TRANSFORMING ORGANIZATIONS

Organization Assessment

Like doctors, we believe that intervention without diagnosis is malpractice.

Why is something happening? What is the cause? Why is something else not happening? What is blocking it?

How long a diagnosis takes, and how extensive it is depends on the context. But, we know that visible symptoms indicating either pain or joy do not always represent the true underlying causes.

And before knowing what action to take, we need to know the true causes.

Diagnostics are an essential part of improving organizational effectiveness, especially in accelerating the implementation of a new strategy.

An assessment provides evidence. The data must be gathered in a manner that is rigorous, valid and targeted to extract specific information.

Data is important also beyond its value as evidence. It provides a common language among senior managers for understanding issues. It cuts through opinion, hearsay and gossip because it is virtually impossible to argue against the evidence.

In an organizational assessment we see four stages

diagram of the four stages of organization assessment

Change readiness

We analyze change readiness when a company has developed a new strategy that requires a change in the fundamental nature of their business.

A gradual transformation in structure, processes, skills, and mindsets may be required. And before embarking on this journey, it is very helpful to know in detail the appetite for change, and the likely acceptance of the new strategy by leaders and staff.

The new strategy has been developed, but what is the appetite of the organization to adopt it? How ready are employees to listen and work with it?

Assessing Organizational Health

Diagnosing organizational health is a more general assessment of an organization. We often use, as our guide, The Tushman-Nadler Congruence Model of Organizational Effectiveness. This is a research-based and tested thirty-year-old heuristic that is an excellent organizing framework rooted in the social and behavioral sciences.

The Congruence Model follows the widely accepted social systems view of organizations. It states that when one part of the system changes, all organizational elements need to change, a lot or a little. AND they need to be congruent with each other. If one becomes unbalanced or out of sync with the others, the change is in danger of failing.

M&A Due Diligence

Before starting a merger integration we recommend doing organizational due diligence. In other words, digging into one or both merging entities (depending on existing data and familiarity) with the objective of testing for:

  • Strategy clarity, values and culture (beliefs, founding principles)
  • Current organizational effectiveness (structure, governance, decision-rights)
  • Leadership skills and capabilities
  • Overall leadership effectiveness (competence and potential)

Gathering this data will accelerate the merger by uncovering barriers to successful integration and by providing benchmark data for integration teams.

Organization Transformation

Leading a transformation is a specific leadership skill. We define it as:

The inspiring, energetic and collaborative pursuit of a strategy that requires a change in the fundamental nature of the business. It is relentlessly driven forward by leaders of integrity. They lead by example and a demonstrated commitment to the greater good of the company. They engender the trust and support necessary from those they lead.

By definition, a transformation, requires a major change effort. This is mostly the consequence of a change in strategy.

Once the strategic direction is defined, we support CEOs and senior leaders in architecting change.

This involves translating the new strategy in to organizational and leadership implications. Perhaps a change in culture, structure, processes, skills or mindsets.

We build transformation roadmaps and we guide leaders through the changes over time, offering advice and support on the strategic leadership and organizational issues, while others implement operational and process changes.

Example

example diagram of an organizational transformation roadmap

In addition to architecting big change, we also support the creation of new organization models. See Organization Design.

Communication and the Importance of Storytelling During Change

The strategic story is the heart and soul of any change. What is the vision? What is the end-state? How is the strategy changing, and what is not changing?

Authoring this strategic story is fundamental to any change. It inspires action.

To be most effective, it should follow the principles of good storytelling (a protagonist, an inciting incident, a call to action, a dreadful alternative, a conflict, an antagonist, the quest, and so on).

Culture Alignment

Strategy is what is visible, on the surface. Culture is unseen. But in a battle between culture and strategy, culture always wins.

Redefining the strategy is much easier than reshaping the culture.

It can take years, and is a formidable challenge that should be owned and led by the CEO and the leadership group. Because culture is the result of what leaders do; how they behave.

What is culture and why do people want to change it?

Culture is a set of assumptions that a group shares. They are taken for granted; unquestioned. As new members join the group they learn the assumptions. They are usually formed around whatever is successful. Products that are successful. Processes. Technology. The organization becomes inseparable from the cause of that success. Microsoft and Windows. 3M and innovation. Southwest and low-cost/fun service. Enron and….

When leaders talk of the need for organizational change, it usually means they want to change the culture. But you don’t change culture. You change leaders, or change the behavior of leaders; which changes the culture.

The visible manifestation of the culture is behavior. In particular, the behavior of leaders. There is some set of accepted behaviors that worked in the past but now gets in the way of success. Old habits die hard.

How do leaders go about changing a culture?

(Assuming the strategic story is unambiguous and there is a clear picture of the end-state)

You remove the leaders stuck in the old world. You also promote or hire new leaders who believe in the new world.

You work hard on defining and rewarding the new behaviors.

You work hard on helping everyone understand and make it through the changes.

3 signs of a culture in trouble

image of numeral one

It is really hard to implement any strategic change of course.

image of numeral two

People, especially leaders, protect their position at all costs.

image of numeral three

Decision-making is unusually slow.

What to do

Diagnose to create shared language and plans

In medical practice there is a common adage; “Intervention without diagnosis is malpractice.” This is as true for social systems like organizations as it is for biological systems like the human body.

Transformational leaders understand that significant change requires diagnosing the organization’s (1) readiness for transformation, and (2) existing health.

