NOTE: original work, no copy and paste, good English and correct grammar

You need to read the assignment very well and then the case. Also, it’s better to read about managing changes in organization it will help you to get the correct answers.

9-817-070

N O V E M B E R 7 , 2 0 1 6

Professor William R. Kerr and Research Associate Alexis Brownell prepared this case. It was reviewed and approved before publication by a
company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are
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effective or ineffective management.

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.

W I L L I A M R . K E R R

A L E X I S B R O W N E L L

Transformation at Eli Lilly & Co. (A

)

John Lechleiter and Derica Rice, CEO and CFO of Eli Lilly and Company, conferred briefly at the
front of the room where the company’s annual investor analyst meeting was being held in New York.
It was December 2009, and Lilly’s investors were waiting to hear how company leadership planned to
tackle a looming crisis. It had been known for several years that the patents on four of Lilly’s most
successful drugs would be expiring soon, which would mean the loss of major revenue streams over
the course of five consecutive years. To address this upcoming challenge, Lechleiter and Rice were
about to present plans for an ambitious realignment of Eli Lilly and Company’s corporate structure
that would hopefully improve R&D effectiveness and speed the development of new products that
could replace some of the income lost to patent expirations. As Lechleiter put it, “We are going to
innovate our way out of this problem.”

Lechleiter and Rice knew that their announcement was likely to be a tough sell. Earlier in the year,
the same plans had been met with significant skepticism from some of the company’s senior
management. Other alternate routes had been proposed, such as a series of mergers and acquisitions
or diversifications, which were favored by many investor analysts and viewed as a safer bet. However,
feeling that none of those options were a good fit for Lilly, Lechleiter and the company leadership
instead decided to try to re-invigorate their R&D by replacing the existing system with a more flexible,
agile structure. By creating more decision-making roles and allowing parts of the business to operate
with greater focus on the customer, they hoped to improve productivity, effectiveness, and speed as
well as get closer to their customers. Lilly’s leaders hoped that the company’s long history of
innovation, as well as an existing pipeline of promising molecules under development, would bring
some of the skeptics on board.

The risks of the realignment plans could not be denied, however. The company was already in a
precarious situation, and there were no guarantees that the restructuring would meet the goals that
company leadership had set out. At the same time, there was still a good deal of uncertainty around
the details of the plan—including how to handle the cost restructuring and the inevitable headcount
reductions in a manner that would be consistent with the Lilly values. Leadership also needed to ensure
that investors and others outside the company would continue to believe in Lilly’s ability to succeed
over the next few turbulent years. This was undoubtedly a turning point for the company, and it was
important to get it right if Eli Lilly and Company was going to survive and get back to a solid footing.

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817-070 Transformation at Eli Lilly and Company (A)

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Eli Lilly Background and the YZ Crisis

Founded by Colonel Eli Lilly, a U.S. Civil War Veteran, in 1876 and headquartered in Indianapolis,
Eli Lilly and Company (“Lilly”) was a global pharmaceutical company, with $21.8 billion in annual
revenue in 2009 and approximately 40,000 employees, and it sold its medicines in 120 countries. Its
main areas of research were neuroscience (Lilly’s best-selling product group), diabetes and
endocrinology, and oncology, in addition to an animal health area and a variety of drugs in other
categories.

Colonel Lilly had founded his company on the basis of good science and high-quality products, in
contrast to many of the “medicines” of the day, which were often badly-prepared or outright fakes
with no medicinal value. From its early days, the company valued and engaged in rigorous scientific
research into new drugs, and it was proud of its legacy of contributions to many significant medical
advances. In 1923, Lilly introduced the first commercial insulin product, and in 1982 it developed
Humulin, biosynthetic human insulin, the first biotech drug to be approved by the FDA. It was among
the first companies to mass-produce penicillin and one of the first to manufacture Salk’s polio vaccine.
It created the antibiotics vancomycin and erythromycin, and discovered the blockbuster anti-
depressant Prozac (which gained FDA approval in 1987). In the present day, the company still
emphasized the value of discovering, developing, and manufacturing high-quality drugs and
technologies that would make life better for people around the world.

Lilly was equally proud of its importance to Indianapolis and its ability to make a difference in the
lives of thousands of employees and former employees, as well as in the community as a whole.
Beginning with Col. Lilly’s sons and grandsons, Lilly encouraged a corporate culture that recognized
employees’ value to the company and stressed the importance of fair treatment. Many people in
Indianapolis were lifelong or near-lifelong employees of Lilly, unlike at many other organizations, and
the company felt a responsibility towards them. Lechleiter noted, “We believe that a healthy
community equals a healthy company, and a healthy company equals a healthy community. Part of
Lilly’s success over the last 140 years has been rooted in this community’s success and prosperity, and
vice versa.” Years earlier, when asked what Indianapolis would be without Lilly, the then-mayor
expressed the company’s importance to the city by replying simply, “God would never let that
happen.”

A large part of Lilly’s successes came from the many drugs it had invented over its long existence.
For pharmaceutical companies, patent protection of new molecules meant that one or two popular
drugs could become huge sources of income for many years. However, this also put companies like
Lilly in a precarious position when patents expired and other companies were allowed to develop their
own versions of the drugs. Lilly had, in fact, experienced this very phenomenon in 2001, when the
patent on the anti-depressant Prozac ran out earlier than projected, an event referred to as “Year X.”
This resulted in a 25% drop in revenues, and a tumbling stock price.

Lilly had managed to weather that storm via the launch of many new drugs, but now, in 2009, it
faced an even larger problem. Two of the company’s most important products, Zyprexa and Cymbalta,
together with two other important drugs, were about to lose their patent protection. Together, these
drugs made up 40% of Lilly’s revenues, and represented the largest loss to patent expirations in
company history and possibly even industry history. The company referred to this period as “Years
YZ” to reflect how much more significant and challenging this wave of patent expiries would be
compared to “Year X.” Both drugs were anticipated to lose their patent protection within the next five
years, meaning that there was little time to spare in finding a way to replace the resultant loss.

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Transformation at Eli Lilly and Company (A) 817-070

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Lilly’s stock was already trading at half its all-time high, and failure to effectively address the “YZ
crisis,” as it had come to be called, could send it falling even further. Although there was some concern
that the company might be an acquisition target for other pharmaceutical companies, the financial crisis
after the 2008 recession had shielded Lilly a bit, as most organizations weren’t making large purchases
at this point. Internally, morale remained relatively high, as leadership remained optimistic.
Nonetheless, the stock performance worried some people, such as Vice President of Investor Relations
Phil Johnson, who was facing consistent pressure from outside investors. This concerned him, as he
believed that the markets and people “closer to the street” were sometimes able to get a clearer view
of the scale and urgency of a problem than company insiders.

New Leadership

John Lechleiter, the CEO who would be responsible for handling the YZ crisis, took on the role in
early 2008 after three years in the position of COO and president. He had known upon accepting the
job that the YZ challenge was approaching, as had the rest of Lilly’s management. In fact, the previous
CEO had purposely retired earlier than he might otherwise have done in the hope of leaving his
successor enough time to find a way to address the challenge.

Unlike the CEOs of most pharmaceutical companies, Lechleiter had a background in science and
R&D rather than business management. He had studied chemistry—including a PhD in Organic
Chemistry from Harvard—and had started his career as a chemist at Lilly in 1979, right out of graduate
school. His deep experience in drug development, including rolling out Lilly’s most recent cohort of
new medicines, made him a good candidate to lead the push for more innovation. This deep experience
gave both investors and employees confidence that Lilly could advance its portfolio of new molecules,
even when pipeline failures started to occur. Lechleiter was also known as someone who was willing
to distribute leadership rather than trying to make all decisions himself. He strongly believed in Lilly’s
ability to return to its status as a leading innovator in pharmaceuticals, but also knew that important
changes would need to be made.

Derica Rice, Lilly’s CFO, joined the company in 1990 and had spent his entire career there, moving
up through the management ranks to become CFO in 2006. He had held a number of other financial
and non-financial positions along the way, from pharma rep to Country Manager of the United
Kingdom, giving him experience with decision-making and leadership in variety of contexts. Rice’s
experience in the field also led him to make an effort to stay connected with employees at all levels in
the company, from field reps to scientists, to understand their goals and the challenges they
encountered.

Bucking the Trend

For Lilly, the best route forward was far from clear. Beginning in 2008, company leadership engaged
in a series of meetings to discuss possible strategies to overcome some of the upcoming revenue loss.
There were a number of options on the table, such as trying to become a biosimilars player or moving
into a space adjacent to pharmaceuticals, like diagnostics or devices. There was particular pressure,
though, to go with one (or more) of three primary plans of action: cutting R&D spending; undertaking a
large merger or acquisition; and/or divesting the Elanco Animal Health business.

Mergers and acquisitions were a path that many pharmaceutical companies chose to take at one
point or another in order to stay competitive: AstraZeneca was formed by the 1999 merger of Astra AB
and the Zeneca group; GlaxoSmithKline was formed a year later by the merger of Glaxo-Wellcome and
SmithKline Beecham; Sanofi-Synthelabo acquired Aventis in 2004 for $65 billion to form Sanofi-

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817-070 Transformation at Eli Lilly and Company (A)

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Aventis; and Pfizer had made a whole string of major acquisitions over the past decade, including
acquiring Warner-Lambert for $112 billion in 2000 (to gain control of their product Lipitor), Pharmacia
for $60 billion in 2002, and a $68 billion acquisition of Wyeth earlier in 2009. However, Rice doubted
that a merger was the right solution in this case. “It wouldn’t play to our strengths,” he explained. “We
can’t be a better Pfizer than Pfizer, or a better J&J than J&J, in playing the long mergers-and-acquisitions
or diversification game. We would always be second best. What we need to do is find out what is
unique about Lilly, what strengths can we exploit?”

“There was one incident that made us pause and scratch our heads,” he acknowledged, “when
Merck went the large M&A route and bought Schering-Plough. Now, if you were to poll every Lilly
employee on which other biopharma company was the most like us, most people would say Merck.
They, too, had a culture and a history of R&D and innovation, and we always saw them as being
kindred spirits. So when the one company in the industry that has always tended to behave like you
now has turned around and gone the other way, it makes you stop for a moment and go, ‘Wait—how
do I know our strategy is right?’”

Jan Lundberg, Executive Vice President and future President of Lilly Research Laboratories, offered
another view on the issue. He had seen large-scale mergers at other pharmaceutical companies, where
he had worked previously, and felt that they were often a hindrance for R&D. “M&As are led by
consultants who aim to create synergies and reduce spending,” he explained. “So they’ll close down
research areas, move scientists around, and encourage risk-averse behavior. It can set an R&D
organization back several years.”

While ruling out large-scale M&A, Lilly did choose to pursue a mid-sized acquisition through its
purchase of Imclone in October 2008. This $6.5 billion acquisition significantly deepened Lilly’s
presence in the field of oncology, through the addition of targeted therapies and oncolytic agents along
with a pipeline of molecules that spanned all phases of development. The company hoped this
acquisition would provide an important source of future growth as it entered the YZ period.

The other favored option, cutting costs through downsizing R&D or selling off a division, struck
the leadership as contrary to the company’s historical practices and corporate culture. For a company
that prided itself on a long history of innovation, rolling back R&D would be antithetical to its mission.
And, because of the deep ties between Lilly and the Indianapolis community, any reforms that cut into
production and research at home in favor of expansion elsewhere would run counter to the
responsibility that Lilly felt towards the city.

In the end, “none of the alternatives made sense” for Lilly, said Lechleiter. “It became clear that the
solution to our problem lay within. We realized we had to be the ones to create the energy, and to
generate much of the wherewithal to overcome these patent challenges. Looking back, we were like
Dorothy trying to figure out how to get home and thinking that there was a wizard who had powers
to do it, but it turns out she’s had the power within herself the whole time—she just has to click her
ruby slippers together.” Instead, the company decided to forgo mergers or deep R&D spending cuts
(although they would cut costs in other places) and double down on innovation.

Ellen Marram, who later became the lead outside Lilly board director, approved of the decision,
noting that the board was glad to see Lilly remain committed to its tradition of growth through
research. Despite market pressure for a merger or cost-cutting move, the board shared the confidence
of the company’s leaders that they could work to find diversified revenue sources to help replace the
lost YZ income. Marram praised Lechleiter and the rest of the leadership in their dealings with the
board on this issue, identifying their dedication to transparency and willingness to explain their moves
as a key component to getting the board members behind their decisions.

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Transformation at Eli Lilly and Company (A) 817-070

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Confidence within the company and on the board was bolstered by the fact that Lilly had nine
molecules in later-stage development in its R&D pipeline, and projections were promising, suggesting
that at least a handful would be successfully developed into new products (see Exhibit 7 for details on
the molecules and Lilly’s predictions). While they were not expected to completely replace the income
lost to the YZ expirations, the new drugs would form the foundation for rebuilding the revenue streams
that would take Lilly into the future.

Business Realignment

A series of meetings, culminating in August 2009, was dedicated to figuring out how to achieve the
company’s transformation. Eventually, the solution settled on was a complete realignment of the
company structure, designated “Project Omega.” The previous, project-team-oriented “heavyweight”
structure that was favored throughout the industry was better suited to earlier times, when companies
had fewer projects and competitors. Now, it was no longer a good fit for Lilly’s goals. Instead, the
business would be split up into five “Business Areas,” each of which focused on a particular therapeutic
area or market: Diabetes, Oncology, Bio-Medicines, Emerging Markets, and Animal Health (see Exhibit
5). This focus would provide each Business Area with a clean line of sight to the customer and would
enable them to make and implement faster decisions. Each area would have a President at its head as
well as separate financials. The company would also create what it called a Development Center of
Excellence, which would streamline clinical testing to increase the speed and efficiency of the
development of new products. The company also created a Global Service organization composed of
the key functional areas with the goal of driving increased quality and decreased cost in support of the
business. It was hoped that overall the new structure would increase efficiency, allow a greater focus
on the customer, and make for better R&D decisions.

The impetus for the development of the business area concept originated in part as the result of a
couple of meetings that Lilly management had participated in. In 2008, Lechleiter attended an executive
committee meeting where one of the topics addressed was a “Rubik’s cube-type problem” of how to
invest in various facets of diabetes, where Lilly had been supplanted by competitor Novo Nordisk.
Lechleiter recalled, “I had to read the report twice just to figure out which way was up. And my first
question was, ‘Why are we talking about this here?’” The answer was that the involved executives had
already met on the subject, but had been unable to agree upon a resolution. Lechleiter remembered
thinking to himself, “Novo Nordisk would just laugh out loud if they saw this meeting and the
difficulty that we were having making a decision as fundamental as this.”

Steve Fry, Lilly’s Senior Vice President of HR and Diversity, recounted a similar experience. He had
met with a lead consultant from McKinsey, who had noted, “This is a wonderful company, but why
are there forty thousand people who feel they are empowered to say ‘no’ to something, and only one
person (the CEO) who can say ‘yes’?”

Generally, it was a problem that even small decisions sometimes worked their way up to the CEO,
slowing the decision process unnecessarily. In creating the business areas, Lilly hoped to enable five
more people (at least) to give a decisive “yes” for many such decisions, enabling the company to be
more agile.

Enrique Conterno, past head of U.S. operations and President of the newly created Diabetes area,
expanded further on the issues with the previous company structure. There were misaligned incentives
and disconnects throughout the company. For example, budget allocation was based on goals for a
single year, which meant that divisions with goal horizons longer than a year often ended up at a
disadvantage. “Diabetes consistently receives the short end of the stick as a result of the long-term

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817-070 Transformation at Eli Lilly and Company (A)

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return cycle it provides,” Conterno explained. Spending was also fixed and rigid, with the result that
promising projects would end up unexpectedly stalling because they lacked something simple—for
example, a statistician—but were unable to allocate the money for it. The company also tended to rely
too much on internal programs and research, with scientists often preferring to stick with projects from
Lilly’s labs, when it might be more efficient to acquire results from external sources that had progressed
further in their research.

To compete, Lilly needed an organization that would let them quickly make and implement sound
decisions. The new structure gave each area control over their own decisions, allowed them to make
these decisions earlier in the process, and enabled them to maintain a greater focus on promising drugs.
The business areas were not given complete control—Phases I and II of new drug development would
still be managed by the company-wide R&D unit (known as the Lilly Research Laboratories, or LRL),
while the business areas were responsible for Phase III. The business areas had originally pushed to
control Phase II as well, but in the end they gained responsibility for only the final phase (with the
exception of the Oncology area, which took responsibility for all clinical testing of its molecules).

Ideally, these changes would help to create a balance in the organization, so while Lechleiter would
still be the decision-maker for key operating decisions, he would no longer be the single point at which
all business area decisions were made. The changes would also allow decision-makers a clearer line of
sight to customers and a better picture of their values and needs, which was one of the major driving
forces behind the realignment.

Lechleiter emphasized, though, that the Business Areas structure was not the only way that Lilly
might achieve some of these goals. Several options had been presented over the course of the series of
leadership meetings that culminated in August 2009, although no one option had been an obvious
winner. It was only after exhausting all consensus-building options that the leadership team finally
settled on the business area plan, which seemed to be the best strategy they had. “I remember getting
up, drawing an organizational structure on a flip chart, and saying ‘Folks, I think going with these
business areas is the best option. Nothing here is going to be a panacea, but I think we need the focus,
the discipline and the presence in these key therapeutic areas that organizing this way will give us,’”
Lechleiter said.

There was little immediate excitement for the realignment plan. Although most of the senior
managers in the room during the realignment announcement were on board with the change,
Lechleiter estimated that up to one-third of the people in the room expressed some measure of
skepticism. The Board of Directors also weighed in: although they agreed with the new structure and
the plan to focus on R&D as a solution to the YZ Crisis, they were concerned whether the company
was being aggressive enough in taking costs out of the system, and whether they were making the right
choices in looking outside the company for new molecules.

There was also some reluctance from R&D leaders, who stood to lose some of their power in the
realignment. A number of them sought to conduct their own analyses, hoping to impact the setup of
the new system. Many researchers were also skeptical of non-scientists making decisions about clinical
development. While he was overall supportive of the realignment plan, Josh Smiley, Lilly’s Treasurer,
also noted, “We’re in the scientific invention business, so you can’t just order-up the discovery of a new
medicine because that’s what someone from sales and marketing wants.” The realignment required
people with significant political skills to head the new areas, who could balance decisiveness with the
loss of power experienced by others in the area. In addition, the new Presidents would have to have an
intimate understanding of the value chain, and be able to understand what was happening at each
phase in the pipeline. Lilly’s senior management believed that they had the people within the
organization with the necessary experience. “The combination of Presidents with commercialization

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Transformation at Eli Lilly and Company (A) 817-070

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experience and a CEO with development experience was fortuitous,” said Mark Ferrara, VP of Talent
Management. “We’re fortunate that we had people who are ready to take on these roles, particularly
since we had been accustomed to developing people to lead functional areas like sales and marketing,
not to run a whole business.”

The question of allocating operating expenses across business areas was also a subject of debate.
One view advocated allocating as many expenses as possible at the level of the individual area (rather
than distributing costs across all five). This would ensure that each area was aware of and held
responsible for its costs, which would theoretically incentivize efficiency and problem-solving within
each area. On the other hand, such a scheme could cause an increase in bureaucracy, which would
work against Lilly’s goals of improving speed of decision-making. It could also de-incentivize certain
activities, such as cross-area initiatives or pursuit of long-term objectives, if keeping costs down became
the primary concern for each area. The final decision would require further debate among company
leadership, which Conterno felt was a good thing—the discussion itself was valuable, since it
highlighted and clarified existing important tensions that leadership needed to be aware of.

Stabilization Measures

In addition to persuading the company’s decision-makers to come around on the realignment, it
was also necessary to find a way to ensure that the rest of Lilly’s employees would stick with the
company through this period of adjustment. One of the major questions in this effort was how to deal
with issues like employee compensation when the company knew it would be facing a period of
decreased revenues, falling stock price, and general uncertainty.

To address compensation, the company originally set forth a plan centered around a “One Lilly”
ideal, in which a uniform compensation would be calculated across all business areas (rather than
calculating compensation for each area individually based on its performance). By eliminating this
form of competition between areas, leadership hoped to reduce “talent hoarding” and allow easier
movement of employees across areas, particularly from strong areas to poorly performing ones.
Uniform compensation would make it harder for any one area to succeed (or fail) at the expense of the
others.

On the other hand, it was possible that decoupling compensation from business area performance
might reduce incentives for areas. The agile decision-making abilities of business areas were key to
Lilly’s goal of developing a better “line of sight” to their customers—but would compensation only at
the overall company level create the proper incentives for such agility? The “One Lilly” compensation
scheme was tentatively accepted for the time being, with the understanding that it might be re-visited
at some point in the future.

Lilly had, in the past, used a cash bonus system in which rewards were relative to the performance
of the entire pharmaceutical industry, but now they were likely to be underperforming their
competitors for the next few years. In view of this, Lilly instituted a system in which bonuses were
calculated relative to the internal plan that the company forecast for the YZ years. This would allow
employees to continue to receive bonuses even if the company was in a difficult position. The system
was also changed to take into account “innovation metrics” such as regulatory approval or progressing
to Phase III in clinical trials. Longer-term incentives were tied to earnings per share or stock
performance over a certain period of time, allowing recipients to see a long-term connection of their
compensation to the company’s performance. At the same time, given the need to reduce costs, Lilly
remained concerned about its ability to provide annual merit increases for employees during the YZ
period.

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817-070 Transformation at Eli Lilly and Company (A)

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Restructuring and Forward Guidance

Knowing that they were going down an unconventional path, and that many people remained
skeptical of their ability to pull this restructuring off, Lilly’s leadership, in an unusual move, decided
that they should provide some forward guidance to reassure investors and the markets that they could
make it through this time of vulnerability and significant change.

This idea was initially sparked by meetings with two investors who had both expressed the same
concern: they had each projected that Lilly would have a net income around $2.5 billion as of 2014, and
wondered whether that would negatively affect the company’s ability to pay its dividend. Although
sell-side analysts were projecting $3.9 billion net income, even after the patent expirations, investors
had been burned before, as when Pfizer promised repeatedly not to cut their dividend following the
Wyeth acquisition, but later went ahead and did so.

During the investor analyst meeting in New York, Lechleiter and Rice detailed a set of minimum
financial targets that, no matter how challenging the YZ period became, the company was committed
to achieve. In addition to declaring that they had the capacity to maintain the dividend during the YZ
years, Lilly committed to not falling below $20 billion in sales, $3 billion in net income, and $4 billion
in cash flow.

“We needed to provide a confident story to investors that we would not only maintain the dividend
but also continue to finance capital expenditure and R&D. Setting out these minimums allowed us to
play defense for a few years, guaranteeing that there would be floors that we wouldn’t fall below while
waiting for our innovation to take root,” said Michael Overdorf, Vice President of Corporate Strategy
at Lilly. Rice commented further, “This is a way of keeping score. It takes four quarters to know the
winner of the football game, so how do you keep people sitting there the whole game? You keep track
along the way, look at where you are at the end of each quarter. As long as we’re putting points on the
board, consistent with the direction we’re heading, people may hang in the game with us, unlike if they
show up in the first quarter and it’s a blowout. We want to avoid people—employees and investors—
turning off their TV and walking away.”

Lechleiter and Rice believed these to be very conservative estimates. They were lower than the
company’s internal planning thresholds, and all the projections indicated that Lilly would exceed the
minimums by a significant amount—so even in the worst-case scenario, Lilly would be able to meet
their goals. As Rice put it, “We set the minimums by asking, ‘How wrong can we be and still be doing
okay?’”

The large cushion built into the minimums inspired some people to suggest that Lilly ought to be
more aggressive and raise their thresholds higher, rather than using the “uninspiring” bare minimums.
Johnson commented on the dilemma: “Giving forward guidance is not encouraged, because your
numbers are either uninspiring or unrealistic, so either way you lose. But we felt that, because of the
concern about the dividend, and because it was easier to model erosion than uptake of a new product,
this was the best thing to do, despite investor skepticism.”

Finally, Lilly’s forward guidance also included the announcement of some cost-cutting measures.
As part of the realignment, the company would eliminate 5,500 positions (50% of them in Indianapolis),
which would cut operating expenses by approximately $1 billion in 2011. Deciding when and how to
announce the layoffs proved harder than the decision to announce the guaranteed minimums. On one
hand, announcing the layoffs would lock Lilly in to going through with it, but would also have a huge
impact not just on the company, but on Indianapolis and the large sector of its population that worked
for Lilly. Layoffs of such magnitude were unheard of in the company’s modern history. Traditionally,

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Transformation at Eli Lilly and Company (A) 817-070

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layoffs had been more of a “reallocation,” moving people from one area of the company to another,
and there was even a myth repeated within the company that Lilly had never laid anyone off. Letting
go of thousands of employees would be a major cultural shock within and outside of the organization.
“For a company with a deep history and conscience, change management is a major issue when it
comes to the impact it has on its workers and their community,” said Susan Mahony, Lilly’s Senior
Vice President and future President of the Oncology Business Area. Michael Haugh, of Lilly’s
Corporate Strategy team noted, “These layoffs and their cultural shock are particularly important given
the importance of Lilly to Indianapolis and vice versa, as there isn’t another Lilly in the area to jump to
for many employees.”

On the other hand, if the layoff announcement were delayed, it was possible that analysts looking
at the intended cost cuts might over-predict the number of layoffs. There was a fear that the estimates
might be much higher—say, 10,000 layoffs predicted—making Lilly’s position seem even more
vulnerable. With this in mind, Lilly decided to announce the 5,500 layoffs at the same time as the
announcement of the business area realignment.

In the end, the company felt fairly confident in its projections and promised minimums. They were
also counting on three counter-cyclical drivers that they hoped would assist in smoothing over the
transition during the realignment and YZ years. One was retaining the Elanco Animal Health division
(which many urged the company to sell), which was bringing in a steadily increasing revenue stream.
The company also focused on and invested in other countries, notably Japan, and in emerging markets
like China, where U.S. patent expirations would not be nearly as impactful. Traditionally, there had
been a gap between product launches in the U.S. and Japan, with products not being released there
until five years or so after the original U.S. product launch. However, that gap had been narrowing,
and by 2009, it was small enough that the lag would not present a substantial problem.

Rice compared Lilly’s uncertain position to a buffalo being stalked by a predator: “Growing up, I
watched ‘Wild Kingdom’ on TV, and I learned that lions and tigers may stalk their prey for days or
weeks, always looking for the right time to pounce. And when they do pounce, they never attack the
strongest buffalo; they’re always looking for the one with the limp, the one that’s compromised.

“Some might view our situation as a compromising position for Lilly. But this is all happening in
the midst of a financial crisis, when capital markets are basically locked, so people aren’t making large
purchases. The crisis may have given us a temporary shelter to provide us with time to execute our
strategy and to deliver tangible results to validate the path we had chosen. One of our biggest
challenges—more than whether we have the right strategy or whether we can implement it—is always
time. So one of our goals in putting those numbers out there is to make it clear that we aren’t developing
a limp.”

Conclusion

As the shareholders’ meeting broke for coffee, Lechleiter quickly checked his Blackberry. He had
sensed some doubt in the room already, and was interested to see how the markets were responding
to the news. As Rice made his way back from the stage, Lechleiter showed him the latest figures. The
news of the restructuring had begun to spread to the outside world, and Lilly’s stock value was already
dropping (it would fall 5% by the end of the day). Clearly, the markets didn’t have much more
confidence in Lilly’s ability to reach its goals than did many of the shareholders in the room. Lilly’s
leadership was receiving real-time negative feedback on its strategy—investors were skeptical that
Lilly could innovate its way out of this problem, especially since other pharma companies who had
faced significant revenue declines had all chosen to merge their way out of their problems.

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817-070 Transformation at Eli Lilly and Company (A)

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Lechleiter, Rice and the other members of their team quickly huddled together to take stock of the
situation. What could they say to settle the nerves in the room and convince their investors that this
route represented the best chance to ensure Lilly’s future success? And, beyond that, what should they
do to convince the rest of the world as well?

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Transformation at Eli Lilly and Company (A) 817-070

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Exhibit 1 Eli Lilly and Company Timeline

1876: Colonel Eli Lilly, chemist and Civil War veteran, founds his namesake company in Indianapolis

1886: Lilly hires its first chemist, Ernest Eberhardt, to oversee analytics and testing

1900: The “Lilly code” is drafted, laying out the company’s values, including “contribute[ing] to the
progress of medicine by developing new and superior agents through research”

1919: Dr. George H.A. Clowes is hired to head Lilly’s research department—the “first true leader” of Lilly
Research Laboratories

1923: In collaboration with researchers from the University of Toronto, Lilly develops a process to mass-
produce insulin; launches first commercially-available insulin product

1926: Lilly creates first industrial clinical research unit of its kind at Indianapolis General Hospital

1928: Launch of Liver Extract #343, developed with Harvard scientists to treat pernicious anemia

1943: Lilly launches its first penicillin product; is one of nine companies manufacturing penicillin for use
by the armed forces; mass production of penicillin begins the next year

1952: Lilly releases the broad-spectrum antibiotic erythromycin, which was isolated in 1951 after running
tests on over 100,000 organisms from soil samples

1954: Lilly partners with Jonas Salk to mass produce polio vaccine

1955: Lilly ships first commercial polio vaccine, accounting for 70% of the polio vaccine supplied by all
manufacturers that year

1961: Four decades of cancer research culminate in the launch of Velban, the first of Lilly’s vinca alkaloid
(derived from the periwinkle plant) chemotherapy drugs

1964: Lilly releases Keflin, the first of a new class of broad-spectrum antibiotic called cephalosporins

1971: Keflex, the first commercially successful oral cephalosporin, is launched; eventually becomes the
world’s best-selling oral antibiotic (surpassed in 1979 by Ceclor, another Lilly cephalosporin)

1982: Lilly releases the synthetic insulin product Humulin, the first ever pharmaceutical produced through
recombinant DNA technology

1988: Prozac is launched in the United States

1994: Lilly collaborates with 4 other research teams to discover the breast cancer-linked BRCA1 gene

2000: Zyprexa, an antipsychotic for treatment of schizophrenia, surpasses Prozac as Lilly’s best seller

2004: U.S. launch of top-selling drugs Cialis (erectile dysfunction; in partnership with ICOS Corp.),
Cymbalta (major depressive disorder) and Alimta (mesothelioma)

2006: Derica Rice promoted to CFO of Lilly

2008: Sidney Taurel, CEO and Chairman of the Board, steps down and is replaced by John Lechleiter

Source: Company documents; Eli Lilly & Co., “Heritage,” https://www.lilly.com/About/Heritage/ heritage.asp.

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817-070 Transformation at Eli Lilly and Company (A)

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Exhibit 2 Geographic Footprint and Product Areas, 2009

In 2009, Eli Lilly and Company manufactured and distributed its products through facilities in the
United States, Puerto Rico, and 17 other countries (including major production facilities in France,
Ireland, Spain, Brazil, Italy, Mexico and the U.K.) and sold its products in around 128 countries. Main
R&D facilities in the U.S. were located in Indianapolis, with smaller sites in San Diego and New York;
outside of the U.S., Lilly had major R&D facilities in the U.K., Canada, Singapore and Spain.

Segment Information ($millions)

(year ended Dec. 31) 2009 2008 2007

Net sales—to unaffiliated customers

Neuroscience 8,976.5 8,371.5 7,851.0

Endocrinology 5,677.4 5,493.5 5,037.7

Oncology 3,161.7 2,877.1 2,446.4

Cardiovascular 1,971.1 1,882.7 1,624.1

Animal health 1,207.2 1,093.3 995.8

Other pharmaceuticals 177.7 207.7 219.7

Net product sales 21,171.5 19,925.8 18,174.7

Collaboration and other revenue 664.5 446.1 458.8

Total revenue

21,836.0 20,371.9 18,633.5

Geographic Information

Total revenue—to unaffiliated customersa

United States 12,294.4 10,930.1 10,145.5

Europe 5,227.2 5,333.5 4,731.8

Other foreign countries 4,314.4 4,108.3 3,756.2

21,836.0 20,371.9 18,633.5

Source: Eli Lilly & Co., 2009 Annual Report (Indianapolis: Eli Lilly & Co., 2010), https://investor.lilly.com/annuals.cfm.

a Net sales are attributed to the countries based on location of the customer.

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Transformation at Eli Lilly and Company (A) 817-070

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Exhibit 3 The “Year X” Crisis—Wall Street Journal

Eli Lilly Loses Prozac Patent-Protection Battle

August 10, 2000

by Wall Street Journal staff reporters Kevin Helliker in Chicago, and Laura Johannes and Daniel Golden in Boston.

A federal appeals court yesterday stripped away nearly three years of patent protection for Eli Lilly
& Co.’s flagship product, Prozac, dramatically reducing two years’ worth of Lilly earnings projections
and inciting a sell-off of Lilly’s shares.

The Court of Appeals for the Federal Circuit in Washington reversed a lower-court ruling that
would have extended Lilly’s marketing monopoly on the popular antidepressant to December 2003.
Now that date is February 2001. A Lilly plan to test the product on children will likely win an extra six
months of exclusivity, meaning that generic versions of Prozac could enter the market in early August
of next year.

Indianapolis-based Lilly vowed to appeal the decision. But in the event that that effort fails, Lilly
lowered its earnings projections for 2001 and 2002 and conceded that the market entry of generic
versions of Prozac would result in “a significant decline” in sales. In 1999, Prozac accounted for 26% of
Lilly’s $10 billion in sales.

In 4 p.m. New York Stock Exchange composite trading, Lilly’s shares plummeted $33.38, or 31%, to
$75.19.

For years, Lilly has posted double-digit sales and profit growth, thanks largely to Prozac, the
world’s best-selling antidepressant almost since its U.S. introduction in 1988.

Yet the success of Prozac also attracted competitors eager to rid Lilly of its patent protection and get
lower-price generic versions on the market. Particularly persistent has been Barr Laboratories Inc. of
Pomona, N.Y. Barr Laboratories challenged the legitimacy of the Lilly patent extending to 2003, and
that company’s victory yesterday fueled a surge in its stock. In 4 p.m. NYSE composite trading, Barr
Laboratories shares rose $26.25, or 57%, to $72.

Assuming the latest ruling isn’t overturned, Lilly said it expects to post negative sales and earnings
comparisons in the second half of 2001 as well as the first half of 2002. On a 12-month basis, however,
it expects to report single-digit profit and sales growth both years.

Analysts had expected Lilly’s per-share earnings to leap to $3.04 in 2001 from an anticipated $2.65
this year, and to reach $3.53 in 2002, according to a First Call/Thomson Financial consensus of analysts.

Lilly said it expects to return to double-digit sales and profit growth in 2003, thanks largely to a
pipeline of forthcoming drugs that Lilly called unparalleled in the industry. These include treatments
for cancer, diabetes and sepsis, although the most promising candidate is a chemical cousin to Prozac
called R-fluoxetine, or new Prozac.

Lilly in 1998 obtained the rights from Sepracor Inc. to jointly develop R-fluoxetine, whose possible
advantages over standard Prozac include fewer sexual side effects, and a tendency to alleviate rather
than to exacerbate anxiety. The new drug includes only the portion of the original Prozac needed to
produce its serotonin-boosting effect.

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817-070 Transformation at Eli Lilly and Company (A)

14

Exhibit 3 (continued)

Lilly had hoped to introduce R-fluoxetine before any generic versions of Prozac entered the market.
But the earliest that R-fluoxetine is likely to reach consumers is 2002, months after the new entry date
for generics, and analysts are worried that that could damage the sales potential of the new Prozac.

“It’s a very competitive field,” said Viren Mehta, an analyst with Mehta Partners, describing as
especially difficult “the challenge of converting patients” from one drug to another.

When generic Prozac was expected to be held off until at least 2003, Deutsche Banc Alex. Brown
Managing Director David M. Steinberg predicted the new Prozac would garner sales of $600 million in
2002, ratcheting up to $2 billion by 2003.

But the earlier onset of generic competition could lower the new drug’s annual revenue by as much
as “several hundred million dollars,” said David Saks, chief investment officer of Gruntal & Co.’s
Gruntal MedScience Fund.

Sepracor, based in Marlborough, Mass., will receive an estimated 8% to 10% royalties from the new
Prozac, analysts said. Fear that yesterday’s ruling darkened Sepracor’s future sent its stock down
$23.38, or 18%, to $106.13 in 4 p.m. Nasdaq Stock Market trading.

The chief executive of Barr Laboratories, Bruce Downey, also viewed the ruling as damaging to the
prospects of R-fluoxetine.

Mr. Downey said Barr Laboratories will be positioned to launch its generic version the instant it is
legally able to do so, and he predicts that within a year of its introduction, generic Prozac will garner
about 70% of the market. It isn’t clear how many other companies are scrambling to produce generic
versions.

By the time R-fluoxetine comes out, said Mr. Downey, most users will already have switched to the
generic version, and only those who experience side effects will switch to the new Prozac or some other
branded product. “This is going to make it very difficult” for Lilly and Sepracor, he said.

In Indianapolis, a Lilly spokesman conceded that generic versions would likely beat R-fluoxetine to
the market if the ruling is upheld. But the spokesman dismissed as too narrow any view of R-fluoxetine
as merely a Prozac substitute for side-effects sufferers. Preliminary results, he said, suggest that R-
fluoxetine is “a stand-alone, novel, unique product.”

Source: Helliker, Kevin et al., “Eli Lilly Loses Prozac Patent-Protection Battle,” Wall Street Journal, Aug. 10, 2000, sec. A, p. 3.

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Transformation at Eli Lilly and Company (A) 817-070

15

Exhibit 4 Projected Dates of YZ Expiries, 2009

Product
Worldwide Revenues

(2009)
Percent of Total
2009 Revenues Relevant U.S. Patent Protection

Zyprexa $4.92 billion 23% 2011

Cymbalta $3.07 billion 14% 2013

Gemzar $1.36 billion 6% 2010 (compound); 2013 (use)a

Evista $1.03 billion 5% 2014 (use); 2017 (dosage form)

Source: Eli Lilly and Company, 2009 Annual Report (Indianapolis: Eli Lilly and Company 2010),
https://investor.lilly.com/annuals.cfm.

a The Gemzar use patent and Evista dosage form patent have been held invalid by federal district courts, and Lilly has appealed
those decisions.

Exhibit 5 Company Organization

Pre-Business Area Implementation

Post-Business Area Implementation

Source: Company documents.

Bus.
Dev/Strategy

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817-070 Transformation at Eli Lilly and Company (A)

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Exhibit 6 Eli Lilly & Co. Executive Committee and Board of Directors in 2009

Executive Committee (Post Business Area Implementation)

John C. Lechleiter—CEO and President: Lechleiter joined Lilly in 1979 in the position of Senior
Organic Chemist (having received his Master’s and Ph.D. in Chemistry from Harvard). He went on to
hold various management roles in the UK as well as the U.S., including project management, regulatory
affairs, product development, and pharma operations. In 2004, he was named President of U.S.
Operations, and in 2005, became President and COO of Eli Lilly and Company. He became CEO in
2008, and was made Chairman of the Board in January 2009.

Derica W. Rice—CFO: Rice joined Lilly in 1990 as an international treasury associate, and held roles
like sales representative, manager of global financial planning and analysis for the medical devices
division, and global planning manager for pharmaceuticals. He served as CFO of Lilly Canada and,
later, as CFO for Lilly’s European operations. He was named Vice President and Controller of Lilly in
2003, and became the CFO in 2006.

Stephen M. Paul—President, Lilly Research Laboratories: Paul joined Lilly in 1993 as VP of Central
Nervous System Discovery and Decision Phase Medical Research group. He would hold several
leadership roles there, including Executive VP of Science and Technology and President of Lilly
Research Laboratories. Prior to joining the company, he had held positions on the faculty of multiple
universities, as well as serving as Chief of the Clinical Neuroscience Branch of the National Institute of
Mental Health.

Enrique Conterno—President, Lilly Diabetes: Conterno joined Lilly in 1992 as a sales rep, and went
on to hold various positions in finance, marketing, business development, and general management,
including roles in Peru, Brazil, Japan and Mexico. He became VP of Lilly’s U.S. Neuroscience area in
2006 and President of Lilly USA in January 2009, and in November 2009 he was named President of
the new Diabetes business area.

John H. Johnson—President, Lilly Oncology: As CEO of ImClone Systems, Johnson joined Lilly when
it acquired Imclone in 2008. When the new business areas were created, Johnson’s experience with
cancer research at ImClone made him the natural choice to head the Oncology area. Prior to ImClone
and Lilly, Johnson had been President of Ortho Biotech Products, President and CEO of Parkstone
Medical Information Systems, and had spent twelve years moving up through the management ranks
at Ortho-McNeil Pharmaceutical (a Johnson & Johnson subsidiary).

Bryce D. Carmine—President, Lilly Bio-Medicines: Carmine joined Lilly in 1975 as a sales rep in New
Zealand, and held multiple positions in marketing and management, before becoming an advisor in
international development at corporate headquarters, in 1983. He later headed up of some of Lilly’s
joint ventures, as well as serving as the head of Lilly’s operations in Australia and Japan. In 2004, he
was named the President of Metabolic Disorders and Specialty Products and in 2008, he became
Director of newly acquired ImClone Systems. He was also Executive VP of Sales & Marketing, and
President of Global Brand Development teams, before being named head of the Bio-Medicines business
area in 2009.

Jacques Tapiero—President, Emerging Markets area: Tapiero joined Lilly in 1983 as a financial
analyst. He went on to hold sales and finance positions in several companies, and served as Managing
Director or President & General Manager for Lilly’s operations in Sweden, Brazil, and France. In 2009,
Tapiero was chosen to lead the Emerging Markets business area.

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Transformation at Eli Lilly and Company (A) 817-070

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Exhibit 6 (continued)

Jeffrey N. Simmons—President, Elanco Animal Health: Simmons joined Lilly in 1989, and held
multiple positions in sales, marketing and management in the Elanco Animal Health division,
including Executive Director of U.S. Operations and Global Research and Development. In 2008 he
became president of Elanco, and in 2009 was named the president of the new Elanco Animal Health
business area.

Susan Mahony—Senior VP, Human Resources: Mahony joined Lilly in 2000, having held sales and
marketing positions over the previous ten years at pharmaceutical companies such as Schering-Plough,
Amgen, and Bristol-Myers Squibb. At Lilly, she held roles in product development, marketing, Six
Sigma, and general management. In July 2008, she became the President and General Manager of Eli
Lilly Canada, and was named Senior VP of HR & Diversity in May 2009.

Frank M. Deane—President, Manufacturing Operations: Deane joined Lilly in 1979 as a technical
coordinator in manufacturing, and held management positions in quality control and technical
services, including in Puerto Rico and Ireland. He became General Manager of U.S. pharmaceutical
manufacturing in 1993, head of worldwide bulk manufacturing operations in 1997, VP of Quality in
2001, and finally President of Manufacturing Operations in 2007.

Barton R. Peterson—Senior VP, Corporate Affairs: Peterson joined Lilly as Senior VP of Corporate
Affairs and Communications in June 2009. Previously, he had been managing director of Strategic
Capital Partners, was a fellow at Harvard’s Kennedy School, and a visiting professor of public policy
at Ball State University. He also served two terms as mayor of Indianapolis, from 2000 until 2007, in
which role he supported the creation of “BioCrossroads,” an Indiana life sciences initiative.

Anne Nobles—Chief Ethics & Compliance Officer: Nobles joined Lilly as Manager of Public Affairs
in 1990. She would go on to hold leadership positions in governmental affairs, public policy, corporate
communications, corporate branding, and community relations, including VP of Corporate Affairs,
and Senior VP of Enterprise Risk Management. She led Lilly’s Strattera product team, and in 2007 was
named Lilly’s Chief Compliance Officer. She also held multiple posts in the Indiana state government
in her career.

Robert A. Armitage—General Counsel: Armitage joined Lilly as VP and General Patent Counsel of
Lilly Research Laboratories in 1999, having previously served as Chief Intellectual Property Counsel at
The Upjohn Company. He had also worked as a partner in a Washington, D.C. law firm, and was an
adjunct professor at George Washington University.

Board of Directors

Ralph Alvarez: Alvarez joined Lilly’s board in 2009, after retiring as President and COO of
McDonald’s corporation, where he had held a variety of leadership positions since joining in 1994.

Sir Winfried Bischoff: Bischoff joined Lilly’s board in 2000. He also served on the board of Lloyd’s
Banking Group plc, and had held leadership positions at Citigroup Inc. and the Schroeder Group.

Michael L. Eskew: Eskew joined Lilly’s board in 2008. He started at UPS in 1972 as an industrial
engineering manager, and held multiple management positions before becoming chairman and CEO
in 2002.

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817-070 Transformation at Eli Lilly and Company (A)

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Exhibit 6 (continued)

Martin S. Feldstein: Feldstein, who joined Lilly’s board in 2002, was George F. Baker Professor of
Economics at Harvard University. He had also formerly been President & CEO of the National Bureau
of Economics Research, had served as chairman of Council of Economic Advisors and chief economic
adviser to Reagan, and was appointed to the President’s Economic Recovery Advisory Board by
Obama.

J. Erik Fyrwald: Fyrwald joined Lilly’s board in 2005. He held the roles of Chairman, President and
CEO of Nalco Company; prior to that, he had worked at DuPont, as group VP of the agriculture &
nutrition division, as well as holding several other management positions.

Alfred G. Gilman: Gilman, on Lilly’s board since 1995, had been a professor of pharmacology on the
faculties of the University of Virginia and University of Texas, and later became Chief Scientific Officer
of the Cancer Prevention and Research Institute of Texas. He was a recipient of the 1994 Nobel Prize
for Medicine.

R. David Hoover: Hoover was the chairman and CEO of Ball Corporation, where he had held many
leadership positions, including CFO and Executive VP. He joined the board in 2009.

Karen N. Horn: Horn, lead director of the board, joined Lilly’s board in 1987. She had held the roles
of President of Private Client Services and Managing Director at Marsh, Inc. until 2003, and had held
many leadership positions in the financial industry prior before that.

Ellen R. Marram: Marram joined Lilly’s board in 2002, and served on the compensation and directors
and corporate governance committees. She was President of the Barnegat Group LLC, a business
advisory firm, and had held high-level management positions at a variety of companies including
Tropicana and Nabisco as well as private equity firm North Castle Partners LLC. She was also on the
board of Ford Motor Company and the New York Times company, as well as other private companies.

Douglas R. Oberhelman: Oberhelman Joined Caterpillar Inc. in 1975, where he held a wide variety of
positions including VP of the company, CFO, and finally vice chairman and CEO. He joined Lilly’s
board in 2008.

Franklyn G. Prendergast: Prendergast was a professor of biochemistry and pharmacology at Mayo
Medical school and was also the director of the Mayo Clinic Center for Individual Medicine. He had
served on Lilly’s board since 1995.

Kathi P. Seifert: Seifert joined Lilly’s board in 1995. Previously, she had worked at Kimberly-Clark,
starting in 1978 and advancing through the ranks of both the domestic and international consumer
products businesses to become Exec VP of Kimberly-Clark Corp.

Source: Compiled from company documents; Capital IQ; Eli Lilly & Co. “Executive Committee,” Eli Lilly & Co. website,
https://www.lilly.com/About/Executives/executives.aspx; Eli Lilly & Co., 2009 Annual Report (Indianapolis: Eli
Lilly & Co., 2010), https://investor.lilly.com/annuals.cfm.

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https://investor.lilly.com/annuals.cfm

Transformation at Eli Lilly and Company (A) 817-070

19

Exhibit 7 Assessed Probabilities for Lilly’s Pipeline Molecules

Molecule Indication
Probability
of Success

Predicted 5-Year
Revenues ($B)a

Expected NPV
($B)a

Arzoxifene Osteoporosis 0.80 0.7 0.5

Dirucotide Multiple Sclerosis 0.50 1.5 1.9

Semagacestat Alzheimer’s Disease 0.40 2.4 1.9

Teplizumab Type 1 Diabetes 0.60 0.2 0.1

Tasisulam Malignant Melanoma 0.45 0.2 0.2

Pomaglumetad Schizophrenia 0.79 1.2 1.6

Enzastaurin Lymphoma 0.60 0.7 1.2

Edivoxetine Depression 0.70 1.1 2.6

Tabalumab Rheumatoid Arthritis 0.80 1.3 3.3

Source: Company documents.

a Predicted 5-year Revenues are the marketing team’s revenue forecast for the product after five full years of being on the market
(a point-in-time assessment). Expected NPV is essentially the product’s expected lifetime profit contributions if the product is
successfully launched, capturing (discounted) revenues, cost of goods sold, operating and capital expenses, etc.

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817-070 Transformation at Eli Lilly and Company (A)

24

Exhibit 10 Communication to Employees Announcing the Business Area Structure,
September 2009

Taking decisive action in the face of challenges: Speeding up development, reorganizing our business, and
lowering costs to accelerate innovative medicines to patients and deliver greater value to our customers.

 This is a pivotal moment for Lilly. The need for breakthrough medicines—to help aging
populations, to provide treatments and cures for deadly diseases, and to improve on inadequate
options for many diseases—has never been greater. With the largest early- to mid-stage pipeline
in our history, the opportunities for Lilly have also never been greater. Neither have the
challenges. The test for our company is to bring those medicines to patients faster and more
efficiently and provide demonstrable value to patients, providers and payers.

 The innovation-based pharmaceutical industry is facing unprecedented challenges—slowing
innovation, rising costs, patent expiries, generic competition, resistance from payers, and health
care reform—which combined are reducing industry growth rates and profit margins.

 Lilly faces these and its own challenges—including Years YZ and the need to expand our late-stage
pipeline. We have a highly promising pipeline of early and mid-stage molecules. But too few
products will be launched in the near term to provide growth during YZ.

 After looking at our long-range plan in May, we’re not satisfied with our projected sales growth or
profits, as our projected operating costs will rise faster than revenue.

 While our financial performance during the past few years has been strong, we will soon enter the
most challenging period in our company’s history. This calls for strong measures to speed our
output of new medicines, better meet the changing needs of our customers and reduce our costs.

 To do that, we must take decisive action to change our trajectory by:

1. Lessening the impact and duration of the YZ period

2. Demonstrating that Lilly can resume strong growth coming out of that period, and

3. Ensuring Lilly’s long-term success.

 Make no mistake, we will continue to bet on innovation. We’ve looked closely at other options and
remain confident that true innovation—as defined by our customers—is the only way to drive
significant growth in this increasingly difficult environment.

 But we must dramatically improve how we deliver that innovation.

 This was the focus of this year’s long-range planning exercise. We created several task forces to
identify how we could:

 Improve and speed development;

 Identify external opportunities to enhance our pipeline and improve revenue growth;

 Improve our top-line revenue performance; and

 Streamline our infrastructure and consider new organizational approaches.

For the exclusive use of C. Voisey, 2020.
This document is authorized for use only by Christopher Voisey in 2020.

Transformation at Eli Lilly and Company (A) 817-070

25

Exhibit 10 (continued)

 We’ve made meaningful progress on all four fronts. For example, our research organization has
supplied the largest early- and mid-stage pipeline in our history, we acquired ImClone and its
promising portfolio of cancer molecules (including several in late-stage) to create an oncology
powerhouse, and we sold our Greenfield site to Covance to improve productivity by gaining
speed to market and lowering drug development costs. To improve our top-line revenue, we’re
focusing on driving more growth from our key brands and also focusing more strongly on key
emerging markets, such as our expansion in China. Tactics to achieve these goals are being built
into the 2010-2011 business plan.

 Today we’re announcing significant changes to our organization that will allow us to:

 Reduce the time it takes to get medicines to patients;

 Align our business with a clear line of sight to our customers;

 Significantly reduce our cost structure.

 To help us achieve these goals, we’re reorganizing Lilly’s global operations by:

1. Creating technical centers of excellence in R&D to speed products to market

2. Moving from a functionally oriented organization to a business-unit structure:

 We’ll organize the company around five business areas: oncology, diabetes, emerging
markets, diversified therapies and established markets, and Elanco animal health.

3. Streamlining the organization by reducing headcount and cutting $X billion from our cost
structure by the end of 2011.

 We’ll streamline the organization and reorganize corporate and general and
administrative functions to support the business through improved quality, strong
customer service and reduced costs.

 While our size and structure served us well in the past, these changes—business areas;
development center of excellence (COE); streamlined infrastructure, corporate services and
G&A; and a lower cost structure—will simplify our business operations, improve focus, clarify
accountability and authority, and speed decision making.

 The result will be a Lilly that is leaner, more focused, more customer oriented, and more
competitive—able to deliver meaningful innovation at less cost and thus greater value to our
customers.

 These changes will challenge us to our core and require new ways of thinking and acting. Yet, if
we get it right, we have the opportunity to not only navigate YZ but to emerge with renewed
strength and focus. When we succeed:

 More people will live longer, healthier lives;

 Shareholders will realize greater returns; and

 Employees will be part of a winning organization that accomplishes these first two goals—
thereby making a powerful contribution to humanity.

Source: Company documents.

For the exclusive use of C. Voisey, 2020.
This document is authorized for use only by Christopher Voisey in 2020.

