change, technology, entrepreneurship

The avalanche of change is sweeping all organisations before it. The progress is ultimately irresistible - and those who do try to resist will eventually and simply be swept away. Those who best adapt to changing markets, changing environments, changing economics and changing technology are already pulling far ahead - and outrunning the avalanche.

Many managers, reading a passage like that, will deny that it applies to them, their company or their industry. For instance, I recently gave a talk to the senior management of a major European engineering company, owned in the US, which wanted its managers alerted to the pace of change in the outside world. The soon-to-retire boss gave a thoughtful valedictory address in which he painted a convincing picture of the forces - globalism, competition, the increased need for high returns on capital, the pressures of costs and quality - that were enforcing change.

My themes were no different. When the world's in flux, not changing ceases to be an option. Standing still in a moving environment changes your relative position, and almost certainly to your disadvantage. But one of the assembled managers still found all he had heard irrelevant. The basic product, he said, was a steel box housing a simple, long-established and unchanging technology. What could possibly need changing?

THE WEAKEST LINK
In fact, the weakest link could be the technology. That manager, and anybody else who thinks that technology is everlasting, should consider the vacuum cleaner. Ever since the original Hoover made his breakthrough, housewives have put up with an inefficient process that requires filling and emptying dustbags. Sharing their frustrations persuaded a designer named James Dyson to invent a new technology - the bagless, dual cyclone cleaner. It took from 1978 to 1994 to get the product onto the UK market: in short order, however, Dyson's baby then became the number one seller.

Nobody should be surprised by such stories. Entrepreneurs customarily break through by observing what large company competitors are doing - and then adopting something completely different. What's new today, though, is that large companies are being forced to be different themselves. It doesn't come easy. That German manager mentioned above was really saying that he didn't want to change, irrespective of the need. Distrust, dislike and fear of change are endemic in organisations. But these negative attitudes cannot be afforded today.

But what does change really mean? Last month's Thinking Managers dwelt on the excellence of Canon, as rebuilt by Ryuzaburo Kaku. His principle of supporting a vertical organisation, built around 'pillars' of products, by horizontal activities (manufacturing, marketing and R&D), worked splendidly for the decades that gave Canon world-class stature. But markets have moved away from the model - so far away that the product-based organisation is obsolescent. The whole structure has to be changed for Canon to meet market demands of a radically different nature.

First, the borders between products are blurring. With less product differentiation, too, hard-won technological leads in one product or another become less decisive. Then, channels have moved from simplicity to complexity, meaning that today standardisation has become impossible - different classes of customer have to be treated in different ways.

No doubt this will already be familiar to most readers. All three factors are common to many businesses. But what do you do about them? If you stay as you are, customers will suffer - and so, inevitably, will you. With a target of double-digit growth, Canon couldn't afford any alienated customers. So its UK operations are being reorganised. Out go the product divisions, and in come a channel organisation and a central organisation. The former is divided between direct, indirect and consumer channels: the latter between product and corporate concerns.

The crucial distinction, though, is that the channel organisation has the direct profit responsibility, with 15 functions (including pricing, for example) that have an immediate impact on financial results. The central product organisation consists more of cost centres, as does a corporate set-up whose main purpose is to concentrate attention on the brand. Previously, brand responsibility was diffused - and that, today, is something you can't afford.

THREE FATEFUL FACTORS
The reason lies in the three factors mentioned above: blurring between products, less differentiation and increasing channel complexity. Throw in the slow growth of mature markets like copiers, and you can see how vital branding must be. The products may be blurred, but you can establish a clear and powerful identity for the brand, sharply differentiated from the competition, in such a way that all channels are compelled to give prominence to your products.

The Canon reforms are thus in the mainstream of modern ideas about marketing. If the brand is made strong enough, it can solve the problem of mature markets by offering a platform for new products and services. Could Canon's expertise in maintenance, for example, be branded as an outsourcing service? The power of the pure brand is demonstrated by Richard Branson's Virgin operation: the name of an airline, of all things, has been successfully transferred to financial services products.

