Monday, April 01, 2024

An innovation culture or a culture of continuity

 I've been reading and thinking a lot lately about what is described as a "culture of innovation".  While I would like to think that such an animal exists, the more skeptical side of me doubts it.  I think a culture of innovation is kind of like a unicorn:  it would be cool if it existed, and some people claim to have seen one, but when you get up close it's just a normal animal that happens to be missing a horn.  In other words, we see what we want or hope to see.

Every business has a culture.  Let's start with base principles and agree on that.  Another base principle is that most companies desire innovation in the form of new product and services to create new revenue and new market share.  There is a more powerful desire in most companies, however, and that is the desire to avoid variance, reduce risk and maintain consistent, profitable operations.

Culture conflict

What's challenging about creating a corporate culture steeped in innovation is the dichotomy between performance and disruption.  Most corporate cultures are established to continue the status quo, to create products and services for an existing market, at an existing price point and to generate a reasonable rate of return with as little variation and risk as possible.  This is the "culture of continuity" (I'm going to trademark that) that exists in most companies.  A culture of continuity is informally established to ensure that businesses can do the everyday things, regularly and consistently, to continue to exist.  That typically means avoiding risk and uncertainty, seeking to conduct familiar work more effectively and constantly, incrementally improve efficiency and profitability.  Risk, exploration and variation are not overly welcome in a culture of continuity.

Further, while most corporations will pay lip service to innovation, and would enjoy new revenues and profits, they view innovation as a project or an activity that is discrete.  Innovation is for creating one product or one service in an area of need, and once a new product or service is created, or the innovation project fails (which is the general expectation), normal business processes will resume. If innovation is not a permanent component of the operation, why change the culture of continuity for an activity that will have a very short lifespan and introduces risk and variation?

Switching on, or switching off, innovation

What companies fail to realize is that to innovate means to adopt a new way of thinking, to promote creativity and exploration, to brainstorm things that are likely to fail, to run experiments and test ideas, to gather ideas from customers and markets and to spot emerging opportunities.  To do all of this work effectively, innovation needs to be fully embedded in the regular, day to day operations.  It is not a capability or a project that you switch on or off, any more than you switch on or off a highly efficient supply chain.  People do well what they do often, and the infrequent nature of innovation work does not lend itself to learning and expanded capability.  Therefore, all innovation work is new and uncertain.

Cultures of continuity are built on well-known and practiced behaviors, norms and processes.  When a team tries to introduce new ideas, new methods, creativity, new perspectives, the culture naturally pushes back, like white blood cells attack a bacteria or virus in the bloodstream.  The best that management can do in a culture of continuity is to protect or wall-off the intruder or request good behavior from the existing culture for a short period of time, until the antibodies go to work.  This is why so many innovation activities are conducted in labs or greenhouses or separate locations, where the existing culture of continuity cannot respond.

This raises a few questions:

  1. Is it possible for a company larger than a startup to have an innovation culture?  Answer is:  probably not.  There are a few companies that demonstrate continuous innovation, and I wrote about them in Relentless Innovation, but they are the outliers.  An established corporation with existing products and market share, with a responsibility to the market and shareholders, cannot operate in a culture purely focused on innovation.  Efficiency and consistency must dominate.
  2. OK, if larger companies have a culture of continuity, how do they innovate?  This answer depends on how you want to innovate and what your desired outcomes are.  For example, even in a culture of continuity you can create incremental innovation, where you add new features to existing products, what is often referred to as Horizon One.  What becomes more difficult is Horizon Two and Horizon Three, more transformative or disruptive innovation.
  3. How does a company with a culture of continuity attempt disruptive innovation?  There are several ways a more conservative culture can do more disruptive innovation, at least in the short term:
    1. Acquire it.  A good deal of innovation in larger corporations is accomplished by acquiring startups or very small companies with great new ideas.  Then, the challenge is leaving the small company alone to the extent that the culture of continuity does not infect the acquired company.
    2. Partner for or license new insights or technologies created outside the organization - this is typically called "open innovation" and yes, ideas or technologies from the outside will face a significant "not invented here" resistance.
    3. Isolate it.  Just like Steve Jobs moved the Mac development to a different building, you may need to isolate new product or ideas from the existing culture.  This will make developing the new idea simpler and easier, but you will confront the existing culture when you develop or launch the new idea.
  4. Suppose we want to adapt the culture of continuity and introduce some facets of innovation.  What can we do?  There are ways to introduce more innovation capacity and to educate a culture of continuity to accept some risk and uncertain, some exploration and some variation. 

    This change requires investment in time from executive leaders over a period of years.  I am not joking.  You can get any culture to adapt momentarily to any demand, just like squeezing one side of a balloon will shift air to bulge on another side.  But when the management attention wanes, the air will shift back and the culture will snap back, with implications for the people doing the innovation work.  If you cannot or will not ensure executive involvement, engagement and explicit rewards over at least 18 - 24 months, don't talk to me about a "culture of innovation".  Be happy with periodic innovation projects.  

    Clayton Christensen and others wrote the Innovator's DNA to address some of these ideas.  The authors point to people (initially leadership and then cascading through the organization), processes and philosophies ("a culture that encourages everyone to innovate and take smart risks").

