Michael Tushman's SLA talk on change management

On March 23, 2009, the New York Chapter of the Special Libraries Association (SLA) hosted Michael L. Tushman, professor at the Harvard Business School, in a talk on "How Should We Manage Change in the 21st Century?" Held in the JP Morgan Chase Conference Center (top floor), the setting offered some stunning views from downtown Manhattan (Liberty Island to the left, Ellis Island to the right):
Tushman's area of research is on technology, innovation, teams, change. He hoped to dwell on the role of the library and information in innovation and change. His PowerPoint is on the SLA NY Chapter website.

He started with a list of private and public firms, small and large and asked: what's the unifying theme among them? (Slides 2-3 of his PowerPoint.)

Some responses: they were firms that dealt with technology and technological change, and most had issues of growth. Many are great organizations that died; some came back. Changes occurred in markets and customer requirements.

Other commonalities: most companies had a near monopoly. They used technology for either growth or rebirth. It's a pattern for successful firms. Tushman mentioned that he'd been looking at such firms for a while, to help understand and build ideas on how and why organizations evolve over time. Then he helps companies to understand those ideas.

Why is it that great organizations almost always fail when the world shifts? (And right now we're in the middle of one of these "world shifts.") Why in such situations do leaders become losers?

Response: they don't see what's happening in front of them. Example: Wang Laboratories didn't believe the personal computer would be a threat. Incumbents - almost always - don't believe in the change. Why is that?

Emotions, fear of loss, - what do they fear loosing? Power? Money? Status? It's arrogance, and an inability to see objectively. It can happen when change is too rapid, and when one is too complacent.

Who's responsible for this kind of failure? The CEO? The board? Top management team? Organizational culture?

Let's take the story of the Swiss watch industry. (PowerPoint slide 4.) There was a pattern of continual decline of numbers of companies and number of watches being made, gradually being overtaken by Japanese watchmakers.

Then Tushman introduced the concepts: Incremental change, architectural change, and radical change (or discontinuous change).

In 1970 the Swiss were no. 1 watchmakers. But quartz watch movement represented for Swiss a discontinuous change. Who would be a customer of a mechanical Swiss watch in 1970? The high-end customer. But a quartz watch is for everyone - it's inexpensive and accurate. Swiss makers actually made quartz movement, but the heads of Swiss companies ignored that information until 1980 when they were practically bankrupt. So they developed Swatch in 1981 as a response to the new forces. They had the technology in 1970, but ignored it until they went bankrupt. (Usually firms wait until they're broke before they take drastic steps to innovate.) Also a similar thing happened with the American tire industry: demand for belted tires sunk while radial increased. (PowerPoint slide 5.)

Slide 6 shows the evolution of the Disk Drive industry: 146 firms founded; 125 were failures. As disc drives get physically smaller (an architectural innovation - going from larger sizes to 8 inch, 5.25 inch, 3.5 inch, etc.) different customers shop for different companies. Firms which lead in one format generally don't lead in the next.

What it takes to exploit your existing business gets in the way of exploration. What we're (at Harvard) trying to do is build businesses that can both exploit what they do (and are good at) and explore for the future.

The problem is that the more you exploit today, the less good you are at exploring tomorrow. Tushman tries to help organizations to do that, but the problem is that they're contradictory forces.

We have a wonderful executive program at the Harvard Business School. Eight weeks, full room and board (and of course 6 superb faculty members) for which we charge $60,000. We hold it twice a year. We're enormously proud of it.

What are the technological challenges that business schools face? What is threatening our world? The answer: online distributed executive education. Who is the leader? University of Phoenix. HBS's way is based on face-to-face interactions. Online courses is an entirely different way of distributing content through the web. Instead of $60,000 a year, they charge just several hundred dollars. So what are schools thinking? They're thinking: "Such online programs wouldn't attract our customers." But over the course of time, such programs are going to get better and will gradually siphon off students from Ivy-league schools.

Look at the Sears building. The company built (what was then) the tallest building in the world. That says something about how they perceived themselves. They're in Chicago. Look at the horizon in Bentonville, Arkansas (beginning of Walmart, Inc.). At first Sears had cornered the city market, and Walmart had the rural areas. By distributing so many catalogs, Sears didn't encourage the country folks to visit the city. All of a sudden, Walmart opens in Chicago - and that spells the end of Sears.

This pathology is deep. The better you are in the short-term, the worse off you'll be in the long-term. It strikes the best people in the top rooms. This issue of cultural lock-in, blindness -- leaders don't see the changing world - this imbalance between the short term and the long term. These are brilliant executives who catch a disease: they're believe their great (an invincible). When they start to fail, they almost always need an outside agent to come in and "lead a revolution" in the corporation. (examples: IBM.)

A happy story: The Ball Corporation (slide 13). They've continuously followed both paths of exploit and explore simultaneously, and have been able to grow and change with the times. When asked what is the company's identity, the CEO responded: we're a container corporation. That "vision" has enabled them to pursue various avenues for development while maintaining their identity.

Note that this is not just incremental change, but incremental change and incremental revolution. What doesn't change is their identity: who they are.

That's one of the key ideas resulting from the research we've done: an over-arching frame (or vision), innovation streams, punctuated change, and an organizational design that permits exploration.

Punctuating change: the only way to get the future - revolutions, incremental change, and revolutions again. Revolution: when the whole organization is turned upside down. Strategy, structure, people, processes all shift at the same time.

Culture of an organization: values, norms, the climate. The social structure. Who is responsible for this organization - who makes it go? People not with formal power but with informal power. They are the nodes of the social network. The coalition of power brokers.

Tushman recalls a client who had formal power, but not social power. Whenever you try to implement change, you need a coaltion from the leader, his team, and those within the social network. You need that if you want to move into the future.

The architecture to exploit people, processes, and structure is different from the architecture needed to explore. Tushman used the word ambidexterity: an organization that can have completely different cultures, completely different competencies, completely different structures, completely different processes.

The challenge: to build an organization that both lives in the past and lives in the future simultaneously. It's a contradiction; Tushman asks senior leaders to host that contradiction: to honor the past while at the same time create a new culture. That is a managerial feat: to live in both worlds.

Imagine you're in Rochester, NY in the 1970s, and you hear of digital imaging. What would be the reaction? As it happened, a librarian in the audience was there at the time and she described the reaction to digital imaging as: arrogance, indignation, and fear.

To conclude, Tushman cites the company Toyota as profiled in the book "Extreme Toyota." His summary: They live in "a state of disequalibrium where radical contradictions coexist, propelling Toyota away from its comfort zone and creating healthy tension and instability within the organization." They are a world of internal paradox - a state of equilibrium and disequilibrium simultaneously.

He then showed this image:
He concluded by noting that the role of leaders is to build organization that can go "there" (where the signpost above points). When someone pointed out to him that the image sends a mixed message, Tushman responded "Yes! Exactly right! Exploit and explore." It requires two completely different organizations, a contradiction that the leadership team must embrace. You want the punctuated change in the exploratory culture, and incremental change in the exploitative culture.

That's his idea: this notion of end capabilities, streams of innovation, the role of the senior team exploiting and exploring, and building multiple and inconsistent cultures that are held together by this notion of identity.

The event broke up as evening settled on Manhattan: