12 Apr 2004  Research & Ideas

Waking Up a Sleeping Company

What do you do when you’re the new CEO and your employees tell you, "But that’s the way we’ve always done it"? An excerpt from Bill George’s new book, Authentic Leadership.

 

One of the greatest challenges for the values-centered culture is to produce top performance and succeed in the market against "win at any cost" competitors. Values are only one part of an organization's culture; the other half is its operating norms—the way in which day-to-day business is conducted. Practicing solid values does not guarantee results unless a passionate commitment to performance standards is incorporated into the organization's norms.

The question is, Do the organization's norms drive performance or do they undermine it? The latter is what I found at Medtronic when I joined the company. The company's long history of success had led to a soft underbelly that manifested itself in a lack of discipline. The company was extremely values-centered, but its internal norms of consensus decision making, conflict avoidance, and lack of personal accountability all undermined the company's performance. For all its strengths, it was my impression that Medtronic's culture was too Minnesota Nice. I realized that these aspects of Medtronic's culture had to change if we were going to be an effective competitor and realize our vision of being the global leader in medical technology.

The challenge we faced was changing a successful culture without diminishing its positive attributes. Cultural change is never an easy task, and far more cultural change efforts ultimately fail than succeed. Transforming a healthy culture is even more difficult than changing an unhealthy one. Many people will not understand why change is necessary when the company has been successful. The leader has to be patient, communicative, and diligent in insisting on changes at all levels, or the organization—like the proverbial willow tree—will snap back to its previous mode of operation as soon as the pressure is off.

In Medtronic's case the challenge was especially acute because the company had such a positive culture and strong set of values. As the newcomer leading these changes, I recognized that many people in the organization, especially those who had spent their entire careers at Medtronic, would feel uncomfortable with the changes I was proposing. Many of our leaders seemed quite comfortable with the culture just the way it was.

To link the cultural changes to our mission, I framed them in terms of helping patients and winning in the marketplace. In truth, we had no choice but to make the Medtronic culture more performance-oriented if we were going to fulfill our mission. Otherwise, we would lose out to more aggressive competitors and never earn the right to serve those patients.

... the organization often rewarded loyalty instead of performance.

In addressing the issue of Medtronic's performance standards, I found that goals and deadlines were routinely set, missed, and then simply adjusted. Poor performance was rationalized by excuses. Even incentive payments were adjusted upward to reflect these excuses. As a result, sales targets were missed, new products delayed, expense budgets overrun, all with no direct consequences for the individuals in charge. The organization tended to diffuse responsibility for performance, making it difficult to find out who was responsible. When individuals failed, they were rarely removed from their jobs. Instead, others shielded them from responsibility.

The lack of performance standards related directly to the organization's inability to deal with conflict. Many managers could not abide open conflict in meetings. Disagreements over issues were frequently interpreted as personal attacks. Many people believed it was obligatory that everyone agree before a decision was taken, not just have their point of view heard. As a consequence, decisions were not taken in a timely manner, and conflicts were dealt with indirectly.

To address these issues, we installed a system of closed-loop performance management. In the future, we had to agree on very challenging goals and hold people to their commitments, making schedules, managing within budgets, and achieving sales and profit goals. Surprising as it may seem, this had not been done before. This meant changing attitudes of key people in the organization, raising the performance standards, and replacing those managers who weren't prepared to measure up. This took several years and a number of managerial changes. Eventually, most people realized how important these cultural improvements were to the company's success and embraced them enthusiastically.

Raising the bar

Medtronic has always had dedicated employees, but the organization often rewarded loyalty instead of performance. Whereas the quality of the first-line employees was exceptional, serious gaps in management capability developed over the years. Many managers were unable to grow at the rate of expansion of the business; their jobs expanded, but their work habits remained the same.

These characteristics, residing deep in the culture, affected customer responsiveness, fiscal discipline, quality of managers, and interpersonal interactions. Unless we changed, Medtronic could not be an effective competitor.

Often growth organizations fail to take a tough-minded approach in assessing their management talent. They limit their future growth by failing to have the depth and breadth of talent required to take advantage of opportunities. Eventually, these organizations lose their competitive edge. A good example is Apple Computer. During the 1980s Apple experienced explosive growth, thanks to the success of the Macintosh computer, but was unable to build its management rapidly enough to keep up. As a result, the company turned to a series of outsiders to fill the ranks of its management, none of whom seemed to understand the computer business or Apple's unique culture. In spite of its ongoing innovations, Apple has never been able to arrest its steady loss of market share.

Creating the cultural changes

In transforming Medtronic's culture, we decided not to hire cultural change consultants. Instead, I modeled constructive conflict myself by creating a more challenging atmosphere in our executive meetings. This meant asking probing questions, insisting that managers present each situation in objective terms rather than sugarcoating things with a positive spin designed solely to garner approval. I had learned from my days in the Defense Department during the Vietnam War the perils of well-rehearsed, positive presentations that avoid the essential realities.

My approach led to criticism from some managers. They saw me as too aggressive, too challenging, and too involved in their businesses. After one such session, a senior manager asked, "Is there anything you won't get involved in?" I felt I had to get deep into the businesses to create the necessary changes in behavior. Creating a more challenging environment was natural for me and fit my leadership style. However, it was far less comfortable for managers who were unaccustomed to being questioned.

In those days I talked a great deal about empowerment. One day a mid-level manager confronted me, saying it was not very empowering for me to challenge his plans. Several weeks later he came back to me and said, "Now we understand you better. When you talk about empowerment, you really mean 'empowerment with responsibility.'" To which I responded, "Is there any other kind?"

In an organization that has a strong culture and a history of success, the pressure to maintain the existing culture and adopt your predecessor's style can be irresistible. But as Jack Welch recognized when he became CEO of GE, it is often necessary to evolve a successful company's culture to prepare for a more challenging environment. That does not have to be at the expense of its values. As this story illustrates, it is possible to bring your own personality to the leadership post and still be true to the company's history and ideals.

The extraordinary results achieved by Medtronic in the past fifteen years shows that an organization can be both values-centered and performance-driven. The key is aligning the organization's values and performance objectives. Working in complementary fashion, practicing values and driving for performance reinforce each other and enable the creation of a great company.

Excerpted with permission of the author from Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value. Published by Jossey-Bass. Copyright © 2003 by William George. All rights reserved.

[ Buy this book ]