A Transformation at Dow | Culture Makes Change Stick | 5 Ways to Sustain Strategy

Sustaining Changewww.watercoolernewsletter.com

volume 5 issue 6 july/august 2011

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Strategy Consultant

By Annika Olson, Principal, Cambridge Group

Many organizations put significant effort into their strategy development process, only to be disappointed with the results down the road. Getting an organization to implement strategic change is hard – sustaining that change is even harder. Several principles can increase the chances

of success in activating and sustaining your strategy.

Building Sustainability into Your Strategy Business leaders often confront the challenge of how to sustain their strategy when they are several months into the implementation

process. In fact, that question should be asked at the start of the strategy development. A strategy that is fact-based, anticipates changes in the market, and appropriately stretches the organization is much more likely to be sustained.

Being market- or demand-driven is increasingly important for competing in today’s environment. In most categories, supply exceeds demand. Consumers have more choices than ever before and more information to help them make decisions. Companies that win are those who analyze the marketplace to determine which consumers are most profitable for them to serve, deeply understand the demand of those consumers, satisfy that demand in a differentiated manner, and align their entire organization against those priorities. Having a fact base to precisely define these priorities leads to a highly actionable and effective strategic plan.

To be anticipatory, it is important to understand and build strategies around the latent and emerging demand of target consumers, not just their current demand. Current demand is what consumers can articulate today. Companies typically know these expressed needs – and so do their competitors. A key to success is to discover the unarticulated or latent needs of consumers and develop hypotheses about future demand. There are several techniques that companies can employ to anticipate demand. These include analysis of macro-economic trends, consumer trends (e.g., lifestyle, work style, fads, demographics), analogous categories, and Internet buzz. These techniques ensure that your strategy is not only

ustaining S trategy

Sustainability

Strategy

InnovationEvents

ProductsProcess

Marketing

Sustaining Change2

Case Study

George J. Biltz, Corporate Vice President The Dow Chemical Company andVice President, Energy & Climate Change

In 2009, Dow embarked on a transformation of our company.  At the core of the transformation was a new business model and strategy, which had been in development and execution for several years.

Increasingly, it was clear that transformation was necessary, as the old ways of working no longer fit the new realities. A confluence of external factors was fundamentally changing the rules of the game. The most critical change was that oil producers wanted to move downstream into the space that Dow had been leading. For years, Dow’s technology leadership and global scale had made us a market leader. However, the entrance of new players who held price-advantaged raw materials (oil) created a gap that could never be bridged with economies of scale alone.

The market was volatile, earnings performance was cyclical, and margins were declining.  In fact, our CEO noted that our gross margins had seen steep declines in many product areas in the previous 15 to 20 years.  His call to action was simple and direct: “We must change.  We no longer have a choice.”

From Product to Solution Focus To return consistent shareholder value and generate sustainable long-term growth, we needed to move the business into “economies of skill” while maintaining our “economies of scale.” We needed to move from a product space to a solution space, heightening our focus on technology to achieve market differentiation.

We recognized the need for a significant shift in how we thought about and operated our business.

Key elements of our strategy included:

• Thoughtfully and strategically divesting our non-strategic, commoditized businesses.

• Acquiring new businesses that would enable us to quickly grow our position as a solution-based company.

• Transforming our business model across the company from one that too often was internally focused and took a one-size-fits-all approach to a customer-centric, high-value solution business companywide.

Leadership began to communicate the story – the need for change and the strategic roadmap that would move Dow forward. However, transforming a multi-billion-dollar global company with approximately 50,000 employees is not a simple process. Questions we heard included: Do we really need to change? How will this affect me? How can I contribute?

Transforming for the New Game of Business

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So we approached the change through a three-step process:

1. Refine and align: Create buy-in and define the story at the senior leadership level.

2. Launch and deploy: Engage a broader group of leader-ship and broadly share the story.

3. Sustain and execute: Drive the change deep into the organization to become “the way we do things at Dow” (internalization at an individual and team level).

