|| Meet the challenge of
|| corporate change
"The art of progress
is to preserve order amid change and
to preserve change amid order."
- Alfred North Whitehead
"Progress is a nice word.
But change is its motivator
and change has its enemies."
- Robert Kennedy
"There is nothing permanent
ot too long ago you could have found John Bull, who epitomises England, propping up the bar in the Dog and Duck, pint of bitter in hand. Now he and the lovely Mrs Bull, who never have been seen dead in a public bar, pop around to the wine bar , Chez Something-or-the -other, for a kir
and a plate of what they
Down the hatch
This social revolution has left its stamp on Britain's big breweries. Now
they're all hunting for more profitable activities than pulling pints. Two recent deals show the way that the brewers are headed.
It's also hit the consumption of tea, Britain's traditional all-purpose cure for everything that ails main, woman and child.
Quintessentially English as the two lukewarm, brownish liquids -
beer and tea - may sound, the British now drink less of both
national drinks. On the beer front, production has fallen 1% a year from its
peak of 42,1-million barrels in 1979. And the volume consumed in pubs
dwindled to 74% compared with 91% in 1976.
Indeed, profits that accrue to British breweries have fallen as flat as John
Major's beloved bitter. When the Brits buy their beer in shops rather than pubs, margins decline to squeeze profits. Even pubs, for centuries the centre of the English social scene, find
sales less profitable than they were as a result of a ruling by the Monopolies and Mergers Commission. It forced larger brewers to sell about a third of the pubs they owned.
Breweries owned 58% of British pubs in 1986. By 1994 they owned only 33% of the watering holes. "Tied" pubs
- pubs that serve only beer made by the brewer who owns them - allowed brewers to keep artificially high.
Back in the 1980s this story did the rounds of popular pubs in London's Balham area:
A gorilla walked into a quiet, side street pub and slapped a £10 note on the bar counter. "Give me a pint of
bitter," he demanded.
The barman drew the bitter and thought to himself: "He's just an overgrown monkey so he must be a bit
dim. "So he gave the gorilla £4 in change. Then, donning his friendly barman's face, he said :"We
don't usually get many gorillas in here."
"I bet you don't ,"replied the gorilla," if you charge
£6 for a pint."
However, the growth of independent pub groups has shifted bargaining power into the hands of pubs, which now force rival brewers to compete for their custom.
Other brewers have
responded to the flat market by diversifying. Large brewers in Britain have
long had extensive retailing interests through their ownership of pubs.
They've extended from this into retailing and leisure businesses such as
hotels and restaurants.
Even Scottish &
Newcastle, which concentrates on beer more than any other British brewer,
makes only a third of its profit from the stuff. The rest of their revenue
comes from running pubs and holiday resorts such as Centre Parcs and Pontins.
Perhaps the most obvious way for brewers to diversify is to persuade people to eat more in their pubs. Britons spend twice as much on meals away from home today as they did 30 years ago. Pubs are, therefore, trying to look more like restaurants. Each of the large brewers has a chain of pubs-restaurants aimed at families. And
they're rapidly extending this side of their operations: Harvester for Bass, Chef & Brewer for Scottish & Newcastle and
Brewer's Fare for Whitbread.
| Avoidance of change can only be achieved by running flat out to keep
up with yesterday.
|| On June 30, 1996, that Whitbread, Britain's fourth largest brewer, will buy Pelican, a restaurant business, for more than
£133-million. This will expand what is already the brewery's
fastest-growing division. The Cafe Rouge chain, core of the Pelican
Group, was launched in 1989. It flourished in the teeth of a recession
by offering French-style cafes that are woman-friendly, open all day and
serve meals as well as drinks. Try that in the public bar at the Dog and
What all this boils down to is that to survive and thrive you have to ...
