Interview for Crisis and Renewal

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Q: You wrote this book partly from your own personal experience. What was the crisis your firm encountered and how did you and your colleagues lead the company out of it?

A: We were an aggressive, acquisitive public company that was attacked early in 1980 by corporate greenmailers. Shortly thereafter we were acquired in a wildly over-leveraged buyout. We became insolvent, but fortunately we owed the bank so much money that it was their problem not just ours! Our organization had been conventionally secretive and hierarchical , but the crisis forced us to turn everything upside down.

We formed multiple teams made up of people from all over the company; we forced open communication, widely sharing information that previously had been confidential. We went outside to talk to our customers and suppliers, often for the first time. Senior managers got out of their offices and went into operations to talk with people all over the company.  In that process we created a clear vision of what was required to save the few good businesses and the teams felt responsible to take action on their own. People at lower levels in the company actually volunteered to take a pay cut to help the cause. Our efforts were successful: during the years that followed, the business performed extremely well. Afterwards, I could find nothing in my previous professional or academic experience that could explain this incredible response to crisis and why what we did worked. That is, in part, why I wrote this book.

Q: There is a lot of talk about corporate America’s search for spiritual renewal. How will your ideas on organizational change contribute to that end?

A: I think that at its roots this search is driven by the perennial need for humans to make sense of their lives, to find significance and meaning in what they do. In the past they have achieved this via membership in society’s institutions such as the family, ethnic group, church, profession, community, and nation state. In recent times, however, these institutions have become fragmented and their influence has weakened. People can no longer put the puzzle together because the pieces no longer fit.

For better or for worse, corporations seem to be inheriting the roles of many of these institutions. Corporations are no longer just specialist institutions for achieving society’s economic ends, they are now places where people have to be able to integrate many aspects of their lives. My perspective suggests that this ability to make meaning has always been a feature of learning organizations-organizations that can continually renew themselves and accounts for their ability to survive. I also show how meaning may become lost as organizations grow and how this sets them up for disaster and possible renewal.

Q: In describing organizational change, why was it important to you to draw on examples from historic cultures such as the bushmen of the Kalahari and the Ouakers of the Industrial Revolution as well as from modern companies? How will these examples be useful to managers grappling with the issues and problems of the 21 st Century?

A: There are several reasons why these examples are important to modern managers. First, they are uncluttered by modern technology, allowing us to see the social dynamics of change more easily. I argue that the transformation of the bushmen from nomadic hunters to settled herders and farmers seems to capture the essence of social change in organizations from all ages. Second, the use of historical examples underlines the fact that our modern organizations and institutions were not built from scratch-they have evolved over time. We need to understand the founding values if there is to be continuity amidst change. The Quakers, for example, were the founders of our modern system of corporate governance. This system cannot be reformed effectively unless we understand the values that underpinned it.

In my view it is a serious problem that so many modern corporations are profoundly ahistorical. It makes them confused in perception and muddled in practice. I don’t believe that the challenges of the 21st Century will be significantly different from those of the past. The circumstances will change, but the ultimate concerns will be the same. In any event, all change needs some continuity and that can come only from the past- we have to look backward in order to go forward.

Q: So that is why you urge managers to perpetuate stories from their organization’s past…

A: Yes. From the dawn of human consciousness stories have been our primary vehicle for connecting apparently disparate events- for making meaning. Stories tell of change through time and allow those who listen to them to look at the world through the eyes of others and participate in the meanings that they made. In the form of organizational history they are essential for the transmission of values from one generation to the next. Change initiatives which are framed as part of a coherent story help the people who are to implement them make sense of their activities. All effective change requires some continuity with the past and stories supply that continuity.

Managers who develop coherent stories to frame their change initiatives will find them enormously helpful in another way. They act as a discipline which forces managers to be much more selective in the programs they adopt. If a given technique does not fit with a story then it is likely to be inappropriate for the organization. Managers without stories to tell run the risk of total incoherence in their change efforts. Unable to understand the relevance of each technique to their own situation, they try to introduce one initiative after another to their dazed organizations. Incapable of distinguishing inputs from outputs, they end up slaves to fad and fashion, trying to replicate the practices of “excellent” companies in contexts they cannot fathom.

Q: You are critical of the management education that graduates of the top North American business schools receive. Why?

A: The business schools do an excellent job of teaching what Quakers would have called “head knowledge.” That’s fine, but it is only a relatively small subset of the skills required to be a successful manager. So I am less critical of the content of these programs than I am of the context , or rather lack of context in which this knowledge is imparted. The business schools have been heavily influenced by assumptions of modern economics-that people are rational and corporations are profit maximizers, or at least they ought to be. The assumption seems to be that head knowledge is enough and that there is always a set of techniques that can be applied to every situation. In my view, during renewal this attitude of intellectual detachment is the primary source of failure of change efforts.

