The Starting Point of Business Change

First Things First: Know the Business

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Jim Champy

Behavioral and Leadership Issues

These days, much attention is being paid to behavioral and leadership issues in management literature; Topics like “how to lead during a time of change,” and “how to be a leader not just a manager” are flooding best-seller lists.

This focus on organizational and leadership issues is the result of the digital transformations which many enterprises are attempting–and with which many are struggling.

It's not easy to navigate the workplace changes many companies are facing. My concern, though, is what’s getting lost: the importance of a real understanding of how a business works as companies try to manage big change.

How is a product made or service delivered? How are customers found and kept? What does product renewal and invention look like? How are operational excellence and profitability maintained to keep the business alive?

I recall a client in my early reengineering days that began its change process with a series of behavioral, team-building exercises–think rope climbing, long walks in the woods and climbing mountains.

The workers finally revolted. “Where’s the meat?” they asked. They could see the importance of focusing first on how the business operated and wanted to get on with real change, not behavioral theories and exercises.

I don’t mean to imply that leadership and behavioral change are not important; they are critical components of the change process. The question is: Where do you start in order to accomplish business change?

[Leadership and behavioral change] are critical components of the change process.

Learning from the Decline of Sears

No better example of business failure exists today than the decline of Sears, a 126 year-old company.

Sears used to be an extremely powerful company. It was an American icon.

It had both a “brick and mortar” business with stores, distribution centers and a catalogue business. The Sears catalogue was the source of everything for those living in rural areas: from clothes to tools to appliances to even complete prefabricated houses.

Just imagine digitizing that catalogue and leveraging the Sears distribution capability. It could have been an Amazon competitor. But today, Sears is enmeshed in a bankruptcy battle–trying to stay alive.

What Happened?

Several years ago, Sears was bought by a private equity firm. The head of that firm was a brilliant finance guy, but when stepping foot in a Sears store, you could see (and feel) that their leadership knew little about retailing.

Some time ago, I walked through a Sears store in New Hampshire. It was a sad experience: the inventory looked sad, the environment was sad, the sales people were sad–even the customers seemed sad. I did not want to shop. I just wanted to leave.

I expect what attracted this investor was Sear’s real estate portfolio. It’s “brick and mortar” facilities were extensive. The investor didn’t see it’s potential as a digital–or even physical–retail giant. And they certainly didn’t understand what drives retailing.

They were finance people–not retailers. Even in the bankruptcy process, the focus was on a financial package. No one was talking about breathing life back into a former giant. But financial restructuring is, of course, key to extricating any business from bankruptcy. I just wish there was a little more inspiration being infused into the business.

You might argue that a company like Sears, with its large physical infrastructure, might not survive in the “digital economy.” But just look at Best Buy, whose predicted demise was premature. Best Buy’s leaders knew their customers and their products. The company is still very much alive.

(As I was writing this column, the Bankruptcy Court overseeing the Sears case agreed to allow the private equity company that had been running Sears to buy it out of bankruptcy. Many of the Sears creditors objected. But now we will be able to see whether Sear's owners have learned the business.)

The Rise of the Professional Manager

The fact that the Sears failure could happen can be attributed, in part, to the emergence of the “professional manager”–a smart person who understands the tools of management but may not understand the business he or she is in.

Sometimes these people rise in large corporate settings; sometimes they’re hired to try to “fix” a company; sometimes they’re put on corporate boards to advise on “restructuring.” When this happens, danger is ahead.

I hesitate to attribute the phenomena to the rise of business schools. But some schools spend too much time teaching “management” and not enough time teaching about “business." This is a subtle, but important, difference.

Masters of the Business

In contrast, I think of executives and managers who are both good leaders and who know their business.

The late Herb Kelleher, the founder and CEO of Southwest Airlines, comes to mind. He knew how to deliver a good traveler experience and he understood the logistics required to profitably operate an airline.

As a traveler, you can directly experience Kelleher’s business sensibilities. For example, if you've traveled on Southwest, you've experienced the intelligent passenger loading process. People line up in an orderly way, and if you want to be at the front of the line, you can pay more.

Then there is Tim Cook, Apple’s CEO. Apple may be challenged in some of its markets, but you can be sure Cook understands how an iPhone is made, sold and serviced.

And just think of all the stories of great generals you’ve read. They were great leaders, but they also understood the business of war.

The Order of Change

If there is a prescription for driving major business change, it begins with first understanding the business.

In operations, leaders need to know the workflow, where time is spent, the breakdowns and where the money is. In product/service design, there needs to be an understanding of customer needs–now and for the future. In sales and delivery, knowing how to create a great customer experience and how to keep the customer is crucial.

If a change team masters this understanding, it can then pay attention to the processes of behavioral change and leadership in order to move the organization forward.

Only when knowledge of the business, behavior change and leadership are combined, will a change effort feel authentic and will real business change happen.