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Managing Change. Lessons From The Global   Prof. Singh Managing Change. Lessons From The Global Prof. Singh Presentation Transcript

  • Wharton Global Alumni Forum Rio de Janeiro, Brazil 11th August 2006 Managing Change: Lessons from the Global Experience
  • Overview
    • A Framework for Transforming Organizations
    • Some Selected Case Histories of Successful Organizational Transformations
    • Effective Change Leadership
    • Next Action Steps
  • A Framework for Transforming Organizations
  • A Framework for Transformational Change
    • Diagnosing the Context
    • Creating a Vision for the Future
    • Choosing a Strategy for Change
    • Focusing on Altering Organizational Processes
    • Evaluating & Communicating the Results
    • Institutionalizing the Changes: Culture, Values, Symbols
  • Case Studies of Organizational Transformation
  • Case History #1
    • Chrysler and Lee Iacocca
      • Iacocca Fired by Henry Ford in July, 1978. Hired by Chrysler Chairman John Riccardo in 1979.
      • Chrysler lost $204.6 m. in 1978 and $1.1 b. in 1979. On the Verge of Bankruptcy.
      • 35 VP’s, Each with own Turf. No Integration Mechanisms Across Divisions.
      • Yet, in 1982, Chrysler Recorded First 3rd Qtr. Profit in 3 Years. Quality, Market Share, Productivity, all UP! Turnaround completed .
  • Case History #1
    • Now, Chrysler has merged with Daimler-Benz from Germany to become one of the world’s largest auto-makers; Chrysler and Daimler are among the most profitable carmakers; next year the combined company will have operating earnings of $7.06 b. on revenues of $155.3 b.;
    • Jurgen Schrempp himself turned Daimler around in 1996; in 1995, Daimler lost $3.45 b., the worst postwar loss; reversed integrated technology company plans of his predecessor
    • But integration continues to pose cultural challenges
  • Leading Change in Crisis Contexts
    • During crisis conditions, it is sensible for a leader to take a top-down approach, as opposed to a bottom-up approach; this was very much Iacocca’s centralized, hands-on leadership style
    • Research studies have also indicated that bringing in an outsider is appropriate under conditions of dire threat; but often whole management team must be replaced for successful turnaround; did happen at Chrysler
    • Although Iacocca was successful with the turnaround, he was less effective in later years
  • Case History #2: Turnaround of Nissan Motor Co.
    • In FY99, Nissan was going bankrupt; net loss of $5.7bn, 53% capacity utilization, net auto debt of $11.2bn
    • Renault agreed to assume $5.4bn of debt in return for 36.6% equity in Nissan; Carlos Ghosn sent to Japan to turn Nissan around
    • Nissan’s capital locked up in non-core keiretsu investments; breaking with tradition, Ghosn dismantled them; but fundamental problems were cultural; ditched seniority rule, revamped compensation to focus on performance; redefined roles of managers to tackle culture of blame;
    • A series of 9 cross functional teams were the centerpiece of the turnaround effort: business development, purchasing, manufacturing & logistics, R&D, General & Admin., Product Phaseout & Parts Complexity Mgmt., and Organization; reported to nine member executive committee, given three months to review operations and come up with recommendations for profitability and growth
    • Turnaround has been a huge success!
  • Altering Core Organizational Processes
    • A key lesson from the Nissan turnaround is the focus Carlos Ghosn had on altering the core organizational processes using the cross functional teams
    • This is one of the key reasons why change does not take hold in many settings
    • There is some talk now of GM using the lessons learned from Nissan!
  • Updates on Nissan
    • Nissan Motor Co. is riding high; on sales of $70 billion, Nissan had a recent market cap of $45 billion; ADR’s traded in New York are not too far from an all time high
  • Case History #3
    • IBM and Lou Gerstner
      • IBM Had the Best Year in its History Until Then in 1990 (Sales $69 b., Net Income $ 6 b.). But in 1992, IBM Suffered its Worst Year Ever, Losing $ 5 b.; Akers Removed as CEO by Board of Directors.
      • April 1,1993, Lou Gerstner Hired From Outside. Brought in New CFO and HR Director.
      • By 1997, the Turnaround, assumed not Possible, Was Largely Accomplished. IBM Was a Industry Leader Again!
