The Dangers of Miscalculating Change

by R.Kraft Bell, Ph.D.
Too much change can be as counterproductive as not changing at all. Learning how to implement the right program to go with the company's needs.

The statistics abound. Organizations as diverse as global corporations, the federal government and the local hardware store must rethink how they operate. Change is no longer being perceived as an option, but as a "must do."

In today's turbulent competitive environment, executives and managers face critical strategic organizational issues. The questions reflecting these issues include:

Will the type of change effort- restructuring, total quality management, process innovation or reengineering- result in increased profitability and competitive advantage?

Will the level of change allow the organization to overcome gridlock, set and meet priorities, link and align work, handle conflict and eliminate counterproductive efforts while cost-effectively and promptly serving customers?

Will the level of change involve managers learning to lead across functions, establish a customer focus, enhance teamwork, be process-oriented and develop core competencies?

Will the level of change enable the organization to find an approach and tools that augment and expedite work, and build knowledge capital while internalizing capabilities?

As organizations struggle with these issues, the pressures to make changes quickly and get on with the effort can be intense. Increased competition, skyrocketing costs, angry stockholders or poor earnings and escalating customer expectations can individually or collectively push an organization to make sweeping organizational changes.

The danger arises when institutions miscalculate how much change they need. Too much change can be as counterproductive as not changing at all. In both a copper plant and a wire plant, outside consultants recommended process innovation to fix what turned out to be, respectively, a maintenance policy and a profitability situation. Obviously, this would have been overkill.

In the mid-1980s, Ford Motor Co. and a large chemical company successfully determined the appropriate levels of change required to gain significant results and a competitive advantage. Competitive foresight allowed each to stop short of massive reenginee ring for circumstances that required primarily cross-functional teams and redesigned product-development processes.

Before and during any change effort, the critical question that must be answered is, "Competitively, how much change is required?" The answer emerging from this assessment reflects an understanding of both the level and type of change required. Determining the level of change needed in an organization invol ves not only identifying the depth of the issues facing it but also its competitive situation.

Levels of issues

Organizations can implement four levels of change, and each has a corresponding issue depth: symptoms, problems, causes and root causes.

Using the analogy of an iceberg, symptoms are the ice above the water's surface, while problems are the reflection of ice beneath the surface. Causes are the ice that can only be seen upon earnestly looking directly into the water. Root causes form the underlying mass of an iceberg that floats far below the surface and beyond our ability to view directly.

Delving deep into causes enhances our understanding of the full extent and implications of an issue, thereby increasing the likelihood that a change will lead to a lasting resolution. Those on the Titanic might have been saved by recognizing the "root cause" iceberg and dramatically changing direction, rather than dealing with the apparent "ice tip" symptom with only a minor shift in direction. If, however, there were just some ice floating on the surface, the abrupt change of direction could have had its own negative side-effects.

In order to deal with symptoms, organizations must change structure or procedures. Resolving problems typically necessitates changing the infrastructure-systems, training, etc. Addressing causes involves changing processes or the principles by which work is done.

Coping with root causes requires the deepest level of change-the shifting of mind-sets. Paradoxically, sometimes the characteristics or mind-sets that have made an organization successful are the very things that stand in the way of ongoing success. For instance, many companies have been successful by relying on technological solutions, only to find that consumer tastes require less elegant and more practical products.

In the desire to rush to change, some people jump to restructuring. However, as the chemical company mentioned above found, a much-heralded shift to a matrix structure that took only one day to announce required eight years to fully implement. Restructur ing requires at least reinforcing the infrastructure and may require changing processes and mind-sets. In other words, structure is part of the change- it's not the change.

Another shortcut often tried when restructuring isn't enough is attempting to change everybodys mind-sets. Organizational lobotomies are out in corporate America. Levels of change, then, relate directly to the depth of the issue. But they must also be placed into a competitive context.

Competitive situations

Once the depth of the issue is matched with the level of change necessary to address that depth, the type and degree of change can be assessed. The goal is to fit the appropriate issue level and type of required change to the competitive situation. There are three fundamental types of competitive situations\emdash ongoing, challenged and lost.

Knowing the issue level and competitive situation will help avoid the dangers of over- or underestimating the type of change required. Note the three competitive situations along with the percentage of change at each of the four levels in Figure 1.

