Market factors place unrelenting pressure on organisations to stay nimble and receptive to change. However, it is never an easy ride for those involved. A look at the factors involved in this exercise based on examples from the annals of corporate history.
Cliché though it may be, change is truly the only constant. Making the Fortune 500 list is viewed as a sign of greatness, but perhaps more interesting is the fleeting nature of that honour. Since the list was first published in1955, only11% of the original 500 remain on it. Two thousand companies have made an appearance. Many have been acquired, and several have died. Companies that adapted and changed have survived and grown. Others have fallen by the wayside.
Closer to home, we see the perils of stagnancy every day. Martin Burn, Bangur, Sahu Jain and Bird Heilgers are names unfamiliar to most Indians today but they used to be among the top 10 industrial houses in the country in the 1960s. Wipro and Infosys, icons for a later generation, are visibly struggling to adapt to a new environment. The pressures of the stock market can cause the best of compa-nies to fail.
The need for change is obvious, so much so that Barack Obama made it the cornerstone of his first campaign. But actually making the change stick is quite a different challenge. Why is change so difficult? There are several theories. In a corporate context, it generally boils down to four factors – fear, denial, strategic errors and a failure to execute.
• Fear: Change brings uncertainty, and can be frightening. We spend years preparing for a structured career path but barely any time in learning how to deal with ambiguity and to thrive in chaos. The dismantling of the Licence Raj scared many Indian business houses. But several others seized the opportunities it presented. The Tata Group, for one, restructured itself and set itself ambitious targets in every business – growing into a $100 billion conglomerate.
• Denial: Most manufacturing companies in India have struggled to attract quality engineering talent for at least ten years. Yet they refuse to make meaningful investments in HR, hoping instead that talent will just find its way to them. On the other hand, the AV Birla Group and L&T recognised the challenge and made significant changes to their talent management structures. These groups continue to thrive. All accounts suggest that Ranbaxy was aware of problems in its drug develop-ment and testing processes almost ten years ago. But its executives lived in denial, until finally pleading guilty in 2013, agreeing to pay $500 million in fines and plunging the company into a crisis of credibility.
Strategic errors: In 2012, Eastman Kodak filed for bankruptcy protection. They weren’t blind to the digital opportunity. The digital camera was actually invented at Kodak in 1975. As early as 1979, the company prepared an internal report forecasting the switch from film to digital, and predicting a complete switchover by 2010. But they made error after error, compounded by a desire to protect the core film business. Fujifilm faced the same challenges, but made better decisions and executed more ruthlessly. Film, which accounted for 60% of Fujifilm’s profits in 2000, is down to almost zero today. Fuji responded to current imperatives and moved faster than its now defunct competitor.
Failure to execute: Talking about change is not the same as implementing it. Resources – financial and non-financial – need to be aligned to the change manifesto. In the e-commerce run of the last few years, it was obvious that the valuation and funding bubble would burst. Some recognised it and raised money to last out the inevitable drought. Others lived in hope. Many in the latter group are currently merging their businesses or shutting them down. Non-financial resources can be tougher to align. Employees often worry about how change will impact them and this is compounded when nobody addresses their concerns. Sometimes, they become obstacles to change. Textile unions in the ‘80s and bank unions in the ‘90s – organisations set up to protect employee interests – eventually caused employees untold damage. The failure of the banking sector was not in terms of recognising the importance of computerisation, but in carrying their organisations along.
A common factor in all these issues is the inability to keep communication switched on.
Needless to say, the companies that thrive on change, display quite the opposite characteristics. They keep their antennae in a constant “on” mode – scouting the environment for new ideas, threats and opportunities. They engage in continual conversations with their stakeholders, de-risk their businesses and build real options for their companies to leapfrog their competitors. In some ways, these companies are constantly realigning themselves to the changing market dynamics. For these organisations, change is not a discrete one-time activity, but an ongoing habit.
Occasionally, however, every organisation is forced to make drastic changes. The world changes rapidly around them or a combination of events creates the perfect storm. Many Indian companies are going through such a situation right now – with stalled growth, rapid inflation, hyper-competition and governance challenges. To grow in this environment requires companies to concentrate on a few critical factors.
• Clarity of purpose: Like the boy who cried wolf, organisations today are guilty of raising the “change” slogan a bit too often. “Initiative-itis” or “death-byinitiative” are common afflictions. How does an employee know that this is really the change that matters? Successful organisations clearly communicate their focus, create a sense of urgency, and reinforce the message in multiple forms. Jobs’ success in his second innings at Apple is increasingly attributed to what he did not do. He cut the product line from 350 to 10 – focusing on a few machines and aligning the organisation’s resources behind them. He took away the smokescreen of a multitude of average products and forced the company to make the surviving products really count. Likewise, when IBM sold its PC division to Lenovo, it sent a simple and strong message to the world that it was now ready to focus on services and high-value products.
• Credible leaders: Charisma among leaders may be over-rated, but their moral fibre has become more important than ever. In an age where corporate governance scandals barely create a ripple, it seems hard for employees to trust their leaders anymore. Will they stay the course, or bail out with their golden parachutes and stock options? Can leaders explain the vision? Is it worthwhile for employees to follow them down a path of change and uncertainty? Gandhi moved a nation to seemingly impossible acts of sacrifice because of the trust and confidence he inspired.
• Iconoclasm: Among the behavioural traits deemed necessary in a leader to drive execution, is an insistence on realism. Hard to instil in the CEO suite, a sense of realism is even tougher to develop in an organisation. But several companies have managed this. P&G’s innovation model in the ‘80s was the gold standard for most companies. But in the last decade, the company has reduced its dependence on internal ideas and created a mandate to source at least 50% of their product ideas externally. Having the ability to challenge beliefs is critical to any successful change program.
• Trust and tolerance: If making a change, it is important to focus on the organisational environment. While trying to foster an environment of collaboration, a client realised that the entire incentive system was stacked against such a spirit. Unless the incentives were modified, collaboration was little more than a “nice-to-have” flavour of the season. Manufacturing companies – including GM and Bajaj – have used new factories to break away from the past, and to create centres of excellence. In a changing environment, it is important for employees to feel that they can trust their peers and leaders and that they have a genuine opportunity to contribute.
Great companies use the fire of change to mould a leaner and stronger organisation. Opening the channels of communication lies at the heart of all change programs. Having a cup of tea with your employees may be the best place to start.