    If you can get management engagement, then focus on communication, compensation and rewards, funding for innovation activities and training.  Innovation will be a new activity for many people, and they will need training in creative thinking, problem solving techniques, exploration and a lot more.  It will take time for people to shift their perspectives and to re-awaken their creativity.  You'll need to fund that work and ensure people fully embrace the goals and the skills.  You'll also need to expect some investments and failures in the first activities.  After all, even the Olympic gymnasts fall occasionally.  New gymnasts fall a lot, and the innovators will get discouraged if their initial work and likely failure is greeted with disdain.
  5. Who should be responsible for the care and feeding of innovation attributes if we cannot have a culture of innovation?  There is no one person responsible for innovation in a company, although some have a "Chief Innovation Officer".  We would no more expect one person to manage all the financial transactions of a large corporation (the CFO for instance) than we should expect one person to be responsible for changing and educating and compensating and communicating the changes needed for innovation activities and innovation culture development.  The executive team needs to be on board and supporting these efforts.  Which means that innovation needs to be part of the corporate strategy, something the executive team is compensated and measured on.
If all this seems a bit dire or a bit "much", it is, but this analysis is based on 20 years of innovation involvement.  Yes, it is possible to create amazing products in any corporation.  Yes, companies can string together several innovations in a row.  But very corporations have anything approaching a culture of innovation, and for good reason:  the majority of their people drive day to day operations.  It's entirely possible to introduce more innovation thinking and capacity into a large organization, it just takes a lot of focus and time.  Large organizations will very rarely ever have a "culture of innovation" because that culture is too focused on new ideas, discovery, experimentation and not enough on producing products for tomorrow's sales goals.

I suppose it is possible for companies to balance two conflicting models - continuity AND innovation at the same time.  Roger Martin, in his book The Opposable Mind, says this is how business leaders SHOULD operate, but infecting the entire business and its culture with two relatively diametrically opposed ways of working and thinking is walking a tightrope.  I think you can have a culture of innovation with periods or exceptions of continuity, or a culture of continuity with periods, carve outs or exceptions for innovation, but few companies have tried to do both simultaneously.

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posted by Jeffrey Phillips at 7:51 AM 0 comments

Tuesday, March 26, 2024

The answer is: 10 years to change a culture

 Many of us who work in the consulting and strategy space often talk about the difficulties in understanding and more importantly, changing a corporate culture.  Typically, we are talking about moving a culture from its current set of values that has sustained the business, to a culture that helps the company compete in a new reality that may be different or more competitive or operate in a slightly adjacent market.  That is, we want the culture to adapt to market needs and changes that everyone can see but inertia keeps the company from making.  Often, this cultural change is one that the company NEEDS to make in order to stay successful and grow.

We are now witness to a different kind of cultural change, but one that can provide us with an important lesson.  That is, how long does it take to change a powerful and embedded culture, one that values and emphasizes factors like efficiency and safety?  The recent struggles that Boeing is undergoing are telling, but most importantly they provide insight into what it takes and importantly, how long it takes, to change a culture.  From what we can see from Boeing, it would appear that it can take as little as 5 to 6 years to change a powerful culture.  In Boeing's case, this shift was from a safety-first culture to a profitability first culture, led by two CEOs.

The original culture:  safety

Think about it - airlines and airplanes are only viable if the flying public thinks they are safe.  Otherwise, who is going to climb into a metal tube and get flung miles into the air?  Air safety and plane reliability have been the ultimate backbone of the US transportation system.  Companies like Boeing have always focused on the highest levels of quality, efficiency and safety.  That's what has led to such a stellar flying record in the US.

Boeing didn't pay lip service to quality and safety: their structures, business processes and training reinforced the concept that safety was paramount.  This idea was a throughline in their onboarding, training, evaluation and compensation.  The people who started Boeing and many of the people who worked there understood the importance of quality and safety, and this belief was reinforced and became part of the culture.

What we are seeing now

The issues we are seeing with Boeing in 2024 are the result of changes in focus at Boeing, not from a year ago or two years ago, but over 15-20 years ago.  Quality and safety regimens at a company like Boeing don't simply fall apart in a day or even a year.  A focus on safety and quality atrophies and declines over a period of years or even decades as the culture shifts.  My sense is that the first die was cast in the early 2000s, as the market began to favor high tech firms over manufacturing firms, and Boeing was at risk of being thought of as out of fashion.  Additionally, it was experimenting with new design techniques for the 737.  In 2005 James McNerney, a Jack Welch disciple with little aerospace experience became the CEO.  Welch's philosophies focused on profitability in all sectors, and in the case of Boeing may have led to less focus on quality and safety.  McNerney left Boeing in 2015, just as some of the problems with the revised 737 began to emerge. See what Forbes wrote about McNerney's turn as CEO of Boeing.

Boeing announced Dennis Muilenberg would take over as CEO.  Boeing was troubled by many problems with both the 737 Max and for AirForce 1, the president's plane.  Even though Muilenberg was a Boeing lifer, his focus seems to have been primarily financial, trying to recover from poor financial decisions and Boeing mishaps.  By 2019, Muilenburg, announced a restructuring to focus more on safety after an independent review indicated that safety had become less important to Boeing.  So for four years, during multiple safety issues, the CEO had not acted to refocus the company on safety.  Note that through both the McNerney administration and Muilenberg's, the focus was more weighted toward financials rather than safety and quality.  

 I need to state here that this analysis is based on reading about Boeing and its leadership.  I do not have inside information, nor have I conducted a lengthy investigation into the culture, but from reading about the company and observing its challenges, I believe we can say that Boeing lost its primary focus on safety and quality over this period.  It's hard to emphasize how dramatic a change occurred at Boeing to lose focus on safety and quality, and the shift in culture that must have happened.

The startling amount of cultural change

What's startling about this is how much the quality and safety culture was impacted at Boeing from 2005 to 2015-17.  The culture shifted from one that highly valued quality and safety, to one that seems to have been more focused on profits at the costs of safety and reliability.  Even after multiple problems with quality, Muilenburg focused on financial issues until 3 years into his tenure, probably because he felt that the quality and safety culture within Boeing would rebound and restore itself to previous dominance.  It may seem strange, but Muilenberg was quoted by Forbes in 2019 in congressional testimony as saying "we don't sell safety".

