Kotter, Leading Change

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Kotter, John P. Leading Change. Boston: Harvard Business School P, 3-31.

C H A P T E R I

Transforming Organizations: Why Firms Fail

BY ANY OBJECTIVE MEASURE, THE amount of significant, often traumatic, change in organizations has grown tremendously over the past two decades. Although some people predict that most of the reengineering, re-strategizing, mergers, downsizing, quality efforts, and cultural renewal projects will soon disappear, I think that is highly unlikely. Powerful macroeconomic forces are at work here, and these forces may grow even stronger over the next few decades. As a result, more and more organizations will be pushed to reduce costs, improve the quality of products and services, locate new opportunities for growth, and increase productivity.

To date, major change efforts have helped some organizations adapt significantly to shifting conditions, have improved the competitive standing of others, and [4] have positioned a few for a far better future. But in too many situations the improvements have been disappointing and the carnage has been appalling, with wasted resources and burned‑out, scared, or frustrated employees.

To some degree, the downside of change is inevitable. Whenever human communities are forced to adjust to shifting conditions, pain is ever present. But a significant amount of the waste and anguish we've witnessed in the past decade is avoidable. We've made a lot of errors, the most common of which are these.

ERROR #1: ALLOWING TOO MUCH COMPLACENCY

By far the biggest mistake people make when trying to change organizations is to plunge ahead without establishing a high enough sense of urgency in fellow managers and employees. This error is fatal because transformations always fail to achieve their objectives when complacency levels are high.

When Adrien was named head of the specialty chemicals division of a large corporation, he saw lurking on the horizon many problems and opportunities, most of which were the product of the globalization of his industry. As a seasoned and self‑confident executive, he worked day and night to launch a dozen new initiatives to build business and margins in an increasingly competitive marketplace. He realized that few others in his organization saw the dangers and possibilities as clearly as he did, but he felt this was not an insurmountable problem. They could be induced, pushed, or replaced.

Two years after his promotion, Adrien watched initiative after initiative sink in a sea of complacency. Regardless of his inducements and threats, the first phase of his new product strategy required so much time to implement that competitor countermoves offset any important benefit. He couldn't secure sufficient corporate funding for his big reengineering project. A reorganization was talked to death by skilled filibusterers on his staff. In [5] frustration, Adrien gave up on his own people and acquired a much smaller firm that was already successfully implementing many of his ideas. Then, in a subtle battle played out over another two years, he watched with amazement and horror as people in his division with little sense of urgency not only ignored all the powerful lessons in the acquisition's recent history but actually stifled the new unit's ability to continue to do what it had been doing so well.

Smart individuals like Adrien fail to create sufficient urgency at the beginning of a business transformation for many different but interrelated reasons. They overestimate how much they can force big changes on an organization. They underestimate how hard it is to drive people out of their comfort zones. They don't recognize how their own actions can inadvertently reinforce the status quo. They lack patience: "Enough with the preliminaries, let's get on with it." They become paralyzed by the downside possibilities associated with reducing complacency: people becoming defensive, morale and short‑term results slipping. Or, even worse, they confuse urgency with anxiety, and by driving up the latter they push people even deeper into their foxholes and create even more resistance to change.

If complacency were low in most organizations today, this problem would have limited importance. But just the opposite is true. Too much past success, a lack of visible crises, low performance standards, insufficient feedback from external constituencies, 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," or "Sure we have big problems, and they are all over there." Without a sense of urgency, people won't give that extra effort that is often essential. They won't make needed sacrifices. Instead they cling to the status quo and resist initiatives from above. As a result, reengineering bogs down, new strategies fail to be implemented well, acquisitions aren't assimilated properly, downsizings never get at those least necessary expenses, and quality programs become more surface bureaucratic talk than real business substance.

[6] ERROR #2: FAILING TO CREATE A SUFFICIENTLY POWERFUL GUIDING COALITION

Major change is often said to be impossible unless the head of the organization is an active supporter. What I am talking about here goes far beyond that. In successful transformations, the president, division general manager, or department head plus another five, fifteen, or fifty people with a commitment to improved performance pull together as a team. This group rarely includes all of the most senior people because some of them just won't buy in, at least at first. But in the most successful cases, the coalition is always powerful—in terms of formal titles, information and expertise, reputations and relationships, and the capacity for leadership. Individuals alone, no matter how competent or charismatic, never have all the assets needed to overcome tradition and inertia except in very small organizations. Weak committees are usually even less effective.

