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Jackson Nickerson is the Frahm Family Professor of Organization and Strategy at the Olin Business School at Washington University in St. Louis, USA. He is also director of the Brookings Executive Education program and a nonresident senior fellow in Governance Studies at the Brookings Institution. Nickerson is editor of the Innovations in Leadership series.

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Leading Change IN A Web 2.1 World

BROOKINGS INSTITUTION PRESS

Contents

Preface...................................................................vii1 Introduction: A New Tool for Leaders....................................12 Managing Change: The Fundamental Test of Leadership.....................193 Why Leading Change Is So Difficult......................................294 Enabling Organizational Change..........................................395 Accelerating Change in a Web 2.1 World..................................596 ChangeCasting Guidelines: The Message...................................697 ChangeCasting Guidelines: The Delivery..................................818 ChangeCasting Guidelines: The Video.....................................919 Technology for Managing ChangeCasting...................................9910 Did ChangeCasting Improve Performance?.................................11111 Should You Adopt ChangeCasting?........................................125Next Steps for Becoming a ChangeCasting Leader............................135Notes.....................................................................137Index.....................................................................143

Chapter One

After more than thirty years with the same company, Genevieve (Gen) Laneau has gotten her chance to captain the ship. And her ship is neither small nor easy to sail. Production is global, distribution is worldwide, and the Internet, among many distribution channels, plays an important and growing role for both her firm and her competitors. A multi billion-dollar technology enterprise with more than seven thousand workers spread across thirty-five countries, her company is a typical midsize global firm.

Several competitive storms were on the horizon when Gen took over as CEO. Recently consolidated competitors were expanding, growing revenues, and encroaching on the unique market position of her firm, WorldCo. Indeed, WorldCo had once been known as the high-tech leader in its field, but now, customers were turning to Gen's competitors for new products, services, and solutions. The previous CEO had successfully increased margins by focusing on operational excellence, but it was clear to Gen that focusing on cost reductions alone was not going to keep her firm ahead of the competition. She was not alone in her conclusions about the firm's future. Wall Street could see the competitive landscape and had come to the same conclusions. Without new sources of profitable revenue growth the firm's stock price was not going to appreciate. The handwriting was not just on the wall, it was in the analysts' reports.

Gen was facing the leadership challenge of her career. She could see that if she didn't take action, the day of reckoning in the form of stiff competition and low profit margins was fast approaching. She realized she had to change her organization all the way to its core if her company were to overcome stagnant revenue growth and simultaneously maintain its industry-leading return on equity.

William Tracey faced a different challenge. He had joined his manufacturing firm, MandACo, more than fifteen years before being appointed CEO a few years ago, having risen largely through its financial ranks. He shepherded a Fortune 500 firm with more than two hundred plants and thirty thousand employees. William's firm became the industry's largest player through a consolidation strategy that was largely funded by taking on more debt. In the growing economy of the 1980s and 1990s, the firm's mergers and acquisitions grew revenues and profits. Although the debt load was great, economies of scale in purchasing led to profits that far exceeded interest payments.

By the twenty-first century, two trends had taken hold that changed the fundamental environment in which MandACo competed. First, customers began moving production operations to China, where MandACo did not have substantial operations. This shifting of business across the Pacific decreased demand in North America. This shift in demand had the greatest impact on MandACo, the largest manufacturer in the industry. Second, North American customers either remained small "local" customers or had become large "national" accounts. These national accounts created commodity markets by auctioning off their demand and playing suppliers off against each other. Some of MandACo's competitors had chosen long ago to focus on these national accounts and had become low-cost producers. Smaller competitors focused on local customers and differentiated themselves from their competition because of their speed, flexibility, and customized service. MandACo's plants continued to sell to both types of customers, thereby catering specifically to neither type, which put his firm at a competitive disadvantage.

By the time William became CEO of MandACo, the company was unprofitable and its financial condition was actually worsening, resulting in a drop in the stock price of 30 percent from its peak. His first response was to shut down manufacturing facilities and take capacity out of the market, but demand shrank faster than he could close capacity. With little financial room to maneuver and still needing to make debt payments, he was unable to invest in and update production equipment. His multi billiondollar firm was unprofitable and its financial condition was getting worse. As some observers wondered whether his highly leveraged firm would survive, MandACo's survival—and William's career— depended on his ability to fundamentally change and revive his organization.

