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Culture is the key for lasting success! As Peter Drucker already knew "Culture eats strategy for breakfast"! We can have the best vision, the best strategy or the best processes the world has ever imagined - as long as our culture does not support that, our activities will lead nowhere. This is a nice explanation for why approximately 70% of big corporate transformations fail to produce the intended results. The necessity of sustainably improving the corporate culture becomes also evident in diverse empirical studies: According to, e.g., Gallup, the culture in most (western) organizations is far from being open, empowering, honest and motivating. As a result, in fact, the average employee spends his time at work being rather demotivated and disengaged. What a waste of precious lifetime and resources! As a result, working on and improving the corporate culture should be at the very heart of every corporate transformation! But how to do so? Change can be fun! People CAN enjoy change! Certain elements can make the change a success! Be inspired by our practice and evidence-based thinking of how change works - to make it work for you! The LxAxR=I formula depicts the ocean of change in a simple and comprehensible way: To generate desired Impact you need to get the Leadership, Approach and Resources right - at the same time. This approach is very different from any other change approach we know and builds on more than 100 transformations which we have been running. And it works! Follow us on exploring the formula and make it work for you!
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Disclaimer
This book tells the story of and lessons learned from the fictional company SolidCo. Although based on the experiences of the authors any connection to real people is unintentional and purely coincidental.
The information in this book is designed to provide helpful information on the subjects discussed, and the material does not represent professional advice. The authors disclaim any liability to any person arising directly or indirectly from the use of, or for any errors or omissions, the information contained in this book. The adoption and application of the information in this book is at the reader’s direction and is his or her sole responsibility.
Contents
Foreword
Why we wrote this book? The journey of SolidCo
When SolidCo celebrated its hundreds birthday, it was a company at its peak: A very successful international utility present in all parts of the value chain, acknowledged as the pioneer of electricity supply as we know it today. It reliably served more than 50 million customers with power and gas. It provided secure and well-paid jobs to more than 100.000 proud employees. SolidCo was also one of the most valuable companies in Europe. Investors loved it especially because of its reliable dividend payments.
Less than 15 years later the situation looked very different. The liberalisation of the energy markets, nuclear phase out, public pressure on coal fired power plants, the rise of renewable energy generation, digitisation and other disruptions caused the deepest crisis in the energy giant’s history.
The innovative spirit of the first years was long gone. SolidCo was a perfectly working machine, engineered for the existing energy economy, but not ready to re-invent itself. Employees of SolidCo regarded the societal mega-trends as threats. Many tried to fight them off and defend the status quo.
The consequences of changing slowly in a disruptive environment were severe: In only a couple of years the Operational result dropped by -50%, the market cap by -75%, the dividend (which used to be at 5-6% of the share price) was cut by -100%. The only financial number which increased was the net debt to EBITDA ratio which unfortunately grew by +200%. Rating companies downgraded SolidCo in these times from single A grade down to non-investment grade. Even worse, employees were increasingly asking what the company really stood for? What was its purpose? It was gone. The situation felt like a complete disaster. Only one thing became clear: If SolidCo didn’t completely re-invent itself it might cease to exist. This insight was the starting point for one of the most thrilling change journeys we (the authors) had ever experienced or heard about.
Only a few years later SolidCo had fundamentally changed. Basically, nothing felt as before: A clear co-created purpose gave strong direction and aligned the inner attitudes of the employees. The “How” (the culture) was now built around making connections across silos and beyond hierarchies. Now we could witness open and honest discussions with high level inquiry, naming the tough stuff, coaching and supporting each other especially in the context of performance and team management. The customer moved into the heart of everything driving constant innovations as well as a clear perspective on process management and continuous improvement.
And it paid off! The financial turnaround was achieved. Cost saving and growth measures had delivered billions of Euros. The share price recovered, and dividends could be paid again. SolidCo was closer to being a high performing company than ever before.
How was such a positive development possible?
The discovery of Changeonomics
When the awkward situation of SolidCo became obvious, we (the authors) were employed in various parts of the company. We all had a solid background as managers and consultants and viewed ourselves as seasoned change experts. We saw the need for change, had passion for the turn around and volunteered to run the transformation.
The corporate transformation of SolidCo proofed to be the perfect opportunity to learn about change. We conducted more than 100 transformations of business areas and organisational units. We observed many communalities, built on the learnings and continuously refined our approach.
After some years, we made an interesting discovery. While every change journey was different, change also seemed to follow the same rules. We distilled our insight into a simple formula:
We shared our Change Formula with other change experts inside and outside of SolidCo. And they loved it. The Change Formula made much sense to them. It helped them to guide their own work. Maybe more importantly, it helped them to easily explain how change works to their stakeholders. And they were asking for more explanation around it.
We were overwhelmed by such positive feedback and got enthusiastic. Somehow, we had decoded some secrets of change! We had found something very helpful for change practitioners! And it seemed to be universally applicable to any change challenge!
We decided to share the Change Formula in a book. Behind the Change Formula is a whole line of thinking about the economics of change which we call “Changeonomics”: While Economics is the study of human economic behaviour (Pink, 2009), Changeonomics is the study of changing human economic behaviour.