For many business
people in South Africa the future, which means change with a capital "C",
will come too soon. According to local manufacturing consultant Mteto Nyati,
there are no visible signs that middle managers and other employees are
preparing for the inevitable. "It appears they believe they have a
diplomatic immunity to change," he says.
The greatest barrier to change is complacency.
So kill it before it kills you.
In this competitive age, people like you, who lead companies, need to know how to blow up self-satisfied corporate cultures ... how to sabotage "we do it this way because
it's the it's always been done".
Create a sense of urgency ... do something ... before a real disaster strikes.
Over the last 20 years or so we've witnessed a period of significant and often traumatic change. Huge corporations like AT&T split themselves apart. On the local
scene, many conglomerates followed suit by hiving off divisions and subsidiaries in an ongoing unbundling exercise. Massive layoffs dominate the headlines. Nerd-like upstarts launched high-tech companies which, after only a few years in existence, began redefining competition in their field.
Bite the dust
| Although some people predict that most of the re-engineering, mergers,
downsizing, quality improvement efforts and cultural renewal projects
will bite the dust sooner rather than later, I disagree. Powerful
macro-economic forces are at work here. These forces are likely to grow
even stronger over the next few decades. As a result, more and more
businesses will be pushed to reduce costs, improve the quality of
products and services, increase productivity and identify new
opportunities for growth
| If the shoe now fits comfortably,
you haven't allowed for growth.
environment is changing. And it's changing fast. Bearing this in mind,
identify five macro-economic changes that will take place over the next five
years. Then ask yourself:
- How will
your customers take to change?
- How will
their buying patterns change?
- Who are
your major competitors?
- Who will
your future major competitors be?
alternatives will customers have to your offerings?
- How can you
accommodate these changes in your business?
- What other
areas - product ranges or services - can or should you diversify into?
If you don't know,
find out. And find out fast.
To date major transformations have helped some organisations. Companies like GE, Allied-Signal and Motorola have adapted significantly to changing conditions. But in too many situations improvements have been disappointing. Carnage has been appalling, with wasted resources and burned-out, scared or frustrated employees.
Referring specifically to the fast-changing retail food sector, Sir Ian MacLaurin, chairman of the huge Tesco Supermarket Group in the United Kingdom, said there were two vital elements that had to be borne in mind by managers:
- A consistent long-term business strategy.
- A short-term tactical flexibility that allowed quick response to
changing marketplace conditions.
MacLaurin said that retailers needed a consistent long-term strategy to build a strong brand image
- an image that reflected everything that contributed towards
customers' perceptions of the company: the quality and value of own-label products, the
company's standards of service, its ability to deliver value for money, the range of in-store facilities it offered to customers, the range and quality of the products it sold and the corporate attitude towards the environment.
According to MacLaurin, short-term tactical flexibility meant the ability to respond rapidly to changing customer tastes and values by fine-tuning product ranges, prices and policies. He cited as examples of customer values that demand quick tactical responses included concerns about nutrition, growing awareness of environmental issues, economic pressures and the a constant clamour for new and interesting products.
Even if you follow MacLaurin's guidelines, change will inevitably generate some degree of downside. Pain is always present whenever a business is forced to adjust to shifting conditions. But you can avoid a significant amount of the waste and anguish that change brought with it over the last 10 years.
How you enact change makes the difference.
Yes. off course it's important to have a clear vision, a consistent long-term business strategy, as MacLaurin suggests. And it is important to get everyone in your organisation to support it. But my research has found that most efforts to implement change never make it that far.
Because managers fail to squash complacency.
When they decide to change an organisation, those in charge often plunge ahead without establishing a high enough sense of urgency among the people they lead. This error is fatal. Corporate transformations always fall apart when levels of complacency are high.
According to Edgar Bronfman, president of Seagram in the United States, change is everywhere so
it's pointless wasting time discussing it.. He says the essence of good management today is to accept the inevitably of change and make it work for you.
Change should be at the heart of strategic planning. He urges managers in all types of business to routinely and constantly ask themselves where change is taking them and where they want to go.