Efforts that lack a sufficiently powerful guiding coalition can make apparent progress for a while. The organizational structure might be changed, or a reengineering effort might be launched. But sooner or later, countervailing forces undermine the initiatives. In the behind‑the‑scenes struggle between a single executive or a weak committee and tradition, short‑term self‑interest, and the like, the latter almost always win. They prevent structural change from producing needed behavior change. They kill reengineering in the form of passive resistance from employees and managers. They turn quality programs into sources of more bureaucracy instead of customer satisfaction.

As director of human resources for a large U.S.‑based bank, Claire was well aware that her authority was limited and that she was not in a good position to head initiatives outside the personnel function. Nevertheless, with growing frustration at her firm's inability to respond to new competitive pressures except through layoffs, she accepted an assignment to chair a "quality improvement" task force. The next two years would be the least satisfying in her entire career.

[7] The task force did not include even one of the three key line managers in the firm. After having a hard time scheduling the first meeting—a few committee members complained of being exceptionally busy—she knew she was in trouble. And nothing improved much after that. The task force became a caricature of all bad committees: slow, political, aggravating. Most of the work was done by a small and dedicated subgroup. But other committee members and key line managers developed little interest in or understanding of this group's efforts, and next to none of the recommendations was implemented. The task force limped along for eighteen months and then faded into oblivion.

Failure here is usually associated with underestimating the difficulties in producing change and thus the importance of a strong guiding coalition. Even when complacency is relatively low, firms with little history of transformation or teamwork often undervalue the need for such a team or assume that it can be led by a staff executive from human resources, quality, or strategic planning instead of a key line manager. No matter how capable or dedicated the staff head, guiding coalitions without strong line leadership never seem to achieve the power that is required to overcome what are often massive sources of inertia.

ERROR #3: UNDERESTIMATING THE POWER OF VISION

Urgency and a strong guiding team are necessary but insufficient conditions for major change. Of the remaining elements that are always found in successful transformations, none is more important than a sensible vision.

Vision plays a key role in producing useful change by helping to direct, align, and inspire actions on the part of large numbers of people. Without an appropriate vision, a transformation effort can easily dissolve into a list of confusing, incompatible, and time‑consuming projects that go in the wrong direction or nowhere at all. Without a sound vision, the reengineering project in the accounting department, the new 360‑degree perfor‑ [8] mance appraisal from human resources, the plant's quality program, and the cultural change effort in the sales force either won't add up in a meaningful way or won't stir up the kind of energy needed to properly implement any of these initiatives.

Sensing the difficulty in producing change, some people try to manipulate events quietly behind the scenes and purposefully avoid any public discussion of future direction. But without a vision to guide decision making, each and every choice employees face can dissolve into an interminable debate. The smallest of decisions can generate heated conflict that saps energy and destroys morale. Insignificant tactical choices can dominate discussions and waste hours of precious time.

In many failed transformations, you find plans and programs trying to play the role of vision. As the so‑called quality czar for a communications company, Conrad spent much time and money producing four‑inch‑thick notebooks that described his change effort in mind‑numbing detail. The books spelled out procedures, goals, methods, and deadlines. But nowhere was there a clear and compelling statement of where all this was leading. Not surprisingly, when he passed out hundreds of these notebooks, most of his employees reacted with either confusion or alienation. The big thick books neither rallied them together nor inspired change. In fact, they may have had just the opposite effect.

In unsuccessful transformation efforts, management sometimes does have a sense of direction, but it is too complicated or blurry to be useful. Recently I asked an executive in a midsize British manufacturing firm to describe his vision and received in return a barely comprehensible thirty‑minute lecture. He talked about the acquisitions he was hoping to make, a new marketing strategy for one of the products, his definition of "customer first," plans to bring in a new senior‑level executive from the outside, reasons for shutting down the office in Dallas, and much more. Buried in all this were the basic elements of a sound direction for the future. But they were buried, deeply.

