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source: WilsonSelectPlus Change leaders.
Author: Drucker, Peter F. Source: WE DO NOT HEAR MUCH
ANYMORE ABOUT overcoming resistance to change, which 10 or 15 years ago was
one of the most popular topics of management books and management seminars.
Everybody has accepted by now that change is unavoidable. But that still
implies that change is like death and taxes--it should be postponed as long
as possible, and no change would be vastly preferable. But in a period of
upheaval, such as the one we are living in, change is the norm. To be sure,
it is painful and risky, and above all, it requires a great deal of very hard
work. But unless an organization sees that its task is to lead change, that
organization--whether a business, a university, or a hospital--will not
survive. In a period of rapid structural change the only organizations that
survive are the "change leaders." It is therefore a central
21st-century challenge for management that its organization become a change
leader. There is a great deal of
talk today about "the innovative organization." But making an
organization more receptive to innovation--even organizing it for
innovation--is not nearly enough to transform it into a change leader. It
might even be a distraction. For being a change leader requires the
willingness and ability to change what is already being done just as much as
the ability to do new and different things. It requires policies and
practices that make the present create the future. Abandon yesterday. The
first step for a change leader is to free up resources that are committed to
maintaining things that no longer contribute to performance and no longer
produce results. Maintaining yesterday is always difficult and extremely
time-consuming. Maintaining yesterday always commits the institution's
scarcest and most valuable resources--and above all, its ablest people--to
nonresults. Yet doing anything differently--let alone innovating--always
creates unexpected difficulties. It demands leadership by people of high and
proven ability. And if those people are committed to maintaining yesterday,
they are simply not available to create tomorrow. The first change policy,
therefore, has to be organized abandonment. The change leader puts every
product, every service, every process, every market, every distribution
channel, every customer, and every end use on trial for its life. And the
change leader does so on a regular schedule. The question it has to ask--and
ask seriously--is "If we did not do this already, would we, knowing what
we now know, go into it?" If the answer is no, the reaction must not be
"Let's make another study." The reaction must be "What do we
do now?". In three cases the right
action is always outright abandonment:. 1. When you think that
the product, service, market, or process "still has a few good years of
life." It is the dying products, services, markets, or processes that
always demand the greatest care and effort. And we almost always overestimate
how much "life" actually is left. Usually, they are not dying; they
are dead. 2. When the only argument
for keeping a product, service, market, or process is that "it's fully
written off." To treat assets as being fully written off has its place
in tax accounting, but for management the question should never be "What
has it cost?" The question should be "What will it produce?". 3. When for the sake of
maintaining the old and declining product, service, or process, the new and
growing product, service, or process is being stunted or neglected. For every product,
service, market, or process, the change leader must also ask, "If we
were to go into this now, knowing what we now know, would we go into it in
the same way we are doing it now?" And that question needs to be asked
about the successful products, services, markets, and processes as
regularly--and as seriously--as about the unsuccessful products, services,
markets, and processes. It applies with particular force to distributors and
distribution channels, which, in a time of rapid change, tend to change
faster than anything else. In one fairly big company
that offers outsourcing services, the first Monday morning of each month is
set aside for an abandonment meeting at every level of management. In the
course of a year, three to four major decisions are likely to be made on
abandoning a product, service, or market, and perhaps twice as many decisions
to abandon the way something is done. Also, three to five ideas for new
things come out of those sessions. The decisions are reported to all members
of management each month. Since the company first began organized abandonment,
eight or nine years ago, it has grown more than fourfold (adjusted for
inflation), and it attributes at least half of that growth to its systematic
abandonment policies. The question of what to
abandon has to be organized systematically. Otherwise, it will always be
postponed, for it is never popular. Improve systematically.
Whatever an enterprise does, both internally and externally, needs to be
improved systematically and continually: the product or service, the
production processes, marketing, technology, the training and development of
people, and the use of information. And it needs to be improved at a preset
annual rate. In most areas, an annual improvement rate of 3% is realistic and
achievable. However, continuing
improvement requires some major decisions by an organization. It must answer
the questions "What constitutes performance in a given area? What is
quality in a product? To what extent can improvement be defined only by the
customer?" Defining performance in services is often especially
difficult. Continuous improvements
in any area eventually transform the operation. They lead to product
innovation. They lead to service innovation. They lead to new processes. They
lead to new businesses. Eventually continuous improvements lead to
fundamental change. Exploit success. It is
only 70 or 80 years since the monthly report was invented and introduced into
most business organizations. Almost without exception the first page of this
report presents the areas in which results fall below expectations or in
which expenditures exceed the budget. It focuses on problems. Problems cannot be
ignored. But to be change leaders, enterprises have to focus on
opportunities. That requires a small but fundamental procedural change: a new
first page to the monthly report, one that precedes the page that shows the
problems. The new page should focus on where results are better than
expected. As much time should be spent on that new first page as
traditionally was spent on the problem page. As is the case with
continuous improvement, exploitation of success will, sooner or later, lead
to genuine innovation. There comes a point when the small steps of
exploitation result in a major fundamental change--that is, in something
genuinely new and different. Innovate systematically.