So we can say with some assurance that a very focused and powerful corporate culture, one that emphasized and reinforced safety, began to shift to one focused on profitability and with less focus on safety and quality, over the period from 2005 to 2015, or roughly a ten-year time horizon.  Of course, I am using McNerney's tenure as a measuring guide and do not have inside information, but the beginnings of the issues with quality and safety seem to map closely with his tenure and continue into Muilenberg's.

The forces at work

If you've worked on changing attitudes and beliefs in a business, you know how difficult it can be to change a corporate culture.  Understanding that changing a nebulous and poorly defined but powerful factor like corporate culture in any business is difficult, consider how difficult changing a culture like the safety and quality culture in an aerospace company must be.  It took at least 10 years of focus on other priorities to lose the historical focus on safety, to turn over staff who were more focused on safety, to change priorities and compensation models.  Problems with the production are not new.  US government testimony indicates that quality issues were rampant in 2016.  This report is evidence that the culture had already changed, not that it is starting to change.

Which means that the culture had changed previously, and the pressure that Boeing engineers were facing was evidence of a change that had already occurred.  My estimate is that it took at least 7-10 years for the culture to change this dramatically.

What does this say about corporate culture change generally

There are a number of lessons to take away from Boeing's cultural shift and it's likely subsequent refocus on safety.

  • First, if the safety and quality culture at an aerospace company can change this dramatically, any corporate culture can change. In Boeing's case, it was the absence of emphasis on safety and a new emphasis on profitability that shifted the culture.  This shift was led by executive leadership.
  • Second, note that no one at Boeing suggested a program of cultural change to shift away from safety and quality.  Simply, more emphasis was placed on financial returns. In other words, there was no "cultural change" agenda with balloons and programs to help people change this culture.  The change happened insidiously over time, aligned to the priorities and emphasis placed on financial returns.  
  • Third, a culture can change negatively as well as positively.  In most instances, we want culture to change to adapt to new competitive realities.  In the case of Boeing, an important and critical aspect of their culture and eventually their brand was allowed to atrophy.
  • Fourth, and this is speculation on my part, many of the people who upheld and reinforced the safety culture have likely been pushed aside or reassigned or retired, so an entirely new cadre of people who are willing to work to improve the safety culture will need to emerge.  The good news for Boeing is that some of the people are still there, some of the safety paradigms still exist, they are just lying low, because safety and quality will always have a role at an aerospace company.  They can renew this focus.  Other companies will not find those assets quite so readily available.  Shifting a culture may require bringing new people into the organization.

Finally, a safety and quality culture may need to trump or at least be on par with a profitability culture in companies that have such a high exposure to life and death.  Pharmaceuticals, healthcare, aerospace and other industries must place a high value on quality and safety, sometimes at the cost of some profit.

What did it take to change the safety culture at Boeing?  It took new leadership, a revamped focus on profitability and stock price and about 7-10 years of consistent focus on profitability over safety.  All cultures can change, it just takes time and leadership focus.

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posted by Jeffrey Phillips at 6:31 AM 0 comments

Thursday, March 14, 2024

Addictive, exclusive, experience: Critical factors for new products or companies

 I had quite a day yesterday, meeting with a potential partner at Starbucks, getting my iPhone repaired at the Apple store and a number of other activities.  Along the way I encountered a couple of very successful companies:  Starbucks, where I met a potential partner, Apple, where I went to get some repairs done on my iPhone and Chik-Fil-A, which was down the hall from the Apple store.

Compared to other nearby competitors, these three outlets were exceptionally busy and seemed to be doing very well.  While they appear to be very different in their product offerings, in many ways these firms highlight some characteristics that new businesses and people creating new products should review.

When you boil it all down, what makes these companies successful is the 1) sense of uniqueness or exclusivity or 2) the customer service and customer journey or 3) the addictiveness of the product.  Note that while these firms are in different industries or sectors, I think these factors are what differentiate them and keep customers flowing to their outlets and products, even when you could argue that two of them (Starbucks and Chik-Fil-A) provide a commodity product.  Let's look at the three to understand what we can extract from what they are doing.


If we consider the three factors I described above (exclusivity or uniqueness, customer experience and addictiveness) we can look at what Apple does with its products, retail outlets and service to see how closely they align to these features.  First, Apple has always positioned itself as the anti-PC, so it is somewhat unique and exclusive.  What's more, as you acquire more Apple devices (Macs, Watches, etc), you gradually build a moat where data is easily transferred and shared.  Second, consider the journey.  Apple tries to make its products and services well-designed, even the boxes are highly engineered.  Apple retail agents are kind, open to discussion and explanation and never pushy.  The customer experience around the product and the service is top notch, compared to other hardware providers.  Finally, the concept of addiction.  While I have an iPhone and a Mac, I swap between those platforms and PCs at work, but I do know a number of people who only operate on the Apple platforms.  I do think there is a badge of loyalty and some addictiveness to the Apple platform.


While Apple commands high premiums for its products in a high-tech space, Chik-Fil-A operates in a highly competitive, low-tech space.  In fact, many of Chik-Fil-A's competitors have created new chicken sandwiches to compete directly with Chik-Fil-A, and several of them, including Popeye's new chicken sandwich, are very good.  Let's consider the three factors as described above in context of Chik-Fil-A.

