Enterprise Leaders: Who is Good At What?

Back in the early 1990’s, I used MacDraw on a Macintosh to prepare the presentation on leadership for an academic audience. The following slide summarizes its primary point: leadership enterprise effectiveness is a matter of fit between a leader’s personal competencies and the enterprise’s business context.

The Fit Between A Leader and the Enterprise Determines Success

(See “Effective Leadership Performance: A Question of Ability or A Question of Fit” for the full presentation.) My fascination with what makes a person an effective leader in the workplace has continued since then. Since making this presentation, my experiences as a leader and as a follower in all four enterprise contexts – production, innovative, creative, and turn-around – has not changed my basic belief that leadership effectiveness is first and foremost a question of fit. This is especially important to remember as our economy is undergoing fundamental change. We need to deal with the harsh realities which lead to the current recession. We will need innovative, creative and turnaround leaders rather than production leaders. I do not think that we will really see an end to the current recession under many of the people who led us into it, have changed. They are leaders whose competency profile is closer to the production profile above, in my view. Much of the economic activity in the last twenty five years has been in production organizations, both commercial, not-for-profit and political. Movement out of this recession will be led by the leaders of creative, innovative and turnaround organizations, as it has in the recessions of the past. Recessions are a time in which many organizations which eventually become established as household names first start up. Many of our existing human resource and executive search professionals do not think about leadership in these terms. By and large, their experience is with production enterprises in times of economic stability. As a result, they do not think critically about the crucial differences in this chart. Sometimes they talk them, but that is different from behaving them. Their business experience, and the intuitions they have built on it, is largely with production enterprises in a time of economic stability or growth. They use these intuitions in their subjective “chemistry and fit” judgment of leadership candidates. As a result, they are not really the best predictors of who will be tomorrow’s outstanding enterprise leaders. I believe that the recent down turn in the executive recruiting industry is partially the result of this “future discounting” of this dynamic. These thoughts started when I participated in a recent Linked In group exchange on the competencies required for Break Out and Turn Around executives in the Green Tech Economy. I went back to the chart above to clarify my ideas on this. I found that it applied partially. I needed to combine it with the schematics which follow a little later in this blog to really get clear on these issues. Break Out and Turn Around are very different enterprise situations. Unlike business as usual, organic growth, or growth through acquisition in production enterprises, they place very specific demands upon an enterprise leader. Turn Arounds involve cleaning up messes. (See a white paper on these dynamics). They involve doing more with less. The dollars needed to fund turn around activities have to be found somewhere. Tough people and business decisions need to be made about what to stop doing, as well as what to continue doing in different ways. The prime competencies required by Turn Around Leaders are analytical conceptual and unifying / integrating people skills. Turn Around enterprise leaders need to be destroyers as well at change agents. They must replace what they destroy with ways of doing the remaining things in an enterprise in that inspire people to contribute. They must inspire confidence when times are bleak. They must achieve constant visible progress towards goals that both insiders and outsiders value. Turn Around Leaders must have an ability to disrupt the status quo, but do so in a way that people believe will work. This mean applying already proven ways of doings things to existing enterprise processes and work flows. Break Outs involve getting an enterprise beyond a current plateau. Many small startup enterprises with exceptional products and services languish at a level far below their market potential. They become “life style” organizations, generating a decent living for their owners and employees. But they never get beyond this.

The Stages of Technology Development and Commercialization

(Source for this figure – and the one following below – The Clean Technology Report – see http://cleantechnologyreport.ca/.) Product development has a life cycle. The first three phases are ones that require deep personal belief and product development vision on the part of the enterprise leader. The best leaders for these stages are often individuals who believe so deeply in the potential of their ideas that they ignore negative feedback from the outside. They push ahead based on their inner beliefs. The strength and conviction of those beliefs inspires both investors and early stage employee. Technical and cognitive skills predominate in such leaders’ competency profiles. People skills are extremely important in the latter stages – product commercialization. Generating and paying attention to feedback is a key component of success in these stages. Effective enterprise learning requires structuring early, tentative operational and marketing initiatives so that they create actionable production and market feedback. Learning how to do new things in “big” ways successfully is the core skill demonstrated by enterprises that commercialize new products and services.