Innovation is the area to which most attention is being given today. It may,
however, not be the most important one--organized abandonment, continuous
improvement, and exploiting success may be more productive for a good many
enterprises. And without those policies, no organization can hope to be a
successful innovator. But to be a successful
change leader, an enterprise has to have a policy of systematic innovation.
And the main reason may not even be that change leaders need to innovate--though
they do. The main reason is that a policy of systematic innovation produces
the mind-set needed for an organization to be a change leader. It makes the
entire organization see change as an opportunity. That requires a policy of
systematically looking, every 6 to 12 months, for changes within the areas
that I call "the windows of opportunity." (For detailed
descriptions, see my book Innovation and Entrepreneurship, HarperCollins,
1985.) Those windows include--. 1. The organization's own
unexpected successes and unexpected failures, and the unexpected successes
and unexpected failures of the organization's competitors. 2. Incongruities or
dissonance between what is and what "ought" to be, or between what
is and what everybody assumes--especially incongruities in processes like
production or distribution, or incongruities between the efforts of an
industry and the values and expectations of its customers. 3. Process needs, such as
a weak link in one of the organization's internal processes. 4. Changes in industry
and market structures. 5. Changes in
demographics. 6. Changes in meaning and
perception. If, for example, general perception changes from seeing the glass
as half full to seeing it as half empty, there are major innovative
opportunities. 7. New knowledge. A change in any one of
those areas raises the question "Is this an opportunity for us to
innovate?" Innovation can never be risk free. But if innovation is based
on exploiting what has already happened, it is far less risky than not
exploiting those opportunities. Avoid innovation traps.
Change leaders will be tempted by three innovation traps. They're so
attractive that leaders can expect to fall into one of them--or into all
three--again and again. 1. When looking for ways
to innovate, the first trap to avoid is an opportunity that is not in tune
with the five strategic realities: the collapsing birthrate; shifts in how
disposable income is spent; new definitions of performance; global
competitiveness; and the growing incongruence between economic globalization
and political splintering. (See "Strategy: The New Realities," page
68.) The misfit opportunity often looks very tempting--precisely because it
looks truly innovative. But even if the innovation does not result in
failure--as it usually does--it always requires extraordinarily wasteful
amounts of effort, money, and time. 2. A second trap is
confusing novelty with innovation. The test of an innovation is that it
creates value. A novelty creates amusement only. Yet again and again,
management decides to innovate for no other reason than that it is bored
doing the same thing or making the same product day in and day out. The test
of an innovation--as is also the test of quality--is not "Do we like
it?" It is "Do customers want it and will they pay for it?". 3. The third trap is
confusing motion with action. Typically, when a product, results and should
be abandoned or changed radically, management reorganizes. To be sure,
reorganization is often needed. But it should come after the action--that is,
after what must be abandoned has been faced up to. By itself reorganization
is just motion and no substitute for action. There is only one way to
avoid those traps or to extricate oneself if one has stumbled into them: organize
the introduction of change. Introduce change on a
small scale. One cannot do market research on the truly new. Also, no
innovation is right the first time. Invariably, problems crop up that nobody
thought of. Invariably, problems that loomed very large to the innovator turn
out to be trivial or nonexistent. It is almost a law of nature that anything
that is truly new, whether it is a product or a service or a technology,
finds its major market and its major application not where the innovator and
entrepreneur expected. The best example is an
early one. The improvement of the steam engine that James Watt designed and
patented in 1769 is the event that, for most people, signifies the advent of
the Industrial Revolution. Actually, throughout his life Watt saw only one
use for the steam engine: to pump water out of coal mines. That was the use
for which he had designed it. And he sold it only to coal mines. It was his
partner, Matthew Boulton, who was the real father of the Industrial
Revolution. Within 10 or 15 years after Boulton had first sold a steam engine
to a cotton mill, the price of textiles had fallen by 70%. And that created
both the first mass market and the first factory. Studies, market research,
and computer modeling are not a substitute for the test of reality.
