What every CEO must know about leading through dramatic change
by Phillip Osborne
Managing Director and Head, Asia Pacific and Australia
How do you lead an organisation through dramatic change that requires fundamental organisational transformation? The fact is, dramatic change will come — whether from unexpected regulation or deregulation, technology innovation or disruption, competitor action or changing consumer demand. How you manage through such change can make or break your organisation.
This fact is nothing new. A vast array of academic, business and personal outputs (and outbursts), from books, texts and papers, to institutes and academies, are devoted to the subject of change management. Yet remarkably, a key element of successful change management remains underemphasized.
Typically, senior leadership approaches dramatic change with an often-misapplied mindset in management thinking: ipsa scientia potestas est, or, knowledge itself is power. They tend to keep their ideas and plans close to the chest, private and in check until announcing final decisions. In reality, an organisation whose leaders openly request and share knowledge internally at all levels
— a “knowing organisation” — can be far more powerful and effective.
This paper explores how one CEO’s inclusive and collaborative approach uncovered the tools for change within the organisation itself. By applying these tools in a considered, intelligent, and efficient manner, he and his team achieved constructive, sustainable change in just two years — transforming a lumbering organisation into a profitable market leader positioned to undertake a successful IPO.
Business, in its most linear form, appears to be a clear-cut system of exchanging goods and services for one another or for money. Taking it a step further, every business requires some form of investment and enough customers to allow the organisation to exchange or sell the business output, whatever it may be, at a profit-driving level or frequency.
Nice. Neat. Simple.
Alas, the organisations responsible for conducting business are far more complex. Organic and fundamentally chaotic, they face internal and external challenges that complicate an otherwise straightforward formula. Internally, they rely on individuals whose thinking, actions and decision-making are based on disparate and sometimes competing skill sets, backgrounds, viewpoints, and agendas. Externally, changing consumer demand; competitor actions; and market, regulatory, economic, and other influences require ongoing priority re-setting and strategic review.
This maelstrom brings one certainty: Every organisation eventually will face dramatic change. How you lead through such change can make or break the organisation.
This fact is nothing new. A vast array of academic, business and personal outputs (and outbursts), from books, texts and papers, to institutes and academies are devoted to the subject of change management. Yet, remarkably, a key element of successful change management remains underemphasized.
Common Responses to Dramatic Change
Dramatic change involves organisational restructuring, operational improvement and/or financial consolidation. It typically requires a realignment or overhaul of management.
A first-reflex solution can be to reduce head count—a short-term, superficial fix to what is very likely a complex set of issues. Too often, management carries out the reduction in warm bodies arbitrarily, with little to no stakeholder input. The immediate fallout across the organisation is generally negative. Remaining employees are unsure how and why their colleagues were let go. Uncertainty generates fear (“Am I next?”) and manifests itself in unproductive ways throughout the organisation.
Another common reflex is to adopt an often-misapplied mindset in management thinking: ipsa scientia potestas est, or, knowledge itself is power. When disruption occurs, leaders keep their ideas and plans close to the chest, private, and in check until announcing final decisions, perhaps believing this will mitigate disruption. But dramatic change inevitably brings unwanted outcomes: a loss of talented people, experience, and corporate knowledge; and a longer term and deleterious loss of employee motivation and organisational culture.
Before acting on any impulse or decision, leaders must immediately ask, “What benefit will this achieve?” and “Will this course of action bring about positive and sustainable change?”
A Better Approach
A powerful and effective alternative is for leaders to take the more complex approach of requesting and sharing knowledge internally at all levels — creating a “knowing organisation” that involves every team member in the change process.
By identifying the tools for successful change within the organisation itself and applying those tools in a considered, intelligent, and efficient manner, you can achieve constructive and, more importantly, sustainable change beyond what you and your team may consider possible.
Of course, saying this is easy. Organisations in competitive and rapidly changing markets are
often under enormous pressure to make change happen “yesterday.” We also know constant change is the nature of any organisation. Managing change is complex and difficult. There is no single magic bullet.
What follows is my personal story. It begins with a simple but common scenario where less-than-ideal change management produced negative outcomes. It continues with a success story.
