People + Strategy Journal

Fall 2020

Executive Roundtable

Status quo is a powerful force in organizations, and people often are resistant to change, even when the need is clear. What’s the playbook for transformation?

By Adam Bryant
butterflies

​How to Drive Transformational Change

Status quo is a powerful force in organizations, and people often are resistant to change, even when the need is clear. What’s the playbook for transformation? Adam Bryant, Executive Roundtable Editor, interviewed three current and former CEOs with deep experience in managing disruption to hear their insights and strategies. Their comments were edited for space and woven together in a roundtable format.

Participants

  • Dawn Zier, former CEO of Nutrisystem
  • Aron Ain, CEO of Kronos
  • Dinesh Paliwal, former CEO of Harman International
People + Strategy: How do you get people to be willing to change, when so many people prefer the status quo?

Dinesh Paliwal: I used to say in our monthly call with employees that I’m paranoid. I got some feedback that I shouldn’t use that word, so I changed it to “healthy paranoia.” I’ve said to our employees that they need to get comfortable with discomfort, and they should pull themselves out of their comfort zone. If you think life is good, that means you’re already getting stale. Be ready to do things that are conventionally not done. One of the ways we do that is to move people around on our leadership team into different jobs. You learn if you’re uncomfortable. If you’re comfortable, you stop learning.

Dawn Zier: You have to be careful not to put the team on the defensive. If you say transformation and you’re having a lot of outside resources come in and help, all of a sudden you could have a team thinking to themselves, “Management doesn’t think I’m doing things right, the board doesn’t think I’m doing things right, the external consultants don’t think I’m doing it right.” In fact, you’re probably doing many things right but there are things that you can improve on. It’s not an all-or-nothing scenario. 

The other thing is the importance of being scrappy. It’s the scrappy, nimble cultures that are able to successfully disrupt, and oftentimes it’s easier to be scrappy in a smaller organization than a larger one where there’s more process and protocol. People are often most creative when they have limited resources. When the box gets smaller around you, that’s when you can truly think outside the box. It’s a little counterintuitive, but creativity loves constraints. 

Zier

“Two key enablers to transformation are the culture and agility of the organization. There has to be a culture that rewards taking risks. Because transformation is lined with failure.”
—Dawn Zier, former CEO of Nutrisystem

I also think transformation efforts do better with constraints. Understand what you’re trying to solve for and define the parameters. When you can’t do something, you figure out how to do it. Often transformation is iterative. You don’t get it right the first time. You have to test, learn, refine and repeat. My teams often tease me because when something goes wrong, I get excited because that’s when you hunker down and can start moving the needle. It’s also the time when the teams often become the most unified.

When you bring in big-time consultants to help with a transformation, you have to be careful. Defining the scope is important. As a board or executive team, you can’t discount the knowledge of the internal team of experts in favor of the external point of view. You have to understand all perspectives. You have to create internal buy-in and do it in a way that is not threatening and doesn’t cause the people with all the knowledge to become defensive and clam up, because when that happens, they hear but they’re not listening.

Aron Ain: We’ve had lots of transformative experiences at Kronos and they continue to happen. Moving our software to the cloud was a huge step, and we created posters and stickers and trained people and communicated constantly about it. During that period, our employees saw the word “shift” everywhere because we wanted to signal that the shift touched everything from finance and marketing and sales to service and support and IT.

That process lasted for 24 months. We over-communicated. I spoke about it all the time. We sent company-wide emails. We recruited stars in the company to lead the work streams and guaranteed that they would have their jobs back when the work was over. That made people think, “Whoa, they’re serious about this.” 

Sometimes people would stop me in the hallway to say, “This is hard. How are we supposed to do our regular jobs and still do all this?” And I said, “We have no choice. The world’s changing. We have to change with it. We have to transform.” I’m fearless about change, because things don’t stand still. I’m very comfortable with risk.

That’s why, as a CEO, I have to lead. I try hard not to keep score on some of these decisions we make. We’re going to try new things and do new things and some things are going to work. I hope most do, but some things won’t.

If we put everybody in the penalty box when things don’t go well, then people will go into a project saying this is a bad idea because they want to protect their own position and how they’re viewed. They’ll spend six months absolutely, positively proving it was a stupid idea. If you want to find a way to be successful with driving transformational change, don’t put people in penalty boxes.

P+S: Dawn, what are some of your insights on the art of transformation?