They also know that they must engage leaders in the act of diagnosis before treatment. This builds consensus and commitment to the hard work that must be done.

Assemble the right leaders

Those that believe in the new world. About a third will. Another third will resist. Remove them. The final third? They will be on the fence. Encourage the third that ‘get it’ to engage this group; to bring them on the journey.

Dialogue enables change

As CEO, deploy the ’Rule of Seven.’ You need to communicate at least seven times before your message is heard. During transformations, staff are only interested in three things ‘me, me and me.’ Will I have a job? Will it be the same job? Who will be my boss?

What will change and what will not must be unambiguous. Communication is at the core of culture change. Not ‘command and control’ communication. Rather, Conversational Leadership. The most effective way to communicate and build trust. It is a style that encourages discussion. It is informal and personal. You can’t control the message in today’s world. But you can listen authentically, ask questions, draw people out; the vitality of dialogue.

M&A Integration

It’s exhilarating chasing the deal. It’s logical deciding which factories to close. It’s rational choosing which processes to merge.

But still most M&As fail.

They wouldn’t if the same discipline and diligence that is applied to the financials of closing the deal are also applied to leadership and cultural issues.

M&A Reality

The goal of any M&A activity is to achieve the strategic and financial promise with sustained results. Yet most mergers fail to achieve their targeted value.

The Facts
  • Two years after the deal closed, 53% of the transactions did not meet the expectations articulated at the time of the merger announcement.
  • 50% of all transactions actually destroy value and additional 33% do not increase value.

Focus on Leadership and Talent is the Key to Success

The Evidence
  • Proactive pre- and post-merger leadership and talent management improves M&A performance by 45%.
  • Effective leadership integration increases M&A success rate to between 60% – 70%.
  • 90% of successful M&As address culture within first 30 days after announcement.

How? Create the Leadership Game Plan

Pre-Close: First 100 Days: Months 4-6: Months 7-12:
Strategic Alignment Launch Implementation Consolidation and Leverage

Merger Integration Must Haves

diagram of merger integration must haves

The River Strength Meter: Merger Integration


WEAK MODERATE STRONG
Hubris and Numbers Prevail Engineered: for Failure Engagement 101 Change Leadership Enlightened Integration Cracking the Code

Organization Design

Organizations are complex social systems. Redesign requires significant changes to structure, decision-making processes and senior roles.

But this work can get messy—fast. It needs to be rigorous and disciplined.

Who does a design? The CEO is responsible. But, with boundary conditions, you can minimize politics and reduce staff anxiety by involving senior leaders.

The Promise of Redesign

CEOs and their executive teams turn to organization redesign when their strategies require new levels of performance, such as:

  • Expanding into global markets
  • Scaling up to grow rapidly
  • Integrating significant acquisitions
  • Consolidating to improve profitability

These changes are often transformational, involving more than simply changing boxes and lines.

Successful organizational redesign requires recasting the way people interact with each other within groups and aligning those groups together. It involves building new organizational capabilities, developing new skills and instilling a new culture.

This is why we call it organization “redesign” and not just “restructuring.” Design goes beyond structure, positively altering all aspects of performance.

The Odds are Against Success

image of 55 per cent in circle

of change management initiatives met initial objectives, and only 25% yielded gains that were sustained over time.

image of 90 per cent in circle

of the time back-office costs are back to prior levels 4 years after a cost-cutting program.

image of 87 per cent in circle

of respondents state that not enough focus is placed on managing change in critical projects.

Common Pitfalls and How to Avoid Them

Avoid “Ready, Fire, Aim” – Diagnose First

  • Resist the temptation to use a “back of the napkin” approach to creating new structures.
  • Determine root causes through a structured organizational diagnosis that involves leaders.

Let Strategy Drive Structure, then Staff to Win

  • Use strategy to determine organizational groups, not just cost efficiencies.
  • Identify the “golden boxes” – critical roles that must be staffed most carefully.
  • Avoid creating new roles just to retain talent.

Don’t Go it Alone – Engage Your Leaders

  • In design teams, use a combination of trusted senior executives and high-potential, growth-minded leaders.
  • Communicate constantly – avoid radio silence, which fuels rumors.

Don’t “Wing It” – Use Proven Tools

  • Apply a structured design methodology and train your leaders how to make design decisions.
  • Conduct an impact assessment to predict implementation issues and plan accordingly.

Must Haves: Tools and Methods That Work

Organization Design Process

We use a structured process for a design team(s) to take the results of an organization diagnostic and reconfigure the basic structure. It involves considering functional, market, geographic and business unit configurations and deciding which methods best support the strategic direction. It also involves designing the right processes and methods for linking parts of the organization together, beyond simply instituting a matrix structure.

Operating Governance Design

This process designs the right grouping of leadership teams needed to execute management processes (strategy development, operational reviews, talent reviews, budgeting, etc.). The result is an integrated governance model composed of distinct leadership teams that get work done effectively and efficiently.

Executive Role Redesign

With a new structure and operating governance system there is often need for one or more newly designed leadership roles, for example Chief Operating Officer, Chief Administrative Officer, Chief Innovation Officer, etc. This requires carefully configuring roles with the right responsibilities, accountabilities and appropriate scope. The result is clear job descriptions at the executive level that clearly enable clear decision making and collaboration among executives.

The River Strength Meter: Organization Design

WEAK MODERATE STRONG
Back of the Napkin Amateur Hour Engagement 101 Change Leadership Strategy Driven Design Strategy, Structure and Talent