CHANGE MANAGEMENT ^1 Real change They are not who you think they are Fundamentalists in disguise, most are middle managers What do they expect from you? Jon R. Katzenbach Jon Kaizc'iihach is a director in McKinsey's Houston office. This article is an edited excerpt from Rt'iil Cltangv Ix'udi'rs: How you can create growth ami high pajormtmcc at your company, by Jon and the Real Change Team, published recently by Times Books/ Random House in the US and hy Nicholas Brealey Publishing in the UK. Copyright ;C' 1995,1996 McKinsey & Company All rights reserved. FRANK WlllTNEV/IXl. IMAGE BAWii I would like to acknowledge and thank the members of McKinsey's Real Change Team, comprising: Frederick Beckett and Timothy Ling. principals in the Los Angeles office; Steve Dichter. director of the McKinsey Change Center; Marc Feigen and Qin-ntin Hope, members of the McKinsey Change Center; and Chris Gagmm. a principal in the New Jersey office. 148 THE McKINSEY QUARTERLY 1996 NUMBER 1 R R EAL CHANGE LEADERS are seldoiTi foiind in executive suites. Though top-level involvement is essential to organizational change, the real change leaders (RCLs) who affect how the majority of people perform come from the ranks of middle and frontline managers. A recent study of nearly 150 mid-level change leaders in 29 different change efforts explored what makes RCLs stand out from traditional middle managers, and what top management can do to ensure a critical mass of this emerging new leadership capacity. THE McKENSEY QUARTERLY 19% NUMBER I 149 REAL CHANGE LEADERS Wrenching change programs are today engulfing company after company with their relentless demands on change leaders. Since such individuals are invariably in short supply, it is no coincidence that most of these efforts stall part way through. They simply become bogged down in the middle, even when they have been well thought through and are driven by enlight-,.. , • , J J & Wrenching change programs are ened top management groups. , . ic A ^ ^ fa K today engulnng company after _, ,.^ , „ . company with their relentless The most difhcult aspect ot major j J U i J , .. . J • , • demands on change leaders the right concept, core process re- change has little to do with getting design, or even a team at the top. It lies in changing the people system - the skills and behavior of hundreds of employees down the line. And it relies on the ability and attitudes of mid-level and frontline managers. What distinguishes real change leaders Unfortunately, traditional managers seldom make good change leaders. The reason is in the mindset. Good managers try to keep things under control; RCLs are determined to shake things up. Good managers drive results via budgets and quotas; RCLs achieve objectives by mobilizing a broad base of people. Good managers are often motivated by personal success; RCLs want to make a difference in performance. Good managers like to delegate; RCLs enjoy getting their hands dirty. Good managers can probably learn RCL skills if they acquire the right mindset, but few seem to be doing so. The critical gaps are in four areas: • Linchpin linkages, or forging rock-solid connections among marketplace realities, and top leadership aspirations, and workforce capabilities. • 360-degree impact achieved by influencing people all around - superiors, subordinates, and peers - to change. • An expandable toolkit with a diverse range of approaches that is constantly being revised and improved. • Switch-hitting leadership. Like baseball players who bat from both sides ofthe plate, RCLs have the capacity to employ more than one style of leadership. Linchpin linkages RCLs connect top management aspirations and strategic intent with fresh market insights and responsive workforce actions. They hunger for marketplace reality; denial is not in their vocabulary. Nor do they take 150 THE McKINSEY QUARTERLY 19% NUMBER 1 REALCHANGE LEADERS anyone else's word for that reality. They regularly talk with customers and find out at first hand what competitors are up to. And they use this intelligence to energize the people who work around them. Consider a few examples: Like all major oil companies. Mobil had undergone a downsizing spiral in US production and exploration. After three rounds of headcount reductions, it was virtually impossible to motivate workers. Then a smail group of RCLs developed a compelling imperative: "Become the one the others copy." Us impact was dramatic. Mobil's operating performance soared, taking it from near the bottom of its peer group to first in less than three years. A similar effort is producing remarkable results at Texaco, where RCLs are giving frontline workers a greater say in how to revive US oi! fields. Production has surged from 150 barrels per worker per day three years ago to 250 barrels today. "We're getting oil that we never knew was there." declared Clarence R Cazalot, Jr, president of exploration and production.'' In Fort Wayne. Indiana, General Electric has transformed its electrical motors business from zero percent returns to nearly 25 percenl ROI by using almost daily doses of market reality to enhance employee innovation and produc-1^ ~, \ , , .• ^ ^, 1 J ^r-cKj . I Good managers can probably tivity. Change leaders at GE Motors emp oy , ^f^, , .,, .T,, •' /, , . , . ., ^ -^ learn RCL skills if they such techniques as customer visits, com-. . . . . , ^ ? ^ , . J • , J acquire the right mindset, pctitor product analysis, and a simple idea u . r . u J • u AC 11/ IX* * " • 1 1 . bi-'t lew seem to be doing so borrowed trom Wal-Mart, quick market ^ intelligence." Every Monday morning, managers and supervisors gather to share information they have picked up from their marketplace. Not only does this keep them alert, it often enables them to take immediate steps to exploit competitor vulnerabilities. RCLs believe there is no better motivator than the marketplace. 