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The Challenge of Leading Strategic Change

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Lasting success lies in changing individuals first; then the organization follows.
This chapter is from the book

With more than a hundred books on leading strategic change to choose from, why read this one? The answer is simple. Most other books on change have it backwards. They take an "organization in" approach; in other words, they outline all the organizational levers you should pull to change the company based on the premise that if you change the organization, individual change will follow. Our experience and research commands the opposite conclusion. Lasting success lies in changing individuals first; then the organization follows. This is because an organization changes only as far or as fast as its collective individuals change. Without individual change, there is no organizational change. Consequently, instead of an "organization in" approach, we take an "individual out" approach. To repeat—to change your organization, you must first change individuals, and sometimes (maybe even often) this means changing yourself as well.

Let's assume for a moment that you agree with this first premise and believe that simply changing some organizational features such as structure will not necessarily cause people to change their behaviors. Let's assume that you believe that in order to change an organization, you have to first change the mindset and behaviors of individuals. Even then you still might be wondering, "How difficult can changing individuals be?" Based on our research and experience throughout the last 20 years with nearly 10,000 managers, the failure rate for change initiatives is high—close to 80 percent! When we cite this figure, many managers' reaction is to say, "That sounds a bit high." However, if you put this in an everyday context, the failure rate is not that surprising. For example, of the people who determine to change their diet or level of exercise, how many are still sticking with the change just three weeks later? It is only about 10–15 percent. If people cannot easily and successfully change their own behavior when they say they want to, why would we be surprised that people have about the same level of difficulty and failure changing the behavior of others when the other person may not want to change?

But let's not quibble about numbers. Other studies suggest that the percentage of change failure is only 50 percent. But whether it is 50 or 80 percent, it is not 30 percent. This is significant, because if the failure rate were 30 percent, we might attribute it to the failings of less motivated and skilled managers. But at 50–80 percent, this means that we have many motivated, skilled, and otherwise successful leaders who are nonetheless falling short of their organizational, unit, team, or individual change objectives.

This brings us to some inconvenient truths about change. First, while we would like change to be easy, the inconvenient truth is that it is hard. Second, while we might wish for change to be inexpensive and not require much time, money, effort, blood, sweat, or tears, the inconvenient truth is that change is very expensive. Third, while we might pray for change to be over in a flash, the inconvenient truth is that it often takes a significant amount of time for a change to take hold.

This is why elevating and enhancing the capability of leading change is one of the most profitable things you can do for your career and for your company. In our research, a little more than 80 percent of companies listed leading change as one of the top five core leadership competencies for the future. Perhaps more importantly, 85 percent felt that this competency was not as strong as was needed within their high potential leaders. In a nutshell, when it comes to leading change, demand is high (and growing), and supply is short.

To understand why there is a shortage of capable leaders of change, we only need to consider a few factors. First, change has never been easy. For example, consider this quote written 500 years ago by Niccolo Machiavelli:

  • There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle than to initiate a new order of things. For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders by all those who could profit by the new order. This lukewarmness arises from the incredulity of mankind who do not truly believe in anything new until they have had actual experience with it.

Clearly, resistance to change is not a modern phenomenon. In fact, resistance to change seems to have endured through the ages in part because humans are biologically hardwired to resist change. Yes, that's right. We are programmed not to change. While plants may evolve and survive through random variation and natural selection, man does not. We do not generate random variations in behavior and let nature take its course—selecting and de-selecting those that fit and do not fit the environment. Humans are wired to resist random change and thereby avoid random de-selection. We are wired to survive, so we hang on to what has worked in the past. We hang on to successful past "mental maps" and use them to guide current and future behavior.