      • More recently, IBM continues to do well
  • The Challenge of Discontinuous Change
    • Currently, IBM is again a darling of Wall Street; Gerstner moved IBM away from a highly vertically integrated company by divesting many divisions; then he refocused the company by concentrating on the customers; It is now a ‘total solutions’ company and a leader
    • IBM was initially unable to adapt to the paradigm shift from mainframe computers to networked computing; they were aware of the changes, but could not leave behind profitable installed base of legacy systems
  • The Challenge of Discontinuous Change
    • However, the saving grace for IBM was that there were enough good ideas and talented people for a bright future; what was needed was new leadership that would provide a sharper focus; the old strategy of vertical integration could not have worked as niche players (Intel, Microsoft, Dell and Sun Microsystems) were outcompeting IBM in various markets
    • No easy way to cope with such discontinuous change; only path is to balance exploration and exploitation processes; this creates short term performance pressures that Wall Street hates
  • Updates on IBM
    • As of December 2005, the transformation of IBM has been largely accomplished; although share prices peaked in 2000 around the tech boom, current revenues are $94.17 billion and the market cap is $131.9 billion; this compares with a low stock price in the early 1990’s which was almost down to $10
  • Case History #4
    • British Airways (BA) and Lord King (& Marshall)
      • BA in 1981 was a Very Troubled Airline. Severe Losses (145 m. Pounds), Overstaffed, Poor Quality. Close to bankruptcy.
      • John King Appointed Chairman. Initiates Survival Plan. Radical Steps Include Reducing Staff From 52,000 to 43,000 in 9 months. Next to 35,000. Largely Voluntary.
      • Between 1981 and 1990, Total Transformation From ‘Bloody Awful to Bloody Marvelous’. Record Profits (245 m. Pounds) in 1990.
  • Case History #4
    • British Airways did well under the leadership of Lord King and Colin Marshall (later Sir Colin); subsequently, with Colin Marshall becoming Chairman, Robert Ayling took over as CEO
    • Under Bob Ayling, British Airways suffered in quality; a recent setback was conflicts with the unions; union leadership felt that although the membership had shared in BA’s adversity by making sacrifices, management was not as willing to have them share in the airline’s prosperity; these problems continue
    • Bob Ayling fired recently; Performance is down
  • Culture as a Vehicle for Organizational Change
    • British Airways directed its change efforts by focusing on customer service; King and Marshall found an airline that was in the ‘transportation business’ and was not customer oriented; responded by changing the culture of the organization; training program, Putting People First, for all staff with customer contact
    • Choice of culture and customer service is sensible because the staff are only contact point of contact for majority of clients with BA; cannot predict in advance what behavior needed, so changing attitudes best approach
  • Case History #5
    • Nokia and Jorma Ollila
      • 133 Year Old Finnish Conglomerate. Began as a Paper Mill. In 1960’s, speculative acquisitions transformed it into a conglomerate in Tires, TV’s, industrial cables. In 1980’s, bought Teleste, an electronics company, the future launchpad.
      • Jorma Ollila, a banker, joined Nokia in 1985. Rose through ranks to head new mobile phones business. Ollila Takes Over as CEO in 1992 and Focuses on Telecom. Main ambition to make Nokia a telecom company.
  • Case History #5
    • Nokia and Jorma Ollila
      • Boosts GSM Phone Production. Relentless pursuit of Telecom goal. Sells off non-core Cable and Color TV Businesses and Reinvests Proceeds into Mobile Telephony.
      • Sales Grow From $2.1 b. in 1993 to $9.8 b. in 1997. Operating Profits Up 98%. In cellular phones, recently overtook Motorola as world’s #1
      • In displacing Motorola, Ollila’s strategy of Focus in Telecom has been Vindicated; Nokia’s stock has done very well
  • Changing Strategic Scope of a Firm
    • Major lesson from Nokia is the Importance of Reexamining and Changing, if needed, the Scope of a Firm’s Corporate Strategy. Clearly, the Bold Step of Divesting Non-Core Assets is largely responsible for Nokia’s stunning Performance. But there is Risk in the Strategy. Yet, there is a need to do this Continuously.
    • Changing the Scope of A Firm is an Important strategic Change. One of the Few Ways to Reinvent mature Firms. Good example, Intel Reinvented itself in 1980’s as a World Class Microprocessor company. Exited DRAM market
    • Nokia continues to be one of the Leading firms in the World in its Space: Wireless Telecommunications
  • Case History #6
    • General Motors and Roger Smith
      • In 1978, GM earned nearly $3.5 b. on $63 b. in Sales. But downturn in 1980.
      • In 1979, GM Unveiled a $40 b. Plan to Redesign every one of its Cars and Factories.
      • Between 1980-90, Roger Smith Tried to implement this Vision for the ‘21st Century Corporation’; GM Acquired Electronic Data Systems and Hughes Aircraft in Diversification Attempts.
  • Case History #6
    • General Motors and Roger Smith
      • In all, GM spent $70 b. on Capital Expenditures to Improve Productivity and Flexibility. GM also Created the Saturn project, aimed at Surpassing the Japanese.
      • However, the Results have not been Stellar. In 1992, on Sales of $130 b., GM lost nearly $24 b. Since the Early 90’s, Stock Price has Picked Up, but has lagged Chrysler and Ford.
