Guiding change is a critical challenge for leaders as businesses cannot thrive without reinventing themselves in the long run. However, people who are directly impacted by the change, such as those involved in day-to-day operations, often resist it strongly due to human nature. Therefore, leading change is vital but extremely difficult. Retired Harvard Business School professor John P Kotter is widely regarded as an expert on organizational change. This article, originally published in spring 1995, offers a preview of Kotter’s 1996 book Leading Change.
The text highlights eight crucial factors for achieving success, including the need to establish a strong sense of urgency, achieve short-term victories, and transform the organizational culture. These factors resonate with readers due to their familiarity with Kotter’s terminology and their recognition of inherent truths. Even years later, Kotter’s research on leading change remains definitive.
Leading Change: Why Transformation Efforts Fail
Leaders who successfully transform businesses do eight things right (and they do them in the right order). By John P. Kotter
I have observed over 100 companies attempt to improve themselves and become stronger competitors. These companies include both large organizations like Ford and small ones like Landmark Communications. They are based in various locations such as the United States (General Motors) and elsewhere (British Airways). The companies I have observed range from those that were struggling (Eastern Airlines) to those that were already successful (Bristol-Myers Squibb). These transformation efforts have been described using various terms such as total quality management, reengineering, rightsizing, restructuring, cultural change, and turnaround.
However, in nearly every instance, the primary objective remains unchanged: to implement significant alterations in business practices to better adapt to a more demanding market landscape. While some of these endeavors have achieved notable triumphs, others have resulted in complete fiascos. The majority of endeavors fall within the spectrum in between, leaning towards the unfavorable side. The insights gained from these experiences are intriguing and likely to be applicable to even more companies in today’s progressively competitive atmosphere.
When it comes to successful cases, the most valuable lesson is that the process of change consists of several phases. These phases typically take a significant amount of time to complete as skipping steps may give the impression of speed but ultimately leads to unsatisfactory outcomes. Another important lesson is that making critical mistakes during any phase can greatly hinder progress and undermine the achievements that have been made through considerable effort. Due to our limited experience in revitalizing organizations, even highly competent individuals often make significant errors.
The primary cause of unsuccessful change efforts is a lack of sufficient urgency. The most effective change initiatives commence when certain individuals or groups thoroughly assess a company’s competitive standing, market position, technological advancements, and financial performance. Their focus zeroes in on the potential decline in revenue once a key patent expires, the consistent five-year decrease in profit margins within a core business sector, or an overlooked emerging market. Subsequently, they diligently devise methods to widely and effectively disseminate this information, particularly during times of crises, potential crises, or highly advantageous opportunities that are time-sensitive.
This first step is crucial because initiating a transformation program requires collaborative effort from multiple individuals. Without motivation, people will not be willing to help, resulting in no progress. Phase one of the change process may appear simple compared to other steps, but it is not. I have observed that more than 50% of the companies fail in this initial phase. What are the reasons for this failure? It is possible that executives underestimate the difficulty of pushing people beyond their comfort zones or overestimate their success in creating a sense of urgency.
Sometimes, executives lack patience and are eager to move forward without wasting time. However, they often become paralyzed by the potential negative consequences. They are concerned that senior employees will become defensive, morale will decline, events will spiral out of control, short-term business results will be compromised, stock prices will plummet, and they will be held responsible for creating a crisis. The paralysis among senior management is typically caused by having an excess of managers and a shortage of leaders. The primary goal of management is to minimize risk and maintain the smooth operation of the current system.
In order to initiate and successfully carry out changes in a company or organization, leadership is crucial. The first phase of the renewal process usually encounters obstacles unless capable leaders are appointed or recruited for senior-level positions. Transformations often take off on a positive note when the organization is led by a new head who possesses strong leadership skills and recognizes the necessity for significant change. If the objective is to revitalize the entire company, the CEO plays a pivotal role. Similarly, if a division requires transformation, it is crucial for the division general manager to take charge.
In the initial phase, bad business results have both positive and negative effects. On one hand, they draw attention to the situation. However, they also limit flexibility. Conversely, good business results make it more challenging to persuade people to embrace change, but they provide greater resources for implementing changes.
But whether the starting point is good performance or bad, in the more successful cases I have observed, an individual or a group always enables an open discussion of potentially unpleasant facts about new competition, shrinking margins, decreasing market share, low earnings, a lack of revenue growth, or other relevant indicators of a declining competitive position. Due to the tendency for people to react negatively towards those delivering bad news, especially if the company’s leader is not supportive of change, executives in these companies often depend on external sources to deliver unwelcome information.
The involvement of Wall Street analysts, customers, and consultants can provide valuable assistance in this matter. The objective behind all of these actions, as expressed by a former CEO of a prominent European corporation, is to magnify the perceived risks of maintaining the current state and discourage venturing into uncharted territories. In a limited number of instances, a cohesive team has intentionally generated a crisis. Such tactic was employed by one CEO, purposefully orchestrating the largest accounting loss in the company’s history, thus exerting substantial pressure from Wall Street. Similarly, one division president specifically requested the implementation of customer satisfaction surveys for the first time ever, despite being aware of the anticipated abysmal results.
He then made these findings public. On the surface, such moves can look unduly risky. But there is also risk in playing it too safe: When the urgency rate is not pumped up enough, the transformation process cannot succeed, and the longNow retired, John P Kotter was the Kono. When is the urgency rate high enough? From what I have seen, the answer is when about 75% of a company’s management is honestly convinced that business as usual is totally unacceptable. Anything less can produce very serious problems later on in the process.
