Imagine you were an executive at a financial firm in New York City on September 10, 2001. 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 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 to 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.
Great leaders first must recognize where they are now and understand their long-term goals, says Maury Peiperl, who this February becomes director 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, great leaders 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 connected 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.’”
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, they knew the path their solutions should follow.
Next, successful change makers 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.”
Change makers 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 to 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, president of executive coaching firms LHH–DBM Peru and LHH Chile. She is known for her work helping executives master career transitions. She advises them to ask employees to remember how they coped with major changes in their personal lives, such as a 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."
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, many companies take steps that instill fear, rather than dispel it. “When companies face uncertainty, many start cutting costs and jobs. When people fear for their jobs, they become paralyzed and less effective,” Temple says. “Companies can become ‘depressed,’ just like people, and focus too much on internal matters. They forget about their clients and competition.”
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 or lack vision, people will recognize that very quickly.”
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 hierarchical and territorial organizations I’ve worked with, there have been high-performing teams that were connected and collaborative,” Davidson says. Leaders can start with these “seats of change” 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 strategic decision making, recently met someone he classifies as a true change maker: Shigeru Nakani, chairman of the board of the 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—which is 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 assume, ‘I must be pretty good at this or they wouldn’t have hired me to lead in the first place,’” he says. “Great leaders surround themselves with people they think are smarter than they are.”
People who can think on their feet “can help their organizations become more agile,” 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.”
To be masters of change, individuals and organizations must have systems in place that support experimentation. Davenport describes how Nakani has created “parallel systems” of experimentation within the structure at the Tokyo University of Science. “Many faculty aren’t comfortable with change,” says Davenport. “By setting up parallel environments where he can develop new ideas on a small scale, Nakani can insulate those faculty, rather than force 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," says Davenport. "But we don’t have many of those, and they’re hard to develop."
COMFORT WITH AMBIGUITY
From Davenport’s point of view, business schools could produce more graduates who are true change makers 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 professor 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.” Business schools could immerse their students in such case studies as a way to boost their “comfort with ambiguity,” Davidson says.
To produce individuals ready for the future, these experts agree, business schools must create more tools that put students directly into the center of change, both the 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.
Correction: An earlier version of this article led with a reference to September 10, 2011 instead of September 10, 2001.