Why do we change organizations?

In 1997 I was at the Kansas City Airport, I was getting ready to board a plane for a business trip and I needed something for the trip to read. I picked up the April/May issue of Fast Company magazine. On the front cover in big bold letters was the word, “Change.” I quickly identified with the content because I had just been promoted to manager and the company was experiencing explosive growth.

I can recall reading the entire magazine from cover to cover before I ever landed in Florida. There was a specific article called, “The 10 laws of Change” that seemed to describe what I was feeling about the changes personally and also what the company seemed to be experiencing. Also, in 1996 John Kotter published his book called “Leading Change” where he looked at several companies' efforts to transform their organizations. John concluded that there were eight steps to transform your organization:

1. Establish a sense of urgency

2. Forming a powerful guiding coalition

3. Creating a vision

4. Communicating the vision

5. Empowering others to act on the vision

6. Planning for and creating short-term wins

7. Consolidating improvements and producing still more change

8. Institutionalizing new approach

The question is not only how the transformation will work but a more basic question that I had was understanding why we needed to change the organization. If you look at what changes in our daily, monthly, and yearly lives and business you can look at these factors:

• Social-Demographics (People/Society)

• Competition/Substitutes

• Economics/Ecology

• Political/Regulatory

• Technology

• Industry/Suppliers

• Customers/Consumers

In Systems Thinking there is a concept called, “The Iceberg of Change" or "Theory of Change."

This concept explains that when you are going to change any system there are four elements that come into play. 0.1 Content. The content of the change; the change-related tasks and goals. 0.2 Processes. The process of change; is how we carry out tasks and meet our goals. 0.3 Structures. The structures or frameworks within the content and process operate; the arrangements we must set up to manage change. 0.4 Culture/Commitment. These are the values, assumptions, or beliefs that we have.

In most organizational change efforts we focus on the things that we can see which are those that are listed above the water line in the diagram below. The reality of what we should be focused on when changing organizations is that 87-90% of those factors/issues that are below the iceberg. The reality is that as organizations change and grow we should be focused on also building the appropriate amount of processes and structures necessary in order to make these changes. Additionally, we need to be listening to the organization to understand how these changes are impacting our beliefs, norms, and behaviors which make up our culture.

In the original Fast Company issue they talk about people being “Change Agents.” Over my career, I have never really viewed myself as a change agent but in the latter half of my career, I have found that most Entrepreneurs, Founders, and CEOs have hired me for that exact reason. They want my experience and expertise because they had a goal or mission to change their organization in some meaningful way. The change may come in the form of high performance, scaling the business, or using new technologies to create some optimization.

We naturally want to avoid change - we prefer the status quo, with its comfort and familiarity, and stability, rather than pursue change with its awkwardness, uncertainty, and ambiguity. However, we can increase our chances of transforming the organization if we have: (a) a clear understanding of why we need to change (b) a clear structure for change and (c) a framework that helps us manage the change

How mature is your organization?

Since I began my career in 1995, I have worked for 6 different entrepreneurs/founders. All of these individuals started these companies and have since either sold the company, closed the company or they still exist. I have kept a journal of all my observations of the organizations and the Entrepreneurs/Founders I have worked with. The majority of these notes were for me to be able to learn from the strategies that worked and to be able to learn from their failures or challenges. I recently went back through these notes to understand what some of the common themes were around their challenges. Here are my notes:

• The technical founder failed to acknowledge how his/her role needed to change for the long-term success of the company based on where he/she was at in the company maturity process. Over the course of time companies, leaders and team members go through a maturity process. Note: I created a maturity assessment checklist and matrix to understand a common way to understand where each company is within that maturity timeline.

• Entrepreneurs/Founders failed to acknowledge their lack of business acumen and waited too long to hire the necessary people or team. A relatively old book but still some relevant content around this topic can be found in the EMyth by Michael Gerber.

• Entrepreneurs/Founders failed to pay attention and respond to trends in the marketplace for their product or service and then lost their competitive advantage. Think of Polaroid not responding quickly enough to digital transformation. Note: Although there has been a resurgence as the old is now new again.
  

• Entrepreneurs/Founders lack the ability to leverage or learn from their network/community. When the business is struggling, his/her unwillingness to rely on their network or community for help. I think if you are willing you can find your community of executives who have already lived through some of the challenges you are facing. I always find it surprising when I still talk to CEOs who think they are the only ones that can solve their issues or problems. The organization and maybe your board may not tolerate this approach or attitude.

• Entrepreneurs/Founder's inability to think strategically about innovative ways to grow the business beyond traditional methods. (new markets or new applications of a product or service). I worked for this company that built software for the fintech world. They had one product that they kept iterating around but the idea of building anything else for a different industry or selling services around that product was just foreign to the leadership team.