A useful rule of thumb: Whenever you cannot describe the [9] vision driving a change initiative in five minutes or less and get a reaction that signifies both understanding and interest, you are in for trouble.

ERROR #4: UNDERCOMMUNICATING THE VISION BY A FACTOR OF 10 (OR 100 OR EVEN 1,000

Major change is usually impossible unless most employees are willing to help, often to the point of making short‑term sacrifices. But people will not make sacrifices, even if they are unhappy with the status quo, unless they think the potential benefits of change are attractive and unless they really believe that a transformation is possible. Without credible communication, and a lot of it, employees' hearts and minds are never captured.

Three patterns of ineffective communication are common, all driven by habits developed in more stable times. In the first, a group actually develops a pretty good transformation vision and then proceeds to sell it by holding only a few meetings or sending out only a few memos. Its members, thus having used only the smallest fraction of the yearly intra-company communication, react with astonishment when people don't seem to understand the new approach. In the second pattern, the head of the organization spends a considerable amount of time making speeches to employee groups, but most of her managers are virtually silent. Here vision captures more of the total yearly communication than in the first case, but the volume is still woefully inadequate. In the third pattern, much more effort goes into newsletters and speeches, but some highly visible individuals still behave in ways that are antithetical to the vision, and the net result is that cynicism among the troops goes up while belief in the new message goes down.

One of the finest CEOs I know admits to failing here in the early 1980s. "At the time," he tells me, "it seemed like we were spending a great deal of effort trying to communicate our ideas. [10] But a few years later, we could see that the distance we went fell short by miles. Worse yet, we would occasionally make decisions that others saw as inconsistent with our communication. I'm sure that some employees thought we were a bunch of hypocritical jerks." Communication comes in both words and deeds. The latter is generally the most powerful form. Nothing undermines change more than behavior by important individuals that is inconsistent with the verbal communication. And yet this happens all the time, even in some well‑regarded companies.

ERROR #5: PERMITTING OBSTACLES TO BLOCK THE NEW VISION

The implementation of any kind of major change requires action from a large number of people. New initiatives fail far too often when employees, even though they embrace a new vision, feel disempowered by huge obstacles in their paths. Occasionally, the roadblocks are only in people's heads and the challenge is to convince them that no external barriers exist. But in many cases, the blockers are very real. Sometimes the obstacle is the organizational structure. Narrow job categories can undermine efforts to increase productivity or improve customer service. Compensation or performance‑appraisal systems can force people to choose between the new vision and their self‑interests. Perhaps worst of all are supervisors who refuse to adapt to new circumstances and who make demands that are inconsistent with the transformation. One well‑placed blocker can stop an entire change effort. Ralph did. His employees at a major financial services company called him "The Rock," a nickname he chose to interpret in a favorable light. Ralph paid lip service to his firm's major change efforts but failed to alter his behavior or to encourage his managers to change. He didn't reward the ideas called for in the change vision. He allowed human resource systems to remain intact even when they were clearly inconsistent with the new [11] ideals. With these actions, Ralph would have been disruptive in any management job. But he wasn't in just any management job. He was the number three executive at his firm. Ralph acted as he did because he didn't believe his organization needed major change and because he was concerned that he couldn't produce both change and the expected operating results. He got away with this behavior because the company had no history of confronting personnel problems among executives, because some people were afraid of him, and because his CEO was concerned about losing a talented contributor. The net result was disastrous. Lower‑level managers concluded that senior management had misled them about their commitment to transformation, cynicism grew, and the whole effort slowed to a crawl.

Whenever smart and well‑intentioned people avoid confronting obstacles, they disempower employees and undermine change.

ERROR #6: FAILING TO CREATE SHORT‑TERM WINS

Real transformation takes time. Complex efforts to change strategies or restructure businesses risk losing momentum if there are no short‑term goals to meet and celebrate. Most people won't go on the long march unless they see compelling evidence within six to eighteen months that the journey is producing expected results. Without short‑term wins, too many employees give up or actively join the resistance.

