Corporate Transformers

Mrinmoy Dey | May, 2012

The Dodo, a flightless bird found in Mauritius islands in the Indian Ocean, became extinct 200 years ago. It had an unfit structure and was unable to fly. Till the time the island was isolated, they survived. But once superior species like human, pigs and monkeys appeared there, the existence of the species was endangered. Eventually, it failed to evolve with change in surroundings, weather and became prey to other species. This one species is apt representation of 21st century’s lumbering and stubborn examples that are reluctant to adaption in complex changing business environment and thus get extinct in no time. 

Constant and revolving transformation is the motif of the corporate world today. Outrageously high target for revenues and market share, a bold vision based on a striking business model or groundbreaking technology, major strategic moves like acquisition, joint venture or merger – are deemed to be quintessential for the sustainability of a company in the long-run. In fact, change is all around us, increasing in velocity and driven by myriad external, internal, evolutionary and revolutionary forces. 
Contrary to the traditional belief, no organization is immune. All companies go through a turbulent time which might be due to change in the marketplace or technologies or economic condition or introduction of substitutes or due to stiff market competition. At such situations, coping with this turmoil is the key to remain competitive. One of the detrimental factors of successful transformation is timely interventions of various change programs as any delay may prove to be too decisive to resurrect from downward spiral. However, any such blow does not come without any early omen. The key would be to spot these financial, operational or market triggers early and should be dealt with properly. In the words of Caroline Schoeder, “Some people change when they see the light, others when they feel the heat.”
Once the need for change is realised, you need to examine a company very broadly before determining what really needs transformation and what merely needs intensifying or modification. If a company is not performing well does not necessarily mean all the processes are imperfect but only implies that they do not execute the important things with enough intensity. Even high-performing companies do many things imperfectly. Any change program with more than one page manifesto is bound to fail. Therefore, the eventual path of action should be narrow. While the exact nature of transformation is specific to each company, most change programs include specific parameters like debt reduction, cost control, profitability measures to name a few, that defines the success of the program. For example, return on net asset became the metrics to measure successful transformation at Staples – a US-based company dealing with office supplies. However, going against the wind some companies did not officially pronounce any formal transformation program but they made such sweeping changes that it became obvious that a change program is under way – PepsiCo is a case in point. When Pepsi experienced an inflection point, they quickly sold off the restaurant business in 1997 and divested its bottling assets in 1999. Then they acquired Quaker Oats Co. and South Beach Co. making the intention of diversifying into health-food business crystal clear. In fact, since 2000, Pepsi has heavily invested in its international operation and saw its revenue getting doubled since the start of the operation. 
As a matter of fact, there is no all binding scientific formula of how transformation should be done. Employee resistance is one of the main reasons behind unsuccessful change processes. To eliminate resistance four basic conditions need to be fulfilled. 
Firstly, employees must see the point of change and agree with it. You need to have a compelling story with a balance of both positive and negative aspects to generate real energy. On the one hand, a story focused on what’s wrong invokes the ‘blame game’ and fails to evoke and engage people’s passion and experience. On the other hand, overemphasizing on the positives might lead to dilution of aspirations and impact. Jack Welch, former CEO at GE, did strike a perfect balance between ‘What’s wrong here?’ – poorly performing businesses, silo-driven behavior, and ‘imagining what it might be’ – number one or two in the business, openness and accountability. 
Secondly, the employees must see the top management are behaving in the changed way. This is generally done through change of top management – the obvious reason being self-serving bias. Although change programs are not simultaneously initiated with a CEO change but it clearly indicates a break from the past including prior strategies. For example, Hewlett-Packard Co. last year (September, 2011) appointed Meg Whitmen, the former eBay Inc. Chief, who transformed eBay into a global online retail powerhouse, as the new President and CEO. She replaced Leo Apotheker who slashed sales forecasting several times, backtracked on promises to integrate mobile software into devices and more importantly even struggled to halt an outrageous plunge of around 50% in share price. The new CEO is expected to backtrack many of its major decisions taken during Apotheker’s tenure including the acquisition of British software maker Autonomy Corp Plc. which investors claim to be overpriced acquisition. Avon, an US based Cosmetic company has named Sherilyn McCoy – a veteran long time Johnson & Johnson excecutive, as the new CEO a couple of days back. It clearly indicates that the company isn’t really interested in Coty’s $10 billion takeover offer and would instead focus on transformation programs to arrest the slide in profit declines. 
Thirdly, there must be some incentives for the employees for changing. Motivation towards accepting change depends upon the impact of the transformation program on society (building community, stewarding resources), customer (for instance providing superior service), company and its stakeholders, working team and above all the impact on individual employees (like career development, paycheck) to name a few. If the change program covers all these aspects then it is bound to unleash tremendous amount of energy which would otherwise remain latent in the organization. Small and unexpected rewards can have disproportionate effects on employees’ satisfaction with a transformational program. While turning around Continental Airlines, the then CEO Gordon M. Bethune, sent an unexpected $65 check to every employee when the company made it to top five for on-time airlines. 
Fourthly, employees must possess the skills required to make the desired change. A company – planning to introduce a new technology that would reduce cost or improve operational efficiency, must train its employees beforehand to avoid resistance and the message should be given clearly leaving no room for speculation. 
All these are easier said than done. The success rate of change programs is considerably low as suggested by various researches. As per John Kotter’s research only 30 percent of change programs succeed. In 2008, a McKinsey survey of 3199 executives around the world prevailed that only one transformation in three actually succeeds. There are thousands of models and researches on how to make successful transformation. Although, these static and normative models are admittedly helpful in presenting a vision of what ‘good’ look like and identifying some of the changes that can be brought but rarely do they capture the dynamic nature of change. So what really does happen is that although the prescription is right but it goes all wrong in the implementation phase. Most of the time the reason for failure is that the focus is either too broad or too narrow which creates confusion and results in typically wasting time and energy and creating messages that miss the mark thus come up with frustrating unintended consequences. 
However, most critical factor behind any transformation is the change leaders. While most good managers try to keep things under control, the change agents are determined to shake up things and mainly depend on their market intelligence to get information about what the competitors are up to. They rarely apply standard off-the-shelf approaches and improvise on their past experience all the time. The key to remain competitive is constantly looking for the triggers and react quickly to keep their boats afloat in the right direction. Charles Darwin in his book ‘Origin of Species’ on ‘Theory of Evolution’ mentioned, “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” Perhaps, this is even more suited to the corporate world.