New change management models for the age of disruption

The evolving nature of change management requires a new approach for the age of disruption. In 2019, IBM released a study entitled Capitalizing on Complexity where they interviewed 1,500 global CEOs about their thoughts on rising complexity and its potential impacts on their businesses.

The vast majority (78 percent) felt that complexity would increase in their industries over the next five years. Looking back at our current vantage point, we can take comfort that those CEOs had a pretty good idea about what was likely to happen. At the same time, I have tremendous sympathy for the rude shock that the 22 percent of CEOs who did not think complexity would increase had to face. 

What I find most fascinating about the study is that 51 percent of those CEOs felt that the rising complexity of their industries would overwhelm their ability to manage said complexity. Think about that for a second; six years ago, in a time that was much simpler, the majority of CEOs felt that they wouldn’t be able to manage the rising complexity in their industries. They had no idea what was coming.

The history of change management models

The fact of the matter is that corporate change management models have had an abysmal 70-90 percent failure rate, a number that has not changed in the past 20 years. When you couple that horrendous track record with the intense complexity and rapid pace of technological development we currently face, it is clear that it is time to change our approach to change management.  

When we examine what happens when critical information is ignored, the consequences can be catastrophic. On January 28 1986, the space shuttle Challenger broke apart a little over a minute into its flight, resulting in the death of seven brave astronauts. The cause of the disaster was expected and well known by NASA engineers who identified flaws in the O-rings sealing the Space Shuttle’s solid rocket booster. Yet the senior executives at NASA, focusing on their launch timelines, disregarded this information, resulting in this terrible tragedy.

This was the result of a sociological phenomenon called hierarchical mirroring; when meaningful discussions are only expected to happen between people of equal or higher status, so when critical information is presented to senior leadership, it is often disregarded when coming from those with less authority and power. When the oversights inherent in hierarchical mirroring meet our rapidly shifting current environment, full of threats and opportunities, things quickly fall apart.

An era of unprecedented disruption

If you’ve had a career in a large organization, I’m willing to bet that you can detail a multitude of experiences where critical insights were disregarded or ignored despite being accurate and essential. Greater experience and status don’t mean that we have a stranglehold on creativity, and it sure as heck won’t protect executives from the challenges and opportunities that they don’t recognize and can’t see.

The problem runs deeper than the tragic example of the Challenger. Command-and-control structures are inherently ill-equipped to handle large-scale change initiatives, especially in our era of unprecedented disruption. Organizations that succeed in the years to come will do so by taking an agile, collaborative and bottom-up approach to change management.  

The primary weakness of leaders within command-and-control structures is that many of the problems and opportunities they set out to address are poorly understood and are often a symptom of a larger issue. A key reason is that most organizations have created bureaucracies to maintain control.

Where bureaucracies are great at providing consistency and exerting control, they prioritize risk aversion over agility, creating bottlenecks for decision-making and struggling to identify “hazards early” as the Harvard professor John Kotter details in his HBR Article Accelerate!

The very nature of command and control increases the chance that leaders miss critical problems and that they don’t understand the ones that they are aware of. Additionally, the structure of command-and-control organizations requires information to be siloed, with information flowing vertically (usually down but not up) as opposed to cross-functionally causing intelligent and capable individuals to understand critical warnings and opportunities only in the context of their particular silo, often missing critical significance and context.

Beware the “Iceberg of Ignorance”

The Japanese researcher, Sidney Yoshita, coined the concept “Iceberg of Ignorance” where leaders at the top are only aware of about 4 percent of the problems an organization faces, while frontline employees can clearly see 100 percent of the problems. Incidentally, if senior leadership is missing 96 percent of the problems that organizations face, what’s the percentage of opportunities they failed to acknowledge?

All of us grew up within the confines of command-and-control leadership. A system created thousands of years ago because leaders were the only ones who had access to information and were managing illiterate populations. Today, all of us have access to the entire compendium of human knowledge in our pocket, we haven’t updated our management systems to accommodate this seismic shift in information access.

It’s not that command-and-control leaders are bad; it’s just that they are operating in a context that is no longer relevant. This disconnect between traditional leadership approaches and modern realities has created a stark divide between organizations that evolve and those that collapse.

The risks of clinging to command and control approaches

The historical examples of industries and organizations that clung to command and control in the face of rapid change are numerous. The US auto industry in the 1970s was highly hierarchical and top-heavy, which left it completely unprepared for the fuel crisis and slow to respond to leaner, more adaptive Japanese automakers who were able to quickly spin out high-quality, smaller and low-fuel-consuming automobiles. The result was a huge loss of American market share and Chrysler’s eventual bailout in 1979.

Additionally, the American retailer Sears, once one of the largest in the country, was incapable of seeing through their tightly siloed business units with little cross-departmental collaboration. They were unable to modernize their customer experience in the face of Walmart's supply chain mastery and Amazon’s digital agility. The result was a decline into irrelevance and bankruptcy in 2018. Right now, we are watching in real-time the traditional banking system being disrupted by FinTech startups who are more agile and customer-centric.

There’s another side to this story. There is significant evidence that those who abandon the dictates of command and control can gain a significant edge. In 2005, Haier, the Chinese manufacturing firm that owns GE Appliances, operated under a rigid command and control structure with over 12,000 middle managers controlling a veritable army of employees. The organization was highly siloed with painstaking, slow decision-making and innovation bottlenecks. Haier’s profit margin lagged behind their competitors like Whirlpool by a factor of almost 50 percent and the organization seemed incapable of innovation with growth relying on incremental efficiency gains.