Creating short‑term wins is different from hoping for short-term wins. The latter is passive, the former active. In a successful transformation, managers actively look for ways to obtain clear performance improvements, establish goals in the yearly planning system, achieve these objectives, and reward the people involved with recognition, promotions, or money. In change initiatives that fail, systematic effort to guarantee unambiguous wins within six to eighteen months is much less common. Managers either just assume that good things will happen or [12] become so caught up with a grand vision that they don't worry much about the short term.

Nelson was by nature a "big ideas" person. With assistance from two colleagues, he developed a conception for how his inventory control (IC) group could use new technology to radically reduce inventory costs without risking increased stock outages. The three managers plugged away at implementing their vision for a year, then two. By their own standards, they accomplished a great deal: new IC models were developed, new hardware was purchased, new software was written. By the standards of skeptics, especially the divisional controller, who wanted to see a big dip in inventories or some other financial benefit to offset the costs, the managers had produced nothing. When questioned, they explained that big changes require time. The controller accepted that argument for two years and then pulled the plug on the project.

People often complain about being forced to produce short-term wins, but under the right circumstances that kind of pressure can be a useful element in a change process. When it becomes clear that quality programs or cultural change efforts will take a long time, urgency levels usually drop. Commitments to produce short‑term wins can help keep complacency down and encourage the detailed analytical thinking that can usefully clarify or revise transformational visions.

In Nelson's case, that pressure could have forced a few money‑saving course corrections and speeded up partial implementation of the new inventory control methods. And with a couple of short‑term wins, that very useful project would probably have survived and helped the company.

ERROR #7: DECLARING VICTORY TOO SOON

After a few years of hard work, people can be tempted to declare victory in a major change effort with the first major performance improvement. While celebrating a win is fine, any suggestion that the job is mostly done is generally a terrible mis [13] take. Until changes sink down deeply into the culture, which for an entire company can take three to ten years, new approaches are fragile and subject to regression.

In the recent past, I have watched a dozen change efforts operate under the reengineering theme. In all but two cases, victory was declared and the expensive consultants were paid and thanked when the first major project was completed, despite little, if any, evidence that the original goals were accomplished or that the new approaches were being accepted by employees. Within a few years, the useful changes that had been introduced began slowly to disappear. In two of the ten cases, it's hard to find any trace of the reengineering work today.

I recently asked the head of a reengineering‑based consulting firm if these instances were unusual. She said: "Not at all, unfortunately. For us, it is enormously frustrating to work for a few years, accomplish something, and then have the effort cut off prematurely. Yet it happens far too often. The time frame in many corporations is too short to finish this kind of work and make it stick."

Over the past few decades, I've seen the same sort of thing happen to quality projects, organization development efforts, and more. Typically, the problems start early in the process: the urgency level is not intense enough, the guiding coalition is not powerful enough, the vision is not clear enough. But the premature victory celebration stops all momentum. And then powerful forces associated with tradition take over.

Ironically, a combination of idealistic change initiators and self‑serving change resisters often creates this problem. In their enthusiasm over a clear sign of progress, the initiators go overboard. They are then joined by resisters, who are quick to spot an opportunity to undermine the effort. After the celebration, the resisters point to the victory as a sign that the war is over and the troops should be sent home. Weary troops let themselves be convinced that they won. Once home, foot soldiers are reluctant to return to the front. Soon thereafter, change comes to a halt and irrelevant traditions creep back in.

Declaring victory too soon is like stumbling into a sinkhole [14] on the road to meaningful change. And for a variety of reasons, even smart people don't just stumble into that hole. Sometimes they jump in with both feet.

ERROR #8: NEGLECTING TO ANCHOR CHANGES FIRMLY IN THE CORPORATE CULTURE

In the final analysis, change sticks only when it becomes "the way we do things around here," when it seeps into the very bloodstream of the work unit or corporate body. Until new behaviors are rooted in social norms and shared values, they are always subject to degradation as soon as the pressures associated with a change effort are removed.