We had learned good change management the hard way. Looking at it in hindsight, we in fact had little clue about change management when we started. We would have done far better with a good understanding on how change works. This became our motivation. We wanted to make others successful in change management by sharing Changeonomics!
How to become a good change manager?
The SolidCo journey provided a unique learning ground. We became experienced change managers ourselves. We also developed hundreds of leaders and experts so they could successfully manage change in their area. But how do you become a change manager?
We used the analogy of learning to cook. Becoming a good change manager is like becoming a good cook.
When you start with cooking, you will follow a recipe line-by-line. You learn from doing. You see the results, experience the taste and obtain the feedback from your guests. You become better in cooking the dish. It takes less time, results become predictable, and it tastes better. You will not have to look up the recipe but know it by heart. You will tweak the recipe to give it some personal note or have some variations to meet the preferences of your guests.
Over time you will try out more recipes and become experienced in cooking your favourite ones. Still your repertoire of dishes might be limited. Whenever you want to cook you buy the ingredients needed.
When you become a very experienced chef, you will develop mastery. Then you will go to the market, see what fresh food is available and create a complete menu out of this. You will even innovate new dishes which inspire others.
You might learn cooking as an auto-didact from trying out recipes. You will learn better when you also read books which do not just give line-by-line instructions but explain how cooking works. Learning will work best when you cook jointly with another experienced person. You also will gain from exchanging with other people which share your passion for cooking.
The same is true for becoming a good change manager. You have to practice change management to learn. Step-by-step instructions for given situations will help you to get started. You will benefit from reading about how change works. You will best learn alongside experienced change managers. And you will gain from exchanging with other change enthusiasts. This leads us to question how this book might help you on such a journey.
How to use this book?
We have written this book with the intention to help you becoming an even better change manager. We go beyond line-by-line instructions. We compiled many concrete solutions for problems you might face in your daily job. More importantly, we also share our insights on how change works.
Chapter 1 introduces you to some basic concepts of change management. Then Chapter 2 “Leadership” explains how to lead change, Chapter 3 “Approach” how to manage change, Chapter 4 “Resources” how to resource change and Chapter 5 “Impact” how to ensure impact from change. We close with an outlook on how to start change now. In the Appendix we compiled helpful material.
We provide some structure to the content to make this book a useful manual for your daily work:
Backlog Items are concrete activities you conduct to drive your Transformation. Out of these building blocks you can create your transformation plan or transformation backlog. We list the backlog items at the beginning of each chapter, each chapter is then structured according to these backlog items.
Insights are our key learnings about change. They explain how change works. We highlight insights throughout the text and sum them up at the end of each chapter.
Stories are real-life experiences we made in our SolidCo Transformation or stories about change we used to tell each other. We use stories to show how change works in practice. With our stories we also want to inspire you for the creation of your own change journey.
Tools are concrete solutions for typical problems you will encounter on your change journey. We describe some selected Tools which we regard as especially helpful and/or innovative. There are many more useful Tools around. Describing these would go by far beyond the possible scope of a book. If you search for more Tools, have a look at the Appendix. You will find about 100 Tools which we applied to improve the daily way of working at SolidCo.
Our journey at SolidCo and writing the book was full of “Aha!” moments. This is, when things click together, a new insight arises, and a new worldview is born. These are moments of great joy. May this book trigger many “Aha” moments with you. Please enjoy reading!
1Introduction
1 Introduction – Understand Change
AND THIS REALLY WORKS?
Recently I met an energetic lady at tennis. Our daughters were playing against each other. Judith is my age, she has started her career with the other leading consulting company, has been working with the other big utility and we’ve got mutual acquaintances. “What are you working on?”, Judith asked. “I am a change manager”, I replied. Pause. I felt some explanation was needed. “So basically, I support people to change their behaviour, to increase the company performance.” I saw her face puzzling. “And this really works?” she said.
We are used to those reactions. Many rational managers have a profound scepticism on Change Management. Unfortunately, often there is little to learn on the subject at university – apart from Change Management equals Change Communication. So, what can I do? Maybe I can read one or two bestselling books on the topic – giving me recipes for changing organisations from stable state A to stable state B. Maybe I can follow some inspirational speeches by change gurus at company events. Unfortunately, many of the knowledge I will then get is just theory. Practice is different. In practice I might have gone through multiple complex change events by myself – mergers, re-organisations, downsizing – badly executed and most of the time destroying more value than creating value. There is never a stable state achieved but permanent instability. As a result, what shall I do except for regarding Change Management as something esoteric with little practical use?
Our view is very different. We learned that Change Management can work, what it takes to make it work and that it delivers huge value.
However, to make it work, we needed to develop the right mental model – i.e., our view on how companies and company change works: To us, companies are not machines, but systems.
COMPANY MACHINE OR COMPANY SYSTEM?