36()-({egn'e impact Change efforts are often conceived as waves of initiatives that sweep through an organization from the top down, or the bottom up, or both, and flow across functions. Seen through the eyes of the change leader in the middle, however, change looks more like pebbles dropped in a pond, creating expanding waves of energy that spread out to impact people at all levels. The RCL is the pebble that makes these waves. " Agis Salpukas, "New ideas for US oil," New York Times. November 16.1995. THE McKINSEY QUARTERLY 1996 NUMBER 1 151 REAL CHANGE LEADERS RCLs are able to bring about change in the actions of those around them. Though they focus primarily on the people they are directly responsible for, that is never enough. They must also influence executives at higher levels and work in concert with other managers and peers. When Texas Commerce Bank embarked on a massive redesign of almost all its processes, top management wanted the focus to be a meaningful number - a $50 million cost reduction. But change leaders and other staff found this mission less than inspiring. As the effort began to flounder, a small group of RCLs persuaded top management to abandon its financial target in favor of a simple imperative: "Eliminate what annoys customers and employees." The phrase quickly seized the imagination of thousands of employees. It has already secured results that meet the -,,^ , . .. . -.1 original financial targeL 360-degree impact starts with '^ ^ having the courage to change ™^n, . ™-* *• * u i J u ^r^ -ij in TCBs change effort continues to be led by a yourself, build new skills, . . u i. ^ r-v,^ ğ* •^ . , . , unique partnership between CEO Marc and take career risks ^u • ^ ^ ror-T • *u -^^i Shapiro and dozens oi RCLs in the middle people who have learned how to leapfrog over rigid vertical hierarchies, work informal networks, and form teams and groups that energize people to find solutions to the problems that encumber their performance. Immersed in the issues, these RCLs have the courage and conviction to speak up about the reality they face. Shapiro admits that without their constant feedback, he might have overlooked the importance of reaching beyond cost reduction. Shifting the focus to the things that frustrated customers and employees made a big difference. It echoed what taskforce members already sensed: "What we found was all this stuff tying people's hands. We made money in spite of ourselves in the early eighties, and then we had a downturn. In reaction, we jumped in with a policy to cover everything that went wrong. We policied ourselves to death." "My thoughts were never to mention the number. Just say, 'Go out there and streamline the way we do business and remove the impediments; the dollars will come.' " As CEO, Shapiro made the environment receptive. He worked with taskforce leaders to understand people's concerns. He listened. He also took time for personal introspection about what motivates people. He was willing to try. learn, and try again. For their part, change leaders down the line had to acknowledge the problem, take the personal risk of objecting to top management's declared 152 THE McKINSEY QUARTERLY 1996 NUMBER I REAL CHANGE LEADERS target, and speak out for a different mission. RCLs knew they had to confront top management, and they did. And when Shapiro was convinced, it was the RCLs who carried the new message hack down the line. Most traditional managers in this situation would simply follow the path of least resistance and support the official program. To do otherwise would seem like heresy - if not mutiny - to them. By contrast. RCLs do not seem to worry about political or career risks if they believe in the value ofthe change they are pursuing. The notion of 360-degree impact involves more than a mindset. It starts with having the courage to change yourself, build new skills, and take career risks. It also requires the mastery ofa broad array of tools and approaches. Expandable toolkit Rarely do RCLs apply standard "off-the-shelf" approaches. They look for what will work in the situation at hand. Sometimes they start with a specific problem-solving process or team structure that has worked for them before, but they never leave it at that. They supplement past approaches with new techniques learned from others; they redesign, cut and fit, and keep on tailoring as the change effort unfolds. At AT&T. Mary Livingston headed a team of 30 change leaders in a two-year effort that transformed the skills, behavior, and performance ofa 10,000-strong salesforce. In the process, she used dozens of mobilizing and focusing approaches, from structured performance improvement processes, to targeted skill-building programs, to reengineering. Many of these initiatives did not work at the first attempt, but Mary and her RCLs stuck with it, retrofitting as they went. The result: millions of dollars in increased sales and reduced costs. Another RCL who uses a variety of tools is Fred Smagorinsky, the manager in charge of world-class manufacturing at Sealed Air. which makes plastic bubble packaging wrap. He employed a simple five-step problem-solving process to help plant managers „„, , , . remove bottlenecks to productivity. RCLs supplement experience .p, ,. ...'