With the financial sector attempting to adapt to regulatory and economic uncertainty, firms are forced to prioritize and change. Phil Davis '85, an experienced management consultant, discusses the factors that can make organizational change succeed or fail, whether in the financial industry or another sector.
Change is hard. Large-scale organizational change can seem as unpredictable, fickle, and irrational as—well, as people themselves. Walter McFarland, writing in the Harvard Business Review, summed up the state of change management as follows, "After six decades of study, untold investment, and the best efforts of scholars, executives, and consultants, most organizational change efforts still underperform, fail, or make things worse."
For an organizational change effort to succeed, leaders must understand motivation, context, receptivity, sequencing, and pace. They must communicate effectively and pull the right levers at the right moment in a dynamic situation. Things rarely go according to plan, in no small part because humans are more at ease with the status quo.
We’re wired to be wary of change. Neuroscience is showing that we experience potential threats to status, certainty, and autonomy as painful. Real change puts all of these in flux. David Rock, director of the NeuroLeadership Institute, discussed the challenges leaders face in managing this aspect of human psychology in an interview with the New York Times.
We asked Phil Davis ’85, head of Visa Client Consulting and a former partner with the consulting firm Bain & Company, to address the opportunities and obstacles related to organizational change. With more than 25 years of experience in industry and consulting, his focus is helping financial sector clients maximize their performance and growth potential. Before joining Bain in 2006, Davis held strategy roles with Citibank and BearingPoint, Inc.
One important part of managing change, Davis says, is motivating people at all levels of an organization. He points out that when an organization needs to change, frontline employees often best understand customers’ needs and feel the urgency to improve, and top leaders have access to the most information and the clearest view of the goal, but the middle layers—buffered from customers and not privy to the big picture—can be reluctant participants.
Q: How are the financial companies you work with dealing with the current financial environment?
Phil Davis: Facing the economic changes that we’ve seen through the crisis particularly, but also the changes in the regulatory environment, have really created, I think, a sense of unmooring, because the rules aren’t clear and so now that is different than previous cycles. They are really feeling around for, How do we get to a more agile position so that we can move depending upon both changes in the overall environment economically? as well as, How the rules are going to be written? I think that that’s a fundamental difference.
First there’s acknowledgement of what’s real. That’s a big part of the discussion with senior leaders is to get grounded and get grounded in what’s happening today and how this is different than previous cycles. So that is a difference in the approach. The second area is to understand what the core of the core business is. Often organizations for various reasons have adjacent activities and what I’ve done in my consulting career and certainly what organizations like Bain focus upon is to focus on the core. So we spend a lot more time saying, “What is really core? What’s an adjacency worth pursuing? What are areas which are not worth pursuing because they’ll never be able to be either a large or dominant share player in this business; they’ll never be profitable for them.” I think that this time has really required organizations to be a lot more hardheaded about that.
Q: What are the keys to making a successful organizational change?
Davis: Organizational change is hard under all circumstances. As people we’re pretty hardwired to basically continue in whatever direction we’re heading. The organizations that I’ve worked with, there’re probably a handful of things that the successful ones do and those who struggle, obviously, don’t do as well. One is they don’t—those who are successful create a picture of, what we say it as, the beach. It’s really getting people to understand what the point of arrival could be and that point of arrival needs to be compelling enough so that people are willing to change behavior and often it’s vague. People don’t understand what that might look like and because of that, they don’t know exactly why they should change and, inevitably, they don’t or don’t as fully as they need to.
A second area of success for companies is getting engagement from the front line all the way up to the leadership team. That is more time consuming. It requires a lot more discussion and debate, but when you do it you get everyone engaged in a way that makes them feel like they have stake in the changes that are about to take place. When you don’t do it, you end up with a lot of broken loops where folks on the front line in particular, those who are against the customer, don’t often know exactly why a particular change is being contemplated and hence, they either don’t do it or they don’t explain it to the customer in a such way that the customer wants to go along with it.
Q: What are the biggest obstacles to change?
Davis: Changes I’ve been involved in—successful changes I’ve been involved in, more often than not, it is pursuing an opportunity rather than running from a threat, but you could see both. There’s a chance to be able to take a well-run company and they believe that they can get to the next level. In those cases, the message is much more inspirational to the team. It’s about creating something that’s insanely great, in the words of Steve Jobs. In those cases, that is, I think, a very powerful message because people really do want to do a great job.
In the cases where you find obstacles to change, it’s usually not the top tier because they have access to the information. They see what their competitive position is. They understand why they need to do something differently. It’s often not the front line tier because they know—they’re against the customer every day. They see what’s happening in the marketplace because they’re living in the marketplace. They understand that change is inevitable and they have to do something different.
It’s the middle tier. And if you think about the wiring diagram of an organization, the incentive structure, obviously, the organization structure, the reporting structure—all goes through that middle tier, and that can get calcified over time. People might like those roles. They don’t have the benefit necessarily of the senior leadership where they have the access to the information and they’re a level or two or three away from the customer where they don’t feel every day the need to change something. That group needs to be convinced and that becomes the challenge of the organizations: how do I get that group to buy in to what we need to do next?