The Overall Approach The process began with engagement of Dow’s senior leader-ship. Without their ideas, support, and commitment, the transformation, strategy, and new business model would all be in peril. The senior team met for a three-day workshop. If we were going to roll out a roadmap for change, we all needed to be on the same road! The result was broad-based buy-in from leadership on the urgency of change, our business model and strategy, and the operationalization of the strategy.

Root Learning worked with us during the transformation process, first by providing the tools that helped our leaders grapple with these strategic issues as a team and refine our plan of action. Our steering committee and Project Manage-ment Office for Transformation laid out the journey. Root was a “third party” for facilitating dialogue, and they created an environment where people felt that their opinions truly mattered.

As we identified where gaps and inconsistencies existed, we built a coalition of thought leaders by engaging Dow’s Global Leadership Team (GLT), which included Dow’s top 250 lead-ers. As the transformation progressed, we identified trans-formative best practices and processes as examples of how we would operate across the company in the future. We continue to identify new ways to enable growth and innova-tion on a regular basis.

In the next phase of this transformational process, we defined six areas for further exploration. Each represented a key area of implementation concern identified by the top 250 leaders

in the earlier session. The GLT held workshops to identify best practices and examples of where the transformation had taken hold. They explored these examples in depth and then discussed how to accelerate, expand, and scale early success-es. This was the moment that took the transformation from pockets of “heroic efforts” to “everyone, each day.”

From Cynicism to Advocacy This process took the broad leadership group on a journey from cynicism and skepticism to hope and advocacy.

By all measures, Dow is a company on the move. We weathered the 2008-2009 economic downturn and have come back stronger than ever. Today, we are positioned to deliver growth well beyond the industry norm. Fortune magazine recognized Dow as one of the “10 Best Stocks for 2011.” Our gross margins have significantly improved, our long-term debt has decreased dramatically, and our performance-based busi-nesses are growing rapidly.

We are most proud of the fact that we are succeeding in changing Dow’s culture, a change that we believe will have a lasting impact for decades to come. We know that Dow is changing by our conversations – how we think, what we ask about, and what we are tracking to gauge progress. Our lead-ers are leading – they are not waiting for someone else to go first. They are demonstrating, every day, the change they expect to see in others.

George Biltz is corporate vice president of The Dow Chemical Company and vice president, Energy & Climate Change. In this role, Biltz is ac-countable for delivering Energy business profitability, power production at the 13 Company-operated power plants, as well as steam and utilities and energy service to more than 120 manufacturing facilities globally. In addition, he is accountable for the Company’s energy conservation and greenhouse gas emission reduction efforts, including implementation of clean energy solutions at operating sites around the world.

The Transformation evolved from “heroic efforts” to “everyone,

each day.”

Sustaining Change4

Tradition is a powerful force. Leaps into the future can easily slide back into the past. We keep a change in place by helping to create a new, supportive, and sufficiently strong organizational culture that provides roots for the new ways of operating. It keeps the revolutionary technology, the globalized organization, the innovative strategy, or the efficient processes working to make you a winner.

Successful change is more fragile than we think. Making change stick can be difficult in any sphere of life, and if this challenge is not well met at the end of a large-scale change process, enormous effort can be wasted.

Acting Without Thinking Change is often held in place solely by a team, a structure, or even initial enthusiasm over the results created by the change. However, in large-scale efforts, the gravity is the traditional organizational culture. And the keys are peers – that is, group

activity – and not really thinking, which means behavior with roots deeper than rational thought.

All the time, we see evidence of culture and its power. In res-taurants, we use a napkin instead of wiping our hands on the tablecloth. Do we rationally calculate that napkins are good for us because they keep grease off our clothing? We don’t, because using napkins is a habit and, more important, part of our culture. At work, if we showed up naked, we would get a cultural backlash from everyone, even though there is prob-ably nothing in the HR guidelines that forbids the lack of clothing.

