In all three organizations, the 800-pound gorilla that...

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In all three organizations, the 800-pound gorilla thatimpaired performance and stifled change was "culture."

126 ARTWORK BY TRAVIS FOSTER

How leaders at Sears, Shell, and the

U.S. Army transformed attitudes and

behavior-and made the changes stick.

CHANGINGTHE WAYWE CHANGE

BY RICHARD PASCALE.

MARK MILLEMANN, AND LINDA GIOJA

MORE AND MORE COMPANIES are trying to make a fundamental

change in the way they operate. For years, they've struggled

with growing competition hy introducing improvements (or at least

improvement programs) into every function and process. But the

competitive pressures keep on getting worse, the pace of change

keeps accelerating, and companies keep pouring executive energy

into the search for ever higher levels of quality, service, and overall

husiness agility. The treadmill moves faster, companies work

harder, results improve slowly or not at all.

The problem is not the programs, some of which have worked

wonders. The prohlem is that the whole hurden of change typically

rests on so few people. In other words, the number of people at every

level who make committed, imaginative contributions to organiza-

tional success is simply too small. More employees need to take a

HARVARD BUSINESS REVIEW November-December 1997 127

CHANGING THE WAY WE CHANGE

even at maintaining the vitality of healthy ones-because we have never before identified the factorsthat produce sustainable revitalization.

In essence, there are three concrete interventionsthat will restore companies to vital agility and thenkeep them in good health: incorporating employeesfully into the process of dealing with business chal-

greater interest and a more active role in the busi-ness. More of them need to care deeply about suc-cess. Companies achieve real agility only whenevery function, office, strategy, goal, and process-when every person-is able and eager to rise toevery challenge. This type and degree of funda-mental change, commonly called revitalization ortransformation, is what more andmore companies seek but all too T '1 1 ' * • ' 1 •

rarely achieve. Like physicians appraismg theirSurveys confirm that executives . , l - i |

have begun to give revitalization a p a t i e n t s h e a l t h , m a n a g e r s c a nhigh priority. With a few notable *• , 1 • I • C

evaluate the vital signs otexceptions, however, most of theirefforts to achieve it have met withfrustration-partly because large or-ganizations have such a remarkablecapacity to resist change of all kinds,and partly because the kind of change being soughtis so much more radical and uncomfortable thananything required by a shift in strategy or processor corporate structure. For that matter, corporaterevitalization often includes shifts in strategy orprocess or structure, but revitalization means agood deal more-it means a permanent rekindlingof individual creativity and responsibility, a last-ing transformation of the company's internal andexternal relationships, an honest-to-God change inhuman behavior on the job. Revitalization is notincremental change. Its realizable goal is a dis-continuous shift in organizational capability-a re-socialization so thorough that employees feel theyare working for a different company, a leap in acompany's ability to meet or exceed industry bench-marks, a jump in bottom-line results.

This kind of sustained organizational renewalwould not be easy even if companies had a reliableroad map to make the journey a reasonable bet. Asit is, most of what's been written about transforma-tional change is either too conceptual and thereforetoo impractical, too inspirational and therefore toovague, or too company specific and therefore toohard to apply to one's own situation. We have beeninept at transforming troubled organizations - or

Richard Pascale is a writer, a consultant, and an associ-ate fellow of Templeton College, Oxford University, En-gland, where he teaches strategy and organization. He isthe author of Managing on the Edge (Simon &> Schuster,1990). Mark Millemann of Millemann aJ Associates,a consulting firm in Portland, Oregon, specializes inlarge-scale transformation. Linda Gioja is an indepen-dent consultant based in Austin, Texas, who specializesin revitalization in the corporate and nonprofit sectors.Millemann and Gioja are both former consultants withCSC Index of Cambridge, Massachusetts.

organizational vigor.

lenges, leading from a different place so as to sharp-en and maintain employee involvement and con-structive stress, and instilling mental disciplinesthat will make people behave differently and thenhelp them sustain their new behavior into the fu-ture. Done properly, these three interventions willcreate a landmark shift in an organization's operat-ing state or culture by significantly altering the waypeople experience their own power and identityand the way they deal with conflict and learning.