• Entrepreneur/Founder failure to hire competent executives and leadership team members. Also, inability or unwillingness to fire incompetent executives or leadership team members. The old term is “hire slow, fire fast.” I have witnessed more damage done by CEOs to their own organization because they were unwilling to fire underperforming leaders. Conversely, I have observed senior leaders unwilling to pay top dollar to executives that could take their company to another level.

• Entrepreneurs/Founders ignored or did not understand how to build a culture of excellence. Yankees vs. Brewers. The Yankees have won 27 World Series titles. The Rangers, Padres, Brewers, Mariners, Rockies, and Rays have never won a world series. I have worked for companies that were considered the Yankees of their industry and the culture was so distinctly different, expectations were high from each other, and being really good was always a lot of fun.
  

The correlation between a toxic work culture and your financial results.

I was talking to a friend of mine whom we will call Sarah. Sarah has been the CEO of a technology company for the last 10 years. She had reached out to me and said, “Matt, we are struggling to hit our financial goals each quarter. I know that we have struggled on the delivery side but I don’t fully grasp why. Can you help me figure this out?”

The company that she was running was relatively small (60 employees), had been around for 10 years, and had a solid list of clients who consistently gave them projects. In addition, on the new sales front, her team was led by another woman, Julie, who had built an amazing team that was consistently exceeding their goals. We began working together to investigate the issue on the delivery side. We sat down with the COO, Jeremy, and tried to get his thoughts on the delivery issue. Jeremy cited some scope issues with a particular client, increased expenses, and challenges around productivity with people working remotely. He had a team of 3 Team Leads with each Team Lead having between 10-12 Team Members. These Team Members were project managers, analysts, developers, and engineers. The majority of the Team Leads and Team Members had been with the company for 3-5 years.

Sarah informed me that they were utilizing EOS (Entrepreneurial Operating System) for the past year and she really enjoyed the framework and the ability to focus on data, processes, and people. She had utilized some frameworks in the past but found them to be impractical and burdensome to implement. I had also been sharing with her over the course of our coaching sessions some tools and frameworks around Systems Thinking.

As we started to dig into the data reported via each team's scorecards we noticed one team's results were all over the place in terms of the achievement of their goals. This team was run by Mike. I met Mike at the company’s planning meeting last year and found him to be a little “rough around the edges” in terms of how he interacted with his team members. Some of his teammates even described him as a manager as “somewhat disrespectful” “backstabber” and “hostile” in some previous employee surveys. Jeremy was working with him on improving his performance but in the meantime, there was significant attrition on Mike’s team.

After several more conversations with Sarah, Jeremy, Mike, and his teammates we reached the following conclusions:

1) The poor performance and leadership of Jeremy and Mike were impacting the financial results of the organization. The simple fact was that no one wanted to work with Mike and because of this Mike became ineffective as a leader and his ability to get results out of his team members.

2) Jeremy worked too slowly to address the issues with Mike and was viewed by Mike’s team as being complicit in allowing his behavior to continue.

3) In a conversation with the Director of People Operations, Kristen, she noted that there were several notes made about Mike’s leadership style from her team's exit interviews with Mike’s outgoing team members. These notes were shared with both Jeremy and Mike.

4) Kristen also mention that Mike was promoted because he was considered one of the brightest developers and did some amazing technical work when he was hired 5 years ago. Because of his high level of performance as a developer, he was promoted to Team Lead by Jeremy.

5) Sarah noted the failure of this issue to get surfaced within their monthly EOS sessions as a Leadership team was baffling to her. Sarah also noted that she felt the organization failed Mike by promoting him to a role that was not a good fit and without a lot of support to improve his performance.

In my experience, people feel the solution to eliminating a toxic work environment is to get rid of the root cause - the person or people contributing to the toxic culture. Systems thinking teaches us that we can’t just look at one component within the broader system but that we have to look across the organization.

Here are some systems-wide organizational questions:

1) How did we encourage and endorse this behavior?

2) Have the values of the organization changed such that somehow we are now promoting this behavior?

3) What systems and structures failed to alert us of the toxic behavior? Or if they were working why didn’t we listen?

4) What systems and structures do we need to improve in order to prevent toxic behavior in the future?

5) Why did our communication break down within the Leadership Team?

6) What is the overall cost to the organization for our inability to effectively deal with this issue?

I gave Sarah the following advice:

• Focus on the organization as a system.
  

• Utilize EOS and the principles around being clear about the vision, reviewing and analyzing the data, building and maintaining processes, getting and keeping the right people, and resolving issues quickly.
  

• Find additional tools, frameworks, and systems and empower your team to utilize these throughout the organization.