But even if you accept the inevitability of change and plan your strategy around it, how you implement your plan will determine its success.
Even the most talented manager can come a cropper. Look what can happen to Adrian
- I've changed his name to protect the guilty. When he was appointed head of the speciality chemicals division of a large corporation, he inherited a formidable phalanx problems.
But he also saw opportunities lurking on the horizon.
As a seasoned and self-confident executive, he worked day and night to launch a dozen new initiatives to build sales and margins in an increasingly competitive global marketplace.
| Corporate Inertia Where there is a will, there is a won't.
|| Adrian realised that most of the others in his organisation were blind to both the dangers and possibilities. But he
didn't feel that the problem was insurmountable. He believed the others
could be induced or pushed to think like he did. Or they could be
Two years after his promotion Adrian watched initiative after initiative sink in a sea of complacency. Regardless of his inducement or threats, the first phase of his new product strategy took so much time to implement that counter moves by the competition offset any important benefit.
He felt as if he was banging his ahead against a brick wall. He couldn't
secure sufficient corporate funding for his big re-engineering project.
Re-organisation was talked to death by skilled filibusters on his staff. In
frustration, Adrian gave up on his own people. He acquired a smaller firm
that had already successfully implemented many of his ideas.
Smart people like Adrian fail for many different but interrelated reasons. They:
- overestimate how much they can force big changes on an organisation;
- underestimate how hard it is to drive people out of their zones of
- don't recognise how their own actions can inadvertently reinforce the
- lack patience - "Enough with the preliminaries; let's get on with
- become paralysed by the risks associated with reducing complacency
- people becoming defensive and slipping morale and short-term
More resistance to change
Even worse, they confuse urgency with anxiety. By driving up the latter they push people ever deeper into their foxholes and create even more resistance to change.
If complacency levels were low in most companies today, this problem would be of limited importance. But just the opposite is true. Too much past success, a lack of visible crises, low standards of performance, insufficient feedback from the outside
world and more all add up to: "Yes, we have our problems, but they aren't that terrible and
I'm doing my job just fine. "There's another popular shoulder-shrug: "Sure, we have big problems, and
they're all over there."
The famous and prolific Spanish surrealist painter, Dali Salvador, once admitted: "There are some days when I think that
I'm going to die from an overdose of satisfaction."
You have to face facts: without any sense of urgency, people won't put in that extra effort that is often essential. They
won't make needed sacrifices. Instead, they'll resist initiatives from above and cling to the status quo.
Status quo has been freely translated from the Latin by a local executive to mean: "The mess
Why do nominally sensible and aware people behave this way?
For lots of reasons.
Show 25-year-old BMA students a complacent company that's in trouble and
they'll probably talk as if a group of people with an average IQ of 40 were running the firm. Their implicit diagnosis: if the place is in trouble yet urgency is low, management must be a bunch of dupes. Their recommendation: fire them immediately and hire us.
Low sense of
But this alleged link between ineptitude and complacency doesn't fit well with my experiences.
I've seen a low sense of urgency among highly intelligent, well-intentioned people who had good reasons to be worried. I can still vividly remember sitting in a
meeting of a dozen senior managers in a severely under-performing corporation and listening to an intellectual debate that might have been well-received at Harvard.
And why not?
Many of the people seated around the table that day had degrees from the
world's best universities. Unfortunately, the rather abstract discussion of "strategy" avoided confronting any of the
corporation's key problems. Predictably, no decisions of any consequence were made by the end of the meeting.
You can't make important decisions without talking about real issues.
This reminds me of a story that did the rounds of Wits campus a few years ago.
A former student, currently living Down Under, returned to South Africa for a short holiday. He took the opportunity to look up his old economics professor, who showed him the latest examination paper.
The former student glanced through the paper and raised his eyebrows in surprise. "Prof, these questions are identical to those you asked when I was a student here 10 years
"That's right, "said the professor ."I ask the same questions every year."