Chik-Fil-A is relatively exclusive, strangely enough, carefully controlling the number and spacing of its stores.  In an area that might have several McDonalds or other fast-food competitors, Chik-Fil-A will only have one store, and that store is always closed on Sunday.  Evaluating Chik-Fil-A on a customer experience journey map is interesting, because Chik-Fil-A seems to ignore all concepts of throughput and line management.  Unlike say McDonalds, which wants to serve customers very quickly, customers at Chik-Fil-A seem comfortable fighting long drive in lines and going a bit out of their way for the sandwiches.  However, the in person service is uniformly excellent, down to the "my pleasure" as you drive away.  I think it's because the sandwiches and fries are addictive that people overlook the drive through issues.  It remains to be seen, as other competitors close the gap on the chicken sandwich, if Chik-Fil-A can attract customers who have to wait for the sandwiches.


Starbucks, like Chik-Fil-A, sells a commodity product - coffee, but its retail establishments are constantly busy.  It was unique in that it was one of the first truly national coffee chains, with its own brand and own distinct flavors.  I'm not quite so sure that Starbucks is as unique or exclusive as it once was.  As an infrequent customer and a non-coffee drinker, the customer experience is frankly a bit bewildering, but I think that adds to the mystique.  I can never tell the difference between sizes or flavors or types of coffee, but that simply makes me a coffee outsider.  Starbucks customers know their sizes, flavors, caffeine doses and have their own language.  What to me seems rushed, slow and disorganized to Starbucks aficionados seems poetic.  Finally, their products are addicting.  Caffeine is a legal drug and Starbucks has created dozens of flavors and sizes to both introduce coffee to people who don't drink it and to entice existing coffee drinkers. 

One other thing about Starbucks - the coffee brings you in, but the social aspect of a third place cannot be overlooked.  Starbucks is providing a place for people to meet and work, and that additional benefit cannot be overlooked.

What does this say about the creation of a new product or company?

The best products or companies are physically or socially or economically addictive.  Even when it's easier and faster to go to McDonalds or another fast-food location, people will endure inefficient lines or go out of their way to get Chik-Fil-A.  Google has made it so easy to use their search engine, and convinced people that it is free to use, that it has become ubiquitous, almost a backplane rather than an application.  Once you have an Apple product, you want other Apple products because each one individually is easy to use, and in combination they become easier to use.

New companies or new products should consider all three of these aspects:  uniqueness or exclusivity, customer journey and addictiveness.  How can your product or company distinguish itself on several of these components?  Note that even in what are essentially commodity markets - coffee and fast food - Starbucks and Chik-Fil-A are winning against their competitors, offering either better experience (Chik-Fil-A) or an additional feature, such as a co-working or meeting space.

But it's also clear that you don't have to have all three to win.  If you have a great product that's reasonably addictive with good but not great customer service (as I would argue Chik-Fil-A has) then your customers will endure long lines at the drive up.  Apple probably comes the close to the trifecta, providing reasonably good customer service and customer journey, combined with a sense of design and exclusivity, with a reasonably addictive set of products.  Starbucks is probably the weakest of the three, but it sells the product that is the most addictive.

What must you do to create a new product or company with these attributes?

  • Low barrier to entry, free trial or easy to learn.  Addictiveness starts with a simple trial that leaves the user (I mean customer) wanting more.  Your product or company must have a service or offering that is easy to try and really compelling.  This is why real drug dealers almost always provide free samples initially, to get the user hooked.  You need to provide a free trial or very inexpensive way to start using the product or service, or, like Starbucks and Chik-Fil-A, have a reasonably low-priced product with high throughput.  Apple violates this to some degree because their products have a high acquisition point, but they are easy to learn.  Increasingly, the iPhone is a gateway to other devices.  How do you make it easy for people to try out what you do, lower the barrier to entry?
  • Establish a theory of the business and ensure the customer journey. Make it dead simple for people to find and use your product or service, as much as possible simplify the customer journey.  Apple does this, to the extent that many of their products don't have user manuals.  Starbucks doesn't need to do this, because everyone drinks coffee anyway, so those of us that don't often find Starbucks a bit intimidating, but I use Starbucks as a meeting place, not a source of caffeine.  What does your intentional or (worse) unintentional customer journey communicate to customers?
  • Provide a secondary benefit.  For Apple it is a sense of design, of being on the cutting edge, of being integrated across platforms.  For Chik-Fil-A, its the "my pleasure" at the end of the transaction, as if the people at Chik-Fil-A actually get pleasure from serving you.  At Starbucks, the coffee or drinks are actually the price to pay for admission into a meeting space.  What secondary benefit can you provide that is either directly or indirectly linked to your core product?
  • Be Authentic.  I haven't used this word yet, because it is overused and has lost its value and meaning, but I think all three of these firms are truly authentic.  They are OK if you don't like how they operate, or the tradeoffs you must endure to use their products.  Apple is OK if they don't own all of the market share but want you to believe in their vision and way of working.  Chik-Fil-A isn't always the closest or easiest establishment to reach, and wears some of its beliefs on it's sleeve, but is pretty unapologetic. How do you create your authentic position and voice, and how to do you maintain that authenticity in every interaction?
  • Build a community.  As people and communities become less socially engaged, as we retreat into our corners, companies are stepping in to create communities where social organizations, bowling leagues and religious institutions used to fill a gap.  Starbucks creates a community of coffee drinkers who know what a "half-this, partial that, with room" means. In other words, they have their own language.  How can you create a community that shares values, focus and even language?
  • Make it addictive.  While I don't think there are a lot of products that are legally addictive, caffeine is one.  However, Apple has made its products addictive.  People start with an iPhone, migrate to the iWatch and end up on a Mac.  Suddenly they cannot escape the Apple platforms and are comforted by those platforms and rely on them.  Personally. I'm close to an addiction with Chik-Fil-A fries.  What about your product or company leaves people wanting more?

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posted by Jeffrey Phillips at 6:31 AM 0 comments

Tuesday, March 12, 2024

Who is minding the change and culture store?

