Transforming Companies: The Path from Periphery to Center

Senior leaders often assume that top-down, companywide programs – mission statements, “corporate culture” initiatives, training courses, and the like – transform companies by changing knowledge and attitudes. They hope that altering formal structure and systems will change employee behavior. And they think that companywide change begins with them, at the top, and hinges upon them as its champions.

“This theory gets the change process exactly backward,” say TruePoint’s Michael Beer and Russell Eisenstat in their classic Harvard Business Review article, “Why Change Programs Don’t Produce Change,” based on a four-year study of organizational change at six large corporations. The most effective way to change behavior is to shape a new performance context, which creates new roles, responsibilities, and relationships. The authors’ research, documented in their award-winning book The Critical Path to Corporate Renewal, showed that successful change efforts usually started at the periphery of the corporation in a few plants and divisions, not at the corporate center. These efforts focused energy for change on the work itself, not on typical change program abstractions such as “participation” or “culture.” And their success was encouraged by senior leaders who recognized that their power to mandate change from the top was actually quite limited. Instead, they defined their role as creating a climate for change, then spreading the lessons of both successes and failures.

Based on their research, which included hundreds of interviews at the six firms they studied, Beer and Eisenstat determined that successful change processes unfold at the unit level – in plants, departments, or business units – as general managers reorganize employee roles, responsibilities, and relationships to solve specific business problems and pursue clearly defined goals. The specifics are determined by each situation; the general process of change occurs in a sequence of six steps that the authors identify as the “critical path”:

1. Mobilize commitment to change through joint diagnosis of business problems.
2. Develop a shared vision of how to organize and manage for competitiveness.
3. Foster consensus for the new vision, competence to enact it, and cohesion to move it along.
4. Spread revitalization to all departments without pushing it from the top.
5. Institutionalize revitalization through formal policies, systems, and structures.
6. Monitor and adjust strategies in response to problems in the revitalization process.

These six steps became The Critical Path to Corporate Renewal. Starting at the periphery and moving steadily toward the corporate core, top management orchestrates change across the organization, unit by unit. Doing so successfully requires a delicate balance, spurring the change process without dictating particular tactics.

The authors’ research indicated several common approaches among top managers who successfully foster unit-by-unit change. One is to create a market for change: hold managers accountable to demanding standards, but allow them to develop and share their own methods of achieving results. Another key is to use successfully revitalized units as organizational models for the entire company. These units become developmental laboratories for further innovation, as long as they receive substantial resources and attention, and provided marketplace conditions are reasonably conducive to their success. Lastly, unit-by-unit change requires strong leaders at the unit level – so top management must develop career paths that encourage leadership development.

Eventually, top leaders must apply to themselves what they have been encouraging their general managers to do and tackle the tough challenge of transforming companywide systems and structures. This sets the stage for top management to lead a corporation that can continually renew itself as competitive forces change.

Contact TruePoint to receive a copy of the article “Why Change Programs Don’t Produce Change,” Harvard Business Review (November-December 1990), and the book The Critical Path to Corporate Renewal (Harvard Business School Press, 1990), both authored by Michael Beer, Russell A. Eisenstat, and Bert Spector.

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