^ i . , . L • 1 J After expanding this approach with new techniques learned . • . i ; • P ,, .1. ] -.t o encompass lnter-plant issues, Irom others; they redesign, cut . j c j •* • . • x A , ^ .1 t • he modified it again to include and ht, and keep on tailoring ^ HI I J - • * ^_ customers. He also employed jomt customer work sessions, process redesign, and self-directed teams. To him, the only difference hetween reengineering and total quality efforts lies in their scope; no matter what, you always have to tailor your approach to fit the needs ofthe people whose performance you are trying to improve. THE McKINSEY QUARTERLY 19% NUMBER I 153 REAL CHANGE LEADERS Switch-hitting leadership capacity RCLs are never addicted to a single leadership approach. They realize that their personal favorite style is not always the best way. Wlien they cannot adapt their own approach, they find others to lead portions of the effort with whatever approach it takes to achieve the results they need. rğ/^i J J-. J . •' RCLs are never addicted to a T,, c 11 D I A ^ . single approach - they realize Take Sally Beck, a department man-,, ^.. -^ i r •. ^ i . c "o T u .1 -j J . that their personal favorite style ager at Enron. So 1 have decided to „ V ^i i . '^ ^ ^ . . . . IS not always the best way move to a team-based approach in -^ leading my department," she concluded, having just outlined her new plan for her 60-person department before a group of peers and superiors. She was met with complete silence. Though not surprised, she had hoped for more. But she realized that her strategy sounded risky in an environment dominated by numbers and individual accountability. She also knew that pursuing a radically different leadership approach would mean stepping outside her own personal comfort zone. Enron's leaders do not object to teams; indeed, they have many working at their pipelines, in their power plants, and in development. Few of these are real teams, however. For the most part, they are actually working groups with a single leader who is accountable for their results. Sally Beck was talking about real teams - teams in which leadership and accountability are shared and results mean more than just profit figures. Others in the room found this notion scary, particularly her supervisors, who could see themselves being hung from the yard-arm if her experiment made them miss their targets. The meeting ended on an awkward note. But Beck firmly believes that the only way she can keep her department achieving better and better results is to open up leadership capacity without adding people. Reshaping her leadership approach around teams seems to her the most practical strategy. She is well aware ofthe risk she is taking, and knows she must strive to change her own leadership style before others can be expected to follow suit. But such considerations pale beside her determination to tap her people's full potential. Defining qualities So what are RCLs like? They are all different - except in their determination to achieve better results through people. They share a common set of characteristics that help them further this aim: 156 THE McKINSEY QUARTERLY 1996 NUMBER REAL CHANGE LEADERS • Commitment to a better way. RCLs believe that their company's future depends on the successful execution ofthe change effort. They see their target as exciting, worthwhile, and essential to their personal satisfaction, as well as to the prosperity of the institution. • Courage to challenge existing power bases and norms - a courage developed in the face of opposition, failure, uncertainty, and risk. While RCLs do not welcome failure, neither do they fear it. By demonstrating an ability to rise again, they also build courage in those around them. • Initiative to break through established boundaries. RCLs take it upon themselves to work with others to solve unexpected problems, break bottlenecks, challenge the status quo, and think outside the box. Setbacks never discourage them from trying again - and again. Though responsive to the aspirations of top management, they do not wait to be inspired to action. • Motivation of themselves and others. Highly motivated themselves, RCLs create energy, excitement, and momentum in the people around them and provide opportunities for others to follow their example and take personal responsibility for change. More often than not, they use facts about cus- ^^ |^, motivated themselves, tomers and competitors to motivate thc.r ^^^^^ ^^^^^^ people to wm ,n the marketplace. excitement, and momentum ^ . , , . , in the people around them • Carmg about how people are treated. RCLs are fair-minded and intent on enabling others to succeed. They never deliberately manipulate or exploit people. They are determined to help each person achieve their full performance potential. • A sense of humor. Far from trivial, a sense of humor often gets RCLs through when those around them have lost heart. It enables them to help others stay the course in the face of confusion, discouragement, and the occasional inevitable failure. A critical mass of leaders with these qualities seems to be vital to any institution pursuing major change {see exhibit). How to cultivate RCL capability Change calls for initiative, energy, momentum, and leadership. If top management can build a critical mass of real change leaders in the middle of the organization, they stand a much greater chance of success. Though examples do exist ofa dynamic CEO driving change from the top. they are THE McKINSEY QUARTERLY 1996 NUMBER 1 157 REAL CHANGE