lead by letting go

This week, I met with a senior management development executive of a large international telecom manufacturer to talk about their plans for the future. During the meeting, she made some refreshingly candid comments admitting the company’s mistake with a recent acquisition. I follow this company closely and was very encouraged by her frankness – admitting the mistake is going to energize the entire company. Along with this they’re completely overhauling of the entire business which began last fall when “we blew up our business model.”

With all the carnage created by the downturn in the last few months, you’d think more companies would be keen to look at what they’re doing like this one is doing. In spite of overwhelming evidence that things have changed, very few firms are really doing anything fundamental to improve their economic performance. A lot of good organizations are missing out on tremendous opportunities created by the downturn. Not only is it an opportunity to prepare our businesses by making rapid and extensive structural changes to our business model – even better, it’s an opportunity to get closer to our Customers who, for a long time now, have expected it and are now beginning to demand it.

I’ve always been interested in why some companies can make this transition more easily than others. Large or small, an organization’s reluctance/resistance to change is in large part due to the management attitudes and thinking people use to run their business. Some managers are overly concerned about keeping the status quo. They operate with the implicit “we don’t want to make too many changes too quickly.” Workers get the message and simply make do with what they’re given.

Even if managers face up to the reality of the situation, we can’t do it by ourselves. We need help, everyone inside the business, must embrace change by questioning how and why things are done. In a world where nothing is stable, this is simply the best way to do business.

Every time I talk with managers about change, I get the sense of a serious disconnect about the reason for any change. There’s still a prevailing attitude in most organizations that there’s no need for any changes. Yet many managers complain bitterly about how things aren’t going well and how their people aren’t producing results.

In his new book, “Built to Change,” Ed Lawler, business professor at the University of Southern California shows how organizations can be built to change so they can last and succeed in today’s economy. In the video link below, Karl Moore of McGill University, talks with Professor Lawler about the need for business to change whenever there’s a significant change in the marketplace.

Talking Management, Karl Moore with Ed Lawler, Globe & Mail, 27 January 2009
Note: I have no connection to the company at the start of this video.

One of the chief responsibilities of management is to recognize the need for change. The most obvious indicator of the need for change is uneven or poor economic performance. The only investment made by not acting on these signs is in managerial ego. Sadly, the message most managers send is “don’t rock the boat.” A recession is like a bad storm at sea. With every industry on the planet experiencing significant change, our job as managers is to make sure both our crew and our craft are ready for it.

People in organizations in every sector expect its leadership to begin the change process with managers acknowledging that things are different. An important first step is to define the new reality faced by our business by doing a thorough analysis of what is different. And along with that, an honest assessment of the things the organization does better than anyone else can do. From that, managers must ask of the organization, “What must we do to adapt?” The true work of management, (and, I would argue, what we’re really paid to do) is to get our organizations to respond positively and creatively to external changes – in the environment in which we all compete for the Customer’s business – the marketplace.

As challenging as the economy may be right now, the onset of the recession is a rare opportunity for managers to do two things: re-design key areas of our business to deliver better economic performance; and, equally important, on a systematic and continuous basis make the whole organization more accepting, less fearful of change.

In early December, I again visited the large bookseller I wrote about in an earlier post. To my surprise, they had installed new kiosk terminals in the same locations as the old ones. There were no other changes in the store.

The kiosk (pictured below), features a bright white and stainless steel, lectern-style stand, touch screen and a thin profile, iMac inspired keyboard. The messy visual impact aside (note the sign “Touch Me, Search Here!”, the black phone and the pile of boxes next to it), I was curious to see what this updated version had to offer.

Even though the kiosk had an update software interface, much to my surprise I still couldn’t access the wish list I maintain on the company’s web site. The new unit simply used the same software just with updated graphics. In addition to accessing my wish list, the feature additions I would expect would be to point me to where the book I’m looking for is located in the store (I still don’t understand how this company arranges it’s stock!) This company’s store layout is arranged for browsing at leisurely pace. It’s not that I mind browsing, it’s just that sometimes I’ve only got a few minutes and I just want to see if they have a particular book in stock. It just boggles the mind that someone made the decision to make the new kiosks (and they’re very well made) without these basic features. I could come up with others, but the kiosk upgrade reveals a larger problem.

