01 Jul 2002  Research & Ideas

What it Takes to Lead Through Turmoil

What are the characteristics of companies that successfully transition in times of dramatic change? HBS professor Rosabeth Moss Kanter separates the leaders from the laggards in times of turmoil.

 

When managers need help leading through turbulent times, Harvard Business School professor Rosabeth Moss Kanter suggests taking wisdom from the sayings of that expert on confusion, Yogi Berra.

"When you come to a fork in the road," Kanter quotes the former baseball catcher and master of malapropism as saying, "take it."

More than a funny Yogi-ism, the words suggest a fundamental truth for companies wanting not only to survive times of disruption, change, and surprise, but lead through it, Kanter suggests. Companies who do the best job embrace change, plan for change, and take advantage of change in fundamental ways.

In a presentation to an overflow crowd of HBS alumni, Kanter discussed the characteristics of companies that thrive with change and those that are swamped by it. She illustrated the talk with research and examples used in her recent book, Evolve! Succeeding in the Digital Culture of Tomorrow.

Denial

The "change journeys" of the leaders and laggards, which often come in three phases, could not be more different.

For laggards, that journey looks like this, Kanter said.

Companies ask me to talk to them about innovation, and the first thing they ask is, 'Who else is doing it?'
— Rosabeth Moss Kanter

First there is denial. The laggard sees the change—a disruptive technology, say—as temporary, choosing instead to believe the company is in a fine position when this thing blows over. There is arrogance from past success.

In addition, the company seems to need a "perfect certitude" of success before investing in something new, Kanter said. "Companies ask me to talk to them about innovation, and the first thing they ask is, 'Who else is doing it?'"

Anger and blame

Phase two for laggard performers, she continued, is the anger and blame stage. They are moving out of denial, but the corporate response emphasizes stopping "them" rather than innovating. Case in point: The U.S. auto industry. When threatened by superior Japanese imports, domestic automakers at first sought government tariffs rather than building a better car. When Amazon.com bested Barnes & Noble on the Internet, among B&N's responses was to sue Amazon, alleging fraudulent advertising.

Then the laggard company enters phase three: Cosmetic change.

Executives realize they must respond in some way, but the response is often superficial, like putting lipstick on a bulldog, says Kanter. "You've got something that's big and ugly, and you want to improve its appearance, show the world it's really different." The problem, she said, is that "you are not fooling anyone, and you're making the bulldog very angry."

When electronic component distributor Arrow decided it had to be on the Internet, it gave the Arrow.com team terrific new offices, hired young newcomers, and essentially sent a message to mainstay Arrow employees that they were now dinosaurs. But Arrow.com, which could not succeed without strong ties to the rest of the company, so angered Arrow's traditional salesforce that a wall had to be erected between the warring camps.

How leaders do it

For pace-setting companies, the three stages of response to change are much different.

In phase one, these leadership companies manifest not denial, but curiosity. The emphasis is on learning and discussion, less on making decisions. They set up executive programs, task teams, and scenario rehearsals, all with an eye toward evaluating the new environment.

In phase two, leaders question their own beliefs and assumptions about how they respond to change. The emphasis is on "us," not "them." At this point, the company's business model and organizational chart might be re-evaluated.

Kanter recalled the concept of "kaleidoscope thinking" she detailed in Evolve. Leaders look to shake up the patterns of their business and see how that can be reformed to take advantage of new opportunities. Pacesetters may reorganize frequently, she said, because "turf is the enemy of change."

In phase three, leaders are ready to respond and change, but change beyond the merely cosmetic. They encourage multiple projects and experiments throughout the company, pursuing systemic and lifestyle shifts that remake the fabric of the firm. Ideas for change and experimentation do not descend from the top down, but rather emerge from all levels of the company and flow upwards, in what Kanter called "strategy as improvisational theater."

When chief executive Scott McNealy decided to push Sun Microsystems beyond workstation sales and into service and other opportunities around the Internet, every department in the company came up with ideas of how they could capitalize on the new mission.

Management by IKIWISI

As McNealy recognized, pace-setting leaders might not know what the answers will be in the end, but they do need to recognize those answers when they emerge from others in the organization, Kanter said. In other words, "I'll know it when I see it."

During a question period, Kanter was asked whether individuals could make a difference in laggard companies. She said one effective strategy for individuals is to back initiatives inside the company—everything from guest speakers to building prototype products—which raise the general education level.

No bureaucracy is so stifling that people can't make changes, she said. "Realism is the new idealism."