How to Create a Culture of Success

Change Logic co-founder, Charles O’Reilly, offers some insights on how to create a culture of success, produced by the Stanford Graduate School of Business.

LCOR in Action: Case Studies of Leading Change

Michael Tushman

Roughly 10,000 executives have attended the ‘Leading Change and Organizational Renewal ‘ (LCOR) program at HBS and Stanford over the past 25 years. Each participant brings a different challenge to solve: “I want to make my company more responsive to change”; “we need to accelerate execution of our strategy”; and, “our growth efforts are start, stop, with new ventures struggling to succeed.” They leave LCOR with a new way of looking at these challenges and a methodology they can replicate to overcome them.

What my co-leader at LCOR, Professor Charles O’Reilly, and I are learning is that the story doesn’t end there. Many of our LCOR participants take the opportunity to use this approach and design new ways for leading change within their corporations. I wanted to showcase a few of these approaches. I can’t share all of the company names, as some of the information is confidential.

LCOR in…

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Bridging Present Capabilities and Future Success with @MichaelTushman Organizational Ambidexterity

Make the Invisible Visible

The most difficult question to answer in a change project is often ‘what will it be like when we get there?’ We know having a vision of the future is critical for motivation, yet, there are too many uncertainties preventing us from being specific. That’s why at Change Logic, we are experimenting with Graphic Facilitation as way of giving expression to the hopes, fears, and expectations of those involved in a change project. Check out some of the latest examples of graphic recording and learn more about how this approach could enhance your organization’s change journey.

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Flow Chart June 29

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Tamra
Tamra Carhart, Director of Communications
@tamraconteur

 

Change Sprints Will Get You to the Finish Line

Change Sprints

Change projects often suffer from a surplus of good intentions and a deficit of disciplined effort. You get a senior leadership team together for a few days, assess what needs to change, build a plan, and get everyone aligned. If the workshop is good – our clients tell us that Change Logic runs outstanding senior leadership team sessions – then the organization can harness the excitement that the event generates. Leaders speak honestly about their challenges and commit to making change happen.

However, the following day, the ‘tyranny of the now’ can intrude and make it difficult to sustain the level of focus and intensity necessary to lead a successful business renewal. Day-to-day operations – customers, employees, product development meetings, business plan reviews –consume your time with legitimate and important demands. This sets up the familiar competition between what you’ve agreed is important and what is immediately urgent.

An extra twist on the important-urgent tension is that you are likely dealing with how to change deep-seated routines, behaviors, and mindsets. Even if you have time to complete the tangible actions that come out of a change workshop, it is still difficult to recreate that sense of commitment and motivation that made you believe ‘big’ change was possible.

Having lived through this a few times at Change Logic, we designed a method that would help our clients stay focused, engage a broader base of leaders in owning the change initiatives, and do so in a way that would energize the organization as a whole. So, the Sprint process was born. Borrowing some of the techniques and language of ‘Agile’ software development and embedding the insights from Mike Tushman and Charles O’Reilly, we have now led over twenty sprints across multiple industries. It’s enabled our clients to build new innovation businesses, embed new operating models, and rebuild go-to-market practices and processes, to name just a few of the change efforts using the Sprint model.

What are Sprints?

Simply, Sprints are how Change Logic clients create and maintain momentum to address their most critical strategic change priorities. Sprints allow clients to balance the practical mechanics with the social dimensions of change, the two elements that comprise the most intractable challenges organizations face today.

Sprints are the perfect antidote to the organizational inertia and resistance that so often haunt big transformational challenges; they recognize the complex, multi-dimensional nature of change and address the systemic barriers that other, more traditional approaches fail to address effectively.