We discovered these sources of revitalization bytracking the change efforts, in good times and bad,of three of the world's largest organizations: Sears,Roebuck & Company, Royal Dutch Shell, and theUnited States Army. Sears (with $36 billion in rev-enues and 310,000 employees). Shell (with $100billion in revenues and 110,000 employees), andthe U.S. Army (with a $62 billion operating budget,750,000 civilian and active-duty employees, andanother 550,000 in the Army Reserve) share traitsof size, geographical dispersion, and managerialcomplexity. They also share tbe distinction of hav-ing beaten the odds. All three have survived for 100years or more and have retained their essentialidentity-they have been neither swallowed up byothers nor disaggregated into fragments.

The events that triggered transformation effortsat Sears, Shell, and the army were quite different. Inall three organizations, however, the 800-pound go-rilla that impaired performance and stifled changewas culture. The trouble is, there are as many dif-ferent definitions of culture as there are articles onchange management, and none of them give usmuch help in telling us how, or even what, to fix.Nevertheless, in our study of what might loosely becalled culture at Sears, Shell, and the army, wefound four distinct indicators that are highly pre-

128 HARVARD BUSINESS REVIEW November-December 1997


dictive of performance in both good times and bad.These four indicators can serve managers in muchthe same way that vital signs serve physicians inappraising the health of the human body.

This analogy of vital signs is important. The rea-son so many early forms of healing failed was thatpractitioners were treating only the most obvioussymptoms of some larger malfunctioning systemthey knew little or nothing about. Gradually, how-ever, medical science identified these invisible sys-tems, figured out how they worked, stud-ied their interdependencies, and learnedto pay close attention to key indica-tors of a patient's physical well-being.Today physicians begin an examinationby checking these vital signs-pulse,hlood pressure, pulmonary function, re-flexes-to form a general but still fairlyaccurate impression of how each com-plex subsystem and the organism as awhole are faring.

Organizations have similar systemsand symptomatologies. Their vital signsreveal a great deal about their overallhealth and adaptability, and about thestrength and vigor of their functionalsystems. The four vital signs we identi-fied at Sears, Shell, and the army give usa working definition of culture and tellus most of what we need to know aboutthe operating state of any company:

Power. Do employees believe theycan affect organizational performance?Do they believe they have the power tomake things happen?

Identity. Do individuals identifyrather narrowly with their professions,working teams, or functional units, ordo they identify with the organizationas a whole?

Conflict. How do members of the or-ganization handle conflict? Do theysmooth problems over, or do they con-front and resolve them?

Learning. How does the organization learn? Howdoes it deal with new ideas?

Organizational DriftAs a result of age, size, or competitive intensity,most organizations exhibit a deterioration in vitalsigns that is inconsistent with-in fact, often de-structive to-their ambitions and purposes.

The members of start-up organizations have asense of individual and collective power; they feel

they can make a big difference in the pursuit of thegoals they all share. Employees identify withthe enterprise as a whole; alignment and informalteamwork are commonplace. When conflicts occur,people handle them directly and almost neverallow them to interfere with getting things done.The whole organization is open to learning; trialand error are the norm.