The industrial revolution brought along new technologies and with it new forms of human collaboration in large corporations. With this, new thinking about organisations arose. Leading minds of the time – Frederick Winslow Taylor (1856-1915), Henry Ford (1863-1947), Henri Fayol (1841-1925) or Max Weber (1864-1920) – created a worldview which is still deeply ingrained into how most of today's managers look at their organisation and themselves. More than a century later, many managers still view organisations as machines and themselves as the operators, steering the machine from their control room. They use analogies like the ship in the stormy sea and themselves as the captain at the wheel.1
When I was a young consultant, my view of companies tended to be similar. I led multiple reorganisations and was pretty good at it. When managers were operators, then I was the engineer. My projects always followed the same approach: Develop options for a new structure, let leaders select one, detail out the new structure, define new processes, define job profiles, let leaders select the best person for each job, announce it, go live – done. As a trained engineer, I was designing new and better machines for the operators. People were the replaceable components of the machine. When one component was not functioning as required, the component had to be changed.
Those reorganisations usually resulted in some temporary cost savings, but the sustainable performance improvement was more than questionable. No wonder. Why should people change their behaviour because they got assigned to a new box in the organisation chart?
Illustration 1: Company Machine
It took me years of working with organisations to understand what was going on and adapt my worldview. Today, I view companies as a system.
A company system is a group of people which regularly interact with each other for the purpose of running a business.
How is system thinking different from machine thinking?
The people create the system with their actions not the other way around – the machine determining what people doWe are all actors in this system – our behaviour (the actions) determines the behaviour of the whole systemUnderlying mental models (how people view the world) and systemic structures (ways in which the system is organised) determine the observable system behaviourThe system behaviour finally drives the system performanceIllustration 2: Company System
The implications of system thinking are huge. Contrary to a machine, a system cannot be simply engineered and built. It cannot be steered via a control panel. It is also not stable. It constantly evolves over time as actors in the system influence the evolution by their actions. However, most of the time we are unaware about the implications of such actions on the system.
This is where system thinking makes the difference: When we see the system as a whole with its basic mental models, its systemic structures and resulting behaviours, we can take conscious actions – we call them “targeted interventions” – to improve the system behaviour and performance. This is what change management in our view is all about.
No longer will we view ourselves as captains or engineers. We will act a little bit like farmers who care about the land to increase the harvest yield and pass it on in best shape to our children.
INSIGHT
View companies as “systems” – and not as “machines”
We compiled all our insights into Changeonomics. Changeonomics is our philosophy and methodology of change management for a better performance of an organisation.
Specifically, there are three basic principles which we learned early on and wove into everything we were doing. We would now want to explore these principles in more detail: We will start with Chapter 1.1 “Systems Thinking” to explore the importance of understanding the observable company culture as a result of the system which is working on the levels of “Me”, the “Team” and the “Organisation”. When we have the proper understanding of the current situation and the system we are operating in, and we want to personally start the change the question comes up on how to actually do this? For this we used insights from neuroscience and have developed a very simple principle, which we call “Leading from the Future” (Chapter 1.2). In order to create momentum and get the company and all its employees moving into a new direction we finally need to address three key elements simultaneously, in an integrated way: The “Why”, the “What” and the “How”. This is what we call the “Magic Triangle” (Chapter 1.3). Finally, we will have a closer look at the Change Formula and its inherent logic (Chapter 1.4).
1.1 Systems Thinking: Change starts with Me!
BACKLOG ITEM
How to see and understand the system with all its behavioural patterns and mental models?
PARALYSIS BY ANALYSIS
Working as a leader in corporate controlling in SolidCo was often not an easy task: Whenever a large investment in the business was due, it had to be confirmed at Board level. Then all relevant corporate functions like Mergers & Acquisitions, Strategy, Legal, Finance, Tax, Accounting, Controlling, Human Resources and others analysed the proposal and tried to make it “bullet proof” against risks from their functional perspectives. This process, well intended, often felt like a very nasty one, lasting for an extremely long time with lots of distrust on all sides: Sometimes, e.g., the business tried to hide risks or waited with the proposal so long that time pressure did not allow a thorough analysis. Or, e.g., the corporate functions developed more and more into a kind of “police” function and investigator, basically convinced that business will just try to fool them. The results were decision papers with more pages on potential risks than on the case itself. No entrepreneurial risks where taken. Potentially good investments got stopped. Especially investments outside the well-known core business were “analysed to death”. One person called this pattern “paralysis by analysis”. How could intelligent people behave like this?
In order to understand the situation above, we need to consider three characteristics of systems thinking: First, what we see in the example described above is a “system at work”. What does that mean?
INSIGHT
Companies are social and economic systems – A group of people which regularly interact with each other for the purpose of running a business
A system is a set of connected elements which interact to fulfil a function (Meadows, 1993; see Figure 1). The people in a company come together for the purpose of running the business. This shared purpose is forming the boundaries of the system which distinguishes the people in the company – leaders and employees – from the people outside. A more compelling purpose increases cohesion within the group and forms a stronger binding.
Figure 1: What makes a system
Within the company system you will find subsystems or teams which are groups of people coming together for distinctive purposes. These subsystems consist of people who are linked together via organisational structures, relationships and interactions. More and better interactions build deeper and more trustful relationships which in turn are the foundation for further interactions. People with more and better relationships can interact with more people in a better way. The number and quality of relationships of the people within the company are important for the good functioning of the system. Likewise, companies which have more and better relationships to the environment – the metasystem – can interact more and better. The relationships within the system make up the system structure. People within the organisation continuously act. We call these actions behaviours. If these actions follow a certain sequence we call this a process.
