Many have argued that one of the best business management books ever written is Only the Paranoid Survive, by the former chairman of the Intel Corporation, Andy Grove. Intel is the world’s largest semiconductor chip maker and arguably one of the most successful corporations in the world today. However, at one point they were one of many in a sea of firms manufacturing memory chips. At the time, they were where doing good, but not great. This is where many nonprofits find themselves – doing good, but certainly not “Best In Class”. In the book, Andy describes this middle place. They could have continued to manufacture memory chips and be moderately successful. But the long term picture was not great. They were at a place he describes as an “inflection point”. This is a place where they could have continued in their business but long term they would have succumbed to new technology and new competitors.
They had to make a decision that was difficult, expensive, filled with risk, anything but certain, and deadly if they failed. They had to be ready to stop what they were doing (manufacturing memory chips) retool, reinvest, and manufacture chips that would eventually be installed on almost every PC in the world. It was a brilliant move but hardly an easy one.
Many organizations, public, nonprofit, commercial are in similar circumstances. They must either reinvent themselves and risk dismantling the organization or stay the course and die a slow (it can take a lifetime) and painful death.
This article will outline 10 critical requirements for successful organizational transformation. There is one fundamental assumption that must be understood: for an organization to maintain itself, it must occasionally reinvent itself. Markets change, new technology puts the old out of date, the world changes, new social issues replace old ones that no longer look quite as ominous, and younger staff members see the world differently than founding leadership.
Change is inevitable. There are only three options of response:
1. Absorb the risk of reinvention and grow,
2. Take the risk and fail (dismantle the organization), or
3. Stay the course and eventually die.
Realize that the only difference between number two and three is one of speed. Either way, the organization dies.
#1. CELEBRATE PAST SUCCESS
Embarking upon a massive organizational change or transformation has all the appearance of dismissing the past. For staff who often invest their lives into a nonprofit or public sector organization with clear mission minded intent, this dismissal of past success is difficult. If the staff has been with the organization for any extended time, this change can be brutal. It might have the appearance of teen agers dismissing as irrelevant years of productive service. To counter this reality, celebrate the past.
By celebrating the past, staff and years of personal work is acknowledged. If change does require them to leave, they at least leave with the assurance that their personal contribution was valuable.
#2 – BE BRUTALLY HONEST WITH THE FACTS
In 1982 seven people died after taking Tylenol – the Johnson & Johnson over the counter pain medication. The consensus was that the brand was dead, that the company would never again be able to market anything under the name of Tylenol. But the company proved the skeptics wrong. Almost immediately Johnson & Johnson admitted there was a potential problem. They stopped production and pulled all remaining supplies from the shelves. Pulling 31 million bottles of Tylenol off the shelves cost the company more than $100 million, threatened the 37% market share they enjoyed, and putting $400 million in revenues at risk. And yet, Johnson & Johnson earned praised for its reaction and Tylenol is still a top selling over the counter pain reliever. Their honesty won them praise, respect, and most importantly, trust.
When embarking on major transformative change, leaders must be brutally honest with staff, funders, and themselves. The old adage is true, the truth shall set you free, but first it will scare the pants off you. Problems cannot be tackled if the truth about them is unclear, uncertain, or being ignored. If an organization is going to change, then everyone deserves the respect of being clear about the reasons why.
When Alan Mulally took over the leadership of Ford Motor Company he is reported to have asked his senior executives: “You guys, you know we lost a few billion dollars last year, is there anything that’s not going well?” Yet honesty does not have to be demeaning and degrading. In a similar meeting Alan was told that a new car on the verge of being delivered had some technical problems. However, when told of the problem in simple truth, his response was “I really appreciate that clear visibility”. By the next week, the problems were solved.
Speaking again of the Intel Corporation, Authors Larry Johnson and Bob Phillips write in their book, Absolutely Honesty, state: “Intel has long enjoyed a reputation for being a place where people express their opinions freely and assertively – and the company has profited handsomely as a result”.
#3 – DEFINE THE BIG PICTURE FIRST
Understanding the larger picture, on a global scale can provide serious perspective. This generally shows that for most social problems, no single organization is going to solve the problem. This perspective has the impact of demonstrating the need for collaboration in solving social issues.