      • Currently, GM has $166 b. in Sales and 608,000 Employees, but Struggle Continues
  • GM’s Continuing Problems
      • In the last decade, GM stock has Underperformed the Stockmarket by 70%
      • What is Staggering is that all of GM’s Market Valuation is Accounted for by its Financing Operation (GMAC) and its 74% stake in Hughes Electronics; All Other Manufacturing Operations have Negative Value!
      • GM is Now Mounting a Major Reorganization in Response to the Daimler Chrysler Merger.
      • But Recently, a Bitter Strike in Flint, Michigan, Cost After Tax Losses of $2 b.
      • GM continues to Struggle, Processes are the Same
  • GM’s Continuing Problems
    • December 2006: Toyota seems set to overtake GM as the Biggest Auto Manufacturer in the World in 2006-07
    • 23 rd December 2005: GM stock price lowest in 20 years at $18.83; Total revenues $193.3 billion, market cap $10.65 billion; Compare with TCS, Wipro ad Infosys???
    • 13 th December 2006: S&P cut GM’s credit rating deeper into junk territory and warned that Rick Wagoner’s plan may not be enough to turn GM around
    • 12 December 2005: A BusinessWeek article discusses the implications of a Chapter 11 bankruptcy by GM; what was once unthinkable is now being considered seriously by the investment community
  • Case History #7
    • NUMMI: GM and Toyota Joint Venture (50-50)
      • following a strike, GM closed its Fremont Plant in February 1982
      • At about the same time, GM and Toyota began to talk about a possible joint venture
      • In February 1983, they reached an agreement in principle to produce a version of the Toyota Corolla, renamed the Nova, at the Fremont plant; GM responsible for marketing and sales, Toyota responsible for product design, engineering, and daily operations
  • Case History #7
    • NUMMI: Background
      • GM and Toyota had equal shares of NUMMI, the joint venture was to last for no more than 12 years; Toyota contributed $ 150 million in cash for the 50% equity, GM contributed $ 20 million and the Fremont assembly plant
      • equal number of GM and Toyota directors, but bulk of senior management comprised of Toyota people; 15 GM executives were to be given three year assignments on a rotating basis
  • Case History #7
    • NUMMI
      • NUMMI was basically to be an assembly facility, engines and transmissions would be imported from Japan, but major stampings were to be manufactured at Fremont
      • three different explanations have been offered (Brown and Reich, 1989: 29)
        • NUMMI selected/screened the workers and did not hire the worst trouble makers
        • Workers Union
        • Technology investments
  • Case History #7
    • NUMMI
      • the new management philosophy and HR practices result in higher productivity and better cars
      • differences between GM & Toyota motives in entering the NUMMI JV - manufacturing entry into US vs. transfer of manufacturing learning; pros/cons
      • factors for the success of JV; has it been a ‘success’? Difficulty in skill transfer to GM
      • Japanese success can be done in US, but requires new organization & careful thinking
  • Case History #7
    • NUMMI
      • NUMMI, an excellent example of the contributions from changed human resource policies and practices and changed job designs to productivity and worker satisfaction
      • Could GM have made a fresh start by themselves after the plant was closed? Probably not; the shadow of the past as a constraint on the present
      • Toyota has largely met its objectives, but GM probably not as much
    • Updates on NUMMI
      • in 1988, both the Nova and the Corolla FX were phased out, and NUMMI began building Corollas, Geo Prizms, and, from
  • Case History #7
    • NUMMI
      • 1991, Toyota trucks; since June 1995, Toyota Tacoma trucks are now
      • assembled at NUMMI (150,000 from 1996); NUMMI has grown 70% to 350,000 during 1990-94
      • recent tariff threats against Japanese luxury cars- Toyota spokesman suggested that was why they had moved production to the US; tariff problem resolved for now
      • May 1995 study by J. D. Power Associates; among the top ten cars by quality, only two are US made, Geo Prizm from NUMMI is one, Cadillac Seville is the other
  • Case History #7
    • NUMMI
      • NUMMI operates with three levels of management; most GM plants have 183 job classifications
      • worker at average US manufacturing plant receives 46 hours of training; at NUMMI they receive 250 hours in the first six months
      • NUMMI continues to be one of the Most Productive Auto Plants in the US; High Quality and High Productivity
  • Update on NUMMI
    • December 2006: Toyota seems set to overtake GM as the Biggest Auto Manufacturer in the World in 2006
    • 26 th December 2006: the year 2006 will be the year of Toyota, says Forbes; Toyota has expanded capacity in the US with a new pickup truck plant being built in Texas; a new Canadian plant for SUV’s is in the Works; several new models are to be launched, whose effects will show in 2006-07
  • Lessons From NUMMI for GM
    • There Are Fundamental Lessons for GM From the NUMMI Experience
      • The Costs of a Antagonistic Relationship With Unions are Severe
      • Great Productivity Increases Can Come From Changed Work Design, Human Resources Practices, Organizational Culture and Team Based Production Processes Without Billions of $’s Spent on Technology
      • But GM has largely Been Unable to Leverage These Lessons in Existing Plants
  • Effective Change Leadership
  • The Role of the Effective Leader
    • L eadership of Organizational Change Vs. leadership of a small group: L eadership involves:
      • Creating a Vision for the future
      • Embodying the Desired Changes
      • Communicating Through Symbols: e.g.,
        • Behavior: Iacocca’s $1 salary at Chrysler
        • Programs: BA’s Putting People First program
        • Single Element Focus: IBM and Customer Orientation Instituted by Lou Gerstner
  • Effective Change Leadership
    • Top Down Vs. Bottom Up Approaches to Change
      • Top Down: Chrysler, BA, IBM. Outside Leaders Strongly set New direction.