LEADERS Differences between "good managers" and RCLs Key issues Basic mindset "End-game' assumptions Leadership philosophy Sources of productivity Accountability measures Risk/reward tradeoffs Traditional GM view Analyze, leverage, optimize, delegate, organize, and control it -1 know best Earnings per share Market share Resource advantage Personal promotions Always make the numbers Strategy driven Decide, delegate, monitor, and review Spend time on important matters Leverages his/her time A few good men will get it dona for me Investment turnover Superior technology Process control Leverage the people People = exploitable resource Comprehensive measures across all areas Clear individual accountability 1 hold you accountable Avoid failure and mistakes at all cost Rely on proven approaches Limit career risks Analyze until sure 1 cannot afford to fail - or to leave Emerging RCL view Do it, fix it, try it, change it - and do it all over again; no one person knows best Value to customers, employees, and owners Customer loyalty Core skill advantage Personal growth Satisfy customers and employees Aspiration driven Do real work Spend time on what matters to people Expand leadership capacity 1 must get the best out of all my pei-ii i *• -.i , , L \. , ^ u , u . 11. RCLs have no patience with do they beieve that every setback should be • . , ^ • .• ,, , ^ denial, nnger-pointing. or b amed on top management. i * * u * ^ excuses, and get upset when „ ,, ^^, , ^. vu ^ • I they see senior executives Equally, RCLs have no patience with denial, , • r* l J ,,^ -^ . . ^ , beinc sou on laesiards hnger-pointing, or excuses, and get upset ';^ when they see senior executives being soft on laggards. Holding themselves individually and jointly accountable for results, they are strong supporters of consequence management. They claim to be more interested in making a difference than in advancing up the hierarchy. Their job satisfaction comes from producing results beyond expectations and helping others to perform beller than they thought possible. Recognition, for them, means being given the chance to have a still bigger impact next time. THE McKINSEY QUARTERLY 1996 NUMBER 1 159 REAL CHANGE LEADERS But there are some pretenders to the RCL throne. Most change leaders recognize their shortcomings and genuinely try to build the skills and experience they lack. Some, however, main- Ifyou demand teamwork, '^'" "''=>' '^''" handle change by the.r usual you should find a way to management niethod - namely, by dele- reward team - and not just ^atmg the real work. Others adopt the individual - performance J^" " "^.'^'"'"Se, but miss the fundamentals. They call every group a team, think empowerment just means involvement, and measure progress by activity rather than results. Both kinds of counterfeit RCL can do you in. Top management would be well advised to deal with them as soon as they emerge. What RCLs look for What RCLs want from top management is very demanding. They set high standards for themselves and their leaders. But they do recognize that things take time, and that getting close enough is better than chasing the holy grail of perfection. Their needs and expectations fall into three groups: discipline, support, and staying the course. Performance clisciplinc RCLs seek results above all else. They believe a performance ethic means that management should be as rigorous about results that benefit customers and workers as it is about profits that increase shareholder value. In their own words, this is what they would urge their leaders to do: 1. Set goals that make sense to customers and employees. We perform best when we have clear objectives that are central to your leadership agenda. We can set our own goals, and are happy to do so, but the more we can integrate them with what you want, the better we can motivate our people and focus tbeir efforts. We need to be able to measure results that are in sync with your aspirations and reflect what is going on in the marketplace. 2. Be a demanding boss who "walks the talk." We are not looking for a comfortable path of modest achievement. We want to excel, particularly in relation to the competition, but also in terms of absolute quality. We need to be stretched - challenged to do more than we think we can. We may not possess your perspective on the opportunities and problems, nor do we always have the conviction to reach high enough. Your admonitions are most compelling when we see you pushing yourself just as hard, and when we sense that you expect no more of us than of yourself 3. Reward those who perform, and deal with those who don*t. All too often, the system protects people who do not support the change program. 160 THE McKINSEY QUARTERLY 1996 NUMBER I REALCHANGE LEADERS We find this discouraging and unfair. We think we know who the dedicated performers are, and when we see the less deserving being given preference over them, we wonder how serious you really are. We expect to make a difference and have it recognized. We expect others to be treated the same way. 4. Raise the bar in areas that are lagging. Every complex organization has some functions or businesses that fall behind in results. But if this is allowed to persist over time, those who are excelling in other areas will become frustrated, even hostile. Everybody should be expected to toe the same mark in the race for change. It isn't that we expect no differences in results or progress rates, but that we are sensitive when some department seems to be protected from the intensity we must face. 5. Reward what you