The Test of Leadership

Managing organizational change is not a challenge for just Gen and William. Organizational change is a common challenge; moreover it is the test of leadership, because failure is so often the outcome. A 1998 study by Wheatley and Kellner-Rogers reported on a survey of chief executive officers who stated that up to 75 percent of organizational change efforts do not yield the promised results. A 2002 study undertaken by Miller estimated that change initiatives critical to organizational success typically fail 70 percent of the time. In a 2004 study, Raps found a 70 to 90 percent failure rate in companies' attempts to implement new strategic plans. These studies and others leave no doubt that leading organizational change is difficult, costly, and risky. Failure is the norm, but the benefits of successful organizational change are great. For some companies it is change or die. For others, successful organizational change can rejuvenate organizations and catapult CEOs into the pantheon of great business leaders who revived their companies' growth and profitability and earned themselves fame and fortune in the process.

Some business leaders already in this pantheon are Allied Signal's Larry Bossidy, Monsanto's Dick Mahoney, GE's Jack Welch, IBM's Lou Gerstner, and Emerson's Chuck Knight. Each of them took a large company that was performing poorly or even losing money and rebuilt it to achieve great market and financial success. Larry Bossidy is well known for taking Allied Signal, a collection of not very successful businesses that was losing money, and turning them around until they were acquired by Honeywell in 1999. Dick Mahoney rebuilt the chemical company Monsanto and repositioned it in the life sciences with investments in agricultural biotechnology and the acquisition of G. D. Searle Pharmaceuticals. The story of General Electric's Jack Welch, who reconstructed a financially hemorrhaging giant and turned it into a global juggernaut, is well known (Larry Bossidy worked for Jack Welch at one time). Lou Gerstner is credited with saving the global paragon IBM from going out of business in the early 1990s. Chuck Knight of Emerson Electric took a small manufacturer and delivered one of the longest profitable growth trajectories in the history of Wall Street.

Nowadays, leading organizational change is more difficult than ever before. The ongoing revolution in information technology is increasing the frequency of organizational change and making it harder. Thomas Friedman noted in The World Is Flat: A Brief History of the Twenty-First Century (2005), that the revolution in information technology, among other factors, has led to a new level of globalization and integration. The Internet has indeed connected the world. Now practically any company can quickly design products in the United States, manufacture them in China, provide customer service from India and the Philippines, and serve customers on every continent. But so can its competitors—not just its old local competitors but also companies in almost any region of the globe. Information technology and myriad outsourcing orga nizations bring down entry costs, which invites increased competition. Markets are becoming increasingly commoditized, meaning that it is difficult for firms to differentiate themselves from one another. Firms that once had profitable business strategies now face cut-throat global competition.

Many leaders are responding to these challenges by hammering flat their organizational structures. They are dispersing their operations and delegating and decentralizing decisionmaking while at the same time spreading their firms' activities around the world and physically farther apart as they seek to drive down costs and take advantage of local capacities. Leaders are reconfiguring their organizations—acquiring organizations, selling off portions of their companies—to find new sources of advantage. Yet these survival tactics are also making the test of leadership more demanding. These widely dispersed, flat, and reconfigured organizations may be better able to adapt quickly to local conditions, but they are far more difficult to coordinate, integrate, manage, and lead than vertically structured command-and-control-style organizations.

These pressures require organizations, and their leaders, to respond and adapt to markets as never before. Business strategies used to be effective for at least a decade, if not longer. Now, changes in business strategy every two or three years are not unusual. Any misstep or delay in adapting, reconfiguring, and responding to customers' needs allows competitors quickly to drain away customers, revenue, and profit. Staying ahead of the competition requires frequent organizational change. The old saw that organizational change is the only constant takes on new meaning in the context of twenty-first-century global competition.

Nonprofits and government agencies face similar pressures. Financial pressures from shrinking budgets and increasing demands from funders and constituents all are magnified by the Internet because it makes it easier and faster for the demands to manifest themselves, creating a driving impetus for change. Few organizations are insulated from these pressures.

How can you accelerate change in your organization to stay ahead of the competition and respond to these pressures? How can you effectively lead organizational change in vertically structured organizations or in organizations whose workers are geographically dispersed, encouraged to act locally, and told to take responsibility and fight bureaucracy? Whether you are planning a minor initiative or a major strategic overhaul, how are you going to capture your workers' minds and hearts so that they are motivated to embrace change and alter their behavior? Leading organizational change—the test of leadership—has never posed a greater challenge.