Incidentally, the 18th Century Quaker model of apprenticeship is a much better example of the way in which business skills ought to be taught-as a combination of theory and practice under the mentorship of acknowledged experts in the field. Of course the process took much longer than the current two year programs!

Q: How can managers convince others that a change is in order when the company IS experiencing record growth and profits? What are some specific ways for managers to create crises?

A: This is a real challenge for any manager because one of the major “natural” sources of crisis competition often becomes less intense during business booms. One of the best things to do is to focus on non-financial measures which, unlike financial figures, may point to a problematic future. Customers may be dissatisfied, key people may be leaving the firm, research and development may be stagnant and so on. The benchmarking of selected processes against acknowledged leaders may also help jolt the organization out of its complacency.

A company like 3M has institutionalized crisis creation by its insistence that 30% of sales for each of its divisions come from products developed in the last four years. This discourages managers from making themselves look good by “harvesting” the mature crop without “planting” for the future. Perhaps the most direct way to create a crisis is for senior managers to change their own behavior radically and short circuit the hierarchy to start a dialog with people in operations who are often closer to the real issues.

Q: What is the difference between reengineering and renewal and how would you address those who say that “delayering” or “downsizing” is a great way to
create a crisis?

A: Reengineering is concerned with rational analysis and the rethinking of how an organization should function and the redesign of its processes using a “blank sheet” approach. It is about how to think one’s way into a better way of acting.

Renewal recognizes that in established organizations there is rarely a “blank sheet”. The organization has a history and it is a hive of activity. The renewal model also recognizes that in organizations pure logic is never sufficient to come up with something really new. That requires action. Thus, renewal is about acting our way into better ways of thinking. It is concerned with the organizational contexts in which novel behavior is possible.

The quality revolution of recent years illustrates this neatly. For years everyone in North America had “known” that managers had to make tradeoffs between cost and quality-it followed from the logic of economics. Nowadays,  many people believe that if you change the total system in an organization, quality can be free. What changed their minds? It was the example set by the Japanese followed by their own trial and error experiments. The logic which explained why it was possible the rethinking came later. Basically, we are post hoc rationalizers of our experiences, not logic machines.

Certainly delayering and downsizing are effective at creating crises in organizations, but the creation of crisis is only the start of the renewal process. It has to be followed by values-based behavior-acts of leadership at all levels of the organi zation and the formation of learning teams that allow novelty to enter the organization. When delayering and downsizing are used as remote management techniques-when they are not fitted into the story of the organization’s evolution or followed by fundamental change in senior management behavior, then they preclude the social dynamics essential for renewal.

Q: How does the age of telecommuting and the virtual office fit with your views on the importance of face-to-face communication in a learning organization? Are you anti-technology?

A: No, I am not anti-technology and I use most modern electronic “appliances” myself. But that is what they are: appliances, tools. The evidence so far is that they are more easily employed in controlling people than in liberating them. They certainly cannot substitute for face-to-face communication where it really matters-in the creation of trust and the development of shared vision, which are so essential to innovation and renewal. We know from the experience of heavyweight project teams in companies such as Digital and Hewlett-Packard-experts in telecommuting-that their members have to be physically co-located for long periods of time to be effective. The experience of regular administrative telecommuters is that what they miss most is human contact and virtual organizations seem to require regular, closer, more intimate face-to-face contact than conventional organizations if they are to function effectively.

The most optimistic example of the effective use of technology is the one I give in the book of the Danish company Oticon that uses it to free people from the constraints of having a permanent physical address. This allows the people to sit in any face-to-face groupings they like, allowing the organization to flex and flow with the demands of the changing environment.

Q: Why do you think it is a mistake to attribute to individual managers or leaders responsibility for the success or failure of their organizations?

A: I suggest in the book that to a considerable and unacknowledged extent, modern business organizations advance strategically by accident, economically by windfall, and politically by disaster. You would never know this from reading the annual reports of most corporations. Corporate incentive schemes virtually ensure that short term organizational success is attributed to rational strategy while failure, implicitly if not explicitly, is often put down to “circumstances beyond our control.” Witness the number of incentive schemes which are renegotiated when the going gets tough. Obviously individuals can and do have both positive and negative effects on organizational performance, but it is not a question of simple cause and effect-we are talking about complex systems in dynamic environments.

So my criticism of our attributions of success and failure is not only that it is lopsided, but that it interferes with our ability to understand the more opportunistic aspects of organizational innovation. For example, they ignore the role of lucky accidents and the fact that you can plan for lucky accidents to happen! That is, contexts can be created from which lucky accidents are likely to emerge. The story of the evolution of the Post-it note at 3M is a great example of this phenomenon. The invention of the note itself was totally unpredictable but the context from which it emerged and the way in which 3M capitalized on it are very much typical of the firm and the environment it creates for people.

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