The consultants have had some success in persuading clients not just to outsource, but to revamp their key business processes to match the outsourcing and maximise its benefits. If that revamping isn’t ‘change management’, what is? Leaving that question aside, spending under the ‘change management’ title doubled last year. That remarkable boom clearly demands some explanation.
A faster rate of change is the starting point. For sure, companies live in fast-changing times, indeed, a more turbulent age than ever before. But that’s been true for many years. What’s happened is that more recently managers have become (or been made) aware that failing to change in good time does more than just miss opportunities (which it does); it can kill or petrify the company. Even when an organisation plunges into belated change, it may be too late to avert chronic corporate arthritis.
Thus, there were once no European corporations more respected than the retail cynosure, Marks & Spencer, and the smooth-running oil colossus, Royal Dutch-Shell. The latter has been horribly damaged, not only by its confessed lies about the size of its reserves, but by the management shambles revealed as the cover-up unravelled. M&S, after staging what seemed to be a solid recovery from heavy blows to its profits and reputation, has slipped back again with a bunch of miserable sales figures.
What’s worse is that the dim statistics were accompanied by anecdotal evidence – poor selection of women’s wear, lack of stock, unattractive stores - which served to confirm that the problems had not been solved. M&S knew that it needed conversion into a retailer that is fleet-of-foot, a magnet for dynamic suppliers and managers, and a fashion leader. But M&S has never been any of those three things.
During the long reign of the dominant Rick Greenbury, it consolidated the unhelpful characteristics of the past: top-down, slow-moving and deeply conservative. There’s a similar sad tale to tell at W.H. Smith, where a six-year CEO reign has ended in dismal performance and urgent need for radical change at this High Street chain. This once had the reading market, from newspapers to encyclopedias, in the palm of its hand. Canny observers expected this unhappy result from the moment Edgar Handover was appointed - a company veteran who had never shown the slightest sign of cracking the mould.
COMPANY VETERAN
Greenbury of M&S was another vet, a man steeped in the top-down traditions of what for most of its great years was a family business. Family traditions also loomed large at Philips, the Dutch electrical and electronics leader: although you can hardly give the name leader to a corporation that lost $5.6 billion in 2001-02, that is selling 23% less now than in 2000 – and that has yet to surpass the revenues achieved a whole decade ago.
All this happened, remember, to a company seemingly well-positioned in the wonder-markets of the Western world (and the East, for that matter). Philips recovered in 2003 to $36.5billion of sales and $872 million of net profits under the chief executive tutelage of Gerard J. Kleisterlee. His provenance will come as no surprise to readers. Kleisterlee is another company vet. Not surprisingly, Business Week, in a laudatory piece, interrupts the praise to note that ‘Philips has staged apparent turn-rounds before, only to see them flame out’.
Does the prevalence of company vets have anything to do with this phenomenon, which is by no means confined to Philips? M&S, after a false start with a vet anointed by Greenbury, gave charge of its turnround to an outsider, Luc Vandevelde. After a personally lucrative spell as CEO, he remains chairman, but has handed over his executive role. Critics link the two events, the handover and the renewed setback. But even if the linkage is correct, why did the retreat occur?
DEEPLY CONSERVATIVE
The true company vet is the company itself. Like the in-house top appointee, the corporate being can become deeply conservative, very unwilling to change and, even worse, loath to concede that change is required. As at ICI after Sir John Harvey-Jones retired, old managers resurface, give a sigh of relief and return thankfully to their previous unproductive ways. The ICI vets even opposed the Great Man over publishing his account of what was by any standards a terrific turnround.
The fundamental question is whether real, deep and lasting change can ever be achieved without a radical change in the management. It’s not that you can’t teach old dogs new tricks; you can’t teach some dogs any tricks at all.
Harvey-Jones was appointed because he had shown himself to be a maverick, a radical by temperament and ideas. At Smith’s, Handover had proved himself to be the opposite. The odds are that such insiders will nearly always back away from the change to which they pay lip-service.