 In my last two blogs, I made the argument that given how fast change is happening, your strategy must incorporate and address external change and the ability to change internally.  Otherwise, you are creating strategy that ignores exceptionally powerful forces that are creating change and shifting the competitive markets in real time.  In the more recent blog, I wrote about what I consider the most difficult thing to change in an organization - its culture.  People can change, business models and financial models can be changed with some difficulty.  Products and services can be reworked or redirected.  These changes could be difficult but possible, but only if the prevailing sense of how the business sees itself is open to change as well.  This is why understanding how organizational culture works, and how to encourage it to change, is so important.  Unlike people or products, a leader cannot place his or her finger on culture or pull one lever to change existing culture.  Changing culture takes emphasis, time and commitment.

So, if change is accelerating and it threatens your strategy, and you need to shift your strategy and your organization, improving your change models and change capacity is critical.  What's critical to enabling and accelerating change in your organization is getting a better sense of the culture, how it works, how it is influenced and becoming far more intentional about the culture.  So, with all that said, here's the key question:  who is minding your ability to change, and influencing what the culture cares about?

The likely answers are no one and everyone, respectively.

Who focuses on change capacity?

Everyone in your company's leadership team is concerned about change.  There is an external pace of change that is hard to match and often hard to understand, since change occurs in many different dimensions.  Existing competitors are taking actions, while new entrants force new market dynamics.  New alternatives or new solutions threaten to disrupt the existing market.  Customers and prospects are constantly shifting their demands.  External change can be influenced but cannot be controlled.

What can be controlled is the internal capacity and pace of change, which depends on two factors:  what the company believes is a winning proposition in the near future, based on market trends and anticipated shifts in the market, and where the biggest change barriers or challenges exist within the existing culture.  Leaders need to create a reason and a direction to change based on reasonable predictions about future competitive positions and threats, and we need to reduce internal resistance to change.

Creating a reason to change isn't too hard.  Identifying trends in the marketplace and designing potential scenarios to determine where the company wants to position itself and how it will compete, these are not difficult tasks but require time and focus.  Acting on these interpretations is the difficult component, because these actions have risk associated with them.  Acting could mean developing a new product or business model before the market emerges, as an example.

Identifying and influencing cultural or capability change barriers, is much more difficult.  Corporate culture resists change because it takes effort to change, and change is risky and uncertain.  Corporate cultures have successfully resisted and waited out change before and have learned that most change can be delayed or avoided.  It's only when management defines a burning platform and leaves no options other than change that change occurs.  

Burning platforms or change capacity

Most people involved in change programs will tell you that change occurs when all other options are exhausted.  That is the burning platform argument.  What this fails to address is that organizations and people may WANT to change but don't know HOW to change, so they fail to act until there are no other options.  What leaders need to do is help people and cultures understand HOW to change, creating change knowledge, change skill and change capacity, and then using those skills to change more regularly.

The fact is that in the past, change happened seldom and with some warning.  Of course, even then, companies were slow to react.  Now, change is happening frequently and often without a lot of warning.  Companies that cannot change effectively will find themselves offering products that people do not want, or business models that people no longer request.  Just look at the shift from "ripping" CDs for music on the original iPod, to solutions like Spotify and Pandora.  The entire "as a service" model is radically reshaping how businesses work, and yet many are unprepared for a new reality.

Who minds the store?

So, who in your organization minds the culture and who minds change capacity?  Culture is actually minded and reinforced by everyone, all the time.  To change a culture, everyone needs to be of one mind, willing to implement new models of behavior, new decision-making criteria, new reward systems and new risk tolerances, and then reinforce those changes.  Change capacity isn't managed by anyone.  HR often owns training, which could improve change skills.  Leaders usually direct change programs but often are distracted by more important activities.  System and process owners dislike change because it means reworking established processes or core systems.  Most organizations have little or no support for ongoing consistent change, or to build change skills or capacities.

Yet that's what's needed most in the new competitive environment.  What we need is the ability to understand markets, customers and competitors, anticipate future competitive opportunities and shift strategies and capabilities quickly.  This means that organizations need to be far more adaptable and flexible, but also able to anticipate the future and act accordingly.  It means that corporations should be building change capacity into their teams, people, processes and systems.

Corporations have CFOs who manage the financials, and CMOs who manage marketing, and other "C" level officers who manage key functions.  What corporations lack is a concentrated effort and centralized leader or leadership team that focuses on building change capacity and on preparing the culture for the change that is necessary.  Please note that I am NOT arguing that we need a Chief Culture Officer.  Culture and change capacity does not belong to one individual.  It is a collective leadership team effort.  The risk is that when everyone owns something, then no one owns it.

Corporations need to adapt to more rapidly changing market conditions and consumer expectations. They need to become more adaptable, more nimble and more responsive, if not predictive.  This cannot happen without building change skill and change capacity, and cannot happen without creating a corporate culture that expects and anticipates change.

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posted by Jeffrey Phillips at 7:50 AM 0 comments

Wednesday, March 06, 2024

Why you need a faster, more nimble culture

 I wrote a piece last week introducing the idea that change is strategic, and that strategy should consider change competency as a core competency.  Change is happening so quickly and from so many different directions and dimensions that companies cannot create strategy without also preparing for and being ready to change. Companies cannot build static strategies that stretch over 3 or 5 years.  Strategy should be continually developed and re-evaluated, rather than developed once and put on a shelf.  If change is so prevalent and competitors are constantly entering and leaving markets, we don't need to worry about change management, we need to be change agents and create change capacity in the business.

If you are still with me so far, then the question might be - how do we create change capacity in our companies?  In the previous post, I indicated that you'd need the same things in order to change as you need to operate your businesses - good people, flexible and dynamic processes and systems that don't lock in processes and business models from the time you implemented the software a decade ago.  But you'll need to focus on at least one other major change barrier, and that's your corporate culture.