"But surely you know that students hand the papers down from one year to the
"Sure I know that, "said the professor ."But in economic we change the
No room for
The moral of the story is that while the basic problems involved in running a successful operation may be similar from year to year, changing circumstances have a profound effect on the solutions.
There's no room for complacency bred by what you think you know through experience.
At least six reasons help explain this sort of complacency:
- No highly visible crisis existed. The company wasn't losing money. There
was no threat of a big lay-off. As a rational; analyst, you could argue that
the company was in a crisis because of the steadily declining market shares
and margins, but that's a different issue. The point here: employees saw no
tornado-like threat. Therefore their sense of urgency was low.
- You held that meeting in a room that screamed success. You could evenly trade that antique, 30-foot mahogany table for three new Mercs and a BMW. The wall fabrics, wool carpeting and overall décor were as beautiful as they were expensive. The subliminal message was clear: "We're rich,
we're winners. We must be doing something right. So relax. Have lunch."
- These managers measured themselves against low standards. Wandering
around the company, I repeatedly heard: "Profits are up 10% on last
year. "What I didn't hear was: "Profits are down 30% from five years ago, while industry-wide profits were up nearly 20% over the last 12 months."
- Staff focused attention on narrow functional goals instead of broad
business performance. Marketing, manufacturing and personnel each had
their own index. Only the CEO was responsible for overall sales, net
income and return on equity. When the most basic measures of
corporate performance were sinking, virtually no-one felt responsible.
- Management rigged the various internal planning and control systems to make it easy for everyone to meet their functional goals. People in the
corporate marketing group told me that they'd achieved 94% of their
objectives during the previous year. A typical goal: " Launch a new ad
campaign by June 15."They didn't deem increasing market share to be an
- What ever feedback employees received came almost entirely from these
faulty internal systems. Criticism from external stakeholders rarely
reached anyone. An employee could work for months and never be
confronted by a dissatisfied customer, an angry shareholder or a
According to Frederick Crawford, who specialised in turning apparently doomed American businesses into profit-making concerns, companies
aren't bricks and mortar or money and finance."
They're people," he says adamantly.
He points out that to be a success a manager must have the ability to coax above-average efforts from people.
Crawford recalls that early in his career he was given the responsibility of resuscitating a plant in imminent danger of going down the tubes. Because there was little or no capital available, he
couldn't hire additional staff or invest in new equipment. He had to do the best he could with what he had. He only made one move.
He put the workers to work.
Just how did he accomplish this miracle?
Crawford asked the plant's workforce to contribute ideas for planning.
Because the workers now had a personal interest in not only what the were doing, but also the results of what they were doing, the company experienced a dramatic increase in productivity.
As Crawford observes: "When you have your employees' confidence and understanding, you
don't need much management. "Winning the hearts and minds of workers - especially if your company has its back to the wall
- may temporarily overcome inertia. But for longer-lasting results ...
Turn up the heat in your company
- Remove the sources of complacency
- Create a strong sense of urgency.
- Set outrageous goals.
- Create artificial crises.
Remove sources of complacency.
Eliminate such symbols of excess as a big corporate air force. Set higher standards, both formally in the planning process and informally in day-to-day interaction. Change internal measurement systems that focus on the wrong indexes. Vastly increase the amount of external exposure that each of your employees get
- ensure that they meet customers and suppliers face-to-face as often as possible. Discourage "yes" men. Reward both honest talk in meetings and people who are willing to confront problems. And put a stop to baseless "happy
talk" at its source: in the boardroom and executive suites.
There's nothing new about any of these actions. All competent managers take some form of action to overcome at least some of these problems. But they often
don't go nearly far enough. For example, they invite a panel of customers to attend the annual management meeting. But the
can't seem to find a way to bring customers' complaints to the attention of all employees on weekly, or better still, daily basis.
