Lessons in Strategic Change
October 16, 2014
The experience of others holds powerful lessons for managers who find themselves in similar circumstances. Filip Caeldries, professor of strategic management focuses in this contribution on the experience of 2 seasoned executives trying to turn around their respective organizations.
“Is there anything so wise as to learn from the experience of others” (Voltaire)
The experience of others holds powerful lessons for managers who find themselves in similar circumstances. In this contribution, I’d like to focus on the experience of 2 seasoned executives trying to turn around their respective organizations.
First, there is the story of Carlos Ghosn trying to turn things around at Nissan. Next there is Alan Mullaly who left Boeing to help restore Ford back to its former glory.
Their experiences hold important lessons in strategic change.
Carlos Ghosn at Nissan
Lesson learned: “The solution is always inside”
March 1999, Ghosn received a call from Louis Schweitzer – CEO of Renault – asking him if he would be willing to turn around Nissan. Both companies had just agreed to a major strategic alliance in which Renault would assume $5.4 billion of Nissan’s debt in return for a 36.6% equity stake in the company. At the time of the alliance, Nissan had been unprofitable for the previous 8 years. It was estimated that Nissan gave away $1,000 for every car it sold in the US. It had lost domestic market share for 27 years in a row. No Japanese bank wanted to lend any money to Nissan. How to get Nissan back on track?
Over the years, Carlos Ghosn has reflected extensively on the turnaround he was able to establish at Nissan (e.g. Ghosn, 2002). More recently, in an interview at Stanford Business School (2014), Ghosn expanded on some of the key success factors in completing the Nissan turnaround.
In one of the most interesting parts of the interview, Ghosn explains how he developed the solution to the Nissan problem. Contrary to common practice, Ghosn explicitly did not want external consultants (not even Renault people) to get involved in the turnaround process.
Here’s what he had to say about this (Ghosn, 2014).
“When you want to turn around a company, you want to make sure that the solution is coming from inside. […] At the end of the day, everything is about execution and when it comes to execution, you want people to buy in and people will never buy in as much as when it is their plan”.
“I wanted it to be a Nissan plan made by Nissan people”.
“Maybe (emphasis) an outside plan would have been better. But when it came to execution, it could not have been better because I had 100% buy in”.
“My experience shows me that you don’t need to look for the solution outside. It’s inside. The solution is always inside. You just need to look for it.”
“The best way to look for it is interview as many people as possible, particularly in critical process areas”.
“By listening to people, the solution becomes very clear”.
“Interviewing, asking questions and then it’s going to be very clear”.
Ghosn’s experience is – perhaps surprisingly – optimistic. Let’s face it, organizations are not stupid. Most often they know exactly what the solution is. Somebody somewhere in the organization knows exactly what needs to be done to make the organization successful again. If we ask, if we keep looking, very often we’re going to find the solution.
Consequently, a key characteristic of good strategic leadership is to create an organizational architecture where the gap between information and decision-making authority is minimized. This requires two things.
First, senior management needs to listen. Senior management needs to seek out the information which is already inside the organization.
In the words of Andy Grove (Intel): “We need to expose ourselves to lower-level employees, who, when encouraged, will tell us a lot that we need to know” (Grove, 1996, p, 23). While most organizations function well with some sort of hierarchical structure, it is imperative that communication flows escape the straight jacket of this hierarchy.
Second, senior management needs to create a climate, a culture where employees feel empowered to assume responsibility for the future well-being of their organization.
Given the opportunity, given a supportive organizational climate, our employees will often surprise us.
Alan Mulally at Ford.
Lesson learned: “Creating a safe environment to have an honest dialogue”
Pre-Mulally, the truth came in many different flavors. Different numbers were used for different audiences. Internal meetings were ‘scenes of mortal combat’ (Hoffman, 2012). Executives would enter into a meeting looking for the weak points in the other’s arguments. Clearly, the prevailing adversarial culture made it virtually impossible to have an honest debate about the many challenges confronting the company.