Product Development / Commercialization Risk Profile by Stage

It’s all a question of effectively managing different kinds of risk at different points in the technology and product development life style. The strong personal inner beliefs of early stage enterprise leaders are precisely what are required to overcome the technology risk that predominates in the fundamental research, applied research and technology development stages. During the last two stages –  product development /commercialization and market entry / market volume-  the risk profile changes. The financial stakes increase as well. The investment required in the first three stages is relatively smaller than that needed for the last two. (If I were doing the schematic above, financial risk would be proportionately larger, probably somewhere between market and operational risk.) Consequently, the required leadership competencies are very different. The ability to innovate is still key, but a different kind of innovation is now required. It’s no longer about developing a product or service. Instead, it’s about bringing a product to market. It’s about developing, servicing and holding customers. This is especially important in the face of success. Success means rapid operational expansion, done in financially prudent ways. Such success breeds imitation. Imitators have one major advantage. They are imitators rather than developers and innovators. They can compete without having had to make the financial investment in first three stages. Consequently, they are able to compete on price. Financial prudence is essential to being able to meet such early competition. In the first three stages, the driving product developer is the single most important human resource in the enterprise. In the last two stages, the enterprise leader is still important. But this individual is no longer the only really important human resource. Enterprise leaders need to do “through others”. There is two much going on, and the kinds of expertise / experience needed are to broad to allow micro-management to succeed. The unifying and integrating people skills are now essential. These skills are needed to inspire and to motivate, so that the leader can delegate to others in a time of constant growth pressure and of extremely limited resources. The enterprise leader must integrate the activity of these others in a way that ensures that they continually generate and respond to the feedback needed to adapt the new operational and marketing approaches. Many innovative firms successfully start up, make it to the end of the technology development and demonstration stage, and languish. They become life style enterprises, generating a reasonable living for their owners and employees. A group of initial customers stays loyal to them, based on the business value they are receiving, and the emotional investment they have made in being early adopters of the technology. The underlying reason for this has to do with this change in required competency profiles on the part of the enterprise leaders. The startup leaders are smart people. They have an intuitive sense that the skills which successfully brought them through the first three stages are not the ones needed in the future. They know, in a pre-rational, pre-conscious way, that they do not have the ability to manage successful commercialization. They accept, without ever articulating it, that they will ignore market and operational feedback in favor of their own opinions and beliefs. They rationalize away the fact that they do not have the people skills to do through others by pointing to themselves as being more creative and more determined than average. They sense that the immediate micro-managing form of control that has been key to their past success will not work in future. Besides, they liked things the way they were in the first three stages. There was a great “fit” between their competency profiles and enterprise success. Most of them will not give over “their baby, their creation” to another leader. If they do, they will only do so to a “hand picked” person whom they sense they can still control. As long as the enterprise generates enough money to afford the “life style” of key players, things stay stable until market pressures undermine revenue, or outside investors force the issue. Investors however have a different set of requirements. They want the financial success which comes with market entry and market volume. However, they often prefer to avoid the turbulence and the difficulties required to work through a successful change of enterprise leadership. As a result, many formulate “exit” strategies that are focused on “acquisition” by a larger, already existing company. This creates an environment in which these leadership transition issues are handled as a result of the acquisition, rather than in pre-thought and planned way. Leadership change, especially startup enterprise leader change, involves much emotional energy. Not all investors have the desire or the perseverance to work through it. The down size of course is that the acquirer gets most of the financial benefit of the eventual break out. A better understanding of these dynamics, by startup entrepreneurs and investors, could help foster transitions to Break Out Leaders who can more effectively lead enterprises during the last two stages of commercialization. The financial benefits of Break Out can then accrue to the startup leaders, the investors and the employees of the enterprise.

Enthusiasm is not Enough – Especially in E-Health

The commentary below hit my inbox today. There have been almost two weeks of constant media coverage over the supposed scandal at the Ontario Government’s E-Health agency. All of the media coverage, and this commentary, miss the point in my opinion. It does so badly.

First, let me say that I do not know Sarah Kramer or Alan Hudson. I also don’t know David Caplan. As always, in my view, the focus on the media is in personalities, instead of the underlying root causes for affairs like this.  As a species, we just love the allure of gossip and speculation.

My own view of why Kramer and Hudson failed has little to do with the things that have received so much time in the media. I believe that they were simply not qualified to this job. I also believe that the people who put them in these positions did not really understand what competencies are required in the successful leaders for e-health implementation.

The current Ontario E-Health strategy is clear. It  has real targets with associated measurables. Kramer and Hudson, and everyone else associated with its creation, deserve to be complimented for their willingness to be concrete and tactical in formulating their plans.(see http://www.ehealthontario.on.ca/pdfs/About/eHealthStrategy.pdf)

Lots and lots of money has been spent on information technology in health in Ontario over the past ten years. International collaboration over many years has lead to architectures such as Health Level 7 (http://www.hl-7.org/). It is not a question of inventing new IT architectures.  Technical innovation is necessary. But it is no longer the key.

The implementation of a strategy is not the same thing as the formulation of it. Implementing technically based change strategies is especially difficult. The implementers must accept and recognize that they are changing a culture , not just implementing technology. Success at cultural change requires many things, including an ability to understand the secondary benefits of that the current culture has for people. Without a willingness to go beyond the surface level, and deal with this aspect of cultural change, failure is inevitable.

Kramer’s and Hudson’s tale is about the failure to recognize that E-health is a deep cultural change. On the surface, they came across to me as individuals who are technical specialists, insensitive to cultural nuances. Their attitude to the governmental culture in which they were working is my best evidence for this. In fact, in listening to Kramer on TV and radio, I often got the sense that she was somewhat contemptuous of it.  This struck me as a bad sign about someone who was going to lead a major cultural change.

As I listened to the media coverage of this affair over the weeks, I became more and more sad. We need successful e-health badly. It has great promise for reducing the unit costs of health care delivery, as well as improving the lot of individual patients. But it is not going to succeed if we keep pretending that e-health is a MEDICAL TECHNOLOGY and INFORMATION TECHNOLOGY issue. These aspects of the problem are secondary to the cultural change issues involved. The currently ongoing belief on the part of our senior politicians that e-health can only achieved by leaders who have medically related information technology expertise is not helping the situation.

Successful implementation of e-health means convincing doctors to change a fair number of their personal practices. Even more importantly, it means getting their office assistants to change theirs. They do a fair deal of the record keeping and administrative work in doctor’s offices and in hospitals. That will not be easy.

