The Art of Change Management

Five experts in leadership and strategy discuss what they believe are the most crucial skills for leading well through even the most turbulent changes.

Imagine you were an executive at a financial firm on Wall Street on September 10, 2011. At the time, your concerns likely centered around issues like wealth management, profit building, human resources, and recruitment. But in an instant on September 11, suddenly your priorities changed to include issues like disaster response, communications, employee counseling—you had to rewrite the rule book as you went along.

While it’s rare that leaders face such a dramatic and instantaneous change in circumstances, many executives aren’t prepared to react even to more gradual or subtle changes in their industries—even those that are obvious and inevitable. Instead, according those who study change management, they succumb to natural human reactions such as denial, avoidance, and failure to react, which can lead many organizations to flounder or fail.

We asked change management experts to pinpoint the most important attributes they believe leaders must possess to succeed in today’s uncertain markets. These are traits that business schools also must address in their courses, these experts emphasize, if they want to prepare their students to lead and thrive in the face of change.

Emotional Intelligence

Great leaders first must recognize where they are now and understand their long-term goals, says Maury Peiperl, who this February becomes director (dean) of the Cranfield School of Management in the United Kingdom. “They need to ask themselves, ‘What are the uncertainties? What are we afraid to lose?’ They need to see the challenge from a personal level, not just the strategic level.”

When working on teams, they also must develop a sense of others’ perspectives, histories, interests, and goals—one of the bases of “emotional intelligence,” says Peiperl. “When the people in a group trust and know one another, they can find common ground,” he says. “If there’s no common ground, there’s no trust. If there’s no trust, there will be no common effort.”

Peiperl refers to social psychologist Kurt Lewin, who identified three stages of change: “unfreezing,” in which people are encouraged to let go of their previous habits and mindsets; implementing the change; and “refreezing,” or embedding, new habits and mindsets in place. The success of this process depends on the level of emotional intelligence people possess, he says. “The single most important skill is the ability to understand why you act the way you do; the second, to understand the other person’s point of view,” he says. “If you haven’t tackled the first, it’s difficult to tackle the second.”

That’s why, in his previous position as Professor of Leadership and Strategic Change at IMD in Lausanne, Switzerland, Peiperl learned the histories and motivations of his executive education students; he asked each of them to write short cases about particular challenges and changes they faced, and then share those cases with two or three of their classmates.

The bottom line is that any strategy will fail if those responsible for its success aren’t connect to each other—and to the change they’re trying to make—on personal and emotional levels. Says Peiperl, “One of my favorite sayings is, ‘Culture eats strategy for lunch.’”

Stability

Even the most necessary changes will not happen unless an organization’s culture is receptive to them. For that reason, change-focused leaders must first establish a stable foundation for themselves and others, says Rita Gunther McGrath, professor of strategy at Columbia University in New York City, as well as a leading thinker on change management in uncertain times. “It’s a fascinating paradox. But when human beings are plunged into change they often freeze in the headlights,” she says. “You need to give them something to hang onto.”

She points to Alan Mulally, former CEO of Ford Motor Company, credited for leading the company successfully through the recession of 2008-2009. In 2007, he established his “One Ford” strategy, in which all the company’s workforce, products, and activities operate under a single brand. Because Mulally made the One Ford brand a priority, “people knew what the company’s ‘true north’ was,” McGrath says. With that reference point in place, they knew the path their solutions should follow.

Foresight

Once they establish a clear point of reference, successful changemakers put systems in place to prepare their organizations for change before it comes. For instance, McGrath has studied companies that create new budgets every quarter, rather than once each fiscal year. “These companies make the distinction between the mechanics of budgeting and the strategy of budgeting,” she says. “By having systems that support a quarterly budgeting process, they can look at what happened last quarter, identify where opportunities are popping up or what areas are fading, and make decisions about where to move resources this quarter. Most organizations don’t have these conversations.”

Changemakers also establish early warning systems to alert them of what McGrath calls “existential threats” to their business models, long before those threats come to pass. She points to one large consumer products company that has a team working on what the company should do if washing machines no longer need detergent. “For a company like Procter & Gamble or Unilever, that’s a pretty big existential threat,” says McGrath. “This company is willing to look at these threats and say ‘What could this mean for us?’ But for many other companies, these questions are not on the radar.”