817-070 -26-

Exhibit 11 Longer-Term Financial Expectations (2009)

Source: Company documents.
For the exclusive use of C. Voisey, 2020.
This document is authorized for use only by Christopher Voisey in 2020.

Managing Change in Organizations

Transformation at Eli Lilly & Co.

This Mid-Course Exam contributes 20% of the Course Total Mark

Mid-Course Exam Learning Objectives

1. Explore the stages that a company must go through during a major transformation, using the example of a company making it through a major crisis by drawing on its sources of competitive and corporate advantage.

2. Identify and analyze the traits that a CEO or other leader must have and the roles they must play in directing such a transformation, both as architects and psychologists.

3. Examine how Lilly’s Business Unit structure allows a closer view of customers and better decision-making.

4. Assess how organizational design – grouping in the organizational structure, linking, and aligning – shapes the actions of individuals.

Case: Transformation at Eli Lilly & Co. (A) [817070-PDF-ENG] Case Introduction

Eli Lilly & Co., a major U.S. pharmaceutical company, is facing what it calls the “YZ crisis,” in which a handful of its most successful drugs will lose patent protection in the next coming years. Faced with the impending loss of these important revenue streams, CEO John Lechleiter has come up with a plan to reorganize Lilly’s company structure to try to revitalize its R&D process and replace some of the lost drugs. This goes against ‘conventional wisdom’ and much of the advice that Lechleiter has received, which is that Lilly should do an M&A deal, or divest itself of one or more of its businesses, or cut R&D spending to keep costs down.

Lechleiter’s plan involves restructuring the company into five separate “Business Units,” each of which focuses on a separate area of Lilly’s business (such as diabetes medication or

animal health). The hope is that this will give the company a better “line of sight” to customers, allow more flexibility, and create better, more efficient decision-making. At the same time, to keep costs down, Lechleiter must make tough decisions about cuts to employees.

The plan to restructure and double down on R&D meets with a good deal of skepticism from analysts and other outsiders, as well as some internal resistance. In addition to directing the transformation of the company, Lechleiter also must find ways to reassure stakeholders, manage expectations and keep people on board with Lilly’s plans as they weather the YZ crisis.

Mid-Course Exam Questions

Each Question is Worth Equal Marks

1. What are the strongest and weakest actions that John Lechleiter and his senior executive team are taking to confront the YZ crisis? How would you have reacted as a senior leadership team member during this period? [5%]

2. What does Lechleiter hope to gain with his organizational realignment? Do you anticipate that it will work as designed? [5%]

3. What messages is Eli Lilly sending to the markets and the Indianapolis community? At what point would you fear they are not working? [5%]

4. The most common explanations of the difficulty of change are human nature and organizational inertia. The “three lenses” perspective adds a third: the unintended consequences of change initiatives, which are inevitable given the complex interdependencies across the three dimensions of the organization (e.g., a design change also changes the political system and challenges the cultural system). Supported by case data, how does the “three lenses” perspective help us understand why organizational change is so difficult for Eli Lilly? [5%]

Guidance

Your entire Assignment should be no more than ten pages long, formatted with 2.54 cm. (“Normal”) margins on A4-sized paper, “Double” line spaced, paginated, and 11-point Arial, Calibri, or Times New Roman font. You are encouraged to use data displays (e.g., tables) where these can be effective in communicating your arguments succinctly.

2 | P a g e

ORGANIZATIONAL CHANGE

▪ Over past three decades, most organizations
have undergone change initiatives

▪ Success rate of change initiatives has been
startlingly low; according to European
executives:

➢

2

0% of change initiatives were successful

➢

6

3

% produced some change that was not sustained

➢ 1

7

% had no result at all

2

WHY IS ORGANIZATIONAL CHANGE
DIFFICULT?

▪ Human nature’s resistance to change

▪ Organizational inertia

▪ Unanticipated consequences of
organizational change initiatives

3

WHY IS CHANGE DIFFICULT? (CONT’D)

▪ Meanings of organizational change:

➢ Change in organization design

❖ Organization chart, integration mechanisms, systems for
motivating people

➢ Change in power structure

❖ Changes in who makes decisions, which individuals and
groups influence decisions, what interests are served

➢ Change in culture

❖ Change in norms, values, mental models, shared
assumptions about the organization and its environment

4

STAGE MODELS OF CHANGE PROCESSES

▪ Kurt Lewin’s model of organizational change:

➢ Three-stage sequence: unfreezing–change–refreezing

▪ Lewin saw organizations as social systems
highly resistant to change because of:

➢ Human nature

➢ Organizational inertia

▪ Lewin’s work laid foundations of field of
organizational development (OD) and other
stage models

5

Figure

8

.1

STAGE MODELS OF ORGANIZATIONAL
CHANGE

6

DIMENSIONS OF CHANGE

▪ Scope of change: radical or incremental

▪ Pacing of change: punctuated or continuous

▪ Source of change: top-down or bottom-up

▪ Process of change: planned or emergent

7

8–8

DIMENSIONS OF ORGANIZATIONAL
CHANGE

Radical Incremental

Top-down Bottom-up

Punctuated Continuous

Planned Emergent

Figure 8.2

8

BEING A MORE EFFECTIVE CHANGE
AGENT

▪ Expand your repertoire of actions

▪ Avoid mistakes

▪ Work with temporal sequencing

▪ Become a sophisticated consumer of advice on
change

9

THE LIFE CYCLE OF A
TYPICAL CHANGE INITIATIVE

Readings: The Life Cycle of Typical Change Initiatives

Source: From The Dance of Change by Peter M. Senge, Kleiner, Roberts and Ross, copyright © 1999 by Peter Senge,
Art Kleiner, Charlotte Roberts and Richard Ross. Used by permission of Doubleday, a division of Random House, Inc.

10

THE FIVE “LEARNING DISCIPLINES”
OF THE FIFTH DISCIPLINE

▪ Personal mastery

▪ Shared vision (aspiration)

▪ Mental models

▪ Team learning (reflection and inquiry)

▪ Systems thinking

11

THE MYTH OF THE HERO-CEO

▪ “Significant change only occurs when it is
driven from the top”

▪ “There is no point in going forward unless
the CEO is on board”

▪ “Nothing will happen without top
management buy-in”

12

A DIFFERENT VIEW OF EXECUTIVE
LEADERSHIP

▪ “Little significant change can occur if it is
driven only from the top”

▪ “CEO proclamations and programs rolled out
from corporate headquarters are a great way
to foster cynicism and distract everyone from
real efforts to change”

▪ “Top management buy-in is a poor substitute
for genuine commitment and learning
capabilities at all levels in an organization”

13

STAGES IN THE CHANGE PROCESS
AT GENERAL ELECTRIC

Readings: Culture Change at General Electric

14

PAYOFF MATRIX

Readings: Culture Change at General Electric

15

THE INTEGRATED LEARNING PROCESS

▪ Involve and engage all your employees, as
well as customers, partners, and suppliers

▪ Identify and transfer best practices from
inside and outside the company

▪ Integrate these initiatives with key human
resource practices

▪ Set “stretch goals”

Readings: Culture Change at General Electric

16

If you read nothing else on change, read these definitive
articles from Harvard Business Review.
www.hbr.org
Product #12599

Included with this collection:

Leading Change: Why Transformation Efforts Fail

by John P. Kotter

Cracking the Code of Change

by Michael Beer and Nitin Nohria

Change Through Persuasion

by David A. Garvin and Michael A. Roberto

Tipping Point Leadership

by W. Chan Kim and Renée Mauborgne

A Survival Guide for Leaders

Leading Change When Business Is Good:
An Interview with Samuel J. Palmisano
by Paul Hemp and Thomas A. Stewart (Editors)
HBR’s 10 Must Reads
on Change
2
86
13
49
63
24
www.hbr.org

Radical Change, the Quiet Way
by Debra E. Meyerson
37
The Real Reason People Won’t Change
by Robert Kegan and Lisa Laskow Lahey
75
Why Change Programs Don’t Produce Change
by Michael Beer, Russell A. Eisenstat, and Bert Spector
110
The Hard Side of Change Management
by Harold L. Sirkin, Perry Keenan, and Alan Jackson
97
by Ronald A. Heifetz and Marty Linsky

http://www.hbr.org

www.hbr.org

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Leading Change

Why Transformation Efforts Fail

by John P. Kotter

•

Included with this full-text

Harvard Business Review

article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work

3

Article Summary

4

Leading Change: Why Transformation Efforts Fail
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications

12

Further Reading

Leaders who successfully
transform businesses do eight
things right (and they do them
in the right order).

Reprint R0701J

http://harvardbusinessonline.hbsp.harvard.edu/relay.jhtml?name=itemdetail&referral=4320&id=R0701J

http://www.hbr.org

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Leading Change

Why Transformation Efforts Fail

The Idea in Brief The Idea in Practice

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Most major change initiatives—whether in-
tended to boost quality, improve culture, or
reverse a corporate death spiral—generate
only lukewarm results. Many fail miserably.
Why? Kotter maintains that too many
managers don’t realize transformation is a

process,

not an event. It advances through
stages that build on each other. And it
takes years. Pressured to accelerate the
process, managers skip stages. But short-
cuts never work.
Equally troubling, even highly capable
managers make critical mistakes—such as
declaring victory too soon. Result? Loss of
momentum, reversal of hard-won gains,
and devastation of the entire transforma-
tion effort.
By understanding the stages of change—
and the pitfalls unique to each stage—you
boost your chances of a successful transfor-
mation. The payoff? Your organization flexes
with tectonic shifts in competitors, markets,
and technologies—leaving rivals far behind.
To give your transformation effort the best chance of succeeding, take the right actions at each
stage—and avoid common pitfalls.
Stage Actions Needed Pitfalls
Establish a
sense of
urgency
• Examine market and competitive reali-
ties for potential crises and untapped
opportunities.
• Convince at least 75% of your man-
agers that the status quo is more dan-
gerous than the unknown.
• Underestimating the difficulty of driving
people from their comfort zones
• Becoming paralyzed by risks
Form a pow-
erful guiding
coalition
• Assemble a group with shared commit-
ment and enough power to lead the
change effort.
• Encourage them to work as a team
outside the normal hierarchy.
• No prior experience in teamwork at the
top
• Relegating team leadership to an HR,
quality, or strategic-planning executive
rather than a senior line manager
Create a
vision
• Create a vision to direct the change effort.
• Develop strategies for realizing that vision.
• Presenting a vision that’s too complicat-
ed or vague to be communicated in five
minutes
Communicate
the vision
• Use every vehicle possible to commu-
nicate the new vision and strategies for
achieving it.
• Teach new behaviors by the example of
the guiding coalition.
• Undercommunicating the vision
• Behaving in ways antithetical to the
vision
Empower
others to act
on the vision
• Remove or alter systems or structures
undermining the vision.
• Encourage risk taking and nontradition-
al ideas, activities, and actions.
• Failing to remove powerful individuals
who resist the change effort
Plan for and
create short-
term wins
• Define and engineer visible perform-
ance improvements.
• Recognize and reward employees con-
tributing to those improvements.
• Leaving short-term successes up to
chance
• Failing to score successes early enough
(12-24 months into the change effort)
Consolidate
improve-
ments and
produce
more change
• Use increased credibility from early
wins to change systems, structures, and
policies undermining the vision.
• Hire, promote, and develop employees
who can implement the vision.
• Reinvigorate the change process with
new projects and change agents.
• Declaring victory too soon—with the
first performance improvement
• Allowing resistors to convince “troops”
that the war has been won
Institutionalize
new
approaches
• Articulate connections between new
behaviors and corporate success.
• Create leadership development and
succession plans consistent with the
new approach.
• Not creating new social norms and
shared values consistent with changes
• Promoting people into leadership posi-
tions who don’t personify the new
approach
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Why Transformation Efforts Fail

by John P. Kotter

harvard business review • january 2007

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Leaders who successfully transform businesses do eight things right
(and they do them in the right order).

Editor’s Note:

Guiding change may be the ulti-
mate test of a leader—no business survives over
the long term if it can’t reinvent itself. But,
human nature being what it is, fundamental
change is often resisted mightily by the people it
most affects: those in the trenches of the busi-
ness. Thus, leading change is both absolutely es-
sential and incredibly difficult.
Perhaps nobody understands the anatomy
of organizational change better than retired
Harvard Business School professor John P.
Kotter. This article, originally published in the
spring of 1995, previewed Kotter’s 1996 book

Leading Change

. It outlines eight critical suc-
cess factors—from establishing a sense of ex-
traordinary urgency, to creating short-term
wins, to changing the culture (“the way we do
things around here”). It will feel familiar when
you read it, in part because Kotter’s vocabulary
has entered the lexicon and in part because it
contains the kind of home truths that we recog-
nize, immediately, as if we’d always known
them. A decade later, his work on leading
change remains definitive.

Over the past decade, I have watched more
than 100 companies try to remake themselves
into significantly better competitors. They
have included large organizations (Ford) and
small ones (Landmark Communications),
companies based in the United States (Gen-
eral Motors) and elsewhere (British Airways),
corporations that were on their knees (Eastern
Airlines), and companies that were earning
good money (Bristol-Myers Squibb). These ef-
forts have gone under many banners: total
quality management, reengineering, rightsiz-
ing, restructuring, cultural change, and turn-
around. But, in almost every case, the basic
goal has been the same: to make fundamental
changes in how business is conducted in order
to help cope with a new, more challenging
market environment.
A few of these corporate change efforts have
been very successful. A few have been utter
failures. Most fall somewhere in between, with
a distinct tilt toward the lower end of the scale.
The lessons that can be drawn are interesting
and will probably be relevant to even more or-
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ganizations in the increasingly competitive
business environment of the coming decade.
The most general lesson to be learned from
the more successful cases is that the change
process goes through a series of phases that, in
total, usually require a considerable length of
time. Skipping steps creates only the illusion of
speed and never produces a satisfying result. A
second very general lesson is that critical mis-
takes in any of the phases can have a devastat-
ing impact, slowing momentum and negating
hard-won gains. Perhaps because we have rela-
tively little experience in renewing organiza-
tions, even very capable people often make at
least one big error.

Error 1: Not Establishing a Great
Enough Sense of Urgency

Most successful change efforts begin when
some individuals or some groups start to look
hard at a company’s competitive situation,
market position, technological trends, and fi-
nancial performance. They focus on the po-
tential revenue drop when an important
patent expires, the five-year trend in declining
margins in a core business, or an emerging
market that everyone seems to be ignoring.
They then find ways to communicate this in-
formation broadly and dramatically, especially
with respect to crises, potential crises, or great
opportunities that are very timely. This first
step is essential because just getting a transfor-
mation program started requires the aggres-
sive cooperation of many individuals. Without
motivation, people won’t help, and the effort
goes nowhere.
Compared with other steps in the change
process, phase one can sound easy. It is not.
Well over 50% of the companies I have
watched fail in this first phase. What are the
reasons for that failure? Sometimes executives
underestimate how hard it can be to drive peo-
ple out of their comfort zones. Sometimes they
grossly overestimate how successful they have
already been in increasing urgency. Sometimes
they lack patience: “Enough with the prelimi-
naries; let’s get on with it.” In many cases, exec-
utives become paralyzed by the downside pos-
sibilities. They worry that employees with
seniority will become defensive, that morale
will drop, that events will spin out of control,
that short-term business results will be jeopar-
dized, that the stock will sink, and that they
will be blamed for creating a crisis.
A paralyzed senior management often comes
from having too many managers and not
enough leaders. Management’s mandate is to
minimize risk and to keep the current system
operating. Change, by definition, requires cre-
ating a new system, which in turn always de-
mands leadership. Phase one in a renewal
process typically goes nowhere until enough
real leaders are promoted or hired into senior-
level jobs.
Transformations often begin, and begin
well, when an organization has a new head
who is a good leader and who sees the need for
a major change. If the renewal target is the en-
tire company, the CEO is key. If change is
needed in a division, the division general man-
ager is key. When these individuals are not new
leaders, great leaders, or change champions,
phase one can be a huge challenge.
Bad business results are both a blessing and
a curse in the first phase. On the positive side,
losing money does catch people’s attention.
But it also gives less maneuvering room. With
good business results, the opposite is true: Con-
vincing people of the need for change is much
harder, but you have more resources to help
make changes.
But whether the starting point is good per-
formance or bad, in the more successful cases I
have witnessed, an individual or a group al-
ways facilitates a frank discussion of poten-
tially unpleasant facts about new competition,
shrinking margins, decreasing market share,
flat earnings, a lack of revenue growth, or
other relevant indices of a declining competi-
tive position. Because there seems to be an al-
most universal human tendency to shoot the
bearer of bad news, especially if the head of
the organization is not a change champion, ex-
ecutives in these companies often rely on out-
siders to bring unwanted information. Wall
Street analysts, customers, and consultants can
all be helpful in this regard. The purpose of all
this activity, in the words of one former CEO of
a large European company, is “to make the sta-
tus quo seem more dangerous than launching
into the unknown.”
In a few of the most successful cases, a group
has manufactured a crisis. One CEO deliber-
ately engineered the largest accounting loss in
the company’s history, creating huge pressures
from Wall Street in the process. One division
president commissioned first-ever customer
satisfaction surveys, knowing full well that the

Now retired,

John P. Kotter

was the
Konosuke Matsushita Professor of
Leadership at Harvard Business School
in Boston.
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results would be terrible. He then made these
findings public. On the surface, such moves can
look unduly risky. But there is also risk in play-
ing it too safe: When the urgency rate is not
pumped up enough, the transformation pro-
cess cannot succeed, and the long-term future
of the organization is put in jeopardy.
When is the urgency rate high enough?
From what I have seen, the answer is when
about 75% of a company’s management is hon-
estly convinced that business as usual is totally
unacceptable. Anything less can produce very
serious problems later on in the process.

Error 2: Not Creating a Powerful
Enough Guiding Coalition

Major renewal programs often start with just
one or two people. In cases of successful trans-
formation efforts, the leadership coalition
grows and grows over time. But whenever
some minimum mass is not achieved early in
the effort, nothing much worthwhile happens.
It is often said that major change is impos-
sible unless the head of the organization is an
active supporter. What I am talking about
goes far beyond that. In successful transfor-
mations, the chairman or president or divi-
sion general manager, plus another five or
15 or 50 people, come together and develop
a shared commitment to excellent perfor-
mance through renewal. In my experience,
this group never includes all of the company’s
most senior executives because some people
just won’t buy in, at least not at first. But in
the most successful cases, the coalition is
always pretty powerful—in terms of titles,
EIGHT STEPS TO TRANSFORMING
YOUR ORGANIZATION
Establishing a Sense of Urgency
• Examining market and competitive realities
• Identifying and discussing crises, potential crises, or major opportunities
Forming a Powerful Guiding Coalition
• Assembling a group with enough power to lead the change effort
• Encouraging the group to work together as a team
Creating a Vision
• Creating a vision to help direct the change effort
• Developing strategies for achieving that vision
Communicating the Vision
• Using every vehicle possible to communicate the new vision and strategies
• Teaching new behaviors by the example of the guiding coalition
Empowering Others to Act on the Vision
• Getting rid of obstacles to change
• Changing systems or structures that seriously undermine the vision
• Encouraging risk taking and nontraditional ideas, activities, and actions
Planning for and Creating Short-Term Wins
• Planning for visible performance improvements
• Creating those improvements
• Recognizing and rewarding employees involved in the improvements
Consolidating Improvements and Producing Still More Change
• Using increased credibility to change systems, structures, and policies that
don’t fit the vision
• Hiring, promoting, and developing employees who can implement the vision
• Reinvigorating the process with new projects, themes, and change agents
Institutionalizing New Approaches
• Articulating the connections between the new behaviors and corporate
success
• Developing the means to ensure leadership development and succession
1
2
3
4
5
6
7
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information and expertise, reputations, and
relationships.
In both small and large organizations, a suc-
cessful guiding team may consist of only three
to five people during the first year of a renewal
effort. But in big companies, the coalition
needs to grow to the 20 to 50 range before
much progress can be made in phase three and
beyond. Senior managers always form the
core of the group. But sometimes you find
board members, a representative from a key
customer, or even a powerful union leader.
Because the guiding coalition includes mem-
bers who are not part of senior management,
it tends to operate outside of the normal hier-
archy by definition. This can be awkward, but
it is clearly necessary. If the existing hierarchy
were working well, there would be no need for
a major transformation. But since the current
system is not working, reform generally de-
mands activity outside of formal boundaries,
expectations, and protocol.
A high sense of urgency within the manage-
rial ranks helps enormously in putting a guid-
ing coalition together. But more is usually re-
quired. Someone needs to get these people
together, help them develop a shared assess-
ment of their company’s problems and oppor-
tunities, and create a minimum level of trust
and communication. Off-site retreats, for two
or three days, are one popular vehicle for ac-
complishing this task. I have seen many groups
of five to 35 executives attend a series of these
retreats over a period of months.
Companies that fail in phase two usually un-
derestimate the difficulties of producing change
and thus the importance of a powerful guiding
coalition. Sometimes they have no history of
teamwork at the top and therefore undervalue
the importance of this type of coalition. Some-
times they expect the team to be led by a staff
executive from human resources, quality, or
strategic planning instead of a key line man-
ager. No matter how capable or dedicated the
staff head, groups without strong line leader-
ship never achieve the power that is required.
Efforts that don’t have a powerful enough
guiding coalition can make apparent progress
for a while. But, sooner or later, the opposition
gathers itself together and stops the change.

Error 3: Lacking a Vision

In every successful transformation effort that I
have seen, the guiding coalition develops a
picture of the future that is relatively easy to
communicate and appeals to customers, stock-
holders, and employees. A vision always goes
beyond the numbers that are typically found
in five-year plans. A vision says something that
helps clarify the direction in which an organi-
zation needs to move. Sometimes the first
draft comes mostly from a single individual. It
is usually a bit blurry, at least initially. But
after the coalition works at it for three or five
or even 12 months, something much better
emerges through their tough analytical think-
ing and a little dreaming. Eventually, a strat-
egy for achieving that vision is also developed.
In one midsize European company, the first
pass at a vision contained two-thirds of the
basic ideas that were in the final product. The
concept of global reach was in the initial ver-
sion from the beginning. So was the idea of be-
coming preeminent in certain businesses. But
one central idea in the final version—getting
out of low value-added activities—came only
after a series of discussions over a period of
several months.
Without a sensible vision, a transformation
effort can easily dissolve into a list of confus-
ing and incompatible projects that can take
the organization in the wrong direction or
nowhere at all. Without a sound vision, the
reengineering project in the accounting de-
partment, the new 360-degree performance
appraisal from the human resources depart-
ment, the plant’s quality program, the cul-
tural change project in the sales force will not
add up in a meaningful way.
In failed transformations, you often find
plenty of plans, directives, and programs but
no vision. In one case, a company gave out
four-inch-thick notebooks describing its change
effort. In mind-numbing detail, the books
spelled out procedures, goals, methods, and
deadlines. But nowhere was there a clear and
compelling statement of where all this was
leading. Not surprisingly, most of the employ-
ees with whom I talked were either confused
or alienated. The big, thick books did not rally
them together or inspire change. In fact, they
probably had just the opposite effect.
In a few of the less successful cases that I
have seen, management had a sense of direc-
tion, but it was too complicated or blurry to
be useful. Recently, I asked an executive in a
midsize company to describe his vision and re-
ceived in return a barely comprehensible 30-
If you can’t communicate
the vision to someone in
five minutes or less and
get a reaction that
signifies both
understanding and
interest, you are not
done.
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minute lecture. Buried in his answer were the
basic elements of a sound vision. But they were
buried—deeply.
A useful rule of thumb: If you can’t commu-
nicate the vision to someone in five minutes or
less and get a reaction that signifies both un-
derstanding and interest, you are not yet done
with this phase of the transformation process.

Error 4: Undercommunicating the
Vision by a Factor of Ten

I’ve seen three patterns with respect to com-
munication, all very common. In the first, a
group actually does develop a pretty good
transformation vision and then proceeds to
communicate it by holding a single meeting or
sending out a single communication. Having
used about 0.0001% of the yearly intracom-
pany communication, the group is startled
when few people seem to understand the new
approach. In the second pattern, the head of
the organization spends a considerable amount
of time making speeches to employee groups,
but most people still don’t get it (not surpris-
ing, since vision captures only 0.0005% of the
total yearly communication). In the third pat-
tern, much more effort goes into newsletters
and speeches, but some very visible senior ex-
ecutives still behave in ways that are antitheti-
cal to the vision. The net result is that cynicism
among the troops goes up, while belief in the
communication goes down.
Transformation is impossible unless hun-
dreds or thousands of people are willing to
help, often to the point of making short-term
sacrifices. Employees will not make sacrifices,
even if they are unhappy with the status quo,
unless they believe that useful change is possi-
ble. Without credible communication, and a
lot of it, the hearts and minds of the troops are
never captured.
This fourth phase is particularly challenging
if the short-term sacrifices include job losses.
Gaining understanding and support is tough
when downsizing is a part of the vision. For
this reason, successful visions usually include
new growth possibilities and the commitment
to treat fairly anyone who is laid off.
Executives who communicate well incorpo-
rate messages into their hour-by-hour activi-
ties. In a routine discussion about a business
problem, they talk about how proposed solu-
tions fit (or don’t fit) into the bigger picture. In
a regular performance appraisal, they talk
about how the employee’s behavior helps or
undermines the vision. In a review of a divi-
sion’s quarterly performance, they talk not
only about the numbers but also about how
the division’s executives are contributing to the
transformation. In a routine Q&A with em-
ployees at a company facility, they tie their an-
swers back to renewal goals.
In more successful transformation efforts,
executives use all existing communication
channels to broadcast the vision. They turn
boring, unread company newsletters into lively
articles about the vision. They take ritualistic,
tedious quarterly management meetings and
turn them into exciting discussions of the
transformation. They throw out much of the
company’s generic management education
and replace it with courses that focus on busi-
ness problems and the new vision. The guiding
principle is simple: Use every possible channel,
especially those that are being wasted on non-
essential information.
Perhaps even more important, most of the
executives I have known in successful cases of
major change learn to “walk the talk.” They
consciously attempt to become a living symbol
of the new corporate culture. This is often not
easy. A 60-year-old plant manager who has
spent precious little time over 40 years think-
ing about customers will not suddenly behave
in a customer-oriented way. But I have wit-
nessed just such a person change, and change a
great deal. In that case, a high level of urgency
helped. The fact that the man was a part of the
guiding coalition and the vision-creation team
also helped. So did all the communication,
which kept reminding him of the desired be-
havior, and all the feedback from his peers and
subordinates, which helped him see when he
was not engaging in that behavior.
Communication comes in both words and
deeds, and the latter are often the most power-
ful form. Nothing undermines change more
than behavior by important individuals that is
inconsistent with their words.

Error 5: Not Removing Obstacles to
the New Vision

Successful transformations begin to involve
large numbers of people as the process
progresses. Employees are emboldened to try
new approaches, to develop new ideas, and to
provide leadership. The only constraint is that
the actions fit within the broad parameters of
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the overall vision. The more people involved,
the better the outcome.
To some degree, a guiding coalition empow-
ers others to take action simply by successfully
communicating the new direction. But com-
munication is never sufficient by itself. Re-
newal also requires the removal of obstacles.
Too often, an employee understands the new
vision and wants to help make it happen, but
an elephant appears to be blocking the path.
In some cases, the elephant is in the person’s
head, and the challenge is to convince the indi-
vidual that no external obstacle exists. But in
most cases, the blockers are very real.
Sometimes the obstacle is the organizational
structure: Narrow job categories can seriously
undermine efforts to increase productivity
or make it very difficult even to think
about customers. Sometimes compensation
or performance-appraisal systems make peo-
ple choose between the new vision and their
own self-interest. Perhaps worst of all are bosses
who refuse to change and who make demands
that are inconsistent with the overall effort.
One company began its transformation pro-
cess with much publicity and actually made
good progress through the fourth phase. Then
the change effort ground to a halt because the
officer in charge of the company’s largest divi-
sion was allowed to undermine most of the
new initiatives. He paid lip service to the pro-
cess but did not change his behavior or encour-
age his managers to change. He did not reward
the unconventional ideas called for in the vi-
sion. He allowed human resource systems to
remain intact even when they were clearly in-
consistent with the new ideals. I think the of-
ficer’s motives were complex. To some degree,
he did not believe the company needed major
change. To some degree, he felt personally threat-
ened by all the change. To some degree, he was
afraid that he could not produce both change
and the expected operating profit. But despite
the fact that they backed the renewal effort,
the other officers did virtually nothing to stop
the one blocker. Again, the reasons were com-
plex. The company had no history of confront-
ing problems like this. Some people were afraid
of the officer. The CEO was concerned that he
might lose a talented executive. The net result
was disastrous. Lower-level managers concluded
that senior management had lied to them
about their commitment to renewal, cynicism
grew, and the whole effort collapsed.
In the first half of a transformation, no orga-
nization has the momentum, power, or time to
get rid of all obstacles. But the big ones must
be confronted and removed. If the blocker is a
person, it is important that he or she be
treated fairly and in a way that is consistent
with the new vision. Action is essential, both
to empower others and to maintain the credi-
bility of the change effort as a whole.

Error 6: Not Systematically Planning
for, and Creating, Short-Term Wins

Real transformation takes time, and a renewal
effort risks losing momentum if there are no
short-term goals to meet and celebrate. Most
people won’t go on the long march unless they
see compelling evidence in 12 to 24 months
that the journey is producing expected results.
Without short-term wins, too many people
give up or actively join the ranks of those peo-
ple who have been resisting change.
One to two years into a successful transfor-
mation effort, you find quality beginning to go
up on certain indices or the decline in net in-
come stopping. You find some successful new
product introductions or an upward shift in
market share. You find an impressive produc-
tivity improvement or a statistically higher cus-
tomer satisfaction rating. But whatever the
case, the win is unambiguous. The result is not
just a judgment call that can be discounted by
those opposing change.
Creating short-term wins is different from
hoping for short-term wins. The latter is pas-
sive, the former active. In a successful transfor-
mation, managers actively look for ways to ob-
tain clear performance improvements, establish
goals in the yearly planning system, achieve
the objectives, and reward the people involved
with recognition, promotions, and even money.
For example, the guiding coalition at a U.S.
manufacturing company produced a highly
visible and successful new product introduc-
tion about 20 months after the start of its re-
newal effort. The new product was selected
about six months into the effort because it met
multiple criteria: It could be designed and
launched in a relatively short period, it could
be handled by a small team of people who
were devoted to the new vision, it had upside
potential, and the new product-development
team could operate outside the established de-
partmental structure without practical prob-
lems. Little was left to chance, and the win
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boosted the credibility of the renewal process.
Managers often complain about being forced
to produce short-term wins, but I’ve found that
pressure can be a useful element in a change
effort. When it becomes clear to people that
major change will take a long time, urgency
levels can drop. Commitments to produce
short-term wins help keep the urgency level up
and force detailed analytical thinking that can
clarify or revise visions.

Error 7: Declaring Victory Too Soon

After a few years of hard work, managers may
be tempted to declare victory with the first
clear performance improvement. While cele-
brating a win is fine, declaring the war won
can be catastrophic. Until changes sink deeply
into a company’s culture, a process that can
take five to ten years, new approaches are frag-
ile and subject to regression.
In the recent past, I have watched a dozen
change efforts operate under the reengineer-
ing theme. In all but two cases, victory was de-
clared and the expensive consultants were paid
and thanked when the first major project was
completed after two to three years. Within two
more years, the useful changes that had been
introduced slowly disappeared. In two of the
ten cases, it’s hard to find any trace of the re-
engineering work today.
Over the past 20 years, I’ve seen the same
sort of thing happen to huge quality projects,
organizational development efforts, and more.
Typically, the problems start early in the pro-
cess: The urgency level is not intense enough,
the guiding coalition is not powerful enough,
and the vision is not clear enough. But it is the
premature victory celebration that kills mo-
mentum. And then the powerful forces associ-
ated with tradition take over.
Ironically, it is often a combination of change
initiators and change resistors that creates the
premature victory celebration. In their enthu-
siasm over a clear sign of progress, the initia-
tors go overboard. They are then joined by re-
sistors, who are quick to spot any opportunity
to stop change. After the celebration is over,
the resistors point to the victory as a sign that
the war has been won and the troops should
be sent home. Weary troops allow themselves
to be convinced that they won. Once home,
the foot soldiers are reluctant to climb back on
the ships. Soon thereafter, change comes to a
halt, and tradition creeps back in.
Instead of declaring victory, leaders of suc-
cessful efforts use the credibility afforded by
short-term wins to tackle even bigger prob-
lems. They go after systems and structures that
are not consistent with the transformation vi-
sion and have not been confronted before.
They pay great attention to who is promoted,
who is hired, and how people are developed.
They include new reengineering projects that
are even bigger in scope than the initial ones.
They understand that renewal efforts take not
months but years. In fact, in one of the most
successful transformations that I have ever
seen, we quantified the amount of change that
occurred each year over a seven-year period.
On a scale of one (low) to ten (high), year one
received a two, year two a four, year three a
three, year four a seven, year five an eight, year
six a four, and year seven a two. The peak came
in year five, fully 36 months after the first set
of visible wins.

Error 8: Not Anchoring Changes in
the Corporation’s Culture

In the final analysis, change sticks when it be-
comes “the way we do things around here,”
when it seeps into the bloodstream of the cor-
porate body. Until new behaviors are rooted in
social norms and shared values, they are sub-
ject to degradation as soon as the pressure for
change is removed.
Two factors are particularly important in in-
stitutionalizing change in corporate culture.
The first is a conscious attempt to show people
how the new approaches, behaviors, and atti-
tudes have helped improve performance.
When people are left on their own to make
the connections, they sometimes create very
inaccurate links. For example, because results
improved while charismatic Harry was boss,
the troops link his mostly idiosyncratic style
with those results instead of seeing how their
own improved customer service and productiv-
ity were instrumental. Helping people see the
right connections requires communication. In-
deed, one company was relentless, and it paid
off enormously. Time was spent at every major
management meeting to discuss why perfor-
mance was increasing. The company news-
paper ran article after article showing how
changes had boosted earnings.
The second factor is taking sufficient time
to make sure that the next generation of top
management really does personify the new
After a few years of hard
work, managers may be
tempted to declare
victory with the first
clear performance
improvement. While
celebrating a win is fine,
declaring the war won
can be catastrophic.
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approach. If the requirements for promotion
don’t change, renewal rarely lasts. One bad
succession decision at the top of an organiza-
tion can undermine a decade of hard work.
Poor succession decisions are possible when
boards of directors are not an integral part of
the renewal effort. In at least three instances I
have seen, the champion for change was the
retiring executive, and although his successor
was not a resistor, he was not a change cham-
pion. Because the boards did not understand
the transformations in any detail, they could
not see that their choices were not good fits.
The retiring executive in one case tried unsuc-
cessfully to talk his board into a less seasoned
candidate who better personified the transfor-
mation. In the other two cases, the CEOs did
not resist the boards’ choices, because they
felt the transformation could not be undone
by their successors. They were wrong. Within
two years, signs of renewal began to disap-
pear at both companies.

• • •

There are still more mistakes that people
make, but these eight are the big ones. I realize
that in a short article everything is made to
sound a bit too simplistic. In reality, even
successful change efforts are messy and full
of surprises. But just as a relatively simple vi-
sion is needed to guide people through a
major change, so a vision of the change pro-
cess can reduce the error rate. And fewer er-
rors can spell the difference between success
and failure.

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Why Transformation Efforts Fail

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Further Reading

A R T I C L E S

Building Your Company’s Vision

by James C. Collins and Jerry I. Porras

Harvard Business Review

September–October 1996
Product no. 96501

Collins and Porras describe the glue that
holds a change effort together. Great compa-
nies have a clear sense of why they exist—
their core ideology—and where they want
to go—their envisioned future. The mecha-
nism for getting there is a BHAG (Big, Hairy,
Audacious Goal), which typically takes 10 to
30 years to accomplish. The company’s busi-
ness, strategies, and even its culture may
change, but its core ideology remains un-
changed. At every step in this long process,
the leader’s key task is to create alignment
with the vision of the company’s future, so
that regardless of the twists and turns in the
journey, the organizational commitment to
the goal remains strong.

Successful Change Programs Begin with
Results

by Robert H. Schaffer and Harvey A. Thomson

Harvard Business Review

January–February 1992
Product no. 92108

Although a change initiative is a process, that
doesn’t mean process issues should be the
primary concern. Most corporate change
programs have a negligible impact on opera-
tional and financial performance because
management focuses on the activities, not
the results. By contrast, results-driven im-
provement programs seek to achieve spe-
cific, measurable improvements within a
few months.

B O O K S

The Heart of Change: Real-Life Stories of
How People Change Their Organizations

by John P. Kotter and Dan S. Cohen
Harvard Business School Press
2002
Product no. 2549

This book is organized around Kotter’s eight-
stage change process, and reveals the results
of his research in over 100 organizations in
the midst of large-scale change. Although
most organizations believe that change hap-
pens by making people think differently, the
authors say that the key lies more in making
them feel differently. They introduce a new
dynamic—“see-feel-change”—that sparks
and fuels action by showing people potent
reasons for change that charge their emo-
tions. The book offers tips and tools to you
apply to your own organization.

Leading Change

by John P. Kotter
Harvard Business School Press
1996
Product no. 7471

This book expands upon the article about why
transformation efforts fail. Kotter addresses
each of eight major stages of a change initia-
tive in sequence, highlighting the key activities
in each, and providing object lessons about
where companies often go astray.
page 12

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http://harvardbusinessonline.hbsp.harvard.edu/relay.jhtml?name=itemdetail&referral=4320&id=92108

http://harvardbusinessonline.hbsp.harvard.edu/relay.jhtml?name=itemdetail&referral=4320&id=92108

http://harvardbusinessonline.hbsp.harvard.edu/relay.jhtml?name=itemdetail&referral=4320&id=2549

http://harvardbusinessonline.hbsp.harvard.edu/relay.jhtml?name=itemdetail&referral=4320&id=2549

http://harvardbusinessonline.hbsp.harvard.edu/relay.jhtml?name=itemdetail&referral=4320&id=7471

http://www.hbr.org

mailto:customizations@hbsp.harvard.edu

Change Through
Persuasion

by David A. Garvin and Michael A. Roberto

Included with this full-text

Harvard Business Review

article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work

14

Article Summary

15

Change Through Persuasion
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications

23

Further Reading

Leaders can make change
happen only if they have a
coherent strategy for
persuasion. The impressive
turnaround at a world-
renowned teaching hospital
shows how to plan a change
campaign—and carry it out.

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Change Through Persuasion

The Idea in Brief The Idea in Practice

C
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When a company is teetering on the brink
of ruin, most turnaround leaders revamp
strategy, shift around staff, and root out
inefficiencies. Then they wait patiently for
the payoff—only to suffer bitter disappoint-
ment as the expected improvements fail
to materialize.
How to make change stick? Conduct a four-
stage persuasion campaign: 1) Prepare your
organization’s cultural “soil” months before
setting your turnaround plan in concrete—
by convincing employees that your com-
pany can survive only through radical
change. 2) Present your plan—explaining
in detail its purpose and expected impact.
3) After executing the plan, manage em-
ployees’ emotions by acknowledging the
pain of change—while keeping people
focused on the hard work ahead. 4) As the
turnaround starts generating results, re-
inforce desired behavioral changes to
prevent backsliding.
Using this four-part process, the CEO of
Beth Israel Deaconess Medical Center
(BIDMC) brought the failing hospital back
from near-certain death. Hemorrhaging
$58 million in losses in 2001, BIDMC re-
ported a $37.4 million net gain from opera-
tions in 2004. Revenues rose, while costs
shrank. Morale soared—as reflected by a
drop in nursing turnover from between
15% and 16% in 2002 to just 3% by 2004.
Use these steps to persuade your workforce to embrace and execute needed change:

SET THE STAGE FOR ACCEPTANCE

Develop a bold message that provides com-
pelling reasons to do things differently.
Example:

On his first day as Beth Israel Deaconess
Medical Center’s CEO, Paul Levy publicized
the possibility that BIDMC would be sold to
a for-profit institution. He delivered an all-
hands-on-deck e-mail to the staff citing the
hospital’s achievements while confirming
that the threat of sale was real. The e-mail
also signaled actions he would take, includ-
ing layoffs, and described his open man-
agement style (hallway chats, lunches with
staff ). In addition, Levy circulated a third-
party, warts-and-all report on BIDMC’s
plight on the hospital’s intranet—so staff
could no longer claim ignorance.

FRAME THE TURNAROUND PLAN

Present your turnaround plan in a way that
helps people interpret your ideas correctly.
Example:

Levy augmented his several-hundred-page
plan with an e-mail that evoked BIDMC’s
mission and uncompromising values and
reaffirmed the importance of remaining an
academic medical center. He provided fur-
ther details about the plan, emphasizing
needed tough measures based on the
third-party report. He also explained past
plans’ deficiencies, contrasting earlier ef-
forts’ top-down methods with his plan’s
collaborative approach. Employees thus felt
the plan belonged to them.

MANAGE THE MOOD

Strike the right notes of optimism and realism
to make employees feel cared for while also
keeping them focused on your plan’s execution.
Example:

Levy acknowledged the pain of layoffs,
then urged employees to look forward to
“[setting] an example for what a unique ac-
ademic medical center like ours means for
this region.” He also issued progress up-
dates while reminding people that BIDMC
still needed to control costs. As financial
performance picked up, he lavishly praised
the staff.

PREVENT BACKSLIDING

Provide opportunities for employees to prac-
tice desired behaviors repeatedly. If necessary,
publicly criticize disruptive, divisive behaviors.
Example:

Levy had established meeting rules requir-
ing staff to state their objections to deci-
sions and to “disagree without being dis-
agreeable.” When one medical chief e-
mailed Levy complaining about a decision
made during a meeting—and copied the
other chiefs and board chairman—Levy
took action. He responded with an e-mail
to the same audience, publicly reprimand-
ing the chief for his tone, lack of civility, and
failure to follow the rule about speaking up
during meetings.
page 14

Change Through
Persuasion

by David A. Garvin and Michael A. Roberto

harvard business review • february 2005

C
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Leaders can make change happen only if they have a coherent strategy
for persuasion. The impressive turnaround at a world-renowned
teaching hospital shows how to plan a change campaign—and carry it
out.

Faced with the need for massive change, most
managers respond predictably. They revamp
the organization’s strategy, then round up the
usual set of suspects—people, pay, and pro-
cesses—shifting around staff, realigning incen-
tives, and rooting out inefficiencies. They then
wait patiently for performance to improve,
only to be bitterly disappointed. For some rea-
son, the right things still don’t happen.
Why is change so hard? First of all, most
people are reluctant to alter their habits. What
worked in the past is good enough; in the ab-
sence of a dire threat, employees will keep
doing what they’ve always done. And when an
organization has had a succession of leaders,
resistance to change is even stronger. A legacy
of disappointment and distrust creates an en-
vironment in which employees automatically
condemn the next turnaround champion to
failure, assuming that he or she is “just like all
the others.” Calls for sacrifice and self-discipline
are met with cynicism, skepticism, and knee-
jerk resistance.
Our research into organizational transfor-
mation has involved settings as diverse as mul-
tinational corporations, government agencies,
nonprofits, and high-performing teams like
mountaineering expeditions and firefighting
crews. We’ve found that for change to stick,
leaders must design and run an effective per-
suasion campaign—one that begins weeks or
months before the actual turnaround plan is
set in concrete. Managers must perform signifi-
cant work up front to ensure that employees
will actually listen to tough messages, question
old assumptions, and consider new ways of
working. This means taking a series of deliber-
ate but subtle steps to recast employees’ pre-
vailing views and create a new context for
action. Such a shaping process must be ac-
tively managed during the first few months of
a turnaround, when uncertainty is high and
setbacks are inevitable. Otherwise, there is lit-
tle hope for sustained improvement.
Like a political campaign, a persuasion cam-
paign is largely one of differentiation from the
past. To the typical change-averse employee,
all restructuring plans look alike. The trick for
page 15

Change Through Persuasion

harvard business review • february 2005

turnaround leaders is to show employees
precisely how their plans differ from their
predecessors’. They must convince people that
the organization is truly on its deathbed—or,
at the very least, that radical changes are re-
quired if it is to survive and thrive. (This is a
particularly difficult challenge when years of
persistent problems have been accompanied
by few changes in the status quo.) Turnaround
leaders must also gain trust by demonstrat-
ing through word and deed that they are the
right leaders for the job and must convince em-
ployees that theirs is the correct plan for mov-
ing forward.
Accomplishing all this calls for a four-part
communications strategy. Prior to announcing
a policy or issuing a set of instructions, leaders
need to set the stage for acceptance. At the
time of delivery, they must create the frame
through which information and messages are
interpreted. As time passes, they must manage
the mood so that employees’ emotional states
support implementation and follow-through.
And at critical intervals, they must provide re-
inforcement to ensure that the desired changes
take hold without backsliding.
In this article, we describe this process in
more detail, drawing on the example of the
turnaround of Beth Israel Deaconess Medical
Center (BIDMC) in Boston. Paul Levy, who be-
came CEO in early 2002, managed to bring
the failing hospital back from the brink of
ruin. We had ringside seats during the first six
months of the turnaround. Levy agreed to hold
videotaped interviews with us every two to
four weeks during that period as we prepared a
case study describing his efforts. He also gave
us access to his daily calendar, as well as to as-
sorted e-mail correspondence and internal
memorandums and reports. From this wealth
of data, we were able to track the change
process as it unfolded, without the usual bi-
ases and distortions that come from 20/20
hindsight. The story of how Levy tilled the
soil for change provides lessons for any CEO
in a turnaround situation.

Setting the Stage

Paul Levy was an unlikely candidate to run
BIDMC. He was not a doctor and had never
managed a hospital, though he had previously
served as the executive dean for administra-
tion at Harvard Medical School. His claim to
fame was his role as the architect of the Bos-
ton Harbor Cleanup, a multibillion-dollar
pollution-control project that he had led sev-
eral years earlier. (Based on this experience,
Levy identified a common yet insidiously de-
structive organizational dynamic that causes
dedicated teams to operate in counterproduc-
tive ways, which he described in “The Nut Is-
land Effect: When Good Teams Go Wrong,”
March 2001.) Six years after completing the
Boston Harbor project, Levy approached the
BIDMC board and applied for the job of clean-
ing up the troubled hospital.
Despite his lack of hospital management ex-
perience, Levy was appealing to the board. The
Boston Harbor Cleanup was a difficult, highly
visible change effort that required deft politi-
cal and managerial skills. Levy had stood firm
in the face of tough negotiations and often-
heated public resistance and had instilled ac-
countability in city and state agencies. He was
also a known quantity to the board, having
served on a BIDMC steering committee formed
by the board chairman in 2001.
Levy saw the prospective job as one of pub-
lic service. BIDMC was the product of a diffi-
cult 1996 merger between two hospitals—Beth
Israel and Deaconess—each of which had dis-
tinguished reputations, several best-in-the-
world departments and specializations, and
deeply devoted staffs. The problems began
after the merger. A misguided focus on clinical
practice rather than backroom integration, a
failure to cut costs, and the repeated inability
to execute plans and adapt to changing condi-
tions in the health care marketplace all con-
tributed to BIDMC’s dismal performance.
By the time the board settled on Levy, af-
fairs at BIDMC had reached the nadir. The
hospital was losing $50 million a year. Rela-
tions between the administration and medical
staff were strained, as were those between
management and the board of directors. Em-
ployees felt demoralized, having witnessed
the rapid decline in their institution’s once-
legendary status and the disappointing failure
of its past leaders. A critical study was con-
ducted by the Hunter Group, a leading health-
care consulting firm. The report, detailing the
dire conditions at the hospital and the changes
needed to turn things around, had been com-
pleted but not yet released. Meanwhile, the
state attorney general, who was responsible for
overseeing charitable trusts, had put pressure
on the board to sell the failing BIDMC to a

David A. Garvin

(dgarvin@hbs.edu) is
the C. Roland Christensen Professor of
Business Administration at Harvard
Business School in Boston.

Michael A.
Roberto

(mroberto@hbs.edu) is an as-
sistant professor of business adminis-
tration at Harvard Business School.
Their multimedia case study based on
the turnaround at Beth Israel Deacon-
ess Medical Center can be found at
http://bethisrael.hbsp.harvard.edu.
page 16

mailto:dgarvin@hbs.edu

mailto:mroberto@hbs.edu

http://bethisrael.hbsp.harvard.edu

Change Through Persuasion

harvard business review • february 2005

for-profit institution.
Like many CEOs recruited to fix a difficult
situation, Levy’s first task was to gain a man-
date for the changes ahead. He also recognized
that crucial negotiations were best conducted
before he took the job, when his leverage was
greatest, rather than after taking the reins. In
particular, he moved to secure the cooperation
of the hospital board by flatly stating his condi-
tions for employment. He told the directors,
for example, that should they hire him, they
could no longer interfere in day-to-day man-
agement decisions. In his second and third
meetings with the board’s search committee,
Levy laid out his timetable and intentions. He
insisted that the board decide on his appoint-
ment quickly so that he could be on the job be-
fore the release of the Hunter report. He told
the committee that he intended to push for a
smaller, more effective group of directors.
Though the conditions were somewhat un-
usual, the board was convinced that Levy had
the experience to lead a successful turnaround,
and they accepted his terms. Levy went to
work on January 7, 2002.
The next task was to set the stage with the
hospital staff. Levy was convinced that the em-
ployees, hungry for a turnaround, would do
their best to cooperate with him if he could
emulate and embody the core values of the
hospital culture, rather than impose his per-
sonal values. He chose to act as the managerial
equivalent of a good doctor—that is, as one
who, in dealing with a very ill patient, delivers
both the bad news and the chances of success
honestly and imparts a realistic sense of hope,
without sugar coating.
Like any leader facing a turnaround, Levy
also knew he had to develop a bold message
that provided compelling reasons to do things
differently and then cast that message in capital
letters to signal the arrival of a new order. To
give his message teeth, he linked it to an im-
plicit threat. Taking his cue from his private dis-
cussions with the state attorney general, whom
he had persuaded to keep the hospital open for
the time being, Levy chose to publicize the very
real possibility the hospital would be sold.
While he realized he risked frightening the staff
and the patients with this bad news, he be-
lieved that a strong wake-up call was necessary
to get employees to face up to the situation.
Announce
Plan
Persuasion
Process
Turnaround
ProcessDEVELOP PLAN IMPLEMENT PLAN
Convince employees that radical change is imperative;
demonstrate why the new direction is the right one
Position and frame preliminary plan;
gather feedback; announce final plan
Manage employee mood through constant communication
Reinforce behavioral guidelines
to avoid backsliding
1
2
3
4
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PHASE
PHASE
PHASE
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The Four Phases of a Persuasion Campaign

A typical turnaround process consists of two
stark phases: plan development, followed by
an implementation that may or may not be
welcomed by the organization. For the turn-
around plan to be widely accepted and
adopted, however, the CEO must develop a
separate persuasion campaign, the goal of
which is to create a continuously receptive
environment for change. The campaign be-
gins well before the CEO’s first day on the
job—or, if the CEO is long established, well
before formal development work begins—
and continues long after the final plan is
announced.
page 17

Change Through Persuasion

harvard business review • february 2005

During his first morning on the job, Levy de-
livered an all-hands-on-deck e-mail to the staff.
The memo contained four broad messages. It
opened with the good news, pointing out that
the organization had much to be proud of (“This
is a wonderful institution, representing the very
best in academic medicine: exemplary patient
care, extraordinary research, and fine teach-
ing”). Second, Levy noted that the threat of
sale was real (“This is our last chance”). Third,
he signaled the kinds of actions employees
could expect him to take (“There will be a re-
duction in staff”). And finally, he described the
open management style he would adopt. He
would manage by walking around—lunching
with staff in the cafeteria, having impromptu
conversations in the hallways, talking with em-
ployees at every opportunity to discover their
concerns. He would communicate directly with
employees through e-mail rather than through
intermediaries. He also noted that the Hunter
report would be posted on the hospital intra-
net, where all employees would have the op-
portunity to review its recommendations and
submit comments for the final turnaround plan.
The direct, open tone of the e-mail memo sig-
naled exactly how Levy’s management style
would differ from that of his predecessors.
In the afternoon, he disclosed BIDMC’s situ-
ation in interviews with the

Boston Globe

and
the

Boston Herald

, the city’s two major newspa-
pers. He told reporters the same thing he had
told the hospital’s employees: that, in the ab-
sence of a turnaround, the hospital would be
sold to a for-profit chain and would therefore
lose its status as a Harvard teaching hospital.
Staving off a sale would require tough mea-
sures, including the laying off of anywhere
from 500 to 700 employees. Levy insisted that
there would be no nursing layoffs, in keeping
with the hospital’s core values of high-quality
patient care. The newspaper reports, together
with the memo circulated that morning,
served to immediately reset employee expecta-
tions while dramatically increasing staff coop-
eration and willingness to accept whatever
new initiatives might prove necessary to the
hospital’s survival.
Two days later, the critical Hunter report
came out and was circulated via the hospital’s
intranet. Because the report had been pro-
duced by an objective third party, employees
were open to its unvarnished, warts-and-all
view of the hospital’s current predicament.
The facts were stark, and the staff could no
longer claim ignorance. Levy received, and per-
sonally responded to, more than 300 e-mail
suggestions for improvement in response to
the report, many of which he later included in
the turnaround plan.