Now we can get back to the “paralysis by analysis” example above: What we can see are the observable behaviours by the actors in the system. These behaviours are the result of processes (e.g., the process for deciding large investments) and organisational design (e.g., operational business areas which work detached from the corporate centre). Both, process and organisational design are “systemic structures”. This “system design” is based on mental models which are being held in the organisation. Mental models are shared assumptions, beliefs, and values people hold which drive their behaviour. In the example above one of these basic mental models was “not to allow mistakes”. A very reasonable mental model when you run nuclear power plants or a power grid on which many people and even lives depend upon. You better do everything “not to allow mistakes”! With such a basic belief the process design described above served its purpose! Even the institutionalised distrust between the corporate centre and the business units helped to really watch out for every mistake. And showing the behaviours like “police” or even playing tricks on each other reinforced the validity of the mental model. The result was not just unpleasant for the involved people. It is also hindered corporate development as it blocked investments into growth areas and directed funds to existing business areas. When markets changed, existing business areas lost profitability and these investments did not deliver the expected returns. SolidCo was left with capital bound in unattractive areas, high debt, low cash-flow and no growth perspective. The risk averse culture had backfired. It had become one of the root causes for the SolidCo crisis.
INSIGHT
When we want to change and improve, we need to see the system with its behavioural patterns and underlying mental models first
Hence, it is key to take a system perspective to spot what is really going on. A nice example for such a system is the story of the “Ten apes in a cage”. Their behaviours only make sense when we see them in the context of the system and its held mental models. In this sense corporate culture is nothing else than just mental models turned into behaviour. In the approach part we will introduce the “Iceberg Method” to systematically identify blocking mental models (for further reading see also Schein, 1992).
HOW SYSTEMIC PATTERNS ARE FORMED: TEN APES IN A CAGE
Imagine ten apes in a cage. In the middle of the cage stands a ladder with a banana on top. What happens? All the apes want to get the banana and start running. As soon as the first ape climbs the first step, he and all other apes are sprayed with a fire hose until they all step back. Whenever an ape dares to try again, the procedure is repeated. After a while all apes sit in silence, not going for the banana. Now one of the ten apes is exchanged for a new one. The new one spots the banana, realises no other ape is going for it, and starts to run for the banana. What do the others do? Because they do not want to get wet again, they hold him back. This process continues until all apes sit in silence again. Then another ape is exchanged for a new one – and the process above repeats. When all sit in silence again, a third ape is exchanged and so on until all apes of the initial group got exchanged.
What is the result: No ape will ever go for the banana, whenever an ape gets close, the others hold him back. Every ape follows this rule. But none of the apes in the current group has ever experienced the fire hose and knows why he is doing that.
Illustration 3: Ten apes in a cage
In human groups similar processes take place. In some sense we as human beings and employees are like apes in a cage. When we join a new group, we tend to adopt the behavioural patterns and underlying mental models of the group (i.e., the culture), no matter if these make sense or not. And we maintain questionable beliefs and continue seemingly irrational behaviour.
A second feature of systems thinking is the consideration of the levels of me, team and organisation. It can be highlighted by the following example: Imagine the last time you started completely new in a company. Try to remember what made you wonder? What was strange and different? What was it that you really wanted to change? Pause for a second and reflect: Did you change it? If not, why? And how come you accepted this?
INSIGHT
A system consists of three levels: The level of the whole organisation, of my team and of me personally
The answer to these questions might be that every system is working at the same time on three levels: The level of the whole organisation, the level of my team and the level of me personally: Whatever is held as a mental model with its accompanying structures, processes and behaviours on the level of the whole organisation has a direct impact on every team in the organisation. It is highly likely that the team will mirror the structures and processes and express similar behaviours. And what is happening on the team level is impacting me directly as a person. As I desire to be a part of the team and be connected to the group (see also Hofstede, Hofstede and Minkov 2010, or Asch, 1951). I might mirror the same in my daily processes and behaviours. In short: Over some time, I will become a part of the system! See also the story below for one illustrative example.
WHERE HAVE ALL THE SUPER BRAINS GONE?
Every year ten young successful students started in SolidCo in a special program as management trainees. During their 18-months traineeship they were supported and coached by a senior leader high up in the organisation and were allowed to contribute to the most important projects. Whenever these people entered the room, you could literally feel their energy, drive, curiosity and openness to go new ways. After 18 months they needed to decide which department they wanted to work for and become a regular employee.
Less than one year later it was impossible to identify the former trainees any longer! Imagine an identity parade at the police station where all members of a department stand in a line, and you want to identify the former trainee – if you then ignore age and sex – it was impossible. Social adaption had happened. The trainees had taken over the company’s behavioural patterns. They were acting in conformity with the company culture. They had become part of the system. Or how one Board member once called it: “Where have all the super brains gone?”