Two factors are particularly important in anchoring new approaches in an organization's culture. The first is a conscious attempt to show people how specific behaviors and attitudes have helped improve performance. When people are left on their own to make the connections, as is often the case, they can easily create inaccurate links. Because change occurred during charismatic Coleen's time as department head, many employees linked performance improvements with her flamboyant style instead of the new "customer first" strategy that had in fact made the difference. As a result, the lesson imbedded in the culture was "Value Extroverted Managers" instead of "Love Thy Customer."

Anchoring change also requires that sufficient time be taken to ensure that the next generation of management really does personify the new approach. If promotion criteria are not reshaped, another common error, transformations rarely last. One bad succession decision at the top of an organization can undermine a decade of hard work.

Poor succession decisions at the top of companies are likely when boards of directors are not an integral part of the effort. In three instances I have recently seen, the champions for change were retiring CEOs. Although their successors were not [15] resisters, they were not change leaders either. Because the boards simply did not understand the transformations in any detail, they could not see the problem with their choice of successors. The retiring executive in one case tried unsuccessfully to talk his board into a less seasoned candidate who better personified the company's new ways of working. In the other instances, the executives did not resist the board choices because they felt their transformations could not be undone. But they were wrong. Within just a few years, signs of new and stronger organizations began to disappear at all three companies.

Smart people miss the mark here when they are insensitive to cultural issues. Economically oriented finance people and analytically oriented engineers can find the topic of social norms and values too soft for their tastes. So they ignore culture—at their peril.

THE EIGHT MISTAKES

None of these change errors would be that costly in a slower-moving and less competitive world. Handling new initiatives quickly is not an essential component of success in relatively stable or cartel‑like environments. The problem for us today is that stability is no longer the norm. And most experts agree that over the next few decades the business environment will become only more volatile.

Making any of the eight errors common to transformation efforts can have serious consequences (see exhibit 1 on the following page). In slowing down the new initiatives, creating unnecessary resistance; frustrating employees endlessly, and sometimes completely stifling needed change, any of these errors could cause an organization to fail to offer the products or services people want at prices they can afford. Budgets are then squeezed, people are laid off, and those who remain are put under great stress. The impact on families and communities can be devastating. As I write this, the fear factor generated by this [16] disturbing activity is even finding its way into presidential politics.

These errors are not inevitable. With awareness and skill, they can be avoided or at least greatly mitigated. The key lies in understanding why organizations resist needed change, what exactly is the multistage process that can overcome destructive inertia, and, most of all, how the leadership that is required to drive that process in a socially healthy way means more than good management.

PEOPLE WHO HAVE BEEN through difficult, painful, and not very successful change efforts often end up drawing both pessimistic and angry conclusions. They become suspicious of the motives of those pushing for transformation; they worry that major change is not possible without carnage; they fear that the boss is a monster or that much of the management is incompetent. After watching dozens of efforts to enhance organizational performance via restructuring, reengineering, quality programs, mergers and acquisitions, cultural renewal, downsizing, and strategic redirection, I draw a different conclusion. Available evidence shows that most public and private organizations can be significantly improved, at an acceptable cost, but that we often make terrible mistakes when we try because [18] history has simply not prepared us for transformational challenges.

People of my generation or older did not grow up in an era when transformation was common. With less global competition and a slower‑moving business environment, the norm back then was stability and the ruling motto was: "If it ain't broke, don't fix it." Change occurred incrementally and infrequently. If you had told a typical group of managers in 1960 that businesspeople today, over the course of eighteen to thirty‑six months, would be trying to increase productivity by 20 to 50 percent, improve quality by 30 to 100 percent, and reduce new‑product development times by 30 to 80 percent, they would have laughed at you. That magnitude of change in that short a period of time would have been too far removed from their personal experience to be credible.

The challenges we now face are different. A globalized economy is creating both more hazards and more opportunities for everyone, forcing firms to make dramatic improvements not only to compete and prosper but also to merely survive. Globalization, in turn, is being driven by a broad and powerful set of forces associated with technological change, international economic integration, domestic market maturation within the more developed countries, and the collapse of worldwide communism. (See exhibit 1 on the facing page.)

No one is immune to these forces. Even companies that sell only in small geographic regions can feel the impact of globalization. The influence route is sometimes indirect: Toyota beats GM, GM lays off employees, belt‑tightening employees demand cheaper services from the corner dry cleaner. In a similar way, school systems, hospitals, charities, and government agencies are being forced to try to improve. The problem is that most managers have no history or legacy to guide them through all this.