Change: hard and soft

A key distinction is whether a change is purely about the organization hardware – process, structure, system – or whether it touches the software – people, capabilities, behaviors, and mindsets. If you only have to change “hardware”, then momentum, commitment, and engagement are not on the critical path; it’s a simple cause and effect relationship between action and result. Examples would be implementing a new IT system or managing an office move.  There is still an important human dimension involved in this kid of shift, but it can be addressed through standard methods such as strong project management, training, and communications.  We don’t need to change leadership behavior significantly or the social system of the organization. These are primarily “hardware” projects, in the realm of the knowable.1

However, most changes that we work on at Change Logic involve a response to uncertain market dynamics that may have implications for the core capabilities of an organization, and may confront power relationships between senior leaders. We are now in the realm of complexity, and that requires a different approach to managing change.

The critical part of this type of change is that we don’t know the answers at the outset.  It requires an exploratory approach – one where we test potential solutions through smart experiments which address both the formal systems (processes, organization, skills) AND the social systems of culture and leadership.  A typical client example would be moving from functionally focused ways of working to a collaborative model where multiple units need to align around shared priorities, often on a strict timeline. This will only work when we identify and shift the existing organizational dynamics and informal power structures. This is where we have found the Sprint Process to have significant impact.

How do Sprints work?

Sprints have several key elements/characteristics:

  • They address the most strategically critical and stubborn transformational challenges
  • They focus on identifying and addressing root causes for performance issues, not the surface symptoms – these are often cultural as much as they are procedural or organizational
  • They operate at speed – using 30/60/90 day cycles to drive rapid progress
  • They use experiments to test & refine solutions before rolling out big implementations – so people learn, not just to experiment, but to accept that failure is both a necessity and a learning opportunity in complex transformation
  • They leverage skills, knowledge, and enthusiasm from across the organization – Sprint teams typically consist of highly empowered middle managers with a senior sponsor who acts as team advisor and coach, not as a director
  • They focus as much on learning how to do complex transformation as they do on actual transformation-delivery
  • They focus as much on the cultural and behavioral shifts needed for success as they do on the mechanistic process and structural shifts.
  • They leverage standard change and project management methods to ensure effective governance, but they add a layer of leadership development; they help senior leaders to adapt their behaviors and help more junior leaders to take on broader responsibilities


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As a result, Sprints enable organizations to define, test, refine and implement complex transformation while avoiding the endless debates and political resistance that go along with these types of adaptations.  At the same time, the organization learns how to shift on their own by developing the ability to continue managing transformation effectively and to continue adapting to the needs of today’s world. 

The Change Logic Sprint approach can provide companies with real competitive advantage – we help them develop the ability to change and adapt faster and more effectively than their (often disruptive) competitors.  To understand more about what we do and how we do it, please contact us at info@change-logic.com

 

1Dr Dave Snowden has written about a powerful distinction between ‘Known’ and ‘Knowable’ problems where cause and effect applies: Complexity, where you only know what happened in retrospect, and Chaos, where there is not cause and effect.
by Peter Ainley-Walker

In Medio Stat Virtus

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by Andres Echeverry

In Sizing Exploratory Efforts, Virtue Stands in the Middle

Business leaders often identify the need to pursue an ambidextrous strategy when they realize that their tried and proven success formula is becoming either obsolete or a barrier to capture exciting new opportunities. Leaders rationally understand the need for organizations to excel at both the execution of current core operations and the exploration and development of new growth businesses. This exploration often requires the chartering of explore teams that are given greater organizational freedoms to push into new business models than those typically afforded to core product innovation and R&D functions. As the exploratory efforts are being shaped, our clients ask a common recurring question: “How large a budget and team should we assign?”

Organizations determine that they need a significant number (whatever that may be) in terms of budget and people to signal the importance of the new effort and to break from a past when they typically under-resourced entrepreneurial or exploratory activities. Overly conservative and profitability-focused core businesses inevitably constrain resources to high-uncertainty exploratory efforts that are years from having a direct P&L impact. Unfortunately, many organizations that invest heavily in R&D and innovation activities for their core markets and technologies feel the pressure to signal “importance” by the size of the investment relative to other innovation endeavors. We need to challenge this assumption.