Creating the Frame

Once the stage has been set for acceptance, ef-
fective leaders need to help employees inter-
pret proposals for change. Complex plans can
be interpreted in any number of ways; not all
of them ensure acceptance and favorable out-
comes. Skilled leaders therefore use “frames”
to provide context and shape perspective for
new proposals and plans. By framing the is-
sues, leaders help people digest ideas in partic-
ular ways. A frame can take many forms: It can
be a companywide presentation that prepares
employees before an unexpected change, for
example, or a radio interview that provides
context following an unsettling layoff.
Levy used one particularly effective framing
device to help employees interpret a prelimi-
nary draft of the turnaround plan. This device
took the form of a detailed e-mail memo ac-
companying the dense, several-hundred-page
plan. The memo explained, in considerable de-
tail, the plan’s purpose and expected impact.
The first section of the memo sought to
mollify critics and reduce the fears of doctors
and nurses. Its tone was positive and uplifting;
it discussed BIDMC’s mission, strategy, and un-
compromising values, emphasizing the hospi-
tal’s “warm, caring environment.” This section
of the letter also reaffirmed the importance of
remaining an academic medical center, as well
as reminding employees of their shared mis-
sion and ideals. The second part of the letter
told employees what to expect, providing fur-
ther details about the turnaround plan. It em-
phasized that tough measures and goals would
be required but noted that the specific recom-
mendations were based, for the most part, on
the advice in the Hunter report, which em-
ployees had already reviewed. The message to
employees was, “You’ve already seen and en-
dorsed the Hunter report. There are no fu-
ture surprises.”
The third part of the letter anticipated and
responded to prospective concerns; this had
the effect of circumventing objections. This
section explicitly diagnosed past plans and ex-
plained their deficiencies, which were largely
Like a political
campaign, a persuasion
campaign is largely one
of differentiation from
the past.
page 18

Change Through Persuasion

harvard business review • february 2005

due to their having been imposed top-down,
with little employee ownership, buy-in, or dis-
cussion. Levy then offered a direct interpreta-
tion of what had gone wrong. Past plans, he
said, had underestimated the size of the finan-
cial problem, set unrealistic expectations for
new revenue growth, and failed to test imple-
mentation proposals. This section of the letter
also drove home the need for change at a
deeper, more visceral level than employees had
experienced in the past. It emphasized that
this plan was a far more collective effort than
past proposals had been, because it incorpo-
rated many employee suggestions.
By framing the turnaround proposal this
way, Levy accomplished two things. First, he
was able to convince employees that the plan
belonged to them. Second, the letter served as
the basis for an ongoing communication
platform. Levy reiterated its points at every
opportunity—not only with employees but
also in public meetings and in discussions
with the press.

Managing the Mood

Turnarounds are depressing events, especially
when they involve restructuring and downsiz-
ing. Relationships are disrupted, friends move
on, and jobs disappear. In such settings, man-
aging the mood of the organization becomes
an essential leadership skill. Leaders must pay
close attention to employees’ emotions—the
ebb and flow of their feelings and moods—
and work hard to preserve a receptive climate
for change. Often, this requires a delicate bal-
ancing act between presenting good and bad
news in just the right proportion. Employees
need to feel that their sacrifices have not been
in vain and that their accomplishments have
been recognized and rewarded. At the same
time, they must be reminded that compla-
cency is not an option. The communication
challenge is daunting. One must strike the
right notes of optimism and realism and care-
fully calibrate the timing, tone, and position-
ing of every message.
Paul Levy’s challenge was threefold: to give
remaining employees time to grieve and re-
cover from layoffs and other difficult mea-
sures; to make them feel that he cared for and
supported them; and to ensure that the turn-
around plan proceeded apace. The process de-
pended on mutual trust and employees’ desire
to succeed. “I had to calibrate the push and pull
of congratulations and pressure, but I also de-
pended on the staff’s underlying value system
and sense of mission,” he said. “They were
highly motivated, caring individuals who had
stuck with the place through five years of hell.
They wanted to do good.”
The first step was to acknowledge employ-
ees’ feelings of depression while helping them
look to the future. Immediately after the first
round of layoffs, people were feeling listless
and dejected; Levy knew that releasing the
final version of the turnaround plan too soon
after the layoffs could be seen as cold. In an e-
mail he sent to all employees a few days later,
Levy explicitly empathized with employees’
feelings (“This week is a sad one…it is hard for
those of us remaining…offices are emptier
than usual”). He then urged employees to look
forward and concluded on a strongly optimis-
tic note (“…our target is not just survival: It is
to thrive and set an example for what a unique
academic medical center like ours means for
this region”). His upbeat words were rein-
forced by a piece of good luck that weekend
when the underdog New England Patriots won
their first Super Bowl championship in dra-
matic fashion in the last 90 seconds of the
game. When Levy returned to work the follow-
ing Monday, employees were saying, “If the
Patriots can do it, we can, too.”
The next task was to keep employees focused
on the continuing hard work ahead. On April
12, two months into the restructuring process,
Levy sent out a “Frequently Asked Questions” e-
mail giving a generally favorable view of
progress to date. At the same time, he spoke
plainly about the need to control costs and re-
minded employees that merit pay increases
would remain on hold. This was hardly the rosy
picture that most employees were hoping for, of
course. But Levy believed sufficient time had
passed that employees could accommodate a
more realistic and tough tone on his part.
A month later, everything changed. Opera-
tional improvements that were put in place
during the first phase of the turnaround had
begun to take hold. Financial performance was
well ahead of budget, with the best results
since the merger. In another e-mail, Levy
praised employees lavishly. He also convened a
series of open question-and-answer forums,
where employees heard more details about the
hospital’s tangible progress and received kudos
for their accomplishments.
page 19

Change Through Persuasion

harvard business review • february 2005

Dysfunctional Routines

Six Ways to Stop Change in Its
Tracks

Just as people are creatures of habit,
organizations thrive on routines. Man-
agement teams, for example, rou-
tinely cut budgets after performance de-
viates from plan. Routines—
predictable, virtually automatic behav-
iors—are unstated, self-reinforcing, and
remarkably resilient. Because they lead
to more efficient cognitive processing,
they are, for the most part, functional
and highly desirable.
Dysfunctional routines, by contrast,
are barriers to action and change.
Some are outdated behaviors that were
appropriate once but are now unhelp-
ful. Others manifest themselves in
knee-jerk reactions, passivity, unpro-
ductive foot-dragging, and, sometimes,
active resistance.
Dysfunctional routines are persis-
tent, but they are not unchangeable.
Novelty—the perception that current
circumstances are truly different from
those that previously prevailed—is one
of the most potent forces for dislodging
routines. To overcome them, leaders
must clearly signal that the context has
changed. They must work directly with
employees to recognize and publicly ex-
amine dysfunctional routines and sub-
stitute desired behaviors.
The dog and pony
show must go on.
Some organizations put so much weight
on process that they confuse ends and means,
form and content. How you present
a proposal becomes more important than
what you propose. Managers construct
presentations carefully and devote large
amounts of time to obtaining sign-offs.
The result is death by PowerPoint. Despite
the appearance of progress, there’s little
real headway.
In organizations dominated by cynics and
critics, there is always a good reason not to
do something. Piling on criticism is an easy
way to avoid taking risks and claim false
superiority. Lou Gerstner gets credit for
naming this routine, which he found on his
arrival at IBM, but it is common in many
organizations. Another CEO described her
team’s response to new initiatives by liken-
ing it to a skeet shoot: “Someone would
yell, ‘Pull!’ there would be a deafening
blast, and the idea would be in pieces on
the ground. ” This routine has two sources:
a culture that overvalues criticism and
analysis,and complex decision-making
processes requiring multiple approvals,
in which anybody can say “no”but nobody
can say ”yes.”It is especially likely in orga-
nizations that are divided into large
subunits or segments, led by local leaders
with great power who are often unwilling
to comply with directives from above.
A culture of “no.”
The grass is
always greener.
To avoid facing challenges in their core
business, some managers look to new
products, new services, and new lines
of business. A t times, such diversication is
healthy. But all too often these efforts
are merely an avoidance tactic that keeps
tough problems at arm’s length.
After the meeting
ends, debate begins.
This routine is often hard to spot because
so much of it takes place under cover.
Cordial, apparently cooperative meetings
are followed by resistance. Sometimes,
resisters are covert; often, they end-run
established forums entirely and take
their concerns directly to the top. The
result? Politics triumphs over substance,
staff meetings become empty rituals,
and meddling becomes the norm.
Ready, aim, aim…
Here,the problem is the organization’s
inability to settle on a definitive course
of action. Staff members generate a con-
tinual stream of proposals and reports;
managers repeatedly tinker with each
one, fine-tuning their choices without
ever making a final decision. Often called
“analysis paralysis,” this pattern is com-
mon in perfectionist cultures where mis-
takes are career threatening and people
who rock the boat drown.
This too shall pass.
In organizations where prior leaders
repeatedly proclaimed a state of crisis
but then made few substantive changes,
employees tend to be jaded. In such
situations, they develop a heads-down,
bunker mentality and a reluctance to
respond to management directives. Most
believe that the wisest course of action
is to ignore new initiatives,work around
them, or wait things out.
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page 20

Change Through Persuasion

harvard business review • february 2005

Reinforcing Good Habits

Without a doubt, the toughest challenge faced
by leaders during a turnaround is to avoid
backsliding into dysfunctional routines—ha-
bitual patterns of negative behavior by indi-
viduals and groups that are triggered automat-
ically and unconsciously by familiar
circumstances or stimuli. (For more on how
such disruptive patterns work, see the sidebar
“Dysfunctional Routines: Six Ways to Stop
Change in Its Tracks.”) Employees need help
maintaining new behaviors, especially when
their old ways of working are deeply in-
grained and destructive. Effective change
leaders provide opportunities for employees
to practice desired behaviors repeatedly, while
personally modeling new ways of working and
providing coaching and support.
In our studies of successful turnarounds,
we’ve found that effective leaders explicitly re-
inforce organizational values on a constant ba-
sis, using actions to back up their words. Their
goal is to change behavior, not just ways of
thinking. For example, a leader can talk about
values such as openness, tolerance, civility,
teamwork, delegation, and direct communica-
tion in meetings and e-mails. But the message
takes hold only if he or she also signals a dislike
of disruptive, divisive behaviors by pointedly—
and, if necessary, publicly—criticizing them.
At Beth Israel Deaconess Medical Center,
the chiefs of medicine, surgery, orthopedics,
and other key functions presented Levy with
special behavioral challenges, particularly be-
cause he was not a doctor. Each medical chief
was in essence a “mini-dean,” the head of a
largely self-contained department with its own
faculty, staff, and resources. As academic re-
searchers, they were rewarded primarily for
individual achievement. They had limited
experience solving business or management
problems.
In dealing with the chiefs, Levy chose an ap-
proach that blended with a strong dose of disci-
pline with real-time, public reinforcement. He
developed guidelines for behavior and insisted
that everyone in the hospital measure up to
them. In one of his earliest meetings with the
chiefs, Levy presented a simple set of “meeting
rules,” including such chestnuts as “state your
objections” and “disagree without being dis-
agreeable,” and led a discussion about them,
demonstrating the desired behaviors through
his own leadership of the meeting. The pur-
pose of these rules was to introduce new stan-
dards of interpersonal behavior and, in the
process, to combat several dysfunctional rou-
tines.
One serious test of Levy’s ability to reinforce
these norms came a month and a half after he
was named CEO. After a staff meeting at
which all the department chairs were present,
one chief—who had remained silent—sent an
e-mail to Levy complaining about a decision
made during the meeting. The e-mail copied
the other chiefs as well as the chairman of the
board. Many CEOs would choose to criticize
such behavior privately. But Levy responded in
an e-mail to the same audience, publicly de-
nouncing the chief for his tone, his lack of civil-
ity, and his failure to speak up earlier in the
process, as required by the new meeting rules.
It was as close to a public hanging as anyone
could get. Several of the chiefs privately ex-
pressed their support to Levy; they too had
been offended by their peer’s presumptuous-
ness. More broadly, the open criticism served
to powerfully reinforce new norms while curb-
ing disruptive behavior.
Even as they must set expectations and rein-
force behaviors, effective change leaders also
recognize that many employees simply do not
know how to make decisions as a group or
work cooperatively. By delegating critical deci-
sions and responsibilities, a leader can provide
employees with ample opportunities to prac-
tice new ways of working; in such cases, em-
ployees’ performance should be evaluated as
much on their adherence to the new standards
and processes as on their substantive choices.
In this spirit, Levy chose to think of himself pri-
marily as a kind of appeals court judge. When
employees came to him seeking his interven-
tion on an issue or situation, he explained, he
would “review the process used by the ‘lower
court’ to determine if it followed the rules. If
so, the decision stands.” He did not review cases
de novo and substitute his judgment for that of
the individual department or unit. He insisted
that employees work through difficult issues
themselves, even when they were not so in-
clined, rather than rely on him to tell them
what to do. At other times, he intervened per-
sonally and coached employees when they
lacked basic skills. When two members of his
staff disagreed on a proposed course of action,
Levy triggered an open, emotional debate,
then worked with the participants and their
page 21

Chris DiVietro

Change Through Persuasion

harvard business review • february 2005

bosses behind the scenes to resolve the differ-
ences. At the next staff meeting, he praised the
participants’ willingness to disagree publicly,
reemphasizing that vigorous debate was
healthy and desirable and that confrontation
was not to be avoided. In this way, employees
gained experience in working through their
problems on their own.
Performance, of course, is the ultimate mea-
sure of a successful turnaround. On that score,
BIDMC has done exceedingly well since Levy
took the helm. The original restructuring plan
called for a three-year improvement process,
moving from a $58 million loss in 2001 to
breakeven in 2004. At the end of the 2004 fis-
cal year, performance was far ahead of plan,
with the hospital reporting a $37.4 million net
gain from operations. Revenues were up, while
costs were sharply reduced. Decision making
was now crisper and more responsive, even
though there was little change in the hospital’s
senior staff or medical leadership. Morale, not
surprisingly, was up as well. To take just one in-
dicator, annual nursing turnover, which was
15% to 16% when Levy became CEO, had
dropped to 3% by mid-2004. Pleased with the
hospital’s performance, the board signed Levy
to a new three-year contract.

Heads, Hearts, and Hands

It’s clear that the key to Paul Levy’s success at
Beth Israel Deaconess Medical Center is that
he understood the importance of making sure
the cultural soil had been made ready before
planting the seeds of change. In a receptive en-
vironment, employees not only understand
why change is necessary; they’re also emotion-
ally committed to making it happen, and they
faithfully execute the required steps.
On a cognitive level, employees in receptive
environments are better able to let go of com-
peting, unsubstantiated views of the nature
and extent of the problems facing their organi-
zations. They hold the same, objective views of
the causes of poor performance. They acknowl-
edge the seriousness of current financial, oper-
ational, and marketplace difficulties. And they
take responsibility for their own contributions
to those problems. Such a shared, fact-based di-
agnosis is crucial for moving forward.
On an emotional level, employees in recep-
tive environments identify with the organiza-
tion and its values and are committed to its
continued existence. They believe that the or-
ganization stands for something more than
profitability, market share, or stock perfor-
mance and is therefore worth saving. Equally
important, they trust the leader, believing that
he or she shares their values and will fight to
preserve them. Leaders earn considerable lati-
tude from employees—and their proposals
usually get the benefit of the doubt—when
their hearts are thought to be in the right
place.
Workers in such environments also have
physical, hands-on experience with the new be-
haviors expected of them. They have seen the
coming changes up close and understand what
they are getting into. In such an atmosphere
where it’s acceptable for employees to wrestle
with decisions on their own and practice unfa-
miliar ways of working, a leader can success-
fully allay irrational fears and undercut the
myths that so often accompany major change
efforts.
There is a powerful lesson in all this for lead-
ers. To create a receptive environment, persua-
sion is the ultimate tool. Persuasion promotes
understanding; understanding breeds accep-
tance; acceptance leads to action. Without per-
suasion, even the best of turnaround plans will
fail to take root.

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Change Through Persuasion

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Further Reading

A R T I C L E S

Campaigning for Change

by Larry Hirschhorn

Harvard Business Review

July 2002
Product no. R0207G

Hirschhorn suggests additional strategies for
launching an effective persuasion campaign.
He advocates three distinct—but linked—
campaigns: 1)

Political:

Forge alliances with
zealots at first, then with consensus builders
as the change initiative unfolds. Eliminate
bureaucracy layers and alter work processes
to give employees ownership of the change.
2)

Marketing:

Sell your initiative’s benefits by
spreading effective new practices throughout
your company and asking change-ready em-
ployees to spread the word about the initia-
tive. 3)

Military:

Overcome resistance by
building on insurgent initiatives and the pas-
sions feeding them. Establish beachheads to
spur innovation, then loop the resulting learn-
ing back into your organization.

Leading Change: Why Transformation
Efforts Fail

by John P. Kotter

Harvard Business Review

February 2000
Product no. 95204

Kotter affirms the importance of establishing a
sense of urgency while leading change and
offers additional guidelines for orchestrating a
successful change process. Key actions in-
clude forming a guiding coalition to work as a
change-leadership team outside the normal
hierarchy, creating and communicating a
compelling vision of where the change will
take your company, and empowering em-
ployees to act on the vision. Additional strate-
gies include generating and capitalizing on
short-term successes, consolidating improve-
ments to produce still more change, and insti-
tutionalizing new approaches and behaviors
by, for example, promoting people into lead-
ership positions who personify the new ways.
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Leading Change When
Business Is Good

An Interview with Samuel J. Palmisano

•

Included with this full-text

Harvard Business Review

article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work

25

Article Summary

26

Leading Change When Business Is Good
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications

36

Further Reading

By the time Sam Palmisano
took over as CEO in 2002,
IBM had been pulled back
from the brink. His challenge:
finding a mandate to continue
the company’s
transformation. His response:
a bottom-up reinvention of
IBM’s venerable values.

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Leading Change When Business Is Good

The Idea in Brief The Idea in Practice

C
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It’s easy to fire up employees’ passion for
change when your business is about to go
up in flames. Lou Gerstner knew this when
he seized IBM’s helm in 1993 and saved the
faltering giant by transforming it from a
mainframe maker into a provider of inte-
grated solutions.
But how do you maintain people’s commit-
ment to change when business is

good

?

You

know your company must constantly
adapt if it wants to maintain its competi-
tive edge. Yet without an obvious threat
on the horizon, your

employees

may
grow complacent.
How to build a workforce of relentless
change agents? Replace command-and-
control with

values-based management:

Instead of galvanizing people through fear
of failure, energize them through hope and
aspiration. Inspire them to pursue a com-
mon purpose based on values

they

help to
define. Ask them what’s blocking them
from living those values—and launch
change initiatives to remove obstacles.
As enduring companies like IBM have dis-
covered, values-based management enables
your people to respond quickly, flexibly, and
creatively to a never-ending stream of stra-
tegic challenges.
To create your values-based management
system:

GATHER EMPLOYEES’ INPUT ON VALUES

Assess the strategic challenges facing your
company. Propose values you believe will
help your firm meet those challenges. Collect
employees’ feedback on your ideas.
Example:

IBM CEO Sam Palmisano knew that the IT
industry was reintegrating: Customers
wanted packages of computer products
and services from single firms. Despite its
far-flung, diverse 320,000-strong work-
force, the company had to offer custom-
ized solutions at a single price. To achieve
the required cooperation, IBM needed a
shared set of values to guide people’s
decision making.
Using feedback from top managers and
employees, Palmisano’s team developed
three working value statements—
“Commitment to the customer,” “Excel-
lence through innovation,” and “Integrity
that earns trust.” IBM posted these on its in-
tranet and invited employees to debate
them. Over three days, 50,000 debated the
merits of the value statements.

ANALYZE EMPLOYEES’ INPUT

Examine employees’ input for themes.
Example:

Many IBMers criticized the “integrity that
earns trust” statement as vague, outdated,
and inwardly focused. They wanted more
specific guidance on how to behave with
each other and with external stakeholders.

REVISE YOUR VALUES

Based on the themes in employees’ input, cre-
ate a revised set of values. Gather employees’
input again.
Example:

Palmisano’s team revised the earlier value
statements to read: “Dedication to every cli-
ent’s success,” “Innovation that matters—for
our company and for the world,” and “Trust
and personal responsibility in all relation-
ships.” The team published the revised
statements on the intranet and once more
invited feedback.

IDENTIFY OBSTACLES TO LIVING THE
VALUES

Examine employees’ responses to identify
what’s preventing your company from living
its agreed-upon values.
Example:

IBMers praised the revised value statements—
often in highly emotional language—but
wondered whether IBM was willing and
able to live those values. They understood
the need to reintegrate the company but
lamented obstacles—such as frustrating fi-
nancial controls—that prevented them
from serving customers quickly.

LAUNCH CHANGE INITIATIVES TO REMOVE
OBSTACLES

Initiate change programs that enable people
to live the values.
Example:

IBM allocated $5,000 a year to individual
managers to use, no questions asked, in
order to generate business, develop client
relationships, or respond to fellow IBMers’
emergency needs. A pilot program run with
700 client-facing teams showed that they
spent the money intelligently. The program
was expanded to all 22,000 IBM first-line
managers. The initiative demonstrated to
employees that IBM lives by its values.
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An Interview with Samuel J. Palmisano

harvard business review • december 2004

C
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©
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. A
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IG
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T
S
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ES
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.

By the time Sam Palmisano took over as CEO in 2002, IBM had been
pulled back from the brink. His challenge: finding a mandate to
continue the company’s transformation. His response: a bottom-up
reinvention of IBM’s venerable values.

In July 2003, International Business Machines
Corporation conducted a 72-hour experiment
whose outcome was as uncertain as anything
going on in its research labs. Six months into a
top-to-bottom review of its management orga-
nization, IBM held a three-day discussion via
the corporate intranet about the company’s
values. The forum, dubbed ValuesJam, joined
thousands of employees in a debate about the
very nature of the computer giant and what it
stood for.
Over the three days, an estimated 50,000 of
IBM’s employees—including CEO Sam Palmisano—
checked out the discussion, posting nearly
10,000 comments about the proposed values.
The jam had clearly struck a chord.
But it was a disturbingly dissonant one.
Some comments were merely cynical. One had
the subject line: “The only value in IBM today
is the stock price.” Another read, “Company
values (ya right).” Others, though, addressed
fundamental management issues. “I feel we
talk a lot about trust and taking risks. But at
the same time, we have endless audits, mis-
takes are punished and not seen as a welcome
part of learning, and managers (and others)
are consistently checked,” wrote one employee.
“There appears to be a great reluctance among
our junior executive community to challenge
the views of our senior execs,” said another.
“Many times I have heard expressions like,
‘Would you tell Sam that his strategy is
wrong!!?’” Twenty-four hours into the exercise,
at least one senior executive wanted to pull the
plug.
But Palmisano wouldn’t hear of it. And then
the mood began to shift. After a day marked by
critics letting off steam, the countercritics
began to weigh in. While acknowledging the
company’s shortcomings, they argued that
much of IBM’s culture and values was worth
preserving. “Shortly after joining IBM 18 years
ago,” wrote one, “I was asked to serve on a jury.
When I approached the bench and answered
[the lawyers’] questions, I was surprised when
the judge said, ‘You guys can pick whoever else
you want, but

I want this IBMer

on that jury.’ I
have never felt so much pride. His statement
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said it all: integrity, excellence, and quality.”
Comments like these became more frequent,
criticism became more constructive, and the
ValuesJam conversation stabilized.
The question of what was worth preserving
and what needed to be changed was at the
heart of ValuesJam. In 1914—when the com-
pany was making tabulating machines, scales
for weighing meat, and cheese slicers—president
Thomas Watson, Sr., decreed three corporate
principles, called the Basic Beliefs: “respect for
the individual,” “the best customer service,” and
“the pursuit of excellence.” They would inform
IBM’s culture, and help drive its success, for
more than half a century.
By 2002, when Palmisano took over as CEO,
much had happened to Big Blue. In the early
1990s, the company had suffered the worst re-
versal in its history and then, under Lou Gerst-
ner, had fought its way back, transformed from
a mainframe maker into a robust provider of in-
tegrated hardware, networking, and software
solutions. Palmisano felt that the Basic Beliefs
could still serve the company—but now as the
foundation for a new set of corporate values
that could energize employees even more than
its near-death experience had. Looking for a
modern-day equivalent, Palmisano first queried
300 of his senior executives, then quickly
opened up the discussion, through a survey of
over a thousand employees, to get a sense of
how people at all levels, functions, and loca-
tions would articulate IBM’s values and their
aspirations for the company. Out of this re-
search grew the propositions that were debated
in ValuesJam.
After—and even during—the jam, company
analysts pored over the postings, mining the
million-word text for key themes. Finally, a
small team that included Palmisano came up
with a revised set of corporate values. The CEO
announced the new values to employees in an
intranet broadcast in November 2003: “dedica-
tion to every client’s success,” “innovation that
matters—for our company and for the world,”
“trust and personal responsibility in all rela-
tionships.” Earthshaking? No, but imbued with
legitimacy and packed with meaning and impli-
cations for IBM.
To prove that the new values were more than
window dressing, Palmisano immediately
made some changes. He called on the director
of a major business unit—e-business hosting
services for the U.S. industrial sector—and
charged her with identifying gaps between the
values and company practices. He bluntly told
his 15 direct reports that they had better fol-
low suit. Another online jam was held in Octo-
ber 2004 (this one informally dubbed a “log-
jam”) in which employees were asked to
identify organizational barriers to innovation
and revenue growth.
Although Palmisano, by his own account, is
building on a strategy laid down by Gerstner,
the leadership styles of the two men are very
different. Under Gerstner, there was little ex-
pansive talk about IBM’s heritage. He was an
outsider, a former CEO of RJR Nabisco and an
ex-McKinsey consultant, who was faced with
the daunting task of righting a sinking ship. In
fact, he famously observed, shortly after taking
over, that “the last thing IBM needs right now is
a vision.” Palmisano, by contrast, is a true-blue
IBMer, who started at the company in 1973 as a
salesman in Baltimore. Like many of his gener-
ation who felt such acute shame when IBM was
brought to its knees in the early 1990s, he
clearly has a visceral attachment to the firm—
and to the hope that it may someday regain its
former greatness. At the same time, the erst-
while salesman is, in the words of a colleague,
“a results-driven, make-it-rain, close-the-deal
sort of guy”: not the first person you’d expect to
hold forth on a subjective topic like “trust.”
In this edited conversation with HBR senior
editor Paul Hemp and HBR’s editor, Thomas A.
Stewart, Palmisano talks about the strategic im-
portance of values to IBM. He begins by ex-
plaining why—and how—hard financial met-
rics and soft corporate values can coexist.

Corporate values generally are feel-good
statements that have almost no effect on
a company’s operations. What made—
what makes—you think they can be more
than this?

Look at the portrait of Tom Watson, Sr., in
our lobby. You’ve never seen such a stern
man. The eyes in the painting stare right
through you. This was

not

a soft individual.
He was a capitalist. He wanted IBM to make
money, lots of it. But he was perceptive
enough to build the company in a way that
would ensure its prosperity long after he left
the scene. His three Basic Beliefs successfully
steered this company through persistent
change and repeated reinvention for more
than 50 years.

Paul Hemp

(phemp@hbsp.harvard
.edu) is a senior editor and

Thomas A.
Stewart

is the editor of HBR.
page 27

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An organic system, which is what a company
is, needs to adapt. And we think values—that’s
what we call them today at IBM, but you can
call them “beliefs” or “principles” or “precepts”
or even “DNA”—are what enable you to do
that. They let you change everything, from
your products to your strategies to your busi-
ness model, but remain true to your essence,
your basic mission and identity.
Unfortunately, over the decades, Watson’s
Basic Beliefs became distorted and took on a
life of their own. “Respect for the individual”
became entitlement: not fair work for all, not a
chance to speak out, but a guaranteed job and
culture-dictated promotions. “The pursuit of
excellence” became arrogance: We stopped lis-
tening to our markets, to our customers, to
each other. We were so successful for so long
that we could never see another point of view.
And when the market shifted, we almost went
out of business. We had to cut a workforce of
more than 400,000 people in half. Over the
course of several years, we wiped out the equiv-
alent of a medium-sized northeastern city—
say, Providence, Rhode Island.
If you lived through this, as I did, it was
easy to see how the company’s values had
become part of the problem. But I believe
values can once again help guide us through
major change and meet some of the formidable
challenges we face.
For instance, I feel that a strong value system
is crucial to bringing together and motivating a
workforce as large and diverse as ours has be-
come. We have nearly one-third of a million
employees serving clients in 170 countries.
Forty percent of those people don’t report daily
to an IBM site; they work on the client’s pre-
mises, from home, or they’re mobile. And, per-
haps most significant, given IBM’s tradition of
hiring and training young people for a life-
time of work, half of today’s employees have
been with the company for fewer than five
years because of recent acquisitions and our
relatively new practice of hiring seasoned
professionals. In a modest hiring year, we
now add 20,000 to 25,000 people.

In effect, gradually repopulating Providence,
Rhode Island!

Exactly. So how do you channel this diverse and
constantly changing array of talent and experi-
ence into a common purpose? How do you get
people to

passionately

pursue that purpose?
You could employ all kinds of traditional,
top-down management processes. But they
wouldn’t work at IBM—or, I would argue, at an
increasing number of twenty-first-century com-
panies. You just can’t impose command-and-
control mechanisms on a large, highly profes-
sional workforce. I’m not only talking about
our scientists, engineers, and consultants. More
than 200,000 of our employees have college de-
grees. The CEO can’t say to them, “Get in line
and follow me.” Or “

I’ve

decided what

your

val-
ues are.” They’re too smart for that. And as you
know, smarter people tend to be, well, a little
more challenging; you might even say cynical.
But even if our people did accept this kind of
traditional, hierarchical management system,
our clients wouldn’t. As we learned at IBM over
the years, a top-down system can create a
smothering bureaucracy that doesn’t allow for
the speed, the flexibility, the innovation that cli-
ents expect today.

So you’re saying that values are about how
employees behave when management isn’t
there, which it can’t be—which it shouldn’t
be—given IBM’s size and the need for peo-
ple to make decisions quickly. You’re basi-
cally talking about using values to manage.

Yes. A values-based management system. Let
me cast the issue in a slightly different light.
When you think about it, there’s no optimal
way to organize IBM. We traditionally were
viewed as a large, successful, “well-managed”
company. That was a compliment. But in to-
day’s fast-changing environment, it’s a problem.
You can easily end up with a bureaucracy of
people overanalyzing problems and slowing
down the decision-making process.
Think of our organizational matrix. Re-
member, we operate in 170 countries. To keep
it simple, let’s say we have 60 or 70 major
product lines. We have more than a dozen
customer segments. Well, if you mapped out
the entire 3-

D

matrix, you’d get more than
100,000 cells—cells in which you have to
close out P&Ls every day, make decisions, al-
locate resources, make trade-offs. You’ll drive
people crazy trying to centrally manage every
one of those intersections.
So if there’s no way to optimize IBM
through organizational structure or by man-
agement dictate, you have to empower people
while ensuring that they’re making the right
calls the right way. And by “right,” I’m not talk-
We were so successful for
so long that we could
never see another point
of view. And when the
market shifted, we
almost went out of
business.
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ing about ethics and legal compliance alone;
those are table stakes. I’m talking about deci-
sions that support and give life to IBM’s strat-
egy and brand, decisions that shape a culture.
That’s why values, for us, aren’t soft. They’re
the basis of what we do, our mission as a com-
pany. They’re a touchstone for decentralized
decision making. It used to be a rule of thumb
that “people don’t do what you expect; they do
what you inspect.” My point is that it’s just not
possible to inspect everyone anymore. But you
also can’t just let go of the reins and let people
do what they want without guidance or con-
text. You’ve got to create a management sys-
tem that empowers people and provides a
basis for decision making that is consistent
with who we are at IBM.

How do the new values help further IBM’s
strategy?

In two main ways. Back some 12 years ago,
three-fifths of our business was in computer
hardware and roughly two-fifths was in soft-
ware and services. Today, those numbers are
more than reversed. Well, if three-fifths of your
business is manufacturing, management is basi-
cally supervisory: “You do this. You do that.” But
that no longer works when your business is pri-
marily based on knowledge. And your business
model also changes dramatically.
For one thing, people—rather than products—
become your brand. Just as our products have
had to be consistent with the IBM brand prom-
ise, now more than ever, so do our people. One
way to ensure that is to inform their behavior
with a globally consistent set of values.
Second, the IT industry has continued to
shift toward reintegration. We all know the
story of how the industry fragmented in the
1980s and 1990s, with separate companies sell-
ing the processors, the storage devices, and the
software that make up a computer system—
almost killing IBM, the original vertically inte-
grated computer company. Now customers
are demanding a package of computer prod-
ucts and services from a single company, a
company that can offer them an integrated so-
lution to their business problems. This is a big
opportunity for IBM. We probably have a
wider array of computer products and services
and know-how than anyone. But it’s also a
challenge. How can we get our people in far-
flung business units with different financial
targets and incentives working together in
teams that can offer at a single price a compre-
hensive and customized solution—one that
doesn’t show the organizational seams?
Companies usually face the issue of work-
force integration after a huge merger. We
needed to integrate our existing workforce as a
strategic response to the reintegration of the
industry. It won’t surprise you that I didn’t
think the answer lay in a new organizational
structure or in more management oversight.
What you need to foster this sort of coopera-
tion is a common set of guidelines about how
we make decisions, day in and day out. In other
words, values.

And what happens when the strategy
changes?

Ah, that’s why the right set of values is so im-
portant. There’s always going to be another
strategy on the horizon as the market changes,
as technologies come and go. So we wanted val-
ues that would foster an organization able to
quickly execute a new strategy. At the same
time, we wanted values that, like Watson’s
Basic Beliefs, would be enduring, that would
guide the company through economic cycles
and geopolitical shifts, that would transcend
changes in products, technologies, employees,
and leaders.

How did IBM distill new values from its past
traditions and current employee feedback?

The last time IBM examined its values was
nearly a century ago. Watson was an entrepre-
neur, leading what was, in today’s lingo, a
start-up. So in 1914, he simply said, “Here are
our beliefs. Learn them. Live them.” That was
appropriate for his day, and there’s no ques-
tion it worked. But 90 years later, we couldn’t
have someone in headquarters sitting up in
bed in the middle of the night and saying,
“Here are our new values!” We couldn’t be ca-
sual about tinkering with the DNA of a com-
pany like IBM. We had to come up with a way
to get the employees to create the value sys-
tem, to determine the company’s principles.
Watson’s Basic Beliefs, however distorted they
might have become over the years, had to be
the starting point.
After getting input from IBM’s top 300 exec-
utives and conducting focus groups with more
than a thousand employees—a statistically rep-
resentative cross-section—we came up with
three perfectly sound values. [For a detailed de-
You could say, “Oh my
God, I’ve unleashed this
incredible negative
energy.” Or you could say,
“Oh my God, I now have
this incredible mandate
to drive even more
change in the company.”
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scription of how IBM got from the Basic Beliefs
to its new set of values, see the sidebar “Conti-
nuity and Change.”] But I knew we’d eventually
throw out the statements to everyone in the
company to debate. That’s where ValuesJam
came in—this live, companywide conversation
on our intranet.

What was your own experience during the
jam? Did you have the feeling you’d opened
Pandora’s box?

I logged in from China. I was pretty jet-lagged
and couldn’t sleep, so I jumped in with postings
on a lot of stuff, particularly around client is-
sues. [For a selection of Palmisano’s postings
during the ValuesJam, see the sidebar “Sam
Joins the Fray.”] And yes, the electronic argu-
ment was hot and contentious and messy. But
you had to get comfortable with that. Under-
stand, we had done three or four big online
jams before this, so we had some idea of how
lively they can be. Even so, none of those could
have prepared us for the emotions unleashed
by this topic.
You had to put your ego aside—not easy for
a CEO to do—and realize that this was the best
thing that could have happened. You could say,
“Oh my God, I’ve unleashed this incredible
negative energy.” Or you could say, “Oh my
God, I now have this incredible mandate to
drive even more change in the company.”
When Lou Gerstner came here in 1993,
there was clearly a burning platform. In fact,
the whole place was in flames. There was even
talk of breaking up the company. And he re-
sponded brilliantly. Here’s this outsider who
managed to marshal the collective urgency of
tens of thousands of people like me to save this
company and turn it around: without a doubt
one of the greatest saves in business history.
But the trick then wasn’t creating a sense of
urgency—we had that. Maybe you needed to
shake people out of being shell-shocked. But
most IBMers were willing to do whatever it
took to save the company, not to mention their
own jobs. And there was a lot of pride at stake.
Lou’s task was mostly to convince people that
he was making the right changes.
Once things got better, though, there was
another kind of danger: that we would slip
back into complacency. As our financial results
improved dramatically and we began outper-
forming our competitors, people—already
weary from nearly a decade of change—would
say, “Well, why do I have to do things differ-
ently now? The leadership may be different,
but the strategy is fundamentally sound. Why
do I have to change?” This is, by the way, a
problem that everyone running a successful
company wrestles with.

Continuity and Change

IBM’s new values grew out of a long
tradition. In 1914, Thomas Watson, Sr.,
the founder of the modern Interna-
tional Business Machines Corporation,
laid out three principles known as the

Basic Beliefs

:

•

Respect for the individual

•

The best customer service

•

The pursuit of excellence
Although these beliefs played a signif-
icant role in driving IBM’s success over
most of the twentieth century, they
eventually were subsumed—and, in ef-
fect, redefined—by a sense of entitle-
ment and arrogance within the organi-
zation. That, according to CEO Sam
Palmisano, contributed to the com-
pany’s failure to respond to market
changes in the early 1990s and to its
near demise.
In February 2003, just under a year
after taking over as CEO, at a meeting of
IBM’s top 300 managers, Palmisano
raised the idea of reinventing the com-
pany’s values as a way to manage and
reintegrate the sprawling and diverse
enterprise. He put forth

four concepts

,
three of them drawn from Watson’s
Basic Beliefs, as possible bases for the
new values:

•

Respect

•

Customer

•

Excellence

•

Innovation
These were “test marketed” through
surveys and focus groups with more
than 1,000 IBM employees. The notion
of “respect” was thrown out because of
its connotations of the past. It was also
decided that statements rather than just
words would be more compelling.
Out of this process grew the three

pro-
posed values

discussed during the July
2003 online forum, ValuesJam:

•

Commitment to the customer

•

Excellence through innovation

•

Integrity that earns trust
Using a specially tailored “jamalyzer”
tool—based on IBM’s e-classifier soft-
ware, but turbocharged with additional
capabilities designed to process con-
stantly changing content—IBM analysts
crunched the million-plus words posted
during the ValuesJam. Some themes
emerged. For example, many people
said that a silo mentality pitted the busi-
ness units against one another, to the
detriment of IBM as a whole. Several
people characterized this as a trust is-
sue. But the proposed value “integrity
that earns trust” was criticized as being
too vague. Some thought it was just an-
other way of saying “respect for the indi-
vidual,” one of the original Basic Beliefs
that many now viewed as outdated. And
the notion of trust was seen as being too
inwardly focused—management trust-
ing its employees—and not prescriptive
enough in terms of how employees
should behave with each other or with
parties outside the company.
Drawing on this analysis, the re-
sults of pre- and post-jam surveys,
and a full reading of the raw tran-
scripts, a small team, with input from
Palmisano, arrived at a revised set of

new corporate values

:

• Dedication to every client’s suc-
cess
• Innovation that matters—for our
company and for the world
• Trust and personal responsibility
in all relationships

These were published on the company
intranet in November 2003.
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So the challenge shifted. Instead of galvaniz-
ing people through fear of failure, you have to
galvanize them through hope and aspiration.
You lay out the opportunity to become a great
company again—the greatest in the world,
which is what IBM used to be. And you hope
people feel the same need, the urgency you do,
to get there. Well, I think IBMers today do feel
that urgency. Maybe the jam’s greatest contri-
bution was to make that fact unambiguously
clear to all of us, very visibly, in public.

What were the chief points of debate—or
contention?

There was actually remarkable agreement on

what

we all value. The debate, as it turned out,
wasn’t over the values themselves so much. The
debate was about whether IBM today is willing
and able to live them.
For instance, people seemed to understand
the need to reintegrate the company, but there
were complaints—legitimate complaints—
about things that are getting in the way. People
would describe extremely frustrating situa-
tions. They’d say something like: “I’m in Tokyo,
prototyping software for a client, and I need a
software engineer based in Austin

right now

to
help in a blade server configuration. But I can’t
just say, ‘Please come to Tokyo and help.’ I need
to get a charge code first so I can pay his depart-
ment for his time!”
There’s a collective impatience that we’ve
been tapping into to drive the change needed
to make IBM everything that all of us aspire for
it to be. I’m convinced that we wouldn’t have
gotten to this point if we hadn’t found a way to
engage the entire IBM population in a genuine,
candid conversation.
By the way, having a global, universally ac-
cessible intranet like ours certainly helps, but
the technology isn’t the point. I think we
would’ve found a way to have this company-
wide dialogue if the Web didn’t exist. [For an
explanation of how the jam worked, see the
sidebar “Managing ValuesJam.”]

What happened after the jam?

Well, we got a mountain of employee com-
ments. The team analyzed all of it, and it was
clear that the proposed value statements needed
to change to reflect some of the nuances and emo-
tion people expressed. So, drawing on this analy-
sis, along with other employee feedback, a small
team settled on IBM’s new corporate values.
The first value is “dedication to every client’s
success.” At one level, that’s pretty straightfor-
ward: Bring together all of IBM’s capability—in
the laboratory, in the field, in the back office,
wherever—to help solve difficult problems cli-
ents can’t solve themselves. But this is also a lot
more than the familiar claim of unstinting cus-

Sam Joins the Fray

IBM CEO Sam Palmisano was in China on business during ValuesJam, and he
logged on from there. Following are some of his comments (typos included) on a num-
ber of topics raised by employees during the online forum:

YES, values matter!!!!!

(6 reply)
Samuel J. Palmisano 29 Jul 2003 20:00 GMT
Good discussion about the need for values/principles/belifes, etc. people can be very
cynical and sarcastic about this kind of topic,but I appreciate the thoughtful con-
structive comments I’m seeing. Personaly, I believe “values” should embrace a com-
pany’s broader role in the world –with customers, society, culture,etc. – as well as
how its people work together.. I hope this Jam elevates IBMs ambitions about its mis-
sion inthe 21st century.. WE have a unique opprtunity for IBM to set the pace for ALL
companies, not just the techs.

doing the right thing for customers…

(21 reply)
Samuel J. Palmisano 29 Jul 2003 20:07 GMT
Early in my career when I was in the field in Baltimore,one of our systems failed for a
healthcare customer. The customer went to manual processes,but said they would
start losing patients within hours if the system couldnt be fixed. The branch mgr
called one of our competitors and orderd another system. so two teams of IBMERS
worked side by side..one to fix the system, the others to bring up the new one. the
mgr never asked Hq what to do.. it was a great lesson in how far this company will go
to help a customer in time of need. btw, we fixed the system in time.

integrity/trust in ALL our relationships matter!!!!

(44 reply)
Samuel J. Palmisano 29 Jul 2003 20:12 GMT
very interesting discussion… one thing I’m noticing, and it was in the broadcast
feedback too: not too many of you are talking about integrity and trust when it comes
to our OTHER relationships that are key to IBMs success—customers, communities
where we live, owners of the company etc. any thoghts on why thats so? maybe we’re too
inwardly focused?

a world without IBM????

(35 reply)
Samuel J. Palmisano 29 Jul 2003 20:20 GMT
No IBM? the industry would stop growing because no one would invent anything
that ran for more than THREE MINUTES.. no IBM means no grownups… no IBM
means no truly global company that brings economic growth, respect progress to so-
cieties everywhere… no iBM means no place to work for hundreds of thousands of
people who want more than a job, they want to ,MAKE A DIFFERENCE in the world.

suggestion for Sam

(9 reply)
Samuel J. Palmisano 29 Jul 2003 20:25 GMT
steve, you make good points about how/when we win… we can blow up more bure-
cracy if we all behave like mature adutls and take into account ALL OF THE INTER-
ESTS of IBm FIRST.. customers, employees, shareholders, doing whats right for the
LONG TERM intersts of the company. mgrs have an importrant role to play in en-
couraing this kind of behavior… you have my support.
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tomer service. “Client success” isn’t just “the
customer is always right.” It means maintaining
a long-term relationship where what happens
after the deal is more important than what hap-
pens before it’s signed. It means a persistent
focus on outcomes. It means having skin in the
game of your client’s success, up to and includ-
ing how your contracts are structured and what
triggers your getting paid.
The second is “innovation that matters—for
our company and for the world.” When employ-
ees talked about IBM making a difference in the
world, they included more than our work of in-
venting and building great products. They
talked about how their work touches people
and society, how we can help save lives—say,
through our cutting-edge work with the Mayo
Clinic or by helping governments fight terror-
ism with our data technology. This kind of inno-
vation is a major reason we are able to attract
great scientists. They can do cool stuff and
maybe make more money in Silicon Valley—
for a while, anyway—but they can do work that
actually changes business and society at IBM.
And it’s also about what I mentioned before: a
continually experimental attitude toward IBM
itself. Over most of our 90 years, with the ex-
ception of that one period when we became
arrogant and complacent, this company never
stopped questioning assumptions, trying out
different models, testing the limits—whether
in technology or business or in progressive
workforce policies. Employees reminded us
that those things are innovations that matter at
least as much as new products.
The third value is “trust and personal respon-
sibility in all relationships.” There’s a lot in that
statement, too. Interestingly, the feedback from
employees on this value has focused on rela-
tionships among people at IBM. But we’re also
talking about the company’s relationships with
suppliers, with investors, with governments,
with communities.
We published the values in their final form—
along with some elaboration on them and
some direct employee postings from the jam—
in November 2003. Over the next ten days,
more than 200,000 people downloaded the on-
line document. The responses just flooded in,
both in the form of postings on the intranet
and in more than a thousand e-mails sent di-
rectly to me, telling us in often sharp language
just where IBM’s operations fell short of, or
clashed with, these ideals. Some of the com-
ments were painful to read. But, again, they ex-
hibited something every leader should wel-
come: People here aren’t complacent about the
company’s future. And the comments were, by
and large, extremely thoughtful.

What did you do with this feedback?

We collected and collated it. Then I printed all
of it out—the stack of paper was about three
feet high—and took it home to read over one
weekend. On Monday morning, I walked into
our executive committee meeting and threw it
on the table. I said, “You guys ought to read
every one of these comments, because if you
think we’ve got this place plumbed correctly,
think again.”
Don’t get me wrong. The passion in these e-
mails was positive as well as negative. People
would say, literally, “I’m weeping. These values
describe the company I joined, the company I
believe in. We can truly make this place great
again. But we’ve got all these things in our
way.…” The raw emotion of some of the e-
mails was really something.

Managing ValuesJam

IBM had experimented before with jam sessions—relatively unstructured employee
discussions around broad topics—both on the corporate intranet and in face-to-face
off-site brainstorming sessions. But the 72-hour ValuesJam, held in July 2003, was the
most ambitious, focusing as it did on the very nature and future of IBM.
One thing was clear: You wouldn’t be able to orchestrate a forum like this, the verbal
equivalent of an improvisational jam session among jazz musicians. In the words of
CEO Sam Palmisano, “It just took off.” But, much like a musical jam, the dialogue was
informed by a number of themes:

Forum 1. Company Values

Do company values exist? If so, what is
involved in establishing them? Most
companies today have values state-
ments. But what would a company
look and act like that truly lived its
beliefs? Is it important for IBM to
agree on a set of lasting values that
drive everything it does?

Forum 2. A First Draft

What values are essential to what IBM
needs to become? Consider this list: 1.
Commitment to the customer. 2. Excel-
lence through innovation. 3. Integrity
that earns trust. How might these values
change the way we act or the decisions
we make? Is there some important as-
pect or nuance that is missing?

Forum 3. A Company’s Impact

If our company disappeared tonight,
how different would the world be tomor-
row? Is there something about our com-
pany that makes a unique contribution
to the world?

Forum 4. The Gold Standard

When is IBM at its best? When have you
been proudest to be an IBMer? What
happened, and what was uniquely
meaningful about it? And what do we
need to do—or change—to be the gold
standard going forward?
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Now, if you’ve unleashed all this frustration
and energy, if you’ve invited people to feel
hope about something they really care about,
you’d better be prepared to do something in re-
sponse. So, in the months since we finalized the
values, we’ve announced some initiatives that
begin to close the gaps.
One I have dubbed our “$100 million bet on
trust.” We kept hearing about situations like
our colleague in Tokyo who needed help from
the engineer in Austin, cases in which employ-
ees were unable to respond quickly to client
needs because of financial control processes
that required several levels of management
approval. The money would usually be ap-
proved, but too late. So we allocated managers
up to $5,000 annually they could spend, no
questions asked, to respond to extraordinary
situations that would help generate business
or develop client relationships or to respond
to an IBMer’s emergency need. We ran a pilot
for a few months with our 700 client-facing
teams, and they spent the money intelligently.
There were lots of examples of teams winning
deals and delighting clients with a small
amount of “walk around money” to spend at
their discretion. So, based on the success of
that pilot, we expanded the program to all
22,000 IBM first-line managers.
You can do the math: $5,000 times 22,000
managers is a big number. I’m sure there were
people in the company who said, “We need to
get this under control.” But they’re not the
CEO. Yes, you need financial controls. Yes,
not every dollar spent from this Managers’
Value Fund will yield some tangible return. But
I’m confident that allowing line managers to
take some reasonable risks, and trusting them
with those decisions, will pay off over time.
The program also makes a point: that we live
by our values.
The value of “trust and personal responsibil-
ity in all relationships”—including those with
IBM’s shareholders—led to another initiative:
a change in the way we grant top executive
stock options. After getting a lot of outside ex-
perts to study this (and concluding that the
complicated algorithms they recommended
were wonderful, if you wanted to hire the out-
siders as permanent consultants, but terrible if
you wanted a simple formula that aligned exec-
utive behavior with shareholder interests), we
settled on a straightforward idea. Senior execu-
tives will benefit from their options only after
shareholders have realized at least 10% growth
in their investments—that is, the strike price is
10% higher than the market price on the day
the options are issued. Look at it this way:
IBM’s market value would have to increase by
$17 billion from that date before any of the
execs realize a penny of benefit. We think we
are the first large company to take such a radi-
cal step—and it grew out of our values.
Let me give you one more example. It may
not sound like a big deal, but for us, it was radi-
cal. We overhauled the way we set prices. We
heard time and again from employees about
how difficult it was to put together a client-
friendly, cross-IBM solution, one involving a
variety of products and services at a single, all-
inclusive price. We couldn’t do it. Every brand
unit had its own P&L, and all the people who
determine prices had been organized by brand.
Remember those 100,000 cells in our 3-

D

ma-
trix? Our people were pulling their cross-IBM
bids apart, running them through our financial-
accounting system as separate bids for individ-
ual products and services. This was nuts, because
it’s our ability to offer everything—hardware,
software, services, and financing—that gives us
a real advantage. When we bid on each of the
parts separately, we go head-to-head against ri-
vals by product: EMC in storage, say, or Accen-
ture in services. This was tearing out the very
heart of our strategy of integration, not to
mention our unique kind of business-plus-
technology innovation.
Let me give you a humorous (if somewhat
discouraging) illustration. Every senior execu-
tive has responsibility for at least one major
client—we call them “partnership accounts.”
Our former CFO John Joyce, who now heads
IBM’s services business, put together a deal
for his account that involved some hardware,
some software, and some services. He was told
he couldn’t price it as an integrated solution.
And he’s the CFO! So we figured out a way to
set a single price for each integrated offering.

This sounds like a great business move. But
what does it have to do with values?
Wouldn’t you ultimately have decided you
had to do that in any case?

