Leadership Critical to Organization Change Efforts

NEW YORK—Having the right leadership and buy-in from the top guns is critical to any new organization design and instrumental in getting your organization unified behind a common strategic direction and shared business priorities, speakers said at a recent event here sponsored by The Conference Board.

“In the world of organization design, there’s a lot of talk about the importance of leadership to organization success. But in reality, we often treat organization design and the specification of leadership requirements as independent, unlinked variables,” speaker John Beeson, principal with Beeson Consulting Inc. in New York, told attendees.

Beeson said leadership is a key variable that must be factored in to organization design decisions and planned for explicitly in the organization launch/change management process.

During the conference, IBM Corp. and MassMutual Financial Group explained how they did just that.

Designing for Entrepreneurship

Large organizations can find the idea of growing new businesses “within existing businesses” challenging, particularly when it comes to allowing new or embryonic opportunities to take root without being crushed by the larger organization’s policies and practices.

“I don’t think anybody has it right, and I think a lot of large companies struggle with it,” said Michael Giersch, vice president for strategic planning for IBM in Armonk, N.Y., during a session titled “Organizing for Success in High-Growth Emerging Business Opportunities.”

In 2000, IBM launched an effort to identify, select and pursue new lines of business inside the company and set up a program for emerging business opportunities (EBO). At the same time, it designed an organizational structure and governance for EBOs and adopted a business leadership model to drive alignment of strategy and execution for processes, talent, organization and culture.

“Strategy really is about change, and change really is about strategy,” Giersch said. “And you can’t separate the two.”

The call to action came one Sunday morning in September 1999 when then-CEO Louis V. Gerstner Jr. fired off an e-mail asking executives, in part, “Why do we consistently miss the emergence of new industries?” Giersch recalled.

“It wasn’t that we didn’t see things, we just didn’t move fast enough,” Giersch said of the problem.

Gerstner gave a project team only a few months to figure out just that. Among other things, the team did “significant outside research” into benchmarks, wrote in-depth case studies and interviewed senior leadership to help understand root causes of the problem, Giersch said.

“This was probably the most critical part,” Giersch said. “We got a broad set of senior management together and looked at 25 situations where things didn’t go as well as we would have liked.”

From there, IBM declared and communicated its strategic intent to pursue growth opportunities. Among other things, it identified a highly visible short list of emerging initiatives and housed them in new business teams with dedicated A-team leadership support for each opportunity, as well as protected funding.

“We got our friends in finance to build them into the reporting process,” Giersch explained. IBM also made plans to nurture and graduate the short list and to identify new candidates continually.

The program has been successful. By 2004, the most recent year for which Giersch provided figures, the company had already launched 25 EBOs. Among the lessons learned, according to Giersch:

• • “Look for the burning bridge,” and get top-level support. “Lou’s e-mail gave us permission to do this.”

  • Do a thorough internal assessment of root causes because “it’s the thing [that’s] most critical to getting broad senior-level buy-in.”

  • Have active senior-level sponsorship and dedicated A-team leadership for each opportunity.

  • Put in place disciplined mechanisms for cross-company alignment.

  • Link actions to critical milestones.

  • Keep resources “fenced” and watched to avoid premature cuts.

Lastly, remember that such a process is a continued evolution, and there’s no single approach that will work for everyone.

“This is not something that has completely stood still; we continue to evolve it,” he said. “It’s a model that has worked for us, but it may not be the right model for other companies.”

Boosting Bottom Line

In another session, MassMutual Financial Group’s Debra A. Palermino described steps the company took to assess and select leaders who were equipped to implement the company’s new business strategy, designed specifically to improve bottom-line results in its retirement services division.

The Springfield, Mass., company has 27,000 employees and agents and had net income of $810 million in 2006. But a couple years ago, MassMutual realized it needed to tap deeper into the explosive retirement services market and take advantage of an opportunity to double its market share by 2011.

“We were successful but complacent,” said Palermino, senior vice president of MassMutual Financial Services. “We had a huge opportunity, but we knew the core of our business had to change.”

That wasn’t the only thing that changed. Two years ago, MassMutual ousted its CEO and appointed Stuart H. Reese as CEO and president. Reese “believed in the business case” and had the “will and confidence” to execute change, Palermino said.

MassMutual worked with Beeson to “map out what were the critical competencies we needed, and we landed on five,” she said. They were change leadership, managerial courage, process discipline, collaboration and results orientation.

The company then began a “very aggressive” 90-day leadership assessment process for the top two levels of management; it included customized 360-degree survey feedback and one-on-one in-depth interviews, as well as personality and cognitive skills assessments.

“This led to a lot of personnel change,” Palermino said. There were “some promotions, some demotions and some managed departures.” Now, she stated, 25 percent of the top tier of the organization is either in a new role or is new to the company.

“What we came away with was an incredible snapshot of leadership,” she said. “It was like watching a pro football draft … trying to match assets you have to needs.”

The company began discussions with managers, which led to “robust” development plans. “We’ve gone from being a traditional, stable and secure environment to a frenetic model where we all have our seat belts strapped on,” she said.

Palermino stressed that strategy must continually drive structure and people decisions, and that structure and design must reflect and enable leadership behaviors and competencies. And she said it’s important to use a “fair and transparent process” for assessing the leadership team. That means having:

• • A professionally led, competency-based and comprehensive assessment process.

  • A fact-based, thoughtful and quick selection process.

  • A detailed, sequenced communication plan that describes “where you are going and what it’s going to take [to get there].”

  • Mid-level managers who are informed and engaged because “that’s where it happens. You need to bring in mid-level managers ASAP.”

MassMutual has formed a business acquisitions committee, seen a 100 percent increase in second-quarter sales when compared with the same period in 2006 and has “one team and one voice,” Palermino said.

“They all know where we’re headed and why we’re doing what we’re doing,” she added.

There’s also greater optimism and energy across the division with the key leaders who were put in place, she said. Performance plans are tightly aligned and integrated across the business, and the company has “real movement toward candid, constructive performance discussions.”

“I look forward to 12 months from now and learning where this all ends,” Palermino said. “But early indications are things are on track and can only get better.”

Pamela Babcock is a freelance writer based in the New York City area.