This understanding has a third direct implication on how change works: Change always starts with me! To illustrate this, let’s go back 1,000 years and meet the “Welsh monk”:
CHANGE STARTS WITH ME – THE WELSH MONK
A thousand years ago there was a Welsh monk. He was telling the following story:
“When I was a young man, I wanted to change the world.
I found it was difficult to change the world, so I tried to change my nation.
When I found I couldn’t change the nation, I began to focus on my town.
But even my town I couldn’t change.
Then – at least – I wanted to change my family.
Now, as an old man, I know: If I would have changed myself, I could have made an impact on my family. My family and I could have made an impact on our town. Their impact could have changed the nation and I could indeed have changed the world.”
The real source of this poem is unclear. Some attribute it to an unknown Welsh monk from 1,100 AD, others to a 19th century rabbi, while the correct source might be “The Internet, circa mid 2,000’s”. But it does not matter where it originated from.
What matters is the simple truth which lies in it. The only person you can change is yourself. Whenever you want to change the behaviour of any other person, you first need to change your own behaviour. Whenever you want to change your team or the organisation – you always need to start with yourself.
Illustration 4: Change starts with me
INSIGHT
Change always starts with me! When I change, I can influence my team and then the whole organisation
When I start changing my behaviours this will have a direct impact on the team I am working with. If my team starts to change and show different kinds of behaviours this will impact the organisation. We can even think beyond this and say, if my organisation starts to behave differently this might have an impact on the wider society! When change always starts with me there are no real excuses not to do change – I “only” need to overcome my own barriers and blockers and start to purposely behave differently. In this simple understanding we move systems by developing our own mental models and changing our own behaviours!
1.2 Leading from the Future: Adopting new behaviours is key!
BACKLOG ITEM
How to overcome the systemic patterns and blockers? “Lead from the future”.
Unfortunately, changing your own behaviour is often not as easy as expected! If we think about eating, smoking or other pleasant things we human beings like, the challenge of adopting a different behaviour becomes obvious. The reason for this is quite simple! Our brain is built up of at least 86 billion neurons (see also Herculano-Houzel, 2017). Over the course of our life more and more connections are being established between neurons using neurotransmitters. The more often a connection is used the stronger it becomes. This is the way we learn and automate our behaviours and habits are being formed. This kind of automation is very powerful: It allows our brain to reduce its massive energy consumption and we humans can invest our precious energy for other purposes than thinking (see also Kahneman, 2012 – he calls the “automatic” mode “fast thinking”). Hence, our brain has an inherent tendency to automate as much as possible.
The tricky thing now is that we cannot easily unlearn when there is a strong connection between neurons. But we can be active: We can create new connections to new neurons and this way actively learn a new behaviour. The more often we repeat this new behaviour the stronger the new link gets until – finally – the new connections take over and the old one gets weaker. The new behaviour now has become our default behaviour respectively habit. This fundamental process is called “neuroplasticity”. It was first described by Donald Hebb (1949) and today is referred to as Hebb’s Law: “What fires together, wires together.”
INSIGHT
Change happens via learning, training and repeating new behaviours
The whole process of behavioural change and hence corporate change is based on neuroplasticity.
Our empirical evidence shows that after a maximum of 90 repetitions the new behaviour is set (which is in line with Maltz, 1960, who states that it takes 21 days of repetitions to form a habit and 90 days to make it a permanent lifestyle change; an empirical study conducted by Lally et al., 2010, shows an average of 66 days for the lasting automation of behaviour).
So how does this way of changing behaviours concretely work? Here we use a three-step approach which we call “Leading from the Future” (see Figure 2). It provides a powerful method to sustainably develop capabilities, alter behaviour and improve performance. “Leading from the Future” serves both as a guiding principle and as a practical development tool. It can be applied on the levels of me, team and organisation – for personal growth, team building and organisational change alike. It incorporates practical and scientific insights into behavioural change of people, teams and organisations. These include: Positive emotions, rewards, small steps, repetitions, measurement, and feedback loops. These all are fundamental principles of sustainable behavioural change or habit forming. You can find some of these principles in other habit forming methods (e.g., “Goal-directed learning” by Scarlett 2016, “The Power of Habit” by Duhigg 2013, “Tiny Habits” by Fogg 2020 or “Atomic Habits” by Clear 2019) and coaching methods (e.g. “TGROW Coaching”, Whitmore 1992, or “Coaching Kata” by Rother 2009).
LEADING FROM THE FUTURE
Step 1: Envision the future – The Future Picture
The problem for many individuals pondering change is fear. But when we project our thinking into the future, we can imagine that anything is possible. Instantly, the creative part of our brain is stimulated, and the fear part goes quiet. We can then visualise a new version of ourselves, our team, or our organisation without doubting. There is a simple technique that starts to create a positive future for you:
Get positively primed. Before you start, assume that you will be successfulProject your thinking into the future. Imagine you have successfully overcome today’s blocking mental models and critical, not helpful behaviours in the system. What does it look like? What do you see? Which concrete behaviours will you see in the organisation?Flip the perspective. Visualise how others would realise that the solution was successfulIdentify what bold moves were made in order to accomplish your goalThis way you create and describe your “Future Picture” of the behaviours and the corporate culture which you will see in the future. You create the cultural “North Star” for the organisation.