To be honest, we’d been debating the pricing
issue at the executive level for a long time. But
we hadn’t done anything about it. The values
initiative forced us to confront the issue, and it
gave us the impetus to make the change. You
On Monday morning, I
walked into our
executive committee
meeting and said, “You
guys ought to read every
one of these comments,
because if you think
we’ve got this place
plumbed correctly, think
again.”
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know, there are always ingrained operations
and habits of mind in any organization—I
don’t care whether it’s a business or a university
or a government. Well, the values and the jam
were great inertia-busting vehicles. A small
business in this place is $15 billion, and a big
one is $40 billion. So you have senior vice pres-
idents running Fortune 500–sized companies
who aren’t necessarily looking for bright ideas
from the CEO or some task force every day. But
when you hear from so many of our people
on the front lines, you can’t just ignore it.
They’re crying out: “We say we value ‘client
success,’ and we want to grow our business.
This one thing is getting in the way of both!”
You’ve got to pay attention—if not to me, then
to them.
So we took the pricers—the people who set
the prices for client bids—and we said to
them, “You work for IBM. When there’s a
cross-IBM bid with multiple products, you
price it on the IBM income statement, not on
the income statements of each product.”
Needless to say, this involved a series of very
difficult meetings with senior executives. There
was a huge debate among the finance people
about all the reasons why we couldn’t do it:
“It will be too much work to reallocate all the
costs and revenue of a project back to individ-
ual profit centers.” And they’re right: It isn’t
easy, especially when we now have to certify
everything. But the CFO was with me on this:
After all, he’d seen the problem firsthand!
And we made the change, so that now when
we make a truly cross-IBM bid, we can opti-
mize it for the client and for us.
This brings us back to the tension between
soft values and hard financial metrics. In
the long run, they shouldn’t conflict. But
along the way, they’re going to be jabbing
at each other. After all, people still have to
make their numbers.
Certainly, there’s no getting around that in a
commercial enterprise. But I think values inject
balance in the company’s culture and manage-
ment system: balance between the short-term
transaction and the long-term relationship, bal-
ance between the interests of shareholders, em-
ployees, and clients. In every case, you have to
make a call. Values help you make those deci-
sions, not on an ad hoc basis, but in a way that
is consistent with your culture and brand, with
who you are as a company.
Look at how we compensate our managing
directors, who are responsible for our largest
client relationships. We decided to take half
their comp and calculate it not on an annual
basis but on a rolling three-year basis. We ask
clients to score the managing director’s perfor-
mance at the end of a project or engagement,
which might last longer than a single year, and
that plays a big part in his bonus. So a big piece
of his compensation is based on a combination
of the project’s profitability—whether the man-
ager made his annual numbers—and on the cli-
ent’s satisfaction over a longer-term horizon.
The managing director can’t trade off one for
the other.
So we’ve tried to keep balance in the system,
to make sure that things aren’t completely
oriented toward short-term financials. But
you’re absolutely right: There are times when
people will argue, “Well, jeez, you guys are
pushing us in both directions.” It’s a valid de-
bate. I think, though, that the best place to
have that debate is at the lowest level of your
organization, because that’s where these de-
cisions are being made and having an impact.
Thousands of these interactions go on every
day that none of us at the top will ever, or
should ever, know about. But you hope that
the values are providing a counterweight to
the drive for short-term profitability in all
those interactions. In the long term, I think,
whether or not you have a values-driven cul-
ture is what makes you a winner or a loser.
You’ve had the new values in place for just
about a year now. They’ve already created
strong emotions and high expectations.
What’s the prognosis?
We’re just starting down the road on what is
probably a ten- to 15-year process. I was back in
Asia not long ago, and I did one of these town
hall–style meetings with IBM employees and
talked about the values. Probably two-thirds of
the people clearly knew about them, had read
about them. But a third of the people—you
could look at their faces and see it—hadn’t even
heard of the values. Or at least the values hadn’t
resonated with them yet. So we have work to
do. Not just in getting everyone to memorize
three pithy statements. We need to do a heck of
a lot to close the gaps between our stated values
and the reality of IBM today. That’s the point of
it all.
I know that not everyone on my executive
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Leading Change When Business Is Good•••THE HBR INTERVIEW
harvard business review • december 2004
team is as enthusiastic about the values initia-
tive as I am—though they’d never admit it! But
people on the senior team who lived through
IBM’s near-death experience will do anything
not to go back to that. The blow to everyone’s
pride when IBM became the laughingstock of
the business world was almost too much to
bear. I have zero resistance from the senior
team to initiatives that can save us from a re-
turn to that. And our values work is one of the
most important of those initiatives.
Then look at the employee response to
ValuesJam. There is an unmistakable yearn-
ing for this to be a great company. I mean, why
have people joined IBM over the years? There
are a lot of places to make money, if that’s what
drives you. Why come here?
I believe it’s because they want to be part of
a progressive company that makes a differ-
ence in the world. They want to be in the kind
of company that supports research that wins
Nobel Prizes, that changes the way people
think about business itself, that is willing to
take firm positions on unpopular issues based
on principle.
You know, back in the 1950s, Watson, Jr.,
wrote the governors of southern states that
IBM would not adhere to separate-but-equal
laws, and then the company codified an equal-
opportunity policy years before it was man-
dated by law. I’ve got to believe that a company
that conceives of itself that way, and that seri-
ously manages itself accordingly, has strong ap-
peal to a lot of people. We can’t offer them the
promise of instant wealth, which they may get
at a start-up, or a job for life, as in the old days.
But we can offer them something worth believ-
ing in and working toward.
If we get most people in this company ex-
cited about that, they’re going to pull the rest of
the company with them. If they become dedi-
cated to these values and what we’re trying to
accomplish, I can go to sleep at night confident
of our future.
Reprint R0412C
To order, see the next page
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People on the senior
team who lived through
IBM’s near-death
experience will do
anything not to go back
to that.
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Further Reading
A R T I C L E S
Your Company’s Secret Change Agents
by Richard Tanner Pascale and Jerry Sternin
Harvard Business Review
May 2005
Product no. R0505D
This article offers an additional approach to
building grassroots commitment to continu-
ous change in your company. Start by helping
struggling teams identify other people in your
organization who are already doing things in
radically different—and better—ways. These
“positive deviants” might be engineers tack-
ling a thorny technical problem, or a sales
group scoring unusual successes with cus-
tomers. Make these deviants evangelists of
their own innovative practices: Identify them
as the “go-to guys”—the problem solvers
who have the answers, rather than co-opting
their practices and imposing them on strug-
gling groups. And let positive deviants know
that it’s safe to discuss taboos and explore
alternative solutions.
The Quest for Resilience
by Gary Hamel and Liisa Välikangas
Harvard Business Review
September 2003
Product no. R0309C
The authors affirm that change is not just a
one-time response to crisis and that compa-
nies must prepare themselves to adapt to a
constant stream of strategic challenges. This
preparation requires “strategic resilience”—
the ability to dynamically reinvent business
models and strategies as circumstances
change, to continuously anticipate and adjust
to changes that threaten your company’s core
earning power, and to change before the need
becomes desperately obvious. The keys to
strategic resilience? Conquer denial of warn-
ing signs that the business landscape is
changing. Replace “That can’t be true” with
“We must face the world as it is.” Test promis-
ing ideas for innovative offerings through
prototypes and customer interviews. Get cash
to people who can bring new ideas to fruition.
And reward people for experimenting with
new ideas.
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Radical Change, the
Quiet Way

by Debra E. Meyerson

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article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work

38

Article Summary

39

Radical Change, the Quiet Way
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications

48

Further Reading

If you want to push important
cultural changes through your
organization without
damaging your career, step
softly. Try these tempered but
surprisingly effective
techniques.

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Radical Change, the Quiet Way

The Idea in Brief The Idea in Practice

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How do you rock your corporate boat—
without falling out? You know your firm
needs constructive change, but here’s your
dilemma: If you push your agenda too hard,
resentment builds against you. If you re-
main silent, resentment builds inside you.
What’s a manager to do? Become a

tem-
pered radical

—an informal leader who
quietly challenges prevailing wisdom and
provokes cultural transformation. These
radicals bear no banners and sound no
trumpets. Their seemingly innocuous
changes barely inspire notice. But like
steady drops of water, they gradually
erode granite.
Tempered radicals embody contrasts. Their
commitments are firm, but their means
flexible. They yearn for rapid change, but
trust in patience. They often work alone, yet
unite others. Rather than pressing their
agendas, they start conversations. And
instead of battling powerful foes, they
seek powerful friends. The overall effect?
Evolutionary—but relentless—change.
Tempered radicals use these tactics:

Disruptive Self-Expression.

Demonstrate
your values through your language, dress, of-
fice décor, or behavior. People notice and
talk—often becoming brave enough to try
the change themselves. The more people talk,
the greater the impact.
Example:

Stressed-out manager John Ziwak began
arriving at work earlier so he could leave by
6:00 p.m. to be with family. He also refused
evening business calls. As his stress eased,
his performance improved. Initially skepti-
cal, colleagues soon accommodated, find-
ing more efficient ways of working and
achieving balance in their own lives.

Verbal Jujitsu.

Redirect negative statements
or actions into positive change.
Example:

Sales manager Brad Williams noticed that
the new marketing director’s peers ignored
her during meetings. When one of them
co-opted a thought she had already ex-
pressed, Williams said: “I’m glad George
picked up on Sue’s concerns. Sue, did
George correctly capture what you were
thinking?” No one ignored Sue again.

Variable-Term Opportunism.

Be ready to cap-
italize on unexpected opportunities for short-
term change, as well as orchestrate deliberate,
longer term change.
Example:

Senior executive Jane Adams joined a com-
pany with a dog-eat-dog culture. To insinu-
ate her collaborative style, she shared
power with direct reports, encouraged
them to also delegate, praised them pub-
licly, and invited them to give high-visibility
presentations. Her division gained repute as
an exceptional training ground for building
experience, responsibility, and confidence.

Strategic Alliance Building.

Gain clout by
working with allies. Enhance your legitimacy
and implement change more quickly and di-
rectly than you could alone. Don’t make “op-
ponents” enemies—they’re often your best
source of support and resources.
Example:

Paul Wielgus started a revolution in his bu-
reaucratic global spirits company—by per-
suading the opposition to join him. Others
derided the training department Wielgus
formed to boost employee creativity, and
an auditor scrutinized the department for
unnecessary expense. Rather than getting
defensive, Paul treated the auditor as an
equal and sold him on the program’s value.
The training spread, inspiring employees
and enhancing productivity throughout
the company.
page 38

Radical Change, the
Quiet Way

by Debra E. Meyerson

harvard business review • october 2001

C
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If you want to push important cultural changes through your
organization without damaging your career, step softly. Try these
tempered but surprisingly effective techniques.

At one point or another, many managers expe-
rience a pang of conscience—a yearning to
confront the basic or hidden assumptions, in-
terests, practices, or values within an organiza-
tion that they feel are stodgy, unfair, even
downright wrong. A vice president wishes that
more people of color would be promoted. A
partner at a consulting firm thinks new MBAs
are being so overworked that their families are
hurting. A senior manager suspects his com-
pany, with some extra cost, could be kinder to
the environment. Yet many people who want
to drive changes like these face an uncomfort-
able dilemma. If they speak out too loudly, re-
sentment builds toward them; if they play by
the rules and remain silent, resentment builds
inside them. Is there any way, then, to rock the
boat without falling out of it?
Over the past 15 years, I have studied hun-
dreds of professionals who spend the better
part of their work lives trying to answer this
question. Each one of the people I’ve studied
differs from the organizational status quo in
some way—in values, race, gender, or sexual
preference, perhaps (see the sidebar “How the
Research Was Done”). They all see things a bit
differently from the “norm.” But despite feel-
ing at odds with aspects of the prevailing cul-
ture, they genuinely like their jobs and want to
continue to succeed in them, to effectively use
their differences as the impetus for construc-
tive change. They believe that direct, angry
confrontation will get them nowhere, but they
don’t sit by and allow frustration to fester.
Rather, they work quietly to challenge prevail-
ing wisdom and gently provoke their organiza-
tional cultures to adapt. I call such change
agents

tempered radicals

because they work to
effect significant changes in moderate ways.
In so doing, they exercise a form of leader-
ship within organizations that is more local-
ized, more diffuse, more modest, and less visible
than traditional forms—yet no less significant.
In fact, top executives seeking to institute cul-
tural or organizational change—who are, per-
haps, moving tradition-bound organizations
down new roads or who are concerned about
reaping the full potential of marginalized
page 39

Radical Change, the Quiet Way

harvard business review • october 2001

employees—might do well to seek out these
tempered radicals, who may be hidden deep
within their own organizations. Because such
individuals are both dedicated to their compa-
nies and masters at changing organizations at
the grassroots level, they can prove extremely
valuable in helping top managers to identify
fundamental causes of discord, recognize alter-
native perspectives, and adapt to changing needs
and circumstances. In addition, tempered radi-
cals, given support from above and a modicum
of room to experiment, can prove to be excel-
lent leaders. (For more on management’s role
in fostering tempered radicals, see the sidebar
“Tempered Radicals as Everyday Leaders.”)
Since the actions of tempered radicals are
not, by design, dramatic, their leadership may
be difficult to recognize. How, then, do people
who run organizations, who want to nurture
this diffuse source of cultural adaptation, find
and develop these latent leaders? One way is to
appreciate the variety of modes in which tem-
pered radicals operate, learn from them, and
support their efforts.
To navigate between their personal beliefs
and the surrounding cultures, tempered radi-
cals draw principally on a spectrum of incre-
mental approaches, including four I describe
here. I call these

disruptive self-expression, ver-
bal jujitsu, variable-term opportunism,

and

strategic alliance building

. Disruptive self-
expression, in which an individual simply acts
in a way that feels personally right but that
others notice, is the most inconspicuous way
to initiate change. Verbal jujitsu turns an in-
sensitive statement, action, or behavior back
on itself. Variable-term opportunists spot, cre-
ate, and capitalize on short- and long-term
opportunities for change. And with the help
of strategic alliances, an individual can push
through change with more force.
Each of these approaches can be used in
many ways, with plenty of room for creativity
and wit. Self-expression can be done with a
whisper; an employee who seeks more racial
diversity in the ranks might wear her dashiki to
company parties. Or it can be done with a roar;
that same employee might wear her dashiki to
the office every day. Similarly, a person seeking
stricter environmental policies might build an
alliance by enlisting the help of one person,
the more powerful the better. Or he might
post his stance on the company intranet and
actively seek a host of supporters. Taken to-
gether, the approaches form a continuum of
choices from which tempered radicals draw at
different times and in various circumstances.
But before looking at the approaches in de-
tail, it’s worth reconsidering, for a moment,
the ways in which cultural change happens in
the workplace.

How Organizations Change

Research has shown that organizations
change primarily in two ways: through drastic
action and through evolutionary adaptation.
In the former case, change is discontinuous
and often forced on the organization or man-
dated by top management in the wake of
major technological innovations, by a scarcity
or abundance of critical resources, or by sud-
den changes in the regulatory, legal, competi-
tive, or political landscape. Under such cir-
cumstances, change may happen quickly and
often involves significant pain. Evolutionary
change, by contrast, is gentle, incremental, de-
centralized, and over time produces a broad
and lasting shift with less upheaval.
The power of evolutionary approaches to
promote cultural change is the subject of fre-
quent discussion. For instance, in “We Don’t
Need Another Hero” (HBR, September 2001),
Joseph L. Badaracco, Jr., asserts that the most
effective moral leaders often operate beneath
the radar, achieving their reforms without
widespread notice. Likewise, tempered radi-
cals gently and continually push against pre-
vailing norms, making a difference in small but
steady ways and setting examples from which
others can learn. The changes they inspire are
so incremental that they barely merit notice—
which is exactly why they work so well. Like
drops of water, these approaches are innocu-
ous enough in themselves. But over time and
in accumulation, they can erode granite.
Consider, for example, how a single individ-
ual slowly—but radically—altered the face of
his organization. Peter Grant

1

was a black se-
nior executive who held some 18 positions as
he moved up the ladder at a large West Coast
bank. When he first joined the company as a
manager, he was one of only a handful of
people of color on the professional staff. Peter
had a private, long-term goal: to bring more
women and racial minorities into the fold and
help them succeed. Throughout his 30-year ca-
reer running the company’s local banks, re-
gional offices, and corporate operations, one of

Debra E. Meyerson

is the author of

Tempered Radicals: How People Use
Differences to Inspire Change at Work

(Harvard Business School Press, 2001).
She is a visiting professor at the Gradu-
ate School of Business and at the
School of Engineering of Stanford
University in Stanford, California.
She is also on the faculty at the Center
for Gender in Organizations at Simmons
Graduate School of Management. Her
most recent article for HBR, “A Modest
Manifesto for Shattering the Glass Ceil-
ing,” with Joyce K. Fletcher, appeared in
the January–February 2000 issue.
page 40

Radical Change, the Quiet Way

harvard business review • october 2001

his chief responsibilities was to hire new tal-
ent. Each time he had the opportunity, Peter
attempted to hire a highly qualified member
of a minority. But he did more than that—
every time he hired someone, he asked that
person to do the same. He explained to the
new recruits the importance of hiring women
and people of color and why it was their ob-
ligation to do likewise.
Whenever minority employees felt frus-
trated by bias, Peter would act as a supportive
mentor. If they threatened to quit, he would
talk them out of it. “I know how you feel, but
think about the bigger picture here,” he’d say.
“If you leave, nothing here will change.” His ex-
ample inspired viral behavior in others. Many
stayed and hired other minorities; those who
didn’t carried a commitment to hire minorities
into their new companies. By the time Peter
retired, more than 3,500 talented minority and
female employees had joined the bank.
Peter was the most tempered, yet the most
effective, of radicals. For many years, he en-
dured racial slurs and demeaning remarks
from colleagues. He waited longer than his
peers for promotions; each time he did move
up he was told the job was too big for him and
he was lucky to have gotten it. “I worked my
rear end off to make them comfortable with
me,” he said, late in his career. “It wasn’t

luck

.”
He was often angry, but lashing out would
have been the path of least emotional resis-
tance. So without attacking the system, ad-
vancing a bold vision, or wielding great power,
Peter chipped away at the organization’s de-
mographic base using the full menu of change
strategies described below.

Disruptive Self-Expression

At the most tempered end of the change con-
tinuum is the kind of self-expression that qui-
etly disrupts others’ expectations. Whether
waged as a deliberate act of protest or merely
as a personal demonstration of one’s values,
disruptive self-expression in language, dress,
office decor, or behavior can slowly change the
atmosphere at work. Once people take notice
of the expression, they begin to talk about it.
Eventually, they may feel brave enough to try
the same thing themselves. The more people
who talk about the transgressive act or repeat
it, the greater the cultural impact.
Consider the case of John Ziwak, a manager
in the business development group of a high-
growth computer components company. As
a hardworking business school graduate who’d
landed a plum job, John had every intention
of working 80-hour weeks on the fast track to
the top. Within a few years, he married a woman
who also held a demanding job; soon, he be-
came the father of two. John found his life
torn between the competing responsibilities
of home and work. To balance the two, John
shifted his work hours—coming into the office
earlier in the morning so that he could leave
by 6 pm. He rarely scheduled late-afternoon
meetings and generally refused to take calls at
home in the evening between 6:30 and 9. As a
result, his family life improved, and he felt
much less stress, which in turn improved his
performance at work.
At first, John’s schedule raised eyebrows;
availability was, after all, an unspoken key indi-
cator of commitment to the company. “If John
is unwilling to stay past 6,” his boss wondered,
“is he really committed to his job? Why should
I promote him when others are willing and
able to work all the time?” But John always
met his performance expectations, and his boss
didn’t want to lose him. Over time, John’s col-
leagues adjusted to his schedule. No one set up

How the Research Was Done

This article is based on a multipart re-
search effort that I began in 1986 with
Maureen Scully, a professor of manage-
ment at the Center for Gender in Organi-
zations at Simmons Graduate School of
Management in Boston. We had ob-
served a number of people in our own
occupation—academia—who, for various
reasons, felt at odds with the prevailing
culture of their institutions. Initially, we
set out to understand how these individu-
als sustained their sense of self amid pres-
sure to conform and how they managed
to uphold their values without jeopardiz-
ing their careers. Eventually, this research
broadened to include interviews with in-
dividuals in a variety of organizations
and occupations: business people, doc-
tors, nurses, lawyers, architects, adminis-
trators, and engineers at various levels of
seniority in their organizations.
Since 1986, I have observed and inter-
viewed dozens of tempered radicals in
many occupations and conducted fo-
cused research with 236 men and
women, ranging from mid-level profes-
sionals to CEOs. The sample was diverse,
including people of different races, na-
tionalities, ages, religions, and sexual
orientations, and people who hold a
wide range of values and change agen-
das. Most of these people worked in one
of three publicly traded corporations—
a financial services organization, a high-
growth computer components corpora-
tion, and a company that makes and
sells consumer products. In this portion
of the research, I set out to learn more
about the challenges tempered radicals
face and discover their strategies for
surviving, thriving, and fomenting
change. The sum of this research re-
sulted in the spectrum of strategies de-
scribed in this article.
page 41

Radical Change, the Quiet Way

harvard business review • october 2001

conference calls or meetings involving him
after 5. One by one, other employees began
adopting John’s “6 o’ clock rule”; calls at home,
particularly during dinner hour, took place
only when absolutely necessary. Although the
6 o’ clock rule was never formalized, it none-
theless became par for the course in John’s de-
partment. Some of John’s colleagues continued
to work late, but they all appreciated these
changes in work practice and easily accommo-
dated them. Most people in the department
felt more, not less, productive during the day
as they adapted their work habits to get things
done more efficiently—for example, running
meetings on schedule and monitoring inter-
ruptions in their day. According to John’s boss,
the employees appreciated the newfound bal-
ance in their lives, and productivity in the de-
partment did not suffer in the least.
Tempered radicals know that even the small-
est forms of disruptive self-expression can be
exquisitely powerful. The story of Dr. Frances
Conley offers a case in point. By 1987, Dr. Con-
ley had already established herself as a lead-
ing researcher and neurosurgeon at Stanford
Medical School and the Palo Alto Veteran’s Ad-
ministration hospital. But as one of very few
women in the profession, she struggled daily to
maintain her feminine identity in a macho pro-
fession and her integrity amid gender discrimi-
nation. She had to keep her cool when, for ex-
ample, in the middle of directing a team of
residents through complicated brain surgery, a
male colleague would stride into the operating
room to say, “Move over, honey.” “Not only did
that undermine my authority and expertise with
the team,” Dr. Conley recalled later, “but it was
unwarranted—and even dangerous. That kind
of thing would happen all the time.”
Despite the frustration and anger she felt,
Dr. Conley at that time had no intention of
making a huge issue of her gender. She didn’t
want the fact that she was a woman to com-
promise her position, or vice versa. So she ex-
pressed herself in all sorts of subtle ways, in-
cluding in what she wore. Along with her
green surgical scrubs, she donned white lace
ankle socks—an unequivocal expression of her

Tempered Radicals as Everyday Leaders

In the course of their daily actions and inter-
actions, tempered radicals teach important
lessons and inspire change. In so doing, they
exercise a form of leadership within organiza-
tions that is less visible than traditional
forms—but just as important.
The trick for organizations is to locate and
nurture this subtle form of leadership. Con-
sider how Barry Coswell, a conservative, yet
open-minded lawyer who headed up the se-
curities division of a large, distinguished fi-
nancial services firm, identified, protected,
and promoted a tempered radical within his
organization. Dana, a left-of-center, first-year
attorney, came to his office on her first day of
work after having been fingerprinted—a
standard practice in the securities industry.
The procedure had made Dana nervous:
What would happen when her new employer
discovered that she had done jail time for
participating in a 1960s-era civil rights pro-
test? Dana quickly understood that her only
hope of survival was to be honest about her
background and principles. Despite the dif-
ference in their political proclivities, she de-
cided to give Barry the benefit of the doubt.
She marched into his office and confessed to
having gone to jail for sitting in front of a bus.
“I appreciate your honesty,” Barry
laughed, “but unless you’ve broken a securi-
ties law, you’re probably okay.” In return for
her small confidence, Barry shared stories of
his own about growing up in a poor county
and about his life in the military. The story
swapping allowed them to put aside ideologi-
cal disagreements and to develop a deep re-
spect for each other. Barry sensed a budding
leader in Dana. Here was a woman who oper-
ated on the strength of her convictions and
was honest about it but was capable of dis-
cussing her beliefs without self-righteousness.
She didn’t pound tables. She was a good con-
versationalist. She listened attentively. And
she was able to elicit surprising confessions
from him.
Barry began to accord Dana a level of pro-
tection, and he encouraged her to speak her
mind, take risks, and most important, chal-
lenge his assumptions. In one instance, Dana
spoke up to defend a female junior lawyer
who was being evaluated harshly and, Dana
believed, inequitably. Dana observed that
different standards were being applied to
male and female lawyers, but her colleagues
dismissed her “liberal” concerns. Barry cast
a glance at Dana, then said to the staff, “Let’s
look at this and see if we are being too quick
to judge.” After the meeting, Barry and
Dana held a conversation about double
standards and the pervasiveness of bias. In
time, Barry initiated a policy to seek out
minority legal counsel, both in-house and at
outside legal firms. And Dana became a senior
vice president.
In Barry’s ability to recognize, mentor, and
promote Dana there is a key lesson for execu-
tives who are anxious to foster leadership in
their organizations. It suggests that leader-
ship development may not rest with expen-
sive external programs or even with the best
intentions of the human resources depart-
ment. Rather it may rest with the open-
minded recognition that those who appear to
rock the boat may turn out to be the most ef-
fective of captains.
page 42

Radical Change, the Quiet Way

harvard business review • october 2001

femininity. In itself, wearing lace ankle socks
could hardly be considered a Gandhian act of
civil disobedience. The socks merely said, “I
can be a neurosurgeon and be feminine.” But
they spoke loudly enough in the stolid mascu-
linity of the surgical environment, and, along
with other small actions on her part, they
sparked conversation in the hospital. Nurses
and female residents frequently commented
on Dr. Conley’s style. “She is as demanding as
any man and is not afraid to take them on,”
they would say, in admiration. “But she is also a
woman and not ashamed of it.”
Ellen Thomas made a comparable statement
with her hair. As a young African-American
consultant in a technical services business, she
navigated constantly between organizational
pressures to fit in and her personal desire to
challenge norms that made it difficult for her
to be herself. So from the beginning of her em-
ployment, Ellen expressed herself by wearing
her hair in neat cornrow braids. For Ellen, the
way she wore her hair was not just about style;
it was a symbol of her racial identity.
Once, before making an important client
presentation, a senior colleague advised Ellen
to unbraid her hair “to appear more profes-
sional.” Ellen was miffed, but she didn’t respond.
Instead, she simply did not comply. Once the
presentation was over and the client had been
signed, she pulled her colleague aside. “I want
you to know why I wear my hair this way,” she
said calmly. “I’m a black woman, and I hap-
pen to like the style. And as you just saw,” she
smiled, “my hairstyle has nothing to do with
my ability to do my job.”
Does leaving work at 6

PM

or wearing lacy
socks or cornrows force immediate change
in the culture? Of course not; such acts are too
modest. But disruptive self-expression does do
two important things. First, it reinforces the
tempered radical’s sense of the importance
of his or her convictions. These acts are self-
affirming. Second, it pushes the status quo
door slightly ajar by introducing an alternative
modus operandi. Whether they are subtle, un-
spoken, and recognizable by only a few or vo-
cal, visible, and noteworthy to many, such acts,
in aggregation, can provoke real reform.

Verbal Jujitsu

Like most martial arts, jujitsu involves taking
a force coming at you and redirecting it to
change the situation. Employees who practice
verbal jujitsu react to undesirable, demeaning
statements or actions by turning them into op-
portunities for change that others will notice.
One form of verbal jujitsu involves calling at-
tention to the opposition’s own rhetoric. I re-
call a story told by a man named Tom Novak,
an openly gay executive who worked in the
San Francisco offices of a large financial ser-
vices institution. As Tom and his colleagues
began seating themselves around a table for a
meeting in a senior executive’s large office, the
conversation briefly turned to the topic of the

A Spectrum of Tempered Change Strategies

The tempered radical’s spectrum of strategies is
anchored on the left by

disruptive self-expression:

subtle acts of private, individual style. A slightly
more public form of expression,

verbal jujitsu,

turns the opposition’s negative expression or
behavior into opportunities for change. Further
along the spectrum, the tempered radical uses

variable-term opportunism

to recognize and act
on short- and long-term chances to motivate
others. And through

strategic alliance building,

the individual works directly with others to
bring about more extensive change. The more
conversations an individual’s action inspires
and the more people it engages, the stronger
the impetus toward change becomes.
In reality, people don’t apply the strategies in
the spectrum sequentially or even necessarily
separately. Rather, these tools blur and overlap.
Tempered radicals remain flexible in their ap-
proach, “heating up” or “cooling off” each as
conditions warrant.
Disruptive
Self-Expression
Verbal
Jujitsu
Variable-Term
Opportunism
Strategic
Alliance Building
Most public
(working with others)
Most personal
(single individual)
page 43

Radical Change, the Quiet Way

harvard business review • october 2001

upcoming Gay Freedom Day parade and to so-
called gay lifestyles in general. Joe, a colleague,
said loudly, “I can appreciate that some people
choose a gay lifestyle. I just don’t understand
why they have to flaunt it in people’s faces.”
Stung, Tom was tempted to keep his mouth
shut and absorb the injury, but that would
have left him resentful and angry. He could
have openly condemned Joe’s bias, but that
would have made him look defensive and
self-righteous. Instead, he countered Joe with
an altered version of Joe’s own argument, say-
ing calmly, “I know what you mean, Joe. I’m
just wondering about that big picture of your
wife on your desk. There’s nothing wrong
with being straight, but it seems that you
are the one announcing your sexuality.” Sud-
denly embarrassed, Joe responded with a
simple, “Touché.”
Managers can use verbal jujitsu to prevent
talented employees, and their valuable contri-
butions, from becoming inadvertently margin-
alized. That’s what happened in the following
story. Brad Williams was a sales manager at a
high-technology company. During a meeting
one day, Brad noticed that Sue, the new mar-
keting director, had tried to interject a few
comments, but everything she said was rou-
tinely ignored. Brad waited for the right mo-
ment to correct the situation. Later on in the
meeting, Sue’s colleague George raised similar
concerns about distributing the new business’s
products outside the country. The intelligent
remark stopped all conversation. During the
pause, Brad jumped in: “That’s an important
idea,” he said. “I’m glad George picked up on
Sue’s concerns. Sue, did George correctly cap-
ture what you were thinking?”
With this simple move, Brad accomplished
a number of things. First, by indirectly show-
ing how Sue had been silenced and her idea
co-opted, he voiced an unspoken fact. Second,
by raising Sue’s visibility, he changed the
power dynamic in the room. Third, his action
taught his colleagues a lesson about the way
they listened—and didn’t. Sue said that after
that incident she was no longer passed over
in staff meetings.
In practicing verbal jujitsu, both Tom and
Brad displayed considerable self-control and
emotional intelligence. They listened to and
studied the situation at hand, carefully cali-
brating their responses to disarm without
harming. In addition, they identified the un-
derlying issues (sexual bias, the silencing of
newcomers) without sounding accusatory and
relieved unconscious tensions by voicing them.
In so doing, they initiated small but meaning-
ful changes in their colleagues’ assumptions
and behavior.

Variable-Term Opportunism

Like jazz musicians, who build completely
new musical experiences from old standards as
they go along, tempered radicals must be cre-
atively open to opportunity. In the short-term,
that means being prepared to capitalize on
serendipitous circumstances; in the long-term,
it often means something more proactive. The
first story that follows illustrates the former
case; the second is an example of the latter.
Tempered radicals like Chris Morgan know
that rich opportunities for reform can often
appear suddenly, like a $20 bill found on a
sidewalk. An investment manager in the audit
department of a New York conglomerate,
Chris made a habit of doing whatever he
could to reduce waste. To save paper, for ex-
ample, he would single-space his documents
and put them in a smaller font before press-
ing the “Print” button, and he would use
both sides of the paper. One day, Chris no-
ticed that the company cafeteria packaged its
sandwiches in Styrofoam boxes that people
opened and immediately tossed. He pulled
the cafeteria manager aside. “Mary,” he said
with a big smile, “those turkey-on-focaccia
sandwiches look delicious today! I was won-
dering, though…would it be possible to wrap
sandwiches only when people asked you to?”
By making this very small change, Chris
pointed out, the cafeteria would save substan-
tially on packaging costs.
Chris gently rocked the boat by taking the
following steps. First, he picked low-hanging
fruit, focusing on something that could be
done easily and without causing a lot of stir.
Next, he attacked the problem not by criticiz-
ing Mary’s judgment but by enrolling her in
his agenda (praising her tempting sandwiches,
then making a gentle suggestion). Third, he il-
luminated the advantages of the proposed
change by pointing out the benefits to the caf-
eteria. And he started a conversation that,
through Mary, spread to the rest of the cafete-
ria staff. Finally, he inspired others to action:
Eventually, the cafeteria staff identified and
eliminated 12 other wasteful practices.
Even the smallest forms
of disruptive self-
expression can be
exquisitely powerful.
page 44

Radical Change, the Quiet Way

harvard business review • october 2001

Add up enough conversations and inspire
enough people and, sooner or later, you get
real change. A senior executive named Jane
Adams offers a case in point. Jane was hired in
1995 to run a 100-person, mostly male software-
development division in an extremely fast-
growing, pre-IPO technology company. The
CEO of the company was an autocrat who ex-
pected his employees to emulate his dog-eat-
dog management style. Although Jane was
new to the job and wanted very much to fit in
and succeed, turf wars and command-and-
control tactics were anathema to her. Her style
was more collaborative; she believed in sharing
power. Jane knew that she could not attack the
company’s culture by arguing with the CEO;
rather, she took charge of her own division and
ran it her own way. To that end, she took every
opportunity to share power with subordi-
nates. She instructed each of her direct reports
to delegate responsibility as much as possible.
Each time she heard about someone taking ini-
tiative in making a decision, she would praise
that person openly before his or her manager.
She encouraged people to take calculated risks
and to challenge her.
When asked to give high-visibility presenta-
tions to the company’s executive staff, she
passed the opportunities to those who had
worked directly on the project. At first, senior
executives raised their eyebrows, but Jane as-
sured them that the presenter would deliver.
Thus, her subordinates gained experience and
won credit that, had they worked for someone
else, they would likely never have received.
Occasionally, people would tell Jane that
they noticed a refreshing contrast between
her approach and the company’s prevailing
one. “Thanks, I’m glad you noticed,” she
would say with a quiet smile. Within a year,
she saw that several of her own direct reports
began themselves to lead in a more collabora-
tive manner. Soon, employees from other di-
visions, hearing that Jane’s was one of the
best to work for, began requesting transfers.
More important, Jane’s group became known
as one of the best training grounds and Jane
as one of the best teachers and mentors of
new talent. Nowhere else did people get the
experience, responsibility, and confidence that
she cultivated in her employees.
For Chris Morgan, opportunity was short-
term and serendipitous. For Jane Adams, op-
portunity was more long-term, something to
be mined methodically. In both cases, though,
remaining alert to such variable-term opportu-
nities and being ready to capitalize on them
were essential.

Strategic Alliance Building

So far, we have seen how tempered radicals,
more or less working alone, can effect change.
What happens when these individuals work
with allies? Clearly, they gain a sense of legiti-
macy, access to resources and contacts, techni-
cal and task assistance, emotional support, and
advice. But they gain much more—the power
to move issues to the forefront more quickly
and directly than they might by working alone.
When one enlists the help of like-minded,
similarly tempered coworkers, the strategic al-
liance gains clout. That’s what happened when
a group of senior women at a large profes-
sional services firm worked with a group of
men sympathetic to their cause. The firm’s ex-
ecutive management asked the four-woman
group to find out why it was so hard for the
company to keep female consultants on staff.
In the course of their investigation, the women
discussed the demanding culture of the firm: a
70-hour work week was the norm, and most
consultants spent most of their time on the
road, visiting clients. The only people who es-
caped this demanding schedule were part-time
consultants, nearly all of whom happened to
be women with families. These part-timers
were evaluated according to the same perfor-
mance criteria—including the expectation of
long hours—as full-time workers. Though
many of the part-timers were talented contrib-
utors, they consistently failed to meet the time
criterion and so left the company. To correct
the problem, the senior women first gained
the ear of several executive men who, they
knew, regretted missing time with their own
families. The men agreed that this was a prob-
lem and that the company could not continue
to bleed valuable talent. They signed on to
help address the issue and, in a matter of
months, the evaluation system was adjusted to
make success possible for all workers, regard-
less of their hours.
Tempered radicals don’t allow preconceived
notions about “the opposition” to get in their
way. Indeed, they understand that those who
represent the majority perspective are vitally
important to gaining support for their cause.
Paul Wielgus quietly started a revolution at his
page 45

Radical Change, the Quiet Way

harvard business review • october 2001

company by effectively persuading the opposi-
tion to join him. In 1991, Allied Domecq, the
global spirits company whose brands include
Courvoisier and Beefeater, hired Paul as a mar-
keting director in its brewing and wholesaling
division. Originally founded in 1961 as the re-
sult of a merger of three British brewing and
pub-owning companies, the company had in-
herited a bureaucratic culture. Tony Hales, the
CEO, recognized the need for dramatic change
inside the organization and appreciated Paul’s
talent and fresh perspective. He therefore al-
lowed Paul to quit his marketing job, report di-
rectly to the CEO, and found a nine-person
learning and training department that ran pro-
grams to help participants shake off stodgy
thinking and boost their creativity. Yet despite
the department’s blessing from on high and a
two-year record of success, some managers
thought of it as fluff. In fact, when David, a se-
nior executive from the internal audit depart-
ment, was asked to review cases of unnecessary
expense, he called Paul on the carpet.
Paul’s strategy was to treat David not as a
threat but as an equal, even a friend. Instead
of being defensive during the meeting, Paul
used the opportunity to sell his program. He
explained that the trainers worked first with
individuals to help unearth their personal
values, then worked with them in teams to
develop new sets of group values that they all
believed in. Next, the trainers aligned these
personal and departmental values with those
of the company as a whole. “You wouldn’t
believe the changes, David,” he said, enthusi-
astically. “People come out of these work-
shops feeling so much more excited about
their work. They find more meaning and pur-
pose in it, and as a consequence are happier
and much more productive. They call in sick
less often, they come to work earlier in the
morning, and the ideas they produce are
much stronger.” Once David understood the
value of Paul’s program, the two began to talk
about holding the training program in the
internal audit department itself.
Paul’s refusal to be frightened by the system,
his belief in the importance of his work, his
search for creative and collaborative solutions,
his lack of defensiveness with an adversary,
and his ability to connect with the auditor
paved the way for further change at Allied
Domecq. Eventually, the working relationship
the two men had formed allowed the internal
audit department to transform its image as a
policing unit into something more positive.
The new Audit Services department came to
be known as a partner, rather than an enforcer,
in the organization as a whole. And as head of
the newly renamed department, David be-
came a strong supporter of Paul’s work.
Tempered radicals understand that people
who represent the majority perspective can be
important allies in more subtle ways as well. In
navigating the course between their desire to
undo the status quo and the organizational re-
quirements to uphold it, tempered radicals
benefit from the advice of insiders who know
just how hard to push. When a feminist who
wants to change the way her company treats
women befriends a conservative Republican
man, she knows he can warn her of political
minefields. When a Latino manager wants his
company to put a Spanish-language version of
a manual up on the company’s intranet, he
knows that the white, monolingual executive
who runs operations may turn out to be an ex-
cellent advocate.
Of course, tempered radicals know that not
everyone is an ally, but they also know it’s
pointless to see those who represent the status
quo as enemies. The senior women found fault
with an inequitable evaluation system, not
with their male colleagues. Paul won David’s
help by giving him the benefit of the doubt
from the very beginning of their relationship.
Indeed, tempered radicals constantly consider
all possible courses of action: “Under what con-
ditions, for what issues, and in what circum-
stances does it make sense to join forces with
others?”; “How can I best use this alliance to
support my efforts?”
Clearly, there is no one right way to effect
change. What works for one individual under
one set of circumstances may not work for oth-
ers under different conditions. The examples
above illustrate how tempered radicals use a
spectrum of quiet approaches to change their
organizations. Some actions are small, private,
and muted; some are larger and more public.
Their influence spreads as they recruit others
and spawn conversations. Top managers can
learn a lot from these people about the me-
chanics of evolutionary change.
Tempered radicals bear no banners; they
sound no trumpets. Their ends are sweeping,
but their means are mundane. They are firm in
Tempered radicals bear
no banners; they sound
no trumpets. Their ends
are sweeping, but their
means are mundane.
page 46

Radical Change, the Quiet Way

harvard business review • october 2001

their commitments, yet flexible in the ways
they fulfill them. Their actions may be small
but can spread like a virus. They yearn for
rapid change but trust in patience. They often
work individually yet pull people together.
Instead of stridently pressing their agendas,
they start conversations. Rather than battling
powerful foes, they seek powerful friends. And
in the face of setbacks, they keep going. To
do all this, tempered radicals understand revo-
lutionary change for what it is—a phenome-
non that can occur suddenly but more often
than not requires time, commitment, and the
patience to endure.

1. With the exception of those in the VA hospi-
tal and Allied Domecq cases, all the names
used through this article are fictitious.

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Further Reading

A R T I C L E S

Lead Softly—And Carry a Big Impact

HBR Article Collection
Product no. 7710

This set of three articles on quiet, modest—
and astoundingly effective—leaders shines a
spotlight on the themes Meyerson discusses.
In

“We Don’t Need Another Hero,”

Joseph
Badaracco outlines four rules that “quiet leaders”
follow in grappling with their organizations’
toughest ethical dilemmas. Specifically, he
shows how they 1) buy time to make key deci-
sions, 2) patiently pick their battles, 3) bend
rules, and 4) master the art of compromise.
In

“Level 5 Leadership: The Triumph of Hu-
mility and Fierce Resolve,”

Jim Collins looks
specifically at CEOs who take a tempered ap-
proach to leadership. Collins highlights the
paradoxical combination of deep personal hu-
mility and intense professional will that char-
acterizes leaders of Fortune 500 companies
that sustained greatness for at least 15 years.
Such leaders suppress their egos and eschew
the limelight—while using their mild-mannered,
but steely, style and inspired standards to
achieve extraordinary results.
In

“Retention Through Redemption,”

meet
tempered radical D. Michael Abrashoff—the
U.S. Navy commander who inspired greatness
among the troubled crew of the USS

Benfold

.
Abrashoff rocked this boat—decidedly. Yet he
didn’t fall out. How? He used measured, mod-
est tactics—combined with patience and
compassion—to ultimately transform life on
the

Benfold

.

B O O K

Tempered Radicals: How People Use
Difference to Inspire Change at Work

by Debra E. Meyerson
Harvard Business School Press
2001
Product no. 9059

This book expands on “Radical Change, the
Quiet Way.” Through a wealth of vivid exam-
ples, Myerson maps the space between con-
formity and extreme radicalism. She shows
how you can become a valued and successful
force for change within your organization—
without compromising your strongest values
and beliefs.
She also takes a deeper look at the tactics de-
scribed in the article, showing how they can
help you “fit in without selling out.” As she
explains, these tactics constitute a spectrum
of potent approaches—ranging from cau-
tious to increasingly bold. Shrewdly applied,
they enable you to rock the boat from inside
the corporate ship, steering a course for pow-
erful, positive transformation within your
own organization.
page 48

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http://www.hbr.org

mailto:customizations@hbsp.harvard.edu

www.hbr.org

Tipping Point
Leadership

by W. Chan Kim and Renée Mauborgne

Included with this full-text

Harvard Business Review

article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work

50

Article Summary

51

Tipping Point Leadership
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications

62

Further Reading

How can you catapult your
organization to high
performance when time and
money are scarce? Police chief
Bill Bratton has pulled that off
again and again. Here’s what
it takes.

Reprint R0304D

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Tipping Point Leadership

The Idea in Brief The Idea in Practice

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How can you overcome the hurdles facing
any organization struggling to change: ad-
diction to the status quo, limited resources,
demotivated employees, and opposition
from powerful vested interests?
Take lessons from police chief Bill Bratton,
who’s pulled the trick off five times. Most
dramatically, he transformed the U.S.’s most
dangerous city—New York—into its safest.
Bratton used

tipping point leadership

to
make unarguable calls for change, concen-
trate resources on what really mattered,
mobilize key players’ commitment, and
silence naysayers.
Not every executive has Bratton’s personal-
ity, but most have his potential—if they
follow his success formula.

FOUR STEPS TO THE TIPPING POINT

1. Break through the cognitive hurdle.

To
make a compelling case for change, don’t just
point at the numbers and demand better
ones. Your abstract message won’t stick. In-
stead, make key managers

experience

your
organization’s problems.
Example:

New Yorkers once viewed subways as the
most dangerous places in their city. But the
New York Transit Police’s senior staff pooh-
poohed public fears—because none had
ever ridden subways. To shatter their com-
placency, Bratton required all NYTP officers—
himself included—to commute by sub-
way. Seeing the jammed turnstiles, youth
gangs, and derelicts, they grasped the need
for change—and embraced responsibility
for it.

2. Sidestep the resource hurdle.

Rather than
trimming your ambitions (dooming your
company to mediocrity) or fighting for more
resources (draining attention from the under-
lying problems), concentrate

current

resources
on areas

most

needing change.
Example:

Since the majority of subway crimes occurred
at only a few stations, Bratton focused man-
power there—instead of putting a cop on
every subway line, entrance, and exit.

3. Jump the motivational hurdle.

To turn a
mere strategy into a movement, people must
recognize what needs to be done and yearn
to do it themselves. But don’t try reforming
your whole organization; that’s cumbersome
and expensive. Instead, motivate

key influencers

—
persuasive people with multiple connections.
Like bowling kingpins hit straight on, they
topple all the other pins. Most organizations
have several key influencers who share com-
mon problems and concerns—making it easy
to identify and motivate them.
Example:

Bratton put the NYPD’s key influencers—
precinct commanders—under a spotlight
during semiweekly crime strategy review
meetings, where peers and superiors grilled
commanders about precinct performance.
Results? A culture of performance, account-
ability, and learning that commanders repli-
cated down the ranks.
Also make challenges attainable. Bratton ex-
horted staff to make NYC’s streets safe “block
by block, precinct by precinct, and borough
by borough.”

4. Knock over the political hurdle.

Even when
organizations reach their tipping points, pow-
erful vested interests resist change. Identify
and silence key naysayers early by putting a
respected senior insider on your top team.
Example:

At the NYPD, Bratton appointed 20-year
veteran cop John Timoney as his number
two. Timoney knew the key players and
how they played the political game. Early
on, he identified likely saboteurs and resist-
ers among top staff—prompting a chang-
ing of the guard.
Also, silence opposition with indisputable
facts. When Bratton proved his proposed
crime-reporting system required less than 18
minutes a day, time-crunched precinct com-
manders adopted it.
page 50

Tipping Point
Leadership

by W. Chan Kim and Renée Mauborgne

harvard business review • april 2003

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How can you catapult your organization to high performance when
time and money are scarce? Police chief Bill Bratton has pulled that off
again and again. Here’s what it takes.

In February 1994, William Bratton was ap-
pointed police commissioner of New York
City. The odds were against him. The New
York Police Department, with a $2 billion
budget and a workforce of 35,000 police offic-
ers, was notoriously difficult to manage. Turf
wars over jurisdiction and funding were rife.
Officers were underpaid relative to their
counterparts in neighboring communities,
and promotion seemed to bear little relation-
ship to performance. Crime had gotten so far
out of control that the press referred to the
Big Apple as the Rotten Apple. Indeed, many
social scientists had concluded, after three
decades of increases, that New York City
crime was impervious to police intervention.
The best the police could do was react to
crimes once they were committed.
Yet in less than two years, and without an
increase in his budget, Bill Bratton turned
New York into the safest large city in the na-
tion. Between 1994 and 1996, felony crime
fell 39%; murders, 50%; and theft, 35%. Gal-
lup polls reported that public confidence in
the NYPD jumped from 37% to 73%, even as
internal surveys showed job satisfaction in
the police department reaching an all-time
high. Not surprisingly, Bratton’s popularity
soared, and in 1996, he was featured on the
cover of

Time.

Perhaps most impressive, the
changes have outlasted their instigator, im-
plying a fundamental shift in the depart-
ment’s organizational culture and strategy.
Crime rates have continued to fall: Statistics
released in December 2002 revealed that New
York’s overall crime rate is the lowest among
the 25 largest cities in the United States.
The NYPD turnaround would be impres-
sive enough for any police chief. For Bratton,
though, it is only the latest of no fewer than
five successful turnarounds in a 20-year career
in policing. In the hope that Bratton can re-
peat his New York and Boston successes, Los
Angeles has recruited him to take on the chal-
lenge of turning around the LAPD. (For a
summary of his achievements, see the exhibit
“Bratton in Action.”)
So what makes Bill Bratton tick? As man-
page 51

Tipping Point Leadership

harvard business review • april 2003

agement researchers, we have long been fas-
cinated by what triggers high performance or
suddenly brings an ailing organization back
to life. In an effort to find the common ele-
ments underlying such leaps in performance,
we have built a database of more than 125
business and nonbusiness organizations. Brat-
ton first caught our attention in the early
1990s, when we heard about his turnaround
of the New York Transit Police. Bratton was
special for us because in all of his turn-
arounds, he succeeded in record time despite
facing all four of the hurdles that managers
consistently claim block high performance:
an organization wedded to the status quo,
limited resources, a demotivated staff, and op-
position from powerful vested interests. If
Bratton could succeed against these odds,
other leaders, we reasoned, could learn a lot
from him.
Over the years, through our professional
and personal networks and the rich public in-
formation available on the police sector, we
have systematically compared the strategic,
managerial, and performance records of Brat-
ton’s turnarounds. We have followed up by in-
terviewing the key players, including Bratton
himself, as well as many other people who for
professional—or sometimes personal—reasons
tracked the events.
Our research led us to conclude that all of
Bratton’s turnarounds are textbook examples
of what we call tipping point leadership. The
theory of tipping points, which has its roots
in epidemiology, is well known; it hinges on
the insight that in any organization, once the
beliefs and energies of a critical mass of peo-
ple are engaged, conversion to a new idea
will spread like an epidemic, bringing about
fundamental change very quickly. The the-
ory suggests that such a movement can be
unleashed only by agents who make unfor-
gettable and unarguable calls for change,
who concentrate their resources on what re-
ally matters, who mobilize the commitment
of the organization’s key players, and who
succeed in silencing the most vocal naysay-
ers. Bratton did all of these things in all of
his turnarounds.
Most managers only dream of pulling off
the kind of performance leaps Bratton deliv-
ered. Even Jack Welch needed some ten years
and tens of millions of dollars of restructuring
and training to turn GE into the powerhouse
it is today. Few CEOs have the time and
money that Welch had, and most—even those
attempting relatively mild change—are soon
daunted by the scale of the hurdles they face.
Yet we have found that the dream can indeed
become a reality. For what makes Bratton’s
turnarounds especially exciting to us is that
his approach to overcoming the hurdles
standing in the way of high performance has
been remarkably consistent. His successes,
therefore, are not just a matter of personality
but also of method, which suggests that they
can be replicated. Tipping point leadership
is learnable.
In the following pages, we’ll lay out the ap-
proach that has enabled Bratton to overcome
the forces of inertia and reach the tipping
point. We’ll show first how Bratton overcame
the cognitive hurdles that block companies
from recognizing the need for radical change.
Then we’ll describe how he successfully
managed around the public sector’s endemic
constraints on resources, which he even
turned to his advantage. In the third section,
we’ll explain how Bratton overcame the moti-
vational hurdles that had discouraged and
demoralized even the most eager police offic-
ers. Finally, we’ll describe how Bratton neatly
closed off potentially fatal resistance from
vocal and powerful opponents. (For a graphic
summary of the ideas expressed in this arti-
cle, see the exhibit “Tipping Point Leadership
at a Glance.”)

Break Through the Cognitive Hurdle

In many turnarounds, the hardest battle is
simply getting people to agree on the causes
of current problems and the need for change.
Most CEOs try to make the case for change
simply by pointing to the numbers and insist-
ing that the company achieve better ones.
But messages communicated through num-
bers seldom stick. To the line managers—the
very people the CEO needs to win over—the
case for change seems abstract and remote.
Those whose units are doing well feel that
the criticism is not directed at them, that the
problem is top management’s. Managers of
poorly performing units feel that they have
been put on notice—and people worried
about job security are more likely to be scan-
ning the job market than trying to solve the
company’s problems.
For all these reasons, tipping point leaders

W. Chan Kim

is the Boston Consulting
Group Bruce D. Henderson Chair Pro-
fessor of International Management at
Insead in Fontainebleau, France. The
author’s most recent article in HBR,
“Charting Your Company’s Future,”
appeared in the June 2002 issue.