While relieving the resource constraint is an important priority, lifting the constraint does not require large and explicit resource assignments that activate alternative organizational antibodies. Significant resource shifts from powerful core functions often become a source of tension with the new explore efforts before they start the first project. Moreover, once underway, the pressure to pursue size leads to quickly ballooning initiatives that risk poor execution. Over-resourcing often leads explore teams to ignore the benefits of resourceful small-scale experimentation; moreover, it also leads to exploratory efforts that are over-extended into diverging arenas that are too far away from the organization’s strategic fit. Perhaps most worrisome, over-resourcing allows organizations to pursue exploratory efforts without making the difficult choices on where they should be playing in the first place. The combination of poor execution, large scale, and high visibility can quickly undermine the credibility of the new exploratory efforts. The natural friction between these activities and the traditional core units does the rest, and a once promising renewal effort is slowly cast off into oblivion.

In order for exploratory units to succeed, leadership must simultaneously signal importance, promote support, and build credibility in the new exploratory efforts. What we often find is that our clients can achieve this by internalizing three principles:

  1. Signal support through communication, expectations, and affording scarce resources.

At the start, leaders should signal the importance of the exploratory effort through continuous communication of an ambitious and inspiring vision. This vision should include both the current core businesses and the direction of the exploratory efforts. It should be backed by giving visibility and leadership support to the exploratory initiatives. Senior executive time and support is the scarcest resource that an organization can assign, but it’s worth it for senior leaders to make time for these initiatives. These actions go a long way to promoting a supportive environment while keeping the attention away from staff and budget concerns. Business leaders should allow the exploratory unit sufficient budget to identify and prepare worthy proposals, and challenge it to deliver initiatives that have evident merit.

  1. Learn to do it – fail and iterate inexpensively by focusing relentlessly on a few opportunities with early win-potential

Stable and long-running organizations have deep benches of experienced operational executives. However, developing new business ventures requires a different set of skills from running an established one. Any organization that embarks on the exploratory process to develop new business models is likely to face an experience curve. Under these conditions, they should start by targeting a relatively small portfolio of three to five strategic initiatives with large and early success potential. Our experience suggests that many of these are usually “hanging in the hallways,”–improperly managed or resourced projects that have already been suggested or tried unsuccessfully. They also usually pass the “I’ll-be-darned-if-we-can’t-do-this” test and, with the right context and a rigorous iterative validation process, they yield the early wins the organization needs to gain confidence in its exploratory unit.

  1. Scale according to pipeline and resource availability

Resolute leadership and exploratory capability aside, the ramp-up of the exploratory efforts needs to be a direct response to its investment opportunities: How promising are the market arenas the firm can target over the next three years? Are the resources we need to succeed in them available? While the only way to answer these questions is by carrying out the exploratory work, senior leaders need to recognize that external constraints could play a significant role in the ramp-up.

The effects of these constraints are evident in the evolution of the venture capital industry. A recent study of the state of the venture capital industry shows that the flow of investment-grade startups has plateaued at 1,500 to 2,000 per year over the past decade or so. This is despite the fact that VC firms have historically clustered around strong growth sectors such as software, biotech, electronics, and telecommunications. Moreover, the evolution of start-up ecosystems has favored talent hubs that provide new business ventures with ample selection and diversity of highly specialized individuals required for the new ventures to succeed. The steady state reached by the VC industry is a reflection of the industry and technology constraints that limit growth, while its strong hub nature is a reflection of the resource constraints.

A shared understanding of these three principles allows organizations to move into the actual work of exploring with the right mindset. It forces the organization to delay the inevitable resource tensions for a moment when it will be better equipped to make the right allocation decisions. It also keeps the explore efforts under the right mix of tensions, support, and freedoms to promote their future success.