Lots of information technology implementations have failed over the years, in many industries. People need to change the way they do things to successfully use new information technology. Achieving this is not easy in the “command and control” culture that characterizes financial services and manufacturing.

Medicine has far less of “command and culture” in its culture. Effective collaboration between relatively independent professionals who use a common infrastructure is a far better description of its culture. Cultural change is this environment is more difficult than culture change in “command and control” that characterizes many of commercial organizations in our society.

The successful implementation of e-health is first and foremost a cultural change issue. It needs short term tactics such as the one spelled out in the E-Health strategy document. But it also needs a much broader social vision in its leaders. It needs leaders who can work with existing colleges and universities to change the medical education curriculum so that we start producing doctors, nurses, medical technicians and administrators who look forward to using e-health approaches. It needs leaders who will collaborate with medical professional bodies to incorporate e-health exposure into on-going professional education programs. It needs leaders who are respectful of the huge contribution to medical record keeping that is made by office assistants and hospital administrators. It needs leaders who recognize that the first step in changing a culture is respect for it, and the people who live it.

What it does not need is leaders who so convinced of their own superiority that they feel justified in ignoring the simple and straight forward rules of procedure that have served government agencies well for years. Kramer and Hudson failed in their leadership. The people who put them in their positions failed to appreciate that e-health is not about techniques first, and people second.

E-health is about the convincing independently minded professionals to undergo the personal change needed to use new e-health technologies. When the leaders of Ontario’s E-Health Agency demonstrate that they understand how to undertake such cross institutional cultural change, we may begin to benefit from the technology underlying e-health.  When the politicians who have the ultimate responsibility for the delivery of health care in our society recognize that implementing e-health needs cultural wisdom more than its needs technical prowess, we may begin to succeed.

Maybe we will get lucky and such leaders will emerge without deeper insightful on the part of politicians and media commentators. But I doubt it. I suspect that I will have more reason to be sad in future.

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Here is the link to the article that I am commenting on … …

http://www.chmonline.ca/news/article.jsp?content=20090618_162815_7368

The Pending Release of Food, Inc on June 12.

I am on the Board of Ontrace – Ontario Agri-food Traceablity Corporation: an Ontario goverment funded initiated to find, develop, and deliver agri-food traceability solutions for Ontario (and other) businesses. http://www.ontraceagrifood.com/home.php)

Today, the notice about the pending release of Food, Inc, a movie about agri-food business in North America, hit my inbox from Brian Sterling, the CEO of OnTrace. The movie is expected to raise a lot of concern among food consumers. (see http://www.foodincmovie.com/ and the review of the film below.

The sadness of this story is not the practices that the film will portray but rather the disconnect that is shows between American (and Canadian and international) agri-food business leaders and their customers. Every food or animal activist can find some curmudgeon or greedy person or just plain insensitive cruel individual and their poor farming or food processing or poor treatment of animals to feature in films like this. Everyone in the food business has a responsibility to confront people like this and get them to clean up their act. My experience is that folks are often not prepared to confront such peers. That is a shame…

But what is even more distributing to me is that some food company executives seems to have forgotten that customers, with their concerns and their needs and their perceptions, are an even more important stakeholders in their business that investors and shareholders. Without customers there would be no food business. The fact that some many people, including Lynne and I, frequent farmers markets and other local sources is because we are treated like customers there, not just people with a wallet that needs emptying. The food industry seems to have forgotten this in its relentless purpose of profit, even when this has meant adding unproven additives to food in the search for self life and increased profit per unit of weight and even when it has meant not sharing a reasonable portion of total value produced along the agri-food value chain with primary producers.

In the long run consumers are not fools. They vote with their feet and their wallets more than they vote at the ballot box. People who make films like this are angry because they have a sense that they have been treated with contempt as consumers. They play to other consumers who more and more feel that the many of the leaders have the agri-food business have values that do not really consider fresh, wholesome, health supporting food as least as important, it not more so, than this year’s revenue and profits and personal bonuses. Today some, certainly not all, of the agri-food business executives I have dealt with, behave this way.

I often see the world as a place in which we have gotten deeply confused about basics. I don’t believe that a desire to return to the past solves tomorrow’s problems. So I don’t long for a world in which we all raise our own food, or keep chickens in our back yard, or have a personal relationship with a farmer who we visit every weekend to pick up this week’s food. I deeply enjoy the variety of produce that modern transportation and marketing methods allow me to eat. But I often wonder if the food industry as a whole would be a better industry if it were “not for profit” – still large, still modern, still efficient, but dedicated to meeting the needs of two primary stakeholders – workers in the food agri-value chain (including producers) and consumers. Somehow, like banking, executives in this business have lost track of these stakeholders in their dedication to the meeting the financial needs of firm owners and investors.  I think that my wondering may be an over reaction, but it certainly points out the need to put in place governance practices that force executives to deliver a better balance between the interests of workers, consumers, owners, investors and themselves.

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New documentary ‘Food, Inc.’ offers troubling view of American food industry

Fri Jun 5, 2:47 PM

By Ann Levin, For The Associated Press

NEW YORK – The new documentary “Food, Inc.” begins with idyllic scenes of American farmland, panning from golden fields of hay to a solitary cowboy rounding up a herd of cattle. Then the camera zooms in on a grocery cart overflowing with packaged food and rolling down the aisles of a gaudily lit supermarket.

