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The process of market-driven transformation
The Process of Market-Driven Transformation San dra V a n d e r m e r w e
SOME TIME OR ANOTHER all corporations must go through transformation. And, given today's realities, this transformation must be market-focused--aimed at satisfying customers w h o ultimately will be prepared to pay for the added value they get. For a variety of reasons doing the same thing better is no longer good enough for wooing, winning, and retaining customers. A fundamental change in the w a y people think about the market, the assumptions they make about what constitutes success with their customers, and h o w they translate this into actions--both internally and externally--needs to be radically altered so that they are able to remain competitive. The object of this article is to present a model to outline the process of market driven transformation. The model contains elements of several theories which have been synthesized into a cohesive framework, for use by practitioners who are reformulating the w a y they do business with their customers. The three major components of the model are: Q the 'Sigmoid Curve' and the need to move early on in the cycle; Q the essential stages of transformation and what needs to be done at each stage to activate, drive, and implement the transformation; ~1 managing resistance using product diffusion so as to navigate the process through these various stages. Examples from industry are used to illustrate points, drawn from firms w h o either have or are successfully going through market driven transformation. AT
Timing and Transformation Miss the Moment
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A n d r e w Grove, CEO of Intel, captured it when, in an interview with Fortune in 1993, he said: ~
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There is at least one moment in the history of any company when you have to change dramatically to reach the next level of p6rformance. Miss the moment and you start to decline. 1
By that stage Grove's firm had become a huge success story. Having sensed in the 1980s that mainLong Range Planning, Vol. 28, No. 2, pp. 79 to 91, 1995 Copyright © 1995 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0024-6301/95 $9.50+.00
frames--the product for which Intel had actually been created in the first p l a c e - - h a d to go, to be replaced by microprocessor chips for the n e w emerging PC market (big machines don't need to think for computers, small chips can do the job, he had asserted), Grove transformed his c o m p a n y into a market-minded international superstar. At about the same time, IBM missed the moment. Being strong in mainframes, their management kept on going in the same old way. Unable to admit that times had changed and so too should they, IBM's management got into PCs late, and w h e n they did, they decided not to make the kind of investment in software which w o u l d prove crucial to market success. 2
For some, waiting for the dip may even be too late, or the amount of energy and resources needed to catch up may be so vast as to make getting back on track, or ahead, unachievable.
W h a t are the Critical M o m e n t s ? Ideally, management should start a transformation process before a deterioration in market potential and relationships sets in. The classic Sigmoid (S) Life Cycle curve is a way of visually giving this a framework. The secret of constant corporate growth is to start a next (there will be several of them) S curve before the previous one peters out, i.e. while things are still going w e l l - - w h e n the company is either still on the up, or just peaking in performance. 3
Why do Firms Wait? That IBM never made the necessary transformation in the 1980s to satisfy n e w customer n e e d s - - f r o m hardware to software, from products to value added services--cost them dearly. But it is only one illustration of a firm which missed the critical moment to regenerate itself. It is not untypical of many firms (or industries) though, which assume that, because they are doing well at one point in time, they will be carried successfully into the future. IBM's faltering taught us a good lesson: success can and does breed failure. It makes us complacent about the marketplace, insensitive to danger. The more successful management perceives itself to be, the more risk averse it becomes. It therefore waits for a disaster before making the radical move. The reason is quite simple to understand. At all levels in an organization--starting with the board--it is often much easier to convince people to change when things are not going well than to get them to throw away what seems to be working. Only w h e n losses piled up at IBM did the real energy and momentum begin to flow and market-driven transformation become articulated as a serious part of their strategy. And therein lies the paradox. While it is easier and sometimes quicker to get people to undergo market driven transformation w h e n things turn bad, the recovery process is much more difficult. This does not mean that it cannot be done, as IBM will no doubt show us. But if a firm waits for a real crisis there is always a heavy penalty to pay. Market image will be damaged, funds will be short, confidence will be low, and the organization is b o u n d to have a lot of the wrong skills. The Process of Market-Driven Transformation
Transformation in an Anticipatory Mode For some it will be at around point 1 on the S curve (see Figure 1). 4 Nothing, or very little concrete will yet have happened to or impacted on the firm adversely so as to sound a general alert. Nonetheless it is clear (to someone at least) that a different way of operating will be needed. At this point the corporate leader will be intuitively anticipating a future market--a n e w configuration of potential demands, substitutes, competitors, and coalitions requiring a radical departure both in the direction of the firm and in the behaviour and competencies of a sizeable group of people.
Difficulties with Anticipatory Transformation The difficulty with transformation which is anticipatory is obvious. Even if the corporate leader has and can articulate a new perspective, direction, or vision it is usually extremely difficult to convert others before the signs become more obvious and therefore pressing. This can potentially block commitment in kind and the funds needed to support the process of transforming to become market driven. The reality is that the powers that be--from capital markets through boards of directors--still demand short term results in most parts of the world. Anticipatory type initiatives need longer term thinking and results, however.
For Market Leaders Anticipating is Essential This does not mean that firms should not or can not transform themselves while in an anticipatory mode. It is especially important for market leaders who want
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to remain ahead. In fact, maintain Hamel and Prahalad, 'there's no such thing as sustaining leadership: it must be reinvented again and again'. 5 Paradoxically, although there are practical difficulties with anticipatory transformation, people are likely to be more receptive to change. Nonetheless the corporate leader/s must be prepared actually to create the future for the firm/industry rather than just adapt to pressures, stretching and developing new skills, capabilities and strategies as opposed to getting them to fit. This entails special forums and dialogues: O
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and a willingness and ability to change the rules of the game for the industry as well as the individual firm. (This is what did not happen w h e n four European airlines tried, but eventually failed, to forge Alcazar--a mega-Euro airline conc e p t - t o deliver better service at lower cost to customers.)
Transformation in a Reactionary Mode Usually m u c h easier for m a n y firms than anticipating the future is to wait until the signals are clearer, i.e. w h e n the corporate leader is either reacting to some Long Range Planning Vol. 28
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change or is somewhere between anticipating and reacting to commence the transformation. Discontinuities triggering the process could be either internal (a n e w CEO?) and/or external (a break in the environment, e.g. deregulation, a n e w competitive move), and/or shifts in ratings, ranking, or deteriorating results. All of these are tangible signs, easier to communicate so as to stimulate the desired reaction. 6 This will be around point 2 in the diagram (refer to Figure 1). Something will already have happened (or been made to happen) by the time the next S curve has c o m m e n c e d and this is an important trigger device. Nonetheless here is another paradox: the kind of firm which responds at this time is usually mature--at, or just over, the peak of its performance. Its culture therefore will not be as change receptive as one anticipating the future.
Will Everyone R e a d the Signs? Of course not everyone in the firm will read the signs in the same w a y or have the same sense of urgency. What some executives see as a critical moment, requiring a radical departure from the business as usual routine, others interpret as temporary, and with due cause, i.e. over capacity, the recession, etc. For instance, Maurice Sahlin's interpretation of the situation SKF was in in the late 1980s was very different from that of many others who saw pricing and competition from other bearing manufacturers as the reason for the levelling in results. Sahlin insisted that the fundamental approach to the market place had to change and he systematically set about transforming the c o m p a n y from being a traditional bearings (commodity) firm to one which n o w provides integrated value-added solutions. 7 If data, like market share or customer surveys, is still coming in positive it can aggravate the situation and prevent firms from making a proactive, marketbased move. These results are often based on historic data and standards which reflect only past behaviour and performance, not necessarily saying anything about the firm's ability to compete successfully in the years ahead. When Northumbrian Water began its transformation from a traditional utility to become market-focused they had one of the highest service levels in the industry--i.e. 99.8% drinking water compliance. In some instances the firm had been transporting and treating drinking water and waste water for companies for 20 years without receiving a The Process of Market-Driven Transformation
single complaint. What Jon Hargreaves and his top team had to do was to get people to see that the need to change was based on what they had not been doing, rather than what they had been doing. 8 The market driven transformation process focusing on h o w well the stores were managing according to customer needs rather than on an analysis of past data began at Mr. Minit, the giant Swiss-based 3000-outlet strong retail shoe repair and key duplication business in 1993, when the chief accountant died and relevant information could not be obtained from the company's rigid mainframe system. Within days a PC expert was sent in to redesign the software, and within weeks PCs were ordered and installed which could provide the stores and corporation with better information more cheaply. Up to then, management knew h o w the shops were doing (sales were good), but they did not know why. They were getting detailed figures on such information as the cost of inventory--leather, key blanks, rubber soles and heels: all told hardly 5% of the cost of running the s h o p - - b u t knew nothing about h o w well managers were serving customers--and in reality, the stores were becoming increasingly out of touch with n e w customer demands.