Ongoing competitive situation

In an ongoing competitive situation, there are no significant impacts likely in the competitive environment from either competitors, customers or external events. This is "business as usual."

Ten to 15 years ago, nearly half of U.S. companies were in this situation, while today it is more like one-fifth. As Figure 1 shows, 70 percent of required change involves structure and infrastructure, such as restructuring, revising job definitions and altering procedures. The "structure only" mentality reflects what has worked in ongoing competitive situations, which becomes increasingly more counterproductive as the situation becomes more competitive.

As a company in an ongoing competitive situation faces the future, it confronts surface-level issues that tend to be individual or discrete. A department or part of the organization that has a problem can usually deal with it independently. The required analysis is superficial: What's the symptom? What's the problem? What's the solution? In this case, micro-process work/activity analysis is needed because the tools and techniques fit together and work at this basic level.

TQM tools are particularly helpful here in working through the activity-breakdown analysis and finding value-added activities for a revised work flow. This is a fairly tactical approach with immediate, though modest solutions.

This kind of fine-tuning requires issue-by-issue investment that achieves incremental change. However, if the competitive situation does not intensify, this incremental change adds up over time.

Challenged competitive situation

In a challenged competitive situation, products, services and/or profitability will be impacted in the next few years by competitors, customers' rising expectations and/or regulatory requirements, unless there is dramatic change. The analysis needs to be moderately deep in order to address problems and their causes. While the issues are not pervasive, they are interrelated across the organization. Much is usually working well, but innovative principles and processes must be developed and put in place. As Figure 1 shows, 60 percent of the change required is at the two middle levels, where the emphasis is on principles and processes and the infrastructure and/or mind-sets that support them.

This challenged competitive situation usually involves selective areas and high-priority processes that need to be focused on first, starting at the core process or management decision-making level.

Selective change is the desired result of first recognizing the need, then developing and implementing the change. Today 50 percent of U.S. companies fall into this situation.

Lost competitive situation

In the lost future competitive situation, there is intense competitive pressure and/or organizational breakdowns. Customers have changed expectations, and/or external impacts have turned hostile to products, services and profitability. In the lost competitive situation, the breakdowns are strategic, which requires a long-term, top-down transformation. Nearly a third of U.S. companies fall into this situation, keeping strategy consultants in business. This dynamic competitiveness requires looking deeper into the causes and root causes.

In the lost competitive situation, most of the changes involve principles, large processes and mind-sets. As Figure 1 indicates, in the lost competitive situation, fully 70 percent of the change required is at the two deepest levels (the reverse of the ongoing competitive situation).

Prevailing values and mind-sets must be examined, since most of the issues in this situation have causes that are pervasive and cut across the whole organization. No one executive, manager, expert or unit can solve any critical issue. Therefore, an intensive analysis, most often undertaken by a cross-functional team, must uncover and address the deeper causes and root causes.

Avoiding the dangers

The typical quality-improvement approach is very positive in generating incremental change in an ongoing competitive situation. However, in a more intense situation, the interrelated, cross-organizational and deeper causes require additional tools and a different focus. Companies focus on large, cross-organizational processes, not because they want to, but because their challenged or lost competitive situation demands it. On the other hand, redefining strategy and reengineering can be counterproductive and unnecessary in the less-challenged and ongoing competitive situations. The copper-rolling plant referred to earlier experienced high costs and serious throughput problems. Management had brought in several consultants who suggested massive reengineering.

However, upon careful analysis, we discovered that Machine #27, which had a very high downtime, was the primary work-flow stumbling block. The problem turned out to be that most of the copper in the plant went through this one machine, which dramatically increased the machine's required maintenance. Rerouting the work flow to lessen the pressure on this machine and changing the first in-first out maintenance policy were enough to dramatically increase throughput, reduce costs and significantly increase profitability.

Another client had a wire plant producing 120 different types of wire. Management was convinced that some type of massive reengineering of the plant layout and extrusion work flow was required. The assumption often stated (and never challenged) was that customers demanded the 120 types of wire. However, before launching the reengineering effort, management conducted a straightforward profitability study. It turned out, much to their surprise, that only 15 types of wire were actually profitable. When the same group followed up with the customers for these 15 types of wire, only five others were requested.

When the plant layout was simplified to handle the 20 types of wire, morale increased, quality improved and the plant's profitability dramatically increased to 5 percent more than any of their competition.

