It is the foundation for successful corporate management and also its guiding principle: initiating change and carrying it through.
The biggest and most successful strategists aren't content to just steer their companies along a familiar course – they are the top executives who can shake the foundations of a company, no matter what obstacles they encounter.
Leading change, or pushing through fundamental change in a company, is the ultimate proof of this class of company head.
Every company, without exception, needs change.
The most recent example of sudden radical change was the splitting of Germany’s largest utility E.ON into separate companies – one for new renewable energies and one for traditional coal, nuclear and natural gas plants.
Germany’s energy transition to renewables, adopted in the wake of the Fukushima nuclear disaster, meant falling profits for traditional power providers. E.ON chief executive Johannes Teyssen had to act.
But Mr. Teyssen did not choose the path of quick relief, such as a simple downsizing. Dividing the corporation was more of strategic attempt to secure the utility’s future for decades to come.
Humans initially oppose changes that affect them directly or indirectly – especially when things seem to be going well already. Who wants to think about the next crisis or next market development when profits are surging, sales are up and employee bonuses are fat?
Bosch, on the other hand, has been in a permanent state of change since its founding in 1886. What began with ignitions is now a company that offers software and data services that competes with Google and Apple in the business of Big Data.
Chief executive Volkmar Denner is installing start-ups throughout the entire company, which he hopes will not only make Bosch fit for the future, but also change the company’s culture by injecting entrepreneurship into its DNA.
Bosch is a parable for the idea that only companies with excellent leadership over decades or even centuries will be successful. It is also crucial to have the right corporate leaders. Mr. Denner is only the seventh CEO in Bosch’s more than 125-year history.
Bosch and Siemens, with their long histories, also demonstrate how technological advances change companies over the long term. Whether it was the invention of the telephone, the steam engine, the Industrial Revolution or computer – technological advances always require fundamental changes in business.
We are currently experiencing perhaps the greatest advances in business history – the digital revolution. It is still in its infancy and we can hardly imagine what kinds of changes it will bring. Companies will be required as never before to transform, change and adapt.
From a strategic business point of view it is not just about initiating the right change for the right reasons at the right time. The company’s chief executive must also push change through – against resistance from employees and management, against concerns of the supervisory board and investors. Humans initially oppose changes that affect them directly or indirectly – especially when things seem to be going well already. Who wants to think about the next crisis or next market development when profits are surging, sales are up and employee bonuses are fat?
But it is especially then that leaders must tackle change to make their companies fit for the future.
Norbert Reithofer, who is currently moving from the top post at BMW to head of the supervisory board, is exactly this kind of strategist. When he took over in 2007, BMW was in excellent shape and was out in front of rivals Audi and Mercedes.
Mr. Reithofer did not like the view of the future or the self-satisfaction at his company however. He prescribed a new strategy for the car manufacturer in the direction of alternative engines, and today BMW is leading in Germany with its electric and hybrid i- models.
Mr. Reithofer was successful because he not only convinced critics inside the company, but also put people excited about the new idea in the right positions and found an ally among the owners. That is how he slowly changed the culture at a car manufacturer driven by horsepower. Mr. Reithofer, if you will, added a gene to the company’s DNA.
How CEOs manage change is also critical, and many noble projects fail. In 2013 only 56 percent of major reform projects in businesses were successful, according to a global survey of top corporate leaders by Strategy& consultants. The main reason they failed was because teams were poorly prepared for change and didn’t follow their leaders.
This was recognized by Louis Gerstner Jr., who executed one of the most interesting and successful fundamental changes of a company. Mr. Gerstner saved IBM from collapse in the mid-1990s and increased the value of the U.S. company more than five fold in less than 10 years. His lesson from the years’ long process of change was that “culture is everything.”
German CEOs who successfully changed their businesses also recognize this. They include Mr. Teyssen at E.ON, Mr. Reithofer at BMW, SAP chief Bill McDermott, Hugo Boss CEO Claus-Dietrich Lahrs, mid-sized business boss Friedhelm Loh, Bayer CEO Marijn Dekkers, Conti boss Elmar Degenhart and Trumpf CEO Nicola Leibinger-Kammüller.
Their achievements are so impressive because failure can happen so easily. They contrast from companies that begin change too late or approach it the wrong way.
That’s how onetime leading companies went under, including Grundig, once Europe’s largest producer of radios, and Schneider, the German electronics manufacturer that missed the boat and had to give up. Commodore, which once produced the biggest selling personal computer in the world, lacked a follow-up.
In German business, adhering to old structures and strategies was a death sentence for Schlecker and Quelle. The almost-bankrupt Karstadt is still suffering today from having clung too long to its conventional department-store model. Who still remembers the company’s several rushed attempts to reinvent its stores in order to attract customers again? This week the company decided to close another five stores.
What often separates successful strategists at the top levels from those who fail is a real will to change. If the drive for change is “we must do something,” then that leads to half-baked and poorly managed company reforms. Change for change’s sake has little prospect for success.
Those who do not really want to change are not capable of leading. And those who cannot make a change will fail.
The banking industry, for example, developed the true will to change too late. Jürgen Fitschen, the co-CEO of Deutsche Bank, credibly advocated his strong desire to change the culture of the bank after many scandals. But shouldn’t the bank and many of its competitors have examined their structures at the heyday of the industry, before the financial crisis?
In hindsight, the answer is yes. But in those days the profits were so abundant and money flowed so generously to managers and traders that it blinded them. As a consequence, though Mr. Fitschen is truly willing, the reputation of the bank has been damaged and a change in culture is coming out of necessity – and therefore very difficult to implement.
John Kotter researched why companies fail to change during his time at the Harvard Business School in the 1990s. He followed changes at more than 100 companies worldwide and found that very few achieve good results, a few bitterly failed and the majority handled change poorly.
His 1996 international bestseller, “Leading Change,” concluded that changing a company is extremely complex, and that one mistake can ruin it all.
In order to succeed, Mr. Kotter and other experts said, company leaders must be prepared to carry change through mercilessly – and “neutralize” critics who work against change.
One must primarily be able to continually present successes in order to reach the desired goal. The transformation of a company should in the end not just secure the future, but also lead to added value.
Siemens is an example of what happens if interim successes are absent. CEO Joe Kaeser prescribed a restructuring of the group, which is deemed necessary overall.
But Mr. Kaeser faced more and more pressure because there were no signs of success. He himself declared 2015 as a year of transition. Negative headlines continue to dominate and Siemens recently announced it would cut more jobs in its energy division.
That does not mean that restructuring was wrong or has failed. But it is possibly poorly managed or poorly sold. In some cases that has led to reformers being swept from their positions, and to their visions being scared away.
What remains is the realization that one cannot appreciate enough the achievement of successfully managing change. There is no standard procedure or stereotypical manager that can guarantee that – but true strategists are always needed.
Grischa Brower-Rabinowitsch heads Handelsblatt's U.S editorial coverage out of New York City. To contact the author: [email protected]