For all the apparent urgency of Canon's transformation, the change programme has been carefully worked out over a long timetable. Analysis and input was followed by a whole year spent in committees hammering out the detail. The best part of two years will have passed between setting out on the road to change and actually implementing the changes. Among the most important of these was fitting the people into new slots in the new organisation - the point where opposition to change most easily rears its head.

There's only one way (not applied in this case) to ensure that negative attitudes don't dilute the appetite for change. That's to involve all those affected in the planning. At Britain's Royal Mail, for example, some 200 managers set out on planning reorganisation at the start of the year, knowing that by its end, none of them would be in the same job. But the new structure would be one of their own creation. People will accept a surprising amount of uncertainty if they have been fully involved in the change process - which is why business process re-engineering can be worked smoothly by people who are re-engineering away their own jobs.

To achieve such results, change must be understood. It involves four stages (all of which can be seen at work in the Canon programme). First, the case for change must be developed. Second, the process must be planned. Third, the people have to be mobilised. Fourth, the objectives must be achieved. While change is taking place all the time, even in organisations which wrongly believe themselves to be unchanging, that's an almost entirely unconscious process. Conscious change must have a clear end.

Generally, such aims fall under the heading of closing gaps. There will be a gulf between what the company's management wants it to be and what it actually is. The gulf can be a strategic one, or a performance gap, or (most likely) both. At one financial services company, for example, management wanted to break away from an essentially one-horse business to run a stable of fast stallions. Unfortunately, the operations - highly efficient in mechanical respects - were production-led. Unless the company could close the gap between its established behaviour and genuine customer focus, its chances of wider success in new markets were strictly limited.

ANOTHER MISFORTUNE
Another misfortune was that Company X is highly successful, stuffed with cash and making vast profits. There is no obvious case for radical reform, such as the programme Kaku drove through at Canon when it couldn't pay a dividend: or the upside-down strategy that Eckhard Pfeiffer forced on Compaq when it slumped into loss. But if you settle for smaller, continuous change, you miss the lift-off which radical action can accomplish (as in those two cases). The degree of competitive advantage, the pace of growth and the extent of behavioural change inside the company will all be limited.

John Akers stumbled over this obstacle at IBM. He once expostulated that everybody was too comfortable when the company was actually in crisis. That exactly delineates the task of the change manager. He or she has to manufacture a 'crisis'. That's done by envisioning the future as it will be, if nothing radical is done, and comparing the steady state vision with the dynamic results of positive change. You don't go for double-digit increases in this scenario, but for rapid growth that will, to all intents and purposes, create a new company. And you appoint change-masters whose role is to sustain the crisis atmosphere by constantly pushing for upheaval.

At Company X, a change group was established and given an agenda of significant changes to plan, promote and supervise. But in the absence of an overall, radical vision, the agenda items stayed on the agenda, little or nothing happened, and the group was eventually disbanded. Much the same could be happening now at Royal Dutch-Shell. The top management has ordained a commercial culture, built around individual performance and unit targets, all of which should go towards achieving higher corporate financial objectives. But results have so far been deeply disappointing - because the executive troops are marching to a new tune, but along the same cultural road.

The Shell design was dominated by a senior management which, while committed to change, is also deeply conservative. A glance at the expansive and expensive offices allocated to the managing directors, occupying whole floors in the Hague headquarters, shows at once what kind of company this is. That's why some change experts advocate moving offices as a change mechanism. Change people's physical surroundings in a dynamic and purposive manner, and you make it easier for them to accept changes in their business behaviour and purposes. Too many head offices are temples to corporate elitism.

Elitism is a barrier to successful change from the start, because it encourages top-down decisions on what should change, how and when. The fait accompli is substituted for consensus built by a proper planning process. The consensus begins with winning agreement to the overall objective, which has to be far more precise than the usual corporate vision or mission statement. Even 'biggest and best', which sounds like a hard target, and was adopted by Company X, becomes spongy as soon as you ask, what does 'best' mean?