Leaders also must take steps to help their teams handle the emotions and consequences of change, says Ines Temple, who is the president of executive coaching firms LHH–DBM Peru and LHH Chile and known for her work helping executives master career transitions. One way is to ask employees to remember how they coped with major changes in their personal lives, such as the move from one house to another. “The first time they move, it can be traumatic. But by the 12th move, they know how to manage it,” she says.

This strategy works because the biggest changes—such as the loss of a home or the deaths of loved ones—usually happen outside of work. When people are asked to think of these times, says Temple, “they realize they found the resources to cope, and they survived.”

Unfortunately, when facing threats to their business models, too many companies take steps that actually instill fear, not dispel it. “When companies face uncertainty, they often start cutting costs and jobs. When people fear for their jobs, they become paralyzed and less effective,” Temple says. “As a result, companies can become ‘depressed,’ just like people. They’ll focus too much on internal matters and forget about their clients and competition.”

Communication

Martin Davidson, professor of leadership at the University of Virginia’s Darden School of Business in Charlottesville, agrees that people who resist change often do so because of fear—fear not only of losing their jobs or the status quo, but also of facing an uncertain future. Leaders can reduce the fear of change by communicating a clear and consistent vision to each group and individual.

“They need to let people know ‘this is what the change is going to look like,’” says Davidson. “Leaders who can do that convincingly and consistently, through their words and actions, will be effective. If they are ambivalent, uncertain, or lack vision, people will recognize that very quickly.”

Connection

When an organization is fragmented, sudden changes can enlarge any rifts between leaders, departments, or individuals. By making sure people feel connected to each other, leaders can create stronger cultures of collaboration that can weather any change more successfully, says Davidson, whose research focuses on diversity and leveraging differences within organizations.

Even so, Davidson recognizes that in organizations where connection is not the norm, bringing people together might not be as easy as it sounds. “There is rarely an edict from on high that says, ‘We’re going to be more collaborative or connected now,’” he says. “We all know that the enduring elements of many cultures make connection really difficult to do.”

But in any culture or community, connection is happening on a smaller scale—whether it’s in specific labs, teams, or departments. “In even the most hierarchal and territorial organizations I’ve worked with, there have been high-performing teams that were connected and collaborative,” he says. Leaders can start with these “seats of change” to begin to establish a vision and new direction for the company as a whole.

Leaders themselves also have to connect to others, says Thomas H. Davenport, President’s Distinguished Professor of IT and Management at Babson College in Wellesley, Massachusetts. Those who rely solely on their own judgment are likely to see their plans fail, while more nimble and adaptable leaders seek out and value perspectives other than their own to better ensure their chances of success. For instance, Davenport, known for his work in analytics and more strategic decision making, recently met someone he classifies as a true changemaker: Shigeru Nakani, chairman of the board of Tokyo University of Science in Japan. Nakani, who is committed to repositioning his school in the market, regularly seeks advice from experts outside the organization—the reason he requested a meeting with Davenport on a recent trip to Boston.

During that meeting, Davenport was impressed that Nakani brought with him a number of smart protégés, whom he often turned to for ideas. “Most leaders don’t really take advantage of others’ input. They just assume, ‘I must be pretty good at this or they wouldn’t have hired me to lead in the first place,’” says Davenport. “Great leaders surround themselves with people they think are smarter than they are.”

Improvisation

People who can think on their feet “can help their organizations become more agile and develop more agile processes,” says Davidson of Darden. To help business students develop that skill, Davidson often forces his students to improvise in his courses. “I might have had students prepare for a certain reading or simulation, but then I’ll draw from something they didn’t expect. Or I’ll say, ‘I’m going to sit over there and it’s up to you to make something happen.’ The most frustrating and challenging thing for students to do is to have to ‘turn the ship’ suddenly,” he says. “When you force them to improvise, it can be a great learning experience.”

Peiperl agrees that responding well to change requires one part planning and one part extemporization. He draws an analogy to jazz. “People think jazz is all about improvising, but it actually starts with a basic structure, and then the musicians build and layer notes on top of that structure,” he says. “It’s no different in business. There must be interplay between a plan for change that suits the market and the opportunism that’s necessary to go with the flow. That interplay makes some people uncomfortable.”

Experimentation

To be masters of change, individuals and organizations must have systems in place that support experimentation. For instance, Davenport describes how Nakani has created “parallel systems” of experimentation within the structure at the Tokyo University of Science. “Nakani acknowledges that many faculty aren’t comfortable with change,” says Davenport. “By setting up parallel environments where he can develop new ideas on a small scale, he can insulate those faculty, rather than force it on the entire existing structure to change.”