Renée Mauborgne

is the Insead
Distinguished Fellow and Affiliate
Professor of Strategy and Management
at Insead. She is also the president of
ITM, a strategy research group in Fon-
tainebleau. The author’s most recent
article in HBR, “Charting Your Compa-
ny’s Future,” appeared in the June 2002
issue. He can be reached at
chan.kim@insead.edu and
renee.mauborgne@insead.edu.
page 52

mailto:chan.kim@insead.edu

mailto:renee.mauborgne@insead.edu

Tipping Point Leadership

harvard business review • april 2003
Bratton in Action
The New York Police Department was not Bill Bratton’s first turnaround.
The table describes his biggest challenges and achievements during his
20 years as a policy reformer.
Boston Police
District 4
1977–1982
Sergeant, lieutenant
Assaults, drug
dealing, prostitution,
public drinking, and
graffiti were endemic
to the area.
The Boston public
shied away from
attending baseball
games and other
events and from
shopping in the
Fenway neighbor-
hood for fear of being
robbed or attacked or
having their cars
stolen.
Crime throughout
the Fenway area was
dramatically reduced.
Tourists, residents,
and investment
returned as an entire
area of the city
rebounded.
Massachusetts Bay
Transit Authority
(MBTA)
1983–1986
Superintendent
Subway crime had been
on the rise for the past
five years.
The media dubbed
the Boston subway the
Terror Train.
The Boston Globe
published a series on
police incompetence
in the MBTA.
Crime on the MBTA
decreased by 27%;
arrests rose to 1,600
per year from 600.
The MBTA police
met more than 800
standards of excellence
to be accredited by the
National Commission
on Accreditation for
Police Agencies. It was
only the 13th police
department in the
country to meet this
standard.
Equipment acquired
during his tenure:
55 new midsize cars,
new uniforms, and
new logos.
Ridership began
to grow.
Boston Metropolitan
Police (“The Mets”)
1986–1990
Superintendent
The Mets lacked
modern equipment,
procedures, and
discipline.
Physical facilities
were crumbling.
Accountability,
discipline, and
morale were low
in the 600-person
Mets workforce.
Employee morale rose
as Bratton instilled
accountability, protocol,
and pride.
In three years, the
Metropolitan Police
changed from a dispir-
ited, do-nothing, reac-
tive organization with
a poor self-image and
an even worse public
image to a very proud,
proactive department.
Equipment acquired
during his tenure:
100 new vehicles, a
helicopter, and a state-
of-the-art radio system.
New York Transit Police
(NYTP)
1990–1992
Chief of police
Crime had risen 25%
per year in the past three
years – twice the overall
rate for the city.
Subway use by the public
had declined sharply; polls
indicated that New York-
ers considered the subway
the most dangerous
place in the city.
There were 170,000
fare evaders per day,
costing the city
$80 million annually.
Aggressive panhandling
and vandalism were
endemic. More than
5,000 people were living
in the subway system.
In two years, Bratton
reduced felony crime by
22%, with robberies down
by 40%.
Increased confidence
in the subway led to
increased ridership.
Fare evasion was cut
in half.
Equipment acquired
during his tenure: a
state-of-the-art communi-
cation system, advanced
handguns for officers,
and new patrol cars (the
number of cars doubled).
New York Police
Department (NYPD)
1994–1996
Commissioner
The middle class was
fleeing to the suburbs
in search of a better
quality of life.
There was public
despair in the face of
the high crime rate.
Crime was seen as
part of a breakdown
of social norms.
The budget for
policing was shrinking.
The NYPD budget
(aside from personnel)
was being cut by 35%.
The staff was demoral-
ized and relatively
underpaid.
Overall crime fell by 17%.
Felony crime fell by 39%.
Murders fell by 50%.
Theft fell by 35%
(robberies were
down by one-third,
burglaries by
one-quarter).
There were 200,000
fewer victims a year
than in 1990.
By the end of Bratton’s
tenure, the NYPD had
a 73% positive rating,
up from 37% four years
earlier.
Domain
Years
Position
Setting
Results
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like Bratton do not rely on numbers to break
through the organization’s cognitive hurdles.
Instead, they put their key managers face-to-
face with the operational problems so that
the managers cannot evade reality. Poor per-
formance becomes something they witness
rather than hear about. Communicating in this
way means that the message—performance is
poor and needs to be fixed—sticks with people,
which is essential if they are to be convinced
not only that a turnaround is necessary but
that it is something they can achieve.
When Bratton first went to New York to
head the transit police in April 1990, he dis-
covered that none of the senior staff officers
rode the subway. They commuted to work
and traveled around in cars provided by the
city. Comfortably removed from the facts of
underground life—and reassured by statis-
tics showing that only 3% of the city’s major
crimes were committed in the subway—the
senior managers had little sensitivity to rid-
ers’ widespread concern about safety. In
order to shatter the staff’s complacency,
Bratton began requiring that all transit po-
lice officials—beginning with himself—ride
the subway to work, to meetings, and at
night. It was many staff officers’ first occa-
sion in years to share the ordinary citizen’s
subway experience and see the situation
their subordinates were up against: jammed
turnstiles, aggressive beggars, gangs of
youths jumping turnstiles and jostling peo-
ple on the platforms, winos and homeless
people sprawled on benches. It was clear
that even if few major crimes took place in
the subway, the whole place reeked of fear
and disorder. With that ugly reality staring
them in the face, the transit force’s senior
managers could no longer deny the need for
a change in their policing methods.
Bratton uses a similar approach to help
sensitize his superiors to his problems. For in-
stance, when he was running the police divi-
Tipping Point Leadership at a Glance
Leaders like Bill Bratton use a four-step process to bring about rapid, dramatic, and lasting
change with limited resources. The cognitive and resource hurdles shown here represent the
obstacles that organizations face in reorienting and formulating strategy. The motivational
and political hurdles prevent a strategy’s rapid execution. Tipping all four hurdles leads to rapid
strategy reorientation and execution. Overcoming these hurdles is, of course, a continuous
process because the innovation of today soon becomes the conventional norm of tomorrow.
Rapid strategy
reorientation
Rapid strategy
execution
Put the stage lights on and
frame the challenge to match
the organization’s various levels.
Cognitive
Hurdle
Put managers face-to-face with
problems and customers.
Find new ways to communicate.
Resource
Hurdle
Focus on the hot spots
and bargain with partner
organizations.
Political
Hurdle
Identify and silence internal
opponents; isolate external
ones.
Motivational
Hurdle
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sion of the Massachusetts Bay Transit Authority
(MBTA), which runs the Boston-area subway
and buses, the transit authority’s board de-
cided to purchase small squad cars that
would be cheaper to buy and run. Instead of
fighting the decision, Bratton invited the
MBTA’s general manager for a tour of the dis-
trict. He picked him up in a small car just like
the ones that were to be ordered. He jammed
the seats forward to let the general manager
feel how little legroom a six-foot cop would
have, then drove him over every pothole he
could find. Bratton also put on his belt, cuffs,
and gun for the trip so the general manager
could see how little space there was for the
tools of the officer’s trade. After just two
hours, the general manager wanted out. He
said he didn’t know how Bratton could stand
being in such a cramped car for so long on
his own—let alone if there were a criminal
in the backseat. Bratton got the larger cars
he wanted.
Bratton reinforces direct experiences by
insisting that his officers meet the communi-
ties they are protecting. The feedback is
often revealing. In the late 1970s, Boston’s
Police District 4, which included Symphony
Hall, the Christian Science Mother Church,
and other cultural institutions, was experi-
encing a surge in crime. The public was in-
creasingly intimidated; residents were selling
and leaving, pushing the community into a
downward spiral. The Boston police perfor-
mance statistics, however, did not reflect this
reality. District 4 police, it seemed, were
doing a splendid job of rapidly clearing 911
calls and tracking down perpetrators of seri-
ous crimes. To solve this paradox, Bratton
had the unit organize community meetings
in schoolrooms and civic centers so that citi-
zens could voice their concerns to district
sergeants and detectives. Obvious as the
logic of this practice sounds, it was the first
time in Boston’s police history that anyone
had attempted such an initiative—mainly
because the practice up to that time had ar-
gued for detachment between police and the
community in order to decrease the chances
of police corruption.
The limitations of that practice quickly
emerged. The meetings began with a show-
and-tell by the officers: This is what we are
working on and why. But afterward, when cit-
izens were invited to discuss the issues that
concerned them, a huge perception gap came
to light. While the police officers took pride in
solving serious offenses like grand larceny and
murder, few citizens felt in any danger from
these crimes. They were more troubled by
constant minor irritants: prostitutes, panhan-
dlers, broken-down cars left on the streets,
drunks in the gutters, filth on the sidewalks.
The town meetings quickly led to a complete
overhaul of the police priorities for District 4.
Bratton has used community meetings like
this in every turnaround since.
Bratton’s internal communications strategy
also plays an important role in breaking
through the cognitive hurdles. Traditionally,
internal police communication is largely
based on memos, staff bulletins, and other
documents. Bratton knows that few police of-
ficers have the time or inclination to do more
than throw these documents into the waste-
basket. Officers rely instead on rumor and
media stories for insights into what headquar-
ters is up to. So Bratton typically calls on the
help of expert communication outsiders. In
New York, for instance, he recruited John
Miller, an investigative television reporter
known for his gutsy and innovative style, as
his communication czar. Miller arranged for
Bratton to communicate through video mes-
sages that were played at roll calls, which
had the effect of bringing Bratton—and his
opinions—closer to the people he had to win
over. At the same time, Miller’s journalistic
savvy made it easier for the NYPD to ensure
that press interviews and stories echoed the
strong internal messages Bratton was sending.

Sidestep the Resource Hurdle

Once people in an organization accept the
need for change and more or less agree on
what needs to be done, leaders are often faced
with the stark reality of limited resources. Do
they have the money for the necessary
changes? Most reformist CEOs do one of two
things at this point. They trim their ambitions,
dooming the company to mediocrity at best
and demoralizing the workforce all over again,
or they fight for more resources from their
bankers and shareholders, a process that can
take time and divert attention from the under-
lying problems.
That trap is completely avoidable. Leaders
like Bratton know how to reach the organiza-
tion’s tipping point without extra resources.
In any organization,
once the beliefs and
energies of a critical mass
of people are engaged,
conversion to a new idea
will spread like an
epidemic.
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The Strategy Canvas of Transit:

How Bratton Refocused Resources

In comparing strategies across compa-
nies, we like to use a tool we call the
strategy canvas, which highlights dif-
ferences in strategies and resource
allocation. The strategy canvas shown
here compares the strategy and allo-
cation of resources of the New York
Transit Police before and after Bill
Bratton’s appointment as chief. The
vertical axis shows the relative level of
resource allocation. The horizontal
axis shows the various elements of
strategy in which the investments
were made. Although a dramatic shift
in resource allocation occurred and
performance rose dramatically, overall
investment of resources remained
more or less constant. Bratton did this
by de-emphasizing or virtually elimi-
nating some traditional features of
transit police work while increasing
emphasis on others or creating new
ones. For example, he was able to re-
duce the time police officers spent
processing suspects by introducing
mobile processing centers known as
“bust buses.”
hi
gh
r
el
at
iv
e
le
ve
l o
f i
nv
es
tm
en
t
lo
w
after Bratton’s
appointment
widespread
patrols
of subway
system
involvement
of officers
in processing
arrests
arrests
of warrant
violators
in daytime
arrests
issuance of
desk appearance
tickets (which
violators had
routinely ignored)
focus on
quality-of-
life crimes
group
arrests
use of
“bust buses”
for processing
arrests
arrests of
warrant
violators
during
sleeping
hours
train sweeps
for safe
atmosphere
before Bratton’s
appointment
elements of strategy
page 56

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They can achieve a great deal with the resources
they have. What they do is concentrate their
resources on the places that are most in need
of change and that have the biggest possible
payoffs. This idea, in fact, is at the heart of
Bratton’s famous (and once hotly debated)
philosophy of zero-tolerance policing.
Having won people over to the idea of
change, Bratton must persuade them to take
a cold look at what precisely is wrong with
their operating practices. It is at this point
that he turns to the numbers, which he is
adept at using to force through major
changes. Take the case of the New York nar-
cotics unit. Bratton’s predecessors had treated
it as secondary in importance, partly because
they assumed that responding to 911 calls was
the top priority. As a result, less than 5% of
the NYPD’s manpower was dedicated to fight-
ing narcotics crimes.
At an initial meeting with the NYPD’s
chiefs, Bratton’s deputy commissioner of
crime strategy, Jack Maple, asked people
around the table for their estimates of the
percentage of crimes attributable to narcotics
use. Most said 50%; others, 70%; the lowest
estimate was 30%. On that basis, a narcotics
unit consisting of less than 5% of the police
force was grossly understaffed, Maple pointed
out. What’s more, it turned out that the nar-
cotics squad largely worked Monday through
Friday, even though drugs were sold in large
quantities—and drug-related crimes persis-
tently occurred—on the weekends. Why the
weekday schedule? Because it had always
been done that way; it was an unquestioned
modus operandi. Once these facts were pre-
sented, Bratton’s call for a major reallocation
of staff and resources within the NYPD was
quickly accepted.
A careful examination of the facts can also
reveal where changes in key policies can re-
duce the need for resources, as Bratton dem-
onstrated during his tenure as chief of New
York’s transit police. His predecessors had
lobbied hard for the money to increase the
number of subway cops, arguing that the only
way to stop muggers was to have officers
ride every subway line and patrol each of the
system’s 700 exits and entrances. Bratton, by
contrast, believed that subway crime could be
resolved not by throwing more resources at
the problem but by better targeting those re-
sources. To prove the point, he had members
of his staff analyze where subway crimes were
being committed. They found that the vast
majority occurred at only a few stations and
on a couple of lines, which suggested that a
targeted strategy would work well. At the
same time, he shifted more of the force out of
uniform and into plain clothes at the hot
spots. Criminals soon realized that an absence
of uniforms did not necessarily mean an ab-
sence of cops.
Distribution of officers was not the only
problem. Bratton’s analysis revealed that an
inordinate amount of police time was wasted
in processing arrests. It took an officer up to
16 hours per arrest to book the suspect and
file papers on the incident. What’s more, the
officers so hated the bureaucratic process that
they avoided making arrests in minor cases.
Bratton realized that he could dramatically in-
crease his available policing resources—not to
mention the officers’ motivation—if he could
somehow improvise around this problem. His
solution was to park “bust buses”—old buses
converted into arrest-processing centers—
around the corner from targeted subway
stations. Processing time was cut from 16
hours to just one. Innovations like that en-
abled Bratton to dramatically reduce subway
crime—even without an increase in the
number of officers on duty at any given time.
(The exhibit “The Strategy Canvas of Transit:
How Bratton Refocused Resources” illus-
trates how radically Bratton refocused the
transit police’s resources.)
Bratton’s drive for data-driven policing
solutions led to the creation of the famous
Compstat crime database. The database, used
to identify hot spots for intense police inter-
vention, captures weekly crime and arrest
activity—including times, locations, and asso-
ciated enforcement activities—at the precinct,
borough, and city levels. The Compstat re-
ports allowed Bratton and the entire police
department to easily discern established and
emerging hot spots for efficient resource tar-
geting and retargeting.
In addition to refocusing the resources he
already controls, Bratton has proved adept at
trading resources he doesn’t need for those he
does. The chiefs of public-sector organizations
are reluctant to advertise excess resources, let
alone lend them to other agencies, because
acknowledged excess resources tend to get
reallocated. So over time, some organizations
Leaders like Bratton do
not need extra resources
to reach the tipping
point. They concentrate
resources where the need
and the likely payoffs are
greatest.
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end up well endowed with resources they
don’t need—even if they are short of others.
When Bratton took over as chief of the transit
police, for example, his general counsel and
policy adviser, Dean Esserman, now police
chief of Providence, Rhode Island, discovered
that the transit unit had more unmarked cars
than it needed but was starved of office space.
The New York Division of Parole, on the
other hand, was short of cars but had excess
office space. Esserman and Bratton offered
the obvious trade. It was gratefully accepted
by the parole division, and transit officials
were delighted to get the first floor of a prime
downtown building. The deal stoked Bratton’s
credibility within the organization, which
would make it easier for him to introduce
more fundamental changes later, and it
marked him, to his political bosses, as a man
who could solve problems.

Jump the Motivational Hurdle

Alerting employees to the need for change
and identifying how it can be achieved with
limited resources are necessary for reaching
an organization’s tipping point. But if a new
strategy is to become a movement, employees
must not only recognize what needs to be
done, they must also want to do it. Many CEOs
recognize the importance of getting people
motivated to make changes, but they make
the mistake of trying to reform incentives
throughout the whole organization. That pro-
cess takes a long time to implement and can
prove very expensive, given the wide variety of
motivational needs in any large company.
One way Bratton solves the motivation
problem is by singling out the key influencers—
people inside or outside the organization
with disproportionate power due to their
connections with the organization, their abil-
ity to persuade, or their ability to block access
to resources. Bratton recognizes that these
influencers act like kingpins in bowling:
When you hit them just right, all the pins
topple over. Getting the key influencers moti-
vated frees an organization from having to
motivate everyone, yet everyone in the end
is touched and changed. And because most
organizations have relatively small numbers
of key influencers, and those people tend to
share common problems and concerns, it is
relatively easy for CEOs to identify and mo-
tivate them.
Bratton’s approach to motivating his key
influencers is to put them under a spotlight.
Perhaps his most significant reform of the
NYPD’s operating practices was instituting a
semiweekly strategy review meeting that
brought the top brass together with the city’s
76 precinct commanders. Bratton had identi-
fied the commanders as key influential people
in the NYPD, because each one directly man-
aged 200 to 400 officers. Attendance was
mandatory for all senior staff, including three-
star chiefs, deputy commissioners, and borough
chiefs. Bratton was there as often as possible.
At the meetings, which took place in an
auditorium at the police command center, a
selected precinct commander was called be-
fore a panel of the senior staff (the selected
officer was given only two days’ notice, in
order to keep all the commanders on their
toes). The commander in the spotlight was
questioned by both the panel and other com-
manders about the precinct’s performance.
He or she was responsible for explaining pro-
jected maps and charts that showed, based
on the Compstat data, the precinct’s patterns
of crimes and when and where the police re-
sponded. The commander would be required
to provide a detailed explanation if police
activity did not mirror crime spikes and
would also be asked how officers were ad-
dressing the precinct’s issues and why perfor-
mance was improving or deteriorating. The
meetings allowed Bratton and his senior staff
to carefully monitor and assess how well com-
manders were motivating and managing their
people and how well they were focusing on
strategic hot spots.
The meetings changed the NYPD’s culture
in several ways. By making results and respon-
sibilities clear to everyone, the meetings
helped to introduce a culture of performance.
Indeed, a photo of the commander who was
about to be grilled appeared on the front
page of the handout that each meeting partic-
ipant received, emphasizing that the com-
mander was accountable for the precinct’s
results. An incompetent commander could
no longer cover up his failings by blaming
his precinct’s results on the shortcomings of
neighboring precincts, because his neighbors
were in the room and could respond. By the
same token, the meetings gave high achievers
a chance to be recognized both for making
improvements in their own precincts and for
Bratton solves the
motivation problem by
singling out the key
influencers. They act like
kingpins in bowling:
When you hit them just
right, all the pins topple
over.
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helping other commanders. The meetings
also allowed police leaders to compare notes
on their experiences; before Bratton’s arrival,
precinct commanders hardly ever got to-
gether as a group. Over time, this manage-
ment style filtered down through the ranks, as
the precinct commanders tried out their own
versions of Bratton’s meetings. With the spot-
light shining brightly on their performance,
the commanders were highly motivated to get
all the officers under their control marching
to the new strategy.
The great challenges in applying this kind
of motivational device, of course, are ensuring
that people feel it is based on fair processes
and seeing to it that they can draw lessons
from both good and bad results. Doing so in-
creases the organization’s collective strength
and everyone’s chance of winning. Bratton
addresses the issue of fair process by engag-
ing all key influencers in the procedures,
setting clear performance expectations, and
explaining why these strategy meetings, for
example, are essential for fast execution of
policy. He addresses the issue of learning by
insisting that the team of top brass play an
active role in meetings and by being an ac-
tive moderator himself. Precinct command-
ers can talk about their achievements or
failures without feeling that they are showing
off or being shown up. Successful command-
ers aren’t seen as bragging, because it’s clear
to everyone that they were asked by Bratton’s
top team to show, in detail, how they
achieved their successes. And for command-
ers on the receiving end, the sting of having
to be taught a lesson by a colleague is miti-
gated, at least, by their not having to suffer
the indignity of asking for it. Bratton’s popu-
larity soared when he created a humorous
video satirizing the grilling that precinct
commanders were given; it showed the cops
that he understood just how much he was
asking of them.
Bratton also uses another motivational
lever: framing the reform challenge itself.
Framing the challenge is one of the most sub-
tle and sensitive tasks of the tipping point
leader; unless people believe that results are
attainable, a turnaround is unlikely to suc-
ceed. On the face of it, Bratton’s goal in New
York was so ambitious as to be scarcely believ-
able. Who would believe that the city could
be made one of the safest in the country? And
who would want to invest time and energy in
chasing such an impossible dream?
To make the challenge seem manageable,
Bratton framed it as a series of specific goals
that officers at different levels could relate to.
As he put it, the challenge the NYPD faced
was to make the streets of New York safe
“block by block, precinct by precinct, and bor-
ough by borough.” Thus framed, the task was
both all encompassing and doable. For the
cops on the street, the challenge was making
their beats or blocks safe—no more. For the
commanders, the challenge was making their
precincts safe—no more. Borough heads also
had a concrete goal within their capabilities:
making their boroughs safe—no more. No
matter what their positions, officers couldn’t
say that what was being asked of them was
too tough. Nor could they claim that achiev-
ing it was out of their hands. In this way, re-
sponsibility for the turnaround shifted from
Bratton to each of the thousands of police
officers on the force.

Knock Over the Political Hurdle

Organizational politics is an inescapable real-
ity in public and corporate life, a lesson Brat-
ton learned the hard way. In 1980, at age 34
one of the youngest lieutenants in Boston’s
police department, he had proudly put up a
plaque in his office that said: “Youth and skill
will win out every time over age and treach-
ery.” Within just a few months, having been
shunted into a dead-end position due to a mix-
ture of office politics and his own brashness,
Bratton took the sign down. He never again
forgot the importance of understanding the
plotting, intrigue, and politics involved in
pushing through change. Even if an organiza-
tion has reached the tipping point, powerful
vested interests will resist the impending
reforms. The more likely change becomes,
the more fiercely and vocally these negative
influencers—both internal and external—
will fight to protect their positions, and their
resistance can seriously damage, even derail,
the reform process.
Bratton anticipates these dangers by identi-
fying and silencing powerful naysayers early
on. To that end, he always ensures that he has
a respected senior insider on the top team. At
the NYPD, for instance, Bratton appointed
John Timoney, now Miami’s police commis-
sioner, as his number two. Timoney was a
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cop’s cop, respected and feared for his dedica-
tion to the NYPD and for the more than 60
decorations he had received. Twenty years in
the ranks had taught him who all the key
players were and how they played the politi-
cal game. One of the first tasks Timoney car-
ried out was to report to Bratton on the likely
attitudes of the top staff toward Bratton’s
concept of zero-tolerance policing, identify-
ing those who would fight or silently sabotage
the new initiatives. This led to a dramatic
changing of the guard.
Of course, not all naysayers should face
the ultimate sanction—there might not be
enough people left to man the barricades. In
many cases, therefore, Bratton silences oppo-
sition by example and indisputable fact. For
instance, when first asked to compile detailed
crime maps and information packages for
the strategy review meetings, most precinct
commanders complained that the task would
take too long and waste valuable police time
that could be better spent fighting crime. An-
ticipating this argument, deputy commis-
sioner Jack Maple set up a reporting system
that covered the city’s most crime-ridden ar-
eas. Operating the system required no more
than 18 minutes a day, which worked out, as
he told the precinct commanders, to less than
1% of the average precinct’s workload. Try to
argue with that.
Often the most serious opposition to reform
comes from outside. In the public sector, as in
business, an organization’s change of strategy
has an impact on other organizations—
partners and competitors alike. The change is
likely to be resisted by those players if they
are happy with the status quo and powerful
enough to protest the changes. Bratton’s strat-
egy for dealing with such opponents is to iso-
late them by building a broad coalition with
the other independent powers in his realm.
In New York, for example, one of the most
serious threats to his reforms came from the
city’s courts, which were concerned that zero-
tolerance policing would result in an enor-
mous number of small-crimes cases clogging
the court schedule.
To get past the opposition of the courts,
Bratton solicited the support of no less a per-
sonage than the mayor, Rudolph Giuliani,
who had considerable influence over the dis-
trict attorneys, the courts, and the city jail on
Rikers Island. Bratton’s team demonstrated to
the mayor that the court system had the ca-
pacity to handle minor “quality of life” crimes,
even though doing so would presumably not
be palatable for them.
The mayor decided to intervene. While con-
ceding to the courts that a crackdown cam-
paign would cause a short-term spike in court
work, he also made clear that he and the
NYPD believed it would eventually lead to a
workload reduction for the courts. Working
together in this way, Bratton and the mayor
were able to maneuver the courts into pro-
cessing quality-of-life crimes. Seeing that the
mayor was aligned with Bratton, the courts
appealed to the city’s legislators, advocating
legislation to exempt them from handling
minor-crime cases on the grounds that such
cases would clog the system and entail signifi-
cant costs to the city. Bratton and the mayor,
who were holding weekly strategy meetings,
added another ally to their coalition by plac-
ing their case before the press, in particular
the

New York Times.

Through a series of press
conferences and articles and at every inter-
view opportunity, the issue of zero tolerance
was put at the front and center of public de-
bate with a clear, simple message: If the
courts did not help crack down on quality-of-
life crimes, the city’s crime rates would not
improve. It was a matter not of saving dollars
but of saving the city.
Bratton’s alliance with the mayor’s office
and the city’s leading media institution suc-
cessfully isolated the courts. The courts could
hardly be seen as publicly opposing an initia-
tive that would not only make New York a
more attractive place to live but would ulti-
mately reduce the number of cases brought
before them. With the mayor speaking ag-
gressively in the press about the need to pur-
sue quality-of-life crimes and the city’s most
respected—and liberal—newspaper giving
credence to the policy, the costs of fighting
Bratton’s strategy were daunting. Thanks to
this savvy politicking, one of Bratton’s biggest
battles was won, and the legislation was not
enacted. The courts would handle quality-of-
life crimes. In due course, the crime rates did
indeed come tumbling down.

• • •

Of course, Bill Bratton, like any leader, must
share the credit for his successes. Turning
around an organization as large and as wed-
ded to the status quo as the NYPD requires a
Bratton’s alliance with
the mayor’s office and the
New York Times isolated
the courts, which had
opposed his zero-
tolerance policing out of
fear that it would clog
court schedules.
page 60

Tipping Point Leadership

harvard business review • april 2003

collective effort. But the tipping point would
not have been reached without him—or an-
other leader like him. And while we recognize
that not every executive has the personality to
be a Bill Bratton, there are many who have
that potential once they know the formula for
success. It is that formula that we have tried to
present, and we urge managers who wish to
turn their companies around, but have limited
time and resources, to take note. By address-
ing the hurdles to tipping point change de-
scribed in these pages, they will stand a chance
of achieving the same kind of results for their
shareholders as Bratton has delivered to the
citizens of New York.

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Further Reading

A R T I C L E S

Cracking the Code of Change

by Michael Beer and Nitin Nohria

Harvard Business Review

May–June 2000
Product no. 651X

Beer and Nohria would describe Bratton’s tip-
ping point leadership as a savvy blending of
two different—but complementary—theories
of change: “Theory E” emphasizes economic
results through hard-nosed actions such as
layoffs and restructuring. “Theory O” is a “softer”
approach focusing on developing corporate
culture and human capability, and patiently
building trust and commitment to the com-
pany through teamwork and communication.
To achieve sustainable competitive advan-
tage, Beer and Nohria recommend combining
theories E and O on five change dimensions:
goals, leadership, focus, process, and rewards.
For example, set direction from above

while
also

engaging people from below, and estab-
lish systems that encourage experimentation
by setting up “risk-free” zones where employ-
ees can fail without penalty.

Leading Change: Why Transformation
Efforts Fail

by John P. Kotter

Harvard Business Review

March–April 1995
Product no. 4231

Bratton’s change-leadership process in many
ways reflects Kotter’s model. In Kotter’s view,
successful transformations go through a series
of eight distinct stages—which executives
must work through in sequence. Skipping
steps to try to accelerate the process—or
making a critical mistake in any one stage—
invariably spawns problems.
The stages are: establish a sense of urgency,
form a powerful guiding coalition, create a
compelling vision, communicate that vision
through every possible means, empower
others to act on the vision, score short-term
wins, consolidate improvements to produce
still more change, and institutionalize new
approaches.

B O O K

The Heart of Change: Real-Life Stories of
How People Change Their Organization

by John P. Kotter and Dan S. Cohen
Harvard Business School Press
2002
Product no. 2549

This book emphasizes cognitive and motiva-
tional strategies Bratton also uses: making a
case for change in ways that spark people’s
emotions and inspire them to seize ownership
of the effort. The authors introduce the “see-
feel-change” dynamic, which is based on
Kotter’s eight-stage change model.
Kotter and Cohen maintain that the key to
lasting change isn’t making people

behave

differently; it’s making them

feel

differently—
by appealing to their hearts more than their
minds. The key? Use concrete, visual ele-
ments. One manufacturer convinced division
presidents that purchasing processes were
out of control by bagging samples of the 424
kinds of welding gloves the company was
buying and displaying the collection on the
boardroom table. The bags included pricing
information, so everyone saw that the com-
pany was buying gloves ranging from $3.22
to $10.55—though the items were nearly
identical. The presidents gained a graphic
sense of “this is how bad it is” and people
still talk about the “glove story” today.
page 62

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M

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A Survival Guide for
Leaders

by Ronald A. Heifetz and Marty Linsky

•

Included with this full-text

Harvard Business Review

article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work

64

Article Summary

65

A Survival Guide for Leaders
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications

74

Further Reading

Steering an organization
through times of change can
be hazardous, and it has been
the ruin of many a leader. To
avoid the perils, let a few basic
rules govern your actions—
and your internal compass.

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A Survival Guide for Leaders

The Idea in Brief The Idea in Practice

C
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. A
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R
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It’s exciting—even glamorous—to lead
others through good times and bad. But
leadership also has its dark side: the inevita-
ble attempts to take you out of the game
when you’re steering your organization
through difficult change.
Leading change requires asking people to
confront painful issues and give up habits
and beliefs they hold dear. Result? Some
people try to eliminate change’s visible
agent—you. Whether they attack you per-
sonally, undermine your authority, or se-
duce you into seeing things their way, their
goal is the same: to derail you, easing

their

pain and restoring familiar order.
How to resist attempts to remove you—
and continue to propel change forward?
Manage your hostile

environment

—your or-
ganization and its people—and your own

vulnerabilities

.

MANAGING YOUR ENVIRONMENT

To minimize threats to eliminate you:

Operate in

and

above the fray.

Observe
what’s happening to your initiative,

as

it’s
happening. Frequently move back and forth
from the dance floor to the balcony, asking,
“What’s really going on here?” “Who’s
defending old habits?”

Court the uncommitted.

The uncommitted
but wary are crucial to your success. Show
your intentions are serious, for example, by
dismissing individuals who can’t make required
changes. And practice what you preach.
Example:

The editor of the

St. Petersburg Times

wanted to create a harder-hitting news-
paper. He knew that reporters—no longer
sparing interviewees from warranted
criticism—faced intense public pressure.
He subjected

himself

to the same by insist-
ing a story about his drunk-driving arrest
appear on the paper’s front page.

Cook the conflict.

Keep the heat high
enough to motivate, but low enough to
prevent explosions.

Raise the temperature

to
make people confront hidden conflicts and
other tough issues. Then

lower the heat

to
reduce destructive turmoil. Slow the pace of
change. Deliver humor, breaks, and images of
a brighter future.

Place the work where it belongs.

Resist
resolving conflicts yourself—people will
blame

you

for whatever turmoil results.
Mobilize

others

to solve problems.
Example:

When a star Chicago Bulls basketball player
sat out a play, miffed because he wasn’t
tapped to take the game’s final shot, the
coach let the

team

handle the insubordina-
tion. An emotional conversation led by a
team veteran reunited the players, who
took the NBA series to a seventh game.

MANAGING YOURSELF

To avoid self-destructing during difficult change:

Restrain your desire for control and need
for importance.

Order for its own sake
prevents organizations from handling
contentious issues. And an inflated self-image
fosters unhealthy dependence on you.
Example:

Ken Olson, head of once-mighty Digital
Equipment Corporation, encouraged
such dependence that colleagues rarely
challenged him. When he shunned the PC
market (believing few people wanted PCs),
top managers went along—initiating
DEC’s downfall.

Anchor yourself.

•

Use a safe place (e.g., a friend’s kitchen ta-
ble) or routine (a daily walk) to repair psy-
chological damage and recalibrate your
moral compass.

•

Acquire a confidant (

not

an ally from your
organization) who supports you—not nec-
essarily your initiative.

•

Read attacks as reactions to your profes-
sional role, not to you personally. You’ll re-
main calmer and keep people engaged.
page 64

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A Survival Guide for
Leaders

by Ronald A. Heifetz and Marty Linsky

harvard business review • june 2002

C
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SC
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A
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. A
LL
R
IG
H
T
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R
ES
ER
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.

Steering an organization through times of change can be hazardous,
and it has been the ruin of many a leader. To avoid the perils, let a few
basic rules govern your actions—and your internal compass.

Think of the many top executives in recent
years who, sometimes after long periods of
considerable success, have crashed and burned.
Or think of individuals you have known in less
prominent positions, perhaps people spear-
heading significant change initiatives in their
organizations, who have suddenly found
themselves out of a job. Think about yourself:
In exercising leadership, have

you

ever been
removed or pushed aside?
Let’s face it, to lead is to live dangerously.
While leadership is often depicted as an excit-
ing and glamorous endeavor, one in which you
inspire others to follow you through good
times and bad, such a portrayal ignores leader-
ship’s dark side: the inevitable attempts to take
you out of the game.
Those attempts are sometimes justified.
People in top positions must often pay the
price for a flawed strategy or a series of bad
decisions. But frequently, something more is at
work. We’re not talking here about conven-
tional office politics; we’re talking about the
high-stake risks you face whenever you try to
lead an organization through difficult but
necessary change. The risks during such times
are especially high because change that truly
transforms an organization, be it a multibillion-
dollar company or a ten-person sales team,
demands that people give up things they
hold dear: daily habits, loyalties, ways of think-
ing. In return for these sacrifices, they may be
offered nothing more than the possibility of a
better future.
We refer to this kind of wrenching organiza-
tional transformation as “adaptive change,”
something very different from the “technical
change” that occupies people in positions of
authority on a regular basis. Technical prob-
lems, while often challenging, can be solved
applying existing know-how and the organiza-
tion’s current problem-solving processes. Adap-
tive problems resist these kinds of solutions
because they require individuals throughout
the organization to alter their ways; as the
people themselves are the problem, the solu-
tion lies with them. (See the sidebar “Adaptive
Versus Technical Change: Whose Problem Is
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It?”) Responding to an adaptive challenge with
a technical fix may have some short-term ap-
peal. But to make real progress, sooner or later
those who lead must ask themselves and the
people in the organization to face a set of
deeper issues—and to accept a solution that
may require turning part or all of the organiza-
tion upside down.
It is at this point that danger lurks. And most
people who lead in such a situation—swept up
in the action, championing a cause they be-
lieve in—are caught unawares. Over and over
again, we have seen courageous souls blissfully
ignorant of an approaching threat until it was
too late to respond.
The hazard can take numerous forms. You
may be attacked directly in an attempt to shift
the debate to your character and style and
avoid discussion of your initiative. You may be
marginalized, forced into the position of be-
coming so identified with one issue that your
broad authority is undermined. You may be se-
duced by your supporters and, fearful of losing
their approval and affection, fail to demand
they make the sacrifices needed for the initia-
tive to succeed. You may be diverted from your
goal by people overwhelming you with the
day-to-day details of carrying it out, keeping
you busy and preoccupied.
Each one of these thwarting tactics—whether
done consciously or not—grows out of peo-
ple’s aversion to the organizational disequilib-
rium created by your initiative. By attempting
to undercut you, people strive to restore or-
der, maintain what is familiar to them, and
protect themselves from the pains of adaptive
change. They want to be comfortable again,
and you’re in the way.
So how do you protect yourself? Over a
combined 50 years of teaching and consulting,
we have asked ourselves that question time
and again—usually while watching top-notch
and well-intentioned folks get taken out of the
game. On occasion, the question has become
painfully personal; we as individuals have been
knocked off course or out of the action more
than once in our own leadership efforts. So we
are offering what we hope are some pragmatic
answers that grow out of these observations
and experiences. We should note that while
our advice clearly applies to senior executives,
it also applies to people trying to lead change
initiatives from positions of little or no formal
organizational authority.
This “survival guide” has two main parts.
The first looks outward, offering tactical advice
about relating to your organization and the
people in it. It is designed to protect you from
those trying to push you aside before you com-
plete your initiative. The second looks inward,
focusing on your own human needs and vul-
nerabilities. It is designed to keep you from
bringing yourself down.

A Hostile Environment

Leading major organizational change often
involves radically reconfiguring a complex net-
work of people, tasks, and institutions that
have achieved a kind of modus vivendi, no
matter how dysfunctional it appears to you.
When the status quo is upset, people feel a
sense of profound loss and dashed expecta-
tions. They may go through a period of feeling
incompetent or disloyal. It’s no wonder they
resist the change or try to eliminate its visible
agent. We offer here a number of techniques—
relatively straightforward in concept but
difficult to execute—for minimizing these
external threats.

Operate in and above the fray.

The ability to
maintain perspective in the midst of action is
critical to lowering resistance. Any military
officer knows the importance of maintaining
the capacity for reflection, especially in the
“fog of war.” Great athletes must simulta-
neously play the game and observe it as a
whole. We call this skill “getting off the dance
floor and going to the balcony,” an image that
captures the mental activity of stepping back
from the action and asking, “What’s really
going on here?”
Leadership is an improvisational art. You
may be guided by an overarching vision, clear
values, and a strategic plan, but what you actu-
ally do from moment to moment cannot be
scripted. You must respond as events unfold.
To use our metaphor, you have to move back
and forth from the balcony to the dance floor,
over and over again throughout the days,
weeks, months, and years. While today’s plan
may make sense now, tomorrow you’ll discover
the unanticipated effects of today’s actions and
have to adjust accordingly. Sustaining good
leadership, then, requires first and foremost
the capacity to see what is happening to you
and your initiative as it is happening and to
understand how today’s turns in the road will
affect tomorrow’s plans.

Ronald A. Heifetz

and

Marty Linsky

teach leadership at the John F.
Kennedy School of Government at Har-
vard University in Cambridge, Massa-
chusetts. They are partners of
Cambridge Leadership Associates, a
firm that consults to senior executives
on the practice of leadership
(www.cambridge-leadership.com).
They are also the coauthors of

Leader-
ship on the Line: Staying Alive Through
the Dangers of Leading

(Harvard Busi-
ness School Press, 2002), from which
this article is adapted.
page 66

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But taking a balcony perspective is ex-
tremely tough to do when you’re fiercely en-
gaged down below, being pushed and pulled
by the events and people around you—and
doing some pushing and pulling of your own.
Even if you are able to break away, the practice
of stepping back and seeing the big picture is
complicated by several factors. For example,
when you get some distance, you still must ac-
curately interpret what you see and hear. This
is easier said than done. In an attempt to avoid
difficult change, people will naturally, even
unconsciously, defend their habits and ways of
thinking. As you seek input from a broad range
of people, you’ll constantly need to be aware of
these hidden agendas. You’ll also need to ob-
serve your own actions; seeing yourself objec-
tively as you look down from the balcony is
perhaps the hardest task of all.
Fortunately, you can learn to be both an ob-
server and a participant at the same time. When
you are sitting in a meeting, practice by watch-
ing what is happening while it is happening—
even as you are part of what is happening. Ob-
serve the relationships and see how people’s
attention to one another can vary: supporting,
thwarting, or listening. Watch people’s body
language. When you make a point, resist the
instinct to stay perched on the edge of your
seat, ready to defend what you said. A tech-
nique as simple as pushing your chair a few
inches away from the table after you speak
may provide the literal as well as metaphorical
distance you need to become an observer.

Court the uncommitted.

It’s tempting to go
it alone when leading a change initiative.
There’s no one to dilute your ideas or share the
glory, and it’s often just plain exciting. It’s also
foolish. You need to recruit partners, people
who can help protect you from attacks and
who can point out potentially fatal flaws in
your strategy or initiative. Moreover, you are
far less vulnerable when you are out on the
point with a bunch of folks rather than alone.
You also need to keep the opposition close.
Knowing what your opponents are thinking
can help you challenge them more effectively
and thwart their attempts to upset your
agenda—or allow you to borrow ideas that
will improve your initiative. Have coffee
once a week with the person most dedicated
to seeing you fail.
But while relationships with allies and op-
ponents are essential, the people who will
determine your success are often those in the
middle, the uncommitted who nonetheless
are wary of your plans. They have no substan-
tive stake in your initiative, but they do have a
stake in the comfort, stability, and security of
the status quo. They’ve seen change agents
come and go, and they know that your initia-
tive will disrupt their lives and make their fu-
tures uncertain. You want to be sure that this
general uneasiness doesn’t evolve into a move
to push you aside.
These people will need to see that your in-
tentions are serious—for example, that you are
willing to let go of those who can’t make the
changes your initiative requires. But people
must also see that you understand the loss you
are asking them to accept. You need to name
the loss, be it a change in time-honored work
routines or an overhaul of the company’s core
values, and explicitly acknowledge the result-
ing pain. You might do this through a series of

Adaptive Versus Technical Change: Whose
Problem Is It?

The importance—and difficulty—of dis-
tinguishing between adaptive and tech-
nical change can be illustrated with an
analogy. When your car has problems,
you go to a mechanic. Most of the time,
the mechanic can fix the car. But if your
car troubles stem from the way a family
member drives, the problems are likely
to recur. Treating the problems as
purely technical ones—taking the car to
the mechanic time and again to get it
back on the road—masks the real is-
sues. Maybe you need to get your
mother to stop drinking and driving,
get your grandfather to give up his
driver’s license, or get your teenager to
be more cautious. Whatever the under-
lying problems, the mechanic can’t
solve them. Instead, changes in the
family need to occur, and that won’t be
easy. People will resist the moves, even
denying that such problems exist.
That’s because even those not directly
affected by an adaptive change typi-
cally experience discomfort when some-
one upsets a group’s or an organiza-
tion’s equilibrium.
Such resistance to adaptive change
certainly happens in business. Indeed,
it’s the classic error: Companies treat
adaptive challenges as if they were tech-
nical problems. For example, executives
attempt to improve the bottom line by
cutting costs across the board. Not only
does this avoid the need to make tough
choices about which areas should be
trimmed, it also masks the fact that the
company’s real challenge lies in rede-
signing its strategy.
Treating adaptive challenges as tech-
nical ones permits executives to do what
they have excelled at throughout their
careers: solve other people’s problems.
And it allows others in the organization
to enjoy the primordial peace of mind
that comes from knowing that their
commanding officer has a plan to main-
tain order and stability. After all, the
executive doesn’t have to instigate—and
the people don’t have to undergo—
uncomfortable change. Most people
would agree that, despite the selective
pain of a cost-cutting exercise, it is less
traumatic than reinventing a company.
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simple statements, but it often requires some-
thing more tangible and public—recall Franklin
Roosevelt’s radio “fireside chats” during the
Great Depression—to convince people that
you truly understand.
Beyond a willingness to accept casualties
and acknowledge people’s losses, two very
personal types of action can defuse poten-
tial resistance to you and your initiatives. The
first is practicing what you preach. In 1972,
Gene Patterson took over as editor of the

St.
Petersburg Times

. His mandate was to take the
respected regional newspaper to a higher level,
enhancing its reputation for fine writing while
becoming a fearless and hard-hitting news
source. This would require major changes not
only in the way the community viewed the
newspaper but also in the way

Times

reporters
thought about themselves and their roles.
Because prominent organizations and indi-
viduals would no longer be spared warranted
criticism, reporters would sometimes be angrily
rebuked by the subjects of articles.
Several years after Patterson arrived, he at-
tended a party at the home of the paper’s
foreign editor. Driving home, he pulled up
to a red light and scraped the car next to him.
The police officer called to the scene charged
Patterson with driving under the influence.
Patterson phoned Bob Haiman, a veteran

Times

newsman who had just been appointed exec-
utive editor, and insisted that a story on his ar-
rest be run. As Haiman recalls, he tried to
talk Patterson out of it, arguing that DUI ar-
rests that didn’t involve injuries were rarely re-
ported, even when prominent figures were in-
volved. Patterson was adamant, however, and
insisted that the story appear on page one.
Patterson, still viewed as somewhat of an
outsider at the paper, knew that if he wanted
his employees to follow the highest journalis-
tic standards, he would have to display those
standards, even when it hurt. Few leaders are
called upon to disgrace themselves on the
front page of a newspaper. But adopting the
behavior you expect from others—whether it
be taking a pay cut in tough times or spending
a day working next to employees on a reconfig-
ured production line—can be crucial in getting
buy-in from people who might try to under-
mine your initiative.
The second thing you can do to neutralize
potential opposition is to acknowledge your
own responsibility for whatever problems the
organization currently faces. If you have been
with the company for some time, whether in a
position of senior authority or not, you’ve
likely contributed in some way to the current
mess. Even if you are new, you need to identify
areas of your own behavior that could stifle the
change you hope to make.
In our teaching, training, and consulting, we
often ask people to write or talk about a leader-
ship challenge they currently face. Over the
years, we have read and heard literally thou-
sands of such challenges. Typically, in the first
version of the story, the author is nowhere to
be found. The underlying message: “If only
other people would shape up, I could make
progress here.” But by too readily pointing
your finger at others, you risk making yourself
a target. Remember, you are asking people to
move to a place where they are frightened to
go. If at the same time you’re blaming them
for having to go there, they will undoubtedly
turn against you.
In the early 1990s, Leslie Wexner, founder
and CEO of the Limited, realized the need for
major changes at the company, including a signifi-
cant reduction in the workforce. But his con-
sultant told him that something else had to
change: long-standing habits that were at the
heart of his self-image. In particular, he had to
stop treating the company as if it were his fam-
ily. The indulgent father had to become the
chief personnel officer, putting the right people
in the right jobs and holding them accountable
for their work. “I was an athlete trained to be a
baseball player,” Wexner recalled during a recent
speech at Harvard’s Kennedy School. “And
one day, someone tapped me on the shoulder
and said, ‘Football.’ And I said, ‘No, I’m a base-
ball player. ‘And he said, ‘Football.’ And I said,
‘I don’t know how to play football. I’m not
6’4”, and I don’t weigh 300 pounds.’ But if no
one values baseball anymore, the baseball
player will be out of business. So I looked
into the mirror and said, ‘Schlemiel, nobody
wants to watch baseball. Make the transforma-
tion to football.’” His personal makeover—
shedding the role of forgiving father to those
widely viewed as not holding their own—
helped sway other employees to back a corpo-
rate makeover. And his willingness to change
helped protect him from attack during the
company’s long—and generally successful—
turnaround period.

Cook the conflict.

Managing conflict is one
Executives leading
difficult change
initiatives are often
blissfully ignorant of an
approaching threat until
it is too late to respond.
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of the greatest challenges a leader of organiza-
tional change faces. The conflict may involve
resistance to change, or it may involve clash-
ing viewpoints about how the change should
be carried out. Often, it will be latent rather
than palpable. That’s because most organiza-
tions are allergic to conflict, seeing it prima-
rily as a source of danger, which it certainly
can be. But conflict is a necessary part of the
change process and, if handled properly, can
serve as the engine of progress.
Thus, a key imperative for a leader trying to
achieve significant change is to manage people’s
passionate differences in a way that diminishes
their destructive potential and constructively har-
nesses their energy. Two techniques can help you
achieve this. First, create a secure place where the
conflicts can freely bubble up. Second, control the
temperature to ensure that the conflict doesn’t
boil over—and burn you in the process.
The vessel in which a conflict is simmered—
in which clashing points of view mix, lose
some of their sharpness, and ideally blend into
consensus—will look and feel quite different in
different contexts. It may be a protected physi-
cal space, perhaps an off-site location where an
outside facilitator helps a group work through
its differences. It may be a clear set of rules and
processes that give minority voices confidence
that they will be heard without having to dis-
rupt the proceedings to gain attention. It may
be the shared language and history of an orga-
nization that binds people together through
trying times. Whatever its form, it is a place or
a means to contain the roiling forces unleashed
by the threat of major change.
But a vessel can withstand only so much
strain before it blows. A huge challenge you face
as a leader is keeping your employees’ stress at
a productive level. The success of the change
effort—as well as your own authority and even
survival—requires you to monitor your organi-
zation’s tolerance for heat and then regulate
the temperature accordingly.
You first need to raise the heat enough that
people sit up, pay attention, and deal with the
real threats and challenges facing them. After
all, without some distress, there’s no incentive
to change. You can constructively raise the
temperature by focusing people’s attention on
the hard issues, by forcing them to take respon-
sibility for tackling and solving those issues,
and by bringing conflicts occurring behind
closed doors out into the open.
But you have to lower the temperature
when necessary to reduce what can be coun-
terproductive turmoil. You can turn down the
heat by slowing the pace of change or by tack-
ling some relatively straightforward technical
aspect of the problem, thereby reducing peo-
ple’s anxiety levels and allowing them to get
warmed up for bigger challenges. You can pro-
vide structure to the problem-solving process,
creating work groups with specific assign-
ments, setting time parameters, establishing
rules for decision making, and outlining re-
porting relationships. You can use humor or
find an excuse for a break or a party to tempo-
rarily ease tensions. You can speak to people’s
fears and, more critically, to their hopes for a
more promising future. By showing people
how the future might look, you come to em-
body hope rather than fear, and you reduce
the likelihood of becoming a lightning rod for
the conflict.
The aim of both these tactics is to keep the
heat high enough to motivate people but
low enough to prevent a disastrous explosion—
what we call a “productive range of distress.”
Remember, though, that most employees
will reflexively want you to turn down the
heat; their complaints may in fact indicate
that the environment is just right for hard
work to get done.
We’ve already mentioned a classic example
of managing the distress of fundamental
change: Franklin Roosevelt during the first few
years of his presidency. When he took office in
1933, the chaos, tension, and anxiety brought
on by the Depression ran extremely high.
Demagogues stoked class, ethnic, and racial
conflict that threatened to tear the nation
apart. Individuals feared an uncertain future.
So Roosevelt first did what he could to reduce
the sense of disorder to a tolerable level. He
took decisive and authoritative action—he
pushed an extraordinary number of bills
through Congress during his fabled first 100
days—and thereby gave Americans a sense of
direction and safety, reassuring them that they
were in capable hands. In his fireside chats, he
spoke to people’s anxiety and anger and laid
out a positive vision for the future that made
the stress of the current crisis bearable and
seem a worthwhile price to pay for progress.
But he knew the problems facing the nation
couldn’t be solved from the White House. He
needed to mobilize citizens and get them to
To neutralize potential
opposition, you should
acknowledge your own
responsibility for
whatever problems the
organization currently
faces.
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dream up, try out, fight over, and ultimately
own the sometimes painful solutions that
would transform the country and move it for-
ward. To do that, he needed to maintain a cer-
tain level of fermentation and distress. So, for
example, he orchestrated conflicts over public
priorities and programs among the large cast
of creative people he brought into the govern-
ment. By giving the same assignment to two
different administrators and refusing to clearly
define their roles, he got them to generate new
and competing ideas. Roosevelt displayed both
the acuity to recognize when the tension in the
nation had risen too high and the emotional
strength to take the heat and permit consider-
able anxiety to persist.

Place the work where it belongs.