W h y Wait f o r a Crisis? What we n o w know is that if the transformation takes place at points 1 or 2 or somewhere in between, instead of waiting for a crisis, i.e., between points 2 and 3 (see Figure 1), there is a clear advantage. There is enough time and resources to make the needed adjustments while existing operations--vital for cash flow, employee morale, and the firm's image--can still be carried out. And the reputation of the existing leaders stay intact. But since signals are more often than not subtle before they become obvious, corporate leaders--be they in small, medium, or large enterprises--need to be consciously and continuously poking and provoking to see when, and where, the opportunity exists for transformation. In other words, challenging what exists and what has been done well in the past is fundamental to the successful firm who wants to stay that way.
Stages in the Process" Progressing at Different Speeds Long gone are the days w h e n the CEO could announce a n e w strategy, get a manual out to staff, and then
expect everyone to obey the n e w book of rules. Not only will people not obey, but, even if they did, the new rules are unlikely to be what is needed.
Learning by Doing At SKF, before Sahlin made the transformation, a kind of 'Bible' was written stating exactly h o w any change w o u l d take p l a c e - - w h a t had to be done, by whom, and when. Sales budgets, production budgets, and action plans were put into place before the new process began. It was clear to Sahlin that to become a market-driven company the process of change itself had to be transformed. Exactly what was involved was not 100% clear. The company w o u l d have to feel out the market and be as flexible as possible. This requires experimentation and learning by doing, which Sahlin allowed the various country managers to do once the basic ideas were in place. Part of the problem is the single-loop mentality inherited from the industrial era where it was believed that one w a y could be exchanged for another, better w a y of doing things. Whereas in any market-driven transformation, dealing and working closely with and for customers, means that employees must learn as they go, making adjustments along the way, anticipating rather than just responding. This requires a different approach from the corporate leader. Rather than giving all the answers they have instead to ask--and get others to ask--the correct questions. When Jon Hargreaves began the transformation at Northumbrian Water, he intentionally told his staff that he had no instant recipes. He wanted people to feel comfortable with the uncertainty and use it as a mechanism to create a problem solving environment in which people were prepared to take the necessary risks.
Learning to Forget Over time a dominant culture develops in a firm and people behave accordingly. The longer the firm goes without rejuvenating, the harder it is to break the culture. And it is easier to learn n e w habits than to unlearn the old. Part of the transformation process involves giving people time to unlearn (mourn) and deliberately help them in this unlearning. This can be done quicker and smoother if messages are consistent and communication is clear, making explicit what sorts of values and behaviours are e x p e c t e d - - a n d the relevance for individuals as well as the firm. Also important is that during the initial stages of
transformation, there is sufficient stability and some linking to the p a s t - - w h a t people understand--to enable a transition to take place. When Tom Sisson took over as CEO of Citibank Greece to transform the operation there from a traditional type bank to a market-driven entity one aspect of his strategy was to change the existing IT--historically an internal system geared to handling operational and accounting rather than focusing on customer relationships. The difficulty was that it put the branches between two IT systems, upsetting employees, particularly those w h o actually had to deal with operational issues on a day-to-day basis. To gain credibility and gain m o m e n t u m in efforts on the overall transformation, Sisson dedicated time to finding a way to make sure that the short-term day-to-day IT problems of these managers were solved while he simultaneously instituted the new system, g
The Identifiable Stages of Transformation There are three identifiable stages in any marketdriven transformation process (as shown in Figure 2). 1° Each needs certain things done to make the next feasible. But these steps must be fluid and reiterating because transformation is a cumulative, overlapping and reinforcing process where different things are happening at different speeds by different people within the organization - - m o r e like a spiral (see Figure 2) than a straight line.
Step 1: Agitation. Agitation is step one in any transformation requiring specific attention and skill on the part of the corporate leader. Part of the reason w h y perfectly good firms can't sustain success is because top management loses this agitation (did not someone say success should not stop people from worrying!). However agitation is achieved, without it in the right place at the right moment, transformation never happens. 11 The Need for Strategic Discomfort This agitation I call 'strategic discomfort'. This means that at a certain time people in the organization are made to feel uncomfortable enough that in the future either their firm will not survive or will miss out on huge opportunities unless a way is found of thinking about customers and operating in the market noticeably different from that of the past. Agitation is not consciously felt by everyone at the same time in an organization. Experience shows that Long Range PLanning Vol. 28
April 1995
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not even in a crisis does everyone feel the same sense of urgency. (The Wall Street Journal recently reported an internal survey done at IBM in 1994 showing that some 20% of the top managers still had not accepted the fundamental need for change). 12
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How to Create Strategic Discomfort Getting people to understand why things have to
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change and be centred around the customer, rather than just what needs to be done, helps. Typically a vehicle or venue outside of the usual routine is used. (It won't work with memos!) Some specific activities and exercises which can creatively stimulate strategic discomfort include:
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Q comparisons of past results and future capabilities These exercises/events/activities act as 'triggers' which begin the next stage of the process. The object is to challenge people to think about h o w they think, the assumptions they consequently make, and the
impact their behaviour and actions have/will have on the firm's ability to sustain its competitiveness. When Peter Lewis came to Jiffy, one of the UK's premier protective packaging companies, as Managing Director in 1991 his intention was to make the c o m p a n y more market driven. As it turned out this required a major reorientation in thinking and strategy for the firm which had traditionally worked on high-volume, industrial formulae almost exclusively through distributors. Lewis's first step was to organize a series of short retreats to get his top team to accept the need for change. This he followed by a market survey which confirmed his hypothesis--that the firm had some serious readjustments to make in its approach to the marketplace. ~3 Communicating triggers in a creative way can speed up strategic discomfort. When Mr. Minit realized that the firm had not kept pace with the marketplace and w o u l d have to transform itself on several fronts, several steps were taken to create strategic discomfort amongst key managers. Among other things, factories within the group--set up to make various products, including fixtures, shoe repair machines, key cutting machines, and rubber for soles and heels for use in the stores--were producing larger and larger assortments of increasingly expensive goods which the stores either did not want, or could purchase more cheaply locally. H o w to get the message across--swiftly, dramatically and m e m o r a b l y - - w a s the challenge. Instead of the usual exchange of memos and reports, or calling meetings, Pierre-Alain Hirschy, Senior Vice President in charge of R & D, decided to use a showroom (which had to be 80 square meters to accommodate over 800 items) to make the point. Some people complained that the showroom was not big enough; Hirschy replied that there were too many products. Each category of product, with its respective price, was displayed: light grey for what Mr. Minit made; blue for what other retail competitors were using; and yellow for what was being locally purchased by the Mr. Minit stores. Managers were able to see immediately--in a way and at a rate that could never have been achieved in the traditional manner--that too many things were being made too expensively, and were not being supported by the local stores. There and then, within only a few hours of conversation, they were also able to exchange ideas and k n o w - h o w on h o w to solve the problem.
Step 2: Education. Strategic discomfort is the wakeup call--if it doesn't happen nothing else will. But too much agitation, for too long, without some tangible direction causes instability with people left hanging, insecure and confused. So it is really important that w h e n a critical mass of (the correct) people are sufficiently uncomfortable within a group, division, or country, etc., step two of the transformation process begins--namely, a period of education.
Why Vision/Foresigh t is Important A clear vision relevant to existing and future markets is an obvious prerequisite and usually happens somewhere between the previous and this stage although it may be refined as stages are formulated and implemented and people learn by doing. Vision is a subject well enough documented not to have to repeat the obvious here. Suffice it to say that a good vision has foresight, is relevant to market needs (now and with a view to the future), and is inspiring-unlocking a picture of what the organization wants to/ought to be like by some future date. As such it is a vital part of any market-driven transformation. Mainly it enables the implementors to formulate their missions and decide what to p u r s u e - and, equally important--what not to pursue. For example, once Sahlin had stated his vision and made clear that markets, namely the 'before' and 'after', had to be treated differently and had structured accordingly, the Bearings Services division could define their mission as 'trouble free operations'--thus implicitly stating what they needed to do.