In an article in the Stanford Social Innovation Review, authors John Kania & Mark Kramer (Winter 2011), point out that impact on major social problems require a collaborative approach rather than the current approach which is to find (and fund) the one organization that seems to be doing the most good. This approach, they maintain is fundamentally flawed. In the article, they state: “1.4 million nonprofits try to invent independent solutions to major social problems, often working at odds with each other and exponentially increasing the perceived resources required to make meaningful progress”.
While many of us would like to believe that we alone have the solutions, the reality is that a consortium of organizations, working collaboratively, are required to address the large complex social problems that address our world. However, once the larger perspective is addressed, then individual organizations can better understand where they can contribute to the whole, rather than attempt to be the whole. This collaborative approach also has a way of diminishing competition for resources and ends up putting more resources where they have the greatest impact.
#4 – USE STRUCTURE AND DISCIPLINE
In his book, Making Strategy Work, Wharton School of Economics professor, Lawrence Hrebiniak PH.D, states: “…a disciplined approach to execution is needed to make strategy work. A reliance on a few sound bytes, anecdotes, or stories is not sufficient….Only an integrated, disciplined approach can cut through this complexity and achieve execution success.” Why do so many well designed and beautifully presented, strategic plans fail at or end up being very nice door stops? Some research suggests that 90% of all strategic plans fail to be fully implemented. One solution to this might be inaugurating strategic planning and organizational transformation with a disciplined and structured approach. After reviewing a large strategic plan for a major urban school district, one that should have produced major transformation, there was one sentence that addressed how the district was going to accomplish its grand vision of improving academic test scores. The remaining 30 plus pages were pointing out problems, statements of aspiration, measures that would be used to monitor progress, (that was good), and slamming the organization for past failures.
In 2001 Steve Gorcester took over as executive director of the Washington State Transportation Improvement Board (TIB). This small but important agency acts much like a bank, investing state funds in city and county transportation projects. Within his first week he was faced with a disaster. The TIB had committed financial resources to more projects than it could fund and it was five months late in paying for the projects that were already completed. In addition, the legislature and the governor were ready to shut the TIB down. He needed to move quickly to turn the organization around. His solution was the implementation of a Balanced Scorecard. This was a tool that was comprehensive in nature and was able to turn guide the TIB around in very short order. One of the attractions of the Balanced Scorecard was the value of balancing competing objectives within the organization. The TIB had put a great value on customer service. So much so that anytime a city needed more money to complete a project it was provided with hardly a question. This may have been great customer service but it was driving the agency into insolvency. The two competing objectives had to be balanced. Later, they turned to the Baldrige quality criteria to go even further in their plan to improve the work of the TIB. As of this writing, (2011) there are two bills in the legislature to increase their funding, even in the midst of state wide budget reductions.
The value of a structured approach is in the discipline. An approach such as a Balanced Scorecard or the Baldrige criteria provides a comprehensive view of the organization. The result is that nothing is left out. Missing pieces don’t show up three years later.
#5 – EVALUATE THE RISK AND PLAN ACCORDINGLY
The risk of major transformative change is significant. Major change can have an immediate impact on staff morale, funding sources, technology, leadership, processes, and customers. Lack of a thorough evaluation of risk can turn the best intentions into catastrophic events. The Project Management Institute defines risk as “An uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives”. From this definition we learn that risk is any variation from the expected that has either a negative or positive outcome. There are two primary benefits of a thorough analysis of risk:
1. Weakness and threats are identified that can derail the best intentioned plan; and
2. Strengths and opportunities that may lie dormant can be exploited and leveraged for positive results.
When Louis V. Gerstner, Jr took over as CEO of IBM in 1993 the company had an active plan to dismantle the firm. It was considered too big, too unwieldy, and too insular to change and the parts were worth more individually that the company was as a whole. Instead of seeing size as a weakness, he saw it as strength and turned the company around. The turnaround of IBM is still considered one of the great stories of modern corporate history. However, it was far from easy. Over 100,000 people had to be laid off; many of these staff came to IBM because of the culture of life time employment.
There are several ways to identify and measure risk, when it is defined broadly as either a positive or a negative unforeseen impact. The traditional SWOT analysis is a useful (but not the only) tool to do this. For those unfamiliar with this tool SWOT is an acronym that stands for:
There are other frameworks for identifying risks. Another is PESTEL Framework, which stands for:
Whichever one is used, it is important to use a disciplined approach to identifying risk and plan accordingly. How many organizations have suffered catastrophic losses after developing a great long term strategy only to discover three years into the plan that the technology infrastructure is incapable of handling the change, the staff lacked the required skills, and the leadership was incapable of leading?