Everything improved or new needs first to be tested on a small scale--that
is, it needs a pilot test. And since everything new
gets into trouble at some point, it needs a champion. And that person needs
to be somebody the organization respects. It need not be somebody within the
organization. A good way to test a new product or new service is often to
find a customer who really wants the innovation and who is willing to work
with the producer on making it truly successful. If the pilot test is
successful--if it finds the problems nobody anticipated but also finds the
opportunities nobody anticipated--the risk of change is usually quite small.
And it is usually also quite clear where to introduce the change and how to
introduce it. Budget for change. In
most enterprises there is only one budget. In good times expenditures are
increased across the board. In bad times expenditures are cut across the
board. That practically guarantees missing out on the future. The change leader
requires two separate budgets. Its first budget should be an operating budget
that shows the expenditures needed to maintain the present business. That is
normally 80% to 90% or so of all expenditures. That budget should always
be approached with the question "What is the minimum we need to spend to
keep operations going?" And in bad times it should, indeed, be adjusted
downward. And then the change
leader should have a separate budget for the future. That budget should
remain stable throughout good times and bad times. It should rarely amount to
more than 10% to 20% of total expenditures. Very few of the
expenditures for the future will produce results unless the budget is
maintained at a stable level over a substantial time period. (It is important
to note, however, that there may be times that are so catastrophic that
maintaining those expenditures could threaten the very survival of the
enterprise.) That goes for work on new products, new services, and new
technologies; for the development of markets, customers, and distribution
channels; and, above all, for the development of people. The future budget
should be approached with the question "What is the maximum this
activity can absorb to produce optimal results?". The most common, but also
the most damaging, practice is to cut back on expenditures for success,
especially in bad times. The argument is always "This product, service,
or technology is a success anyhow; it doesn't need to have more money put
into it." But the right argument is "This is a success and
therefore should be supported to the maximum possible." And it should be
supported especially in bad times, when the competition is likely to cut
spending and therefore is likely to create an opening. Balance, change, and
continuity. Organizations that are change leaders are designed for change.
But people need continuity. They need to know where they stand. They need to
know the people they work with. They need to know the values and the rules of
the organization. They do not function well if the environment is not
predictable, not understandable, not known. Continuity is equally needed
outside the enterprise. To be able to change rapidly, one needs close,
long-standing relationships with suppliers and distributors. Balancing change and
continuity requires continual work on information flow. Nothing disrupts
continuity and corrupts relationships more than poor or unreliable
information (except, perhaps, deliberate misinformation). It has to become
routine for any enterprise to ask at any change, even the most minor one,
"Who needs to be informed of this?". Information is
particularly important when a change is not a mere improvement but is
something totally new. Any enterprise that wants to be successful as a change
leader has to have a firm rule that there are no surprises. Above all, there
needs to be consistency in the fundamentals of the enterprise: its mission,
its values, its definition of performance and results. Precisely because
change is a constant in the change-leader enterprises, their foundations have
to be extra strong. Finally, the balance
between change and continuity has to be built into compensation, recognition,
and rewards. We learned long ago that an organization will not innovate
unless innovators are properly rewarded; that a business in which successful
innovators do not make it into senior management, let alone into top
management, will not innovate. We will have to lerarn, similarly, that an
organization will have to reward continuity by considering, for instance,
people who deliver continuing improvement to be as valuable to the
organization and as deserving of recognition and rewards as the genuine
innovator. The more an institution
is organized to be a change leader, the more it will need to balance rapid
change and continuity. That balance will be one of the major concerns of
tomorrow's management. ONE THING IS CERTAIN: WE
FACE YEARS of profound changes. It is futile to try to ignore the changes and
to pretend that tomorrow will be like yesterday, only more so. But to try to
anticipate the changes is equally unlikely to be successful. The changes are
not predictable. The only policy likely to succeed--although it, too, is
highly risky--is to try to make the future. Added material. Peter F. Drucker is the
Marie Rankin Clarke Professor of Social Science and Management at Claremont
Graduate University, in Claremont, Calif. ILLUSTRATIONS: JAMES
YANG; PHOTOGRAPH: MICHAEL GRECCO. From Peter F. Drucker's 31st book, Management Challenges for the 21st Century. Copyright 1999 by Peter F. Drucker. Reprinted by arrangement with HarperBusiness, a division of HarperCollins Publishers Inc. |
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