I can’t escape the impression that all this company really cares about is selling me a book, a CD, or whatever. And yet, my reason for being in the store is to seek knowledge. There are many places I got to find the books I want to read: other independent and second-hand booksellers, garage sales, the library not to mention this new thing called the Internet.

How has the company’s investment in the new kiosk changed the Customer experience? Just like everyone else, I have a lot of choice today, I create a buying experience by making choices of where to go. And as I do it, I learn which sources best give me the knowledge I’m seeking, or access to it. The kiosk is an opportunity to personalize the service the entire network of stores offers to Customers and along with it learn more about my preferences. Instead the company chooses to rely on Customers helping themselves taking pride in their wide product selection and buying power.

I would be willing to bet that this company has only one Customer ‘type’, probably ‘book buyers’ or something very similar. They’re taking a mass-market approach to the business, and their only focus is on executing well in their distribution and supply-chains. And yet, the message that comes through this company’s stores echoes the old hawker’s cry, “don’t just stand there, buy something.” This may be unintentional, but it points to a huge gap in Customer understanding.

This gap, while problematic for the moment, is actually a chance to get to know the Customer better and really differentiate right now and in the future. We shall see if this company does it or if someone else will.

Whichever way it goes, this company is missing out on a huge opportunity to re-establish itself as leader by re-inventing book-selling again. Today they claim this position based on sales volume. What good is any of that to me and the great many who shop there if they never have the book I want when I want it?

I was talking with a senior exec over lunch recently who complained about lack of engagement in his organization. He expressed serious concern that, even though individual units did well, as a whole his company was failing to adapt to the sweeping changes taking place in the market. He was frustrated that people across functions and up and down the corporate ladder “aren’t even on the same page.”

After some discussion about specific challenges, I asked him to tell me in his own words what his company wants to be in the market. “What do you mean?” he asked. “At the end of the day, what do you want to be known for?” He then proceeded with a 10-minute explanation about his company’s products, his people, their distribution network and financial performance. I pressed him to tell me why any of this matters to Customers. He sat back in his chair, and said “Well, it doesn’t. I’ve got a whole marketing department and sales organization to figure that out.” Translation: Customers aren’t my concern.

I told him that if I was working for him I would get the distinct impression that he doesn’t think Customers were very important. Ditto, if I was a Customer. He shot back, “But they are important! I’ve made huge investments in people and technology over the years. At any rate, my VP of Sales is responsible for individual Customers. Besides, what’s any of this got to do with our ability to adapt to change?” I explained that, as a senior leader, he and his colleagues set the tone for the kind of values and attitudes practiced throughout the company; so by extension, he was the company’s cultural guide.

As lunch arrived, I asked him to tell me how his company defines its Customers. He gave me the standard answer: they do business with such and such industry, this vertical, that demographic. “You have some pretty tough competition don’t you?” “We do okay,” he said. Again I pressed him to tell me if they measure how much profit his firm makes from each Customer. “No, our profit metrics are by product line and business unit.” “What about how much profit you make over the life-time of the Customer relationship?” “No, we don’t do that.” “Do you measure how much of the Customer’s total ’spend’ accounts for the profits you make?” “No we don’t. But I fail to see how that would help us.”

I explained that what matters is what gets measured. If he wants to get everyone on the same page, then he would have to start by focusing on Customer profitability. Without that, very little real change was going to take place inside his firm. I made it clear that I wasn’t talking about Customer satisfaction metrics (which his company had implemented twice before with limited success). These play a very minor role relative to product and unit measures. If he truly wanted to improve his ability to adapt to change, then measuring total profit by Customer was the place to start.

On our way back to his office, he told me “You know, I’ve always prided myself on making the hard decisions in building this company. Until today, I believed we were doing things right. I would never have made the connection how our management systems affect our decisions. We have a long way to go to achieve Customer focus, but I know that once our team sees things the way you’ve explained them, that they’ll respond.”