A N e w Set of Market-driven Tools Giving people a new and common set of marketdriven frameworks, concepts, tools and language is essential to market-driven transformation. It not only provides the impetus, it is also the glue which binds different kinds of people, divisions, countries and companies which hitherto may not have sensed the need for shared customer initiatives or working that closely together. Once these concepts and language are in place, people at all levels are literally able to discourse and develop together in a way never before possible and get market driven initiatives under way. At Northumbrian Water new, market-driven tools were shared among all functions throughout the organization for both strategic and operational reasons. On a strategic level this enabled employees to reformulate their perception of customer needs and Long Range Planning Vol. 28
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the requirements needed in 'product', people and process terms to satisfy them. On an operational level it enabled everyone within the firm to see and sense opportunities within a common framework and understand their respective roles in the delivery of their services, Once the need for change had been established at Jiffy, executives began using n e w market-driven concepts and tools as a vehicle to understanding customers better on two l e v e l s - - e n d users and distributors. Executives actively sought out end user segments not served by their distributors working with key players to understand their operations and provide them with high value cost effective solut i o n s - f r o m decisions on application through to disposal. Concurrently projects were undertaken to improve relationships with distributors, working more closely with them to help them better to serve their customer set.
The Importance of Language, Metaphors and Symbols Apart from n e w concepts and tools, n e w language, metaphors and symbols are also useful to accelerate understanding, motivation and commitment. For example Hargreaves intentionally used the metaphor of a train: 'we're an express train operating on twin tracks headed towards a vision'. Tom Sisson of Citibank, in trying to get people to think ahead about the Citibank strategy and IT needs instead of just focusing on the day-to-day problems, said: 'We're in the middle of the English c h a n n e l - - w e can either go forwards or backwards, we'll struggle for a while but at least we're moving ahead. ' In both cases employees understood the metaphor, and it helped to make the point, and drive the process.
Step 3: Integration. But, ultimately, the acid test is whether the agitation and education have become e m b e d d e d into day-to-day behaviour change. Achieving this integration is step three in the dynamic process.
Creating New Role Models Achieving integration means making n e w market driven ideas and behaviour institutional. Deliberately creating n e w 'role models '--those people who put the market-driven terms and tools into practice--is an integral part of this. Role models are people whose core competencies, individually and jointly, will The Process of Market-Driven Transformation
attract customers and distinguish the firm from competitors. It is important that they become the n e w heroes that others will inevitably begin to emulate once the old order begins to fade. This helps people unlearn old habits and acquire n e w behaviours. However it means changing, or even eliminating, old titles and labels and celebrating and rewarding the kinds of behaviour and successes that reflect n e w market-driven v a l u e s - instead of the old. And at this stage even 'punishing' those people who persist in perpetuating the old values despite getting short term bottom line results. Divisions within a company can also be the role model for others, as was the case with Bearing Services in the SKF example. Ciba-Geigy Allcomm, the former advertising internal service of the Swiss global chemical and pharmaceutical company, is another case in point. From a captive customer and traditional employee base, its CEO Jurg Chresta transformed it into a dynamic customer-oriented communications firm. This was part of a much more ambitious plan to use Allcomm for the overall Ciba-Geigy vision to become more market-driven. 14 Chresta in turn chose a group of young dynamic (and very different) members of staff which he called the 'experimental group' who served as a role model to achieve his vision. Countries can also be role models. Greece, for example, was deliberately chosen as the role model for Citibank's transformation process in Europe. The object of the exercise was to deliver one integrated, consistent experience from country to country in Europe so that customers could access the services they needed--wherever, whenever, and however they wanted them.
Developing 'Model' Concepts 'Model concepts' are equally important during the integration stage to get n e w tools and experiences e m b e d d e d into the culture. Ideas and experiences on h o w to better serve customers are better made tangible by projects and initiatives ranging from working directly with customers to anticipate assess and satisfy needs, redesigning h o w people work, to putting n e w processes into place, retraining, and developing n e w information management, service quality, and performance management systems. This is a more desirable alternative than decisions being taken on n e w ways of operating and handing them down. Relevant people are involved in specific projects which are supported and made successful.
These become 'model' concepts to be rolled out as 'best practice' within the corporation. The 'model branch' was one of several of such projects undertaken at Citibank Greece by Tom Sisson to implement the 'Tao of Banking' vision (note language and metaphor). Sisson was responsible for successfully developing the 'model branch' concept to implement the global market-driven vision there. The learning was then spread and transferred into the operations of the other Euro-countries.
Choosing Projects Projects, whatever they may be, need to be carefully chosen and supported with some specific objectives in mind: Cl They should be do-able and visible so as to be able to spread learning and successes through the organization and marketplace. Going back to the Citibank example, Sisson made sure all experiences were shared from branch to branch as the transformation in Greece took effect. On a European level the know-how and learning was intentionally spread from country to country through 'strategy review sessions' held by the Vice President for Europe. 0 They should involve the correct customers/ distributors/partners as early on as possible. Greece first, and then three other countries--while not the biggest--were chosen because it was felt that they could transform most readily and speedily. In fact, the countries with the larger networks and revenues were probably the most conservative of all and initially were handled differently. The same principle applies to customers, distributors, or suppliers. 0 They should be as generic as possible so that the experiences are transferable. For Citibank this is key to providing a pan-European seamless, consistent service for customers--looking for generic solutions to their problems and then making only n e e d e d adjustments (from country to country) rather than duplicating efforts. The point is that only with deliberate mechanisms in place--to make ideas into new offerings, and individual successes into collective behaviour during the integration stage--can the new culture and character of the transformation take root.
0 They should also be prioritized. Not all projects
will generate the same benefits or be feasible in the short term. Citibank divided its projects into three categories: 1. the visible, high priority/ impact projects which should and could be done immediately; 2. those involving stretch goals which needed more time and systematic change; and 3. those requiring super-stretch capabilities and goals, taking an even longer period to accomplish. Some of the projects chosen early will not only be a high priority, but may also be self financing (i.e. they not only create value, but they eliminate nonvalue/costs) and thus they may also be used to fund the longer term and more costly projects needed for the transformation to become fully entrenched in the culture.
Managing Resistance and Resistors: A Natural Part of the Process? Anyone who has been through market-driven transformation knows that resistance is a natural part of the process. Especially for companies which have been in regulated or captive-customer situations. Often corporate leaders miss this and try to get cons e n s u s - b e it among the board, top or middle management. When they can't, they give up. But just as people take on new products at a different pace, so too they accept new ideas at varying rates--including the need for, and methods involved in, market-driven change. Which is another way of saying that market-driven transformation cannot be universal. It will take place by different people/ divisions/countries at different times. Why?
Diffusing the Transformation Classic theories of new p r o d u c t - - a n d new idea--diffusion can be very useful in understanding the process. 15 Generally speaking people can be classified into buying categories directly related to their risk profile. This is shown in their buying behaviour w h e n they accept new p r o d u c t s - - a n d in their ability and willingness to take on new ideas. And research and experience also show when, and how, they buy into and participate in a transformation process. 16 (See Long Range Planning Vol. 28
April 1995
want to see tangible results before they accept new ways of behaving. They want reassurance about how things affect them as individuals, and are only really comfortable with guidance, direction and facts. They are better at perfecting processes once the transformation is on its way and handling operational issues during the initial stages than initiating new ideas. When they begin changing their behaviour the integration has really begun. (Conversely, if they don't change their behaviour, integration won't be accomplished.) Q Late acceptors (around 34%) are conservative and risk averse by nature. They too can be anywhere within an organization. They buy in and participate once the early acceptors begin to switch behaviour. Until then, they continue to do and perfect what they do best and will do so for as long as they can. They are best in routine operational areas rather than in new customer initiatives.