#6 – ALIGN OPERATIONS AND THE INTANGIBLE ASSETS
Alignment is one of those ‘buzz” words that is making the rounds of business management books. Basically it means that every operational and administrative unit is aligned with strategy. It is important, if nonprofits and public sector organizations are going to achieve “Best in Class” performance and the kind of breakthroughs their funders and constituents are seeking. In their book, Alignment, Robert Kaplan and David Norton, (Harvard Business School Press) state: “Understanding how to create alignment in organizations is a big deal, one capable of producing significant payoffs for all types of enterprises.”
While alignment needs to happen throughout the organization, one of the most obvious places is in the budget. Every organization has a detailed strategic plan. Like it or not, it is called the budget. However, the budget may not be the best document to lay out a long term vision.
Examples abound of how organizations fail in their execution of strategy by not aligning their divisions around a common strategic strategy. For example, a large national consulting organization has three business units and thousands of divisions. Annually it conducts over $550mm a year with federal, state, and local government agencies. Each year at annual planning meetings there are substantial discussions about missed opportunities because staff from one division who have existing relationships with a government client, cannot leverage that relationship to the benefit of another division. Every new division president and vice president sees opportunities wasting away because the firm cannot leverage the customer relationships for additional business. Each year management puts out a directive to work together more. Every year the directive fails. Is it a lack of strategy? Absolutely not. Strategy is abundant. The problem was a lack of alignment.
• Staff compensation is linked to one on one customer relationships rather than the total value of the client relationship;
• Marketing has never segmented the market in such a way that prospective clients can be identified by any kind of demographic; and
• There has never any kind of Customer Relationship Management (CRM) system in place so that staff from one division could instantly tell who had existing relationships with government clients from another division.
Without these basic tools it is up to personal relationships to make collaboration work. Unfortunately, people are too busy worrying about revenues for their own divisions to worry about helping another division.
The transformational change process is highly dependent upon aligning all units of the organization. If alignment does not occur, transformation will look a lot like chaos.
#7 – DEFINE THE TRANSFORMATIONAL CHANGE STRATEGY
Authors, Jeffrey L. Bradach, Thomas J. Tierney, and Nan Stone in their article Delivering on the Promise of Nonprofits, published by the Harvard Business Review point out that the hardest decision a nonprofit has to make is to determine what it will not do. To come to this place it must first determine how it will achieve its vision by establishing a “Theory of Change” or its “intended impact”. This is a simple statement of how the nonprofit intends to be successful in the execution of its mission and vision.
For example, a nonprofit establishes a vision that says they are going to eliminate homelessness but never says exactly how they are going to deliver on the vision, unless it is building homes for every man, woman, or child that is homeless. Others may have a similar vision but they are going to do it by attacking the root of homelessness – addiction, poverty, unemployment, domestic violence, etc. Establishing the theory of change or the strategy that is going to bring about transformative change is critical to delivering on the benefit and promise of the nonprofit. Only as the strategy is identified in clear simple language can it be tested and verified.
Hopelink is the largest Community Action Partnership (CAP) organization in the state of Washington. It’s vision is a community free of poverty. Its mission is to promote self sufficiency and make lasting change. In many ways, this is not too much different than any local social service agency. Many cities and counties could make the same statement. However, Hopelink has gone further. What separates it from others is a clear statement of how it intends to accomplish it rather ambitious mission. “By strategically aligning our organization, leveraging our key community partnerships, and offering a comprehensive set of Hopelink services, our clients will be able to achieve and maintain their highest level of self-sufficiency, thus enabling us to achieve our mission and vision.” Note the key words: aligning our organization, leveraging our key community partnerships, and offering a comprehensive set of services…. In effect, it is saying we are going to help people become self sufficient by:
1. Making sure we are totally aligned with this vision. We will do nothing that is not focused on this goal.
2. We cannot do it alone. The task is too large and complex. We have to do it in partnership with other like minded organizations.
3. Our services will be comprehensive (both ours and those we partner with) so that any service that is needed by someone in poverty can come here to get what they need to become self sufficient.