Figure 2: Leading from the future
Step 2: Get the basics right
Next, we need to “parallel process” that future into the here and now. This means that assuming the future has arrived, we start acting now already in the future way. This is key, because we cannot get into the future in the old way: If we did, we would only re-create what we actually want to leave behind – or to say it with a quote attributed to Einstein: “Doing the same thing over and over again and expecting different results is insanity!”
Therefore, we must create measurable actions that make that future happen, we create easy-to-monitor Key Performance Indicators (KPIs) and measure them as we go. By using KPIs, we create “conscious” contact with reality to overcome our brain’s resistance to change. This way we enter into the important loop of “measure – learn – improve” to form new habits. By the way, many health apps are designed based on this principle as well.
INSIGHT
Measuring creates conscious contact with reality to overcome our brains’ resistance to change
Step 3: Lead with energy – 1 % improvement every day (or week)!
When everyone recognises that small adaptations are paying off, their enthusiasm for change grows. There is a joy of getting better which is literally the positive reinforcement your brain needs to connect new neurons. The more you do it, the more these new connections grow — becoming the maps of your new behaviour. The stronger these maps become, the less energy is required to form the new habit. That is how 1 % improvements every day (or week) multiply quickly into really big improvements.
When I apply this principle to myself, I will be able to systematically develop the behaviours and habits needed for the successful future. For an organisational transformation to succeed we need to apply the principle of Leading from the Future also on the levels of the team and the organisation. What does this imply?
Team level:
Ideally the future cultural “North Star” is being co-created, shared and supported within my team. Maybe we would call them “Team behaviours” or “Team rules” (Step 1: “Future Picture”). Then we would define measurable KPIs to see if our behaviour changes into the right direction (Step 2: “Get the basics right”) and try out – one after the other – certain new behaviours, methods and tools which might be of help for us (Step 3: “Lead with energy”). On a regular basis (e.g., at the end of a meeting, or at the end of the week as a short pulse check) we would measure our KPIs and discuss what works well and where we need to adjust. As our team measures our progress and learns we will also adjust and tailor methods and tools to our needs and be able to improve our performance. This way our team will become a lighthouse for the organisation, where other teams can see and understand how the future might look like.
Organisation level:
On the organisational level we would create a joint understanding of the successful future culture. Companies might codify this in the form of “Leadership Practices”, “Desired Behaviours” or “Corporate Values”. Most important would be that we have a
shared
understanding of what this really means, and what we need to stop doing, start doing and to strengthen doing in order to get there (Step 1: “Future Picture”). Next, we would define overall KPIs to track our progress towards the desired future state as an organisation. Many companies use regular pulse checks and employee questionnaires for this purpose (Step 2: “Get the basics right”). In order to now get into the future, it is key to immediately weave the future behaviours into everything we will be doing. E.g., imagine my team is leading a large project, then we need to reflect the future now in
everything
we are doing: If the future is non-hierarchical and cross-silo, everything we are doing needs to be non-hierarchical and cross-silo. If the future is full of feedback, we need to design feedback loops into our actions. If the future is based on coaching, we need to weave coaching into our project (Step 3: “Lead with energy”). Then we will measure and start the learning and improvement cycle.
If this principle of Leading from the Future is adopted throughout an organisation, it shows that changes which would normally take years can be made in months. By consciously building new habits that change the way individuals work, not only their teams are transformed, but also their organisations and their cultures. As Aristotle said, “We are what we repeatedly do. Excellence, then, is not an act, but a habit.”
INSIGHT
Apply “leading from the future” on the levels of Me, Team and the Organization
1.3 The Magic Triangle: Remember Why – What – How!
BACKLOG ITEM
How to align the organisation for change? The “Magic Triangle”
The third basic principle we call it the “Magic Triangle” of Why, What and How. It is key for rallying everybody behind the change and creating movement. But before we go into further detail, let us have a look at what might happen when people are not aligned:
“WE ARE ALL COMMITTED, AREN’T WE?”
When the new CEO of SolidCo started his job, the first signs of the emerging crises appeard. He felt the need to give direction to his people. So he invited the Top-50 of the company to a meeting at the corporate headquarter.
Leaders set in a big round, each hiding behind large desks with big piles of folders, a tablet and two mobiles each in front of them. Dark suits, white shirts and dark ties blended nicely with the dark brown wooden walls in the back. Then the CEO steped slowly in the middle of the room, the thick carpet preventing any faster movement. He started and gave a great encouraging speech, bringing in energy, emotions, painting a picture of the future, demanding hard efforts and the need to stay together and doing it together as a team. He even walked faster on the deep carpet and suddenly surprised his top team by taking his tie off during the speech. When he finished, he asked “Are we allinged? Are you committed to this? Is this our direction? Do we do this now?”
Silence entered the room. Some leaders sorted their papers and seemed to look up something more important while some others provided nods to show their support and agreement, others prefered to look down at their shoes. Nobody disagreed. The CEO thanked his top-team and went back to his chair, with a small smile on his face.