Figure 3 for generic categories of people and their relative risk profiles.) Here are the various categories of people and their characteristics:
~3 The innovators (around 2.5%) accept and enjoy change. From them the agitation and transformational leaders will come. They enjoy innovation, are comfortable with uncertainty, sense danger, pick up signals quickly without implicit data and have a high willingness to live with uncertainty. 0 The opinion leaders are the next group (around 12.5%). This group is essential to the transformation, especially during the agitation and integration stages. As trend-setters, they run with the ideas, move them along and take people with them. They will be found in all parts of the organization. Q The early followers (around 34%) This next group waits, often resisting change until they understand it better and see what's going on around them. They may only feel a sense of urgency during the education stage w h e n the first initiatives have already begun. They may be found anywhere within a firm--if in high places, they can block or slow down the transformation process. They look to the opinion leaders for evidence of success and The Process of Market-Driven Transformation
[3 Laggards (around 17%) mostly do not change. Some may want to leave or have to go.
An Example At Ciba-Geigy Allcomm the reaction to making the advertising service into a separate company with the explicit objective of becoming market-driven resulted in this kind of normal distribution of employee reaction. Chresta handled each group differently. Given the traditional nature of the culture at Ciba-Geigy, he intentionally brought in three people from outside and combined them with three innovators from inside to form the 'experimental group'. These new people were deliberately chosen because they were prepared to do whatever was necessary to attract new customers and new business, and Chresta basically gave them the freedom to do this. 'Show the world that you can get the business and satisfy the market. No one will interfere with you if you deliver the goods', he said. (Later on in the process he took the good and bad experiences learned from the 'experimental group' and embedded them into other departments.) Then there was a group of younger 'entrepreneurs' w h o m Chresta concentrated on initially, about 10% of the staff, who were very receptive, impatient to make their mark. They did not care about the details and began to get projects under way to become more commercial for both new and existing (Ciba-Geigy) customers. Another 30% were quite flexible and
happy to get going provided they were able to do the kind of work they liked and their status remained intact. Chresta gave them a different time frame, and a different set of customers to serve. About 40% were resistant. They were afraid of taking decisions and making mistakes. For them seeing was believing. Chresta spent time with them, sharing successes and mistakes once the transformation got under way so that they w o u l d not be afraid to learn from the others. A small group, about 10%, were outright against it. The distribution of the categories described above (and see Figure 3) is likely to be more or less normal when the c o m p a n y is in a reacting transformation mode. When it is already in crisis the distribution will be skewed to the right. When it is in an antici-
patory mode the distribution will be skewed to the left. Different risk profiles will dominate the firm's culture depending on whether it is in an anticipatory, reacting or crisis mode (see Figure 4). While the categories described and remarks made above are clearly generalizations, a few points are worth noting: ~3 The gap between the (high) risk profile of the corporate leader during the transformation, i.e. an innovator, and the dominant culture prevailing in the firm will be different depending on the transformation mode (greatest for crisis, less for reacting, even less for anticipating). The smaller the
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Long Range Planning Vol. 28
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gap, the easier the initial task--corporate leaders need to understand and manage this. O Corporate leaders need to know whom they are dealing with, at what stage of the transformation, at all levels of the organization, rather than expecting everyone to react in the same way at the same time--this also is a conscious part of the transformation process that must be managed. Q Corporate leaders need to find the opinion leaders inside the firm and work with, and through t h e m - the same principle should be applied to customers, distributors, suppliers, and other partners during the initial stages. O Different categories of people need to be handled differently. When resistance is legitimate, it has to be managed. O The rollout, essential to the integration process, involves having the correct people/divisions/ countries involved in the correct projects at the correct time--projects should be carefully chosen, supported, and consciously converted to best practice to enable integration to take place across functions, divisions, and countries.
Checklist for Action Market-driven transformation entails making fundamental changes in the way people think about, and handle, the challenges of satisfying customers. To achieve this the corporate leader must go through a three-stage process, during which, if certain tasks are performed, the probability of success is likely to be higher and the change smoother and quicker. Table 1 is a checklist for corporate leaders which they will find a useful guide. This article has suggested that: 1. market-driven transformation is a process which has defined stages and tasks but, nonetheless, 2. it is a dynamic process with different people and projects moving at different speeds.
1. Have we identified the relevant moment to make the move? 2. What mode of transformation are we operating in--anticipatory, reactionary, or crisis? How does this affect the approach that we should take? 3. Do we know what needs to be done at each stage in the process? 4. How will we monitor progress at each stage? What signals will we look for? 5. Do we have a clear understanding of who the opinion leaders are and where the blockages are likely to be? 6. Who will be tackling which projects at what point? 7. Which projects must be fast-track and which slow-track? How will these be integrated into the process? 8. Which people will be fast-track/slow-track? How do we integrate them into the process? 9. Do we understand what behaviour we want from new role models? How will we achieve this? 10. What will the model concepts be which will serve to help 'roll out' the transformation process both internally and externally?
Clearly this is not the classic top-down or bottomup approach. Change is going on in 'pockets' of the organization, wherever it is most appropriate. The role of the corporate leader/s is not only to lead change therefore, but also to pull together the various bits and pieces, making sure that the ideas and initiatives of the various projects and people come together with coordinating mechanisms in place to achieve one, cohesive result. Part of the challenge is also to manage people and projects operating at different speeds. And to manage the diversity among the people involved in making the transformation happen. Finally, there is the ability to accept and tolerate ambiguity--transformation in a contemporary market setting involves working on several fronts and on twin time tracks simultaneously.
References 1. Fortune Magazine, February 22 (1993).
2. For comments regarding the IBM saga, see for instance: R. Heller, The Fate o f IBM, Little
The Process of Market-Driven Transformation
Brown and Co. (1993); P. Carroll, Big Blues, the Unmaking of IBM, Weidenfeld (1993); and C. Ferguson and C. Morris, The Computer Wars: The Fall of IBM and the Future of Global Technology, Random House/Times Books (1993). 3. See C. Handy, The Empty Raincoat, Hutchinson (1994), for an interesting rendering of this. 4. Adapted from original work done by J. Fry and P. Killing, Strategic Analysis andAction, Prentice-Hall (1986) and summarized by Killing and Fry in their 1986 IMD Perspective (number 4), Managing Change: Pace, Targets, and Tactics. 5. G. Hamel and C. K. Prahalad, Competing for the Future, Harvard Business School Press (1994). 6. For more on breakpoints, read P. Strebel, Breakpoints: How Managers Exploit Radical Business Change, Harvard Business School Press (1992). 7. S. Vandermerwe and M. Taishoff, SKF Bearings Series: Market Orientation Through Services, IMD Case Study (1990). 8. S. Vandermerwe, Northumbrian Water: From Monopoly Utility to Competitive Service Entity, IMD Case Study (1994). 9. S. Vandermerwe and M. Taishoff, Citibank (A): The Tao of Global Consumer Banking,
Citibank (B): Implementing the Global Tao Pan-Europe and in Greece, Citibank (C): Results in Greece, IMD Case Study (1994). 10. I first encountered the use of the terms 'agitation', 'education' and 'integration', in a class given by a colleague, Christopher Parker. To my knowledge this has not been documented by anyone. 11. S. Vandermerwe and A. Vandermerwe, Making Strategic Change Happen, European Management Journal 9 (2) ( 1991 ). 12. Wall Street Journal, May 16 (1994). 13. S. Vandermerwe and M. Taishoff, Jiffy (A): Managing for Customer Orientation, Jiffy (B): Channel Management for Customer Orientation, IMD Case Study (1993). 14. S. Vandermerwe and M. Taishoff, Ciba-Geigy AIIcomm: Making Internal Services Market Driven--Taking the Helm (Case A) and Setting Sail (Case B), IMD Case Study (1992). 15. E. Rogers, Diffusion of Innovations, The Free Press (1982); S. Vandermerwe, Diffusing New Ideas In-House, Journal of Product Innovation Management, 4 (1987); for more on characteristics of transformational leadership, see B. Bass, Improving Organizational Effectiveness Through Transformational Leadership, Sage (1993); G. Hofstede, Culture's Consequences, Sage (1980). 16. Unpublished work on diffusion categories and behaviour in companies by A. Vandermerwe, IMD.