As organizations grow older and larger, however,the vigor of these four vital signs deteriorates. In-

stead of power, people often develop a sense of res-ignation in response to seemingly insurmountableobstacles or to lack of support from their superiorsin the daily hassle of getting things done. As organi-zations become more complicated and demanding,people strive to carve out private patches of turfwhere they can exercise responsibility, protectthemselves, and keep the world at bay. When itcomes to their identity, therefore, employees losetheir sense of teamwork and alignment with theentire enterprise and begin to seek the safety oftheir particular profession, union, function,

HARVARD BUSINESS REVIEW Ntivember-December 1997 129


or location. People in mature organizations tend toavoid conflict for fear of blame or of having some-one take their disagreement personally. Alterna-tively, they may take part in a succession of routinecollisions that lead to stalemate rather than resolu-tion. As for learning, larger and older organizationstend to be less receptive to new ideas than theiryounger counterparts. In place of inquiry and exper-imentation, ideas get studied to death in hopes offerreting out every possible weakness before mak-ing a commitment. The precondition for action iscertain knowledge.

The Sears story is a useful illustration of a com-pany culture's natural drift away from good health.It also illustrates one CEO's well-orchestrated butultimately ineffective efforts to reverse the driftand another CEO's remarkable success at breathingnew life into the enterprise.

Ed Brennan's 12-year tenure at Sears's helm can-not be faulted for a lack of intelligence, energy, orgood intentions. He put the Sears Tower up for sale,slimmed down headquarters, and moved the cen-tral organization to an open campus in Chicago'ssuhurbs. He called for an end to Sears's tradition ofinsisting that customers use only Sears credit cards.He launched Brand Central, which offered for thefirst time such non-Sears appliances as GE, Maytag,and Panasonic. He diversified into financial ser-vices through the acquisition of Dean Witter [for$607 million) and Coldwell Banker (for $202 mil-lion), and he invested Si hillion to launch the Dis-

CEO Martinez saw that Sears'sculture was as strategic as its

ct and market initiatives.produ

cover Card. [When he spun off these assets in 1993,Sears's market capitalization had risen to S36 bil-lion from $8 billion when he took the job, and thecumulative profit from financial services had ac-counted for approximately two-thirds of Sears'sconsolidated earnings for the preceding five years.)Brennan also did his best to rebuild Sears as a retailstore. He reduced employment by 48,000 jobs, sim-plified logistics, moved into women's apparel, tooksteps to streamline the buying organization, andpiloted new formats such as stand-alone automo-tive outlets, as well as home-furnishing and home-improvement stores. But it was Brennan's successor,Arthur Martinez, who hecame famous for revitaliz-ing the retail side of Sears.

Where Brennan fell down-in contrast to Mar-tinez-was in failing to grapple with the Sears cul-ture; that is, Brennan failed to address the deteriora-tion of the company's vital signs. Unlike Martinez,he never quite came to terms with the insight thatculture was as strategic as his product and marketinitiatives were, and that fixing the vital signswould go a long way toward fixing the company.

When Martinez took over in 1992, few employ-ees had any sense of power; most felt nothing hutresignation. As one regional manager put it, "It wasa company of 'salute and obey.' Directives camefrom above, and we did our best to follow them.There was no maneuvering room to make sensihlemarket decisions. As had press began in the 1970s,there was widespread depression and an unwilling-ness to admit at cocktail parties that we worked atSears. It all seemed so big and complex and out ofcontrol. We felt defeated and powerless."

In terms of identity, Sears had drifted a long wayfrom the vibrancy that prevailed from its foundingin 1880 through 1956, when General Robert Woodretired as its fourth CEO. For much of that period,the central buying staff and equally strong territorymanagers kept each other honest through a systemof checks and balances. Beginning in the mid-19SOS, however, a succession of caretaker CEOsallowed this precise tension between the field andthe home office to degenerate into an empty ritual.Territory managers ran their stores like baroniesand stonewalled strategic direction from above.

This tilt toward regional fragmen-tation and a more local identity un-questionably contributed to Sears'sinability to respond early to thethreats posed by Wal-Mart and Toys-R-Us. "Too small to worry about" or"Not a problem in my region" werethe typical reactions.