That’s where those management consultants come in. You can make a good case for them. They are not committed either emotionally or intellectually to the status quo. In theory, they not only can see what changes are needed, but have acquired expertise - which their hosts have not - in structuring a change programme, selling it to the participants (willing and unwilling), and easing the strains and pains the change is bound to bring. But the consultant is, of course, tied to the people who pay the fees. If the executive management can’t make a clean break from the past, all the consultants in the world can’t help to achieve radical change.
The MIT professor Clayton M. Christensen, author of The Innovator’s Dilemma, accidentally illustrated this general truth when working later on how you can nurture real innovation within the large established company. His answer, which was reported here at the time, was blunt: you can’t. There is no alternative, he concluded, to setting up an independent unit, completely apart from the rest of the company, and given all the necessary freedom to bring the innovatory project to fruition.
There’s a catch, of course - the same catch that dooms change programmes ordained by insiders. If the parentis so mired in the culture of the past that it cannot accommodate innovation, what are its chances of providing a suitable home after the innovators have brought home the bacon? Surely the independence of clearly defined business units should be the organising principle of the whole culture. Many companies have adopted the principle of the SBU (strategic business unit) in the past three decades. But the device has seldom lived up to its promise, for exactly the same reason that Christensen spotted.
ILLUSORY INDEPENDENCE
The independence of the SBU proved illusory because the central managements simply imposed too many constraints on the units. They operated within order-and-obey or command-and-control cultures as if there were no alternative. There is. Anybody can follow the simple approach of Warren Buffett, the US genius whose Berkshire Hathaway firm is a giant conglomerate of totally unrelated businesses. Buffett appoints CEOs who he believes to be able, and then leaves them alone to prove it. He doesn’t participate in their strategies, and is content with the control provided by budgets and financial reports.
Buffett limits himself to two functions at the centre: allocating capital (his favourite hobby) and rewarding and picking the top executive. Most came in with their companies, and ‘When we buy a business, the sellers go on running it just as they did before the sale; we adapt to their methods rather than vice versa’. Then the sellers are left alone: ‘Some Berkshire managers talkover some of their decisions with me, some don’t. It depends on their personalities and, to an extent, upon their own personal relationship with me’.
Don’t get the idea that Buffett is a weak manager. Far from it. One of his few rules is that he expects to hear bad news immediately - but he makes sure that this event is rare by sticking to the obvious winner in these three statements:
1. I do not trust this person to do a proper job, and will replace them as soon as possible.
2. I do not trust this person to do a proper job, but control them tightly to ensure that they do.
3. I trust this person to do a proper job, and will let them get on with it in their own way.
THE BASIC QUESTION
Like any sensible person, Buffett plumps for the third alternative. Yet the majority of managers, perfectly sensible in other ways, gravitate towards the second. If the person is not competent to do the job, why are they still in the position? If they are competent, though, why are you not allowing them to demonstrate that competence? Any change management programme worthy of the name has to begin by examining and challenging basic questions, like that of people’s ability and authority to do their work to excellent standards.
This requires a major upheaval in corporate culture - or, which comes to much the same thing, managerial behaviour. In the Business Week account of the turn-round at Philips, there’s no hint of real reform of the human relationships which determine performance.
Kleisterlee didn’t reform; he reorganised. That meant dropping businesses worth $850 million, cutting operating expenses by $1.2 billion, closing 12 factories and outsourcing nearly all consumer electronics and appliance manufacture - plus chip production. That’s a classic (or standard) down-sizing prescription.
The human side had some attention; there’s a drive ‘to break down the walls separating Philips’ fiercely independent divisions’ and get them to communicate, to become transformed into a single company, under the legend ‘One Philips’. This sounds exciting and revolutionary, but is again standard - and dubious. The reality is that Philips is not one company, and never will be. Some of its major remaining businesses have as little in common as Berkshire’s - and those range from candy to reinsurance, executive jets to furniture.
The true change manager starts with redefining the purposes of the organisation in the light of fully analysed external change. Next come the internal changes required if those purposes are to be met. Then you tackle the people, starting at the top. Will they or won’t they whole-heartedly accept the new purposes and internal reforms? If they won’t or can’t, they can’t stay - especially if their job is chief executive.
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