BY TRACEY EVANS 

Leadership and transformation will create the sustainable and
profitable businesses of the future, says Professor John Kotter,
who has spent 25 years observing the way organisations work.

Change is inevitable if organisations and people are to adapt to
rapid advances in technology, increasing competitiveness,
globalisation and the effects of an ageing society.  Yet many
are clinging to old-fashioned notions of growth, says John
Kotter, the Konosuke Matsushita Professor of Leadership at the
Harvard Business School and a worldwide best-selling author of
management books.

In his book, Leading Change (Harvard Business School Press,
1996), Kotter writes that complacency, a lack of vision and fear
cause people to ignore the need for "personal renewal" and
development of their leadership potential. "In effect, they
embrace the past, not the future."

And when it comes to organisations, Kotter says so few have
transformed themselves simply because their leaders haven't had
the practice. "Thirty years ago, few organisations were thinking
about radical reinvention, so there is little practical
experience to be passed on to a new generation of managers," he
notes in an article, 'Winning at change', in the Drucker
Foundation's journal Leader to Leader (Vol. 10, 1998).

"The kinds of changes routinely undertaken by today's
organisations-producing ever better products, more quickly, at
ever lower cost-were unimaginable 30 years ago. Over the next
decade, thousands of leaders will guide equally remarkable
changes." Change efforts to date, including total quality
management, reengineering, restructuring, mergers and
acquisitions and turnarounds, have largely failed, writes
Kotter, noting that fewer than 15 of the 100 or more companies
he has studied have successfully transformed themselves.

With an interest in people and organisations since he graduated,
Kotter has taken a "nose-to-the-ground" approach, to work out
what drives performance and gets results and why some
organisations do better than others.  And it is this study that
has led him in later years to understand the power of leadership
and transformation in creating profitable and sustainable
companies.

Based on his observations, Kotter developed the eight critical
steps of successful large-scale change (see below), first
detailed in Leading Change.

The 8 steps

1. Increase urgency
2. Build the guiding team
3. Get the vision right
4. Communicate for buy-in
5. Empower action
6. Create short-term wins
7. Don't let up
8. Make change stick

Showing how the eight steps might work in practice, Kotter and
Deloitte Consulting principal Dan Cohen drew from interviews
with more than 100 organisations undergoing large-scale change
to produce a new book, The Heart of Change (Harvard Business
School Press, 2002).  In a synopsis (www.theheartofchange.com),
the authors say they found a striking pattern in the interviews:
"we see, we feel, we change".

"People are sensitive to the emotions that undermine change…and
that facilitate change," write Kotter and Cohen.


The need for empathy in facilitators of change underpins
Kotter's eight steps-none more so than in the first stage where
establishing a sense of urgency is considered critical.  It is
here that at least half of all change attempts fail because
leaders don't inspire people "to get out of the bunker and ready
to move", expecting that they will rally to the cause based on a
memo or report.

This failure to lead is endemic throughout organisations,
according to Kotter. "One of the big problems that I've seen
again and again and again is that people have somehow picked up
over the years an attitude that 'leadership certainly isn't my
job, it's the job of the person above me, or way above me and
therefore I don't do anything to try and stretch whatever
potential I have to do it'," he told HRMonthly.

"Incredibly, not only do people at the bottom of organisations
do this, you get executive vice presidents who do it.  When you
have enough people doing that, the sort of things I'm writing
about (in The Heart of Change) don't happen, because everyone's
waiting for somebody else or some other person to do it," he
says.

"Great leaders help others-not one or two people, but large
numbers of other people-to believe that they can and should,
within their little domain, help provide some leadership so that
collectively they can all make something quite remarkable
happen.

"It's not that they're asking people to be as extraordinary as
they are (I'm talking about great leaders now)-they're quite
realistic. They're saying, 'down there on your project team it's
essential at times that you provide some leadership which helps
your team move this organisation in a direction that makes sense
for the 21st century.  And collectively we will produce the kind
of changes that will be good for all of us," says Kotter.

With investigations continuing into corporate scandals in the
US, UK and Australia, Kotter is contemptuous of those who may
have been once thought of as great leaders.  "I've yet to find a
great leader who's done something illegal.  While nobody's been
prosecuted yet, there's still little evidence that they were
providing great leadership.