Brennan tried to correct the ex-cesses of decentralization hut pushed the pendu-lum too far back in the opposite direction. He elim-inated the position of territory manager along withmost other echelons in the regional hierarchy.Once-powerful store managers were relegated to"keeping the lights on and the doors open," as onestore manager put it. "As a result, our knowledge atthe fingertips was lost. Executive management ush-ered in an era of drive-by merchandising. Expertsfrom headquarters would visit a store three timesa month and would believe they understood yourlocal market better than you did."

Under enormous pressure to meet their perfor-mance targets and threatened hy further layoffs,store management teams hunkered down and con-



centrated on their own turf. As a consequence, thestores became a merchandising hodgepodge, andpoor service and frequent out-of-stock conditionsalienated customers. Many of Brennan's efforts toachieve sweeping change snagged in the concertinawire of the stores' defensive perimeters. Brennanwas trying to build a companywide identity byedict. Predictably, the center did nothold, and the effort failed. In the fall-out, identity fragmented more thanever as people everywhere in thecompany looked out for themselves.

The third of Sears's vital signs toshow serious deterioration was its

people experience power, identity, confiict, andlearning. All three, in one fashion or another, areusing the same three interventions to achieve thisimprovement in their vital signs.

The first intervention is to incorporate employ-ees into the activity of the organization. This is notthe same as communicating or motivating or

The first step toward restoringorganizational vitality is to

engage every employee in thecapacity for constructive conflict. *- ^ . -̂ , ^ i l l

The company s initial operating c o m p a n y s p o n c i p a l c h a l l e n g e s .model was built on a vihrant tensionbetween home and regional offices.This struggle between policy from headquartersand inventive execution at the stores was mediatedby a succession of four very strong and accessibleCEOs whose careers spanned the first 76 years ofSears's history. These men were not threatened byconfiiet; they encouraged and harnessed it. But bythe time Ed Brennan succeeded to the chairman-ship, the former mix of initiatives and controls hadlong since given way to compliance and acquies-cence. Pushing back or resisting directives meant"not being a team player."

As for learning. Sears had drifted to the most ex-treme condition of denial and complacency. Nega-tive reports by business analysts beginning in 1974were interpreted at Sears as bad journalism and un-fair treatment. In 1990, when Sears was accused ofwidespread dishonesty in its automotive repairs (asting operation by the State of California ConsumerAffairs Department found fraud in 85% of its visitsto Sears Auto Centers, and 44 states subsequentlyfiled suit), Brennan's first line of defense was todeny all allegations and to stonewall. An even moretroubling example: Sears began including Wal-Martamong its competitor benchmarks only in 1992, bywhich time Wal-Mart was 60% larger than Sears.Sears's strongly inbred culture was deeply impli-cated in this capacity for denial. Throughout Bren-nan's tenure, only one of 100 top executives hada non-Sears career background. "Sears is different"or "We tried that once and it didn't work" werefrequent responses to new ideas.

Incorporating EmployeesSears, Shell, and the U.S. Army are currently en-gaged in efforts to revitalize their organizations. Allthree are doing their best to transform the way their

rolling out plans hatched at the top. It is resocializa-tion. It means engaging employees as meaningfulcontributors (not just doers) in the principal chal-lenges facing the enterprise. It means seeing em-ployees as volunteers who decide each day whetheror not to contribute the extra ounce of discretionaryenergy that will differentiate the enterprise from itsrivals. Although incorporation shares DNA withsuch familiar ideas as consensus management, em-ployee involvement, and self-managed teams, it issomething more. Its distinct properties include theuse of concrete, pressing business problems to gen-erate a sense of urgency; the cascading involvementof every employee beginning at the very top of theenterprise and continuing down through the ranks;and the generation of initiatives conceived andstaffed by employees across hierarchy and function.

We can see one leader's efforts to reverse driftthrough incorporation in the turnaround of ShellMalaysia. Its British chairman, Chris Knight, hadthe benefit of three career rotations in Malaysiaprior to his appointment as chairman. When hearrived in 1992, he saw that the organization was introuble. The company was overstaffed; traditionalrevenues from oil and gas were in decline; servicestandards with wholesale customers were in dis-array; and the once-dormant government-owned oilcompany, Petronas, had become an aggressive com-petitor in the vehicle-fuel market.