In just two years, following the approach described here, my organisation, leadership team and I transformed a lumbering business into a profitable market leader positioned to undertake a successful IPO. I believe the outcomes we achieved are a useful guide for any CEO seeking to approach change in a way that achieves beneficial and sustainable organisational outcomes.
A Study in Successful Change Management
My success story begins with a previous misstep. In an earlier role, I was responsible for the restructure of a dairy cooperative. Although its core business was sound, its operations had been diversified and diluted into what became loss-making activities.
New to the process and with little stakeholder engagement, I set about making significant, reactionary changes across the organisation. Not surprisingly, the results were negative and highly detrimental. The organisation lost good people, and the productivity gains I sought did not materialise.
This experience had a major impact on me personally and on my professional approach to change management. It highlighted an unalterable fact: that engaging reactive and ill-considered change not only demoralises an organisation, but also is fundamentally counter-productive to building a high-performance and high-performing organisation.
Background: Facing Change in a Deregulated Environment
In early 1994, I became the Chief Executive Officer of a food manufacturer that was also a statutory authority. At the time, the industry had been primarily state-based and, as such, was largely controlled by state statutory authorities.
However, the week I commenced, the industry was deregulated and the statutory authority status of the organisation removed. Immediately, the levies the company placed on its producers and growers disappeared. Without this revenue, the organisation became financially unviable.
At the same time, other industries and their markets were also being deregulated carte blanche, and major customers seized the opportunity to consolidate operations and move to a national buying platform.
The Australia the market was opening up and true competition was beginning.
Despite the fundamental market shifts occurring around them, the organisations maintained their status quo, doing little to adapt their structures or operations.
Major competitors quickly emerged. Unencumbered by top-heavy and often archaic infrastructure and high employee costs, these individual processors and producers modelled themselves on the efficient, highly-scaled, integrated, and best-practice operations that were experiencing great success in overseas markets.
For example, one competitor, approximately 75 percent of our size, operated several farms
but carefully and successfully managed all input costs allowing for substantial productivity
and profit. Our organisation was a lumbering cooperative of 170 families, each seeking
In real terms, these competitors had substantial cost advantages in production, staff, and operations.
Choosing to Collaborate
The leadership team and I crafted a sound strategy for moving forward. Because our industry was well-established, we could draw on sound metrics to analyse our competitors’ actions and the likely outcomes we could achieve with our own change. We also could access valuable intelligence from overseas markets to further collaborate and confirm our analysis. Most importantly, we had insight into how the market would likely evolve over the coming weeks, months, and years.
For the requisite internal realignment of people and processes, I chose to be intentional about gathering input and ideas from employees of every level. My first premise for this approach was a belief that organisations whose leaders share knowledge are far more powerful and effective than those whose managers hold knowledge in check.
A second premise for an inclusive approach was the recognition of a simple fact: People don’t work to make their lives harder! Many employees in the organisation had years of valuable experience and accumulated knowledge. Most had been in the same role for the duration of their tenure. Surprisingly, management had never asked for their ideas about how their roles (and outcomes) could be improved — or how their working lives could be made easier.
From this basis, the leadership team and I began gathering information from employees on how they performed their roles, what impediments existed, and what they thought could or would make their jobs easier and more efficient.
This didn’t happen overnight. It became clear that talking about engaging in open and honest dialogue is much easier said than done.
Anticipating and Addressing Resistance
Some members of the leadership team resisted an inclusive approach. They expressed legitimate hesitation and concern about open staff discussion and involvement. Some thought it would give competitors insight into the operation; others believed it was unsuitable for regular employees
to have an intimate knowledge of the organisation; and a few thought employees would be frightened when they understood the challenges we faced. The opposite of each proved to
Some mid-level employees also objected. Garnering trust takes time — particularly in an organisation built on a long-established hierarchy, with entrenched operations and power structures. Employees who had worked their way from factory floor to management felt (rightly or wrongly) a sense of deserved authority. They perceived more open communication as a dilution of their hard-earned influence and resisted accordingly.
Regardless, we held steady. We were confident in our decision to share how the organisation was performing, what was happening in the market, what threats and challenges were emerging and what opportunities existed. We sought employee input and asked for their help on how to approach each obstacle.