Eerie, horror movie-style music swells in the background. It’s meant to signal the audience that the pastoral fantasy of agrarian America on everything from packages of breakfast sausage to cereal boxes is not what it seems, that great danger lurks behind the cheery images of 1930s-era red barns and white picket fences.

Director Robert Kenner is bent on showing us a far grimmer reality. He tells of dust-choked poultry houses where chickens never see the light of day and are pumped so full of chemicals they produce more meat than their organs can support. Eventually they collapse under the weight of their abnormally large breasts and die before reaching the slaughterhouse.

He shows us industrial feed lots where cows are fattened on chemical-enhanced feed and forced to spend their days standing ankle-deep in manure.

Kenner relates the heart-wrenching story of Republican-turned-activist Barbara Kowalcyk, who prowls the halls of Congress with her mother to try to force lawmakers to enact food safety legislation that she believes could have saved the life of her 2 1/2-year-old son Kevin, who died of E. coli poisoning 12 days after eating contaminated hamburgers.

Kenner is hoping his film will raise awareness of the enormous price in health and safety that he says Americans pay to gorge themselves on the relatively cheap calories that stock supermarket shelves courtesy of a handful of multinational corporations.

Just as the Oscar-winning 2006 documentary “An Inconvenient Truth” helped galvanize the fight against global warming, Kenner and his partners want to spur legions of activists to rise up and take aim at lawmakers and government regulators they believe have been corrupted by lobbyists for agribusiness.

An alliance of trade associations that represent America’s meat and poultry producers have set up a website to counter virtually every claim in the documentary, from the contention that E. coli contamination could be reduced by feeding cattle grass instead of grain, to charges that U.S. federal inspection agencies are understaffed and ineffective, and foodborne illnesses are on the rise.

The food industry says the film has “an astonishing number of half-truths, errors and omissions” and that scrapping current production methods in favor of locally grown, seasonal organic food would result in a dramatic increase in food prices and fewer fruits and vegetables year-round.

Janet M. Riley, senior vice president at the American Meat Institute, says that contrary to the menacing image presented in the film, the industry – comprised of “ordinary, hardworking people” – provides “the safest, most affordable, most abundant food supply in the world.”

She also says it would be foolhardy to abandon modern food production methods during a global recession, when people are starving in parts of the world.

“Why would we want to turn the clock back to a less efficient way to produce food?” she says.

Kenner’s arguments will be familiar to readers of “The Omnivore’s Dilemma” author Michael Pollan, whose numerous books and articles have decried the physical and even moral hazard of the industrial food system.

Pollan is featured in the film, as is “Fast Food Nation” author Eric Schlosser, who wrote the best-selling 2001 expose of the fast food industry that was later turned into a movie.

Pollan, who has criticized industrial agriculture for a decade, calls Kenner’s documentary “the most important and powerful film about our food system in a generation.”

He says the director has broken new ground with his reporting on such things as a new, high-tech system of meat processing that bathes beef filler in ammonia to kill harmful bacteria.

Even though alternative agriculture represents just a small part of the U.S. food industry, Pollan says he is “full of hope” about the future. He cites the booming demand for organic food and the growing popularity of farmers markets.

According to the U.S. Department of Agriculture, sales of organics have more than quintupled, increasing from US$3.6 billion in 1997 to US$21.1 billion in 2008.

Kenner, too, is optimistic, ending the film on an uplifting note. He sees a hopeful model in the fight against Big Tobacco, which also seemed invulnerable to attack by health and safety advocates – until it wasn’t.

Like Pollan, Kenner is heartened by what he’s seen so far from the Obama administration.

Pollan, in particular, applauded Michelle Obama’s decision to plant an organic garden on the South Lawn of the White House. Kenner says the president won’t be able to tackle his other priorities of reforming health care and halting global warming without changing the way Americans produce and consume food.

So what do Kenner and Pollan believe the average person should do if they want to shun the agribusiness model?

Says Kenner: “Go to a farmers market whenever you can. Eat a little less meat. Read labels when you go into a store. Shop the outer rows of the supermarket. Cook at home. Buy less processed food.”

And Pollan? All of that, and also this: “Get involved in your school lunch program. Get junk food out of the whole school. Sign up with a listserv for one of the many groups that’s tracking this. Your congressman/woman needs to hear from you.”

Still, Lowell Catlett, dean of the School of Agriculture at New Mexico State University, says U.S. consumers actually have a pretty good deal. Before World War II, a quarter of a million Americans died every year from a combination of unsanitary food and water and inadequate sewage facilities. “Overall, we have a safer food system,” he said.

The film opens June 12 in New York, Los Angeles and San Francisco, with wider distribution beginning June 19.

Talking Change is Easier than Walking Change

The phone rang – a friend who had taken an enterprise turnaround assignment.

Me:                  How is the new assignment going? You have been there two weeks now, right?”

Friend:            “It came to abrupt end this morning.”

Me:                  “What happened? You spend the best part of several days talking with the firm’s owner before you took the assignment. She seemed ready to do what was needed to turn the place around.”

Friend:            “Yes but …. You know what we say – Talking change is easier than walking change. First simple thing that I tried to do to start signaling that we are going to make some change in the place, and she balks.”