So, in large-scale change efforts, we use the power of culture to help make a transformation stick. This is extremely difficult because, most of the time, creating a new norm means that you need to change old ones that are deeply embedded. Yet in another sense, creating a new culture is easy because it

Is the Keyto Making Change Stick

Culture

Business Wisdom

Excerpted from The Heart of Change, by John P. Kotter and Dan S. Cohen

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happens naturally as long as there is continuity of behavior and success over a sufficient period of time. That’s just the way culture is.

Dealing with a Changing Culture Sometimes when leaders depart, they leave shared values that are cement-like, so when the world changes, the organization has great difficulty adjusting. But the problem we face today is usually the opposite. Employee turnover, business pressures, and disruptive crises undermine fragile cultures, never allowing them to grow sufficient roots. When people who strongly exemplify a new culture leave, that culture can go out the door with them. When people are brought into an organization, they bring different cultures. In either case, a new way of operating can remain fragile or can degenerate unless specific actions are taken to deal with the problem.

By putting people who have absorbed a new culture into positions of power, you create an increasingly solid and stable foundation. Promotions into senior leadership roles help the most because of the power and visibility of those positions. A cycle can develop. A stronger norm of making the right kind of promotion decision leads to better (and very visible) advancement choices, which leads to those who embrace the new culture feeling more empowered, which leads to more of the right kind of behavior, which leads to continuing or better business success, which leads to a more ingrained set of new norms, and so on.

A Surprising Order To avoid mistakes, it is essential to understand a fun-damental and widely misunderstood aspect of orga-nizational change. In a change effort, culture comes last, not first. A culture truly changes only when a new way of operating has been shown to succeed over time. Enterprises often try to shift culture first. The logic is straightforward – if the culture is

inward-looking, risk-averse, and slow, we’ll change that first.

Then, nearly any new vision can be imple-

mented more easily. Sounds reasonable, but it doesn’t work that way. The vision can talk of a new culture. You can cre-ate new behaviors that reflect a desired

culture. But those new behaviors will not become norms, will not take hold, until the

very end of the process.

This isn’t rocket science. Once you see what works, once you have an optimistic sense that you can help cre-ate a better organization, it’s amazing what can happen.

John P. Kotter is a world-renowned expert on leadership at the Harvard Business School and the founder of Kotter International, a change company that helps leaders build the capacity to drive transformation in their organizations. He is also the author of Leading Change. Dan S. Cohen is founder of Stuart Advisory Services Group, LLC, which assists organizations in achieving lasting value from their change efforts. This excerpt is used by permission of the authors.

In a change effort, culture comes last,

not first.

Sustaining Change6

Try This With Your Team!

The Upstream Struggle to Sustaining ChangeWhen a change is launched, many companies find it hard to make it stick.  People run the entire spectrum from hiding to supporting the change, and the result can look like this picture!  If this seems familiar, discuss these questions with your team.

1. The Currents of Change in the river are intimidating!  It’s easy to see why the people in the Safety Tree are ambivalent or even fearful of the change.  Describe the tree-dwellers and read their quotes.

2. Have people reacted like this when your company has initiated a big change?  What did you do to get them out of the tree and into the river?

3. At the lower left, we see the Whirlpool of the Here and Now.  What does this image mean? Does this resonate with us?

4. The man labeled Advocate is ready to take the chance.  What will he have to do to get people in the boat with him?

5. The people in the river are trying to reach the Sea of Sustaining at the upper right.  Read the labels and quotes.  Do they sound familiar?

6. Examples would really help these people, but look at the person holding the Strategic Plan.  Read her quote.  What’s the problem here?

7. As the people in the river head through the rapids, they pass Accountability Docks, but no leaders are there.  What does this represent?

8. How effective is our organization at holding people accountable for delivering on the strategic milestones?  How has this impacted our ability to sustain strategy?

9. The three animals at the upper right seem to be the only ones who can see the whole picture.  Read their quotes.

10. Why do people struggle to see the bigger picture of sustaining your strategy?

11. Based on the Five Essential Elements for Sustaining a Strategy (page 10), what would help these people reach the Sea of Sustaining without further pain?