Because
major change requires people across an entire
organization to adapt, you as a leader need to
resist the reflex reaction of providing people
with the answers. Instead, force yourself to
transfer, as Roosevelt did, much of the work
and problem solving to others. If you don’t,
real and sustainable change won’t occur. In
addition, it’s risky on a personal level to con-
tinue to hold on to the work that should be
done by others.
As a successful executive, you have gained
credibility and authority by demonstrating
your capacity to solve other people’s problems.
This ability can be a virtue, until you find your-
self faced with a situation in which you cannot
deliver solutions. When this happens, all of
your habits, pride, and sense of competence
get thrown out of kilter because you must mo-
bilize the work of others rather than find the
way yourself. By trying to solve an adaptive
challenge for people, at best you will reconfig-
ure it as a technical problem and create some
short-term relief. But the issue will not have
gone away.
In the 1994 National Basketball Association
Eastern Conference semifinals, the Chicago
Bulls lost to the New York Knicks in the first
two games of the best-of-seven series. Chicago
was out to prove that it was more than just a
one-man team, that it could win without
Michael Jordan, who had retired at the end of
the previous season.
In the third game, the score was tied at 102
with less than two seconds left. Chicago had
the ball and a time-out to plan a final shot.
Coach Phil Jackson called for Scottie Pippen,
the Bulls’ star since Jordan had retired, to
make the inbound pass to Toni Kukoc for the
final shot. As play was about to resume, Jack-
son noticed Pippen sitting at the far end of the
bench. Jackson asked him whether he was in
or out. “I’m out,” said Pippen, miffed that he
was not tapped to take the final shot. With
only four players on the floor, Jackson quickly
called another time-out and substituted an ex-
cellent passer, the reserve Pete Myers, for Pip-
pen. Myers tossed a perfect pass to Kukoc, who
spun around and sank a miraculous shot to
win the game.
The Bulls made their way back to the locker
room, their euphoria deflated by Pippen’s ex-
traordinary act of insubordination. Jackson re-
calls that as he entered a silent room, he was
uncertain about what to do. Should he punish
Pippen? Make him apologize? Pretend the
whole thing never happened? All eyes were on
him. The coach looked around, meeting the
gaze of each player, and said, “What happened
has hurt us. Now you have to work this out.”
Jackson knew that if he took action to re-
solve the immediate crisis, he would have made
Pippen’s behavior a matter between coach and
player. But he understood that a deeper issue
was at the heart of the incident: Who were the
Chicago Bulls without Michael Jordan? It wasn’t
about who was going to succeed Jordan, be-
cause no one was; it was about whether the
players could jell as a team where no one per-
son dominated and every player was willing to
do whatever it took to help. The issue rested
with the players, not him, and only they could
resolve it. It did not matter what they decided
at that moment; what mattered was that they,
not Jackson, did the deciding. What followed
was a discussion led by an emotional Bill Cart-
wright, a team veteran. According to Jackson,
the conversation brought the team closer to-
gether. The Bulls took the series to a seventh
game before succumbing to the Knicks.
Jackson gave the work of addressing both
the Pippen and the Jordan issues back to the
team for another reason: If he had taken own-
ership of the problem, he would have become
the issue, at least for the moment. In his case,
his position as coach probably wouldn’t have
been threatened. But in other situations, taking
responsibility for resolving a conflict within
the organization poses risks. You are likely to
find yourself resented by the faction that you
decide against and held responsible by nearly
everyone for the turmoil your decision gener-
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ates. In the eyes of many, the only way to neu-
tralize the threat is to get rid of you.
Despite that risk, most executives can’t resist
the temptation to solve fundamental organiza-
tional problems by themselves. People expect
you to get right in there and fix things, to take
a stand and resolve the problem. After all, that
is what top managers are paid to do. When you
fulfill those expectations, people will call you
admirable and courageous—even a “leader”—
and that is flattering. But challenging your em-
ployees’ expectations requires greater courage
and leadership.

The Dangers Within

We have described a handful of leadership tac-
tics you can use to interact with the people
around you, particularly those who might un-
dermine your initiatives. Those tactics can help
advance your initiatives and, just as important,
ensure that you remain in a position where
you can bring them to fruition. But from our
own observations and painful personal experi-
ences, we know that one of the surest ways for
an organization to bring you down is simply to
let you precipitate your own demise.
In the heat of leadership, with the adrena-
line pumping, it is easy to convince yourself
that you are not subject to the normal human
frailties that can defeat ordinary mortals. You
begin to act as if you are indestructible. But
the intellectual, physical, and emotional chal-
lenges of leadership are fierce. So, in addition
to getting on the balcony, you need to regu-
larly step into the inner chamber of your being
and assess the tolls those challenges are taking.
If you don’t, your seemingly indestructible self
can self-destruct. This, by the way, is an ideal
outcome for your foes—and even friends who
oppose your initiative—because no one has to
feel responsible for your downfall.

Manage your hungers.

We all have hungers,
expressions of our normal human needs. But
sometimes those hungers disrupt our capacity
to act wisely or purposefully. Whether inher-
ited or products of our upbringing, some of
these hungers may be so strong that they ren-
der us constantly vulnerable. More typically, a
stressful situation or setting can exaggerate a
normal level of need, amplifying our desires
and overwhelming our usual self-discipline.
Two of the most common and dangerous hun-
gers are the desire for control and the desire
for importance.
Everyone wants to have some measure of
control over his or her life. Yet some people’s
need for control is disproportionately high.
They might have grown up in a household that
was either tightly structured or unusually cha-
otic; in either case, the situation drove them to
become masters at taming chaos not only in
their own lives but also in their organizations.
That need for control can be a source of vul-
nerability. Initially, of course, the ability to turn
disorder into order may be seen as an attribute.
In an organization facing turmoil, you may
seem like a godsend if you are able (and des-
perately want) to step in and take charge. By
lowering the distress to a tolerable level, you
keep the kettle from boiling over.
But in your desire for order, you can mistake
the means for the end. Rather than ensuring
that the distress level in an organization re-
mains high enough to mobilize progress on the
issues, you focus on maintaining order as an
end in itself. Forcing people to make the diffi-
cult trade-offs required by fundamental change
threatens a return to the disorder you loathe.
Your ability to bring the situation under con-
trol also suits the people in the organization,
who naturally prefer calm to chaos. Unfortu-
nately, this desire for control makes you vul-
nerable to, and an agent of, the organization’s
wish to avoid working through contentious is-
sues. While this may ensure your survival in
the short term, ultimately you may find your-
self accused, justifiably, of failing to deal with
the tough challenges when there was still time
to do so.
Most people also have some need to feel
important and affirmed by others. The danger
here is that you will let this affirmation give
you an inflated view of yourself and your
cause. A grandiose sense of self-importance
often leads to self-deception. In particular, you
tend to forget the creative role that doubt—
which reveals parts of reality that you wouldn’t
otherwise see—plays in getting your organiza-
tion to improve. The absence of doubt leads
you to see only that which confirms your own
competence, which will virtually guarantee
disastrous missteps.
Another harmful side effect of an inflated
sense of self-importance is that you will en-
courage people in the organization to become
dependent on you. The higher the level of dis-
tress, the greater their hopes and expectations
that you will provide deliverance. This relieves
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them of any responsibility for moving the orga-
nization forward. But their dependence can be
detrimental not only to the group but to you
personally. Dependence can quickly turn to
contempt as your constituents discover your
human shortcomings.
Two well-known stories from the computer
industry illustrate the perils of dependency—
and how to avoid them. Ken Olsen, the founder
of Digital Equipment Corporation, built the
company into a 120,000-person operation
that, at its peak, was the chief rival of IBM.
A generous man, he treated his employees
extraordinarily well and experimented with
personnel policies designed to increase the
creativity, teamwork, and satisfaction of his
workforce. This, in tandem with the company’s
success over the years, led the company’s top
management to turn to him as the sole deci-
sion maker on all key issues. His decision to
shun the personal computer market because
of his belief that few people would ever want
to own a PC, which seemed reasonable at the
time, is generally viewed as the beginning of
the end for the company. But that isn’t the
point; everyone in business makes bad deci-
sions. The point is, Olsen had fostered such an
atmosphere of dependence that his decisions
were rarely challenged by colleagues—at least
not until it was too late.
Contrast that decision with Bill Gates’s deci-
sion some years later to keep Microsoft out of
the Internet business. It didn’t take long for
him to reverse his stand and launch a corpo-
rate overhaul that had Microsoft’s delivery of
Internet services as its centerpiece. After watch-
ing the rapidly changing computer industry
and listening carefully to colleagues, Gates
changed his mind with no permanent damage
to his sense of pride and an enhanced reputa-
tion due to his nimble change of course.

Anchor yourself.

To survive the turbulent
seas of a change initiative, you need to find
ways to steady and stabilize yourself. First, you
must establish a safe harbor where each day
you can reflect on the previous day’s journey,
repair the psychological damage you have
incurred, renew your stores of emotional re-
sources, and recalibrate your moral compass.
Your haven might be a physical place, such as
the kitchen table of a friend’s house, or a regu-
lar routine, such as a daily walk through the
neighborhood. Whatever the sanctuary, you
need to use and protect it. Unfortunately, seek-
ing such respite is often seen as a luxury, making
it one of the first things to go when life gets
stressful and you become pressed for time.
Second, you need a confidant, someone you
can talk to about what’s in your heart and on
your mind without fear of being judged or be-
trayed. Once the undigested mess is on the table,
you can begin to separate, with your confi-
dant’s honest input, what is worthwhile from
what is simply venting. The confidant, typically
not a coworker, can also pump you up when
you’re down and pull you back to earth when
you start taking praise too seriously. But don’t
confuse confidants with allies: Instead of sup-
porting your current initiative, a confidant sim-
ply supports you. A common mistake is to seek
a confidant among trusted allies, whose per-
sonal loyalty may evaporate when a new issue
more important to them than you begins to
emerge and take center stage.
Perhaps most important, you need to distin-
guish between your personal self, which can
serve as an anchor in stormy weather, and
your professional role, which never will. It is
easy to mix up the two. And other people only
increase the confusion: Colleagues, subordi-
nates, and even bosses often act as if the role
you play is the real you. But that is not the
case, no matter how much of yourself—your
passions, your values, your talents—you genu-
inely and laudably pour into your professional
role. Ask anyone who has experienced the rude
awakening that comes when they leave a posi-
tion of authority and suddenly find that their
phone calls aren’t returned as quickly as they
used to be.
That harsh lesson holds another important
truth that is easily forgotten: When people at-
tack someone in a position of authority, more
often than not they are attacking the role, not
the person. Even when attacks on you are
highly personal, you need to read them prima-
rily as reactions to how you, in your role, are
affecting people’s lives. Understanding the crit-
icism for what it is prevents it from undermin-
ing your stability and sense of self-worth. And
that’s important because when you feel the
sting of an attack, you are likely to become de-
fensive and lash out at your critics, which can
precipitate your downfall.
We hasten to add that criticism may contain
legitimate points about how you are perform-
ing your role. For example, you may have been
tactless in raising an issue with your organiza-
To survive, you need a
sanctuary where you can
reflect on the previous
day’s journey, renew your
emotional resources, and
recalibrate your moral
compass.
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tion, or you may have turned the heat up too
quickly on a change initiative. But, at its heart,
the criticism is usually about the issue, not
you. Through the guise of attacking you per-
sonally, people often are simply trying to neu-
tralize the threat they perceive in your point
of view. Does anyone ever attack you when
you hand out big checks or deliver good news?
People attack your personality, style, or judg-
ment when they don’t like the message.
When you take “personal” attacks person-
ally, you unwittingly conspire in one of the
common ways you can be taken out of action—
you make yourself the issue. Contrast the man-
ner in which presidential candidates Gary Hart
and Bill Clinton handled charges of philander-
ing. Hart angrily counterattacked, criticizing
the scruples of the reporters who had shadowed
him. This defensive personal response kept the
focus on his behavior. Clinton, on national
television, essentially admitted he had strayed,
acknowledging his piece of the mess. His stra-
tegic handling of the situation allowed him to
return the campaign’s focus to policy issues.
Though both attacks were extremely personal,
only Clinton understood that they were basi-
cally attacks on positions he represented and
the role he was seeking to play.
Do not underestimate the difficulty of dis-
tinguishing self from role and responding
coolly to what feels like a personal attack—
particularly when the criticism comes, as it
will, from people you care about. But disciplin-
ing yourself to do so can provide you with an
anchor that will keep you from running
aground and give you the stability to remain
calm, focused, and persistent in engaging peo-
ple with the tough issues.

Why Lead?

We will have failed if this “survival manual”
for avoiding the perils of leadership causes you
to become cynical or callous in your leadership
effort or to shun the challenges of leadership
altogether. We haven’t touched on the thrill of
inspiring people to come up with creative so-
lutions that can transform an organization for
the better. We hope we have shown that the
essence of leadership lies in the capacity to de-
liver disturbing news and raise difficult ques-
tions in a way that moves people to take up
the message rather than kill the messenger.
But we haven’t talked about the reasons that
someone might want to take these risks.
Of course, many people who strive for high-
authority positions are attracted to power. But
in the end, that isn’t enough to make the high
stakes of the game worthwhile. We would
argue that, when they look deep within them-
selves, people grapple with the challenges of
leadership in order to make a positive differ-
ence in the lives of others.
When corporate presidents and vice presi-
dents reach their late fifties, they often look
back on careers devoted to winning in the
marketplace. They may have succeeded re-
markably, yet some people have difficulty
making sense of their lives in light of what
they have given up. For too many, their accom-
plishments seem empty. They question whether
they should have been more aggressive in ques-
tioning corporate purposes or creating more
ambitious visions for their companies.
Our underlying assumption in this article is
that you can lead

and

stay alive—not just regis-
ter a pulse, but really be alive. But the classic
protective devices of a person in authority tend
to insulate them from those qualities that fos-
ter an acute experience of living. Cynicism,
often dressed up as realism, undermines cre-
ativity and daring. Arrogance, often posing as
authoritative knowledge, snuffs out curiosity
and the eagerness to question. Callousness,
sometimes portrayed as the thick skin of expe-
rience, shuts out compassion for others.
The hard truth is that it is not possible to
know the rewards and joys of leadership with-
out experiencing the pain as well. But staying
in the game and bearing that pain is worth it,
not only for the positive changes you can make
in the lives of others but also for the meaning
it gives your own.

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Further Reading

A R T I C L E S

How I Learned to Let My Workers Lead

by Ralph Stayer

Harvard Business Review

November–December 1990
Product no. 90610

This article demonstrates how a leader can
turn his organization around without getting
knocked out of the game by change-resistant
employees. Stayer, head of family-owned
Johnsonville Sausage, knew Johnsonville

had

to change to beat formidable competitors. Yet
Johnsonville’s employees were bored, made
dumb mistakes, and didn’t care.
Stayer took action. He fixed himself first—by
refusing to own every problem and make
every decision, and by believing his employ-
ees

could

perform. Then he placed the work
where it belonged—getting employees to
seize ownership of Johnsonville’s problems
and take responsibility for the company’s fu-
ture. For example, when shop-floor workers
complained about slipshod fellow workers,
Stayer invited

them

to solve the problem. They
began selecting and training new workers,
gradually assuming personnel functions.
Stayer’s efforts paid off: When a key customer
offered Johnsonville a potentially highly prof-
itable contract, employees answered “Yes!”
and performed like pros.

Retention Through Redemption

by D. Michael Abrashoff

Harvard Business Review

February 2001
Product no. R0102L

Abrashoff is another leader who survived
while engineering profound organizational
change. This newly appointed captain of the
USS

Benfold

began by giving the work back to
his people—in this case, a demoralized, deri-
sive U.S. Navy crew. Abrashoff replaced tradi-
tional command-and-control with quieter,
more respectful, and more engaging leader-
ship. He became a careful listener—treating
each encounter with crew members as “the
most important thing in the world at that mo-
ment.” His reward? Crew members offered
brilliant, profitable ideas (such as replacing fit-
tings with slow-to-rust metals). The

Benfold

set
new performance records, attracting sailors
from many other ships.

The Anxiety of Learning: An Interview
with Edgar H. Schein

by Diane L. Coutu

Harvard Business Review

March 2002
Product no. R0203H

Heifetz and Linsky focus on the challenges of
leading—and surviving—during periods of diffi-
cult change. This interview with organizational-
development expert Edgar H. Schein under-
scores why corporate change is so difficult for
organizations

and

their leaders. Schein argues
that people rarely master the transformational
learning required for adaptive work. Such
learning challenges long-held assumptions
about a company’s processes, as well as estab-
lished beliefs and behaviors.
Schein is cautious about what companies can
and cannot accomplish. Though corporate
culture can change, this kind of learning takes
time. And typically, people don’t change un-
less a threat to their survival causes

more

pain
than the anxiety associated with transforma-
tional learning. Schein advises leaders to de-
crease “learning anxiety” by creating a safer,
more supportive learning environment. Lead-
ers must also build credibility by educating
employees about the economic realities behind
change. Only after employees accept the need
to learn can leaders drive effective change.
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The Real Reason
People Won’t Change

by Robert Kegan and Lisa Laskow Lahey

Included with this full-text

Harvard Business Review

article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work

76

Article Summary

77

The Real Reason People Won’t Change
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications

85

Further Reading

It’s a psychological dynamic
called a “competing
commitment,” and until
managers understand how it
works and the ways to
overcome it, they can’t do a
thing about change-resistant
employees.

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The Real Reason People Won’t Change

The Idea in Brief The Idea in Practice

C
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Tearing out your managerial hair over em-
ployees who just won’t change—especially
the ones who are clearly smart, skilled, and
deeply committed to your company and
your plans for improvement?
Before you throw up your hands in frustra-
tion, listen to recent psychological research:
These otherwise valued employees aren’t

purposefully

subversive or resistant. Instead,
they may be unwittingly caught in a

com-
peting commitment

—a subconscious,
hidden goal that conflicts with their

stated

commitments. For example: A project
leader dragging his feet has an unrecog-
nized competing commitment to avoid
tougher assignments that may come his
way if he delivers too successfully on the
current project.
Competing commitments make people
personally immune to change. Worse, they
can undermine your best employees’—and
your company’s—success.
If the thought of tackling these hidden
commitments strikes you as a psychological
quagmire, you’re not alone. However, you
can help employees uncover and move be-
yond their competing commitments—

without

having to “put them on the couch.”
But take care: You’ll be challenging employ-
ees’ deepest psychological foundations and
questioning their longest-held beliefs.
Why bother, you ask? Consider the rewards:
You help talented employees become
much more effective and make far more
significant contributions to your company.
And, you discover what’s

really

going on
when people who seem genuinely com-
mitted to change dig in their heels.
Use these steps to break through an em-
ployee’s immunity to change:

DIAGNOSE THE COMPETING COMMITMENT

Take two to three hours to explore these
questions with the employee:

“What would you like to see changed at
work, so you could be more effective, or so
work would be more satisfying?”

Responses
are usually complaints—e.g., Tom, a manager,
grumbled, “My subordinates keep me out of
the loop.”

“What commitment does your complaint
imply?”

Complaints indicate what people
care about most—e.g., Tom revealed, “I be-
lieve in open, candid communication.”

“What are

you

doing, or not doing, to keep
your commitment from being more fully re-
alized?”

Tom admitted, “When people bring
bad news, I tend to shoot the messenger.”

“Imagine doing the

opposite

of the under-
mining behavior. Do you feel any discom-
fort, worry, or vague fear?”

Tom imagined lis-
tening calmly and openly to bad news and
concluded, “I’m afraid I’ll hear about a prob-
lem I can’t fix.”

“By engaging in this undermining behavior,
what worrisome outcome are you commit-
ted to preventing?”

The answer

is

the com-
peting commitment—what causes them to
dig in their heels against change. Tom con-
ceded,

“I’m committed to not learning about
problems I can’t fix.”

IDENTIFY THE BIG ASSUMPTION

This is the worldview that colors everything
we see and that generates our competing
commitment.
People often form big assumptions early in life
and then seldom, if ever, examine them.
They’re woven into the very fabric of our lives.
But only by bringing them into the light can
people finally challenge their deepest beliefs
and recognize why they’re engaging in seem-
ingly contradictory behavior.
To identify the big assumption, guide an em-
ployee through this exercise:

Create a sentence stem that inverts the
competing commitment, then “fill in the
blank.”

Tom turned his competing commit-
ment to not hearing about problems he
couldn’t fix into this big assumption: “I as-
sume that if I

did

hear about problems I can’t
fix,

people would discover I’m not qualified to
do the job

.”

TEST—AND CONSIDER REPLACING—THE
BIG ASSUMPTION

By analyzing the circumstances leading up to
and reinforcing their big assumptions, em-
ployees empower themselves to test those
assumptions. They can now carefully and
safely experiment with behaving differently
than they usually do.
After running several such tests, employees
may feel ready to reevaluate the big assump-
tion itself—and possibly even replace it with a
new worldview that more accurately reflects
their abilities.
At the very least, they’ll eventually find more
effective ways to support their competing
commitment

without

sabotaging other
commitments.

They

achieve ever-greater
accomplishments—and your

organization

benefits by finally gaining greater access to
their talents.
page 76

The Real Reason
People Won’t Change

by Robert Kegan and Lisa Laskow Lahey

harvard business review • november 2001

C
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It’s a psychological dynamic called a “competing commitment,” and
until managers understand how it works and the ways to overcome it,
they can’t do a thing about change-resistant employees.

Every manager is familiar with the employee
who just won’t change. Sometimes it’s easy to
see why—the employee fears a shift in power,
the need to learn new skills, the stress of hav-
ing to join a new team. In other cases, such re-
sistance is far more puzzling. An employee has
the skills and smarts to make a change with
ease, has shown a deep commitment to the
company, genuinely supports the change—
and yet, inexplicably, does nothing.
What’s going on? As organizational psy-
chologists, we have seen this dynamic liter-
ally hundreds of times, and our research and
analysis have recently led us to a surprising
yet deceptively simple conclusion. Resis-
tance to change does not reflect opposition,
nor is it merely a result of inertia. Instead,
even as they hold a sincere commitment to
change, many people are unwittingly apply-
ing productive energy toward a hidden

com-
peting commitment

. The resulting dynamic
equilibrium stalls the effort in what looks
like resistance but is in fact a kind of per-
sonal immunity to change.
When you, as a manager, uncover an em-
ployee’s competing commitment, behavior
that has seemed irrational and ineffective
suddenly becomes stunningly sensible and
masterful—but unfortunately, on behalf of a
goal that conflicts with what you and even the
employee are trying to achieve. You find out
that the project leader who’s dragging his feet
has an unrecognized competing commitment
to avoid the even tougher assignment—one
he fears he can’t handle—that might come his
way next if he delivers too successfully on the
task at hand. Or you find that the person who
won’t collaborate despite a passionate and
sincere commitment to teamwork is equally
dedicated to avoiding the conflict that natu-
rally attends any ambitious team activity.
In these pages, we’ll look at competing
commitments in detail and take you through
a process to help your employees overcome
their immunity to change. The process may
sound straightforward, but it is by no means
quick or easy. On the contrary, it challenges
the very psychological foundations upon
page 77

The Real Reason People Won’t Change

harvard business review • november 2001

which people function. It asks people to call
into question beliefs they’ve long held close,
perhaps since childhood. And it requires peo-
ple to admit to painful, even embarrassing,
feelings that they would not ordinarily dis-
close to others or even to themselves. Indeed,
some people will opt not to disrupt their im-
munity to change, choosing instead to con-
tinue their fruitless struggle against their
competing commitments.
As a manager, you must guide people
through this exercise with understanding and
sensitivity. If your employees are to engage in
honest introspection and candid disclosure,
they must understand that their revelations
won’t be used against them. The goal of this
exploration is solely to help them become
more effective, not to find flaws in their work
or character. As you support your employees
in unearthing and challenging their inner-
most assumptions, you may at times feel
you’re playing the role of a psychologist. But
in a sense, managers

are

psychologists. After
all, helping people overcome their limita-
tions to become more successful at work is at
the very heart of effective management.
We’ll describe this delicate process in detail,
but first let’s look at some examples of com-
peting commitments in action.

Shoveling Sand Against the Tide

Competing commitments cause valued em-
ployees to behave in ways that seem inexplica-
ble and irremediable, and this is enormously
frustrating to managers. Take the case of John,
a talented manager at a software company.
(Like all examples in this article, John’s experi-
ences are real, although we have altered iden-
tifying features. In some cases, we’ve con-
structed composite examples.) John was a big
believer in open communication and valued
close working relationships, yet his caustic
sense of humor consistently kept colleagues at
a distance. And though he wanted to move up
in the organization, his personal style was
holding him back. Repeatedly, John was coun-
seled on his behavior, and he readily agreed
that he needed to change the way he inter-
acted with others in the organization. But
time after time, he reverted to his old patterns.
Why, his boss wondered, did John continue to
undermine his own advancement?
As it happened, John was a person of color
working as part of an otherwise all-white exec-
utive team. When he went through an exercise
designed to help him unearth his competing
commitments, he made a surprising discovery
about himself. Underneath it all, John believed
that if he became too well integrated with the
team, it would threaten his sense of loyalty to
his own racial group. Moving too close to the
mainstream made him feel very uncomfort-
able, as if he were becoming “one of them” and
betraying his family and friends. So when peo-
ple gathered around his ideas and suggestions,
he’d tear down their support with sarcasm, in-
evitably (and effectively) returning himself to
the margins, where he was more at ease. In
short, while John was genuinely committed to
working well with his colleagues, he had an
equally powerful competing commitment to
keeping his distance.
Consider, too, a manager we’ll call Helen, a
rising star at a large manufacturing company.
Helen had been assigned responsibility for
speeding up production of the company’s
most popular product, yet she was spinning
her wheels. When her boss, Andrew, realized
that an important deadline was only two
months away and she hadn’t filed a single
progress report, he called her into a meeting
to discuss the project. Helen agreed that she
was far behind schedule, acknowledging that
she had been stalling in pulling together the
team. But at the same time she showed a gen-
uine commitment to making the project a
success. The two developed a detailed plan for
changing direction, and Andrew assumed the
problem was resolved. But three weeks after the
meeting, Helen still hadn’t launched the team.
Why was Helen unable to change her be-
havior? After intense self-examination in a
workshop with several of her colleagues, she
came to an unexpected conclusion: Although
she truly wanted the project to succeed,
she had an accompanying, unacknowledged
commitment to maintaining a subordinate
position in relation to Andrew. At a deep
level, Helen was concerned that if she suc-
ceeded in her new role—one she was excited
about and eager to undertake—she would
become more a peer than a subordinate.
She was uncertain whether Andrew was
prepared for the turn their relationship
would take. Worse, a promotion would mean
that she, not Andrew, would be ultimately ac-
countable for the results of her work—and
Helen feared she wouldn’t be up to the task.

Robert Kegan

is the William and Miri-
am Meehan Professor of Adult Learning
and Professional Development and

Lisa Laskow Lahey

is the research di-
rector of the Change Leadership Group
at the Harvard University Graduate
School of Education in Cambridge, Mas-
sachusetts. They are the coauthors of

How the Way We Talk Can Change the
Way We Work

(Jossey-Bass/Wiley, 2001)
and the founding principals of Minds
at Work (www.mindsatwork.com), a
consulting firm based in Lexington,
Massachusetts.
page 78

Home

The Real Reason People Won’t Change

harvard business review • november 2001

These stories shed some light on the nature
of immunity to change. The inconsistencies
between John’s and Helen’s stated goals and
their actions reflect neither hypocrisy nor un-
spoken reluctance to change but the paralyzing
effect of competing commitments. Any manager
who seeks to help John communicate more ef-
fectively or Helen move her project forward,
without understanding that each is also strug-
gling unconsciously toward an opposing
agenda, is shoveling sand against the tide.

Diagnosing Immunity to Change

Competing commitments aren’t distressing
only to the boss; they’re frustrating to employ-
ees as well. People with the most sincere inten-
tions often unwittingly create for themselves
Sisyphean tasks. And they are almost always
tremendously relieved when they discover just

why

they feel as if they are rolling a boulder up
a hill only to have it roll back down again. Even
though uncovering a competing commitment
can open up a host of new concerns, the discov-
ery offers hope for finally accomplishing the
primary, stated commitment.
Based on the past 15 years of working with
hundreds of managers in a variety of compa-
nies, we’ve developed a three-stage process to
help organizations figure out what’s getting in
the way of change. First, managers guide em-
ployees through a set of questions designed to
uncover competing commitments. Next, em-
ployees examine these commitments to deter-
mine the underlying assumptions at their
core. And finally, employees start the process
of changing their behavior.
We’ll walk through the process fairly quickly
below, but it’s important to note that each step
will take time. Just uncovering the competing
commitment will require at least two or three
hours, because people need to reflect on each
question and the implications of their answers.
The process of challenging competing commit-
ments and making real progress toward over-
coming immunity to change unfolds over a
longer period—weeks or even months. But just

Getting Groups to Change

Although competing commitments and
big assumptions tend to be deeply personal,
groups are just as susceptible as individuals
to the dynamics of immunity to change. Face-
to-face teams, departments, and even com-
panies as a whole can fall prey to inner
contradictions that “protect” them from
significant changes they may genuinely
strive for. The leadership team of a video
production company, for instance, enjoyed
a highly collaborative, largely flat organiza-
tional structure. A year before we met the
group, team members had undertaken a
planning process that led them to a commit-
ment of which they were unanimously in
favor: In order to ensure that the company
would grow in the way the team wished,
each of the principals would take responsibil-
ity for aggressively overseeing a distinct
market segment.
The members of the leadership team told
us they came out of this process with a great
deal of momentum. They knew which mar-
kets to target, they had formed some con-
crete plans for moving forward, and they
had clearly assigned accountability for each
market. Yet a year later, the group had to
admit it had accomplished very little, de-
spite the enthusiasm. There were lots of ra-
tional explanations: “We were unrealistic;
we thought we could do new things and still
have time to keep meeting our present obli-
gations.” “We didn’t pursue new clients ag-
gressively enough.” “We tried new things
but gave up too quickly if they didn’t imme-
diately pay off.”
Efforts to overcome these barriers—to pur-
sue clients more aggressively, for instance—
didn’t work because they didn’t get to the
cause of the unproductive behavior. But by
seeing the team’s explanations as a potential
window into the bigger competing commit-
ment, we were able to help the group better
understand its predicament. We asked, “Can
you identify even the vaguest fear or worry
about what might happen if you

did

more ag-
gressively pursue the new markets? Or if you
reduced some of your present activity on be-
half of building the new business?” Before
long, a different discourse began to emerge,
and the other half of a striking groupwide
contradiction came into view: The principals
were worried that pursuing the plan would
drive them apart functionally and emotionally.
“We now realize we are also committed
to preserving the noncompetitive, intellec-
tually rewarding, and cocreative spirit of
our corporate enterprise,” they concluded.
On behalf of this commitment, the team
members had to commend themselves on
how “noncompetitively” and “cocreatively”
they were finding ways to undermine the
strategic plans they still believed were the
best route to the company’s future success.
The team’s big assumptions? “We assumed
that pursuing the target-market strategy,
with each of us taking aggressive responsi-
bility for a given segment, would create
the ‘silos’ we have long happily avoided
and would leave us more isolated from
one another. We also assumed the strategy
would make us more competitively disposed
toward one another.” Whether or not the
assumptions were true, they would have
continued to block the group’s efforts
until they were brought to light. In fact, as
the group came to discover, there were a
variety of moves that would allow the lead-
ership team to preserve a genuinely collab-
orative collegiality while pursuing the new
corporate strategy.
page 79

The Real Reason People Won’t Change

harvard business review • november 2001
A Diagnostic Test for Immunity to Change
The most important steps in diagnosing immunity to change are uncovering employees’ competing
commitments and unearthing their big assumptions. To do so, we ask a series of questions and
record key responses in a simple grid. Below we’ve listed the responses for six people who went
through this exercise, including the examples described in the text. The grid paints a picture
of the change-immunity system, making sense of a previously puzzling dynamic.
Stated
commitment
I am committed to…
…high quality
communication
with my colleagues.
…the new initiative.
…hearing from my
subordinates and
maximizing the
flow of information
into my office.
…distributed
leadership by
enabling people
to make decisions.
…being a
team player.
…turning around
my department.
What am I doing, or not
doing, that is keeping my
stated commitment from
being fully realized?
Sometimes I use sarcastic
humor to get my point across.
I don’t push for top performance
from my team members or
myself; I accept mediocre
products and thinking too
often; I don’t prioritize.
I don’t ask questions or ask to
be kept in the loop on sensitive
or delicate matters; I shoot
the messenger when I hear
bad news.
I don’t delegate enough;
I don’t pass on the necessary
information to the people I
distribute leadership to.
I don’t collaborate enough;
I make unilateral decisions
too often; I don’t really take
people’s input into account.
Too often I let things slide;
I’m not proactive enough
in getting people to follow
through with their tasks.
Competing
commitments
I am committed to maintaining
a distance from my white
colleagues.
I am committed to not
upsetting my relationship
with my boss by leaving
the mentee role.
I am committed to not
learning about things
I can’t do anything about.
I am committed to having
things go my way, to being
in control, and to ensuring
that the work is done to my
high standards.
I am committed to being
the one who gets the credit
and to avoiding the frustration
or conflict that comes with
collaboration.
I am committed to not
setting full sail until I
have a clear map of how
we get our department
from here to there.
Big
assumptions
I assume I will lose my
authentic connection to
my racial group if I get
too integrated into the
mainstream.
I assume my boss will stop
supporting me if I move toward
becoming his peer; I assume
that I don’t have what it takes
to successfully carry out a
cutting-edge project.
I assume as a leader I should
be able to address all problems;
I assume I will be seen as
incompetent if I can’t solve
all problems that come up.
I assume that other people
will waste my time and theirs
if I don’t step in; I assume
others aren’t as smart as I am.
I assume that no one will
appreciate me if I am not seen
as the source of success; I assume
nothing good will come of my
being frustrated or in conflict.
I assume that if I take my
group out into deep waters
and discover I am unable to
get us to the other side, I will
be seen as an incompetent
leader who is undeserving
of trust or responsibility.
John
Helen
Tom
Mary
Bill
Jane
page 80

The Real Reason People Won’t Change

harvard business review • november 2001

getting the commitments on the table can
have a noticeable effect on the decisions peo-
ple make and the actions they take.

Uncovering Competing
Commitments

Overcoming immunity to change starts with
uncovering competing commitments. In our
work, we’ve found that even though people
keep their competing commitments well hid-
den, you can draw them out by asking a series
of questions—as long as the employees be-
lieve that personal and potentially embarrass-
ing disclosures won’t be used inappropriately.
It can be very powerful to guide people
through this diagnostic exercise in a group—
typically with several volunteers making their
own discoveries public—so people can see
that others, even the company’s star perform-
ers, have competing commitments and inner
contradictions of their own.
The first question we ask is,

What would you
like to see changed at work, so that you could be
more effective or so that work would be more sat-
isfying?

Responses to this question are nearly
always couched in a complaint—a form of
communication that most managers bemoan
because of its negative, unproductive tone.
But complaints can be immensely useful. Peo-
ple complain only about the things they care
about, and they complain the loudest about
the things they care about most. With little
effort, people can turn their familiar, unin-
spiring gripes into something that’s more
likely to energize and motivate them—a com-
mitment, genuinely their own.
To get there, you need to ask a second ques-
tion:

What commitments does your complaint
imply?

A project leader we worked with, we’ll
call him Tom, had grumbled, “My subordi-
nates keep me out of the loop on important
developments in my project.” This complaint
yielded the statement, “I believe in open and
candid communication.” A line manager we’ll
call Mary lamented people’s unwillingness to
speak up at meetings; her complaint implied
a commitment to shared decision making.
While undoubtedly sincere in voicing such
commitments, people can nearly always
identify some way in which they are in part
responsible for preventing them from being
fulfilled. Thus, the third question is:

What are

you

doing, or not doing, that is keeping your
commitment from being more fully realized?

In-
variably, in our experience, people can iden-
tify these undermining behaviors in just a
couple of seconds. For example, Tom admit-
ted: “When people bring me bad news, I tend
to shoot the messenger.” And Mary acknowl-
edged that she didn’t delegate much and
that she sometimes didn’t release all the in-
formation people needed in order to make
good decisions.
In both cases, there may well have been
other circumstances contributing to the
shortfalls, but clearly both Tom and Mary
were engaging in behavior that was affecting
the people around them. Most people recog-
nize this about themselves right away and
are quick to say, “I need to stop doing that.”
Indeed, Tom had repeatedly vowed to listen
more openly to potential problems that
would slow his projects. However, the pur-
pose of this exercise is not to make these be-
haviors disappear—at least not now. The
purpose is to understand why people behave
in ways that undermine their own success.
The next step, then, is to invite people to
consider the consequences of forgoing the
behavior. We do this by asking a fourth ques-
tion:

If you imagine doing the opposite of the un-
dermining behavior, do you detect in yourself any
discomfort, worry, or vague fear?

Tom imagined
himself listening calmly and openly to some
bad news about a project and concluded,
“I’m afraid I’ll hear about a problem that I
can’t fix, something that I can’t do anything
about.” And Mary? She considered allowing
people more latitude and realized that, quite
frankly, she feared people wouldn’t make
good decisions and she would be forced to
carry out a strategy she thought would lead
to an inferior result.
The final step is to transform that passive
fear into a statement that reflects an active
commitment to preventing certain outcomes.
We ask,

By engaging in this undermining behav-
ior, what worrisome outcome are you committed
to preventing?

The resulting answer is the com-
peting commitment, which lies at the very
heart of a person’s immunity to change. Tom
admitted, “I am committed to not learning
about problems I can’t fix.” By intimidating
his staff, he prevented them from delivering
bad news, protecting himself from the fear
that he was not in control of the project.
Mary, too, was protecting herself—in her
case, against the consequences of bad deci-
page 81

The Real Reason People Won’t Change

harvard business review • november 2001

sions. “I am committed to making sure my
group does not make decisions that I don’t like.”
Such revelations can feel embarrassing.
While primary commitments nearly always
reflect noble goals that people would be
happy to shout from the rooftops, competing
commitments are very personal, reflecting
vulnerabilities that people fear will under-
mine how they are regarded both by others
and themselves. Little wonder people keep
them hidden and hasten to cover them up
again once they’re on the table.
But competing commitments should not be
seen as weaknesses. They represent some ver-
sion of self-protection, a perfectly natural and
reasonable human impulse. The question is, if
competing commitments are a form of self-
protection, what are people protecting them-
selves from? The answers usually lie in what
we call their

big assumptions

—deeply rooted
beliefs about themselves and the world
around them. These assumptions put an
order to the world and at the same time sug-
gest ways in which the world can go out of or-
der. Competing commitments arise from
these assumptions, driving behaviors unwit-
tingly designed to keep the picture intact.

Examining the Big Assumption

People rarely realize they hold big assump-
tions because, quite simply, they accept them
as reality. Often formed long ago and seldom,
if ever, critically examined, big assumptions
are woven into the very fabric of people’s
existence. (For more on the grip that big as-
sumptions hold on people, see the sidebar
“Big Assumptions: How Our Perceptions
Shape Our Reality.”) But with a little help,
most people can call them up fairly easily,
especially once they’ve identified their com-
peting commitments. To do this, we first ask
people to create the beginning of a sentence
by inverting the competing commitment,
and then we ask them to fill in the blank. For
Tom (“I am committed to not hearing about
problems I can’t fix”), the big assumption
turned out to be, “I assume that if I

did

hear
about problems I can’t fix, people would dis-
cover I’m not qualified to do my job.” Mary’s
big assumption was that her teammates
weren’t as smart or experienced as she and
that she’d be wasting her time and others’ if
she didn’t maintain control. Returning to our
earlier story, John’s big assumption might be,
“I assume that if I develop unambivalent rela-
tionships with my white coworkers, I will
sacrifice my racial identity and alienate my
own community.”
This is a difficult process, and it doesn’t
happen all at once, because admitting to big
assumptions makes people uncomfortable.
The process can put names to very personal
feelings people are reluctant to disclose, such
as deep-seated fears or insecurities, highly dis-
couraging or simplistic views of human na-
ture, or perceptions of their own superior
abilities or intellect. Unquestioning acceptance
of a big assumption anchors and sustains an
immune system: A competing commitment

Big Assumptions: How Our Perceptions
Shape Our Reality

Big assumptions reflect the very human
manner in which we invent or shape a
picture of the world and then take our in-
ventions for reality. This is easiest to see
in children. The delight we take in their
charming distortions is a kind of celebra-
tion that they are actively making sense
of the world, even if a bit eccentrically. As
one story goes, two youngsters had been
learning about Hindu culture and were
taken with a representation of the uni-
verse in which the world sits atop a giant
elephant, and the elephant sits atop an
even more giant turtle. “I wonder what
the turtle sits on,” says one of the chil-
dren. “I think from then on,” says the
other, “it’s turtles all the way down.”
But deep within our amusement may
lurk a note of condescension, an impli-
cation that this is what distinguishes
children from grown-ups. Their meaning-
making is subject to youthful distor-
tions, we assume. Ours represents an
accurate map of reality.
But does it? Are we really finished
discovering, once we have reached
adulthood, that our maps don’t match
the territory? The answer is clearly no.
In our 20 years of longitudinal and
cross-sectional research, we’ve discov-
ered that adults must grow into and out
of several qualitatively different views
of the world if they are to master the
challenges of their life experiences (see
Robert Kegan,

In Over Our Heads,

Har-
vard University Press, 1994).
A woman we met from Australia told
us about her experience living in the
United States for a year. “Not only do
you drive on the wrong side of the street
over here,” she said, “your steering
wheels are on the wrong side, too. I
would routinely pile into the right side
of the car to drive off, only to discover I
needed to get out and walk over to the
other side.
“One day,” she continued, “I was
thinking about six different things, and I
got into the right side of the car, took out
my keys, and was prepared to drive off. I
looked up and thought to myself, ‘My
God, here in the violent and lawless
United States, they are even stealing

steering wheels! ’”

Of course, the countervailing evi-
dence was just an arm’s length to her
left, but—and this is the main point—

why should she look?

Our big assump-
tions create a disarming and deluding
sense of certainty. If we know where a
steering wheel belongs, we are unlikely
to look for it some place else. If we know
what our company, department, boss, or
subordinate can and can’t do, why
should we look for countervailing data—
even if it is just an arm’s length away?
page 82

The Real Reason People Won’t Change

harvard business review • november 2001

makes all the sense in the world, and the per-
son continues to engage in behaviors that
support it, albeit unconsciously, to the detri-
ment of his or her “official,” stated commit-
ment. Only by bringing big assumptions to
light can people finally challenge their as-
sumptions and recognize why they are engag-
ing in seemingly contradictory behavior.

Questioning the Big Assumption

Once people have identified their competing
commitments and the big assumptions that
sustain them, most are prepared to take some
immediate action to overcome their immu-
nity. But the first part of the process involves
observation, not action, which can be frustrat-
ing for high achievers accustomed to leaping
into motion to solve problems. Let’s take a
look at the steps in more detail.

Step 1: Notice and record current behavior.

Employees must first take notice of what does
and doesn’t happen as a consequence of hold-
ing big assumptions to be true. We specifically
ask people

not

to try to make any changes in
their thinking or behavior at this time but just
to become more aware of their actions in
relation to their big assumptions. This gives
people the opportunity to develop a better ap-
preciation for how and in what contexts big
assumptions influence their lives. John, for ex-
ample, who had assumed that working well
with his white colleagues would estrange him
from his ethnic group, saw that he had missed
an opportunity to get involved in an exciting,
high-profile initiative because he had mocked
the idea when it first came up in a meeting.

Step 2: Look for contrary evidence.

Next, employees must look actively for expe-
riences that might cast doubt on the validity
of their big assumptions. Because big as-
sumptions are held as fact, they actually in-
form what people see, leading them to sys-
tematically (but unconsciously) attend to
certain data and avoid or ignore other data.
By asking people to search specifically for ex-
periences that would cause them to question
their assumptions, we help them see that
they have filtering out certain types of infor-
mation—information that could weaken the
grip of the big assumptions.
When John looked around him, he consid-
ered for the first time that an African-American
manager in another department had strong
working relationships with her mostly white
colleagues, yet seemed not to have compro-
mised her personal identity. He also had to
admit that when he had been thrown onto an
urgent task force the year before, he had
worked many hours alongside his white col-
leagues and found the experience satisfying;
he had felt of his usual ambivalence.

Step 3: Explore the history.

In this step, we
people to become the “biographers” of their
assumptions: How and when did the assump-
tions first take hold? How long have they been
around? What have been some of their critical
turning points?
Typically, this step leads people to earlier
life experiences, almost always to times be-
fore their current jobs and relationships with
current coworkers. This reflection usually
makes people dissatisfied with the founda-
tions of their big assumptions, especially
when they see that these have accompanied
them to their current positions and have been
coloring their experiences for many years. Re-
cently, a CEO expressed astonishment as she
realized she’d been applying the same self-
protective stance in her work that she’d de-
veloped during a difficult divorce years be-
fore. Just as commonly, as was the case for
John, people trace their big assumptions to
early experiences with parents, siblings, or
friends. Understanding the circumstances
that influenced the formation of the assump-
tions can free people to consider whether
these beliefs apply to their present selves.

Step 4: Test the assumption.

This step en-
tails creating and running a modest test of the
big assumption. This is the first time we ask
people to consider making changes in their be-
havior. Each employee should come up with a
scenario and run it by a partner who serves as
a sounding board. (Left to their own devices,
people tend to create tests that are either too
risky or so tentative that they don’t actually
challenge the assumption and in fact reaffirm
its validity.) After conferring with a partner,
John, for instance, volunteered to join a short-
term committee looking at his department’s
process for evaluating new product ideas. Be-
cause the team would dissolve after a month,
he would be able to extricate himself fairly
quickly if he grew too uncomfortable with the
relationships. But the experience would force
him to spend a significant amount of time
with several of his white colleagues during
that month and would provide him an oppor-
Because big assumptions
are held as fact, they
actually inform what
people see, leading them
to systematically (but
unconsciously) attend to
certain data and avoid or
ignore other data.
page 83

The Real Reason People Won’t Change

harvard business review • november 2001

tunity to test his sense of the real costs of
being a full team member.

Step 5: Evaluate the results.

In the last step,
employees evaluate the test results, evaluate
the test itself, design and run new tests, and
eventually question the big assumptions. For
John, this meant signing up for other initia-
tives and making initial social overtures to
white coworkers. At the same time, by engag-
ing in volunteer efforts within his community
outside of work, he made sure that his ties to
his racial group were not compromised.
It is worth noting that revealing a big as-
sumption doesn’t necessarily mean it will be
exposed as false. But even if a big assumption
does contain an element of truth, an individual
can often find more effective ways to operate
once he or she has had a chance to challenge
the assumption and its hold on his or her be-
havior. Indeed, John found a way to support
the essence of his competing commitment—
to maintain his bond with his racial group—
while minimizing behavior that sabotaged his
other stated commitments.

Uncovering Your Own Immunity

As you go through this process with your em-
ployees, remember that managers are every bit
as susceptible to change immunity as employ-
ees are, and your competing commitments and
big assumptions can have a significant impact
on the people around you. Returning once
more to Helen’s story: When we went through
this exercise with her boss, Andrew, it turned
out that he was harboring some contradictions
of his own. While he was committed to the suc-
cess of his subordinates, Andrew at some level
assumed that he alone could meet his high
standards, and as a result he was laboring under
a competing commitment to maintain absolute
control over his projects. He was unintention-
ally communicating this lack of confidence to
his subordinates—including Helen—in subtle
ways. In the end, Andrew’s and Helen’s compet-
ing commitments were, without their knowl-
edge, mutually reinforcing, keeping Helen
dependent on Andrew and allowing Andrew to
control her projects.
Helen and Andrew are still working
through this process, but they’ve already
gained invaluable insight into their behavior
and the ways they are impeding their own
progress. This may seem like a small step, but
bringing these issues to the surface and
confronting them head-on is challenging and
painful—yet tremendously effective. It al-
lows managers to see, at last, what’s really
going on when people who are genuinely
committed to change nonetheless dig in
their heels. It’s not about identifying unpro-
ductive behavior and systematically making
plans to correct it, as if treating symptoms
would cure a disease. It’s not about coaxing
or cajoling or even giving poor performance
reviews. It’s about understanding the com-
plexities of people’s behavior, guiding them
through a productive process to bring their
competing commitments to the surface, and
helping them cope with the inner conflict
that is preventing them from achieving
their goals.

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Further Reading

A R T I C L E S

The Executive as Coach

by James Waldroop and Timothy Butler

Harvard Business Review

November–December 1996
Product no. 5343

Squeamish about playing the role of psy-
chologist with change-resistant employees?
Butler and Waldroop offer another approach
to helping people achieve their true poten-
tial:

coaching

. Rather than requiring you to
delve into employees’ deepest personal di-
lemmas, coaching focuses more on measur-
able behaviors. It also features structured
meetings during which you evaluate the
problem behavior, assess its severity, and use
specific techniques to define and work to-
ward desired changes. Like the process that
Kegan and Lahey describe, coaching lets you
recoup your investment in valuable employ-
ees who, with your help, can move from
merely very good to great.

Why Do Employees Resist Change?

by Paul Strebel

Harvard Business Review

May–June 1996
Product no. 4142

Strebel looks at antipathy to change from a
different angle: the relationship between
employees and their organization. This rela-
tionship has three dimensions: 1) the

formal

aspect, manifested in job descriptions and
performance agreements, 2) the

psychologi-
cal

aspect, where trust, dependence, and re-
spect affect employees’ behavior, and 3) the
social dimension, which emerges from the
organization’s culture. Employees some-
times resist change because it alters the
terms of their commitments with the organi-
zation. To break through resistance to
change, executives must define—and per-
suade people to accept—the new terms as
they relate to all three dimensions.

Breakthrough Bargaining

by Deborah M. Kolb and Judith Williams

Harvard Business Review

February 2001
Product no. 6080

Hidden commitments and assumptions can
stymie many different aspects of employee
performance—including that all-important
ability to negotiate constructively. As Kolb and
Williams explain, unspoken beliefs determine
how bargainers deal with each other, whose
opinions get heard, and whose interests hold
sway. These beliefs can stall negotiations,
particularly between players who hold un-
equal power—e.g., subordinate/boss, new/
veteran, male/female. To transform blocked
bargaining into constructive conversation, the
authors suggest three kinds of strategic
moves: 1)

power

moves to coax reluctant
bargainers to the table by showing them
how they’ll be better off, 2)

process

moves to
shape negotiation agendas and increase
your effectiveness, and 3)

appreciative

moves
to foster trust and candor by highlighting
common interests.
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Cracking the Code of
Change

by Michael Beer and Nitin Nohria

Included with this full-text

Harvard Business Review

article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work

87

Article Summary

88

Cracking the Code of Change
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications

96

Further Reading

Until now, change in business
has been an either-or
proposition: either quickly
create economic value for
shareholders or patiently
develop an open, trusting
corporate culture long term.
But new research indicates
that combining these “hard”
and “soft” approaches can
radically transform the way
businesses change.

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Cracking the Code of Change

The Idea in Brief The Idea in Practice

C
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T
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. A
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IG
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Here’s the brutal fact: 70% of all change
initiatives fail. Why? Managers flounder in
an alphabet soup of change methods,
drowning in conflicting advice. Change
efforts exact a heavy toll—human

and

economic—as companies flail from one
change method to another.
To effect successful change, first

grasp the
two basic theories of change:

1)

Theory E

change emphasizes economic
value—as measured

only

by shareholder
returns. This “hard” approach boosts returns
through economic incentives, drastic lay-
offs, and restructuring. “Chainsaw Al” Dun-
lop’s firing 11,000 Scott Paper employees
and selling several businesses—tripling
shareholder value to $9 billion—is a stun-
ning example.
2)

Theory O

change—a “softer” ap-
proach—focuses on developing corporate
culture and human capability, patiently
building trust and emotional commitment
to the company through teamwork and
communication.
Then, carefully and simultaneously

balance
these very different approaches

. It’s not
easy. Employees distrust leaders who alter-
nate between nurturing and cutthroat be-
havior. But, done well, you’ll boost profits
and productivity, and achieve sustainable
competitive advantage.
The UK grocery chain, ASDA, teetered on bankruptcy in 1991. Here’s how CEO Archie Norman
combined change Theories E and O with spectacular results: a culture of trust and openness—

and

an eightfold increase in shareholder value.

Change
Dimension
How to Combine
Theories E and O
Examples from ASDA
Goals

Embrace the paradox
between economic
value

and

organiza-
tional capability
Norman started his tenure by stating, “Our number
one objective is to secure value for our shareholders”
and “We need a culture built around common
ideas…and listening, learning, and speed of response,
from the stores upwards.”

Leadership

Set direction from the
top

and

engage peo-
ple from below
Norman unilaterally set a new pricing strategy

and

shifted power from headquarters to stores. His forth-
right “Tell Archie” program encouraged dialogue with
all employees. He hired warm, accessible Allan Leigh-
ton to complement his own Theory O leadership style
and strengthened emotional commitment to the
new ASDA.

Focus

Focus on both hard
and soft sides of the
organization
Norman set out to win both hearts

and

minds. He
boosted economic value through hard, structural
changes, e.g., removing top layers of hierarchy and
freezing all wages. He paid equal attention to the soft
side by spending 75% of his early months as HR direc-
tor creating a more egalitarian and transparent orga-
nization—“a great place for everyone to work.”

Process

Plan for spontaneity Norman encouraged experimentation, setting up
three “risk-free” stores where employees could fail
without penalty. Managers experimented with store
layout, product range, employee roles. A cross-
functional team redesigned ASDA’s entire retail orga-
nization—and produced significant innovations.

Reward
System

Use incentives to rein-
force rather than drive
change
ASDA applied Theory E incentives in an O-like way. It
encouraged all employees to participate actively in
changing ASDA. And it rewarded their commitment
with stock ownership and variable pay based on cor-
porate

and

store performance.
page 87

Cracking the Code of
Change

by Michael Beer and Nitin Nohria

harvard business review • may–june 2000

C
O
P
YR
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T
©
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0
H
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VA
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ES
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SC
H
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LI
SH
IN
G
C
O
R
P
O
R
A
T
IO
N
. A
LL
R
IG
H
T
S
R
ES
ER
VE
D
.

Until now, change in business has been an either-or proposition: either
quickly create economic value for shareholders or patiently develop an
open, trusting corporate culture long term. But new research indicates
that combining these “hard” and “soft” approaches can radically
transform the way businesses change.