Me:                  “You have managed resistance to change below. How did it come to an end so abruptly?

Friend:            “It was clear after a week that she really did not want to make any of the changes we had talked about. She wanted the appearance of change for her customers and her bank. She really wanted an advertising campaign about change, not actual change. So we agreed to disagree.”

My friend is very experienced at what he does. He has turned around 4 businesses in the past 15 years, in each case growing their sales 5x to 10x, while improving their internal units costs dramatically. His focus is firms with sales in the multi-million to tens of million dollar range.

My transformation change experience is in large corporate organizations. I have lead major change programs in groups with operating budgets from tens of to hundreds of millions of dollars. Recently, like my friend, I have started to do enterprise turnarounds.

We often talked about our experiences over wine and food. Our reminiscing has uncovered a surprising number of parallels. I have summarized them into a set of 12 change axioms.

My friend and I often talk about the way that people treat “change” as a fad. People love to talk about change. They present themselves as wanting it and as doing it. But when we dig a little, we often find that there is little below the surface talk. When we probe folks about their experiences covered by the 12 change axioms, people often do not know what we are talking about.

1. “Follow the virus model of change, not the plop in the pond model.”

Change in an organization spreads from person to person. One person influences two or three others with new ideas or ways of doing things. Each of these people in turn impact two or three others.

Change can spread surprisingly rapidly through an organization, especially in this age of technological connection. This spread mimics the spread of a virus in a population. Use this model explicitly in planning the implementation of change initiatives. Identify the key initial influences in each area of change. Work at getting them on board. Engage them in identifying the important next group of individuals to be impacted. Engage the first group in influencing this group. Keep up this sequence to spread the change through the organization.

By comparison, the “Plop in the Pond” model of change starts with a big announcement that the organization is going to change in some way. The message spread outs and ripples through the organization. It also dies out by the time it gets to the edge of the organization, just as the waves do when you toss a bit stone into the center of a pond.

2. “Start multiple change initiatives. Move them forward concurrently.”

Transformational change at enterprise level is never simple and is never achieved by doing only one or a few things. By starting multiple initiatives, and COORDINATING THEM AT THE PEOPLE (who), PROCESS (how to) and TOOLING (physical or computer application tools) levels, you have a better chance of creating the constant momentum needed to move the overall effort forward.

Starting multiple current change initiatives also has other benefits that will become clearer later in this list of change axioms.

3. “Find an external reason for the change. Publicize it, publicize it, publicize it!”

People never like to be told that they were not doing something well or that they are not competent at their jobs. They resent it. Resentful people do not change easily. So don’t do this.

Always find an external reason to justify the change – competition, external auditors, societal change, new technology, changes in the industry, government pressure … … . It does not matter what it is, as long as it is BELIEVABLE AND CREDITABLE.

Then tell the story about this being the reason for the need to the change constantly and continuously. Create a believable myth that allows the people in organization to come together and unite as they take on the task of implementing the various change initiatives.

4. “Support the hell out of the early adopters; shame the laggards later.”

You can never tell why people buy into change initiatives. Sometimes they do it because they believe in the change. Sometimes they do it because they are ambitious. Sometimes they do it for reasons that you will never know, or understand if you did.

Early adopters are worth their weight in gold, even in platinum. Support them in every way possible. Make sure they succeed. They are the best thing that happens to a change sponsor and a change initiative team.

Don’t worry about the laggards till later. Eventually the success of the early adopters will create social shame that impacts these laggards. Their peers will start to pressure them to change. That often creates more motivation to change on the part of the laggards than appeals by the change team or the change sponsor.

5. “Know which of your change initiatives are 20/80. Start them early. Load them for success.”

Some change initiatives produce 80% of their benefit for 20% of the effort. Others will not produce beneficial results until they are further along in their life, or until they are completely implemented.

Pay a great deal of attention to these “20% of the effort for 80% of the benefit” initiatives. They start the momentum you need to get the overall transformation going. They get people believing that the change program has benefits for them.

So nurture these initiatives. Scope them down into a progressive set of doable chunks. Make sure that the first (or the first two) of these doable chunks contain the 20% effort that produces 80% of the results. Put your best people on them – even if you have to take these folks off these projects once the first one ot two chunks are done.

Make sure these first initiative chunks are not under resourced. Put explicit risk management in place for them. Do everything you can to make sure they succeed. Load them for success. Get the 20% done as quickly as you can.

6. “Work around resistance.”

Effectively dealing with resistance to change is one of the reasons it is so important to start multiple concurrent change initiatives. If you get serious resistance to one of the initiatives, NEVER, NEVER openly push back. Allow the initiative to relax. Put energy into your other initiatives that are not being resisted. Move the overall change program forward.

While doing this, understand the reasons why the people are resisting a particular change initiative. (See “A Manager’s Short Primer on Resistance to Change in Organizations” – http://www.wciltd.com/pdfquark/Resistance.pdf).   Deal with underlying people issues that are the reason for the resistance. Put energy back into the initiative when you have resolved these people dynamics.

7. “Ignore the 5 People F’s at your peril”

“Family, Friends, Fence-sitters, Foes, Fiends[1]”

Everyone you deal with during your change work will fit somewhere in this model for each of your change initiatives. You need to identify the key people that need to support and are going to be impacted by each change initiative. They (and the key players on the change initiative project team) need to understand where these people fit on the 5 People F’s model with respect to the initiative. Once you do, you and the team can shape their interaction with them accordingly.

