The Inside Baseball of Corporate Transformation

Every corporate transformation is a drama. Interpersonal skills determine whether it becomes a tragedy.

Hired to transform a company? The odds are against you

A recent McKinsey global survey found that 74% of the time, transformation initiatives fail. Nonetheless, we seldom get the real story of what went wrong. When something succeeds, we’re told about the great strategy and leadership of the person at the top. If it fails, as Phil Rosenzweig has pointed out in his work on the “Halo Effect,” the person was an idiot.

A great strategy can run headlong into bad luck – ask anybody in the travel business in the year 2020. Ask the team at Microsoft who worked on the Kin phone (a victim to internal politics). Ask the people at Nokia who came up with an iPad like device years before the introduction of the iPhone only to see it languish. And yet nobody talks about the interpersonal factors that are the real explanation in most cases.

The case of John Antioco and the fall of Blockbuster

Let’s take a public example we do know about – the decisions that doomed Blockbuster. The usual tropes are about how its inbred management team failed to see the importance of streaming. But we know, from public sources, that this wasn’t the reason that the CEO, John Antioco, was shown the door, his efforts at transformation abandoned and the company eventually sold for scrap.

Antioco was a skilled and experienced transformation leader. He moved quickly in 2004 to, as he said “jump into the online business” and eliminate late fees. The two moves were going to cost $200 million each. Blockbuster’s corporate owner, Viacom, didn’t have the appetite for that investment and sold its shares in an IPO at a depressed price. Activist investor Carl Icahn detected an opportunity, launched a campaign, obtained major influence at the board, and essentially backed the dismantling the very transformation initiatives that could have saved the company.

What we get wrong about leadership performance during a transformation

Like Antioco, many of the leaders shown the door were on the right track. And yet, they are often road kill on the highway to transformation. Let’s consider the main reasons.

The “J” Curve of Resources

We unrealistically expect leaders to move a company fleetly from one “S” curve of success to the next. Doesn’t happen, pretty much ever. The trouble is, as Geoff Moore has pointed out, is that there is a nasty bit in the middle when performance is depressed. If you’re being tapped for transformation duty, it is nearly impossible to avoid. You need to be a pretty adroit explainer to all constituents of why performance is going to suffer and build up support, as Adobe’s legendary CFO Mark Garrett did as they transformed.

Pressure for investor returns

A company’s owners may be more interested in pulling money out of it than investing to transform it. This is a particular issue with private equity, in which funds are focused on short time frames with sky-high return expectations, prompting more extraction than investment.

As Joe Nocera, a reporter for BloombergBusinessWeek wrote, “have we finally reached the point where we automatically assume that every new retail disaster has been caused by a private equity firm? Yes, I believe we have.” While he was analyzing the disastrous turn of events at Fairway Markets, he could have written nearly identical articles about Toys R Us, Payless Shoe Source, Sports Authority and many, many others.

Fear

Even though key constituents may say they want transformational change, many balk in the moment when it becomes clear what that actually means. Fear of the unknown often leads Boards and other influential players to resist making transformational moves. Fear of unpredictable results leads business unit heads to avoid new programs. Fear of losing status, influence or resources creates resistance up and down the organization.

Misunderstanding and mistrust

We often forget that people’s ability to figure out what is going on is a function of their own experience. Many of the issues sparking the need for transformation – new technology, the digital revolution, the needs of diverse and unfamiliar customer segments – are foreign to them. A leader for whom these are familiar subjects may be intimidating or frightening, and eventually dispatched for a ‘safer’ choice.

Human beings have SCARF needs

Different constituents have different triggers to what makes them feel rewarded or threatened. David Rock identified five. The Acronym SCARF summarizes these: Status, Certainty, Autonomy, Relatedness and Fairness. Violate a SCARF issue with a key stakeholder and all the strategy in the world isn’t going to save you.

Ego, Greed and Worse

Scarf needs aside, human beings are motivated by all sorts of preferences that don’t often appear in articles in business publications. As revelations from everything from the #MeToo movement to more recent anti-union organizing suggest, motivations are not always well aligned with a bright future for the organization in question.

Timing Disincentives

Unless there is a clear crisis, it is often easier for leaders to hang in there for just a few more years than undertake a painful and difficult transformation effort. There are few animals as resistant to making change happen as a CEO with a 3-year horizon to sailing off into the sunset with a nice, safe, exit package.

Hidden Misalignment

Sometimes even when a leader thinks he or she is aligned with the Board or Chairman that’s not the case. A famous example was a CEO of a Fortune 500 company, brought in to transform an old-line business. Heroic efforts were made to align the other executives, the Board and the senior team. Wall Street analysts liked the story. Out of the blue, the Chairman called a meeting with the CEO and declared that he knew that he had hired the CEO to transform the company but was “just not going to let him do it.” And, as they say, that was that.

Remedies

Do your homework! Don’t make assumptions about key constituents’ preferences, goals or desires. Start by mapping your key stakeholders, then go through these 8 factors and consider honestly whether any of them could be an issue for a key constituent. Then proactively consider how you might nullify or overcome any factors that come up. It’s every bit as important to the success of your transformation as anything you can do strategically.