Long Range Planning Vol. 28
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SOME TIME OR ANOTHER all corporations must go through transformation. And, given today's realities, this transformation must be market-focused--aimed at satisfying customers w h o ultimately will be prepared to pay for the added value they get. For a variety of reasons doing the same thing better is no longer good enough for wooing, winning, and retaining customers. A fundamental change in the w a y people think about the market, the assumptions they make about what constitutes success with their customers, and h o w they translate this into actions--both internally and externally--needs to be radically altered so that they are able to remain competitive. The object of this article is to present a model to outline the process of market driven transformation. The model contains elements of several theories which have been synthesized into a cohesive framework, for use by practitioners who are reformulating the w a y they do business with their customers. The three major components of the model are: Q the 'Sigmoid Curve' and the need to move early on in the cycle; Q the essential stages of transformation and what needs to be done at each stage to activate, drive, and implement the transformation; ~1 managing resistance using product diffusion so as to navigate the process through these various stages. Examples from industry are used to illustrate points, drawn from firms w h o either have or are successfully going through market driven transformation. AT
Timing and Transformation Miss the Moment
Don't
A n d r e w Grove, CEO of Intel, captured it when, in an interview with Fortune in 1993, he said: ~
Pergamon 0024-6301(95)00089-1
There is at least one moment in the history of any company when you have to change dramatically to reach the next level of p6rformance. Miss the moment and you start to decline. 1
By that stage Grove's firm had become a huge success story. Having sensed in the 1980s that mainLong Range Planning, Vol. 28, No. 2, pp. 79 to 91, 1995 Copyright © 1995 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0024-6301/95 $9.50+.00
frames--the product for which Intel had actually been created in the first p l a c e - - h a d to go, to be replaced by microprocessor chips for the n e w emerging PC market (big machines don't need to think for computers, small chips can do the job, he had asserted), Grove transformed his c o m p a n y into a market-minded international superstar. At about the same time, IBM missed the moment. Being strong in mainframes, their management kept on going in the same old way. Unable to admit that times had changed and so too should they, IBM's management got into PCs late, and w h e n they did, they decided not to make the kind of investment in software which w o u l d prove crucial to market success. 2
For some, waiting for the dip may even be too late, or the amount of energy and resources needed to catch up may be so vast as to make getting back on track, or ahead, unachievable.
W h a t are the Critical M o m e n t s ? Ideally, management should start a transformation process before a deterioration in market potential and relationships sets in. The classic Sigmoid (S) Life Cycle curve is a way of visually giving this a framework. The secret of constant corporate growth is to start a next (there will be several of them) S curve before the previous one peters out, i.e. while things are still going w e l l - - w h e n the company is either still on the up, or just peaking in performance. 3
Why do Firms Wait? That IBM never made the necessary transformation in the 1980s to satisfy n e w customer n e e d s - - f r o m hardware to software, from products to value added services--cost them dearly. But it is only one illustration of a firm which missed the critical moment to regenerate itself. It is not untypical of many firms (or industries) though, which assume that, because they are doing well at one point in time, they will be carried successfully into the future. IBM's faltering taught us a good lesson: success can and does breed failure. It makes us complacent about the marketplace, insensitive to danger. The more successful management perceives itself to be, the more risk averse it becomes. It therefore waits for a disaster before making the radical move. The reason is quite simple to understand. At all levels in an organization--starting with the board--it is often much easier to convince people to change when things are not going well than to get them to throw away what seems to be working. Only w h e n losses piled up at IBM did the real energy and momentum begin to flow and market-driven transformation become articulated as a serious part of their strategy. And therein lies the paradox. While it is easier and sometimes quicker to get people to undergo market driven transformation w h e n things turn bad, the recovery process is much more difficult. This does not mean that it cannot be done, as IBM will no doubt show us. But if a firm waits for a real crisis there is always a heavy penalty to pay. Market image will be damaged, funds will be short, confidence will be low, and the organization is b o u n d to have a lot of the wrong skills. The Process of Market-Driven Transformation
Transformation in an Anticipatory Mode For some it will be at around point 1 on the S curve (see Figure 1). 4 Nothing, or very little concrete will yet have happened to or impacted on the firm adversely so as to sound a general alert. Nonetheless it is clear (to someone at least) that a different way of operating will be needed. At this point the corporate leader will be intuitively anticipating a future market--a n e w configuration of potential demands, substitutes, competitors, and coalitions requiring a radical departure both in the direction of the firm and in the behaviour and competencies of a sizeable group of people.
Difficulties with Anticipatory Transformation The difficulty with transformation which is anticipatory is obvious. Even if the corporate leader has and can articulate a new perspective, direction, or vision it is usually extremely difficult to convert others before the signs become more obvious and therefore pressing. This can potentially block commitment in kind and the funds needed to support the process of transforming to become market driven. The reality is that the powers that be--from capital markets through boards of directors--still demand short term results in most parts of the world. Anticipatory type initiatives need longer term thinking and results, however.
For Market Leaders Anticipating is Essential This does not mean that firms should not or can not transform themselves while in an anticipatory mode. It is especially important for market leaders who want
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to remain ahead. In fact, maintain Hamel and Prahalad, 'there's no such thing as sustaining leadership: it must be reinvented again and again'. 5 Paradoxically, although there are practical difficulties with anticipatory transformation, people are likely to be more receptive to change. Nonetheless the corporate leader/s must be prepared actually to create the future for the firm/industry rather than just adapt to pressures, stretching and developing new skills, capabilities and strategies as opposed to getting them to fit. This entails special forums and dialogues: O
Pushing for solutions to problems not yet defined for markets not yet explored, with little data,
O
with a fundamental commitment in management's time and energy outside of the day-to-
day routines and internally focused issues, involving intuitive problem-solving and creative techniques and challenges, O
and a willingness and ability to change the rules of the game for the industry as well as the individual firm. (This is what did not happen w h e n four European airlines tried, but eventually failed, to forge Alcazar--a mega-Euro airline conc e p t - t o deliver better service at lower cost to customers.)
Transformation in a Reactionary Mode Usually m u c h easier for m a n y firms than anticipating the future is to wait until the signals are clearer, i.e. w h e n the corporate leader is either reacting to some Long Range Planning Vol. 28
April 1995
change or is somewhere between anticipating and reacting to commence the transformation. Discontinuities triggering the process could be either internal (a n e w CEO?) and/or external (a break in the environment, e.g. deregulation, a n e w competitive move), and/or shifts in ratings, ranking, or deteriorating results. All of these are tangible signs, easier to communicate so as to stimulate the desired reaction. 6 This will be around point 2 in the diagram (refer to Figure 1). Something will already have happened (or been made to happen) by the time the next S curve has c o m m e n c e d and this is an important trigger device. Nonetheless here is another paradox: the kind of firm which responds at this time is usually mature--at, or just over, the peak of its performance. Its culture therefore will not be as change receptive as one anticipating the future.
Will Everyone R e a d the Signs? Of course not everyone in the firm will read the signs in the same w a y or have the same sense of urgency. What some executives see as a critical moment, requiring a radical departure from the business as usual routine, others interpret as temporary, and with due cause, i.e. over capacity, the recession, etc. For instance, Maurice Sahlin's interpretation of the situation SKF was in in the late 1980s was very different from that of many others who saw pricing and competition from other bearing manufacturers as the reason for the levelling in results. Sahlin insisted that the fundamental approach to the market place had to change and he systematically set about transforming the c o m p a n y from being a traditional bearings (commodity) firm to one which n o w provides integrated value-added solutions. 7 If data, like market share or customer surveys, is still coming in positive it can aggravate the situation and prevent firms from making a proactive, marketbased move. These results are often based on historic data and standards which reflect only past behaviour and performance, not necessarily saying anything about the firm's ability to compete successfully in the years ahead. When Northumbrian Water began its transformation from a traditional utility to become market-focused they had one of the highest service levels in the industry--i.e. 99.8% drinking water compliance. In some instances the firm had been transporting and treating drinking water and waste water for companies for 20 years without receiving a The Process of Market-Driven Transformation
single complaint. What Jon Hargreaves and his top team had to do was to get people to see that the need to change was based on what they had not been doing, rather than what they had been doing. 8 The market driven transformation process focusing on h o w well the stores were managing according to customer needs rather than on an analysis of past data began at Mr. Minit, the giant Swiss-based 3000-outlet strong retail shoe repair and key duplication business in 1993, when the chief accountant died and relevant information could not be obtained from the company's rigid mainframe system. Within days a PC expert was sent in to redesign the software, and within weeks PCs were ordered and installed which could provide the stores and corporation with better information more cheaply. Up to then, management knew h o w the shops were doing (sales were good), but they did not know why. They were getting detailed figures on such information as the cost of inventory--leather, key blanks, rubber soles and heels: all told hardly 5% of the cost of running the s h o p - - b u t knew nothing about h o w well managers were serving customers--and in reality, the stores were becoming increasingly out of touch with n e w customer demands.