12. How can you use the Five Elements to help sustain strategy in your company?

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8

Industry Perspective

By Jim Haudan, Chief Executive Offi cer

and Don MacLean, Managing Director

Root Learning

Getting a strategy on paper is often the easy job. Getting a company of people to act on it is a much tougher job. The toughest job of all, however, may be sustaining that strategy once it’s been launched.

There’s a huge temptation to abandon the new, uncomfortable, and unknown associated with executing change for well-established, comfortable, and known strategic actions. People say that, if you speak fi ve languages and hit your thumb with a hammer, you will swear in your native language. The obvious point is that under stress or duress, we go back to what we know best.

We’ve found that the probability of sustained execution of strategy goes up signifi cantly when you use fi ve key insights and best practices.

“From victim to advocate” mentality. The feelings of people along this spectrum begin with victimization and proceed through abdication, tolerance, exploration, intrigue, hope, and confi dence, until people reach a state of advocacy. We’ve watched people go through this spectrum and have seen how it drives sustained execution. To move people from victim to advocate requires immersion

in the struggle, envisioning new and better ways to do things, and being vested in seeing it through. This takes courage! Leaders need to answer this question: “What conditions do I have to create to move people from being detached and critical of this strategy to being willing to actually advocate for it when no one is watching?”

It’s a matter of allowing people to pressure-test the intellectual strength of the strategy and develop an emotional connection.

Execution results = intellectual confi dence X emotional connection

of people

The intellectual confi dence comes from asking critical questions, and the emotional connection of ownership develops when you’re a member of the team that is solving these questions.

“Feet to the fi re,” or public accountability. Change leaders must create a public forum where leaders simply can’t show up unless they can showcase the changes, practices, habits, and behaviors that show the early wins of the new strategy. Most

FIVE Essential Elements

For Keeping a Strategy Alive

9

people often deliver on the new actions because they’re more worried about not having something to say than how well they’re effectively focusing on the future of the business! The fear of public embarrassment is a powerful motivator to push the strategic change levers after the launch. Putting public strategic change events on the calendar, similar to strategy review sessions, enhances a discipline of sustaining execution practices.

Examples, examples, examples. When you’ve laid out a strategy for major change, people need to know “what it will look like if we are doing what we say we want to do.” The more we can make the examples real, the more people will understand how the change could translate into what they could do – and especially do differently! Offer a combination of examples so people know what the strategy “looks like” in full swing. Give examples of great wins, as well as things that didn’t quite measure up but where lessons were learned and the failure represented the ingredients of future success.

Change the behaviors. It’s not easy to change behavior. Studies show that 90% of people who have serious heart issues don’t change their lifestyles to maintain their health after two years. If people can choose at a 90% level not to change enough to save their lives, how can we get people in business to change their business behaviors?

Behavior change happens most successfully by speaking to people’s feelings, not their intellect. Cognitive scientist Howard Gardner tells us that to make people change behaviors, the change story must be:

• Simple,• Easy to identify with,• Emotionally resonant, and• Evocative of positive experiences.

Healthcare workers who deal with the heart patients we mentioned fi nd that the key to changing behavior is motivating them not with the fear of death, but with the joy of living.

New standards that become personal contracts. We are seeing more companies sustain change by instituting new standards for everyone to follow. This includes behavioral ground rules and new operational standards that become non-negotiable and are shared by all.

When people adopt new standards, they make actual commitments to each other. In the best organizations, they become operational, with behavioral contracts between people who don’t want to let each other down. In his new book, War (Twelve, 2010), Sebastian Junger tells countless stories of soldiers – young men who come from totally different backgrounds, who don’t like each others’ hairstyles, who back at home would be on opposite sides of a street fi ght – but who would give up their lives for the others in armed combat.

It’s that fundamental issue – the personal contract – that links co-ownership of survival or success. Within an organization, this translates into two units that hold each other to a behavioral standard – not because they’re trying to outdo them but because they want the performance of the whole company to work. Each team makes decisions based on what is best for the group.