Don’t expect people to be at same place in the 5 People F model with respect to different initiatives. Don’t expect people to stay in the same place over time around any one initiative. People change for reasons that you may not know, or understand if you did. Family can become fiends, and vice versa. STAY on top of these dynamics, and carry out your interaction and your communication accordingly.

8. “Show constant visible progress.”

Transformational change requires that you convince all kinds of people that the trouble, turbulence and effort they must go through during the change is worth it. They need constant re-assurance on this.

The only reassurances which count are constant visible, recognized, signs of progress. Break your change initiatives down into doable chunks with milestones. Keep the chunks short (max of 90 days). Ensure that each chunks produces some clear sign of progress that is visible in the organization. When initiatives reach milestones, celebrate the success publicly, in ways that are communicated to the whole organization, even if only in small ways. Communicate the accomplishment to EVERYONE.

Spread benefits achieved by a chunk around as fast as you can.  That way everyone‘s working life constantly gets better and easier in some way over the life of the overall change project.

Avoid big bang change initiatives and projects that do not deliver useful results until their end unless you have absolutely no choice. The extra expense involved in phasing these projects into doable chunks with partial results that produce useful benefits will be more than returned in the involvement and commitment you build throughout the organization. This will also allows you to do much more effective risk identification and mitigation.

9. “Three steps forward, one step back.”

Transformational change never goes as planned. It’s too complex. There are too many interactions that produce results that you cannot anticipate.

Message your expectation that there will be setbacks from Day One. Feature them as opportunities to learn. Treat them as ways to get better.

Create risk identification and mitigation plans that anticipate what could go wrong. Communicate them to all those involved. When setbacks occur that are not anticipated by these plans, get folks together and evaluate whether or not there is a need to alter the change initiative in ways that more effectively address the reasons for the setback. Make backwards steps a normal, productive part of change. Do not let their inevitable occurrence create demoralization.

10.  “Manage your hires, fires and promotions very thoughtfully. They tell the real story about your change.”

People watch these people events very closely.  They interpret them as the real truth about what you intend to do during the change.

You may terminate a person because they cannot or will not get with the change agenda. If you pick the right people, there will be an UNSTATED sigh of relief in parts or all of the organization. Collectively, people know who is on board and who is not. If you pick the wrong people to terminate, for reasons that have more to do with personality conflict than commitment to the change agenda, or ability to contribute to its forward movement, people will implicitly begin to doubt your commitment to your own change agenda. Make it a pattern, and their willingness to go along with the change agenda will collectively evaporate.

You may hire or promote a person because you have worked with the person before, and know that they are loyal to you. But that individual’s behavior had better be completely aligned with change messages you are sending into the organization. If they are not, people well know that loyalty to you as the change sponsor is more important to you than your change agenda. This will de-motivate them when it comes time for them to change their personal behavior to align with the change.

Resistance to the change agenda is also often expressed through hires or promotions that place people who are not committed to the change agenda in key roles.

So the change sponsor must be in a position to control hires, fires and promotions during the change period. This control must be exercised in a way that is perceived to be both fair and completely aligned with change agenda. That requires a great deal of care and thoughtfulness.

11. “Communicate, communicate, communicate … …”

You can never communicate too much during transformational change. The inevitable pressure of events, and the work load involved, will impinge on the time that you and your change teams have available for communication. So never be concerned about doing too much communication. You won’t.

Don’t just use formal communication challenges. Walk the floors. Listen to everyone, from every place and from every level in the organization. Join folks as they have lunch and as they relax.

Patterns in the informal dialog and gossip will tell you as much about the status of the change, its successes and its failures, as the more structured metrics embedded in change initiatives.

12. “Do it urgently. Keep it urgent!”

People really don’t like change. They will tolerate it, and engage in it, and live through it, if they can see an end to it. Their tolerance for change normally lasts anywhere from a few months to 24 months. If they don’t see an end to it, especially if the change period approaches 24 months, they will start to disengage, no matter how much the change makes their day to day life easier.

So urgency is key. Get change going. Make some things happen quickly. Demonstrate constant visible progress. Do change as quickly as you can while maintaining the quality.

If an initiative will take longer than a few months, break it into shorter chunks. Accomplish something through each chunk. Let people use the results of a change for a short period of time (weeks, a month or so) and then start the next chunk.

If your change program includes people components, do them early. If you have to change out leaders, or lay off staff, or replace groups of individuals, do it as soon as possible in the overall change plan. Keep the staffing turbulence to as defined a period as possible. Otherwise, anxiety takes over. Concern about one’s personal future diverts energy needed for the personal learning necessary to get aligned with the change.

Have a clear sunset target for the overall change program. Bring the period of major change to an end at some point. Declare victory. Celebrate the success. Tell people that it is now time to reap the rewards and to work on stabilizing the results of the change. Localized upgrades to finalize the process improvements and tooling changes can still occur as part of the stabilization period.

12 “experience based” axioms for transformational change

Those of us who have managed such change know the reality of living by these axioms in our hearts and minds. We don’t just talk change. We make it happen. It is not easy. But it is necessary if you walk change.