In response, Haier’s CEO, Zhang Ruimin, set out to transform the organization by fostering a profound spirit of entrepreneurialism. He removed over 10,000 middle managers and restructured Haier into 4,000 micro-enterprises, giving those micro-enterprises a tremendous amount of autonomy. Each of those units had its own profit and loss accountability, and employees would bid for projects and negotiate salaries based on the value they created. Every employee has a clear path toward advancement through actualizing innovative ideas. From 2005 to 2014, Haier achieved a 28 percent compound annual revenue growth. Last year, its gross margins reached 27.8 percent. Haier’s turnaround came not from increasing control, but rather from releasing it. 

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A period of rapid change

It is clear to all of us that we have entered a period of rapid change and lightning-fast technological innovation. Things are changing faster than any of us could have anticipated. The preexisting roadblocks hampering key executives’ understanding of what is happening within their organizations coupled with the technological changes emerging at a dizzying pace is creating a perfect storm.

At the onset of a change management initiative, most senior executives, let alone anyone else in the organization, cannot imagine how the ground will change during the change initiative. 

According to recent data from CEB, only 34 percent of corporate initiatives fully reach their objectives, with 50 percent being complete failures and 16 percent delivering mixed results. This represents hundreds of billions of dollars in loss.  

Despite these grim statistics, innovative organizations are finding ways to break this pattern of failure. The challenges of command and control are now being amplified by technological acceleration at an unprecedented scale.

In the face of all these challenges, there are a select group of established companies and startups that are changing the way in which they distribute power and authority throughout the organization, allowing for decision-making closer to the frontlines.

Louis Dreyfus Company – a success story

At the onset of the Covid-19 pandemic, the shipping company, Louis Dreyfus Company (LDC), achieved remarkable results by giving broad decision-making authority to the managers who had the deepest understanding of the industries and commodities they serve.

By leveraging the knowledge and experience of those closest to the ground, LDC was able to rapidly reconfigure focus toward the commodities that were most likely to be necessary during the crisis and away from sectors like cotton and other commodities likely to decrease during the lockdowns. LDC gave power to local and segment managers and as a result, made operational decisions based on real-time market intelligence as well as in-depth knowledge of local conditions.

Releasing control and giving power and authority to those with the most information is the key to survival in this new age. Leaders must shift their focus away from control toward connecting silos and providing decision-making frameworks that allow those closest to the ground to make decisions and pivot when necessary.

The evolving nature of change management models

Beyond LDC, there are many companies that have shattered expectations by using management methodologies outside of the dictates of command and control. The Morning Star Company, for example, produces 40 percent of the US tomato paste market and runs a decentralized system. The company has almost a billion dollars in annual sales and regularly produces double-digit growth in both profitability and topline revenue in an industry with an average growth rate hovering around 1 percent. The financial stakes of getting this right, or continuing to get it wrong, are staggering.

Additionally, it will be critical to assume more adaptive project management methodologies, such as Strategic Doing, pioneered by Ed Morrison at the University of Indiana. Unlike traditional strategic planning and project management methodologies which assume stable conditions and the efficacy of command-and-control decision-making, Strategic Doing helps networks of people and organizations form and guide action-oriented collaborations quickly and effectively. Emphasizing agility over control, fostering networks and most importantly experimentation and iteration as opposed to up-front planning. Most radically, Strategic Doing uses a shared leadership and trust building approach which is structured around a simple set of rules that guide participation, framing opportunities, building trust, linking and leveraging assets and committing to action with continuous learning cycles.

This represents a fundamental shift in how we think about leadership itself. It is understandable that leaders would be reluctant to abandon the dictates of control, but it is important to recognize that with a 70 percent failure rate in corporate initiatives, do any of us really have control? In their report The Future of Work Requires Executive Change Readiness Gartner reports that only 38 percent of employees are confident that their leadership team is capable of leading the organization into the future of work.  

The way out is to start by building shared awareness by looking across the enterprise and collaboratively identifying what is happening. Executives should spend time asking questions like, “What are we noticing?” as well as conducting cross-functional horizon scans. With that enhanced perspective, the focus should shift in creating dynamic teams composed of people who have the most relevant experience and contacts, letting leadership emerge from those closest to the inside.

Work should be focused on sprint cycles guided by objectives, with each sprint cycle being defined by combining the assets of the different team members that can be put to work in service of moving the project forward. With a focus on asynchronous action dictated by those closest to understanding, Strategic Doing provides new insights and consistent progress in the face of a changing world.

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How can managers lead effectively through change and uncertainty​?

This year, American businesses are expected to spend $2.7 trillion dollars on digital transformation. There are numerous Space Shuttle Challenger-level disasters hiding within those efforts. Disasters that very well might bring down some of our great companies, let alone the fact that, with a 70 percent failure rate, $1.89 trillion (a sum greater than the combined GDP of Poland ($0.98 trillion) and Switzerland ($0.95 trillion)), will be wasted.

It is time to let go of the arduous and broken system that we’ve been carrying for the last several thousand years and step into a bright future. A future that brings forth collaboration and surfaces the insights, observations and full capabilities of our entire organizations. This begins with a simple yet profound shift in leadership mindset: moving from knowing all the answers to asking, “What are we noticing?” and trusting those closest to the work to guide the way forward.

Those organizations that heed this call and push power, authority and decision-making to those with access to the most information, whether through Strategic Doing, micro-enterprises or other distributed leadership models, have the potential of achieving a tremendously bright and prosperous future. Those that don’t risk sliding into obsolescence.

All Access: Change Management or Business Transformation 2025

All Access: Change Management or Business Transformation 2025 from PEX Network will help professionals get an understanding of the latest developments in change management, including how to overcome resistance to change, how to create a culture of change, and how to measure the success of change initiatives.

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