In the days after the meeting, I witness several conversations between top leaders. While they were not committed to the change, they were well aligned in their assessment: “Have you heard that crap? This will never work. He is a nerd. But do not worry. Maximum three more years and the next will come.”
Such a challenge can be tackled by the consistent use of the “Magic Triangle”. It sets the frame for the development of the concrete change programme and can also be used for communication purposes.
THE MAGIC TRIANGLE
The Magic Triangle is a guiding principle and tool which evolved out of our SolidCo Transformation. It works in any type of change setting – be it team development, company change or corporate transfromation. It is inspired by the idea of the Golden Circle of Sinek (2009). The Magic Triangle follows a simple principle: Successful change requires paralell development of the Why, the What and the How.
Figure 3: The Magic Triangle
The Why: Provide the purpose and desired outcome of the change: Why are we doing this and what do we want to achieve? Answering these key questions is essential before change starts. Having such a clear purpose serves two needs: In the first place it provides direction and gives an idea about a better future. Thinking about a better future stimulates the brain and reduces fear. Our brains get ready for openness, creativity and change. Secondly every employee now has the possibility to connect his/her own purpose with the change purpose, which can boost personal energy. However, watch out for pitfalls: A purpose is something bigger than only earning money. It should also connect to society and to our desires as human beings. And it must be meant seriously. Just making something up for communication will be already the end of the change endeavour before it really starts.
The What: What are the business issues that need to be improved and that help you reach the change? What is it in the business that you need to do in order to become high performing? These seem to be simple questions albeit very important ones. In the end every change is for the business. If the business does not improve, the change has not worked. Improving the “How” in our understanding is always a means for improving the “What”. We will use the term “What” in this book when we talk about the operational business of a company and its challenges and improvement chances. Connecting to the “What” is important for a second reason: Change only works when the “How” is being lived in the “What” (i.e., the employees apply the new behaviours and habits in their business – remember the principle “Leading from the Future”). It is for this reason that we will always choose the appropriate “What” challenge (e.g., a process, a project, a problem in the team work etc.) and start solving this challenge in the new, future way.
INSIGHT
Guide the change, provide direction and align people using the magic triangle: WHY, WHAT and HOW
The How: Give clarity on how we will be reaching the change. What are the behaviours that we want to build up and train in the future? What are the habits we want to overcome? How does our “North Star” regarding the culture look like (i.e., the “Future Picture” from principle “Leading from the Future”)? When we will be talking of the “How” in this book we will use the word in the meaning of the “Ways of Working” or the “Culture” of the organisation. And clarity about the “How” is the most important element for the success of the change! The “How” – or the Way of Working – drives Performance. Behaviour drives Performance!
In short: If you want to improve your business results work on improving your “How”!
From our experience, all three elements of the Magic Triangle always need to be in place to be successful! Without a clear purpose people will miss the direction and the inner connection to the change. Without working on What-challenges the new behaviours will never improve performance, get acceptance, and transform the company. Without the proper How the organisation will remain working the old way and no change will take place anyway.
Developing the How is of utmost importance
INSIGHT
The “How” (Culture, behaviours) drives performance and business success. Organisation behaviour drives business performance
The most comprehensive study on the superior relevance of the “How” comes from McKinsey & Company. Consultants Scott Keller and Bill Schaninger investigated the relationship between company performance and what they call Organisational Health – how effectively an organisation works together. According to their model Organisational Health can be described by nine Indicators which are driven by 37 Management Practices. The Organisational Health Indicator is a comprehensive measurement of behavioural patterns in the organisation respectively company culture. Over 15 years McKinsey used this model and collected five million data points from 2.000 companies globally. The result is impressive and clear. Companies with top quartile Management Practices show 3-times higher Total Shareholder Return and 2.5-times higher Return on Invested Capital than companies with bottom quartile Practices (Keller & Price, 2011 and Keller & Schaninger, 2019; see Figure 4).2
Figure 4: Healthy companies perform better
We have been using the Organisational Health model dozens of times on all levels of the organisation for many years and confirm its validity. Out of this practical evidence grew one core belief of Changeonomics: If you want to improve your business performance, work on improving your organisational behaviour.
BACKLOG ITEM
How does change at large scale work? Which elements are necessary?
All three basic principles which we just discussed are key elements for making change efforts a success. But how to apply them concretely? How to fill them with life? How to design and set-up a whole organisational transformation for success? How to sustain changes?
INSIGHT
For sustainable change to be successful it needs leadership (L), a systemic approach (A), resources (R) to drive the change and clarity about the desired impact (I)
There are a short answer and a long explanation to these questions. The short answer is the Change Formula. The long explanation can be found in the subsequent chapters of this book which refer to the elements of the Change Formula.
CHANGE FORMULA
The Change Formula (see Figure 5) describes in a simple way how complex change works: Leadership (L) times Approach (A) times Resources (R) equals Impact (I). You need strong leadership, a sound approach, and appropriate resources to achieve high impact.
Please note, that Leadership, Approach and Resources are not added up, but multiplied. If one of the factors is low, the Impact will be low as well. Even if you excel in two factors, you cannot overcompensate a missing key ingredient for change. If one element is missing – unfortunately – the Impact will be zero.