For decades, we've nurtured a careful, risk adverse, wait and see culture in most businesses, which is reinforced by compensation models, personnel recruitment and promotion, little tolerance for risk and uncertainty.  Not to mention that the new metrics most companies are governed by are now quarterly (at best) or monthly (at worst) EBITDA and other financial metrics.  If the change you are going to implement doesn't pay off for a year, but your evaluations occur monthly on an EBITDA basis, how likely are you to implement change?

Defining culture and its power

First, we ought to define what culture is, at least in this context.  Every company has a culture.  It is defined by the spoken or written, and just as importantly the unspoken tenets and rules, what team members tolerate and what they don't tolerate.  It is made up of beliefs, norms, decision making criteria and other factors that aren't often written down, although a lot of good, strong cultures will often intentionally document and communicate their decision criteria, beliefs and norms to the whole company.

Now that I've given you a sense of what culture is, we need to acknowledge just how powerful culture is.  For an invisible, intangible concept, it is exceptionally powerful.  It governs the way people think, the ideas they generate, the risks they take.  Culture works its way into every decision, every investment, every action of a company.  And since it is so pervasive, and often reinforces a status quo mentality, culture becomes a brake on doing things in a new way.  You may have heard someone say, in regards to a change in process or a new way of doing things " we don't do that here" or "that's not how we work".  These are expressions by individuals who are voicing what the culture would say, if the culture could talk.

Culture as an accelerator not a brake

What most companies need now are cultures of urgency and change, rather than the reactive, wait and see cultures that exist.  While it's nice to argue, as I did in my previous post, that companies need to embrace change, they cannot do that without a serious recalibration of their existing culture.

Why?  Strategies, like CEOs, come and go.  Fads such as artificial intelligence or digital transformation will emerge, run hot, draw a lot of attention and flame out.  Culture sticks around.  Need proof?  Look at Kodak.  As an R&D leader in digital photography, Kodak and its culture were so wedded to film production that they lost the digital camera battle, sticking with business models based on producing film, even though they were one of the leaders of digital technology.  Culture is slow to change, very pervasive and the biggest adherents to existing culture are often the most important or powerful people.  Notice I used two words, important and powerful.

There are powerful people in every organization at every level of the business.  You know these people; they are the ones who know how to get things done within the system.  They are the people that leaders turn to when they need an important project done.  They have mastered the internal processes and culture, know how they work, and know how to succeed within these frameworks.  Their value proposition is tied to the existing culture, so to rework the culture means they need to reframe their own value propositions.  Their power, such as it is, emanates from working with and through the existing culture.  Given this alignment to existing culture, some of a company's best people will be the least interested in changing the culture.

Educating and modifying culture

One should not speak about changing a culture, because culture like bureaucracies is highly resistant to change and has strong defenses.  No, we should talk about creating incentives for the culture to change, educating its staunchest defenders about the need for change, and running small pilots to demonstrate that change can create a better way of working.

Changing a culture requires changing incentives throughout the organization, and educating those who reinforce the culture most heavily to adapt and adjust to a new cultural model, one that embraces speed and change, rather than a reactive model and complacency.

For too long we've delegated the power to define and refine culture to others, or not taken the time to understand just how powerful culture can be and its influence on a business.  We need a much more direct way of working with corporate culture, a recognition that it exists and is powerful, and must be brought along in order to introduce more speed and agility to the corporation.

Shifting the culture to embrace change

First, we need to acknowledge that culture exists, is real and is powerful.  Then we need to agree on what the actual culture of the business is, and what we want it to be.  Think of this as current state and future state.  Then we'll need to identify who the keepers of the culture are, and encourage them to see a new future, where the culture supports and actually encourages the new behaviors that we want - speed, agility, the capacity to change quickly.  Of course, concepts like risk tolerance and incentives will also need to be addressed.  These are the outward symbols that indicate what the culture will do.  Just understanding your existing culture, its strengths and weaknesses, and the amount it needs to change is important.

Of course, you'll need a concerted effort to follow this analysis to create the conditions for the culture and people to adopt a new way of working and thinking. This is not an overnight change, but one that can occur over a period of months.  But what that investment will do is prepare the company to compete in a VUCA world much more effectively than it does today.

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posted by Jeffrey Phillips at 12:08 PM 0 comments

Thursday, February 29, 2024

Change Management is strategy and vice versa

 I was reviewing the website of a strategy consulting firm recently, and their focus on strategy and team alignment felt like the same old, same old.  I read further to discover that they focus on passion and mission (hello Simon Sinek).  But what struck me about their work is that they also focus on culture and change management.  These latter two concepts were the things that got my attention.

In a time when everyone is focused on analytics, on artificial intelligence, on strategy and on mission, focusing on change and culture is almost counterintuitive, but it's probably what we should be focusing on.  When others zig, it may be time to zag.  As more and more emphasis is placed on analytics, management through data, artificial intelligence and other quantitative factors, it's probably time to reinforce the qualitative side of management.  Management focus on culture and change management is sorely lacking.

Today, I want to focus on change:  why we change, how we change, and what the future holds for change.  I also want to shift from the idea of "change management", which I think is an oxymoron, to change acceleration, which is where I think companies need to be.  Finally, I want to build a case that change management is integral to strategy, not a supporting element or an afterthought.

First, let's talk about why change is difficult and why change management is self-defeating.

Change is difficult.