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[1] Family are bought into the change, and will support you even if they think you are wrong in some areas.

Friends are on your side, and will say so as long as things a re moving forward. They may become silent if there are setbacks.

Fence-sitters can go either way. They are not convinced of anything. They may go either way, depending on how well you are doing with the change, or based on things that are important to them that you have no, and may never have, any awareness of.

Foes are exactly. They are publicly against you. As least, you know this, and can take it into account.

Fiends look and act like family or friends, but are actually hidden foes. They will stab you in the back privately every chance they get.

This little model has been in use in the organizational change / organizational development / organizational effectiveness community for years. I have googled it several times over the past years, but never found an original source. Maybe you can.

Financial Disaster and Executive Compensation Structures

Last week was a great week – only 4 days of work and then a 4 day long weekend. During the week, I went to a meeting this week which changed my perspective on events in the financial community on the past 6 months dramatically. Our outside investment adviser did a report on the portfolio he manages for us. We need to be extremely financially conservative in this group, so our directives to him are very simple – 1st: “preserve the capital value of the funds”, and 2nd: “earn us some income”. He’s pretty good at “preserving wealth”, and perhaps not as good at “making money” as some of the other members of the group would like. The capital value of our funds has stayed solid, although our anticipated income has gone down.

I think he is the right choice as an investment adviser for us. But I guess he was feeling that some of my peers had wanted more income, because he was fairly defensive when he presented his results. At the end, he sensed the positive mood around the table. He relaxed and started to “wax decisively” on the state of the world.

He started off with: “It’s a strange world. I don’t get it. You know US banks on average were leveraged 30 to 1. That’s great as long as the market is on your side. You make money and look really good. You earn the big bonuses, especially if they are based on short term results. But look at the down side. All you need to make is a 3% mistake and you are insolvent. What happened to the people who ran these places? Just think of it in personal terms. You are worth a million bucks. You go out and borrow 30 million based on that. You invest in an up market and you predict that you will earn great returns. But just make a little mistake, and you are completely insolvent and that state of affairs lasts a long time. What happened to common sense? How did we get to a place where it was missing in so many of the folks in the executive suites and on the Boards of the Banks and insurance companies? I guess what let them think that taking this kind of risk was o.k. is that they were not playing with their own money. They were not running the risk of going down personally. But where is the decency in what they did? Cripes, they were supposed to be business leaders, not card sharks and gamblers!”

I thought about that as I drove back to the office from the meeting. How did so many well intentioned, law abiding, smart people get it wrong? How did we get involved in this kind of collective confusion about numbers? Most of us in business took stats in college. We understand probabilities. How did we collectively go so wrong? We have had to mortgage our childrens’ future to pay for our mistakes. That is what we are doing when we turn to the government to put money into the banks and other business to keep them from going insolvent. Taxes will rise to pay for all of this. We may some part of this increase ourselves, but it is more likely that our children will end up paying the majority of the increased taxes. That means that we are taking from our children, never a sound moral choice.

There are lots of reasons for our collective confusion. The events in the North American financial industry will no doubt become a fruitful source for Master’s and PHD dissertations to come. But I believe that at least part of the answer has to be with the fact that we got confused about the basic role of the executive management tier in our enterprises. We started to believe that their job was to meet the needs of only one group among an enterprise’s stakeholders.

A Simple Model of the Enterprise

This schematic, like all models, is simpler than the real world. But it also allows us to ask an insightful question. If this picture depicts the complex and often conflicting pressures on an enterprise, what is management’s role in dealing with them? The answer is straightforward to articulate and difficult to do: work through the competing and dynamic pressures coming from all the stakeholders in the environment in a way ensures that the enterprise survives now and into the future.

In a for profit enterprise, that means making money this year, but doing it in a way that ensures that the enterprise is still there to do it next year, and the year after that, and the year after that. Management has to be focused on the now and the future at the same time. Making money this year in a way that risks survival in the future is clearly a foolish MANAGEMENT thing to do.

But that is exactly what happened in our financial institutions. How did this come about? Our executive compensation practices of the last 20 years have something to do with this. The compensation gurus have argued that senior management should have “skin in the game”, that their compensation packages should be aligned with the interests of the shareholders and investors in the enterprise. In doing so, they have forgotten that the task of management is not simply to create benefit for external shareholders and investors. Bonus plans that focus on Earnings per Share, and compensation schemes that reward executive with share ownership, do exactly that. They distract management from its fundamental job.

Executive management must work through all of the competing external demands from the environment, and create strategic plans and executive tactical solutions that allow the enterprise to survive in a balanced way in both the short term and the long run. Our executive compensation practices have lost sight of this. They too closely align executives with external investors, who are only one of the external stakeholders who depend on the survival of the enterprise. So we have the consequences: group of extremely well compensated executive who were not committed to the long term survival of the enterprises they run. Short term results for both themselves and their investors became their primary focus. They took risks that could create tremendous short term financial results. But while doing so, they lost sight of their responsibility to ensure long term enterprise survival.