Zier: The repercussion of not changing has to be significant. It’s hard to initiate change if it’s just a “nice-to-do.” There has to be serious implications of not transforming, like you might go out of business. That is the catalyst that makes people focus. The fear of not changing has to be greater than the fear or discomfort of going through the change or transformation itself. 

The other key is that you have to be deliberate about defining what a successful transformation looks like so you can measure progress. You have to be explicit about what success looks like, you need to measure against it, and you need to be willing to fail fast if you’re not hitting the mark. 

Two key enablers to transformation are the culture and agility of the organization. There has to be a culture that rewards taking risks. Because transformation is lined with failure. Very rarely in a transformation do you get it right the first time. You have to embrace this feeling of discomfort as you’re going through a transformation, and you have to make the team okay with that, and you have to enable them not to be perfect and to fail. 

Another challenge is around balance and buy-in. It’s not about throwing the baby out with the bathwater. When companies are transforming, that doesn’t mean you have to change everything. You need to understand what’s working, what’s good, and then focus on what will be transformative. It’s about mix and balance. It’s about creating buy-in throughout the organization and making sure that you’re not creating unintentional silos between the people who are doing the transformation and everyone else. 

P+S: Dinesh, you pulled off a transformation at Harman that was as much cultural as technological. What was your playbook?

Paliwal: A lot of founder-run companies have very good cultures, but in the case of Dr. Sidney Harman, he was pretty much hands-off for years, and the company was deteriorating. When I joined, I said, “Where is my HR executive?” And he said, “You don’t have one. You do it.” I said, “Dr. Harman, it’s a critical function that must be led as a partnership with the CEO. I’m going to hire a CHRO.” Everything starts with people.

I had come from ABB, a well-known and well-run company in many ways, but it had its negatives. It’s so large that it had many silos and politics, and I hate silos and politics. The first meeting with my management team was about politics. I said, “Ladies and gentlemen, I will have your back. But I don’t want you and I to agree on something and then you leave the room and say something else. Rule number one is no politics. We stick with what we believe in, and we act as a team.”
Ain

“It’s my job as a CEO to set a pace that is faster than people want to go and let people talk me down. If we’re going to go through transformation projects and reinvent and do things, then we want to go fast.”
—Aron Ain, CEO of Kronos

Dr. Harman was a larger than life figure. Even in my early days making decisions as a CEO, people used to ask me, “Are you sure Dr. Harman is okay with it?” If you want people to take you seriously when you move into a role where there is a founder or a chairman who used to be the CEO, you have to be confident to carve your own path and take on the sacred cows of the old regime.

In my case, that sacred cow was a money-losing factory in Los Angeles. I wanted to close it, but it was in the district of Harman’s wife, Jane Harman, a congresswoman. Dr. Harman didn’t want to cut the 900 jobs, and he questioned why I wanted to close it so soon after taking over as CEO. I explained that keeping it open would be a signal that I prioritized politics over the right business decision. I said to Dr. Harman, “If you’re going to stop me, please tell me now. I will walk away gracefully.” It was not the popular move, but we both knew it was a tough but right step.

P+S: Aron, it can be hard for a company to disrupt itself. How did you do that at Kronos?

Ain: I’m in my 41st year at Kronos and we’ve had a lot of success, including our recent merger with Ultimate Software. It can be easy to think that you’re smart and successful and that you know what you’re doing and you don’t have to seek advice and you can control your destiny. That’s never true, and things are always changing quickly.

Sometimes they’re right in front of you and they’re easily seen. Sometimes you react to them and sometimes you don’t. Other things can be less obvious and you have to put your ego aside and understand that you can continue to learn new tricks and adjust accordingly.

In 2013, we were about to cross $1 billion in revenue. Put yourself in my position—I started at Kronos when we had zero revenue. It would be easy to think we’re doing great, but I was worried that someone else was going to assume that we were being lazy and come into our space and try to reinvent our business in the same way we had done to the industry when we started back in the late 1970s. 

As a result of that real fear, I created a group within the company whose charter was to invent a product that would put Kronos out of business, but we would do it to ourselves. We gave them people, time and resources and said go for it. 
I assigned a couple of our most incredible leaders to the project because I knew this was going to be hard. They said they needed 25 people, and a third of them were going to be people with great domain knowledge and experience from our business; a third of them were going to be subject-matter experts in emerging technologies; and a third of them were going to be people outside our business, including some twenty-somethings who could help us think about how to create a B-to-B software application that was as intuitive and fun to use as a consumer product.

