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The Fundamentals of Change

What are the fundamental dynamics of leading strategic change? The diagram shown in Figure 1.4 attempts to capture this process, and subsequent short sections describe these dynamics relative to each of the main cells in the matrix. However, I provide the in-depth explanation of the concepts and dynamics in subsequent chapters. It is also in the subsequent chapters that I provide the tools that help you put the principles into practice.

Figure 1.4

Figure 1.4 Matrix of the fundamental dynamics of change.

Stage 1: Origin of Change

Virtually every major change has its roots in success (Stage 1). In almost every case, the need for change is born of past success—of doing the right thing and doing it well. For example, IBM did the right thing (making mainframe computers) and did it well—in fact, better than anyone else for nearly 50 years. Xerox was so closely tied to the invention and commercialization of copying that the company name became a verb (“Please xerox this document for me”).

If a company, a unit, or even an individual is doing the right thing and doing it well, then where does the need for change come from? More often than not something changes in the environment. A new technology comes along; a new regulation is introduced; a new competitor emerges; a new customer need develops. With this shift, the right thing becomes the wrong thing.

Stage 2: The Dilemma of Change

So now because of the shift(s), the old right thing is now the wrong thing, but you are still very good at it. In fact, you may now be world-class at the wrong thing. This is the fundamental dilemma of Stage 2. It is a dilemma for two reasons. First, people love being and feeling competent. Second, it is likely that they have invested significant time, energy, money, and so on to become competent. As a consequence, even if there is mounting evidence that the right thing is now wrong, in their hearts people say, “Maybe so, but I’m so good at it. How can I let it go?”

In IBM’s case, computing power soared while cost remained constant (or dropped in real terms); and servers, minicomputers, and even desktop computers began to replace the role of some mainframes. Just making big boxes was no longer the right thing, but IBM was so good at doing it. People’s hearts and souls, self-worth, and image were tied up in years and years of making “big iron” (IBM’s vernacular for mainframes).

Then after enough pain is felt or blood spilt on the floor (or at least red ink on the accounting ledger), we start to accept that the old right thing is now the wrong thing. We then begin to envision what the new right thing might be. Over time, the new right thing becomes clear.

Stage 3: The Pain of Change

But, in almost every case, because the new right thing is new, we are usually not very good at it at first. Initially we end up doing the new right thing quite poorly. For example, not long after Lou Gerstner took over as CEO at IBM, people inside the company finally saw that just “selling boxes” would not work and that providing integrated solutions was critical to their future success. However, neither IBM nor its employees were good at making money from providing integrated solutions at first. While analysts today tout the importance of “solutions” in IBM’s revenue and profit growth, we quickly forget that back in the mid-1990s, as IBM initiated this strategic change, the integrated solution units (ISUs as they were called) were most closely associated with losing money, not making it.

Stage 4: The Prize of Change

Hopefully, after a time, we master the new right thing and start to do it well (a move from Stage 3 back to Stage 1, which we’ll now call Stage 4). At this point, the sun shines again, and we bask in the warmth of its rays. Life is good. (Well, that is, until the environment changes and the new right thing becomes the wrong thing.) IBM eventually did become proficient at providing integrated solutions. In fact, the service business was the largest revenue and profit growth engine for IBM during the late 1990s and led to a ten-fold increase in the market value of the company in less than 10 years.

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