How Change Proficiency Delivers Value In Uncertain Times

Today’s global economy is experiencing an unprecedented level of turbulence and transformation. Rapid technological advancements, geopolitical tensions, climate change, and the ongoing impact of the Covid-19 pandemic have converged to create a volatile, uncertain and constantly changing economic landscape.

Oftentimes, companies handle times of uncertainty and a tenuous economy by taking what might be considered a more conservative approach. Budgets are cut, the firm stops hiring, and projects take a pause – in essence, to wait and see.

These traditional risk mitigation strategies, which prioritize stability and incremental progress, are becoming less effective in the face of relentless change and actually expose organizations to risk. They trigger our innate survival instincts, leading to heightened fear, anxiety, anger and distrust – emotions that work against the pursuit of the innovative ideas and new opportunities that are so needed in the moment.

As one leader lamented after the 2008 financial recession: “We were celebrated for our quick action in responding to the crisis and our stock price initially did well, going up around 5% while one key competitor had its valuation drop nearly 25%. But the actions we took [or didn’t take] left us totally ill-prepared to compete when the economy and the industry started to grow again.”

While short-term thinking might mitigate short-term risk, it can be lethal in the longer term, particularly when competitors’ strategies are not to hunker down but to look up and see the unseen opportunity in change.

With the potential for an economic downturn and continued volatility, we suspect that many leaders will once again be leaning toward a cost-cutting strategic approach. If not helpful in the long term, why is this approach so often the norm?

A part of the story is that in a high-stress environment, many executives default to a command-and-control approach that seemingly is the fastest and most reliable way to execute risk-appropriate, needed action. But even more fundamentally, history has left most of those in top management without the relevant experience, knowledge, skills, tools and needed behaviors to lead effective change. The reasons may be that it was usually not essential in the past, and because great examples of change muscle have been, for most people, a rarity.

Change Proficiency is Key to Surviving an Economic Downturn and Thriving in An Economic Recovery

Evidence is growing that proficiency in leading change, in a downturn, is not only better than the historical norm but potentially far superior. Strong change capability allows an organization to adapt smartly and with agility to a potential or firmly established economic downturn. It allows organizations to deal with the real threats in the environment but also take advantage of the opportunities. It can not only maintain but even accelerate growth and profitability through the recessionary economy and in the aftermath of it. It can help organizations retain the best talent and attract talent from competitors. All these points can in turn create a significant competitive advantage.

Research shows that change capability in leaders such as tolerance of ambiguity, adaptability, and curiosity, contribute significantly to driving organizational effectiveness. These capabilities have a direct impact on business performance. For example, the Korn Ferry Institute’s research on organizational transformation reveals that 50% of the difference in financial performance among highly transformational companies over a 5-year period was related to trust in leadership.

Conversely, qualities negatively correlated with overall organizational effectiveness include a strong focus on detail and exactitude, as well as an excessive reliance on process and procedure. In today’s turbulent times, executives must be comfortable with uncertainty and be willing and able to react with agility. The research findings emphasize the strong relationship between a company’s leadership qualities and its Drucker score, suggesting that investing in leadership development and hiring can significantly boost a company’s resilience and readiness for long-term organizational performance.

What Do Highly Change-Proficient Organizations Do?

During the past 5 decades, during which there have been seven recessions in the U.S., Kotter conducted 16 multi-year research projects, mostly about change capability. Over 500 organizations in total participated in these projects. And the difference in economic results, on average, between the most change-capable businesses and the least capable is nothing less than astounding. For example, in one study where we looked at 10 years of quantitative financial data on all participants, the high change-capable companies saw their stock go up just over twelve times as much as the low change-capable firms. Whether you look at revenue growth, profitability, employment growth or return on assets during and immediately after recessions—the basic results remain the same. The change-capable groups beat the less capable significantly on both hard and soft measures.

So, what do these adaptable, highly change proficient companies do? What useful generalization can be made from the observation of their success?

1. They create, grow and hold onto a sense of urgency. They don’t ignore real threats, but they focus on optimism while realizing their vulnerability to being disrupted. When people develop and retain a sense of excitement more than fear or frustration, they are propelled to want to do something to help find and capitalize on the biggest opportunities.

2. They intentionally build and maintain cross functional and multilevel groups of people with influence, leadership skills, management skills, relevant past experiences, strong networks, and good reputations, also known as guiding coalitions. These top-down, bottom-up and peer-to-peer influencers become powerful sources of strength compared to the typical taskforce of already overworked managers and executives. Their efforts can make action happen faster and smarter so that new ways of working achieve a tipping point and change goes viral.

3. These guiding coalitions clarify a vision of both the biggest opportunities emerging, as well as the key strategic initiatives needed to capture the possibilities. This work typically creates an even more motivated and aligned group truly dedicated to much more than “making it through” any recession.

4. Change proficient companies communicate about change, opportunities and strategic initiatives in an ongoing way that creates a sort of surround sound for others. Their communications are radically human – transparent, inclusive and empathetic – at a time when many feel vulnerable but they are simultaneously forward-looking with the intent to unite, inspire and re-enlist.  Organizations with high change proficiency get as much buy in as they do because they target both our intellect (the head) and our emotions (the heart). As fear or anger turns to excitement and commitment, the stage is set to tackle a recessionary economy in a way that many people would not think possible.

5. These companies engage employees in moving strategic initiatives forward by creating forums for deliberate involvement and also encouraging employees to identify and capture opportunities in their own areas of control. If communicated with strong intellectual and emotional engagement, people inevitably take up the cause with great gusto.

6. They know that demonstrating success and building momentum at all levels is critical. By tapping into the brains and energy of the whole organization to find new and innovative ways of doing things – organizations can keep costs down and grow market share (and thus shrinking share for hunkered down competitors). As these successes are communicated and celebrated, more people naturally gravitate into these change efforts.

7. They cultivate a positive environment to alleviate workplace stress and boost employee resilience. Successes, despite difficult economic conditions, create sustainable energy, growing trust in top management, and an expanding “movement” within the firm. All this makes it easier to both recruit top talent from elsewhere and to hold onto your valuable people.

8. They realize that new actions and methods and innovations are always fragile, especially when brutal economic conditions may throw the equivalent of boulders at your home. The solution: making sure new ways of operating and new innovative products are well integrated into management systems and the organization’s culture. Change capable organizations very proactively and intentionally plan for this and then make sure the integration occurs.

Since the 1930s, economists have been trying to use macroeconomic theory and models to “manage” the economy, reducing recessions and the negative consequences for nations, organizations and individuals. We have seen real successes from this work. Imagine for a moment though how much more might be possible if we built many more change capable companies, governments, health and school systems. Imagine if, in addition to small groups of very smart people in national capitals making big monetary and other economic policy decisions, millions of people in thousands of change capable organizations were also taking smart action to create more upside and allow less downside?

If you are thinking “O.K., I’ll look into this when I get a chance,” consider one final fact: According to a recent survey of executives at the World’s Most Admired Companies conducted by Korn Ferry and Fortune, the No.1 attribute that makes someone successful in today’s top-performing companies is “the ability to lead change.”