The new economy has ushered in great busi-
ness opportunities—and great turmoil. Not
since the Industrial Revolution have the stakes
of dealing with change been so high. Most tra-
ditional organizations have accepted, in the-
ory at least, that they must either change or
die. And even Internet companies such as
eBay, Amazon.com, and America Online rec-
ognize that they need to manage the changes
associated with rapid entrepreneurial growth.
Despite some individual successes, however,
change remains difficult to pull off, and few
companies manage the process as well as they
would like. Most of their initiatives—install-
ing new technology, downsizing, restructur-
ing, or trying to change corporate culture—
have had low success rates. The brutal fact is
that about 70% of all change initiatives fail.
In our experience, the reason for most of
those failures is that in their rush to change
their organizations, managers end up immers-
ing themselves in an alphabet soup of initia-
tives. They lose focus and become mesmerized
by all the advice available in print and on-line
about why companies should change, what
they should try to accomplish, and how they
should do it. This proliferation of recommen-
dations often leads to muddle when change is
attempted. The result is that most change ef-
forts exert a heavy toll, both human and eco-
nomic. To improve the odds of success, and to
reduce the human carnage, it is imperative
that executives understand the nature and pro-
cess of corporate change much better. But
even that is not enough. Leaders need to crack
the code of change.
For more than 40 years now, we’ve been
studying the nature of corporate change. And
although every business’s change initiative is
unique, our research suggests there are two ar-
chetypes, or theories, of change. These arche-
types are based on very different and often un-
conscious assumptions by senior executives—
and the consultants and academics who advise
them—about why and how changes should be
made. Theory E is change based on economic
value. Theory O is change based on organiza-
tional capability. Both are valid models; each
page 88

Cracking the Code of Change

harvard business review • may–june 2000

theory of change achieves some of manage-
ment’s goals, either explicitly or implicitly. But
each theory also has its costs—often unex-
pected ones.
Theory E change strategies are the ones that
make all the headlines. In this “hard” approach
to change, shareholder value is the only legiti-
mate measure of corporate success. Change
usually involves heavy use of economic incen-
tives, drastic layoffs, downsizing, and restruc-
turing. E change strategies are more common
than O change strategies among companies in
the United States, where financial markets
push corporate boards for rapid turnarounds.
For instance, when William A. Anders was
brought in as CEO of General Dynamics in
1991, his goal was to maximize economic
value—however painful the remedies might
be. Over the next three years, Anders reduced
the workforce by 71,000 people—44,000
through the divestiture of seven businesses and
27,000 through layoffs and attrition. Anders
employed common E strategies.
Managers who subscribe to Theory O be-
lieve that if they were to focus exclusively on
the price of their stock, they might harm
their organizations. In this “soft” approach
to change, the goal is to develop corporate
culture and human capability through indi-
vidual and organizational learning—the pro-
cess of changing, obtaining feedback, reflect-
ing, and making further changes. U.S.
companies that adopt O strategies, as
Hewlett-Packard did when its performance
flagged in the 1980s, typically have strong,
long-held, commitment-based psychological
contracts with their employees.
Managers at these companies are likely to
see the risks in breaking those contracts. Be-
cause they place a high value on employee
commitment, Asian and European businesses
are also more likely to adopt an O strategy to
change.
Few companies subscribe to just one theory.
Most companies we have studied have used a
mix of both. But all too often, managers try to
apply theories E and O in tandem without re-
solving the inherent tensions between them.
This impulse to combine the strategies is direc-
tionally correct, but theories E and O are so dif-
ferent that it’s hard to manage them simulta-
neously—employees distrust leaders who
alternate between nurturing and cutthroat
corporate behavior. Our research suggests,
however, that there is a way to resolve the ten-
sion so that businesses can satisfy their share-
holders while building viable institutions.
Companies that effectively combine hard and
soft approaches to change can reap big payoffs
in profitability and productivity. Those compa-
nies are more likely to achieve a sustainable
competitive advantage. They can also reduce
the anxiety that grips whole societies in the
face of corporate restructuring.
In this article, we will explore how one com-
pany successfully resolved the tensions be-
tween E and O strategies. But before we do
that, we need to look at just how different the
two theories are.

A Tale of Two Theories

To understand how sharply theories E and O
differ, we can compare them along several
key dimensions of corporate change: goals,
leadership, focus, process, reward system,
and use of consultants. (For a side-by-side
comparison, see the exhibit “Comparing The-
ories of Change.”) We’ll look at two compa-
nies in similar businesses that adopted al-
most pure forms of each archetype. Scott
Paper successfully used Theory E to enhance
shareholder value, while Champion Interna-
tional used Theory O to achieve a complete
cultural transformation that increased its
productivity and employee commitment. But
as we will soon observe, both paper produc-
ers also discovered the limitations of sticking
with only one theory of change. Let’s com-
pare the two companies’ initiatives.

Goals.

When Al Dunlap assumed leader-
ship of Scott Paper in May 1994, he immedi-
ately fired 11,000 employees and sold off
several businesses. His determination to re-
structure the beleaguered company was al-
most monomaniacal. As he said in one of his
speeches: “Shareholders are the number one
constituency. Show me an annual report
that lists six or seven constituencies, and I’ll
show you a mismanaged company.” From a
shareholder’s perspective, the results of
Dunlap’s actions were stunning. In just 20
months, he managed to triple shareholder
returns as Scott Paper’s market value rose
from about $3 billion in 1994 to about $9 bil-
lion by the end of 1995. The financial com-
munity applauded his efforts and hailed
Scott Paper’s approach to change as a model
for improving shareholder returns.

Michael Beer

is the Cahners-Robb Pro-
fessor of Business Administration at
Harvard Business School in Boston. He
can be reached at mbeer@hbs.edu.

Nitin Nohria

is the Richard P. Chap-
man Professor of Business Administra-
tion at Harvard Business School and
chairs the school’s Organizational Be-
havior Unit. He can be reached at
nnohria@hbs.edu. They are the authors
of

Breaking the Code of Change

(Har-
vard Business School Press, 2000).
page 89

mailto:mbeer@hbs.edu

mailto:nnohria@hbs.edu

Cracking the Code of Change

harvard business review • may–june 2000

Champion’s reform effort couldn’t have
been more different. CEO Andrew Sigler ac-
knowledged that enhanced economic value
was an appropriate target for management,
but he believed that goal would be best
achieved by transforming the behaviors of
management, unions, and workers alike. In
1981, Sigler and other managers launched a
long-term effort to restructure corporate cul-
ture around a new vision called the Cham-
pion Way, a set of values and principles de-
signed to build up the competencies of the
workforce. By improving the organization’s
capabilities in areas such as teamwork and
communication, Sigler believed he could best
increase employee productivity and thereby
improve the bottom line.

Leadership.

Leaders who subscribe to The-
ory E manage change the old-fashioned way:
from the top down. They set goals with little
involvement from their management teams
and certainly without input from lower levels
or unions. Dunlap was clearly the commander
in chief at Scott Paper. The executives who
survived his purges, for example, had to agree
with his philosophy that shareholder value
was now the company’s primary objective.
Nothing made clear Dunlap’s leadership style
better than the nickname he gloried in:
“Chainsaw Al.”
By contrast, participation (a Theory O trait)
was the hallmark of change at Champion.
Every effort was made to get all its employees
emotionally committed to improving the com-
pany’s performance. Teams drafted value state-
ments, and even the industry’s unions were
brought into the dialogue. Employees were en-
couraged to identify and solve problems them-
selves. Change at Champion sprouted from the
bottom up.

Focus.

In E-type change, leaders typically
focus immediately on streamlining the “hard-

Dimensions
of Change
Goals
Leadership
Focus
Process
Reward System
Use of
Consultants
Theory E
maximize
shareholder value
manage change
from the top down
emphasize structure
and systems
plan and establish
programs
motivate through
financial incentives
consultants analyze
problems and shape
solutions
Theory O
develop organizational
capabilities
encourage participation
from the bottom up
build up corporate
culture: employees’
behavior and attitudes
experiment and evolve
motivate through
commitment—use
pay as fair exchange
consultants support
management in shaping
their own solutions
Theories E and O Combined
explicitly embrace the paradox
between economic value and
organizational capability
set direction from the top
and engage the people below
focus simultaneously on the
hard (structures and systems)
and the soft (corporate culture)
plan for spontaneity
use incentives to reinforce
change but not to drive it
consultants are expert
resources who empower
employees
Comparing Theories of Change
Our research has shown that all corporate transformations can be
compared along the six dimensions shown here. The table outlines
the differences between the E and O archetypes and illustrates what
an integrated approach might look like.
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Cracking the Code of Change

harvard business review • may–june 2000

ware” of the organization—the structures and
systems. These are the elements that can most
easily be changed from the top down, yielding
swift financial results. For instance, Dunlap
quickly decided to outsource many of Scott Pa-
per’s corporate functions—benefits and pay-
roll administration, almost all of its manage-
ment information systems, some of its
technology research, medical services, tele-
marketing, and security functions. An execu-
tive manager of a global merger explained the
E rationale: “I have a [profit] goal of $176 mil-
lion this year, and there’s no time to involve
others or develop organizational capability.”
By contrast, Theory O’s initial focus is on
building up the “software” of an organiza-
tion—the culture, behavior, and attitudes of
employees. Throughout a decade of reforms,
no employees were laid off at Champion.
Rather, managers and employees were encour-
aged to collectively reexamine their work prac-
tices and behaviors with a goal of increasing
productivity and quality. Managers were re-
placed if they did not conform to the new phi-
losophy, but the overall firing freeze helped to
create a culture of trust and commitment.
Structural change followed once the culture
changed. Indeed, by the mid-1990s, Champion
had completely reorganized all its corporate
functions. Once a hierarchical, functionally or-
ganized company, Champion adopted a matrix
structure that empowered employee teams to
focus more on customers.

Process.

Theory E is predicated on the view
that no battle can be won without a clear,
comprehensive, common plan of action that
encourages internal coordination and inspires
confidence among customers, suppliers, and
investors. The plan lets leaders quickly moti-
vate and mobilize their businesses; it compels
them to take tough, decisive actions they pre-
sumably haven’t taken in the past. The
changes at Scott Paper unfolded like a military
battle plan. Managers were instructed to
achieve specific targets by specific dates. If
they didn’t adhere to Dunlap’s tightly choreo-
graphed marching orders, they risked being
fired.
Meanwhile, the changes at Champion were
more evolutionary and emergent than planned
and programmatic. When the company’s de-
cade-long reform began in 1981, there was no
master blueprint. The idea was that innovative
work processes, values, and culture changes in
one plant would be adapted and used by other
plants on their way through the corporate sys-
tem. No single person, not even Sigler, was
seen as the driver of change. Instead, local
leaders took responsibility. Top management
simply encouraged experimentation from the
ground up, spread new ideas to other workers,
and transferred managers of innovative units
to lagging ones.

Reward System.

The rewards for managers
in E-type change programs are primarily finan-
cial. Employee compensation, for example, is
linked with financial incentives, mainly stock
options. Dunlap’s own compensation pack-
age—which ultimately netted him more than
$100 million—was tightly linked to sharehold-
ers’ interests. Proponents of this system argue
that financial incentives guarantee that em-
ployees’ interests match stockholders’ inter-
ests. Financial rewards also help top execu-
tives feel compensated for a difficult job—one
in which they are often reviled by their one-
time colleagues and the larger community.
The O-style compensation systems at Cham-
pion reinforced the goals of culture change,
but they didn’t drive those goals. A skills-based
pay system and a corporatewide gains-sharing
plan were installed to draw union workers and
management into a community of purpose. Fi-
nancial incentives were used only as a supple-
ment to those systems and not to push particu-
lar reforms. While Champion did offer a
companywide bonus to achieve business goals
in two separate years, this came late in the
change process and played a minor role in ac-
tually fulfilling those goals.

Use of Consultants.

Theory E change strate-
gies often rely heavily on external consultants.
A SWAT team of Ivy League–educated MBAs,
armed with an arsenal of state-of-the-art ideas,
is brought in to find new ways to look at the
business and manage it. The consultants can
help CEOs get a fix on urgent issues and priori-
ties. They also offer much-needed political and
psychological support for CEOs who are under
fire from financial markets. At Scott Paper,
Dunlap engaged consultants to identify many
of the painful cost-savings initiatives that he
subsequently implemented.
Theory O change programs rely far less on
consultants. The handful of consultants who
were introduced at Champion helped manag-
ers and workers make their own business anal-
yses and craft their own solutions. And while
Theory E change
strategies usually involve
heavy use of economic
incentives, drastic
layoffs, downsizing, and
restructuring.
Shareholder value is the
only legitimate measure
of corporate success.
page 91

Cracking the Code of Change

harvard business review • may–june 2000

the consultants had their own ideas, they did
not recommend any corporate program, dic-
tate any solutions, or whip anyone into line.
They simply led a process of discovery and
learning that was intended to change the cor-
porate culture in a way that could not be fore-
seen at the outset.
In their purest forms, both change theories
clearly have their limitations. CEOs who must
make difficult E-style choices understandably
distance themselves from their employees to
ease their own pain and guilt. Once removed
from their people, these CEOs begin to see
their employees as part of the problem. As
time goes on, these leaders become less and
less inclined to adopt O-style change strategies.
They fail to invest in building the company’s
human resources, which inevitably hollows out
the company and saps its capacity for sustained
performance. At Scott Paper, for example,
Dunlap trebled shareholder returns but failed
to build the capabilities needed for sustained
competitive advantage—commitment, coordi-
nation, communication, and creativity. In 1995,
Dunlap sold Scott Paper to its longtime com-
petitor Kimberly-Clark.
CEOs who embrace Theory O find that their
loyalty and commitment to their employees
can prevent them from making tough deci-
sions. The temptation is to postpone the bitter
medicine in the hopes that rising productivity
will improve the business situation. But pro-
ductivity gains aren’t enough when fundamen-
tal structural change is required. That reality is
underscored by today’s global financial system,
which makes corporate performance instantly
transparent to large institutional shareholders
whose fund managers are under enormous
pressure to show good results. Consider Cham-
pion. By 1997, it had become one of the leaders
in its industry based on most performance
measures. Still, newly instated CEO Richard
Olsen was forced to admit a tough reality:
Champion shareholders had not seen a signifi-
cant increase in the economic value of the
company in more than a decade. Indeed, when
Champion was sold recently to Finland-based
UPM-Kymmene, it was acquired for a mere 1.5
times its original share value.

Managing the Contradictions

Clearly, if the objective is to build a company
that can adapt, survive, and prosper over the
years, Theory E strategies must somehow be
combined with Theory O strategies. But unless
they’re carefully handled, melding E and O is
likely to bring the worst of both theories and
the benefits of neither. Indeed, the corporate
changes we’ve studied that arbitrarily and
haphazardly mixed E and O techniques proved
destabilizing to the organizations in which
they were imposed. Managers in those compa-
nies would certainly have been better off to
pick either pure E or pure O strategies—with
all their costs. At least one set of stakeholders
would have benefited.
The obvious way to combine E and O is to
sequence them. Some companies, notably
General Electric, have done this quite success-
fully. At GE, CEO Jack Welch began his se-
quenced change by imposing an E-type re-
structuring. He demanded that all GE
businesses be first or second in their indus-
tries. Any unit that failed that test would be
fixed, sold off, or closed. Welch followed that
up with a massive downsizing of the GE bu-
reaucracy. Between 1981 and 1985, total em-
ployment at the corporation dropped from
412,000 to 299,000. Sixty percent of the cor-
porate staff, mostly in planning and finance,
was laid off. In this phase, GE people began to
call Welch “Neutron Jack,” after the fabled
bomb that was designed to destroy people but
leave buildings intact. Once he had wrung out
the redundancies, however, Welch adopted an
O strategy. In 1985, he started a series of orga-
nizational initiatives to change GE culture.
He declared that the company had to become
“boundaryless,” and unit leaders across the
corporation had to submit to being chal-
lenged by their subordinates in open forum.
Feedback and open communication eventu-
ally eroded the hierarchy. Soon Welch applied
the new order to GE’s global businesses.
Unfortunately for companies like Cham-
pion, sequenced change is far easier if you be-
gin, as Welch did, with Theory E. Indeed, it is
highly unlikely that E would successfully fol-
low O because of the sense of betrayal that
would involve. It is hard to imagine how a dra-
conian program of layoffs and downsizing can
leave intact the psychological contract and cul-
ture a company has so patiently built up over
the years. But whatever the order, one sure
problem with sequencing is that it can take a
very long time; at GE it has taken almost two
decades. A sequenced change may also require
two CEOs, carefully chosen for their contrast-
Theory O change
strategies are geared
toward building up the
corporate culture:
employee behaviors,
attitudes, capabilities,
and commitment. The
organization’s ability to
learn from its
experiences is a
legitimate yardstick of
corporate success.
page 92

Cracking the Code of Change

harvard business review • may–june 2000

ing styles and philosophies, which may create
its own set of problems. Most turnaround man-
agers don’t survive restructuring—partly be-
cause of their own inflexibility and partly be-
cause they can’t live down the distrust that
their ruthlessness has earned them. In most
cases, even the best- intentioned effort to re-
build trust and commitment rarely overcomes
a bloody past. Welch is the exception that
proves the rule.
So what should you do? How can you
achieve rapid improvements in economic
value while simultaneously developing an
open, trusting corporate culture? Paradoxical
as those goals may appear, our research shows
that it is possible to apply theories E and O to-
gether. It requires great will, skill—and wis-
dom. But precisely because it is more difficult
than mere sequencing, the simultaneous use of
O and E strategies is more likely to be a source
of sustainable competitive advantage.
One company that exemplifies the reconcili-
ation of the hard and soft approaches is ASDA,
the UK grocery chain that CEO Archie Nor-
man took over in December 1991, when the re-
tailer was nearly bankrupt. Norman laid off
employees, flattened the organization, and
sold off losing businesses—acts that usually
spawn distrust among employees and distance
executives from their people. Yet during Nor-
man’s eight-year tenure as CEO, ASDA also be-
came famous for its atmosphere of trust and
openness. It has been described by executives
at Wal-Mart—itself famous for its corporate
culture—as being “more like Wal-Mart than
we are.” Let’s look at how ASDA resolved the
conflicts of E and O along the six main dimen-
sions of change.

Explicitly confront the tension between E
and O goals.

With his opening speech to
ASDA’s executive team—none of whom he
had met—Norman indicated clearly that he
intended to apply both E and O strategies in
his change effort. It is doubtful that any of his
listeners fully understood him at the time, but
it was important that he had no conflicts
about recognizing the paradox between the
two strategies for change. He said as much in
his maiden speech: “Our number one objec-
tive is to secure value for our shareholders and
secure the trading future of the business. I am
not coming in with any magical solutions. I in-
tend to spend the next few weeks listening and
forming ideas for our precise direction.…We
need a culture built around common ideas
and goals that include listening, learning, and
speed of response, from the stores upwards.
[But] there will be management reorganiza-
tion. My objective is to establish a clear focus
on the stores, shorten lines of communication,
and build one team.” If there is a contradiction
between building a high-involvement organi-
zation and restructuring to enhance share-
holder value, Norman embraced it.

Set direction from the top and engage peo-
ple below.

From day one, Norman set strategy
without expecting any participation from be-
low. He said ASDA would adopt an everyday-
low-pricing strategy, and Norman unilaterally
determined that change would begin by hav-
ing two experimental store formats up and
running within six months. He decided to shift
power from the headquarters to the stores, de-
claring: “I want everyone to be close to the
stores. We must love the stores to death; that is
our business.” But even from the start, there

Change Theories in the New Economy

Historically, the study of change has
been restricted to mature, large compa-
nies that needed to reverse their com-
petitive declines. But the arguments we
have advanced in this article also apply
to entrepreneurial companies that need
to manage rapid growth. Here, too, we
believe that the most successful strategy
for change will be one that combines
theories E and O.
Just as there are two ways of chang-
ing, so there are two kinds of entrepre-
neurs. One group subscribes to an ideol-
ogy akin to Theory E. Their primary goal
is to prepare for a cash-out, such as an
IPO or an acquisition by an established
player. Maximizing market value before
the cash-out is their sole and abiding
purpose. These entrepreneurs empha-
size shaping the firm’s strategy, struc-
ture, and systems to build a quick,
strong market presence. Mercurial lead-
ers who drive the company using a
strong top-down style are typically at the
helm of such companies. They lure oth-
ers to join them using high-powered in-
centives such as stock options. The goal
is to get rich quick.
Other entrepreneurs, however, are
driven by an ideology more akin to The-
ory O—the building of an institution.
Accumulating wealth is important, but
it is secondary to creating a company
that is based on a deeply held set of val-
ues and that has a strong culture. These
entrepreneurs are likely to subscribe to
an egalitarian style that invites every-
one’s participation. They look to attract
others who share their passion about
the cause—though they certainly pro-
vide generous stock options as well. The
goal in this case is to make a difference,
not just to make money.
Many people fault entrepreneurs who
are driven by a Theory E view of the
world. But we can think of other entre-
preneurs who have destroyed businesses
because they were overly wrapped up in
the Theory O pursuit of a higher ideal
and didn’t pay attention to the pragmat-
ics of the market. Steve Jobs’s venture,
Next, comes to mind. Both types of en-
trepreneurs have to find some way of
tapping the qualities of theories E and
O, just as large companies do.
page 93

Cracking the Code of Change

harvard business review • may–june 2000

was an O quality to Norman’s leadership style.
As he put it in his first speech: “First, I am
forthright, and I like to argue. Second, I want
to discuss issues as colleagues. I am looking for
your advice and your disagreement.” Norman
encouraged dialogue with employees and cus-
tomers through colleague and customer cir-
cles. He set up a “Tell Archie” program so that
people could voice their concerns and ideas.
Making way for opposite leadership styles
was also an essential ingredient to Norman’s—
and ASDA’s—success. This was most clear in
Norman’s willingness to hire Allan Leighton
shortly after he took over. Leighton eventually
became deputy chief executive. Norman and
Leighton shared the same E and O values, but
they had completely different personalities
and styles. Norman, cool and reserved, im-
pressed people with the power of his mind—
his intelligence and business acumen. Leigh-
ton, who is warmer and more people oriented,
worked on employees’ emotions with the
power of his personality. As one employee told
us, “People respect Archie, but they love Allan.”
Norman was the first to credit Leighton with
having helped to create emotional commit-
ment to the new ASDA. While it might be pos-
sible for a single individual to embrace oppo-
site leadership styles, accepting an equal
partner with a very different personality
makes it easier to capitalize on those styles.
Leighton certainly helped Norman reach out
to the organization. Together they held quar-
terly meetings with store managers to hear
their ideas, and they supplemented those
meetings with impromptu talks.

Focus simultaneously on the hard and soft
sides of the organization.

Norman’s immedi-
ate actions followed both the E goal of increas-
ing economic value and the O goal of trans-
forming culture. On the E side, Norman
focused on structure. He removed layers of hi-
erarchy at the top of the organization, fired
the financial officer who had been part of
ASDA’s disastrous policies, and decreed a
wage freeze for everyone—management and
workers alike. But from the start, the O strat-
egy was an equal part of Norman’s plan. He
bought time for all this change by warning the
markets that financial recovery would take
three years. Norman later said that he spent
75% of his early months at ASDA as the com-
pany’s human resource director, making the
organization less hierarchical, more egalitar-
ian, and more transparent. Both Norman and
Leighton were keenly aware that they had to
win hearts and minds. As Norman put it to
workers: “We need to make ASDA a great
place for everyone to work.”

Plan for spontaneity.

Training programs,
total-quality programs, and top-driven culture
change programs played little part in ASDA’s
transformation. From the start, the ASDA
change effort was set up to encourage experi-
mentation and evolution. To promote learn-
ing, for example, ASDA set up an experimen-
tal store that was later expanded to three
stores. It was declared a risk-free zone, mean-
ing there would be no penalties for failure. A
cross-functional task force “renewed,” or rede-
signed, ASDA’s entire retail proposition, its or-
ganization, and its managerial structure. Store
managers were encouraged to experiment
with store layout, employee roles, ranges of
products offered, and so on. The experiments
produced significant innovations in all aspects
of store operations. ASDA’s managers learned,
for example, that they couldn’t renew a store
unless that store’s management team was
ready for new ideas. This led to an innovation
called the Driving Test, which assessed
whether store managers’ skills in leading the
change process were aligned with the in-
tended changes. The test perfectly illustrates
how E and O can come together: it bubbled up
O-style from the bottom of the company, yet it
bound managers in an E-type contract. Man-
agers who failed the test were replaced.

Let incentives reinforce change, not drive
it.

Any synthesis of E and O must recognize
that compensation is a double-edged sword.
Money can focus and motivate managers, but
it can also hamper teamwork, commitment,
and learning. The way to resolve this di-
lemma is to apply Theory E incentives in an O
way. Employees’ high involvement is encour-
aged to develop their commitment to change,
and variable pay is used to reward that com-
mitment. ASDA’s senior executives were
compensated with stock options that were
tied to the company’s value. These helped at-
tract key executives to ASDA. Unlike most E-
strategy companies, however, ASDA had a
stock-ownership plan for all employees. In
addition, store-level employees got variable
pay based on both corporate performance
and their stores’ records. In the end, compen-
sation represented a fair exchange of value
CEOs who embrace
Theory O find that their
loyalty and commitment
to their employees can
prevent them from
making tough decisions.
page 94

Cracking the Code of Change

harvard business review • may–june 2000

between the company and its individual em-
ployees. But Norman believed that compen-
sation had not played a major role in motivat-
ing change at the company.

Use consultants as expert resources who
empower employees.

Consultants can provide
specialized knowledge and technical skills
that the company doesn’t have, particularly in
the early stages of organizational change.
Management’s task is figuring out how to use
those resources without abdicating leadership
of the change effort. ASDA followed the mid-
dle ground between Theory E and Theory O. It
made limited use of four consulting firms in
the early stages of its transformation. The con-
sulting firms always worked alongside man-
agement and supported its leadership of
change. However, their engagement was in-
tentionally cut short by Norman to prevent
ASDA and its managers from becoming de-
pendent on the consultants. For example, an
expert in store organization was hired to sup-
port the task force assigned to renew ASDA’s
first few experimental stores, but later stores
were renewed without his involvement.
By embracing the paradox inherent in si-
multaneously employing E and O change theo-
ries, Norman and Leighton transformed ASDA
to the advantage of its shareholders and em-
ployees. The organization went through per-
sonnel changes, unit sell-offs, and hierarchical
upheaval. Yet these potentially destructive ac-
tions did not prevent ASDA’s employees from
committing to change and the new corporate
culture because Norman and Leighton had
won employees’ trust by constantly listening,
debating, and being willing to learn. Candid
about their intentions from the outset, they
balanced the tension between the two change
theories.
By 1999, the company had multiplied
shareholder value eightfold. The organiza-
tional capabilities built by Norman and Leigh-
ton also gave ASDA the sustainable competi-
tive advantage that Dunlap had been unable
to build at Scott Paper and that Sigler had
been unable to build at Champion. While
Dunlap was forced to sell a demoralized and
ineffective organization to Kimberly-Clark,
and while a languishing Champion was sold
to UPM-Kymmene, Norman and Leighton in
June 1999 found a friendly and culturally
compatible suitor in Wal-Mart, which was
willing to pay a substantial premium for the
organizational capabilities that ASDA had so
painstakingly developed.
In the end, the integration of theories E and
O created major change—and major payoffs—
for ASDA. Such payoffs are possible for other
organizations that want to develop a sustained
advantage in today’s economy. But that advan-
tage can come only from a constant willingness
and ability to develop organizations for the
long term combined with a constant monitor-
ing of shareholder value—E dancing with O, in
an unending minuet.

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the new economy,
companies must
simultaneously build up
their corporate cultures
and enhance shareholder
value; the O and E
theories of business
change must be in perfect
step.
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Further Reading

A R T I C L E S

Campaigning for Change

by Larry Hirschhorn

Harvard Business Review

July 2002
Product no. R0207G

Hirschhorn describes two additional balanc-
ing acts you need to perform in order to lead
change successfully. To ignite large-scale
change at multiple levels in your organization,
conduct three simultaneous campaigns:

polit-
ical

(amass coalitions),

marketing

(evoke em-
ployees’ ideas and emotions), and

military

(se-
cure managerial attention). This three-
pronged approach helps you maximize con-
tributions to change from all points in your or-
ganization. Also build

top-down momentum

by developing and communicating an acces-
sible theme. Build

bottom-up momentum

by
enlisting employees who already embrace
change. And maximize

contributions from all
levels

by spreading best practices and knowl-
edge from “beachheads” back into the entire
company.

Why Change Programs Don’t Produce
Change

by Michael Beer, Russell A. Eisenstat, and
Bert Spector

Harvard Business Review

November–December 1990
Product no. 90601

The authors provide additional detail about
Theory O change, explaining how to
strengthen organizational capabilities by em-
powering managers and employees to exe-
cute change. Start by articulating a

general

di-
rection to meet your key competitive
challenge. Then let unit managers design and
execute

specific

changes to address that chal-
lenge. Through informal task alignment—al-
tering employees’ responsibilities and rela-
tionships to solve concrete problems—
managers focus employees’ energy on work
itself, not on abstractions like “empower-
ment.” Spread lessons from successful
changes. Once revitalization is established, in-
stitutionalize it by changing formal policies
and structures.
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The Hard Side of
Change Management

by Harold L. Sirkin, Perry Keenan,
and Alan Jackson

Included with this full-text

Harvard Business Review

article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work

98

Article Summary

99

The Hard Side of Change Management
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications

109

Further Reading

Companies must pay as much
attention to the hard side of
change management as they
do to the soft aspects. By
rigorously focusing on four
critical elements, they can
stack the odds in favor of
success.

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The Hard Side of Change Management

The Idea in Brief The Idea in Practice

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.

Two out of every three transformation pro-
grams fail. Why? Companies overemphasize
the soft side of change: leadership style,
corporate culture, employee motivation.
Though these elements are critical for suc-
cess, change projects can’t get off the
ground unless companies address harder
elements first.
The essential hard elements? Think of them
as DICE:

•

D

uration:

time between milestone
reviews—the shorter, the better

•

I

ntegrity:

project teams’ skill

•

C

ommitment:

senior executives’ and line
managers’ dedication to the program

•

E

ffort:

the extra work employees must
do to adopt new processes—the less,
the better
By assessing each DICE element

before

you
launch a major change initiative, you can
identify potential problem areas and make
the necessary adjustments (such as recon-
figuring a project team’s composition or re-
allocating resources) to ensure the pro-
gram’s success. You can also use DICE

after

launching a project—to make midcourse
corrections if the initiative veers off track.
DICE helps companies lay the foundation
for successful change. Using the DICE as-
sessment technique, one global beverage
company executed a multiproject organiza-
tion-wide change program that generated
hundreds of millions of dollars, breathed
new life into its once-stagnant brands, and
cracked open new markets.

CONDUCTING A DICE ASSESSMENT

Your project has the greatest chance of suc-
cess if the following hard elements are in
place:

Duration

A long project reviewed frequently stands a
far better chance of succeeding than a short
project reviewed infrequently. Problems can
be identified at the first sign of trouble, allow-
ing for prompt corrective actions. Review
complex projects every two weeks; more
straightforward initiatives, every six to eight
weeks.

Integrity

A change program’s success hinges on a high-
integrity, high-quality project team. To identify
team candidates with the right portfolio of
skills, solicit names from key colleagues, in-
cluding top performers in functions other
than your own. Recruit people who have
problem-solving skills, are results oriented,
and are methodical but tolerate ambiguity.
Look also for organizational savvy, willingness
to accept responsibility for decisions, and a
disdain for the limelight.

Commitment

If employees don’t see company leaders sup-
porting a change initiative, they won’t
change. Visibly endorse the initiative—no
amount of public support is too much. When
you feel you’re “talking up” a change effort at
least three times more than you need to,
you’ve hit it right.
Also continually communicate why the
change is needed and what it means for em-
ployees. Ensure that all messages about the
change are consistent and clear. Reach out to
managers and employees through one-on-
one conversations to win them over.

Effort

If adopting a change burdens employees with
too much additional effort, they’ll resist. Calcu-
late how much work employees will have to
do beyond their existing responsibilities to im-
plement the change. Ensure that no one’s
workload increases more than 10%. If neces-
sary, remove nonessential regular work from
employees with key roles in the transforma-
tion project. Use temporary workers or out-
source some processes to accommodate ad-
ditional workload.

USING THE DICE FRAMEWORK

Conducting a DICE assessment fosters suc-
cessful change by sparking valuable senior
leadership debate about project strategy It
also improves change effectiveness by en-
abling companies to manage large portfolios
of projects.
Example:

A manufacturing company planned 40
projects as part of a profitability-improvement
program. After conducting a DICE assessment
for each project, leaders and project owners
identified the five most important projects
and asked, “How can we ensure these
projects’ success?” They moved people
around on teams, reconfigured some
projects, and identified initiatives senior
managers should pay more attention to—
setting up their most crucial projects for
resounding success.
page 98

The Hard Side of
Change Management

by Harold L. Sirkin, Perry Keenan,
and Alan Jackson

harvard business review • october 2005

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Companies must pay as much attention to the hard side of change
management as they do to the soft aspects. By rigorously focusing on
four critical elements, they can stack the odds in favor of success.

When French novelist Jean-Baptiste Alphonse
Karr wrote

“Plus ça change, plus c’est la même
chose,”

he could have been penning an epigram
about change management. For over three de-
cades, academics, managers, and consultants,
realizing that transforming organizations is dif-
ficult, have dissected the subject. They’ve sung
the praises of leaders who communicate vision
and walk the talk in order to make change ef-
forts succeed. They’ve sanctified the impor-
tance of changing organizational culture and
employees’ attitudes. They’ve teased out the
tensions between top-down transformation ef-
forts and participatory approaches to change.
And they’ve exhorted companies to launch
campaigns that appeal to people’s hearts and
minds. Still, studies show that in most organiza-
tions, two out of three transformation initia-
tives fail. The more things change, the more
they stay the same.
Managing change

is

tough, but part of the
problem is that there is little agreement on
what factors most influence transformation ini-
tiatives. Ask five executives to name the one
factor critical for the success of these programs,
and you’ll probably get five different answers.
That’s because each manager looks at an initia-
tive from his or her viewpoint and, based on
personal experience, focuses on different suc-
cess factors. The experts, too, offer different
perspectives. A recent search on Amazon.com
for books on “change and management”
turned up 6,153 titles, each with a distinct take
on the topic. Those ideas have a lot to offer,
but taken together, they force companies to
tackle many priorities simultaneously, which
spreads resources and skills thin. Moreover, ex-
ecutives use different approaches in different
parts of the organization, which compounds
the turmoil that usually accompanies change.
In recent years, many change management
gurus have focused on soft issues, such as cul-
ture, leadership, and motivation. Such ele-
ments are important for success, but managing
these aspects alone isn’t sufficient to imple-
ment transformation projects. Soft factors
don’t directly influence the outcomes of many
change programs. For instance, visionary lead-
page 99

The Hard Side of Change Management

harvard business review • october 2005

ership is often vital for transformation projects,
but not always. The same can be said about
communication with employees. Moreover, it
isn’t easy to change attitudes or relationships;
they’re deeply ingrained in organizations and
people. And although changes in, say, culture
or motivation levels can be indirectly gauged
through surveys and interviews, it’s tough to
get reliable data on soft factors.
What’s missing, we believe, is a focus on the
not-so-fashionable aspects of change manage-
ment: the hard factors. These factors bear
three distinct characteristics. First, companies
are able to measure them in direct or indirect
ways. Second, companies can easily communi-
cate their importance, both within and outside
organizations. Third, and perhaps most impor-
tant, businesses are capable of influencing
those elements quickly. Some of the hard fac-
tors that affect a transformation initiative are
the time necessary to complete it, the number
of people required to execute it, and the finan-
cial results that intended actions are expected
to achieve. Our research shows that change
projects fail to get off the ground when compa-
nies neglect the hard factors. That doesn’t
mean that executives can ignore the soft ele-
ments; that would be a grave mistake. How-
ever, if companies don’t pay attention to the
hard issues first, transformation programs will
break down before the soft elements come
into play.
That’s a lesson we learned when we identi-
fied the common denominators of change. In
1992, we started with the contrarian hypothe-
sis that organizations handle transformations
in remarkably similar ways. We researched
projects in a number of industries and coun-
tries to identify those common elements. Our
initial 225-company study revealed a consistent
correlation between the outcomes (success or
failure) of change programs and four hard fac-
tors: project

duration,

particularly the time be-
tween project reviews; performance

integrity,

or the capabilities of project teams; the

com-
mitment

of both senior executives and the staff
whom the change will affect the most; and the
additional

effort

that employees must make to
cope with the change. We called these vari-
ables the DICE factors because we could load
them in favor of projects’ success.
We completed our study in 1994, and in the
11 years since then, the Boston Consulting
Group has used those four factors to predict
the outcomes, and guide the execution, of
more than 1,000 change management initia-
tives worldwide. Not only has the correlation
held, but no other factors (or combination of
factors) have predicted outcomes as well.

The Four Key Factors

If you think about it, the different ways in
which organizations combine the four factors
create a continuum—from projects that are
set up to succeed to those that are set up to
fail. At one extreme, a short project led by a
skilled, motivated, and cohesive team, cham-
pioned by top management and implemented
in a department that is receptive to the
change and has to put in very little additional
effort, is bound to succeed. At the other ex-
treme, a long, drawn-out project executed by
an inexpert, unenthusiastic, and disjointed
team, without any top-level sponsors and tar-
geted at a function that dislikes the change
and has to do a lot of extra work, will fail. Busi-
nesses can easily identify change programs at
either end of the spectrum, but most initia-
tives occupy the middle ground where the
likelihood of success or failure is difficult to as-
sess. Executives must study the four DICE fac-
tors carefully to figure out if their change pro-
grams will fly—or die.

Duration.

Companies make the mistake of
worrying mostly about the time it will take to
implement change programs. They assume
that the longer an initiative carries on, the
more likely it is to fail—the early impetus will
peter out, windows of opportunity will close,
objectives will be forgotten, key supporters
will leave or lose their enthusiasm, and prob-
lems will accumulate. However, contrary to
popular perception, our studies show that a
long project that is reviewed frequently is
more likely to succeed than a short project
that isn’t reviewed frequently. Thus, the time
between reviews is more critical for success
than a project’s life span.
Companies should formally review transfor-
mation projects at least bimonthly since, in our
experience, the probability that change initia-
tives will run into trouble rises exponentially
when the time between reviews exceeds eight
weeks. Whether reviews should be scheduled
even more frequently depends on how long ex-
ecutives feel the project can carry on without
going off track. Complex projects should be re-
viewed fortnightly; more familiar or straight-

Harold L. Sirkin

(hal.ops@bcg.com) is
a Chicago-based senior vice president
and the global operations practice
leader of the Boston Consulting Group.
He is the coauthor of “Fix the Process,
Not the Problem” (HBR July–August
1990) and “Innovating for Cash” (HBR
September 2003).

Perry Keenan

(keenan.perry@bcg.com) is a BCG vice
president and the global topic leader
for rigorous program management
based in Auckland, New Zealand.

Alan Jackson

(jackson.alan@bcg.com)
is a BCG senior vice president in Sydney,
Australia. More on change manage-
ment and an interactive DICE tool are
available at www.bcg.com/DICE.
page 100

mailto:hal.ops@bcg.com

mailto:keenan.perry@bcg.com

mailto:jackson.alan@bcg.com

http://www.bcg.com/DICE

The Hard Side of Change Management

harvard business review • october 2005

forward initiatives can be assessed every six to
eight weeks.
Scheduling milestones and assessing their
impact are the best way by which executives
can review the execution of projects, identify
gaps, and spot new risks. The most effective
milestones are those that describe major ac-
tions or achievements rather than day-to-day
activities. They must enable senior executives
and project sponsors to confirm that the
project has made progress since the last review
took place. Good milestones encompass a
number of tasks that teams must complete.
For example, describing a particular milestone
as “Consultations with Stakeholders Com-
pleted” is more effective than “Consult Stake-
holders” because it represents an achievement
and shows that the project has made headway.
Moreover, it suggests that several activities
were completed—identifying stakeholders, as-
sessing their needs, and talking to them about
the project. When a milestone looks as though
it won’t be reached on time, the project team
must try to understand why, take corrective ac-
tions, and learn from the experience to prevent
problems from recurring.
Review of such a milestone—what we refer
to as a “learning milestone”—isn’t an im-
promptu assessment of the Monday-morning
kind. It should be a formal occasion during
which senior-management sponsors and the
project team evaluate the latter’s performance
on all the dimensions that have a bearing on
success and failure. The team must provide a
concise report of its progress, and members and
sponsors must check if the team is on track to
complete, or has finished all the tasks to deliver,
the milestone. They should also determine
whether achieving the milestone has had the
desired effect on the company; discuss the prob-
lems the team faced in reaching the milestone;
and determine how that accomplishment will
affect the next phase of the project. Sponsors
and team members must have the power to ad-
dress weaknesses. When necessary, they should
alter processes, agree to push for more or differ-
ent resources, or suggest a new direction. At
these meetings, senior executives must pay spe-
cial attention to the dynamics within teams,
changes in the organization’s perceptions about
the initiative, and communications from the
top.

Integrity.

By performance integrity, we mean
the extent to which companies can rely on
teams of managers, supervisors, and staff to
execute change projects successfully. In a per-
fect world, every team would be flawless, but
no business has enough great people to ensure
that. Besides, senior executives are often reluc-
tant to allow star performers to join change ef-
forts because regular work can suffer. But
since the success of change programs depends
on the quality of teams, companies must free
up the best staff while making sure that day-
to-day operations don’t falter. In companies
that have succeeded in implementing change
programs, we find that employees go the extra
mile to ensure their day-to-day work gets
done.
Since project teams handle a wide range of
activities, resources, pressures, external stim-
uli, and unforeseen obstacles, they must be
cohesive and well led. It’s not enough for se-
nior executives to ask people at the water-
cooler if a project team is doing well; they
must clarify members’ roles, commitments,
and accountability. They must choose the
team leader and, most important, work out
the team’s composition.
Smart executive sponsors, we find, are very
inclusive when picking teams. They identify
talent by soliciting names from key colleagues,
including human resource managers; by circu-
lating criteria they have drawn up; and by
looking for top performers in all functions.
While they accept volunteers, they take care
not to choose only supporters of the change
initiative. Senior executives personally inter-
view people so that they can construct the
right portfolio of skills, knowledge, and social
networks. They also decide if potential team
members should commit all their time to the
project; if not, they must ask them to allocate
specific days or times of the day to the initia-
tive. Top management makes public the pa-
rameters on which it will judge the team’s per-
formance and how that evaluation fits into the
company’s regular appraisal process. Once the
project gets under way, sponsors must measure
the cohesion of teams by administering confi-
dential surveys to solicit members’ opinions.
Executives often make the mistake of as-
suming that because someone is a good, well-
liked manager, he or she will also make a de-
cent team leader. That sounds reasonable, but
effective managers of the status quo aren’t nec-
essarily good at changing organizations. Usu-
ally, good team leaders have problem-solving

The Four Factors

These factors determine the outcome
of any transformation initiative.

D.

The

duration

of time until the
change program is completed if it
has a short life span; if not short,
the amount of time between
reviews of milestones.

I.

The project team’s performance

integrity

; that is, its ability to
complete the initiative on time.
That depends on members’ skills
and traits relative to the project’s
requirements.

C.

The

commitment

to change
that top management (C1) and
employees affected by the
change (C2) display.

E.

The

effort

over and above the
usual work that the change initia-
tive demands of employees.
page 101

The Hard Side of Change Management

harvard business review • october 2005

skills, are results oriented, are methodical in
their approach but tolerate ambiguity, are or-
ganizationally savvy, are willing to accept re-
sponsibility for decisions, and while being
highly motivated, don’t crave the limelight. A
CEO who successfully led two major transfor-
mation projects in the past ten years used
these six criteria to quiz senior executives
about the caliber of nominees for project
teams. The top management team rejected
one in three candidates, on average, before fi-
nalizing the teams.

Commitment.

Companies must boost the
commitment of two different groups of people
if they want change projects to take root: They
must get visible backing from the most influ-
ential executives (what we call C1), who are
not necessarily those with the top titles. And
they must take into account the enthusiasm—
or often, lack thereof—of the people who
must deal with the new systems, processes, or
ways of working (C2).
Top-level commitment is vital to engender-
ing commitment from those at the coal face. If
employees don’t see that the company’s leader-
ship is backing a project, they’re unlikely to
change. No amount of top-level support is too
much. In 1999, when we were working with
the CEO of a consumer products company, he
told us that he was doing much more than nec-
essary to display his support for a nettlesome
project. When we talked to line managers, they
said that the CEO had extended very little
backing for the project. They felt that if he
wanted the project to succeed, he would have
to support it more visibly! A rule of thumb:
When you feel that you are talking up a
change initiative at least three times more
than you need to, your managers will feel that
you are backing the transformation.
Sometimes, senior executives are reluctant
to back initiatives. That’s understandable;
they’re often bringing about changes that may
negatively affect employees’ jobs and lives.
However, if senior executives do not communi-
cate the need for change, and what it means
for employees, they endanger their projects’
success. In one financial services firm, top man-
agement’s commitment to a program that
would improve cycle times, reduce errors, and
slash costs was low because it entailed layoffs.
Senior executives found it gut-wrenching to
talk about layoffs in an organization that had
prided itself on being a place where good peo-
ple could find lifetime employment. However,
the CEO realized that he needed to tackle the
thorny issues around the layoffs to get the
project implemented on schedule. He tapped a
senior company veteran to organize a series of
speeches and meetings in order to provide con-
sistent explanations for the layoffs, the timing,
the consequences for job security, and so on.
He also appointed a well-respected general
manager to lead the change program. Those
actions reassured employees that the organiza-
tion would tackle the layoffs in a professional
and humane fashion.
Companies often underestimate the role
that managers and staff play in transformation
efforts. By communicating with them too late
or inconsistently, senior executives end up
alienating the people who are most affected by
the changes. It’s surprising how often some-
thing senior executives believe is a good thing
is seen by staff as a bad thing, or a message
that senior executives think is perfectly clear is
misunderstood. That usually happens when se-
nior executives articulate subtly different ver-
sions of critical messages. For instance, in one
company that applied the DICE framework,
scores for a project showed a low degree of
staff commitment. It turned out that these em-
ployees had become confused, even distrustful,
because one senior manager had said, “Layoffs
will not occur,” while another had said, “They
are not expected to occur.”
Organizations also underestimate their abil-
ity to build staff support. A simple effort to
reach out to employees can turn them into
champions of new ideas. For example, in the
1990s, a major American energy producer was
unable to get the support of mid-level manag-
ers, supervisors, and workers for a productivity
improvement program. After trying several
times, the company’s senior executives decided
to hold a series of one-on-one conversations
with mid-level managers in a last-ditch effort
to win them over. The conversations focused
on the program’s objectives, its impact on em-
ployees, and why the organization might not
be able to survive without the changes. Partly
because of the straight talk, the initiative
gained some momentum. This allowed a
project team to demonstrate a series of quick
wins, which gave the initiative a new lease on
life.

Effort.

When companies launch transfor-
mation efforts, they frequently don’t realize,
page 102

The Hard Side of Change Management

harvard business review • october 2005

Calculating DICE Scores

Companies can determine if their change programs will succeed by asking executives to calculate scores for each of the four
factors of the DICE framework—duration, integrity, commitment, and effort. They must grade each factor on a scale from 1 to
4 (using fractions, if necessary); the lower the score, the better. Thus, a score of 1 suggests that the factor is highly likely to con-
tribute to the program’s success, and a score of 4 means that it is highly unlikely to contribute to success. We find that the fol-
lowing questions and scoring guidelines allow executives to rate transformation initiatives effectively:

Duration [D]

Ask:

Do formal project reviews occur regularly? If the project
will take more than two months to complete, what is the av-
erage time between reviews?

Score:

If the time between project reviews is less than two
months, you should give the project 1 point. If the time is be-
tween two and four months, you should award the project 2
points; between four and eight months, 3 points; and if re-
views are more than eight months apart, give the project 4
points.

Integrity of Performance [I]

Ask:

Is the team leader capable? How strong are team mem-
bers’ skills and motivations? Do they have sufficient time to
spend on the change initiative?

Score:

If the project team is led by a highly capable leader
who is respected by peers, if the members have the skills and
motivation to complete the project in the stipulated time
frame, and if the company has assigned at least 50% of the
team members’ time to the project, you can give the project
1 point. If the team is lacking on all those dimensions, you
should award the project 4 points. If the team’s capabilities
are somewhere in between, assign the project 2 or 3 points.

Senior Management Commitment [C

1

]

Ask:

Do senior executives regularly communicate the reason
for the change and the importance of its success? Is the mes-
sage convincing? Is the message consistent, both across the
top management team and over time? Has top management
devoted enough resources to the change program?

Score:

If senior management has, through actions and
words, clearly communicated the need for change, you must
give the project 1 point. If senior executives appear to be
neutral, it gets 2 or 3 points. If managers perceive senior ex-
ecutives to be reluctant to support the change, award the
project 4 points.

Local-Level Commitment [C

2

]

Ask:

Do the employees most affected by the change under-
stand the reason for it and believe it’s worthwhile? Are they
enthusiastic and supportive or worried and obstructive?

Score:

If employees are eager to take on the change initia-
tive, you can give the project 1 point, and if they are just will-
ing, 2 points. If they’re reluctant or strongly reluctant, you
should award the project 3 or 4 points.

Effort [E]

Ask:

What is the percentage of increased effort that employ-
ees must make to implement the change effort? Does the in-
cremental effort come on top of a heavy workload? Have peo-
ple strongly resisted the increased demands on them?

Score:

If the project requires less than 10% extra work by em-
ployees, you can give it 1 point. If it’s 10% to 20% extra, it
should get 2 points. If it’s 20% to 40%, it must be 3 points.
And if it’s more than 40% additional work, you should give
the project 4 points.

Executives can combine the four elements into a project score. When we conducted a regression analysis of our database of
change efforts, we found that the combination that correlates most closely with actual outcomes doubles the weight given to
team performance (I) and senior management commitment (C1). That translates into the following formula:

DICE Score = D + (2 x I) + (2 x C

1

) + C

2

+ E

In the 1-to-4 scoring system, the formula generates overall
scores that range from 7 to 28. Companies can compare a
project’s score with those of past projects and their outcomes
to assess if the project is slated for success or failure. Our
data show a clear distribution of scores:

Scores between 7 and 14:

The project is very likely to suc-
ceed. We call this the Win Zone.

Scores higher than 14 but lower than 17:

Risks to the
project’s success are rising, particularly as the score ap-
proaches 17. This is the Worry Zone.

Scores over 17:

The project is extremely risky. If a project
scores over 17 and under 19 points, the risks to success are
very high. Beyond 19, the project is unlikely to succeed.
That’s why we call this the Woe Zone.
We have changed the boundaries of the zones over time.
For instance, the Worry Zone was between 14 and 21 points
at first, and the Woe Zone from 21 to 28 points. But we found
that companies prefer to be alerted to trouble as soon as out-
comes become unpredictable (17 to 20 points). We therefore
compressed the Worry Zone and expanded the Woe Zone.
page 103

The Hard Side of Change Management

harvard business review • october 2005

or know how to deal with the fact, that em-
ployees are already busy with their day-to-day
responsibilities. According to staffing tables,
people in many businesses work 80-plus-hour
weeks. If, on top of existing responsibilities,
line managers and staff have to deal with
changes to their work or to the systems they
use, they will resist.
Project teams must calculate how much
work employees will have to do beyond their
existing responsibilities to change over to new
processes. Ideally, no one’s workload should in-
crease more than 10%. Go beyond that, and the
initiative will probably run into trouble. Re-
sources will become overstretched and com-
promise either the change program or normal
operations. Employee morale will fall, and con-
flict may arise between teams and line staff. To
minimize the dangers, project managers
should use a simple metric like the percentage
increase in effort the employees who must
cope with the new ways feel they must contrib-
ute. They should also check if the additional ef-
fort they have demanded comes on top of
heavy workloads and if employees are likely to
resist the project because it will demand more
of their scarce time.
Companies must decide whether to take
away some of the regular work of employees
who will play key roles in the transformation
project. Companies can start by ridding these
employees of discretionary or nonessential re-
sponsibilities. In addition, firms should review
all the other projects in the operating plan and
assess which ones are critical for the change ef-
fort. At one company, the project steering com-
mittee delayed or restructured 120 out of 250
subprojects so that some line managers could
focus on top-priority projects. Another way to
relieve pressure is for the company to bring in
temporary workers, like retired managers, to
carry out routine activities or to outsource cur-
rent processes until the changeover is com-
plete. Handing off routine work or delaying
projects is costly and time-consuming, so com-
panies need to think through such issues be-
fore kicking off transformation efforts.