Change is difficult because no matter how much we want to deny it, corporations are just large agglomerations of people.  And, no matter how much scientific management we have, we aren't Vulcans, who reason only with logic.  People are full of emotion, ownership, pettiness, jealousy and fear.  This means that people individually, and companies more broadly, operate on emotion as much as logic.  And we've taught people, especially in medium and large organizations, that most change is bad - bad for them individually and bad for the company.  Plus, if we are being honest, most people are comfortable with the status quo and don't enjoy change.  They prefer things the way they are and are concerned or fearful about the outcomes of change.  What do they stand to gain?  What do they stand to lose?  What's in it for me (WIIFM)?

Further, intended or not, change almost always creates winners and losers.  No one wants to lose control or power or responsibility if they have it already, so change is feared.

Another reason change is difficult is the power of inertia.  From Newton onward, we've known that bodies at rest tend to stay at rest.  Change in any dimension requires energy to be added to a system.  Most employees are happy where they are, in a known environment and don't want to take on additional work that will come from change.

The thing you want to do least is what is most important to do

What happens, then, when the thing you want to do least is one of the most important things to do? You may not like change, and your business may not want to change, but you don't control external factors that are constantly changing.  You don't control the number of new entrants in your market who aren't concerned about industry stability.  You don't control how robotics and automation and machine learning are shifting job responsibilities.  You don't control the pace of change in your industry.  You certainly don't control your customers and their constantly shifting demands.

In fact, if you aren't constantly changing, you are slowing withering away.  You don't have to change, but you don't have to survive either.  However, it's no longer a question of survival.  Without the ability to change, your company won't survive, and by extension, if you don't change and grow personally, you will find yourself unemployable.  Like change?  Good, because a lot of it is coming your way.  Dislike change? Better learn to adapt or find something new to do.

Whether you like and embrace change, which few people do, or dislike change, which is the attitude of most people, you and your company need to become far more adept at change.

But we have change management paradigms to help, right?

Three reasons change management doesn't work anymore.

1.  Pace and nature of change.  Capabilities are spreading exceptionally quickly on a global scale based on the internet, cell phone network, machine learning and more readily available educational platforms.  Look at Lewin's model of Change - the concept of "unfreezing", changing and "refreezing".  When something is frozen it is unchangeable.  The pace of change doesn't allow for unfreezing and refreezing.  You need to change constantly.

2.  Funding and financing flow to the companies and regions that demonstrate the best returns.  Always true but this is happening far more quickly than before.  Change happens in all directions simultaneously.  When China was still a nascent economy and Europe still recovering from World Wars, the US stood astride the world.  No longer.  We live in a dynamic, multi-polar world where competition can come from anywhere, at any time.  Our change models were built in a time when change was more predictable.  Today change happens more consistently and emerges from a wider array of locations and industries than before.

3.  Resources (people) - Businesses may need fewer people as automation and AI replace people or off-shoring replaces on-shore bodies, but the people you need are more valuable, and are attractive to other employers.  As we need fewer people to get more done thanks to automation and AI, those fewer people become more valuable, more specialized, harder to replace and more transient.  You cannot succeed throwing people at a problem, and the most valuable people have more options than ever before.

When your inputs, markets and people resources are constantly changing and evolving, you need a culture and ethos that embraces change and enables change.  You don't need "change management".  You need change acceleration.

Shifting mindsets from change management to change acceleration.

Change management is an oxymoron because 1) few people really like change 2) as the pace of change increases, you can't "manage" change, you can only hope to anticipate it and direct it 3) the idea of managing something means it can be measured and controlled, which simply is no longer possible.

Change management has always been an add-on, a concept acknowledged but rarely implemented, in major change situations like implementing a new strategy or a new enterprise system.  Now, change is happening more frequently and more broadly, and we are applying old thinking and old tools to a new problem.

What's needed?  People, systems and processes all familiar with and capable of change.

  • People who are incented to anticipate change and learn new skills and capabilities. This means we need to emphasize training to acquire new skills and incent people to change more often and more rapidly.  Today, most people receive very little training, as training is a cost and easy to cut, and their incentives reinforce the status quo. 
  • Systems that enable change rather than create barriers or lock a company into more rigid and inflexible ways of working.  Today, most computer systems and worse the data they create lock companies into a way of working or methods of analysis that are difficult to adapt and change to new opportunities or business models.  Companies are forced to work around their legacy systems rather than those systems creating dynamic platforms that support change.
  •  Processes that are adaptable to new needs and new business realities and business models.  This should be the easiest of the three - developing dynamic business processes that can scale and adapt to new business needs and business models.  I'm still stunned at how many firms lack good processes that reflect how they claim to do business now, let alone how those businesses can adapt their processes to new needs.

Need to demonstrate that change is vital and necessary for the ongoing success of the business rather than an issue or barrier to be ignored or forcibly overcome.  

What do we need?

Companies need to rethink their entire approach to change.  Rather than avoiding or resisting change, the culture of the business and its strategy must embrace change.  Companies may need a change captain or change accelerator as a senior officer.  Companies need to hone their change skills in the same way that they hone their financial skills or marketing skills, to place as much importance on the awareness and ability to change as they do on other core competencies.

Companies need to know when and why to change, meaning they need better foresight and anticipation of future needs and business models.  Once a business model or customer need is evident, it's often too late to change and adapt, because other competitors have also noticed the need.  Getting better at trend spotting and making sense of what will emerge is important.  After all, change needs to be directed in the best possible outcomes.

Companies and their employees need to be adept at change, incented to change.  Plenty of companies are working in "agile" ways but aren't really agile.  The systems, processes and people need to be more dynamic, able to adjust to new customers and new business models.  This may come at the cost of lower efficiency but will allow for more rapid changes to address emerging needs or markets.

Companies need to hire people who are more plastic, more dynamic and can be generalists who can span multiple needs, rather than deep specialists who are locked into one view or capability.  Companies need to invest more in the people they have and try to retain their best people who are most astute at spotting trends, building the rationalization for change and helping people and the organization change.