In the mid-1980s, Ford Motor Co. faced a very real competitive threat from foreign automakers. Much of the effort by top management went into designing an overall plan for meeting this challenge, including strategizing to increase market share and emphasizing customer satisfaction (previously the focus was on primarily "things gone wrong"). In today's parlance, Ford had conducted a focused reengineering effort, with the priority on developing and implementing the now widely acclaimed and documented "Concept-to-Customer" change effort.

Richard Tanner Pascale described Ford\rquote s Concept-to-Customer program in his book, Managing on the Edge, as an effort "aimed at streamlining the entire work flow of automotive development . . . to institutionalize continuous learning. . . . [As] Ford concentrates on being the best in process, it will offer more marketable products and bring them to market more quickly."

Ford redesigned its "car program" product-development process to be implemented in four vs. seven years, which has now been further reduced to three years with the new Mustang. Ford accomplished this reduction through many changes, for example: systematic inclusion of up-front research (typically ignored or redone), joint design and development teams, and prototypes using critical parts from production suppliers.

Ford radically redesigned the prototyping process with fewer stages and built-in freezes. The mind-set about prototypes shifted from testing to validation, and manufacturing became involved up-front in design.

Other teams worked on developing partnering relationships with suppliers, focusing on "things gone right" vs. only "things gone wrong," and ensuring timely, verbatim customer feedback. The level of change (primarily core process with significant shifts in mind-sets) matched the highly challenged, potentially lost competitive situation. More significantly, product-development costs reduced by more than 30 percent while quality simultaneously improved more than 50 percent.

Some people in the organization pushed for inappropriate level s and degrees of change. For example, a total strategic redefinition of customers and core capabilities with total paradigm changes would have likely overshot the mark and totally destabilized Ford\rquote s progress at that time. However, Ford incorporated the change and learning capability developed out of the Concept-to-Customer, Strategic Customer Satisfaction and other, earlier programs into the Ford 2000 strategy as the company intensifies its competitive efforts globally.

A Fortune 250 chemical company faced a less apparent but no less real competitive challenge as at Ford. Although the company had been doing very well in the mid-1980s, top management became concerned that the competitive situation had changed. It faced a challenged competitive environment that, if not responded to, would in time seriously impact the chemical company's bottom line.

In response to the situation, top management set up a Renewal Leadership Team. An analysis of their system revealed that in some of its core businesses, particularly the commercialization process, the company did not respond to customers' needs as quickly as some of its new competitors.

Some of the company's strengths also became some of its weaknesses, including a reliance on analytically solving known problems, primarily with proven technological solutions and an emphasis on sequential and activity/event-based work patterns.

The Renewal Leadership Team addressed the company's challenged competitive situation by making changes at the cause and root-cause levels. In the commercialization process area, the company overhauled its team-training infrastructure and redesigned the work-flow process.

The results were significant. They experienced a 74-percent reduction in commercialization time (from concept to delivery to customer) from an average cycle time of 48 months to 12.3 months for 1,000 new products. Quality and customer satisfaction improv ed significantly while costs decreased. A decision by top management to stop at the symptoms or problems depths of change would not have served the company well over the long term.

Top executives in the future must be able to determine the scope and depth of changes necessary for their organizations to remain competitive in a global market. They will need to make those decisions in much shorter time frames and with more pressure to do it quickly.

The key is to monitor the competitive environment and the types and levels of issues and causes arising. Upon thoughtful assessment, organizations can match the level and degree of change to these competitive challenges, without wasting time, energy and resources on unnecessary change.

About the author . . .

R. Kraft Bell, Ph.D., is an executive consultant at Prism Performance Systems. He has served as lead consultant for numerous large-scale change efforts, providing expertise in such areas as competitive analysis, strategic direction/planning and process i nnovation and improvement in the United States, Europe and Japan.

In 1988, Kraft founded RKB Ltd., a consulting firm specializing in large-scale change efforts for both corporate and public policy issues. He has taught at Lehigh and Syracuse universities.

Copyright 1995 by QCI International. It is unlawful to reprint,retransmit, or otherwise reproduce this article, except for personal use, without the written permission of QCI International (which gladly grants permission when asked). Call (800) 527-8875 or fax (916) 527-6983.

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