Creating the Framework

As we came to understand the four factors bet-
ter, we created a framework that would help
executives evaluate their transformation initi-
atives and shine a spotlight on interventions
that would improve their chances of success.
We developed a scoring system based on the
variables that affect each factor. Executives
can assign scores to the DICE factors and com-
bine them to arrive at a project score. (See the
sidebar “Calculating DICE Scores.”)
Although the assessments are subjective,
the system gives companies an objective
framework for making those decisions. More-
over, the scoring mechanism ensures that exec-
utives are evaluating projects and making
trade-offs more consistently across projects.
A company can compare its DICE score on
the day it kicks off a project with the scores of
previous projects, as well as their outcomes, to
check if the initiative has been set up for suc-
cess. When we calculated the scores of the 225
change projects in our database and compared
them with the outcomes, the analysis was com-
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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s r
es
er
ve
d.
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The Hard Side of Change Management

harvard business review • october 2005

pelling. Projects clearly fell into three catego-
ries, or zones:

Win,

which means that any
project with a score in that range is statistically
likely to succeed;

worry,

which suggests that
the project’s outcome is hard to predict; and

woe,

which implies that the project is totally
unpredictable or fated for mediocrity or fail-
ure. (See the exhibit “DICE Scores Predict
Project Outcomes.”)
Companies can track how change projects
are faring by calculating scores over time or be-
fore and after they have made changes to a
project’s structure. The four factors offer a lit-
mus test that executives can use to assess the
probability of success for a given project or set
of projects. Consider the case of a large Austra-
lian bank that in 1994 wanted to restructure its
back-office operations. Senior executives
agreed on the rationale for the change but dif-
fered on whether the bank could achieve its
objectives, since the transformation required
major changes in processes and organizational
structures. Bringing the team and the senior
executives together long enough to sort out
their differences proved impossible; people
were just too busy. That’s when the project
team decided to analyze the initiative using
the DICE framework.
Doing so condensed what could have been a
free-flowing two-day debate into a sharp two-
hour discussion. The focus on just four ele-
ments generated a clear picture of the project’s
strengths and weaknesses. For instance, man-
agers learned that the restructuring would
take eight months to implement but that it
had poorly defined milestones and reviews. Al-
though the project team was capable and se-
nior management showed reasonable commit-
ment to the effort, there was room for
improvement in both areas. The back-office
workforce was hostile to the proposed changes
since more than 20% of these people would
lose their jobs. Managers and employees
agreed that the back-office staff would need to
muster 10% to 20% more effort on top of its ex-
isting commitments during the implementa-
tion. On the DICE scale, the project was deep
in the Woe Zone.
However, the assessment also led managers
to take steps to increase the possibility of suc-
cess before they started the project. The bank
decided to split the project time line into
two—one short-term and one long-term.
Doing so allowed the bank to schedule review
points more frequently and to maximize team
members’ ability to learn from experience be-
fore the transformation grew in complexity. To
improve staff commitment, the bank decided
to devote more time to explaining why the
change was necessary and how the institution
would support the staff during the implemen-
tation. The bank also took a closer look at the
people who would be involved in the project
and changed some of the team leaders when it
realized that they lacked the necessary skills.
Finally, senior managers made a concerted ef-
fort to show their backing for the initiative by
holding a traveling road show to explain the

DICE Scores Predict Project Outcomes

When we plotted the DICE scores of 225
change management initiatives on the hori-
zontal axis, and the outcomes of those
projects on the vertical axis, we found three
sets of correlations. Projects with DICE scores
between 7 and 14 were usually successful;
those with scores over 14 and under 17 were
unpredictable; and projects with scores over
17 were usually unsuccessful. We named the
three zones Win, Worry, and Woe, respec-
tively. (Each number plotted on the graph
represents the number of projects, out of the
225 projects, having a particular DICE score.)
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
DICE Score
Ac
tu
al
O
ut
co
m
e
WORRY WOE
1
1
5 6 1 1
14 9 2 1 8 5 1 1
1 1 1 1
1 2 2 1 2
1
4 1 3 1 6 2 2
2
2 1
1 1 1 5 1 5 6 1 3 1 4 1
1 1 1 1 2 5 1 3 1 2 1
1 1 1 1
Hi
gh
ly
Su
cc
es
sf
ul
Hi
gh
ly
Un
su
cc
es
sf
ul
1 3 1 47 71 2
1 1
5
1 2 1 4
WIN
6
9
3
9
2
9
Co
py
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ll
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ve
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page 105

The Hard Side of Change Management

harvard business review • october 2005

project to people at all levels of the organiza-
tion. Taken together, the bank’s actions and
plans shifted the project into the Win Zone.
Fourteen months later, the bank completed
the project—on time and below budget.

Applying the DICE Framework

The simplicity of the DICE framework often
proves to be its biggest problem; executives
seem to desire more complex answers. By
overlooking the obvious, however, they often
end up making compromises that don’t work.
Smart companies try to ensure that they don’t
fall into that trap by using the DICE frame-
work in one of three ways.

Track Projects.

Some companies train man-
agers in how to use the DICE framework be-
fore they start transformation programs. Exec-
utives use spreadsheet-based versions of the
tool to calculate the DICE scores of the various
components of the program and to compare
them with past scores. Over time, every score
must be balanced against the trajectory of
scores and, as we shall see next, the portfolio
of scores.
Senior executives often use DICE assess-
ments as early warning indicators that trans-
formation initiatives are in trouble. That’s how
Amgen, the $10.6 billion biotechnology com-
pany, used the DICE framework. In 2001, the
company realigned its operations around some
key processes, broadened its offerings, re-
launched some mature products, allied with
some firms and acquired others, and launched
several innovations. To avoid implementation
problems, Amgen’s top management team
used the DICE framework to gauge how effec-
tively it had allocated people, senior manage-
ment time, and other resources. As soon as
projects reported troubling scores, designated
executives paid attention to them. They re-
viewed the projects more often, reconfigured
the teams, and allocated more resources to
them. In one area of the change project,
Amgen used DICE to track 300 initiatives and
reconfigured 200 of them.
Both big and small organizations can put
the tool to good use. Take the case of a hospital
that kicked off six change projects in the late
1990s. Each initiative involved a lot of invest-
ment, had significant clinical implications, or
both. The hospital’s general manager felt that
some projects were going well but was con-
cerned about others. He wasn’t able to at-
tribute his concerns to anything other than a
bad feeling. However, when the general man-
ager used the DICE framework, he was able to
confirm his suspicions. After a 45-minute dis-
cussion with project managers and other key
people, he established that three projects were
in the Win Zone but two were in the Woe
Zone and one was in the Worry Zone.
The strongest projects, the general manager
found, consumed more than their fair share of
resources. Senior hospital staff sensed that
those projects would succeed and spent more
time promoting them, attending meetings
about them, and making sure they had suffi-
cient resources. By contrast, no one enjoyed at-
tending meetings on projects that were per-
forming poorly. So the general manager
stopped attending meetings for the projects
that were on track; he attended only sessions
that related to the three underperforming
ones. He pulled some managers from the
projects that were progressing smoothly and
moved them to the riskier efforts. He added
more milestones to the struggling enterprises,
delayed their completion, and pushed hard for
improvement. Those steps helped ensure that
all six projects met their objectives.

Manage portfolios of projects.

When com-
panies launch large transformation programs,
they kick off many projects to attain their ob-
jectives. But if executives don’t manage the
portfolio properly, those tasks end up compet-
ing for attention and resources. For instance,
senior executives may choose the best employ-
ees for projects they have sponsored or lavish
attention on pet projects rather than on those
that need attention. By deploying our frame-
work before they start transformation initia-
tives, companies can identify problem projects
in portfolios, focus execution expertise and se-
nior management attention where it is most
needed, and defuse political issues.
Take, for example, the case of an Australa-
sian manufacturing company that had
planned a set of 40 projects as part of a pro-
gram to improve profitability. Since some had
greater financial implications than others, the
company’s general manager called for a meet-
ing with all the project owners and senior
managers. The group went through each
project, debating its DICE score and identify-
ing the problem areas. After listing all the
scores and issues, the general manager walked
to a whiteboard and circled the five most im-
The simplicity of the
DICE framework often
proves to be its biggest
problem; executives seem
to desire more complex
answers. By overlooking
the obvious, however,
they often end up making
compromises that don’t
work.
page 106

The Hard Side of Change Management

harvard business review • october 2005

portant projects. “I’m prepared to accept that
some projects will start off in the Worry Zone,
though I won’t accept anything outside the
middle of this zone for more than a few weeks.
For the top five, we’re not going to start until
these are well within the Win Zone. What do
we have to do to achieve that?” he asked.
The group began thinking and acting right
away. It moved people around on teams, recon-
figured some projects, and identified those that
senior managers should pay more attention
to—all of which helped raise DICE scores be-
fore implementation began. The most impor-
tant projects were set up for resounding suc-
cess while most of the remaining ones
managed to get into the Win Zone. The group
left some projects in the Worry Zone, but it
agreed to track them closely to ensure that
their scores improved. In our experience, that’s
the right thing to do. When companies are try-
ing to overhaul themselves, they shouldn’t
have all their projects in the Win Zone; if they
do, they are not ambitious enough. Transfor-
mations should entail fundamental changes
that stretch an organization.

Force conversation.

When different execu-
tives calculate DICE scores for the same
project, the results can vary widely. The differ-
ence in scores is particularly important in
terms of the dialogue it triggers. It provokes
participants and engages them in debate over
questions like “Why do we see the project in
these different ways?” and “What can we agree
to do to ensure that the project will succeed?”
That’s critical, because even people within the
same organization lack a common framework
for discussing problems with change initia-
tives. Prejudices, differences in perspectives,
and a reluctance or inability to speak up can
block effective debates. By using the DICE
framework, companies can create a common
language and force the right discussions.
Sometimes, companies hold workshops to
review floundering projects. At those two- to
four-hour sessions, groups of eight to 15 senior
and middle managers, along with the project
team and the project sponsors, hold a candid
dialogue. The debate usually moves beyond
the project’s scores to the underlying causes of
problems and possible remedies. The work-
shops bring diverse opinions to light, which
often can be combined into innovative solu-
tions. Consider, for example, the manner in
which DICE workshops helped a telecommuni-
cations service provider that had planned a
major transformation effort. Consisting of five
strategic initiatives and 50 subprojects that
needed to be up and running quickly, the pro-
gram confronted some serious obstacles. The
projects’ goals, time lines, and revenue objec-
tives were unclear. There were delays in ap-
proving business cases, a dearth of rigor and
focus in planning and identifying milestones,
and a shortage of resources. There were leader-
ship issues, too. For example, executive-level
shortcomings had resulted in poor coordina-
tion of projects and a misjudgment of risks.
To put the transformation program on
track, the telecom company incorporated
DICE into project managers’ tool kits. The
Project Management Office arranged a series
of workshops to analyze issues and decide fu-
ture steps. One workshop, for example, was de-
voted to three new product development
projects, two of which had landed in the Woe
Zone and one in the Worry Zone. Participants
traced the problems to tension between man-
agers and technology experts, underfunding,
lack of manpower, and poor definition of the
projects’ scopes. They eventually agreed on
three remedial actions: holding a conflict-
resolution meeting between the directors in
charge of technology and those responsible for
the core business; making sure senior leader-
ship paid immediate attention to the resource
issues; and bringing together the project team
and the line-of-business head to formalize
project objectives. With the project sponsor
committed to those actions, the three projects
had improved their DICE scores and thus their
chances of success at the time this article went
to press.
Conversations about DICE scores are partic-
ularly useful for large-scale transformations
that cut across business units, functions, and
locations. In such change efforts, it is critical to
find the right balance between centralized
oversight, which ensures that everyone in the
organization takes the effort seriously and un-
derstands the goals, and the autonomy that
various initiatives need. Teams must have the
flexibility and incentive to produce customized
solutions for their markets, functions, and
competitive environments. The balance is diffi-
cult to achieve without an explicit consider-
ation of the DICE variables.
Take the case of a leading global beverage
company that needed to increase operational
The general manager
walked to a whiteboard
and circled the five most
important projects.
“We’re not going to start
until these are well
within the Win Zone.
What do we have to do to
achieve that?”
page 107

The Hard Side of Change Management

harvard business review • october 2005

efficiency and focus on the most promising
brands and markets. The company also sought
to make key processes such as consumer de-
mand development and customer fulfillment
more innovative. The CEO’s goals were ambi-
tious and required investing significant re-
sources across the company. Top management
faced enormous challenges in structuring the
effort and in spawning projects that focused on
the right issues. Executives knew that this was
a multiyear effort, yet without tight schedules
and oversight of individual projects, there was
a risk that projects would take far too long to
be completed and the results would taper off.
To mitigate the risks, senior managers de-
cided to analyze each project at several levels
of the organization. Using the DICE frame-
work, they reviewed each effort every month
until they felt confident that it was on track.
After that, reviews occurred when projects met
major milestones. No more than two months
elapsed between reviews, even in the later
stages of the program. The time between re-
views at the project-team level was even
shorter: Team leaders reviewed progress bi-
weekly throughout the transformation. Some
of the best people joined the effort full time.
The human resources department took an ac-
tive role in recruiting team members, thereby
creating a virtuous cycle in which the best peo-
ple began to seek involvement in various initi-
atives. During the course of the transforma-
tion, the company promoted several team
members to line- and functional leadership po-
sitions because of their performance.
The company’s change program resulted in
hundreds of millions of dollars of value cre-
ation. Its once-stagnant brands began to grow,
it cracked open new markets such as China,
and sales and promotion activities were
aligned with the fastest-growing channels.
There were many moments during the process
when inertia in the organization threatened to
derail the change efforts. However, senior
management’s belief in focusing on the four
key variables helped move the company to a
higher trajectory of performance.

• • •

By providing a common language for change,
the DICE framework allows companies to tap
into the insight and experience of their em-
ployees. A great deal has been said about mid-
dle managers who want to block change. We
find that most middle managers are prepared
to support change efforts even if doing so in-
volves additional work and uncertainty and
puts their jobs at risk. However, they resist
change because they don’t have sufficient
input in shaping those initiatives. Too often,
they lack the tools, the language, and the fo-
rums in which to express legitimate concerns
about the design and implementation of
change projects. That’s where a standard,
quantitative, and simple framework comes in.
By enabling frank conversations at all levels
within organizations, the DICE framework
helps people do the right thing by change.

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Conversations about
DICE scores are
particularly useful
for large-scale
transformations that
cut across business units,
functions, and locations.
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Further Reading

A R T I C L E S

Changing the Way We Change

by Richard Pascale, Mark Millemann,
and Linda Gioja

Harvard Business Review

February 2000
Product no. 97609

The authors provide strategies for

building
commitment

to your change initiative
throughout the organization. The key? En-
gage people more fully in dealing with busi-
ness challenges: 1) Instead of rolling out plans
concocted at the top, bring managers at all
levels together to audit your company’s strat-
egy, structure, and systems. Identify and ex-
press appreciation for the important contribu-
tions they make to your company’s
challenges. 2) Resist any temptation to hand
down solutions to problems. Rather, create a
productive level of stress by setting difficult
goals—while letting managers decide how to
accomplish those objectives. 3) Instill mental
discipline by using after-action reviews to pro-
mote learning, frank discussion of perfor-
mance, and a continuous-improvement
mind-set.

Learning in the Thick of It

by Marilyn Darling, Charles Parry,
and Joseph Moore

Harvard Business Review

July 2005
Product no. R0507G

This article focuses on the importance of fre-
quent progress reviews during implementa-
tion of a transformation program. The authors
recommend breaking big projects into
smaller chunks, book-ended by two types of
meetings: 1)

Before-action review (BAR).

Be-
fore embarking on a project phase, ask, “What
are our intended results and metrics? What
challenges do we anticipate? What have we or
others learned from earlier project phases or
similar projects? What will enable us to suc-
ceed this time?” 2)

After-action review (AAR).

Following each project milestone, review ac-
tual results and extract key lessons to apply to
subsequent milestones. Hold project team
members accountable for applying those les-
sons quickly in the next project phase. Also
tailor your BAR and AAR process to each
project: During periods of intense activity, use
brief daily AARs to help teams coordinate and
improve the next day’s work. At other times,
monthly or quarterly meetings may suffice.
page 109
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http://www.hbr.org

mailto:customizations@hbsp.harvard.edu

Why Change Programs
Don’t Produce Change

by Michael Beer, Russell A. Eisenstat, and
Bert Spector

Included with this full-text

Harvard Business Review

article:
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work

111

Article Summary

112

Why Change Programs Don’t Produce Change
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications

122

Further Reading

Effective corporate renewal
starts at the bottom, through
informal efforts to solve
business problems.

Reprint 90601
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Why Change Programs Don’t Produce Change

The Idea in Brief The Idea in Practice

C
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2
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. A
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ES
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.

Two years after launching a change pro-
gram to counter competitive threats, a
bank CEO realized his effort had pro-
duced…no change. Surprising, since he and
his top executives had reviewed the com-
pany’s purpose and culture, published a
mission statement, and launched programs
(e.g., pay-for-performance compensation)
designed to push change throughout the
organization.
But revitalization doesn’t come from the
top. It starts at an organization’s periphery,
led by unit managers creating ad hoc ar-
rangements to solve concrete problems.
Through

task alignment

—directing em-
ployees’ responsibilities and relationships
toward the company’s central competitive
task—these managers focus energy on

work,

not abstractions like “empowerment”
or “culture.”
Senior managers’ role in this process? Spec-
ify the company’s desired

general

direction,
without dictating solutions. Then spread
the lessons of revitalized units throughout
the company.
Successful change requires commitment, co-
ordination, and competency.

1. Mobilize commitment to change through
joint diagnosis of problems.
Example:

Navigation Devices had never made a profit
or high-quality, cost-competitive prod-
uct—because top-down decisions ignored
cross-functional coordination.To change
this,a new general manager had his

entire

team broadly assess the business. Then, his
task force of engineers, production workers,
managers, and union officials visited suc-
cessful manufacturing organizations to
identify improvement ideas. One plant’s

team

approach impressed them, illumi-
nated their own problem, and suggested a
solution. Commitment to change in-
tensified.

2. Develop a shared vision of how to orga-
nize for competitiveness.

Remove functional
and hierarchical barriers to information shar-
ing and problem solving—by changing roles
and responsibilities, not titles or compensa-
tion.
Example:

Navigation’s task force proposed develop-
ing products through cross-functional
teams. A larger team refined this model and
presented it to all employees—who sup-
ported it because it stemmed from their
own analysis of their business problems.

3. Foster consensus for the new vision, com-
petence to enact it, and cohesion to ad-
vance it.

This requires the general manager’s
strong leadership.
Example:

Navigation’s general manager fostered

con-
sensus

by supporting those who were com-
mitted to change and offering outplace-
ment and counseling to those who weren’t;

competence

by providing requested train-
ing; and

cohesion

by redeploying managers
who couldn’t function in the new organiza-
tion. Change accelerated.

4. Spread revitalization to all departments—
without pushing from the top.
Example:

Navigation’s new team structure required
engineers to collaborate with production
workers. Encouraged to develop their own
approach to teamwork and coordination,
the engineers selected matrix manage-
ment. People willingly learned needed skills
and attitudes, because the new structure
was

their

choice.

5. Institutionalize revitalization through for-
mal policies, systems, and structures

—only

after

your new approach is up and running.
Example:

Navigation boosted its profits—without
changing reporting relationships, evalua-
tion procedures, or compensation. Only
then did the general manager alter formal
structures; e.g., eliminating a VP so that en-
gineering and manufacturing reported di-
rectly to him.

6. Monitor the revitalization process, adjust-
ing in response to problems.
Example:

At Navigation, an oversight team of manag-
ers, a union leader, an engineer, and a finan-
cial analyst kept watch over the change
process—continually learning, adapting,
and strengthening the commitment to
change.
page 111

Why Change Programs
Don’t Produce Change

by Michael Beer, Russell A. Eisenstat, and
Bert Spector

harvard business review • november–december 1990

C
O
P
YR
IG
H
T
©
1
99
0
H
A
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VA
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D
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. A
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.

Effective corporate renewal starts at the bottom, through informal
efforts to solve business problems.

In the mid-1980s, the new CEO of a major in-
ternational bank—call it U.S. Financial—an-
nounced a companywide change effort. De-
regulation was posing serious competitive
challenges—challenges to which the bank’s
traditional hierarchical organization was ill-
suited to respond. The only solution was to
change fundamentally how the company op-
erated. And the place to begin was at the top.
The CEO held a retreat with his top 15 exec-
utives where they painstakingly reviewed the
bank’s purpose and culture. He published a
mission statement and hired a new vice presi-
dent for human resources from a company
well-known for its excellence in managing
people. And in a quick succession of moves,
he established companywide programs to
push change down through the organization:
a new organizational structure, a performance
appraisal system, a pay-for-performance com-
pensation plan, training programs to turn
managers into “change agents,” and quarterly
attitude surveys to chart the progress of the
change effort.
As much as these steps sound like a textbook
case in organizational transformation, there
was one big problem: two years after the CEO
launched the change program, virtually noth-
ing in the way of actual changes in organiza-
tional behavior had occurred. What had gone
wrong?
The answer is “everything.” Every one of the
assumptions the CEO made—about who
should lead the change effort, what needed
changing, and how to go about doing it—was
wrong.
U.S. Financial’s story reflects a common
problem. Faced with changing markets and in-
creased competition, more and more compa-
nies are struggling to reestablish their domi-
nance, regain market share, and in some cases,
ensure their survival. Many have come to un-
derstand that the key to competitive success is
to transform the way they function. They are
reducing reliance on managerial authority, for-
mal rules and procedures, and narrow divisions
of work. And they are creating teams, sharing
information, and delegating responsibility and
page 112

Why Change Programs Don’t Produce Change

harvard business review • november–december 1990

accountability far down the hierarchy. In effect,
companies are moving from the hierarchical
and bureaucratic model of organization that
has characterized corporations since World War
II to what we call the task-driven organization
where what has to be done governs who works
with whom and who leads.
But while senior managers understand the
necessity of change to cope with new competi-
tive realities, they often misunderstand what it
takes to bring it about. They tend to share two
assumptions with the CEO of U.S. Financial:
that promulgating companywide programs—
mission statements, “corporate culture” pro-
grams, training courses, quality circles, and
new pay-for-performance systems—will trans-
form organizations, and that employee behav-
ior is changed by altering a company’s formal
structure and systems.
In a four-year study of organizational change
at six large corporations (see the insert, “Track-
ing Corporate Change”; the names are ficti-
tious), we found that exactly the opposite is
true: the greatest obstacle to revitalization is
the idea that it comes about through company-
wide change programs, particularly when a
corporate staff group such as human resources
sponsors them. We call this “the fallacy of pro-
grammatic change.” Just as important, formal
organization structure and systems cannot lead
a corporate renewal process.
While in some companies, wave after wave
of programs rolled across the landscape with
little positive impact, in others, more success-
ful transformations did take place. They usu-
ally started at the periphery of the corpora-
tion in a few plants and divisions far from
corporate headquarters. And they were led by
the general managers of those units, not by
the CEO or corporate staff people.
The general managers did not focus on for-
mal structures and systems; they created ad
hoc organizational arrangements to solve
concrete business problems. By aligning em-
ployee roles, responsibilities, and relation-
ships to address the organization’s most im-
portant competitive task—a process we call
“task alignment”—they focused energy for
change on the work itself, not on abstractions
such as “participation” or “culture.” Unlike the
CEO at U.S. Financial, they didn’t employ
massive training programs or rely on speeches
and mission statements. Instead, we saw that
general managers carefully developed the
change process through a sequence of six
basic managerial interventions.
Once general managers understand the logic
of this sequence, they don’t have to wait for se-
nior management to start a process of organi-
zational revitalization. There is a lot they can
do even without support from the top. Of
course, having a CEO or other senior managers
who are committed to change does make a dif-
ference—and when it comes to changing an
entire organization, such support is essential.
But top management’s role in the change pro-
cess is very different from that which the CEO
played at U.S. Financial.
Grass-roots change presents senior manag-
ers with a paradox: directing a “nondirective”
change process. The most effective senior man-
agers in our study recognized their limited
power to mandate corporate renewal from the
top. Instead, they defined their roles as creat-
ing a climate for change, then spreading the
lessons of both successes and failures. Put an-
other way, they specified the general direction
in which the company should move without
insisting on specific solutions.
In the early phases of a companywide
change process, any senior manager can play
this role. Once grass-roots change reaches a
critical mass, however, the CEO has to be ready
to transform his or her own work unit as
well—the top team composed of key business
heads and corporate staff heads. At this point,
the company’s structure and systems must be
put into alignment with the new management
practices that have developed at the periphery.
Otherwise, the tension between dynamic units
and static top management will cause the
change process to break down.
We believe that an approach to change
based on task alignment, starting at the periph-
ery and moving steadily toward the corporate
core, is the most effective way to achieve en-
during organizational change. This is not to say
that change can never start at the top, but it is
uncommon and too risky as a deliberate strat-
egy. Change is about learning. It is a rare CEO
who knows in advance the fine-grained details
of organizational change that the many di-
verse units of a large corporation demand.
Moreover, most of today’s senior executives de-
veloped in an era in which top-down hierarchy
was the primary means for organizing and
managing. They must learn from innovative
approaches coming from younger unit manag-

Michael Beer

and

Russell A. Eisenstat

are, respectively, professor and assistant
professor of organizational behavior and
human resource management at the
Harvard Business School.

Bert Spector

is associate professor of organizational
behavior and human resource manage-
ment at Northeastern University’s Col-
lege of Business Administration. Their
book,

The Critical Path to Corporate
Renewal,

was recently published by the
Harvard Business School Press.
page 113

Why Change Programs Don’t Produce Change

harvard business review • november–december 1990

ers closer to the action.

The Fallacy of Programmatic
Change

Most change programs don’t work because
they are guided by a theory of change that is
fundamentally flawed. The common belief is
that the place to begin is with the knowledge
and attitudes of individuals. Changes in atti-
tudes, the theory goes, lead to changes in indi-
vidual behavior. And changes in individual be-
havior, repeated by many people, will result in
organizational change. According to this
model, change is like a conversion experience.
Once people “get religion,” changes in their be-
havior will surely follow.
This theory gets the change process exactly
backward. In fact, individual behavior is pow-
erfully shaped by the organizational roles that
people play. The most effective way to change
behavior, therefore, is to put people into a new
organizational context, which imposes new
roles, responsibilities, and relationships on
them. This creates a situation that, in a sense,
“forces” new attitudes and behaviors on peo-
ple. (See the table, “Contrasting Assumptions
About Change.”)
One way to think about this challenge is in
terms of three interrelated factors required for
corporate revitalization.

Coordination

or team-
work is especially important if an organization
is to discover and act on cost, quality, and prod-
uct development opportunities. The produc-
tion and sale of innovative, high-quality, low-
cost products (or services) depend on close co-
ordination among marketing, product design,
and manufacturing departments, as well as be-
tween labor and management. High levels of

commitment

are essential for the effort, initia-
tive, and cooperation that coordinated action
demands. New

competencies

such as knowl-
edge of the business as a whole, analytical
skills, and interpersonal skills are necessary if
people are to identify and solve problems as a
Researchers and Employees—Similar Conclusions
Extent of Revitalization
Ranked by
Company Researchers Rated by Employees
Standard
Average Deviation
General Products 1 4.04 .35
Fairweather 2 3.58 .45
Livingston Electronics 3 3.61 .76
Scranton Steel 4 3.30 .65
Continental Glass 5 2.96 .83
U.S. Financial 6 2.78 1.07

Tracking Corporate Change

Which strategies for corporate change work,
and which do not? We sought the answers in
a comprehensive study of 12 large companies
where top management was attempting to
revitalize the corporation. Based on prelimi-
nary research, we identified 6 for in-depth
analysis: 5 manufacturing companies and 1
large international bank. All had revenues be-
tween $4 billion and $10 billion. We studied
26 plants and divisions in these 6 companies
and conducted hundreds of interviews with
human resource managers; line managers
engaged in change efforts at plants,
branches, or business units; workers and
union leaders; and, finally, top management.
Based on this material, we ranked the 6
companies according to the success with
which they had managed the revitalization ef-
fort. Were there significant improvements in
interfunctional coordination, decision mak-
ing, work organizations, and concern for peo-
ple? Research has shown that in the long term,
the quality of these 4 factors will influence per-
formance. We did not define success in terms
of improved financial performance because,
in the short run, corporate financial perfor-
mance is influenced by many situational fac-
tors unrelated to the change process.
To corroborate our rankings of the compa-
nies, we also administered a standardized
questionnaire in each company to understand
how employers viewed the unfolding change
process. Respondents rated their companies
on a scale of 1 to 5. A score of 3 meant that no
change had taken place; a score below 3
meant that, in the employee’s judgment, the
organization had actually gotten worse. As the
table suggests, with one exception—the com-
pany we call Livingston Electronics—employ-
ees’ perceptions of how much their companies
had changed were identical to ours. And Liv-
ingston’s relatively high standard of deviation
(which measures the degree of consensus
among employees about the outcome of the
change effort) indicates that within the com-
pany there was considerable disagreement as
to just how successful revitalization had been.
page 114

Why Change Programs Don’t Produce Change

harvard business review • november–december 1990

team. If any of these elements are missing, the
change process will break down.
The problem with most companywide
change programs is that they address only
one or, at best, two of these factors. Just be-
cause a company issues a philosophy state-
ment about teamwork doesn’t mean its em-
ployees necessarily know what teams to form
or how to function within them to improve
coordination. A corporate reorganization may
change the boxes on a formal organization
chart but not provide the necessary attitudes
and skills to make the new structure work. A
pay-for-performance system may force man-
agers to differentiate better performers from
poorer ones, but it doesn’t help them inter-
nalize new standards by which to judge subor-
dinates’ performances. Nor does it teach
them how to deal effectively with perfor-
mance problems. Such programs cannot pro-
vide the cultural context (role models from
whom to learn) that people need to develop
new competencies, so ultimately they fail to
create organizational change.
Similarly, training programs may target com-
petence, but rarely do they change a com-
pany’s patterns of coordination. Indeed, the ex-
citement engendered in a good corporate
training program frequently leads to increased
frustration when employees get back on the
job only to see their new skills go unused in an
organization in which nothing else has
changed. People end up seeing training as a
waste of time, which undermines whatever
commitment to change a program may have
roused in the first place.
When one program doesn’t work, senior
managers, like the CEO at U.S. Financial, often
try another, instituting a rapid progression of
programs. But this only exacerbates the prob-
lem. Because they are designed to cover every-
one and everything, programs end up covering
nobody and nothing particularly well. They
are so general and standardized that they don’t
speak to the day-to-day realities of particular
units. Buzzwords like “quality,” “participation,”
“excellence,” “empowerment,” and “leadership”
become a substitute for a detailed understand-
ing of the business.
And all these change programs also under-
mine the credibility of the change effort. Even
when managers accept the potential value of a
particular program for others—quality circles,
for example, to solve a manufacturing prob-
lem—they may be confronted with another,
more pressing business problem such as new
product development. One-size-fits-all change
programs take energy

away

from efforts to
solve key business problems—which explains
why so many general managers don’t support
programs, even when they acknowledge that
their underlying principles may be useful.
This is not to state that training, changes in
pay systems or organizational structure, or a
new corporate philosophy are always inappro-
priate. All can play valuable roles in supporting
an integrated change effort. The problems
come when such programs are used in isola-
tion as a kind of “magic bullet” to spread orga-
nizational change rapidly through the entire
corporation. At their best, change programs of
this sort are irrelevant. At their worst, they ac-
tually inhibit change. By promoting skepticism
and cynicism, programmatic change can inocu-
late companies against the real thing.

Six Steps to Effective Change

Companies avoid the shortcomings of pro-
grammatic change by concentrating on “task
alignment”—reorganizing employee roles, re-
sponsibilities, and relationships to solve spe-
cific business problems. Task alignment is eas-
iest in small units—a plant, department, or
Contrasting Assumptions About
Change
Programmatic Change Task Alignment
Problems in behavior are Individual knowledge,
a function of individual attitudes and beliefs are
knowledge, attitudes and shaped by recurring
beliefs. patterns of behavioral
interactions.
The primary target of The primary target of
renewal should be the renewal should be
content of attitudes and behavior; attitudes and
ideas; actual behavior ideas should be secondary.
should be secondary.
Behavior can be isolated Problems in behavior
and changed individually come from a circular pattern,
but the effects of the organiza-
tional system on the individual are
greater than those of the individual
on the system.
The target for renewal The target for renewal
should be at the should be at the level of
individual level. roles, responsibilities, and
relationships.
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Why Change Programs Don’t Produce Change

harvard business review • november–december 1990

business unit—where goals and tasks are
clearly defined. Thus the chief problem for
corporate change is how to promote task-
aligned change across many diverse units.
We saw that general managers at the busi-
ness unit or plant level can achieve task align-
ment through a sequence of six overlapping
but distinctive steps, which we call the

critical
path

. This path develops a self-reinforcing cycle
of commitment, coordination, and compe-
tence. The sequence of steps is important be-
cause activities appropriate at one time are
often counterproductive if started too early.
Timing is everything in the management of
change.
1.

Mobilize commitment to change through
joint diagnosis of business problems.

As the term
task alignment suggests, the starting point of
any effective change effort is a clearly defined
business problem. By helping people develop
a shared diagnosis of what is wrong in an or-
ganization and what can and must be im-
proved, a general manager mobilizes the ini-
tial commitment that is necessary to begin
the change process.
Consider the case of a division we call Navi-
gation Devices, a business unit of about 600
people set up by a large corporation to com-
mercialize a product originally designed for
the military market. When the new general
manager took over, the division had been in
operation for several years without ever mak-
ing a profit. It had never been able to design
and produce a high-quality, cost-competitive
product. This was due largely to an organiza-
tion in which decisions were made at the top,
without proper involvement of or coordina-
tion with other functions.
The first step the new general manager took
was to initiate a broad review of the business.
Where the previous general manager had set
strategy with the unit’s marketing director
alone, the new general manager included his
entire management team. He also brought in
outside consultants to help him and his manag-
ers function more effectively as a group.
Next, he formed a 20-person task force rep-
resenting all the stakeholders in the organiza-
tion—managers, engineers, production work-
ers, and union officials. The group visited a
number of successful manufacturing organiza-
tions in an attempt to identify what Naviga-
tion Devices might do to organize more effec-
tively. One high-performance manufacturing
plant in the task force’s own company made a
particularly strong impression. Not only did it
highlight the problems at Navigation Devices
but it also offered an alternative organiza-
tional model, based on teams, that captured
the group’s imagination. Seeing a different
way of working helped strengthen the group’s
commitment to change.
The Navigation Devices task force didn’t
learn new facts from this process of joint diag-
nosis; everyone already knew the unit was los-
ing money. But the group came to see clearly
the organizational roots of the unit’s inability
to compete and, even more important, came to
share a common understanding of the prob-
lem. The group also identified a potential orga-
nizational solution: to redesign the way it
worked, using ad hoc teams to integrate the or-
ganization around the competitive task.
2. De

velop a shared vision of how to organize
and manage for competitiveness

. Once a core
group of people is committed to a particular
analysis of the problem, the general manager
can lead employees toward a task-aligned vi-
sion of the organization that defines new
roles and responsibilities. These new arrange-
ments will coordinate the flow of information
and work across interdependent functions at
all levels of the organization. But since they
do not change formal structures and systems
like titles or compensation, they encounter
less resistance.
At Navigation Devices, the 20-person task
force became the vehicle for this second stage.
The group came up with a model of the organi-
zation in which cross-functional teams would
accomplish all work, particularly new product
development. A business-management team
composed of the general manager and his staff
would set the unit’s strategic direction and re-
view the work of lower level teams. Business-
area teams would develop plans for specific
markets. Product-development teams would
manage new products from initial design to
production. Production-process teams com-
posed of engineers and production workers
would identify and solve quality and cost prob-
lems in the plant. Finally, engineering-process
teams would examine engineering methods
and equipment. The teams got to the root of
the unit’s problems—functional and hierarchi-
cal barriers to sharing information and solving
problems.
To create a consensus around the new vi-
Successful change efforts
focus on the work itself,
not on abstractions like
“participation” or
“culture.”
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sion, the general manager commissioned a still
larger task force of about 90 employees from
different levels and functions, including union
and management, to refine the vision and ob-
tain everyone’s commitment to it. On a retreat
away from the workplace, the group further re-
fined the new organizational model and
drafted a values statement, which it presented
later to the entire Navigation Devices work
force. The vision and the values statement
made sense to Navigation Devices employees
in a way many corporate mission statements
never do—because it grew out of the organiza-
tion’s own analysis of real business problems.
And it was built on a model for solving those
problems that key stakeholders believed would
work.
3.

Foster consensus for the new vision, compe-
tence to enact it, and cohesion to move it along.

Simply letting employees help develop a new
vision is not enough to overcome resistance to
change—or to foster the skills needed to make
the new organization work. Not everyone can
help in the design, and even those who do par-
ticipate often do not fully appreciate what re-
newal will require until the new organization
is actually in place. This is when strong leader-
ship from the general manager is crucial. Com-
mitment to change is always uneven. Some
managers are enthusiastic; others are neutral
or even antagonistic. At Navigation Devices,
the general manager used what his subordi-
nates termed the “velvet glove.” He made it
clear that the division was going to encourage
employee involvement and the team ap-
proach. To managers who wanted to help him,
he offered support. To those who did not, he
offered outplacement and counseling.
Once an organization has defined new roles
and responsibilities, people need to develop
the competencies to make the new setup work.
Actually, the very existence of the teams with
their new goals and accountabilities will force
learning. The changes in roles, responsibilities,
and relationships foster new skills and atti-
tudes. Changed patterns of coordination will
also increase employee participation, collabo-
ration, and information sharing.
But management also has to provide the
right supports. At Navigation Devices, six re-
source people—three from the unit’s human
resource department and three from corpo-
rate headquarters—worked on the change
project. Each team was assigned one internal
consultant, who attended every meeting, to
help people be effective team members. Once
employees could see exactly what kinds of
new skills they needed, they asked for formal
training programs to develop those skills fur-
ther. Since these courses grew directly out of
the employees’ own experiences, they were
far more focused and useful than traditional
training programs.
Some people, of course, just cannot or will
not change, despite all the direction and sup-
port in the world. Step three is the appropriate
time to replace those managers who cannot
function in the new organization—after they
have had a chance to prove themselves. Such
decisions are rarely easy, and sometimes those
people who have difficulty working in a partic-
ipatory organization have extremely valuable
specialized skills. Replacing them early in the
change process, before they have worked in
the new organization, is not only unfair to indi-
viduals; it can be demoralizing to the entire or-
ganization and can disrupt the change process.
People’s understanding of what kind of man-
ager and worker the new organization de-
mands grows slowly and only from the experi-
ence of seeing some individuals succeed and
others fail.
Once employees have bought into a vision of
what’s necessary and have some understanding
of what the new organization requires, they
can accept the necessity of replacing or moving
people who don’t make the transition to the
new way of working. Sometimes people are
transferred to other parts of the company
where technical expertise rather than the new
competencies is the main requirement. When
no alternatives exist, sometimes they leave the
company through early retirement programs,
for example. The act of replacing people can
actually reinforce the organization’s commit-
ment to change by visibly demonstrating the
general manager’s commitment to the new
way.
Some of the managers replaced at Naviga-
tion Devices were high up in the organiza-
tion—for example, the vice president of opera-
tions, who oversaw the engineering and
manufacturing departments. The new head of
manufacturing was far more committed to
change and skilled in leading a critical path
change process. The result was speedier change
throughout the manufacturing function.
4.

Spread revitalization to all departments
The starting point of any
effective change effort is a
clearly defined business
problem.
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harvard business review • november–december 1990

without pushing it from the top.

With the new ad
hoc organization for the unit in place, it is time
to turn to the functional and staff departments
that must interact with it. Members of teams
cannot be effective unless the department
from which they come is organized and man-
aged in a way that supports their roles as full-
fledged participants in team decisions. What
this often means is that these departments will
have to rethink their roles and authority in the
organization.
At Navigation Devices, this process was seen
most clearly in the engineering department.
Production department managers were the
most enthusiastic about the change effort; en-
gineering managers were more hesitant. Engi-
neering had always been king at Navigation
Devices; engineers designed products to the
military’s specifications without much concern
about whether manufacturing could easily
build them or not. Once the new team struc-
ture was in place, however, engineers had to
participate on product-development teams
with production workers. This required them
to re-examine their roles and rethink their ap-
proaches to organizing and managing their
own department.
The impulse of many general managers
faced with such a situation would be to force
the issue—to announce, for example, that now
all parts of the organization must manage by
teams. The temptation to force newfound in-
sights on the rest of the organization can be
great, particularly when rapid change is
needed, but it would be the same mistake that
senior managers make when they try to push
programmatic change throughout a company.
It short-circuits the change process.
It’s better to let each department “reinvent
the wheel”—that is, to find its own way to the
new organization. At Navigation Devices, each
department was allowed to take the general
concepts of coordination and teamwork and
apply them to its particular situation. Engi-
neering spent nearly a year agonizing over
how to implement the team concept. The de-
partment conducted two surveys, held off-site
meetings, and proposed, rejected, then ac-
cepted a matrix management structure before
it finally got on board. Engineering’s decision
to move to matrix management was not sur-
prising, but because it was its own choice, peo-
ple committed themselves to learning the nec-
essary new skills and attitudes.
5.

Institutionalize revitalization through formal
policies, systems, and structures.

There comes a
point where general managers have to con-
sider how to institutionalize change so that the
process continues even after they’ve moved on
to other responsibilities. Step five is the time:
the new approach has become entrenched, the
right people are in place, and the team organi-
zation is up and running. Enacting changes in
structures and systems any earlier tends to
backfire. Take information systems. Creating a
team structure means new information re-
quirements. Why not have the MIS depart-
ment create new systems that cut across tradi-
tional functional and departmental lines early
in the change process? The problem is that
without a well-developed understanding of in-
formation requirements, which can best be ob-
tained by placing people on task-aligned teams,
managers are likely to resist new systems as an
imposition by the MIS department. Newly
formed teams can often pull together enough
information to get their work done without
fancy new systems. It’s better to hold off until
everyone understands what the team’s infor-
mation needs are.
What’s true for information systems is even
more true for other formal structures and sys-
tems. Any formal system is going to have some
disadvantages; none is perfect. These imperfec-
tions can be minimized, however, once people
have worked in an ad hoc team structure and
learned what interdependencies are necessary.
Then employees will commit to them too.
Again, Navigation Devices is a good exam-
ple. The revitalization of the unit was highly
successful. Employees changed how they saw
their roles and responsibilities and became
convinced that change could actually make a
difference. As a result, there were dramatic im-
provements in value added per employee,
scrap reduction, quality, customer service,
gross inventory per employee, and profits. And
all this happened with almost no formal
changes in reporting relationships, informa-
tion systems, evaluation procedures, compen-
sation, or control systems.
When the opportunity arose, the general
manager eventually did make some changes in
the formal organization. For example, when he
moved the vice president of operations out of
the organization, he eliminated the position al-
together. Engineering and manufacturing re-
ported directly to him from that point on. For
Teamwork asks more of
employees—so they need
more support from
management.
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the most part, however, the changes in perfor-
mance at Navigation Devices were sustained
by the general manager’s expectations and the
new norms for behavior.
6.

Monitor and adjust strategies in response to
problems in the revitalization process.

The pur-
pose of change is to create an asset that did not
exist before—a learning organization capable
of adapting to a changing competitive environ-
ment. The organization has to know how to
continually monitor its behavior—in effect, to
learn how to learn.
Some might say that this is the general man-
ager’s responsibility. But monitoring the
change process needs to be shared, just as ana-
lyzing the organization’s key business problem
does.
At Navigation Devices, the general manager
introduced several mechanisms to allow key
constituents to help monitor the revitalization.
An oversight team—composed of some crucial
managers, a union leader, a secretary, an engi-
neer, and an analyst from finance—kept con-
tinual watch over the process. Regular em-
ployee attitude surveys monitored behavior
patterns. Planning teams were formed and re-
formed in response to new challenges. All
these mechanisms created a long-term capac-
ity for continual adaptation and learning.
The six-step process provides a way to elicit
renewal without imposing it. When stakehold-
ers become committed to a vision, they are
willing to accept a new pattern of manage-
ment—here the ad hoc team structure—that
demands changes in their behavior. And as the
employees discover that the new approach is
more effective (which will happen only if the
vision aligns with the core task), they have to
grapple with personal and organizational
changes they might otherwise resist. Finally, as
improved coordination helps solve relevant
problems, it will reinforce team behavior and
produce a desire to learn new skills. This learn-
ing enhances effectiveness even further and re-
sults in an even stronger commitment to
change. This mutually reinforcing cycle of im-
provements in commitment, coordination, and
competence creates a growing sense of effi-
cacy. It can continue as long as the ad hoc team
structure is allowed to expand its role in run-
ning the business.

The Role of Top Management

To change an entire corporation, the change
process we have described must be applied
over and over again in many plants, branches,
departments, and divisions. Orchestrating this
companywide change process is the first re-
sponsibility of senior management. Doing so
successfully requires a delicate balance. With-
out explicit efforts by top management to pro-
mote conditions for change in individual
units, only a few plants or divisions will at-
tempt change, and those that do will remain
isolated. The best senior manager leaders we
studied held their subordinates responsible
for starting a change process without specify-
ing a particular approach.

Create a market for change.

The most effec-
tive approach is to set demanding standards
for all operations and then hold managers ac-
countable to them. At our best-practice com-
pany, which we call General Products, senior
managers developed ambitious product and
operating standards. General managers un-
able to meet these product standards by a cer-
tain date had to scrap their products and take a
sharp hit to their bottom lines. As long as man-
agers understand that high standards are not
arbitrary but are dictated by competitive
forces, standards can generate enormous pres-
sure for better performance, a key ingredient
in mobilizing energy for change.
But merely increasing demands is not
enough. Under pressure, most managers will
seek to improve business performance by
doing more of what they have always done—
overmanage—rather than alter the fundamen-
tal way they organize. So, while senior manag-
ers increase demands, they should also hold
managers accountable for fundamental
changes in the way they use human resources.
For example, when plant managers at Gen-
eral Products complained about the impossi-
bility of meeting new business standards, se-
nior managers pointed them to the corporate
organization-development department within
human resources and emphasized that the
plant managers would be held accountable for
moving revitalization along. Thus top manage-
ment had created a demand system for help
with the new way of managing, and the
human resource staff could support change
without appearing to push a program.

Use successfully revitalized units as organiza-
tional models for the entire company.

Another
important strategy is to focus the company’s
attention on plants and divisions that have al-
The temptation to force
newfound insights on the
rest of the organization is
great, but it only short-
circuits change.
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ready begun experimenting with manage-
ment innovations. These units become devel-
opmental laboratories for further innovation.
There are two ground rules for identifying
such models. First, innovative units need sup-
port. They need the best managers to lead
them, and they need adequate resources—for
instance, skilled human resource people and
external consultants. In the most successful
companies that we studied, senior managers
saw it as their responsibility to make resources
available to leading-edge units. They did not
leave it to the human resource function.
Second, because resources are always lim-
ited and the costs of failure high, it is crucial to
identify those units with the likeliest chance of
success. Successful management innovations
can appear to be failures when the bottom line
is devastated by environmental factors beyond
the unit’s control. The best models are in
healthy markets.
Obviously, organizational models can serve
as catalysts for change only if others are aware
of their existence and are encouraged to learn
from them. Many of our worst-practice compa-
nies had plants and divisions that were making
substantial changes. The problem was, no-
body knew about them. Corporate manage-
ment had never bothered to highlight them as
examples to follow. In the leading companies,
visits, conferences, and educational programs
facilitated learning from model units.

Develop career paths that encourage leader-
ship development.

Without strong leaders, units
cannot make the necessary organizational
changes, yet the scarcest resource available for
revitalizing corporations is leadership. Corpo-
rate renewal depends as much on developing
effective change leaders as it does on develop-
ing effective organizations. The personal learn-
ing associated with leadership development—
or the realization by higher management that
a manager does not have this capacity—can-
not occur in the classroom. It only happens in
an organization where the teamwork, high
commitment, and new competencies we have
discussed are already the norm.
The only way to develop the kind of leaders
a changing organization needs is to make
leadership an important criterion for promo-
tion, and then manage people’s careers to de-
velop it. At our best-practice companies, man-
agers were moved from job to job and from
organization to organization based on their
learning needs, not on their position in the hi-
erarchy. Successful leaders were assigned to
units that had been targeted for change. Peo-
ple who needed to sharpen their leadership
skills were moved into the company’s model
units where those skills would be demanded
and therefore learned. In effect, top manage-
ment used leading-edge units as hothouses to
develop revitalization leaders.
But what about the top management team
itself? How important is it for the CEO and his
or her direct reports to practice what they
preach? It is not surprising—indeed, it’s pre-
dictable—that in the early years of a corporate
change effort, top managers’ actions are often
not consistent with their words. Such inconsis-
tencies don’t pose a major barrier to corporate
change in the beginning, though consistency is
obviously desirable. Senior managers can cre-
ate a climate for grass-roots change without
paying much attention to how they themselves
operate and manage. And unit managers will
tolerate this inconsistency so long as they can
freely make changes in their own units in
order to compete more effectively.
There comes a point, however, when ad-
dressing the inconsistencies becomes crucial.
As the change process spreads, general manag-
ers in the ever-growing circle of revitalized
units eventually demand changes from corpo-
rate staff groups and top management. As they
discover how to manage differently in their
own units, they bump up against constraints of
policies and practices that corporate staff and
top management have created. They also
begin to see opportunities for better coordina-
tion between themselves and other parts of
the company over which they have little con-
trol. At this point, corporate organization must
be aligned with corporate strategy, and coordi-
nation between related but hitherto indepen-
dent businesses improved for the benefit of the
whole corporation.
None of the companies we studied had
reached this “moment of truth.” Even when
corporate leaders intellectually understood the
direction of change, they were just beginning
to struggle with how they would change them-
selves and the company as a whole for a total
corporate revitalization.
This last step in the process of corporate re-
newal is probably the most important. If the
CEO and his or her management team do not
ultimately apply to themselves what they have
page 120

Why Change Programs Don’t Produce Change

harvard business review • november–december 1990

been encouraging their general managers to
do, then the whole process can break down.
The time to tackle the tough challenge of
transforming companywide systems and struc-
tures comes finally at the end of the corporate
change process.
At this point, senior managers must make an
effort to adopt the team behavior, attitudes,
and skills that they have demanded of others
in earlier phases of change. Their struggle with
behavior change will help sustain corporate re-
newal in three ways. It will promote the atti-
tudes and behavior needed to coordinate di-
verse activities in the company; it will lend
credibility to top management’s continued es-
pousal of change; and it will help the CEO
identify and develop a successor who is capable
of learning the new behaviors. Only such a
manager can lead a corporation that can renew
itself continually as competitive forces change.
Companies need a particular mind-set for
managing change: one that emphasizes pro-
cess over specific content, recognizes organiza-
tion change as a unit-by-unit learning process
rather than a series of programs, and acknowl-
edges the payoffs that result from persistence
over a long period of time as opposed to quick
fixes. This mind-set is difficult to maintain in
an environment that presses for quarterly
earnings, but we believe it is the only approach
that will bring about successful renewal.

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Further Reading

A R T I C L E S

In Praise of Middle Managers

by Quy Nguyen Huy

Harvard Business Review

September 2001
Product no. R0108D

Reinforcing the argument that top executives
alone don’t produce change, this article fo-
cuses on

middle managers

—leaders two
levels below CEO and one level above line
workers. The author maintains that middle
managers play four essential roles in leading
change: 1)

entrepreneurs

—they’re close
enough to the front lines to spot problems,
and far enough away to see the big picture
and new possibilities; 2)

communicators

—
plugged into broad

and

deep networks, they
can sell change initiatives and whip up enthu-
siasm; 3)

therapists

—by addressing employ-
ees’ emotional needs, they keep anxious
workers productive during radical change;
4)

tightrope artists

—they balance change
with needed continuity, enabling the com-
pany to keep functioning.

Reaching and Changing Frontline
Employees

by T.J. Larkin and Sandar Larkin

Harvard Business Review

May–June 1996
Product no. 96304

This article reinforces the notion that change
does not come from the top. To help people
change the way they do their jobs, you must
change the way you communicate with them.
But communication must focus not on execu-
tive pronouncements, but on listening to
what frontline employees have to say. The arti-
cle recommends soliciting frontline supervi-
sors’ views on how to implement change and
incorporating those suggestions into your
change plan as much as possible. The more
input supervisors have on change tactics, the
more likely your organization’s change pro-
cess will succeed.

Introducing T-Shaped Managers:
Knowledge Management’s Next
Generation

by Morten T. Hansen and
Bolko von Oetinger

Harvard Business Review

March 2001
Product no. R0103G

T-shaped managers

function as powerful
change agents at the periphery of organiza-
tions by sharing ideas and expertise across
the company (the horizontal part of the “T”)—
while

also

focusing on their own unit’s per-
formance (the vertical part of the “T”). They
create horizontal value, for example, by trans-
ferring best practices, incorporating peer ad-
vice into decisions, developing new opportu-
nities through cross-pollination of ideas, and
making bold strategic moves through well-
coordinated implementation. Organizations
can help T-shaped managers flourish by creat-
ing clear incentives for cross-unit collabora-
tion, formalizing cross-unit interactions, and
limiting these interactions to those connected
to bottom-line results.
page 122
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http://harvardbusinessonline.hbsp.harvard.edu/relay.jhtml?name=itemdetail&referral=4320&id=R0103G

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