Nonprofits, by their very nature are driven by mission. Conversely, commercial firms, by their very nature are driven by their need for revenues. When a nonprofit clearly articulates how it will achieve its vision and mission it makes it easier to do the really difficult thing, which is to determine what it will not do.
#8 – QUANTIFY THE VISION
When it comes to quantifying a vision statement, commercial organizations have a major advantage over nonprofits. “Increase gross revenues by 200%”. “Become the number one auto maker in the world as determined by total revenues”. “Increase sales by 50%”. These are examples of common statements of vision for commercial firms. Nonprofits, on the other hand, suffer a basic challenge – how to quantify their vision. “Reduce high school dropout rates”. “Improve test scores”. “Train our students to become lifelong learners”. “Eliminate the causes of poverty”. “Stamp out hunger”. These are all common statements of vision for nonprofits. However, if the organization is going to thrive in its vision it must first quantify it. If there is no quantifiable vision, then there is no accountability, any perceived movement towards success can be celebrated, but ultimately no one knows where is the line of success? Staff never receive the value of knowing if they are working successfully. Boards never know if their governance is doing any good. Funders are left with the decision of supporting an organization that looks good rather than the organization that can demonstrate “Best in Class”.
Furthermore, instead of vision driving operations, operations tend to drive vision. Instead of operations being aligned around a vision that can be measured and designed accordingly, operations tend to function around their own perceived value, their own perceived understanding of what is reasonable, and their own discipline’s idea of best practices. When the Washington State Transportation Improvement Board determined that paying their bills within thirty days was their objective rather than the five months it was taking, everything had to change. Their process in project acceptance had to change. Their financial system had to change. Their definition of project success had to change. Everything had to be aligned to a vision that had a number attached. When my small international nonprofit decided that we needed to grow by ten times in ten years it set off a flurry of activity by our IT staff who quickly realized that information technology was going to be a critical success factor. Inadequate IT would kill execution and never allow us to move forward.
One of the most difficult challenges for a nonprofit is putting a number on its vision statement. However, without it, it is really nothing more than a restatement of its mission, and gives no clear benchmark for success.
#9 – LISTEN, BE PATIENT, AND RECEIVE INPUT
Let’s be clear. Major transformational change is difficult. It is risky. It is often expensive in terms of people’s lives and life styles. It does not happen overnight. For leadership it never fast enough. For the rank and file it is always too fast. But Henry Ford may have put it best when he said: “If there is any one secret of success, it lies in the ability to get the other person’s point of view and see things from that person’s angle as well as from your own.”
A school district adopts a new vision, hires a new superintendent, and embarks on a process to transform itself. Who is it that will ultimately determine success? Will it be the teachers and principals that work with students every day, or the administrators who reside two or three layers above the fray of daily school life?
One of the most inspiring stories of business transformation was a Seattle based savings and loan. It was going broke and a new management team was brought in to turn it around. The normal process was to fire all the loan officers and vice presidents. But this team decided to try a different approach. Instead it embarked on a major retraining of staff. The result was one of the fastest turnarounds in local banking history. Few people were laid off or fired, and the new management team was highly successful.
The nonprofit world has a major asset when it comes to major transformational change. It has a staff that is motivated by mission rather than dollars. Use this sense of mission to drive change, but be patient. Give staff time to process what will be required of them and give them time to “get on board”. They will.
#10 STAY THE COURSE
Nonprofit boards are notorious for swaying in the wind when the tide of public opinion turns up heat. Boards of public sector organizations are worse. Any major change will cause disruption. This is a painful reality, especially when good people disagree and resign. It is hard enough to find good people, let along good people who are willing to work for low wages, long hours, and little thanks.
School boards set new visions but then fire the new superintendent over the first disruption. Churches set new strategy for growth but fire the preacher because he or she takes it seriously. City councils decide that government needs to run more like a business but then fire the city manager because she instills market place disciplines and the citizens vent their frustration.
Ultimately, mission and vision belong to the board. It is their sacred trust to make sure that the vision and mission go forward. Donors are relying on them. Staff are sacrificing their professional lives for them. When the feathers fly, as they surely will, stay the course. It is a sacred trust.
Dan Edds is the Managing Director of Praxis Solutions. He holds an MBA from the Albers School of Business and Economics at Seattle University, and is a Project Manager Professional (PMP). In addition, he is a Kaplan Norton Balanced Scorecard Certified Graduate.