W h y Wait f o r a Crisis? What we n o w know is that if the transformation takes place at points 1 or 2 or somewhere in between, instead of waiting for a crisis, i.e., between points 2 and 3 (see Figure 1), there is a clear advantage. There is enough time and resources to make the needed adjustments while existing operations--vital for cash flow, employee morale, and the firm's image--can still be carried out. And the reputation of the existing leaders stay intact. But since signals are more often than not subtle before they become obvious, corporate leaders--be they in small, medium, or large enterprises--need to be consciously and continuously poking and provoking to see when, and where, the opportunity exists for transformation. In other words, challenging what exists and what has been done well in the past is fundamental to the successful firm who wants to stay that way.
Stages in the Process" Progressing at Different Speeds Long gone are the days w h e n the CEO could announce a n e w strategy, get a manual out to staff, and then
expect everyone to obey the n e w book of rules. Not only will people not obey, but, even if they did, the new rules are unlikely to be what is needed.
Learning by Doing At SKF, before Sahlin made the transformation, a kind of 'Bible' was written stating exactly h o w any change w o u l d take p l a c e - - w h a t had to be done, by whom, and when. Sales budgets, production budgets, and action plans were put into place before the new process began. It was clear to Sahlin that to become a market-driven company the process of change itself had to be transformed. Exactly what was involved was not 100% clear. The company w o u l d have to feel out the market and be as flexible as possible. This requires experimentation and learning by doing, which Sahlin allowed the various country managers to do once the basic ideas were in place. Part of the problem is the single-loop mentality inherited from the industrial era where it was believed that one w a y could be exchanged for another, better w a y of doing things. Whereas in any market-driven transformation, dealing and working closely with and for customers, means that employees must learn as they go, making adjustments along the way, anticipating rather than just responding. This requires a different approach from the corporate leader. Rather than giving all the answers they have instead to ask--and get others to ask--the correct questions. When Jon Hargreaves began the transformation at Northumbrian Water, he intentionally told his staff that he had no instant recipes. He wanted people to feel comfortable with the uncertainty and use it as a mechanism to create a problem solving environment in which people were prepared to take the necessary risks.
Learning to Forget Over time a dominant culture develops in a firm and people behave accordingly. The longer the firm goes without rejuvenating, the harder it is to break the culture. And it is easier to learn n e w habits than to unlearn the old. Part of the transformation process involves giving people time to unlearn (mourn) and deliberately help them in this unlearning. This can be done quicker and smoother if messages are consistent and communication is clear, making explicit what sorts of values and behaviours are e x p e c t e d - - a n d the relevance for individuals as well as the firm. Also important is that during the initial stages of
transformation, there is sufficient stability and some linking to the p a s t - - w h a t people understand--to enable a transition to take place. When Tom Sisson took over as CEO of Citibank Greece to transform the operation there from a traditional type bank to a market-driven entity one aspect of his strategy was to change the existing IT--historically an internal system geared to handling operational and accounting rather than focusing on customer relationships. The difficulty was that it put the branches between two IT systems, upsetting employees, particularly those w h o actually had to deal with operational issues on a day-to-day basis. To gain credibility and gain m o m e n t u m in efforts on the overall transformation, Sisson dedicated time to finding a way to make sure that the short-term day-to-day IT problems of these managers were solved while he simultaneously instituted the new system, g
The Identifiable Stages of Transformation There are three identifiable stages in any marketdriven transformation process (as shown in Figure 2). 1° Each needs certain things done to make the next feasible. But these steps must be fluid and reiterating because transformation is a cumulative, overlapping and reinforcing process where different things are happening at different speeds by different people within the organization - - m o r e like a spiral (see Figure 2) than a straight line.
Step 1: Agitation. Agitation is step one in any transformation requiring specific attention and skill on the part of the corporate leader. Part of the reason w h y perfectly good firms can't sustain success is because top management loses this agitation (did not someone say success should not stop people from worrying!). However agitation is achieved, without it in the right place at the right moment, transformation never happens. 11 The Need for Strategic Discomfort This agitation I call 'strategic discomfort'. This means that at a certain time people in the organization are made to feel uncomfortable enough that in the future either their firm will not survive or will miss out on huge opportunities unless a way is found of thinking about customers and operating in the market noticeably different from that of the past. Agitation is not consciously felt by everyone at the same time in an organization. Experience shows that Long Range PLanning Vol. 28
April 1995
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not even in a crisis does everyone feel the same sense of urgency. (The Wall Street Journal recently reported an internal survey done at IBM in 1994 showing that some 20% of the top managers still had not accepted the fundamental need for change). 12
O different/creative analyses of data Q scenarios on potential discontinuities and effects Q reconfigurating/anticipating n e w customer segments, trends, and demands
How to Create Strategic Discomfort Getting people to understand why things have to
n e w ways of defining/viewing/mapping petition
change and be centred around the customer, rather than just what needs to be done, helps. Typically a vehicle or venue outside of the usual routine is used. (It won't work with memos!) Some specific activities and exercises which can creatively stimulate strategic discomfort include:
[::1 interpretations of potential competitive moves
Q surveys to highlight/substantiate problems The Process of Market-Driven Transformation
com-
Q comparisons of past results and future capabilities These exercises/events/activities act as 'triggers' which begin the next stage of the process. The object is to challenge people to think about h o w they think, the assumptions they consequently make, and the
impact their behaviour and actions have/will have on the firm's ability to sustain its competitiveness. When Peter Lewis came to Jiffy, one of the UK's premier protective packaging companies, as Managing Director in 1991 his intention was to make the c o m p a n y more market driven. As it turned out this required a major reorientation in thinking and strategy for the firm which had traditionally worked on high-volume, industrial formulae almost exclusively through distributors. Lewis's first step was to organize a series of short retreats to get his top team to accept the need for change. This he followed by a market survey which confirmed his hypothesis--that the firm had some serious readjustments to make in its approach to the marketplace. ~3 Communicating triggers in a creative way can speed up strategic discomfort. When Mr. Minit realized that the firm had not kept pace with the marketplace and w o u l d have to transform itself on several fronts, several steps were taken to create strategic discomfort amongst key managers. Among other things, factories within the group--set up to make various products, including fixtures, shoe repair machines, key cutting machines, and rubber for soles and heels for use in the stores--were producing larger and larger assortments of increasingly expensive goods which the stores either did not want, or could purchase more cheaply locally. H o w to get the message across--swiftly, dramatically and m e m o r a b l y - - w a s the challenge. Instead of the usual exchange of memos and reports, or calling meetings, Pierre-Alain Hirschy, Senior Vice President in charge of R & D, decided to use a showroom (which had to be 80 square meters to accommodate over 800 items) to make the point. Some people complained that the showroom was not big enough; Hirschy replied that there were too many products. Each category of product, with its respective price, was displayed: light grey for what Mr. Minit made; blue for what other retail competitors were using; and yellow for what was being locally purchased by the Mr. Minit stores. Managers were able to see immediately--in a way and at a rate that could never have been achieved in the traditional manner--that too many things were being made too expensively, and were not being supported by the local stores. There and then, within only a few hours of conversation, they were also able to exchange ideas and k n o w - h o w on h o w to solve the problem.
Step 2: Education. Strategic discomfort is the wakeup call--if it doesn't happen nothing else will. But too much agitation, for too long, without some tangible direction causes instability with people left hanging, insecure and confused. So it is really important that w h e n a critical mass of (the correct) people are sufficiently uncomfortable within a group, division, or country, etc., step two of the transformation process begins--namely, a period of education.