[19] Given the track record of many companies over the past two decades, some people have concluded that organizations are simply unable to change much and that we must learn to accept that fact. But this assessment cannot account for any of the dra- [20] matic transformation success stories from the recent past. Some organizations have discovered how to make new strategies, acquisitions, reengineering, quality programs, and restructuring work wonderfully well for them. They have minimized the change errors described in chapter 1. In the process, they have been saved from bankruptcy, or gone from middle‑of‑the‑pack players to industry leaders, or pulled farther out in front of their closest rivals.

An examination of these success stories reveals two important patterns. First, useful change tends to be associated with a multi-step process that creates power and motivation sufficient to overwhelm all the sources of inertia. Second, this process is never employed effectively unless it is driven by high‑quality leadership, not just excellent management—an important distinction that will come up repeatedly as we talk about instituting significant organizational change.

People under pressure to show results will often try to skip phases—sometimes quite a few—in a major change effort. A smart and capable executive recently told me that his attempts to introduce a reorganization were being blocked by most of his management team. Our conversation, in short form, was this:

"Do your people believe the status quo is unacceptable?" I asked. "Do they really feel a sense of urgency?"

"Do you have a compelling vision of the future and strategies for getting there that help explain why this reorganization is necessary?"

"Have you ever tried to write down the vision and strategies in summary form on a few pages of paper?"

"I think the three or four key players are on board," he said, then conceded, "but I wouldn't be surprised if many others either don't understand the concept or don't entirely believe in it.

In the language system of the model shown in exhibit 2, this executive had jumped immediately to phase 5 in the transformation process with his idea of a reorganization. But because he mostly skipped the earlier steps, he ran into a wall of resistance. [23] Had he crammed the new structure down people's throats, which he could have done, they would have found a million clever ways to undermine the kinds of behavioral changes he wanted. He knew this to be true, so he sat in a frustrated stalemate. His story is not unusual.

People often try to transform organizations by undertaking only steps 5, 6, and 7, especially if it appears that a single decision—to reorganize, make an acquisition, or lay people off—will produce most of the needed change. Or they race through steps without ever finishing the job. Or they fail to reinforce earlier stages as they move on, and as a result the sense of urgency dissipates or the guiding coalition breaks up. Truth is, when you neglect any of the warm‑up, or defrosting, activities (steps 1 to 4), you rarely establish a solid enough base on which to proceed. And without the follow‑through that takes place in step 8, you never get to the finish line and make the changes stick.

Successful change of any magnitude goes through all eight stages, usually in the sequence shown in exhibit 2. Although one normally operates in multiple phases at once, skipping even a single step or getting too far ahead without a solid base almost always creates problems.

I recently asked the top twelve officers in a division of a large manufacturing firm to assess where they were in their change process. They judged that they were about 80 percent finished with stage #1, 40 percent with #2, 70 percent with #3, 60 percent with #4, 40 percent with #5, 10 percent with #6, and 5 percent with #7 and #8. They also said that their progress, which had gone well for eighteen months, was now slowing down, leaving them increasingly frustrated. I asked what they thought the problem was. After much discussion, they kept coming back to "corporate headquarters." Key individuals at corporate, including the CEO, were not sufficiently a part of the guiding coalition, which is why the twelve division officers judged that only 40 per‑ [24] cent of the work in #2 was done. Because higher‑order principles had not been decided, they found it nearly impossible to settle on the more detailed strategies in #3. Their communication of the vision (#4) was being undercut, they believed, by messages from corporate that employees interpreted as

being inconsistent with their new direction. In a similar way, empowerment efforts (#5) were being sabotaged. Without a clearer vision, it was hard to target credible short‑term wins (#6). By moving on and not sufficiently confronting the stage 2 problem, they made the illusion of progress for a while. But without the solid base, the whole effort eventually began to teeter.