"There's a wonderful example in the US right now-and I don't
want to name names because of the lawyers in the US who go after
people like me-of someone who, for the last decade, has had a
company that had been growing and piling up earnings increases.

"I started looking into it because I was curious about what they
were doing right.  But I couldn't find anything that the guy who
was running it was doing that was remotely like the great
leaders I've seen along the way.

"He looked a little sleazy, he didn't seem to be focusing and
there was no vision. They were playing acquisition games,
mostly. Even before you knew how bad it was you could see some
accounting sleight of hand going on and it just eventually
caught up with him.  But the analysts were saying, 'This guy
must be great'.  Why?  'Well, the earnings per share keep going
up'.  But, what does he do?  'Well, he's a great leader'.  Okay,
what does he do?  They didn't have a clue."

The "insane" evolution of executive compensation linked to stock
options is another example of flawed leadership, says Kotter.

"These executive compensation schemes were set up such that, if
the company produced great increases in market value, the CEO
made a fortune. And if the company didn't create much increase
in market value, or a lot less than its competitors, the CEO
only made 20 times as much money as you made!"

In retrospect, says Kotter, it is amazing that reasonable people
thought it made sense. The concept of tying executive
compensation to stock options to improve shareholders' value was
"a goofy idea from the beginning".

The point is that there has never been a great leader who was
motivated by making money, he claims, "not even among the great
entrepreneur leaders in the US".

"The first corporation on earth that will have revenues of $US1
trillion is [US retailer] Wal-Mart.  The owner Sam Walton made
who knows how much, and as he's driving a seven-year-old pick-up
truck nobody who knew this guy said, 'he's doing this so he can
look at his bank account'.

"That's not the way great leaders are-they're always focused on
making something wonderful happen. And if they're associated
with an enterprise, it's about building, maintaining and helping
it adapt to new conditions."

That's not to say, says Kotter, that people shouldn't be given
fair compensation, or that they shouldn't make money.

"Indeed, Sam Walton made billions and nobody much in this
country argued with that. They said, 'This guy has created
hundreds of thousands of jobs, he's built stores that offer me
cheaper goods, more conveniently in a more pleasant atmosphere'.
And it wasn't through one of these stupid rigged stock option
programs, he just started a place and had an ownership share in
it and didn't sell it, and the stock went up.

"So money isn't what drives great leaders or even the leaders at
middle levels in companies.  Everybody wants money.  We want to
send our kids to college and we don't want to worry about health
care in our old age, and money is one signal of how well we do
in the world we live in. That's not the issue.  But the notion
that that's the driver for people if you want them to provide
leadership, as opposed to something broader that connects to
their deeper values, has always been a screwball notion."

Addressing governance and compensation issues is going to be a
particularly difficult challenge for organisations, says Kotter.

"Too much is ingrained.  People have been brought up in a
management culture that has accepted too much as normal-fudging
numbers a little bit, legally, is an example that goes back
years.

"So the changes that need to be made are very big right now. Yet
the way it's being talked about in management circles and the
press is, 'Well, if the government passes two new laws and
boards pass two new rules, and if we put a few people in jail,
that takes care of that.

"Well, no. Companies have some significant changes to do, not
the least of which is in the behaviour of lots of people-hence
it's in the very culture of companies."

Kotter despairs that a real transformation will be achieved.  He
says executives are more concerned that they might be blamed
than they are about taking on the job of driving change.  "If we
all collectively understood more about large-scale change and
leadership that's competent, obviously it would help the world,"
he says.

"Recognise the size of the change that's going to be required to
handle some of these ethics, governance, compensation and
accounting challenges. And once you see that, recognise that
it's going to take something more like an eight-step process,
not the board having a meeting and voting in two new rules.

Source: HRMonthly, December 2002 John P Kotter is Harvard
Business Professor of Leadership.  He is widely regarded as the
best speaker in the world on the topics of leadership and
change.  Professor Kotter will be in Kuala Lumpur to speak on
"Leading Change: What Leaders Really Do" on 13 April 2004 at
MIM.  For more details, please call MIM Customer Service at
03-21654611, e-mail enquiries@mim.edu or visit www.mim.edu