Nakani thrives on change, which is a rare characteristic among leaders, Davenport acknowledges. The question is, can business schools help those who fear change learn to become more like Nakani? Yes, by providing them with the same opportunities to experiment themselves. “We need more simulations and experiential approaches that allow students to explore what happens when an organization is headed for disaster—when it will crash and burn if students don’t act. But we don’t have many of those, and they’re hard to develop,” says Davenport.

Comfort with Ambiguity

From Davenport’s point of view, business schools could produce more graduates who are true changemakers by offering more multidisciplinary learning opportunities. “Business schools tend to break the world up into little pieces, like finance or strategy,” he says. “Even when we offer courses that combine different approaches, they still have one faculty who comes in and says, ‘Today we’re going to talk about the information systems perspective,’ and another who says ‘Today we’re going to look at it from an operations perspective.’ Students really need to see the big picture so they can better determine where the world needs to go.”

As all-encompassing as 9/11 was, the ways companies responded produced some of the best “big-picture” case studies for leading through turbulent times, says Davidson, who worked for several clients after the tragedy. “Those leaders had to manage through changes in the business, changes in politics, changes in the world, and as much as anything else, changes in the psychology of the individuals and groups they were leading.” Schools could use immerse their students in such cases as a way to boost students’ “comfort with ambiguity,” he says.

To produce individuals ready for the future, these experts agree, business schools must create more tools that put students directly into center of change, both slow and subtle and the sudden and unthinkable. With the right experiences under their belts, their graduates won’t want to hide or be isolated from the effects of change. Rather, they’ll be comfortable right in the midst of it, ready to lead the way.

What has the most potential to change the business school model?

Rita McGrath: We’re already seeing different revenue models emerge, which shows us that a crisis is not pending—it’s already upon us. We’re going to see more regional schools, like computer coding camps and community colleges, provide local businesses with people who are perfect for whatever they need. Unfortunately, I think we’re going to see a lot of schools in the middle market go out of business, because their courses will no longer be perceived as relevant.

We’re also seeing the role of finance in our economy changing. Regulators want to shrink the finance industry, because they’ve seen it behaving badly and they think it contributes too much to our economy. If you look at growth in business schools and compare it to the growth in the portion of the economy represented by financial services, they map onto each other almost one to one. Students’ desire to go to business school often is driven by the rich salaries on Wall Street, which long has been a cozy model for business schools. We’re starting to see cracks in that model.

How can business schools better teach students to prepare for change?

Ines Temple: Many MBA programs help students prepare their CVs and practice their interviewing skills, but they also should help students to view themselves as companies that have to understand their competition and the changes in their market. Business schools need to teach future managers to have a sense of urgency about their own career development and to be prepared to market themselves more actively. We need leaders who can take care of themselves.

How can business schools become more capable of embracing change?

Thomas Davenport: The way business schools develop, recruit, and manage faculty is one of the most change-resistant models that you can imagine. In graduate school, we encourage doctoral students to specialize. We reward faculty for publishing highly specialized papers for other academics, rather than producing anything that will affect business. Then, we give them tenure so they face no pressure to change. We don’t do a good job at producing faculty who embrace change, but to teach students, we need faculty with a broader perspective.

There are a variety of models that business schools could adopt instead. When Lou Lataif was dean at the Boston University School of Management, he had a program where, if faculty would accept ten-year contracts instead of tenure, he would pay them ten percent more a year. I don’t think anyone took him up on that deal, but I think that’s something more schools should do.

Martin Davidson: Academia is a profoundly conservative culture, where there’s a sense of “if it’s not broke, don’t fix it.” It represents the biggest ocean liner I can imagine. But we have to challenge ourselves to push past that. One thing that pleases the status quo is for us to isolate ourselves from the real world, so we need to go out into the world on fact-finding missions to study the changing dynamism within industry. We need to consciously and intentionally kind of “go to school” ourselves so we can learn how to create change.

Maury Peiperl: We need to build better bridges between research and practice. One thing I am planning to do is to bring business academics and business leaders around the table, so we can continue to populate that “middle space.”

We also can build better bridges if our research is fundamentally meant to be applicable. It’s my opinion that no good research should be published just once. Let’s take that journal piece and distill it into a case study or simulation, and then let’s take that and disseminate it further to practitioners and keep it connected to the changing practice of business. It should be a constant interplay.