falling, and the only way to save the organization is to roll back to the old ways. They're relentless in trying to represent every growing pain as the sign of a metastasizing cancer. As when facing political challenges in the past, an independent third-party audit is your friend. Be careful with consulting firms, because they have their own reasons to diagnose a cancer: They then can sell themselves as the cure. Whenever possible, start instead with your internal audit department. Taking this approach often has a secondary benefit. Generally the head of internal audit reports to the audit committee of the company's board of directors. He will be in executive session with them and will speak to the initiative's progress (or

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lack thereof). Asking for an independent review will let you see in advance what he will be saying. You do have to be ready to take the good with the bad and the ugly—but change leaders should always welcome independent, unbiased feedback.

The bottom line is, you always need to be prepared for challenges. You'll be at a business review, and someone will show that he won't be able to meet his numbers for the quarter (or worse yet, for the year) because of problems associated with the change initiative. All eyes will then turn to you for some type of response. The worst possible answer is, “I'll look into it and get back to you.” That answer makes you look out of control and oblivious to the impact of your work.

Ideally, you want to be able to say that you have been directly involved, you have taken steps (which you outline), and to put the cherry on it all, you already have an independent assessment underway. But to be able to give such a response, you'll need to go into every meeting prepared for anything, armed with facts. Keep nurturing relationships with your hubs!

Evolving the Culture Earlier in the chapter on messaging, I talked about the need to speak to the culture of the organization you're trying to change. Meeting them where they are eases the transition to new behaviors and values, and all the practical changes that follow—to processes, organizational charts, changed responsibilities, and so on.

But in order to make change stick, leaders must proactively help the culture evolve so that they preserve what's important from the “old way” but also find purchase for the new way. To be truly successful, you need employees to do more than follow the new processes and behaviors by the book. If that's all you achieve, then as soon as the “book” gets buried, people roll back to old behaviors. What you really need is for employees to understand the new mission so well that they help you rewrite the book going forward. That's where culture comes into play.

For example, in my earlier example about the ERP system helping to automate orders at Medtronic, there were two cultural values in play. First, there was the need to offer our customers top quality—a founding value of the company. But we also needed employees to embrace a new value, frugality, so that we could meet customers' expectations and stay competitive. We had introduced a technology that would allow for both efficiency and quality in the ordering process, but only if employees understood why it was important and trusted the technology to automate some functions. Training played a big roll in that shift, but we also needed to help the culture evolve by pulling on the same three levers I mentioned before: language, celebrations, and heroes.

The ABCs of a common business language are metrics, which executives use to communicate with each other and throughout the company. That saying “What gets measured gets done” should be broadened to “What gets measured gets done and communicated.” Metrics are key to changing the culture and institutionalizing change. The cost side is usually straightforward: Tightened budgets and increased attention to them emphasize the need to focus on efficiency. To make sure that we maintained quality at the same time, we developed new metrics around

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customer satisfaction and error-free regulatory inspections.

To further enshrine quality amidst the changes, we created new awards for “highest quality” and “most improved” among the business units. The CEO presented these personally on an annual basis. We also started celebrating successful regulatory reviews, instituted an annual event in which R&D teams showcased their experiences using the new methodology, and started having quarterly quality reviews with executive management in which the CEO and all of the business unit GMs and EVPs participated. The VPs—the same ones who at the outset were so convinced that shared standards were impossible—helped lead the reviews. Of course they did: They had become the heroes who made the transformation happen.

We needed heroes that embodied cost-effectiveness, too. Ed Bakken himself made a huge contribution there. At Medtronic's annual holiday party, the company's biggest celebration, Ed took time in his opening comments to praise the work I was doing. For the company's hero innovator to acknowledge someone who was leading efficiency and effectiveness change initiatives was a seminal moment. Nothing is more powerful than a current hero lending his support to a new one.

A Small but Powerful Tool for Change

When colleagues become partners in or exemplars of the change you're leading, there's a powerful but often overlooked way to keep them energized: a thoughtful, handwritten thank-you note. People have sent me e-mails with the images of thank-you notes I had written them 10 years prior. When you thank someone via e-mail, the note is often buried in a person's memory as soon as it is buried in his or her inbox. Handwritten notes, few and far between these days, often take up residence on a desk, bulletin board, or drawer, increasing their impact. Individual thank-you notes of any kind are much more powerful than group notes. The more specific they are about the person's effort, the more powerful.

Making Metrics Matter Developing metrics is one thing. Getting people to work hard over time to improve their achievement against them is another. You can create banners, screen savers, and LCD signs displaying the metrics, but they don't do much. To see the numbers improve, people need to be held individually accountable and incented. By doing so, you are investing every single employee in the success of the initiative.