This is not the only reason for our collective lack of common sense. But it was one. It needs correction now. Executive compensation practices need to reflect management tasks. Some part of an executive’s pay need to reflect current profit. But other parts of an executive’s compensation package needs to be tied to profits that are yet to come: next year and conceivably over the next 10 years. Shares which executives come to own and can sell in their own right do not accomplish this. We need an executive compensation structure that is tied to the stream of profits that are actually experienced by a for profit enterprise over a 5 to 10 year time frame. This mechanism must work even if the individual executive has retired or moved on. Golden parachutes, short term bonuses and share ownership plans have not done the job. It is time for the executive compensation gurus to put their long term conceptual hats on, and come up with something better.

Selecting Senior Leaders: Is “Good Enough” good enough?

April has been a discouraging month. You would think that is would be different. Spring is finally here. Flowers are coming up in the yard. The grass has turned from brown to green. But … …

Anyone who has been listening to the news in North America is likely to share this feeling. This is especially true as the month ends off with the consistent news attention to the H1N1 (or swine flu) virus.

However, that is not what is discouraging me. During the month, I read two excellent reports published in Ontario. The first was the “Ontario Clean Technology Report”. I had a chance to listen to John Mertl, one of the co-authors of the report, speak at Guelph Partnership for Innovation monthly breakfast (Ontario, Canada), and then meet with John. It’s an impressive piece of work.

As well, I read the “Ontario in the Creative Age” report published by the Martin Prosperity Institute at the School of Management at the University of Toronto. Another impressive piece of work. (The Institute has a really innovative web site as well.)

All of this first class thinking should be inspiring. It is. But I was discouraged by it. Both reports commented on the lack of needed top management talent, and the risks that it created for Ontario’s future economic prosperity.

While I have been doing this reading, I have attending a lot of executive networking sessions. I have been visiting a number of the local college campuses. I have been learning more about Health Care Informatics, a topic that I have long been interested in. (See the COACH web site for some insight what’s happening there.) Talent, creativity and the willingness to learn at all ages were ever present in the time I spent in these activities.

What I am left with an impression that we as a society do not really know how to operationally step up to the challenges which face us. We do not know how to get the right people in the right top management spots to allow us to innovate in a risk managed way. As a result, we end up moving from economic crisis to societal crisis. Some part of this cycle is fueled by an inability of our top managers to see further than next quarter’s P & L or next year’s operating budget.

We are bound by the tribal nature of our social psychology. Our approach to leadership and top management is deeply conditioned by the genetics underlying our brain’s functioning. We depend more on implicit, emotional processes in these activities, than on rationally chosen ones.

The dialog at the executive networking sessions consistently comments on the fact that the executive search industry almost never present candidates who are not “true to type”. Executive recruiters who attend these sessions comment that their clients insist on “exact fit”, especially in these times, when there are so many candidates on the job market. The people who sponsor the networking sessions point out time and time again that the majority of executive jobs are filled through through networking, not the executive search industry or media advertising.

All of this sounds and feels like “a lot more of the same”, at the exact time when we need “different results and visions”. As an individual who has benefited from leading truly innovative, high performing management teams, and coaching superb individual managers, I find this discouraging.

Maybe it just the fact that it is a late spring. Maybe it is the fact that the world remains a very competitive and unpredictable place. Maybe it is the fact that we seem better at “commenting on” our social situation than at doing things which produce lasting and effective change. But all and all, April has been a month which has left me wondering if we are really ready as a society to tackle the massive amount of day to day concrete change that we must undertake to leave the world a better place for future generations. It has to start with doing a better job of aligning innovative proven performers with the change work that needs to be done in our institutions and enterprises. We will not face our challenges with “more of the same”.

Decades of leadership research, emotional intelligence work, competency modeling and employment interviewing research do not seem to have altered our fundamental commitment as a species to informal social processes for placing individuals into the majority of the leadership jobs in our society. We continue to do so even while we talk about more effective hiring processes. Something deep in our tribally based social psychology seems to lie behind these facts. Our rational fore minds cannot seem to get beyond the guidance of the more emotional parts of our brains.

We know that interview results are not an effective predictor of on-the-job performance. We know that hiring mistakes are costly in both real dollar and lost opportunity terms. We know that the “the tough interview questions” and the ways of preparing for them, have not changed in decades (see this link from January 1983). We know that on-the-job performance and peer ratings of past on-the-job performance are among the best, most consistent indicators of future on-the-job performance. (Ever since the OSS – Office of Strategic Services - conducted research on this during the Second World war). Yet we continue to use social networking and face-to-face conversations for selecting and placing people into most leadership jobs.

Are better ways? Yes. I attend networking sessions to watch people interact with other people, not to experience them interacting with me. The people with the capacity to listen accurately and to integrate what they hear into their interaction with others stand out. The ones who can present ideas clearly and persuasively stand out. The ones who can truly facilitate the interaction of the others there stand out.

Observation turns out to be a better tool than interviewing for me. It was in my own past recruitment practice as an executive. Watching a candidate interact with other people in the organization, especially if I could arrange short working sessions for them, turned out to be a very effective way of picking top flight candidates. It beat my recruitment interview ratings of candidates hands down.

Assessment center techniques, role play techniques and group interviewing techniques, coupled with structured ratings from with trained observers, do a better job than interviewing at identifying top performers and fit to an organization. Short on-the-job assignments followed by systematic data collection from those folks who worked with the candidate, work better than one-on-one interviewing too. Yet the people who seem to have least understanding of this are recruiters, both in HR departments and in search firms. By and large, they just offer us more of the same when it comes to recruiting and hiring.