Why Vision/Foresigh t is Important A clear vision relevant to existing and future markets is an obvious prerequisite and usually happens somewhere between the previous and this stage although it may be refined as stages are formulated and implemented and people learn by doing. Vision is a subject well enough documented not to have to repeat the obvious here. Suffice it to say that a good vision has foresight, is relevant to market needs (now and with a view to the future), and is inspiring-unlocking a picture of what the organization wants to/ought to be like by some future date. As such it is a vital part of any market-driven transformation. Mainly it enables the implementors to formulate their missions and decide what to p u r s u e - and, equally important--what not to pursue. For example, once Sahlin had stated his vision and made clear that markets, namely the 'before' and 'after', had to be treated differently and had structured accordingly, the Bearings Services division could define their mission as 'trouble free operations'--thus implicitly stating what they needed to do.
A N e w Set of Market-driven Tools Giving people a new and common set of marketdriven frameworks, concepts, tools and language is essential to market-driven transformation. It not only provides the impetus, it is also the glue which binds different kinds of people, divisions, countries and companies which hitherto may not have sensed the need for shared customer initiatives or working that closely together. Once these concepts and language are in place, people at all levels are literally able to discourse and develop together in a way never before possible and get market driven initiatives under way. At Northumbrian Water new, market-driven tools were shared among all functions throughout the organization for both strategic and operational reasons. On a strategic level this enabled employees to reformulate their perception of customer needs and Long Range Planning Vol. 28
April 1995
the requirements needed in 'product', people and process terms to satisfy them. On an operational level it enabled everyone within the firm to see and sense opportunities within a common framework and understand their respective roles in the delivery of their services, Once the need for change had been established at Jiffy, executives began using n e w market-driven concepts and tools as a vehicle to understanding customers better on two l e v e l s - - e n d users and distributors. Executives actively sought out end user segments not served by their distributors working with key players to understand their operations and provide them with high value cost effective solut i o n s - f r o m decisions on application through to disposal. Concurrently projects were undertaken to improve relationships with distributors, working more closely with them to help them better to serve their customer set.
The Importance of Language, Metaphors and Symbols Apart from n e w concepts and tools, n e w language, metaphors and symbols are also useful to accelerate understanding, motivation and commitment. For example Hargreaves intentionally used the metaphor of a train: 'we're an express train operating on twin tracks headed towards a vision'. Tom Sisson of Citibank, in trying to get people to think ahead about the Citibank strategy and IT needs instead of just focusing on the day-to-day problems, said: 'We're in the middle of the English c h a n n e l - - w e can either go forwards or backwards, we'll struggle for a while but at least we're moving ahead. ' In both cases employees understood the metaphor, and it helped to make the point, and drive the process.
Step 3: Integration. But, ultimately, the acid test is whether the agitation and education have become e m b e d d e d into day-to-day behaviour change. Achieving this integration is step three in the dynamic process.
Creating New Role Models Achieving integration means making n e w market driven ideas and behaviour institutional. Deliberately creating n e w 'role models '--those people who put the market-driven terms and tools into practice--is an integral part of this. Role models are people whose core competencies, individually and jointly, will The Process of Market-Driven Transformation
attract customers and distinguish the firm from competitors. It is important that they become the n e w heroes that others will inevitably begin to emulate once the old order begins to fade. This helps people unlearn old habits and acquire n e w behaviours. However it means changing, or even eliminating, old titles and labels and celebrating and rewarding the kinds of behaviour and successes that reflect n e w market-driven v a l u e s - instead of the old. And at this stage even 'punishing' those people who persist in perpetuating the old values despite getting short term bottom line results. Divisions within a company can also be the role model for others, as was the case with Bearing Services in the SKF example. Ciba-Geigy Allcomm, the former advertising internal service of the Swiss global chemical and pharmaceutical company, is another case in point. From a captive customer and traditional employee base, its CEO Jurg Chresta transformed it into a dynamic customer-oriented communications firm. This was part of a much more ambitious plan to use Allcomm for the overall Ciba-Geigy vision to become more market-driven. 14 Chresta in turn chose a group of young dynamic (and very different) members of staff which he called the 'experimental group' who served as a role model to achieve his vision. Countries can also be role models. Greece, for example, was deliberately chosen as the role model for Citibank's transformation process in Europe. The object of the exercise was to deliver one integrated, consistent experience from country to country in Europe so that customers could access the services they needed--wherever, whenever, and however they wanted them.
Developing 'Model' Concepts 'Model concepts' are equally important during the integration stage to get n e w tools and experiences e m b e d d e d into the culture. Ideas and experiences on h o w to better serve customers are better made tangible by projects and initiatives ranging from working directly with customers to anticipate assess and satisfy needs, redesigning h o w people work, to putting n e w processes into place, retraining, and developing n e w information management, service quality, and performance management systems. This is a more desirable alternative than decisions being taken on n e w ways of operating and handing them down. Relevant people are involved in specific projects which are supported and made successful.
These become 'model' concepts to be rolled out as 'best practice' within the corporation. The 'model branch' was one of several of such projects undertaken at Citibank Greece by Tom Sisson to implement the 'Tao of Banking' vision (note language and metaphor). Sisson was responsible for successfully developing the 'model branch' concept to implement the global market-driven vision there. The learning was then spread and transferred into the operations of the other Euro-countries.
Choosing Projects Projects, whatever they may be, need to be carefully chosen and supported with some specific objectives in mind: Cl They should be do-able and visible so as to be able to spread learning and successes through the organization and marketplace. Going back to the Citibank example, Sisson made sure all experiences were shared from branch to branch as the transformation in Greece took effect. On a European level the know-how and learning was intentionally spread from country to country through 'strategy review sessions' held by the Vice President for Europe. 0 They should involve the correct customers/ distributors/partners as early on as possible. Greece first, and then three other countries--while not the biggest--were chosen because it was felt that they could transform most readily and speedily. In fact, the countries with the larger networks and revenues were probably the most conservative of all and initially were handled differently. The same principle applies to customers, distributors, or suppliers. 0 They should be as generic as possible so that the experiences are transferable. For Citibank this is key to providing a pan-European seamless, consistent service for customers--looking for generic solutions to their problems and then making only n e e d e d adjustments (from country to country) rather than duplicating efforts. The point is that only with deliberate mechanisms in place--to make ideas into new offerings, and individual successes into collective behaviour during the integration stage--can the new culture and character of the transformation take root.
0 They should also be prioritized. Not all projects
will generate the same benefits or be feasible in the short term. Citibank divided its projects into three categories: 1. the visible, high priority/ impact projects which should and could be done immediately; 2. those involving stretch goals which needed more time and systematic change; and 3. those requiring super-stretch capabilities and goals, taking an even longer period to accomplish. Some of the projects chosen early will not only be a high priority, but may also be self financing (i.e. they not only create value, but they eliminate nonvalue/costs) and thus they may also be used to fund the longer term and more costly projects needed for the transformation to become fully entrenched in the culture.
Managing Resistance and Resistors: A Natural Part of the Process? Anyone who has been through market-driven transformation knows that resistance is a natural part of the process. Especially for companies which have been in regulated or captive-customer situations. Often corporate leaders miss this and try to get cons e n s u s - b e it among the board, top or middle management. When they can't, they give up. But just as people take on new products at a different pace, so too they accept new ideas at varying rates--including the need for, and methods involved in, market-driven change. Which is another way of saying that market-driven transformation cannot be universal. It will take place by different people/ divisions/countries at different times. Why?
Diffusing the Transformation Classic theories of new p r o d u c t - - a n d new idea--diffusion can be very useful in understanding the process. 15 Generally speaking people can be classified into buying categories directly related to their risk profile. This is shown in their buying behaviour w h e n they accept new p r o d u c t s - - a n d in their ability and willingness to take on new ideas. And research and experience also show when, and how, they buy into and participate in a transformation process. 16 (See Long Range Planning Vol. 28
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want to see tangible results before they accept new ways of behaving. They want reassurance about how things affect them as individuals, and are only really comfortable with guidance, direction and facts. They are better at perfecting processes once the transformation is on its way and handling operational issues during the initial stages than initiating new ideas. When they begin changing their behaviour the integration has really begun. (Conversely, if they don't change their behaviour, integration won't be accomplished.) Q Late acceptors (around 34%) are conservative and risk averse by nature. They too can be anywhere within an organization. They buy in and participate once the early acceptors begin to switch behaviour. Until then, they continue to do and perfect what they do best and will do so for as long as they can. They are best in routine operational areas rather than in new customer initiatives.