NUMBER ONE TO CUSTOMERS
Left as it stands, the word is meaningless. Translated into 'number one in the eyes of the customers in all attributes that matter most to them', the objective is cumbersome: but it starts the company on the road to customer focus. And a lot will have to change to reach that destination. There's much to be said, though, for rock-hard objectives that allow no room for subjectivity. An outstanding example is Pfeiffer's brisk aim at Compaq: to be world leader in PC sales by 1996. It was terse, highly ambitious, easily understood and, so it proved, eminently achievable

A company that had only a third of IBM's market share surpassed the leader two years early. At the start, the ambitions would have seemed more impressive than the chances of achieving them, which only emphasises the essential truth - that, since major change demands major upheaval, the prize had best be worthy of the effort. Once such a prize has been envisioned, communicated and backed, throughout the organisation, you have a flying start for the planning process, in which the task and the decisions should be as widely shared as possible.

Who does what and when, building the critical paths, forming action plans, etc. are indispensable to the mechanics of the task. But they go beyond mechanics into the realm of motivation. Curiously, books on managing change gloss over this crucial matter. But since resistance to change is so widespread and powerful, people need a reason to accept and support the change process. Crisis provides the very powerful negative motivation of saving their jobs. In a more positive situation, working together to make an ambitious project succeed is another strong motivator.

Company X knew this well through the success of a crash programme that had recently been pushed through against a tight deadline. The project was broken down into specific tasks, each handed to an individual group, which was left to complete its work within a tight reporting structure. The autonomy, the pressure, the high motivation and the eventual success led to the conclusion that the task force concept would work equally well at transforming the whole company. That was altogether too radical for top management to contemplate, because it represented a direct threat to the hierarchical structure. As at Shell, corporate conservatism won the day - and that's a battle change-masters can't afford to lose .

Change programmes are doomed by the past: by old performance measures that block change, too much conventional wisdom, and 'same old horses, same old glue.' The words are from the 'Change Integration' team at Price Waterhouse, which lists eleven enemies of change. 'Same old horses, same old glue' means that you need to form teams full of known innovators, radicals who will challenge the conventional wisdom that says 'it can't be done' and actually just do it. That's one way to overcome the first of the other other obstacles in PW's list:

1. Failure to deliver early, tangible results
2. Talking about breakthroughs, drowning in detail
3. Everything is high priority
4. The voice of the customer is absent
5. The voice of the employee isn't heard, either
6. Senior management wants to help, but doesn't know how
7. 'What's in it for me' is unclear

SEVEN FAILINGS
The damage done by these seven failings is as obvious as the remedies. But there's also 'failing to connect the dots', by which PW means harmonising and rationalising all the change efforts that are under way. You don't want competition, but coordination. The objective of internal change is to turn the whole company in a new direction so that it can take full advantage of external change. Static markets, remember, are now much rarer. Most markets resemble a vortex rather than a steady state. Ask yourself these questions, derived from PW's book, Better Change: Best Practices for Transforming Your Organisation.

1. Are my customers and markets changed or changing or both? If so, how?
2. Do we need to change the products and services that we supply to the marketplace? If so, in what ways?
3. Are our business processes as effective as they can possibly be, and are they aligned to the two issues above? If not, what are we doing about the gap?
4. Are the people and reward systems aligned to the change objectives? If not, how are we going to reform them?
5. Do the organisation's structure and facilities match its needs now and into the foreseeable future? If not, what changes will we make?
6. Is there a gap between our technological armoury and the state of the art - including the IT-based potential? If so, when and how will it be closed?

Those six questions point to a vast and comprehensive change programme - and the key word is comprehensive. Nothing can be left untouched: and nothing can be left to chance. The time to start, moreover, is now - because (see Canon) lasting change takes time. The less time, though, the better. Otherwise the moment when winning with change is attainable may pass you by - for ever.