So, yes, sustaining a strategy isn’t easy, but it’s possible with these fi ve elements. However, if you’re missing even one of these, sustainment will very likely be as elusive for you as it is for most companies.

Behavior change happens most successfully by speaking to people’s feelings, not their

intellect.

Sustaining Change10

Outside Expert

By Professor Malcolm Higgs, University of Southampton School of Management

Clearly, one of the biggest challenges facing organizations today is implementing change effectively. However, it’s widely accepted that only 30% of changes are successful. We know that change implementation is one of the most important roles of leadership, so the combination of these two points suggests that we should question what we’ve learned about leadership in wrestling with the challenges of change.

A widely accepted mindset is based on two assumptions: that behavior and changes in behavior can be planned and

LEADINGChange Successfully

that processes can be consistent and controlled. These assumptions point to a leader-centric approach. But research on change failure shows that little emphasis is placed on the importance of the change leaders’ role, while a major cause of change failure can be attributed to the failure of leaders.

Perhaps this is because typical leadership development builds leaders’ capability to solve problems – not on their ability to deal with ambiguity, paradoxes, and dilemmas. Yet these are exactly the things that are central to the process of change.

Change Leadership Behaviors I recently collaborated in an international research study to explore the question, “What makes change work?” Thirty leaders in 30 organizations were asked to tell their stories about both successful and unsuccessful changes. After analyzing 70 such stories, we identified four leadership behavior types, which we then related to the relative success of the change initiatives.

The Attractor Type

• Connects emotionally; embodies the future intent of the organization.

• Sees reality; connects patterns to a wider movement to create a compelling story.

• Sets the context of how things fit together, working the story into the organization so every decision “makes sense.”

• Works beyond personal ambition for a higher purpose – the organization and community.

• Adapts leadership skills to fit a specific purpose.

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The Edge-and-Tension Type

• “Tells it like it is” – describes reality with respect but without compromise.

• Is constant in turbulent times; doesn’t hide from tough stuff; keeps people’s feet to the fire.

• Calls out assumptions; creates discomfort by challenging paradigms and disrupting habitual ways of doing things.

• Sets the bar high and keeps it there; stretches goals and limits.

• Doesn’t compromise on talent; pays attention to getting and keeping top talent.

The Container Type

• Sets boundaries and rules so people know expectations of the work as well as values and behaviors.

• Is self-assured and takes a stand; shows confidence in challenging conditions.

• Provides encouraging signals; creates ownership, trust, and confidence.

• Makes it safe to say risky things and have “hard conversations” via empathy and high-quality dialogue skills.

• Creates alignment at the top to ensure consistency and constancy of approach.

The Creates-Movement Type

• Builds trust so the organization can go to new places and act differently.

• Frees people to new possibilities by being vulnerable and open.

• Understands what is happening in the moment; breaks established patterns to create movement in the “here and now.”

• Powerfully inquires into systemic issues to enable deep change.

• Creates time and space for transformational encounters.

Results of our study revealed that the combination of these practices explained around 50% of the variance in change success. We also found that traditional leader-centric behaviors (problem-solving, etc.) were associated with failed change attempts. Therefore, we should be training leaders to practice all these behaviors to succeed in leading change.

Much of what we “know” about effective leadership could actually be inhibiting our ability to make change happen. If our study results are supported by others, we need to learn how to develop leaders who can make change happen effectively. Perhaps it’s time to forget what we think we know about leadership and explore its nature in a new way. Of the many leaders we can look to as good examples, Gandhi comes closest to expressing how we now need to think: The most powerful legacy in life is to enable others, to let them be the best they can be.

The overall conclusion may be, “To make change happen successfully, lead less and change more.”

This study was led by Malcolm Higgs, professor at University of Southampton School of Management and Transcend Consulting. To learn more about this research and guidance on developing effective practices, see Sustaining Change: Leadership that Works by Deborah Rowland and Malcolm Higgs (Jossey Bass, 2008).