seek. Ifyou demand teamwork, you should find a way to reward team and not just individual - performance. Ifyou are looking for superior customer service, don't reward volume alone. You need to put your money where your mouth is and provide rewards that foster and support the „„ rğy^i . i • i /• approaches you are advocating. .1 • . . f -i ^ ^ •' <= the right reasons and fail, Vnjkiggmg support they need even more support rr nr>i .u * . ui * than when they succeed For RCLs. the most troublesome top management trait to live with is wavering support. It is far easier to cope with downright negativity than a situation where support comes and goes. RCLs expect to be supported through the tough times as well as the easy ones. When they take risks for the right reasons and fail, they need even more support than when they succeed. They would ask top management to: L Encourage us to tell it like it is - and listen when we do. We need you to solicit our opinions and encourage us when they are unpopular; we also need you to back us up in public confrontations with those who resist change or would divert or diffuse it. Our role is never welcomed by those who are comfortable with the status quo, and we need your support against them. 2. Take the same risks you expect of others. We need you to wade into the hard issues. We recognize you often have to delegate important parts of the change effort to others, but ifyou remain above it all. our job will be much tougher. Nothing motivates people more than seeing top leaders take personal risks to further a cause. Equally, nothing is quite so disheartening as seeing them protect themselves while pushing others into risks. 3. Allow us to make mistakes and fail along the way. No two change efforts are the same; what works in one may flop in the next. Finding the THE McKJNSEY QUARTERLY 19% NUMBER I 161 REAL CHANGE LEADERS right approach often means taking a gamble on something we have not tried before. Sometimes we will make mistakes; sometimes we will fail. But we need that experience - not just to find a specific solution, but also to build our skills for the next challenge. 4. Be consistent in what you say and do. Explain any actions you take that might seem contrary to your message. Our people are always looking for signals that the change program is a passing fancy. They are sensitive to the merest hint that they personally do not need to change, or that those who are sticking their necks out have been wrong. It does not take much to feed their doubts, so be alert to situations where you might inadvertently give them an excuse. Staying the course Change demands time, hard work, and perseverance. RCLs need to believe that their leaders will stick at it even when the going gets tough. Top management cannot declare victory early and O/-I u f *i ğ * expect to motivate its RCLs. The organi- RCLs believe that top . , ,.•>.. „ , I ^ zation - change leaders included - can all matiagemetit catinot leave -, • • • • . u ^u ^ i 4 too easily misinterpret senior executives to chance the development . . ^ ^ rğL Ğ v J 1 II * T intentions. 01 the attitudes, skills, tools. and approaches needed ^ • • r i-L • Consistent reinforcement ot the main themes of change is vital to RCLs down the line. It is the one means they have of knowing and showing their people that top management is committed for the long haul. RCLs press senior executives to: 1. Strive to create change leadership opportunities. If we are to build the skills that change demands, we need on-the-job exposure to a wide range of problems. Books and classrooms are no substitute. Unless you take positive steps to create learning opportunities for us, the development of RCLs will continue to lag behind the growing need. 2. Get - and stay - involved down the line. You need first-hand knowledge ofthe efforts we are making. You may not have time to become as immersed in them as we are, but try to spend a few days working alongside teams in problem-solving sessions or field pilots. This is more than symbolic participation; it is the best way to understand just how exhilarating change can feel at an individual level. 3. Help us build a toolkit for change. Perhaps the most valuable resource we can have in sustaining change over time is a diversity of techniques and approaches. It is easy for change efforts to stall and for people to revert to comfortable familiar patterns. The more tools we can draw on, the better we 162 THE McKINSEY QUARTERLY 1996 NUMBER! REAL CHANGE LEADERS can deal with any loss of momentum and energy. While we can develop such a toolkit ourselves, anything you can do to facilitate or augment our efforts will be appreciated. We need all the help we can get, 4. Expand and diversify the skill mix. We are all learning on the job. It's good to have new blood to strengthen the critical mass of RCLs. Bringing experience in from outside can often be the only way to get it fast enough. We are reluctant to have our own people overlooked for roles they can iill, but pleased to have injections of skills that we cannot otherwise develop. Real change leaders believe that top management cannot leave to chance the development ofthe attitudes, skills, tools, and approaches needed to steer through change. Their message is clear. Any organization facing change should pursue a rigorous program to identify, evaluate, develop, deploy, and accelerate the growth of a cadre of RCLs. These emerging leaders represent the single best source of leadership capacity and talent for the future. Q THE McKINSEY QUARTERLY t996 NUMBER I 16?