We set up an office 20 miles away from our corporate headquarters because we didn’t want those people to be distracted. Every four to six weeks, I would stop by that office on the way home and see how they were doing. The first two or three times I did that, I said to myself, “Oh my goodness. This is going horribly. Where’s the action? Where are the new ideas?”

But they were just getting started. They were exploring and thinking about it. But as each period went by, the vision became clearer and I got more excited. By the way, we kept the project quiet and didn’t make a big deal about it internally, because we weren’t sure whether it was going to work.

Today this product is leading the way in our industry and helping our company reach the next level of success. We were able to disrupt ourselves and the industry instead of falling victim to someone else doing it to us. 

P+S: Dawn, when you were at Nutrisystem, you introduced the acronym FACT for the culture.

Zier: Yes, and it stood for focus, accountability, customer-centric and team. Because Nutrisystem is an e-commerce company, we had a lot of data available to us that we could use in our decision-making. When I first got there in 2013, the company was floundering and everybody was telling me their hypotheses around that without any substantiation. 

I told my team, “I’m willing to have any conversation, but come to me with some data and facts and then we can talk.” The data gave us a baseline for the conversation that was grounded with facts and then we were able to build out a test-and-learn culture that focused on innovation and marketing, which ultimately led to a pretty remarkable turnaround.
Paliwal

“The CHRO and CFO own the two balance sheets that reflect the true value of a company. A CEO can only get things done by paying attention to these two equally important balance sheets.”
—Dinesh Paliwal, former CEO of Harman International 

Part of our learning was that you can’t reward people just on the transformation. You have to reward them on the progress that they make along the way. You have to keep people motivated and celebrate steps as you go forward. Businesses are fluid, and you have to react to different environments, different outside factors and often macro events that are beyond your control. You always have to be willing to pivot and change when the data suggests you need to do that. 

You have to create an environment where you’re not always comfortable. You have to be your own crisis manager. Look at what crises could happen and then figure out how you’re going to act or react as various opportunities and disruptors present themselves. It’s about always being curious, asking questions and not accepting the status quo. 

P+S: Aron, what other lessons have you learned now that you’ve been through this process?

Ain: Trust your people. Liberate them to go for it. Support them, encourage them, challenge them. Make them feel important and that this is a critical thing they’re working on.

I also believe it’s my job as a CEO to set a pace that is faster than people want to go and let people talk me down. If we’re going to go through transformation projects and reinvent and do things, then we want to go fast.

With that particular project I mentioned, I asked how soon we could have it and they said five years. I said, “Are you nuts? The whole world is going to be different in five years. I’ll give you one year.” They said that’s impossible, and I said that nothing’s impossible and I gave them two years. It ended up taking three.

P+S: Dinesh, what else did you do to change the tone at Harman?

Paliwal: When I joined Harman, I would table my ideas and ask for feedback and opinions. At first, my team would just say, “That’s a great idea, Dinesh.” Then I would say, “I didn’t bring you all together just to tell me that my ideas are great. I genuinely want you to tell me where I haven’t thought this through.”

That took me a few years to change. When I started doing company-wide meetings every quarter, I asked for direct questions from anyone. Every question is a good question, and I made sure they were comfortable knowing that there wouldn’t be any consequences or retaliation against them. 

For two years, not a single question. It took time for people to get comfortable with a direct style—and that asking a tough question might get you an answer you don’t always like. But that doesn’t mean I think less of a person because they asked. The same thing happened with the leadership team. Now they’re willing to say, “Dinesh, that is a bad idea.” 

To have a team like that is a blessing. I built this team by deconstructing myself in so many ways in front of them by telling them about my own missteps and errors, to give them confidence that it’s okay to be direct with me. I can make mistakes, but let’s openly talk about it. Getting inputs and feedback through a team of people with global backgrounds and different experiences is a much smarter approach than relying on just my own thinking.

P+S: Dinesh, talk more about the importance of the CHRO.

Paliwal: I’ve always said that the CHRO and CFO own the two balance sheets that reflect the true value of a company. A CEO can only get things done by paying attention to these two equally important balance sheets. Because without a people balance sheet or a financial balance sheet, a CEO cannot do anything, and you have to have them in balance. At many companies, CHROs are not part of the senior leadership team, and it’s a disaster. I’m also a big proponent of pushing CHROs to join public company boards.

Another important quality is courage. A lot of HR people are like finance people—risk-averse. I want my HR person to be as bold as I am. We have taken a lot of chances on people. Because we travel so much, we know the top 200 people in the company on a first-name basis.