Just like earnings, metrics need to be reviewed quarterly by executive management to stay front and center over time. During the transformation at Medtronic, the CEO used his quarterly town hall meetings, which were broadcast to the organization worldwide, to share how we were doing against our new metrics.

He celebrated successes, but when a business unit had a quarter with poor results, he called it out in front of everyone. Given the “hometown pride” of each business unit, that kind of public

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shame made meaningful impact.

The CEO's public support for the new metrics is essential, particularly in situations when new metrics and their corresponding priorities are competing with the old culture. For example, when we had start-up problems after the ERP implementation, the CEO and other top executives never questioned that we were taking the right step forward, even as the business units were looking to shut us down.

If you're having trouble getting the CEO on board, huddle with the CFO and the head of human resources for help. If together you can't change his or her mind, start planning your exit. The chances that your initiative will take root are next to zero.

The Power of Documentation The power of common, accurate documentation to keep an evolving organization on course cannot be underestimated. It resolves disputes and prevents misunderstandings. Everyone should be working off the same version and should be able to follow the history and authorship of changes. In addition, they should be able to quickly chat and caucus when there are questions or misunderstandings.

Common documentation is also powerful when it comes to training. Indeed, effectively and efficiently training people around the world on new processes, policies, and people has been a persistent challenge for change agents in global organizations. In the past, we hired technical writers who created many volumes of binders filled with training and policy information. Many a tree lost its life for the cause. Unfortunately, those documents were outdated by the time they were printed, and they were rarely at hand when people actually needed them.

Today, technology offers many solutions to make documentation flexible, accessible, and searchable. When training, I recommend online “best practices” wikis or forums. Within them, people can post questions they have about new technology, processes, and so on and have their peers answer them. For example, an employee might need to know how to execute a certain transaction within the new system. These forums can include “cheat sheets” or FAQs that address the most frequent challenges faced as people navigate the new way of doing things.

These forums, available to all, do more than improve information flow and sustain change. They also bring people together across functions and around the world. Everyone from the CEO to a warehouse worker can post on them. As a result, mental boundaries start to expand, and the sense of having a shared culture expands. While an HR or other community leader might monitor the forums to help surface the best information and ensure accuracy, it's vital that information be able to move freely from the bottom up.

To Leverage Change, Keep Tearing Down Walls In the aftermath of a successful initiative, you have a unique opportunity. People's minds have been forced open, their boundaries ripped down or rewritten. Now is the time to leverage that

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state of being by looking proactively for the next big transformation. If you don't find it, you can bet it will find you—in a less-than-ideal state of preparedness.

Look for those barriers that are interrupting or slowing the four flows of business: Information, products and services, money, and people. If you can take down those barriers, you will be rewarded with more efficiency and better solutions.

Information To maximize the benefits of change, remove barriers to the flow of information first; those changes make it possible to address all the others. That's why I always initially focused my attention on the IT systems. A sage mentor once told me, “The quickest way to tell how customer-focused and effective an organization is this: count its customer databases.” In other words, when data is tucked into multiple databases, it's exceedingly difficult for any one person to have a 360-degree view of the customer. When I arrived, Medtronic had more than 16 ERP systems. Consolidating and reconciling data took a tremendous amount of time, and frequently we'd find people's numbers didn't match. “Truth” was dependent on which system you were using, both in terms of the actual numbers and how they were interpreted.

Only once we reached critical mass with the ERP implementation were we ready to turn our attention to tearing down other walls, at which point the benefits became more and more substantial. We consolidated the data centers and IT systems and flattened our IT and operations organizations. We removed over 20 vice president, senior director, and director positions. With information flowing freely, we were able to turn front-line and middle management into decision makers instead of just policy administrators, communicators, and problem escalators. The impact was profound. We lowered our year-over-year actual cost for seven years in a row, even as our volume increased by over 100 percent as a result of the company's growth. Our effectiveness (quality) also improved based on our customer satisfaction results. Any time we came in under budget, I put the funds toward innovation and quality improvements within the business units—the aforementioned “Dallas Dollars.”

Beyond the ERP implementation, we found other ways to improve the flow of information. We upgraded and extended our telecommunications network to customers, suppliers, and, most importantly, each other. As a result, we increased collaboration by making it easier and faster for people to connect with each other. We worked with R&D to create “innovation” campaigns. Within them, we posed questions and problems not only to our R&D personnel around the world, but also to people outside of the company.