Change is strategy

Finally, I'd like to suggest that change IS strategy.  Companies and people need to be able to change, anticipate change, prepare for it and execute change effectively.  If a company is building strategy, a key component of that strategy should be what change is necessary, and how quickly should we be able to change?  Change has traditionally gotten the short shrift, if it was considered at all, when strategy is built.  I believe we'll enter a time very soon where change and the ability to change will become far more central to corporate strategy, and the ability to execute change will become paramount.

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posted by Jeffrey Phillips at 8:06 AM 0 comments

Tuesday, February 27, 2024

Failure - learning or leavening?

 As with many other distinctions between large companies and startups, established products and new ideas, there are distinctions between types of failure.  For most corporations, failure is abhorrent, because failure signals a breakdown in an existing product, risk, an inability or unwillingness to follow an established process.  Failure is a loss of revenue, an added cost, a lack of judgement.

A bias against "failure"

We're taught from an early age that failing at anything demonstrates weakness and unreliability.  Failure to show up, failure to get the right answers, failure to get good grades.  Why do you think the most creative time in most people's lives is between 3 years old and say 7 or 8 years old?  Because children are encouraged to be creative and aren't held accountable to getting the "right" answer until grade school.  Then the educational system does all it can to reinforce norms and standards, which is important if you are cracking the genome or building a bridge, but limits creativity and innovation. 

Moving on, most people graduate and go to college, where they are expected to get the right answers and avoid failing, which, as far as I can tell, must be difficult to do when the average Harvard student's GPA is well over a 3.5.  We aren't challenging people to think, or to question what they believe, or what their professors tell them to think.  Again, some physical realities, like gravity, must be accepted, but new ideas and new perspectives should be encouraged.  As Copernicus, Galileo, Newton and others have shown, sometimes accepted knowledge is wrong.  To paraphrase George Bernard Shaw - reasonable people conform their thinking to what's reasonable.  Only unreasonable people challenge the status quo, so all progress is due to unreasonable people.  

Then, people go on to careers or professions, where they are expected to get the right answers, conform to existing processes and systems.  Innovators will tell you that the only real changes that happen in industries will occur as new entrants introduce new concepts or radically different business models.  The reason is that the corporations in the industry have an existing stake in how things operate and would prefer to evolve slowly rather than disrupt how things work today.

Failure in context

So, we find failure in most instances as a significantly negative outcome, when it needs to be considered in its context.  Failure to conform?  Failure to accept the existing way of doing things?  Failing to acknowledge accepted rules and norms that may no longer hold true?  Most learning is based on trying and failing and having the willingness to try again and to learn.  Without failure, the individual or the company is not trying hard enough and certainly isn't learning.  As skiing instructors say - if you aren't falling occasionally, you aren't pushing yourself to get better.

Imagine if the idea of Airbnb had been proposed to the Hilton executives.  The idea is valid (demonstrated by Airbnb itself) but the idea could run afoul of existing rules, norms, processes and perspectives within Hilton and the other hotel chains.  People who advocated for such an idea as managing the rental of private property - rooms in a house for example - would be laughed out of the room.  It took people who were willing to try, to learn, to adapt and who weren't bound by the existing norms to make the idea work.  

Why did Steve Jobs place the original MacIntosh development team in a different office and put a pirate flag on top?  Because he wanted them to think differently than the rest of Apple did and felt that they could not engage or be infected by existing ideas.  It would have been interesting to have seen the alternative future, where the MacIntosh was not successful, to understand what his reaction to trying and failing would have been.

We need to leave room and get far more comfortable with failure, if by failure we mean trying out new ideas, testing established norms, rethinking how we go to market or what a new business model should look like.  Companies that fail to question, fail to test and fail to learn are simply just failing slowly.  Better to fail quickly in a more controlled manner and learn, than to wither away over time.

These actions require a different intent, and different management styles and investment criteria.  Many larger companies think that this is the role of entrepreneurs and start-ups.  They arrogantly believe that small firms can take the risk, and the larger firms will snap up these smaller firms and integrate their solutions.  Ask Google what it felt like to reject Yahoo!'s bid or ask Marriott or Hilton if they should have been the Airbnb before Airbnb.

The impact of failure

One of the most important aspects of failure should be its impact on the individual or company.  For example, if the failure is associated with a tried-and-true process or framework, then concerns should be raised. If the failure is associated with trying a new product or process for the first time, then the tolerance for failure should be relatively high.

There are at least two lenses we should use to evaluate a failure - experience and impact.  If the company has experience and the failure is in a known process or capability, then failure should be considered a problem.  If not, then perhaps a learning opportunity.  Equally, we need to evaluate the impact of a failure.  If a bridge falls because of faulty math, or people become ill because of a poorly blended product, that is an intolerable failure.  On the other hand, if a prototype fails in a simulated test, then we've done what we hoped to do - learn something.

Management teams have become too concerned about "failure" and don't realize its value or place in an organization.  If companies are truly "learn it all, not know it all" as Microsoft claims to be, then failing and learning is a natural consequence.

Learning from failure

Today, most firms need to be constantly learning, constantly adapting.  That means that they need to be trying out new frameworks, new models, new processes.  Some of these will "fail", and from that failure the company need to determine if the failure is catastrophic, and the attempts must cease (the natural implication) or if the work or team needs to change.  Further, companies need to quickly assimilate the insights from failure and adapt.

The purpose of the title of this post - learning or leavening - is to point out that all too frequently, all failure leads to leavening rather than learning, and in the future, we've got to be more comfortable taking chances, testing hypotheses and learning from failure.

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posted by Jeffrey Phillips at 7:52 AM 0 comments