Figure 3 for generic categories of people and their relative risk profiles.) Here are the various categories of people and their characteristics:
~3 The innovators (around 2.5%) accept and enjoy change. From them the agitation and transformational leaders will come. They enjoy innovation, are comfortable with uncertainty, sense danger, pick up signals quickly without implicit data and have a high willingness to live with uncertainty. 0 The opinion leaders are the next group (around 12.5%). This group is essential to the transformation, especially during the agitation and integration stages. As trend-setters, they run with the ideas, move them along and take people with them. They will be found in all parts of the organization. Q The early followers (around 34%) This next group waits, often resisting change until they understand it better and see what's going on around them. They may only feel a sense of urgency during the education stage w h e n the first initiatives have already begun. They may be found anywhere within a firm--if in high places, they can block or slow down the transformation process. They look to the opinion leaders for evidence of success and The Process of Market-Driven Transformation
[3 Laggards (around 17%) mostly do not change. Some may want to leave or have to go.
An Example At Ciba-Geigy Allcomm the reaction to making the advertising service into a separate company with the explicit objective of becoming market-driven resulted in this kind of normal distribution of employee reaction. Chresta handled each group differently. Given the traditional nature of the culture at Ciba-Geigy, he intentionally brought in three people from outside and combined them with three innovators from inside to form the 'experimental group'. These new people were deliberately chosen because they were prepared to do whatever was necessary to attract new customers and new business, and Chresta basically gave them the freedom to do this. 'Show the world that you can get the business and satisfy the market. No one will interfere with you if you deliver the goods', he said. (Later on in the process he took the good and bad experiences learned from the 'experimental group' and embedded them into other departments.) Then there was a group of younger 'entrepreneurs' w h o m Chresta concentrated on initially, about 10% of the staff, who were very receptive, impatient to make their mark. They did not care about the details and began to get projects under way to become more commercial for both new and existing (Ciba-Geigy) customers. Another 30% were quite flexible and
happy to get going provided they were able to do the kind of work they liked and their status remained intact. Chresta gave them a different time frame, and a different set of customers to serve. About 40% were resistant. They were afraid of taking decisions and making mistakes. For them seeing was believing. Chresta spent time with them, sharing successes and mistakes once the transformation got under way so that they w o u l d not be afraid to learn from the others. A small group, about 10%, were outright against it. The distribution of the categories described above (and see Figure 3) is likely to be more or less normal when the c o m p a n y is in a reacting transformation mode. When it is already in crisis the distribution will be skewed to the right. When it is in an antici-
patory mode the distribution will be skewed to the left. Different risk profiles will dominate the firm's culture depending on whether it is in an anticipatory, reacting or crisis mode (see Figure 4). While the categories described and remarks made above are clearly generalizations, a few points are worth noting: ~3 The gap between the (high) risk profile of the corporate leader during the transformation, i.e. an innovator, and the dominant culture prevailing in the firm will be different depending on the transformation mode (greatest for crisis, less for reacting, even less for anticipating). The smaller the
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gap, the easier the initial task--corporate leaders need to understand and manage this. O Corporate leaders need to know whom they are dealing with, at what stage of the transformation, at all levels of the organization, rather than expecting everyone to react in the same way at the same time--this also is a conscious part of the transformation process that must be managed. Q Corporate leaders need to find the opinion leaders inside the firm and work with, and through t h e m - the same principle should be applied to customers, distributors, suppliers, and other partners during the initial stages. O Different categories of people need to be handled differently. When resistance is legitimate, it has to be managed. O The rollout, essential to the integration process, involves having the correct people/divisions/ countries involved in the correct projects at the correct time--projects should be carefully chosen, supported, and consciously converted to best practice to enable integration to take place across functions, divisions, and countries.
Checklist for Action Market-driven transformation entails making fundamental changes in the way people think about, and handle, the challenges of satisfying customers. To achieve this the corporate leader must go through a three-stage process, during which, if certain tasks are performed, the probability of success is likely to be higher and the change smoother and quicker. Table 1 is a checklist for corporate leaders which they will find a useful guide. This article has suggested that: 1. market-driven transformation is a process which has defined stages and tasks but, nonetheless, 2. it is a dynamic process with different people and projects moving at different speeds.
1. Have we identified the relevant moment to make the move? 2. What mode of transformation are we operating in--anticipatory, reactionary, or crisis? How does this affect the approach that we should take? 3. Do we know what needs to be done at each stage in the process? 4. How will we monitor progress at each stage? What signals will we look for? 5. Do we have a clear understanding of who the opinion leaders are and where the blockages are likely to be? 6. Who will be tackling which projects at what point? 7. Which projects must be fast-track and which slow-track? How will these be integrated into the process? 8. Which people will be fast-track/slow-track? How do we integrate them into the process? 9. Do we understand what behaviour we want from new role models? How will we achieve this? 10. What will the model concepts be which will serve to help 'roll out' the transformation process both internally and externally?
Clearly this is not the classic top-down or bottomup approach. Change is going on in 'pockets' of the organization, wherever it is most appropriate. The role of the corporate leader/s is not only to lead change therefore, but also to pull together the various bits and pieces, making sure that the ideas and initiatives of the various projects and people come together with coordinating mechanisms in place to achieve one, cohesive result. Part of the challenge is also to manage people and projects operating at different speeds. And to manage the diversity among the people involved in making the transformation happen. Finally, there is the ability to accept and tolerate ambiguity--transformation in a contemporary market setting involves working on several fronts and on twin time tracks simultaneously.
References 1. Fortune Magazine, February 22 (1993).
2. For comments regarding the IBM saga, see for instance: R. Heller, The Fate o f IBM, Little
The Process of Market-Driven Transformation
Brown and Co. (1993); P. Carroll, Big Blues, the Unmaking of IBM, Weidenfeld (1993); and C. Ferguson and C. Morris, The Computer Wars: The Fall of IBM and the Future of Global Technology, Random House/Times Books (1993). 3. See C. Handy, The Empty Raincoat, Hutchinson (1994), for an interesting rendering of this. 4. Adapted from original work done by J. Fry and P. Killing, Strategic Analysis andAction, Prentice-Hall (1986) and summarized by Killing and Fry in their 1986 IMD Perspective (number 4), Managing Change: Pace, Targets, and Tactics. 5. G. Hamel and C. K. Prahalad, Competing for the Future, Harvard Business School Press (1994). 6. For more on breakpoints, read P. Strebel, Breakpoints: How Managers Exploit Radical Business Change, Harvard Business School Press (1992). 7. S. Vandermerwe and M. Taishoff, SKF Bearings Series: Market Orientation Through Services, IMD Case Study (1990). 8. S. Vandermerwe, Northumbrian Water: From Monopoly Utility to Competitive Service Entity, IMD Case Study (1994). 9. S. Vandermerwe and M. Taishoff, Citibank (A): The Tao of Global Consumer Banking,
Citibank (B): Implementing the Global Tao Pan-Europe and in Greece, Citibank (C): Results in Greece, IMD Case Study (1994). 10. I first encountered the use of the terms 'agitation', 'education' and 'integration', in a class given by a colleague, Christopher Parker. To my knowledge this has not been documented by anyone. 11. S. Vandermerwe and A. Vandermerwe, Making Strategic Change Happen, European Management Journal 9 (2) ( 1991 ). 12. Wall Street Journal, May 16 (1994). 13. S. Vandermerwe and M. Taishoff, Jiffy (A): Managing for Customer Orientation, Jiffy (B): Channel Management for Customer Orientation, IMD Case Study (1993). 14. S. Vandermerwe and M. Taishoff, Ciba-Geigy AIIcomm: Making Internal Services Market Driven--Taking the Helm (Case A) and Setting Sail (Case B), IMD Case Study (1992). 15. E. Rogers, Diffusion of Innovations, The Free Press (1982); S. Vandermerwe, Diffusing New Ideas In-House, Journal of Product Innovation Management, 4 (1987); for more on characteristics of transformational leadership, see B. Bass, Improving Organizational Effectiveness Through Transformational Leadership, Sage (1993); G. Hofstede, Culture's Consequences, Sage (1980). 16. Unpublished work on diffusion categories and behaviour in companies by A. Vandermerwe, IMD.
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