That soon changed when Mulally introduced his Thursday 7:00 am Business Plan Review (BPR) meetings. In these 2 hours meetings, every executive was required to provide a comprehensive update on the status of his/her division or department. In the BPR meetings, the data was presented using a color-coded scheme. Anything that was on plan was green. Anything that was off plan was red. Things that were in danger of becoming red were highlighted in yellow.
All issues identified in the BPR meetings were to be followed up in a ‘Special Attention Review’ session.
According to Mulally, it’s extremely important to create a culture of psychological safety. It is only in a safe environment that people can have an honest dialogue. And brutal honesty is needed especially when things go wrong.
In the BPR meetings, data and problems are being discussed and shared without blame, personal attacks or recrimination. Argues Mulally: “So-and-so has a problem. He’s not the problem” (Hoffman, 2012).
When Mulally joined Ford in 2006, the first financial forecast he saw was for a loss of $17 billion. Remember the color-coded scheme? Interestingly, when Mulally ran his first BPR meetings, all 300+ charts were colored green!
Asked Mulally: “Guys, we all know we’re going to lose $17 billion this year. Is there anything that is not going well?” (Mulally, 2012). Very early on, he realized that he would be unable to turn around Ford if he would not be able to break through the culture where people were afraid to share how things really were.
Soon after a couple of ‘all green’ BPR meetings, Mark Field (the current CEO of Ford), had a problem with the launch of the new Ford Edge. Instead of hiding the problem, Field decided to show a red chart for the Edge.
Here’s how Mulally reflects on this episode.
“Silence. Eyes on the floor. Then I started to clap. And I could just see it in their eyes. That’s the sign. The doors are going to open up. Big guys are going to come in and … Mark is gone.”
“I clapped and I said: ‘Mark that is great. What can we do to help you?’ 12 seconds later we knew how we were going to resolve this issue”.
“The next week was the most exhilarating, the most exciting of my time at Ford because the entire set of charts looked like a rainbow. Now everybody knew why we were losing $17 billion”.
“That was the breakthrough we had to make. You could trust the process. It was safe. You were accountable because we were going to see each other each week. Now we could start to help each other and eliminate all the reds [in the charts]”. (Mulally, 2012)
Again, Mulally’s experience sends an optimistic message. When leadership succeeds in creating a culture of psychological safety, problems get surfaced. And once problems are out in the open, they can be addressed. Let’s be honest, you simply cannot manage a secret.
Constructively debating tough issues and challenges is only possible when people can freely speak their mind, without fear of punishment, when there is a high level of psychological safety.
However, creating and maintaining a culture like that is hard work. “It requires living this culture, promoting constant collaborative exchanges between holders of knowledge power and the holders of organizational power to create the best solutions in the interest of both” (Grove, 1996, p. 120).
It probably takes many years of consistent behavior to establish such a culture. However, Mulally’s experience shows the intrinsic power of such a culture. In 2009, the company was heading for bankruptcy. At the time of his retirement (July 1, 2014), Mulally had transformed an industry laggard into one of the most successful carmakers in the world. The board’s decision to appoint a successor from within is widely seen as an explicit attempt to preserve the “working together” culture created by Mulally.
Ghosn, C. (2002), “Saving the Business Without Losing the Company”, Harvard Business Review, Vol. 80, No. 1, pp. 37-45.
Ghosn, C. (2014), Youtube
Grove, A.S. (1996), Only the Paranoid Survive, Currency/Doubleday, New York.
Hoffman, B. G. (2012), “Saving an iconic brand: Five ways Alan Mulally changed Ford’s culture”, http://www.fastcocreate.com/1680075/saving-an-iconic-brand-five-ways-alan-mulally-changed-ford-s-culture
Mulally, A. (2012), http://www.morganstanley.com/views/ceo-ceo/archive/mulally/index.html