Figure 5: The Change Formula
The Change Formula is our “law” for change: It combines the key success factors of change with the outcome of change. It makes change understandable, measurable and manageable. Ultimately it helps to make change more effective and efficient.
INSIGHT
Leadership (L), Approach (A) and Resources (R) are multiplied – if one is missing the Impact (I) will be Zero
You can use the Change Formula at every state of the change journey. With the formula you can check for completeness when embarking on a new change journey, identify issues once you get stuck or distil learnings in retrospectives to improve for the next time.
Let us now take a first look at the elements of the Change Formula and let us see the connections to the basic principles just introduced. Later in this book we will deep dive into all four areas separately:
Leadership (L):
Leadership has an extremely important role in making change happen and sustaining it. Fundamental change needs to start at the top or it runs the risk of not starting at all. But even if you manage to start without the leaders, you cannot sustain change against them. Hence, in the leadership chapter we will explore in detail on how to get the leaders to start role modelling the change and become actively involved (“systems thinking” and “leading from the future”). We will discuss simple leadership concepts including seeing the system, using the power of emotions and mindfulness and we will explore how to overcome their own resistance to change. Having leaders who start is great, however, we need leadership that is starting in the same direction. In this context we will focus on ways to align the top leadership, building on different approaches to change, developing a future picture, rallying the company behind the future picture with a compelling story and how to start in groups that do not want to change (“The Magic Triangle”).
Approach (A):
The starting point of every transformation work is a proper understanding of the current situation, its real problems and root causes within the system (“systems thinking”). Based on such thorough analysis, the appropriate approach can be designed to overcome today’s challenges: What do the ways of working look like which will make us successful, and which will overcome the problems (“Leading from the Future”)? If the root-causes are not tackled and overcome with the appropriate ways of working, there will not be any sustainable impact! In this chapter we will deep dive into the development of the approach, starting with the diagnostic, developing the purpose and the objectives of the change (“Magic Triangle”), designing the future “How” in which today’s obstacles are overcome as well as the future “What”, clarifying the intended business improvements. We will look at appropriate tools to run interventions to get to the desired future, discuss different opportunities on how to roll-out the transformation and tackle the question of how to continuously improve the approach.
Resources (R):
If a transformation is to be sustainable, it needs capabilities being built up in the organisation; only when people have actively experienced and learned new ways of working is it possible to really do this every day – if I am lacking the capability to, e.g., run tools like a Performance Dialogue, a Root Cause Problem Solving Session or do Coaching – how should I live this on a day to day basis? It is impossible (“Leading from the Future”). Therefore, every capability building requires a core team of excellent “Change Experts”. In this chapter we will deep dive into the concrete role, competencies and characteristics of such “Change Experts”, share examples of how to build, organize, lead and ramp up a team of “Change Experts”, discuss development journeys and ways to scale up the transformation by systematically involving networks and spread the effort into the whole organisation (“Systems Thinking”).
Impact (I):
Every change transformation is always for a goal - create business impact! In this chapter we will discuss why measuring business outcomes is so important to drive personal, behavioural change (“Leading from the Future”). In order to sustain the change and ensure that the benefits of an engaged leadership, the right approach and great “Change Experts” really pay off, it is key to measure the “true” outcomes and to get the ambition right. For this we introduce four different outcomes to be measured and continuously improved:
Let us now start to deep dive into the four areas of Changeonomics. While all (!) are equally important for the sustainable success, we will start with the one which needs to go first: Leadership.
1 Laloux (2014) differentiates many diverse worldviews and respective organizational models which developed over the last 3,000 years. He calls the machine thinking “Orange” and describes it in the following way: “…Orange thinks of organizations as machines. (…) The engineering jargon we use to talk about organizations reveals how deeply (…) we hold this metaphor in the world today. We talk about units and layers, inputs and outputs, efficiency and effectiveness, pulling the lever and moving the needle, accelerating and hitting the brakes (…). Leaders and consultants design organizations. Humans are resources that must be carefully aligned on the chart, rather like cogs in a machine. Changes must be planned and mapped out in blueprints, then carefully implemented according to plan.” He finally comes to the conclusion: “Today, Orange is arguably the dominating worldview of most leaders in business and politics.” For further reading see also Beck / Cowan (1996).
2 Forsgren et al. (2018) have researched over 4 years which factors, capabilities and practices drive the success of companies developing and delivering software and come to the same conclusion: “We hypothesized that culture would predict both software delivery performance and organizational performance. (…) Both of these hypothesis proved to be true.” See also the empirical study conducted by Collins (2001): He and his research team identified 7 key drivers to differentiate good companies from great companies. 5 out of these 7 key drivers are topics of the “How” side – either leadership or cultural capabilities. Kotter and Heskett (1992) in their study over a 11 year period proofed that companies with great cultures and empowered managers and employees outperformed their peers by a factor of 4 regarding revenue growth and a factor of even 11 regarding share price development. See also the study by Sisodia et al (2007).
2LEADERSHIP
Figure 6: Leadership Backlog