Normally, people skip steps because they are feeling pressures to produce. They also invent new sequences because some seemingly reasonable logic dictates such a choice. After getting well into the urgency phase (#1), all change efforts end up operating in multiple stages at once, but initiating action in any order other than that shown in exhibit 2 on page 21 rarely works well. It doesn't build and develop in a natural way. It comes across as contrived, forced, or mechanistic. It doesn't create the momentum needed to overcome enormously powerful sources of inertia.

Most major change initiatives are made up of a number of smaller projects that also tend to go through the multi-step process. So at any one time, you might be halfway through the overall effort, finished with a few of the smaller pieces, and just beginning other projects. The net effect is like wheels within wheels. A typical example for a medium‑to‑large telecommunications company: The overall effort, designed to significantly increase the firm's competitive position, took six years. By the third year, the transformation was centered in steps 5, 6, and 7. One relatively small reengineering project was nearing the end of stage 8. A restructuring of corporate staff groups was just beginning, with most of the effort in steps 1 and 2. A quality program was [25] moving along, but behind schedule, while a few small final initiatives hadn't been launched yet. Early results were visible at six‑ to twelve months, but the biggest payoff didn't come until near the end of the overall effort.

When an organization is in a crisis, the first change project within a larger change process is often the save‑the‑ship or turnaround effort. For six to twenty‑four months, people take decisive actions to stop negative cash flow and keep the organization alive. The second change project might be associated with a new strategy or reengineering. That could be followed by major structural and cultural change. Each of these efforts goes through all eight steps in the change sequence, and each plays a role in the overall transformation.

Because we are talking about multiple steps and multiple projects, the end result is often complex, dynamic, messy, and scary. At the beginning, those who attempt to create major change with simple, linear, analytical processes almost always fail. The point is not that analysis is unhelpful. Careful thinking is always essential, but there is a lot more involved here than (a) gathering data, (b) identifying options, (c) analyzing, and (d) choosing.

Q: So why would an intelligent person rely too much on simple, linear, analytical processes?

Management is a set of processes that can keep a complicated system of people and technology running smoothly. The most important aspects of management include planning, budgeting, organizing, staffing, controlling, and problem solving. Leadership is a set of processes that creates organizations in the first place or adapts them to significantly changing circumstances. Leadership defines what the future should look like, aligns people with that vision, and inspires them to make it happen despite the obstacles (see exhibit 3 on the following page). [26] This distinction is absolutely crucial for our purposes here: A close look at exhibits 2 and 3 shows that successful transformation is 70 to 90 percent leadership and only 10 to 30 percent management. Yet for historical reasons, many organizations [27] today don't have much leadership. And almost everyone thinks about the problem here as one of managing change.

For most of this century, as we created thousands and thousands of large organizations for the first time in human history, we didn't have enough good managers to keep all those bureaucracies functioning. So many companies and universities developed management programs, and hundreds and thousands of people were encouraged to learn management on the job. And they did. But people were taught little about leadership. To some degree, management was emphasized because it's easier to teach than leadership. But even more so, management was the main item on the twentieth‑century agenda because that's what was needed. For every entrepreneur or business builder who was a leader, we needed hundreds of managers to run their ever‑growing enterprises.

Unfortunately for us today, this emphasis on management has often been institutionalized in corporate cultures that discourage employees from learning how to lead. Ironically, past success is usually the key ingredient in producing this outcome. The syndrome, as I have observed it on many occasions, goes like this: Success creates some degree of market dominance, which in turn produces much growth. After a while, keeping the ever‑larger organization under control becomes the primary challenge. So attention turns inward, and managerial competencies are nurtured. With a strong emphasis on management but not leadership, bureaucracy and an inward focus take over. But with continued success, the result mostly of market dominance, the problem often goes unaddressed and an unhealthy arrogance begins to evolve. All of these characteristics then make any transformation effort much more difficult. (See exhibit 4 on the following page.)