We retained external parties to facilitate the process, which helped establish a level of neutrality and a less threatening atmosphere. We conducted open and honest discussions, information sessions, and equal training. We gathered some information in open forums, and conducted one-on-one and small-group meetings.
In time we interacted with every member of our permanent workforce – more than 150 people — and clearly and transparently communicated the changes occurring in our industry. We shared our organisation’s cost challenges and described how competitors were better managing their own costs and operations. Most importantly, we actively listened to the employees’ concerns and inputs.
Identifying Keys to Positive and Sustainable Change
In time we developed a firm sense of what the new organisation would look like, including new structures and work flows. We established working parties to test and assess ideas and inputs we thought were feasible. Through this, we implemented the new structure and operations.
In parallel to the structural changes, we engaged employees to identify items and measures that would identify to them whether a day’s work had been productive. With guidance, employees developed a set of Key Performance Indicators (KPIs) they could capture and report on. The impact of this process was remarkable.
At the beginning of the change process, employees studiously avoided the change team. Communication from the factory floor was generally monosyllabic — at most a yes or no response to questions. By the end of the process, the team leader of the shift would proactively communicate the outcomes of the established KPIs, along with idease or requests for support for addressing variances.
Employees became full participants in the overall operation and success of the organisation. As
a result, they were motivated to actively monitoring their own performance and actively sought
Overall, the change process took two years to complete and transformed a lumbering organisation into a profitable market leader positioned to undertake a successful IPO.
Remarkably, nearly the entire organisational redesign came from the inputs of the employees. Of greatest value, however, and what ensured positive and lasting change, was that the changes were created for employees — and by them.
The answer was in the room. It always had been.
As previously noted, there is no single magic bullet solution to effective change management. Inevitably, dramatic change includes negative outcomes. Not everyone will embrace the change process. Overall, however, the positive outcomes in this scenario far outweighed the negative.
As part of the overall change process and to ensure company viability, we needed to reduce staff by a staggering 30 percent. We achieved this without any loss of time, disruption to productivity, or industrial unrest.
Because employees were intimately involved in identifying and implementing new processes, some naturally decided the future organisation would not work for them on a personal or professional level. In this way, many of the redundancies were those who voluntarily chose to leave the organisation.
The personal aspects of reducing head count, however anticipated, are difficult. But our non-disruptive approach achieved a significant productivity benefit: output gains of more than 25 per cent thanks to lower wage costs with higher throughputs delivered via a highly-motivated group of employees.
The change process also resulted in noteworthy, measurable results.
- We converted a statutory authority into an organisation capable of successfully operating in a fully deregulated market — clearly evidenced by maintaining market share in dollars and volume at more than 80 percent of major chain-store sales.
- We created a fully self-sustaining organisation that had previously depended on statutory levies for survival.
- The organisation recorded a profit of approximately $1.5 million the first year following the change. It was unprofitable at the time of deregulation.
- The organisation became customer-focused and developed niche categories to meet the demands of a changing market. It previously had a narrow production focus.
- More than 90 percent of the co-operatives extremely reluctant owners and primary producers ultimately accepted the recommendation to convert the co-operative to a public company and list on the Australian Stock Exchange. We achieved this by clearly and functionally demonstrating that a co-operative organisational structure would be unable to capitalise on opportunities and leverage their competitive advantage in a fully deregulated market.
- We established a genuine internal focus on profitability, efficiency, and customer service, with new systems to support this, even with a 30-percent reduction in staff.
- We implemented B2B e-commerce solutions with major customers, which improved and enhanced the supply chain, delivering tangible cost and efficiency savings for all parties.
- We developed a QA system that became the industry benchmark and formed the basis of an Australia-wide system.
Over time, our organisation established a culture that was eager to design work flow and work toward the goal of being internationally competitive. We shifted our industrial relations approach from confrontational to consultative. Ultimately, by understanding the future direction of the overall industry, we were able to transform into the type and shape of organisation required to be successful.
I am profoundly thankful for having been surrounded by an effective management team capable of joining me in carrying out this vision. Thanks to their efforts and the participation of every member of our employee team, our “knowing” organisation became an influential leader positioned for long-term success on behalf of our own company, our shareholders, and our industry.