This map-clinging dynamic happened to Hal a few years ago when he was teaching in the Amos Tuck School of Business at Dartmouth College. Even though Hal only lived about a mile from work and had several possible ways to get there, he had quickly settled in on a habitual driving route that took him to work the fastest. One cold winter morning, though, Hal had driven about halfway to work when he confronted a detour barricade and sign. Construction workers were laying new pipe under the road, and it was clear this was a major project and was going to take a few days, so Hal had to turn around, backtrack halfway home, and then follow a detour route to work. At the end of the workday, Hal began his short drive home. But again, he took his "usual" route and ended up stuck at the detour sign once more. He backed up (just like he did in the morning) and ultimately rerouted himself home. The next day Hal woke up and hurried off to work, and you guessed it. He took his "usual" route again and ended up staring once more at the detour sign. Like the day before, he turned around, backtracked, followed the detour route, and made it to work. Finally, on the afternoon of the second day, Hal altered his mental map of how to drive home and actually rerouted himself before running into the detour sign.

Unfortunately, modern times have conspired to work against this ancient biological coding of hanging on to what works until undeniable evidence mounts to prove that the old map no longer fits the new environment. Today, the rate and magnitude of required change has grown exponentially. We now talk about 90-day years (or Internet years, which are almost as short as dog years.) Pundits pull out charts and statistics about the half-life of products dropping in half. Many of us face change of such size, scope, and complexity that is nearly overwhelming. Sadly, all indications are that things are only going to get worse. Specifically, the magnitude of change, rate of change, and unpredictability of change all seem to be headed in the direction of making leading change an ever more challenging leadership capability.

Magnitude of Change

The magnitude and size of the changes we face and will face are Everest in nature. For example, who could have imagined in early 2004 that later that year a company virtually unknown outside of China (Lenovo) would buy the PC business of IBM? In capital terms (at $1.25 billion), it may not have been the biggest acquisition for the year, but in terms of the news splash it was enormous in size. In the same vein, but on an even bigger scale, who in early 2005 would have predicted that CNOOC (Chinese National Offshore Oil Company) would have launched but then lost an $18.5 billion bid for Unocal?

We draw the Lenovo and CNOOC examples from China not because China is the only big change in recent times, but because it is a great example of the size of changes we are experiencing. For example, from 2000 to 2006, not only did foreign direct investment in China more than double to more than $65 billion, but China sucked in nearly 9 out of every 10 foreign dollars, euro, or yen that were invested in all of Asia. In late 2006, the largest IPO ever occurred when Industrial and Commercial Bank of China (ICBC) simultaneously listed its shares on the Shanghai and Hong Kong stock exchanges and pulled in $20 billion! In fact, in 2006, China was the largest IPO market in the world.

As we said, while China is not the only big change out there, it does illustrate the size of changes that have happened recently and will likely happen in the future. China's rise has rippled through all sorts of sectors, including ones that may not get the press that ICBC's IPO did. For example, the large shipment of goods from China to the U.S. but the relatively smaller amounts shipped from the U.S. to China has spawned a new business in California—container storage. There are so many empty containers piling up in California that real estate agents and landowners are making good money simply storing the empty containers on vacant land. In fact, in some cases, the containers are stacked so high that they block the views of homeowners living next to these "temporary" storage facilities.

India may be next in line to send change tectonic tremors throughout the world. While FDI in India in 2006 was only a bit larger than $4 billion compared to more than $65 billion for China, one need look no further than companies such as Infosys, Wipro, Tata, or Reliance for future (some would say current) global competitors. In terms of opportunities, India's middle class, estimated at 250 million people, may offer the foundation upon which to build homegrown multinationals as well as a significant opportunity for growth for foreign multinationals. What will happen in India or how India might affect the global business landscape is nearly impossible to predict, but the magnitude of the potential impact should not be underestimated. Summarized simply, Nandan Nilekani, the CEO of Infosys, recently stated, "We changed the rules of the game...(and) you cannot wish away this new era of globalization."1 Wen Jiabo, the Chinese prime minister, framed the point even more powerfully: "India and China can together reshape the world order."2

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