Leading Change in a Web 2.1 World describes a new approach for accelerating organizational change that leverages Web 2.0 technology by combining it with particular leadership processes and guidelines to create a Web 2.1 methodology. This method is called ChangeCasting. To reiterate: ChangeCasting is a process and a set of guidelines for communicating with and listening to your community, for creating a conversation that can lead to vital changes in your community's behavior. ChangeCasting uses the same revolutionary technologies that lie at the root of the problem, information technology and the Internet, to provide a new tool that can help you accelerate change. Becoming a ChangeCasting leader—by adopting the specific process and guidelines described in this book—enables you to launch a conversation with your entire community that can build trust, create understanding, and accelerate organizational change.

How ChangeCasting Works

The process of ChangeCasting is built around the use of web-enabled and webcast videos, called "ChangeCasts," launched from the Internet or from an organization's Intranet (see figure 1). An Intranet is a restricted computer network, a private network created using World Wide Web software. Using Web 2.0 information technology (IT), the leader creates a video that is available for viewing by the leader's entire community, wherever members are located, whenever they choose to view it.

But merely sending a video is not enough to stimulate a conversation. For a good conversation to take place, leaders must listen, hear their community's response, and demonstrate they have listened— in short, must engage in a two-way dialog. Leaders must explicitly invite their community to provide honest reactions and feedback and pose questions about the message in such a way that the community does not fear reprisals. Here again, Web 2.0 information technology can help. A leader can stimulate a two-way conversation by inviting community members to send their re actions to ChangeCasts anonymously. The process of inviting feedback through anonymous responses is necessary to the process; without anonymity, fear will prevent expressions of distrust and misunderstanding. The vital components of the ChangeCast process are leaders' sending messages through ChangeCasts, listening to the community's anonymous responses, and demonstrating, by means of the next ChangeCast, that they have listened.

When leaders receive feedback, they must acknowledge that they have listened and understood what they have heard. Using web-enabled video allows leaders to rely on a full spectrum of communication techniques to display their level of understanding. Perhaps more important, video enables the leader to demonstrate understanding in ways not readily available by e-mails, blogs, memorandums, and the chain of command. For instance, leaders can visually show the community the challenges the company faces. They can prepare videos that feature workers and groups supporting the organizational change. They can show, not just tell, how the change efforts are having an impact. And the community can see facial expressions and body language that can communicate what words and audio alone can't.

In addition to the three key process steps, ChangeCasting uses specific guidelines relating to the creation of the message, the delivery of the message, and the use of video:

These guidelines help you choose messages, deliver them, and create images to build trust and increase understanding. When it comes to choosing messages, the ChangeCasting approach stresses that to be effective, videos must arrive periodically, on a regular, ongoing basis every few weeks. Present just one main idea in each ChangeCast, and be frank and realistic about the challenges of today while offering aspirations for what your community and organization should look like or how it should operate in the future. Messages should not progress from a discussion of the community's challenge to framing the challenge until understanding of the issue is widespread. Only much later in the process should you move on to offering solutions and attempt to implement them.

In delivering these messages it is important for the leader to be authentic, passionate, and direct. The ChangeCasting approach incorporates ways to invite conversation with the community—in particular, the benefits of visually showing symbols of investment of capital and human assets in the organizational change effort. This signals commitment to the community and gains members' commitment.

The correct video guidelines are also a component of ChangeCasting: how to speak to the camera and choose clothes so that you look good in digital images. In the directorial role behind the camera, ChangeCasting also prescribes appropriate locations and framing of your communications to help you fully engage your community. In this book I also review alternative technologies for delivering ChangeCasts and receiving anonymous feedback. The aim is to teach you to use information technology with ease and to keep it affordable.

Why ChangeCasting?

Over the past decade or so, people have become familiar with and use the ongoing innovations in electronic communications especially with respect to video. Video communication is not new to most communities. Indeed, people now expect to receive important information through web-enabled video and often give it more attention than they give to e-mails and memorandums. Many people now receive their news through web-enabled videos from CNN, the New York Times, MSN, Bloomberg News, and other web-enabled news sources. Millions of people use video-enabled Internet sites such as YouTube to share and gather information. Employees receive training through web-based video. Skype, Office Communicator, Adobe Connect, ooVoo, and other software that provides video and audio communications are beginning to replace telephones. In numerous contexts, society is rapidly shifting to web-enabled video as a primary means of receiving and processing information. So what is new about ChangeCasting? Why compete with professional news anchors?

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Excerpted from Leading Change IN A Web 2.1 Worldby Jackson Nickerson Copyright © 2010 by THE BROOKINGS INSTITUTION. Excerpted by permission of BROOKINGS INSTITUTION PRESS. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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