Arrogant managers can over-evaluate their current performance and competitive position, listen poorly, and learn slowly. Inwardly focused employees can have difficulty seeing the very forces that present threats and opportunities. Bureaucratic cultures can smother those who want to respond to shifting conditions. And the lack of leadership leaves no force inside these organizations to break out of the morass. [Exhibit 4 on page 28]

[29] The combination of cultures that resist change and managers who have not been taught how to create change is lethal. The errors described in chapter 1 are almost inevitable under these conditions. Sources of complacency are rarely attacked adequately because urgency is not an issue for people who have been asked all their lives merely to maintain the current system like a softly humming Swiss watch. A powerful enough guiding coalition with sufficient leadership is not created by people who have been taught to think in terms of hierarchy and management. Visions and strategies are not formulated by individuals who have learned only to deal with plans and budgets. Sufficient time and energy are never invested in communicating a new sense of direction to enough people—not surprising in light of a history of simply handing direct reports the latest plan. Structures, systems, lack of training, or supervisors are allowed to disempower employees who want to help implement the vision—predictable, given how little most managers have learned about empowerment. Victory is declared much too soon by people who have been instructed to think in terms of system cycle times: hours, days, or weeks, not years. And new approaches are seldom anchored in the organization's culture by people who have been taught to think in terms of formal structure, not culture. As a result, expensive acquisitions produce none of the hoped‑for synergies, dramatic down-sizings fail to get costs under control, huge reengineering projects take too long and provide too little benefit, and bold new strategies are never implemented well.

Employees in large, older firms often have difficulty getting a transformation process started because of the lack of leadership coupled with arrogance, insularity, and bureaucracy. In those organizations, where a change program is likely to be over-managed and under-led, there is a lot more pushing than pulling. Someone puts together a plan, hands it to people, and then tries to hold them accountable. Or someone makes a decision and demands that others accept it. The problem with this approach is that it is enormously difficult to enact by sheer force the big changes often needed today to make organizations perform bet‑ [30] ter. Transformation requires sacrifice, dedication, and creativity, none of which usually comes with coercion.

Efforts to effect change that are over-managed and under-led also tend to try to eliminate the inherent messiness of transformations. Eight stages are reduced to three. Seven projects are consolidated into two. Instead of involving hundreds or thousands of people, the initiative is handled mostly by a small group. The net result is almost always very disappointing.

Managing change is important. Without competent management, the transformation process can get out of control. But for most organizations, the much bigger challenge is leading change. Only leadership can blast through the many sources of corporate inertia. Only leadership can motivate the actions needed to alter behavior in any significant way. Only leadership can get change to stick by anchoring it in the very culture of an organization.

As you'll see in the next few chapters, this leadership often begins with just one or two people. But in anything but the very smallest of organizations, that number needs to grow and grow over time. The solution to the change problem is not one larger‑than‑life individual who charms thousands into being obedient followers. Modern organizations are far too complex to be transformed by a single giant. Many people need to help with the leadership task, not by attempting to imitate the likes of Winston Churchill or Martin Luther King, Jr., but by modestly assisting with the leadership agenda in their spheres of activity.

The change problem inside organizations would become less worrisome if the business environment would soon stabilize or at least slow down. But most credible evidence suggests the opposite: that the rate of environmental movement will increase and that the pressures on organizations to transform themselves will grow over the next few decades. If that's the case, the only rational solution is to learn more about what creates successful [31] change and to pass that knowledge on to increasingly larger groups of people.

From what I have seen over the past two decades, helping individuals to better understand transformation has two components, both of which will be addressed in some detail in the remainder of this book. The first relates to the various steps in the multistage process. Most of us still have plenty to learn about what works, what doesn't, what is the natural sequence of events, and where even very capable people have difficulties. The second component is associated with the driving force behind the process: leadership, leadership, and still more leadership.

If you sincerely think that you and other relevant people in your organization already know most of what is necessary to produce needed change and, therefore, are quite logically wondering why you should take the time to read the rest of this book, let me suggest that you consider the following. What do you think we would find if we searched all the documents produced in your organization in the last twelve months while looking for two phrases: "managing change" and "leading change"? We would look at memos, meeting summaries, newsletters, annual reports, project reports, formal plans, etc. Then we would turn the numbers into percentages—X percent of the references are to "managing change" and Y percent to "leading change."

Of course the findings from this exercise could be nothing more than meaningless semantics. But then again, maybe they would accurately reflect the way your organization thinks about change. And maybe that has something to do with how quickly you improve the quality of products or services, increase productivity, lower costs, and innovate.