Although a company may hold its annual management meeting at a less-than-than-posh place, chances are good that when
it's over executives will return to offices of Louis XIV splendour. While the executive committee probably initiate one or two relatively frank discussions about problems, the company newspaper devotes all of its space to nothing but "happy
Crawford claims that good management depends on a few "fundamentals". He cites investment in candid communications as one of these. Effective communications, he says, will win the understanding of employees.
Create a strong sense of urgency
This normally demands the bold or even risky actions that we normally associate with leadership.
Bold means cleaning up the balance sheet and creating a huge loss for the quarter. Or selling the corporate headquarters and moving into premises that look more like a battle command centre. It may also mean telling all your associated businesses, divisions and departments that they have 24 hours to become first (if
they're second) or second (if they're third or less) in their markets.
And the penalty for failure: divestiture or closure. Or by making 50% of the pay for the top 10 officers performance related and based on tough quality targets for the whole organisation.
Like some, you may argue that change is impossible until the company's problems become severe enough to generate significant losses.
I've seen people successfully initiate restructuring programmes or stepped-up quality efforts during periods when their companies were making record profits. They did so by relentlessly bombarding their employees with information about problems (profits are up but market share is down), potential problems (a new competitor shows signs of becoming more aggressive), or potential opportunities (through technological advances or new markets).
| Good corporate communications stimulates like coffee and repels
on-the-job dozing just as effectively.
|| Another technique employed by leaders who insist on initiating change during periods of business success: setting vastly ambitious goals that disrupt the status quo. Or by aggressively removing signs of excess, "happy
talk", misleading information systems and more.
Catching and arresting people's attention during good times isn't easy. But
it's possible, Try it.
Set outrageous goals
A great Japanese entrepreneur, Konosuke Matsushita, stopped his management from becoming complacent despite record earnings by setting outrageous five-year goals. Just when executives started becoming smug over their many achievements,
he'd say something like: "We should set a target of doubling our revenues within four
Because of his credibility, his employees couldn't ignore these pronouncements. They also knew that he never pulled his goals out of thin air, but put careful though into just how far he could stretch his objectives. The targets that he set were feasible. And his ideas were dependable.
The net result?
Matsushita's five-year goals became little bombs that periodically demolished pockets of complacency.
Create artificial crises
Real leaders often create artificial crises rather than wait for something to happen. For instance, one executive, instead if arguing with plans drawn up by his manager, decided to accept revenue and cost projections that he knew were unrealistic. The resulting 30% plunge in expected income caught
everyone's attention. In similar manner,
another executive accepted what she believed were unrealistic promises about a major new product introduction. She allowed the project to blow up
- not an action recommended for the faint of heart.
Okay, you accept that you have to instil a sense of urgency to successfully implement needed change. But how do you know when that sense of urgency is adequate?
There's one sign: when a majority of employees and virtually all of top management believe that considerable change is absolutely essential.
But a few words of warning.
Managers sometimes convince themselves that they've done their job ... that
they've created a sense of urgency when, in fact, more work is necessary. I've seen exceptionally capable individuals fall into this trap. They chat to fellow executives who only reinforce their rationalisations. "Everyone understands that the current situation has to be
changed, "they say." There's not much room for complacency around here.
Then they move ahead on a shaky base.
This is where outsiders can be helpful. Ask customers, suppliers or shareholders what they think. Is the level of urgency high enough?
Don't confine your questions to a few friends on the outside. Talk to others who know your firm. Speak to people who appear to be at odds with your organisation. Remember,
you're not looking for plaudits. And, most important, pluck up the courage to listen. Particularly to the brick bats.
If you do what I suggest, you may find that some people aren't well enough
informed to offer a credible judgement. Others may have an axe to grind.
But, if you talk to enough people, you should be able to sort the wheat from
the chaff. The point is to counteract insider myopia with valid external
In today's fast moving world, insider myopia can be lethal.