Why companies are often terrible at changing

October 24, 2011: 9:52 AM ET

No dramatic corporate change will succeed unless employees are behind it.

By Sharlene Evans and Greta Roberts, guest contributors

FORTUNE -- It's a common tale. In the midst of a sluggish economic recovery, many companies are frantically looking to find new ways to turn a profit. Some are pulling this off better than others.

Netflix announced and then went back on a decision to split into two business lines to separate DVD delivery from streaming services. GM (GM) expanded its overseas alliance with China's SAIC Corp. to develop key components for electric cars. And Tyco International announced a split into three distinct, publicly traded companies.

Each of these companies stands to make money off of these moves, but they have a long haul ahead. No doubt, corporate leaders have an idea of how they can succeed. But they will be battling against the reality that corporate change efforts often come up short.

Indeed, a survey published in 2011 by the Economist Intelligence Unit and Celerant Consulting (Sharlene's employer) found that despite increases in both executive time and spending, companies are simply not that good at changing, failing nearly half of the time (44%).

At the heart of these failures lies a common oversight. Change is about creating the best processes and systems to support a vision, but it is also about convincing employees to embrace new goals. No dramatic change will succeed unless the workforce is behind it.

There are three areas executives should keep an eye on as they set out to create a new stage for their companies:

It's in the delivery

Crafting the right message and incentives is a crucial step, and it is no longer surprising to find that money is not the root of all employee inspiration. Some employees are driven by the urge to outperform their peers, some by an interest in learning new trades, and others are focused on rising quickly through the ranks.

Consider a situation like Netflix's (NFLX) move toward having two separate services with distinct websites – and then its about-face in response to customer backlash. The company believed that each unit would have more success as distinct entities. The messaging and deployment of the strategy change, however, drew criticism from consumers and analysts.

Netflix has abandoned its plan for now. With the direction of the company in question, keeping employees committed has never been more important.

Some employees will leap at the chance to participate in new product R&D, while others may prefer the familiar ground of maintaining existing lines. Netflix can keep its talent engaged by assessing its employees' preferences and splitting the teams into groups designed to maximize their strengths and enthusiasm.

Keeping tabs on potential culture clashes

Companies that lack a clear direction run the risk of creating a rudderless environment that can derail even the best of plans. When companies come together for a common goal, resistance to the change can spell disaster.

GM should certainly bear that in mind as it launches its partnership with SAIC. Success must begin with a vision that CEOs, plant managers, and department heads across the company can share as they explain to their staff why the new way will be successful.

Inserting the right talent into the right kind of environment can certainly serve as a solid starting point. And establishing individual goals and giving a clear picture of roles and responsibilities also helps, but it may not be enough to get employees invested. It takes a concerted effort to establish teams that are attracted to the new business goals and perform well in the new environment.

Building endurance

In a case like Tyco's (TYC), splitting into three companies will likely achieve the desired boost in value if it can move quickly. That means that when the split is complete and new teams are in place, the organizations should already be putting sustainable improvements to work.

Tyco CEO Ed Breen's message is straightforward enough. "The new standalone companies will have greater flexibility to pursue their own focused strategies for growth -- both organic and through acquisitions -- than they would under Tyco's current corporate structure."

Independence could get these units off to a strong start, but it will be important for Tyco to keep its workforce performing strongly when the novelty wears off.

To keep up the positive results, managers will need to understand how their team is naturally inspired to perform. One or two hours per day of training on the finer points of their new organizational system can make a difference during the first six weeks of this new setup.

True, trying to get a more complete understanding of your employees is demanding. Companies can start from the ground up, having managers create a running accounting of their teams' strengths and preferences.

Partnerships, splits, and coming up with a new vision, none of these are startling initiatives, but the speed of today's market has vastly reduced a company's margin for error. Leaders can push their people to change, or they can attract people to want to be a part of the change. The former often leads to short-term gains, the latter stands more of a chance of sustainable enthusiasm from employees. Companies that understand their employees can set a foundation for a stronger, smarter, more effective organization.

Sharlene Evans is a director at Celerant Consulting and Greta Roberts is founder and CEO of Talent Analytics.

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