Setting Up an Innovation Unit

ChangeLogic030714-0632
By Andres Echeverry

As a market disrupts, it is rarely clear what the implications will be for incumbents. Our clients wrestle with questions like: will online streaming displace broadcast TV completely? How will millennials affect the market for financial services? Will all scientific data be available free online as ‘open access’? Is the ‘Internet of Things’ a marketing label or a real business opportunity?

Most of these questions can’t be answered with traditional strategy tools; there are just too many variables. We advise our clients to launch experiments to test new value propositions to find out what customers value most and whether it is possible to build a new business around it. Often that means setting up a new Innovation Unit with responsibility for launching business experiments outside the traditional core business. Read more about what it takes to create a start-up within your core business in my blog post: In Medio Stat Virtus.

Additionally, we are launching a research project to benchmark practices in this arena and understand what structures, practices, processes and people work best; what CEOs and senior teams can do to make business experiments successful and highlight some of the pitfalls. Please contact me at andres.echeverry@change-logic.com to participate.

Look Both Ways!

In his latest edition of the weekly “Economic Principles“, David Warsh addresses the controversy revolving around Jill Lepore’s criticism of Clay Christensen’s work in The New Yorker. He delivers some salient points and he gives a hat tip to our founders, Professors Charles O’Reilly and Michael Tushman, and their concept of the Ambidextrous Organization, as the way forward for larger, well-established businesses. Does Ambidexterity resonate with you, as it did with Warsh? 

Top tip on change communications – start with the right questions | simply communicate

We’re linking to Agenda Strategies’ Liam FitzPatrick’s piece that claims that asking just five basic questions will help you add value to any project from the very beginning. We think he’s on to something.  Do you agree? Top tip on change communications – start with the right questions | simply communicate.

Front End of Innovation: Key Take-aways

Last month, Andy Binns (Change Logic’s Managing Principal) chaired a panel discussion at the Front End of Innovation Conference in Boston with panelists Carol Kovac (former GM for Life Sciences at IBM) and George Glackin (Senior Executive for Innovation at P&G). In this post, Andy summarizes the key takeaways from the panel that was on the topic:  ‘Building New Businesses in Established Organizations’.

  1. Manage Core and Explore with distinct management systems; but equal accountability

This is one of the most difficult things for a large, successful organization, or even a small, successful organization to learn. How do you think quite differently about measuring success? I have found that it’s not a function of how much money you throw at it. Here in Boston, we had this CEO say “Hey, we have spent ten million dollars on this new venture and we’ve had to write it off as complete waste. It’s like, why would I go and spend more?” We asked him, “Have you considered that you spent too much?” The reality is, if you were poor, you would use more incremental investment tests to learn and experiment, which in a sense, is a disciplined experimentation that a large firm needs to learn more than anything else.

I think the worst thing you can do is create a ten million dollar bleeding hole for the company–you won’t be allowed to continue. Some companies do have, conversely, things that have been in the learning mode for twenty years because they’re not costing the company anything. Particularly, when you get into a mode where you’re getting some income but not investing a lot, you can sustain that forever.

The exploit metrics are generally in terms of profitability, and they’re pretty conventional metrics. But in the explore businesses, at IBM, they said that for the first year, they had only milestones–and those milestones rarely had revenue–or even revenue targets–let alone profitability. There were certainly no profitability targets. They knew they were going to invest, they put together plans, and they said, “Here’s how much we’re going to invest.” Then they had milestones, and those milestones were usually about gaining marquee clients or a key partner to go off and pursue the business. They had to ask, “Where do we want to get with this?” Did they want to develop technology to a certain state where they had a pilot that was field-ready or customer-ready, or a customer that wanted to pilot with us? Later on, you can start to weave in revenue and growth metrics.  Only after about five years did IBM really start to impose what I would consider more conventional profitability charts.

  1. Base Milestones on what you need to learn to validate a new business

One participant asked how you teach an established firm to develop this sort of management system.