      • Bottom Up. Nokia, Motorola. Inside Leaders Build Upon Organization’s Past. Nokia Makes Major Departure From Past in Scope of Firm.
      • But Successful Change Involves Top Down Direction Setting, Broad-Based Bottom Up Performance Improvement & Cross Function Core Process Redesign
  • Effective Change Leadership
    • A Final Task of L eadership is Institutionalizing the Change Efforts
      • Since Change is an Ongoing Challenge, Important to Create a Culture of Change
      • Importance of Symbols, Values, Culture
      • Case Studies: Ollila Emphasizes Culture of Understated Collegiality at Nokia, part of Finnish Culture. BA’s Single Emphasis on Being Customer Oriented has Slipped in Recent Years, with Resulting Slippage in Quality. Management has Union Problems.
  • The Politics of Organizational Change
    • Change is Inherently a Political Process. There are Winners and Losers. Support for Change can Vary Depending Upon Perceptions of How One Will benefit From Changes
    • Unfortunately, in Many Instances, Interests of Subunits are Not Convergent With Interests of Firm. Can Lead to Covert or Overt Hostility to Change Efforts.
    • Important, therefore, to do a Political Analysis of the Forces For and Against Specific Changes. Cui Bono typology. Who benefits from status quo ?
  • The 8 Stages Of Successful, Large-Scale Change
    • Create a sense of urgency
    • Build a guiding team
    • Create a clear, inspiring vision
    • Communicate the vision
    • Remove obstacles and empower change
    • Find ways to get short-term wins
    • Don’t let up--keep the momentum going
    • Make changes stick--build a new culture
  • The Core Pattern Of Successful Change See People find a problem in some stage of the change process--too many of their colleagues are behaving complacently, no one is developing a sensible strategy, too many are letting up before the strategy has been achieved. They then create dramatic, eye-catching, compelling situations that help others visualize the problem or the solution to the problem. Feel The visualizations awaken feelings that facilitate useful changes or ease feelings that are getting in the way. Urgency, optimism, or faith may go up. Anger, complacency, cynicism, or fear may go down Change The new feelings change or reinforce new behavior, sometimes very different behavior. People act much less complacently. They try much harder to make a good vision a reality. They don’t stop before the work is done, even if the road seems long.
  • What to do Next? Some Action Steps
  • Some Action Steps to Consider
    • Examine and Appraise Aspiration Levels
      • Performance below aspiration level leads to energized efforts
      • Action: Reset Aspiration Levels through Role Modeling; Important Leadership Task
      • Action: Assess Current Standing Realistically by Benchmarking Against Challenging Standards
  • Some Action Steps to Consider
    • Perform Political Analysis of Status Quo
      • Q. Do a Cui Bono analysis: who benefits?
      • Q. Who are the key Stakeholders for a Change?
      • Q. For a Specific Change, what forces from Stakeholders are for or against change?
      • Action: Strengthen the Forces for Change and Weaken the Forces against Change
      • Action: Motivate the Change with a Vision for the Future
  • Some Action Steps to Consider
    • Strengthen Motivation of Key Actors who are Allied with Change
      • Align Incentives with Specific Goals: the Power of Recognition and Rewards
      • Action: Specify Goals and Create Contingent Rewards (can be non financial)
      • Strengthen Efficacy and Outcome Expectations
      • Actions: Train/Retrain People; Invest in Human Capital; Remove Obstacles
  • Some Action Steps to Consider
    • Shoulder L eadership Responsibilities
      • Think through Overall Communication Strategy
      • Action: Create Specific Simple Programs that Embody Overall goals and Execute Consistently
      • Action: Role Model Desired Behaviors since Complex Behavior Learnt by Observation
      • Action: Choose Symbols and Patterns that Capture Spirit of Change; Your Presence Matters
  • Summary
    • A Framework for Transforming Organizations
    • Some Selected Case Histories of Successful Organizational Transformations
    • Effective Change Leadership
    • Next Action Steps