Products and Services Once a common IT and communications infrastructure is implemented, the next place to start looking for barriers is in the supply chain, for products companies. Specifically, look to see how many warehouses (distribution centers) there are throughout the company. Here's why: Once you have a common IT system that gives everyone real-time visibility of customer demand, supply, and manufacturing, you can start replacing inventory with information. In other words, you can start synchronizing your supply chain with your customers and suppliers. For

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example, Medtronic had more than 13 distribution centers in the United States and seven in Puerto Rico, our largest manufacturing site at the time. After consolidation, we had four in total, as well as an improved rate of on-time delivery. For service companies, the parallel barriers are those related to transaction processing— orders, invoices, payments, service requests, and so on. A good place to start is service requests, since they are the most important ones to the customers. For example, if service requests have to be manually initiated by the customer (a wall), figure out a way to integrate your IT system with theirs so that the process is automated. If that isn't possible, focus on making the process as easy as possible for customers. For example, hotels and rental car companies these days are working hard to simplify the reservation and checkout processes.

Ease is the key word for improving flow of both products and services. The next priority is scale because it allows you to grow while keeping your incremental cost low.

Money At Medtronic, as at other product companies, the flow of money starts with a customer placing his or her order. It ends with payment and the closing of books at the time of quarterly and annual financial statements. Moving to a single ERP system allows us to start automating transactions; before, the system was too complex. We went from automating 5 percent of transactions to 70 percent—figures that represent a huge barrier being removed in terms of the customer's ability to move quickly and easily through the purchase process. Money flowed while customer satisfaction shot up from an average score of around 3 to more than 4 on a scale of 1 to 5 (1 was the worst). The time it took to close the books went from weeks to days. Finally, we were able to cut days off of our cash flow by automating the flow of transactions.

Automated transactions, e-commerce, and electronic payment options are all examples of ways that companies remove barriers to the flow of money. The technologies not only speed up payments by removing paper mail, but they also improve accuracy. Prices are checked and compared in advance of invoicing and payment.

People Changing how people interact with each other and the company may be the single most powerful opportunity for change. You see people flows are interrupted when functions or divisions are siloed, when stratified hierarchies narrowly circumscribe behavior and contributions, and when physical walls or distance stifle collaboration.

When people get comfortable and start trusting each other, boundaries fall and change is leveraged most effectively. New ideas bubble and surface. At Medtronic, the big breakthrough in our quality transformation occurred when the R&D, manufacturing, and quality leaders across the entire organization collaborated on the design for an initiative focused on taking quality to the next level given the increasing complexity of our new products. For the first time ever, the functions came together, rather than R&D taking the lead and involving quality and manufacturing later on in the process. As a result, less iteration was required before and after

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products were launched. It was a better way to work.

Shifting to cross-functional collaboration required both mind-set changes and infrastructural upgrades. People had to rebuild their belief systems around how things “should” get done to much more collaborative models. Meanwhile, moving to a common IT and telecommunications system allowed people around the world to work from common documentation and communicate with ease.

As people interact more frequently and with a more diverse group, build on each other's ideas, and are empowered to resolve problems on their own, employee engagement also increases, which again propels new benefits. I've never seen my IT teams more energized than when working hand-in-hand with customers, suppliers, and other internal functions such as marketing, engineering, and sales.

Energized teams, in the end, are what you need more than anything to sustain change—and then to continue evolving, finding every opportunity to help your company do more of what it does, and better. In a rapidly changing world, you'll be most successful when it's not just you coming up with the billion-dollar ideas, but the people who work for you. That's the true art of change leadership, and the work never ends.

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Chapter 11 in Tweets

To succeed in changing your organization, get the support of your CEO or bust.

Flexible employment contracts help change initiatives stay afloat during short-term budget squeezes.

New metrics institutionalize change—if every individual is measured and rewarded.

To sustain change, change the culture. To change the culture, change the metrics, the heroes, and the celebrations.

Documentation is the change agent's friend. Make it accessible, flexible, and open to all.

To leverage change, keep changing. Remove barriers to the flow of information, then move on to products, money, and people.

A handwritten thank-you note is a powerful tool for agents of change.

Coaching Moments All “no” answers need to be addressed.

Question Answer (Yes or No)

1. If the change has been implemented for longer than six months, have you had an independent third party do an assessment?

2. Are common metrics being monitored by executive management? Are the people who achieve them being celebrated, and are those who fail being held accountable?

3. If the change initiative is more than a year old, is the organization still giving it enough focus to bring its full, long-term benefits to fruition?

4. Have you created or utilized an existing online forum for sharing best practices?

5. Have you identified and started working on the next change initiative, one that will allow you to more fully leverage the prior one?

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