What we learned was it is important to narrow down on a finite set of critical assumptions. Then all you have to do is focus on the learning about those critical markers. How do people want to go about refreshing their clothes? Or washing their dishes? Or shaving?  How well can we do it? How much are they willing to pay? It’s a very focused problem. The discipline in this helpful in getting to the core question of “What is our critical assumption?”

IBM had a lot of milestones that stemmed from their business strategy. First, your business has to have a strategy: What is it that we’re going to do, and more importantly, what are we not doing, and what is our strategy five years from now? Then they took the strategy –and it’s very difficult sometimes to bridge from the strategy to execution–but that middle piece–that strategic execution piece says “What are the things that we just must get right, and not just this year, but over the next three, five-year horizon?” What must we totally get right if we’re going to reach that strategic goal? So, IBM came up with a list of never more than five or six things that they had to get right. Then, and only then, would they take those things and say what the milestones are within them. They called the middle things strategic objectives, and one of them was to build the best data management product and solutions for clients in the life sciences.  Then they reduced that to a set of milestones that defined who’s going to build, what are we going to build, who are we going to partner with, and what business partners do we need. Another one was to become very visible as the high performance computing leader in the life sciences. That reduced itself to a set of milestones around products, but also around marketing visibility. Those aren’t all financial measures, but that’s how they established our own key success factors

  1. Leaders have to let new ventures scale at the pace of the opportunity; not to satisfy short-term business requirements

Don’t try to accelerate Explore businesses beyond their maturity. As IBM Life Sciences got started in 2000 as an ‘Emerging Business Opportunity’ the dotcom burst and IBM was in the hunkering-down/cost-cutting mode. And all of the temptations to try and go faster were there.

The key word is leadership. You have to have a leader with control over resources who can say “I’m going to protect this investment.”  It doesn’t have to be a huge investment, but you have to have a team, and the investment has to be protected. Every innovation leader finds ways to protect resources; that’s the concept of a skunk works—a project run by a small group of people who research and develop it for the sake of radical innovation. You have to have the ability to, within a company, squirrel off some resources and protect a skunk works.  Or conversely, you build a whole business unit even though it’s a small, emerging business unit.  The critical piece is making sure it’s protected.

  1. Learn how to build new businesses closer to the core before moving to radical investments

IBM made this conscious choice in the Life Sciences unit, that if people start to get excited about going beyond what they have already done, sometimes it can go too far beyond. It’s smart to look for near-adjacencies that are innovative but near the core. That way, core competencies of the company can be parlayed into this new opportunity. The culture is suited. You can think of your mission as an expanded one– it’s not a totally different mission. The Ball Corporation went from buckets to glass jars to tin cans, but still we can rationalize that this is part of who they really, truly are. This is one of the things that differentiates “intro-preneuring”–doing this from within an existing, established company–from a total start-up which a lot people to kind of look and say, “Well, how do start-ups do it? How do total entrepreneurs do it?” And I think that’s one thing that’s different, is that the most successful companies stay close enough to their competencies and they don’t go totally out in that upper right hand corner—the disruptive innovation corner.

  1. Learn to manage multiple experiments

When IBM started with Emerging Business Opportunities, they were running six experiments in parallel. They were all very different. They were all different business organizations and business opportunities. They were all under the curfew of IBM’s then Vice Chairman and then later the Chief Strategy Officer; both acting as senior sponsors. Developing a portfolio concept is a very useful, way of thinking about it–to say “We’re not just going to take this one thing, but we’re going to develop a portfolio of things”. Now, that portfolio may be small, depending on the resources that you can carve out, but say you’re willing to allocate this much resource to a portfolio and this is what that portfolio has to get to. The really exploratory stuff is going to be much more risky, and you might get one out of ten to work. But odds are if you have a good incubation process, you’ve got enough ideas that are close enough to the tree that you can get a higher hit rate within your portfolio and still not have to spend too, too much money. Having a portfolio manager who can balance that is important.