Sustaining Change12

Developing a Growth Mindset in Your People

A growth mindset is an important condition for change. People with fixed mindsets see their capabilities as unchangeable, natural talents that can’t be developed. Those with growth mindsets view their capabilities as a potential to be developed.

Research shows that people with a fixed mindset develop a focus on proving that they have this capability rather than on the process of learning. People with a growth mindset, on the other hand, develop a tendency to put effort into learning strategies that improve learning and long-term performance.

In studies, it’s proven that people with a growth mindset were more effective in their work in several ways.

• They became more open for feedback and criticism.

• They became more effective in solving difficult problems by putting in more effort and by searching for more effective approaches.

• Those who were managers became more effective in coaching.

A Little Knowledge

By Dr. Coert Visser, MMC

People can learn to have a growth mindset if they:

• Are trained in and informed about the growth mindset.

• Feel they can perform and control the behavior.

• Have a positive attitude about the behavior.

• Know that a growth mindset is expected and supported in the organization.

If organizations can build a culture where a growth mindset is the normal way of thinking, there are benefits for individuals and the organization as a whole. A growth mindset culture encourages cooperation, openness, and an emphasis on learn-ing. The choice seems easy.

Coert Visser is a psychologist, author, and expert on the Solution-Focused approach to coaching and change. His www.solution-focusedchange.blogspot.com has become a trusted source of reference regarding cutting-edge psychological research which is relevant to solution-focused practitioners, coaches, and consultants.

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built on what consumers demand next year, but lays the foundation for what they are likely to demand in three and five years.

Setting the appropriate goals is another essential component of a sustainable strategy. Goals that are too closed-in will fail to inspire change within an organization; goals that are too lofty will cause employees to disengage. The strategic plan should stretch the company to heights that employees believe are achievable. Demonstrating the path to success and everyone’s role in that process is important to inspiring the organization. Having a mental model helps everyone understand the strategy and guides their individual actions.

The Importance of a Mental Model Successful companies have a plan for winning and regularly revisit it. Great companies align their internal operations

to be in total support of the plan and regularly communicate that message to their employees.

A mental model is the same picture in every employee’s mind of how their company is going to compete and win – and their own role within that plan. It simplifies a potentially complicated strategy, allowing everyone in the organization to internalize the strategy and be guided by it. It enables managers and employees to independently make critical decisions on a daily basis that are aligned with the strategy. Without a strong mental model, strategy can become open to interpretation.

For a company’s mental model to work, senior leaders need to make sure that all functional heads understand its key messages and that the messages are conveyed to department heads and down through the organization.

Developing a Winning Attitude Successful organizations are often described as having a winning attitude

or culture of success. The mental model supported by a strategic fact base creates comfort for employees because

they understand the larger picture and their important role within it. From that comfort springs confidence, which is the hallmark of high-performing employees and winning companies. That confidence encourages employees to commit, work hard, persevere when challenges are encountered, and take appropriate risks when faced with uncertainty. It engenders a positive work environment and productive behaviors, including fact-based decision making, collaboration, and continuous improvement.

Strategy is a Process, Not an Event Last, it is important to recognize

that strategy is a continuous process, not a periodic event. Too often, companies put significant effort into creating a strategic plan only to have it sit on the shelf and revert back to business as usual. To establish early momentum, it is also important to identify a manageable number of specific initiatives to activate the strategy with clear objectives, action steps, and roles and responsibilities. Detail what needs to happen in the first 90 days, and look for early wins. A Program Management Office can help sustain the momentum by tracking initiatives and ensuring that sufficient resources (talent, headcount, and funding) are applied to the new strategy.

For a strategy to be sustained, it must also be updated to stay current with the dynamic business and economic environment. Business leaders must revisit their strategic fact base to understand how demand and corresponding opportunities have evolved. While you don’t want to change course too dramatically and too often, you must stay flexible to adjust as the market requires.

Annika Olson is a Principal with The Cambridge Group. She focuses on developing demand-driven growth strategies, including portfolio strategies, brand strategies, and innovation. She has assisted U.S. and multi-national clients in the food & beverage, household products, media, financial services, and B2B industries.

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