Knight wanted to build a much more agile andless costly enterprise, but he had watched severalpredecessors try and fail to alter Shell Malaysia'svital signs. Most employees felt that as the largestprivate oil company in the country. Shell shouldtry not to make waves. This ultraconservativephilosophy led employees to avoid any deviationfrom usual practice and stifled in the cradle any



impulse to use their power of initiative. Within acocoon of comfortable oligopoly, their identity waslocated in small, defensible silos. ReHning quar-reled with transport, and everyone fought the crazyideas that came from marketing and sales, but allthese conflicts were distinctly muted. Malaysianemployees are from cultures sensitive to savingface and therefore tend to approach impasses byhighly circuitous routes. "Smooth and avoid" wasthe norm. Finally, there was little learning. Knightobserved a frustrating lack of concern, even ofcuriosity, when competitor Caltex gobbled up io%of domestic market share.

For more than a year. Knight tried to achieve au-thentic alignment among his eight-person execu-

In the valentines exercise,people air conflicts and struggletoward a robust resolution.

tive team. Somehow, the goal always eluded hisgrasp. In exasperation, he scheduled an incorpora-tion event in Kuching, Borneo, and asked all 260 ofShell's senior and midlevel managers to attend.

The leader of a middle-management strategic-initiative team kicked off the two-and-a-half-daymeeting with a brief presentation of two key pro-posals aimed at repositioning Shell and regainingcompetitive advantage. The first proposal envi-sioned a daring partnership with Shell's biggestcompetitor, Petronas, in order to engage in jointprocurement, thus lowering costs for both compa-nies and putting their competitors at a disadvan-tage. The second proposal was to streamline andimprove Shell's ragged relationships with its 3,000franchised service stations by creating a singlepoint of contact in a customer service center.

Assembled in small groups, the managers werethen asked to identify the soft spots in these strate-gic proposals. When the entire assembly recon-vened, some groups suggested improvements fromthe floor, but on balance there was general agree-ment with the proposals. The next step was an or-ganizational audit. Each of several large teams ofparticipants took one facet of the company-strat-egy, structure, systems - and described how it affect-ed current performance and the impact it mighthave on the two proposals. When these analyseswere shared in plenary session, it was evident tomost people that Shell's operating practices wouldseriously compromise the new initiatives. Over the

course of the meeting, many of Knight's manage-ment cadre became aware of the emerging competi-tive pressures affecting the company and were mo-bilized to take part in developing a response. Suchmobilization is the aim of any well-designed incor-poration process.

Just below the surface of this off-site meeting, an-other development was taking place. As lower-levelmanagers gained firsthand knowledge of businesspriorities and saw where the chairman wished totake the company, the vast majority of them boughtinto the plan, which left obstructionist senior man-agers isolated and exposed. One senior British expa-triate, recognizing that his hand had been called,chose the final ten minutes of the meeting to air his

differences with the chairman pub-licly. Knight dismissed him 48 hourslater-a firing heard round the worldof Shell, where this sort of thing wasnever done.

But the firing raises an obviousquestion: How does dismissal for dis-agreement fit together with the no-tion of encouraging constructive con-

flict? Knight's position was that he fired the mannot for disagreeing but for never disagreeing in theprevious 13 months of high-level discussions or atany time during the meeting except in the conclud-ing minutes. Moreover, most Shell employees-atleast those in Malaysia-accepted this explana-tion. Rather than create a fear of openness, the ter-mination of an executive widely seen as an oppo-nent of change was regarded as a defining momentin the progress of the broader involvement anddeeper commitment that is incorporation.

Incorporation doesn't begin and end with oneoff-site meeting, however uplifting it might be.Knight's next move was to sponsor one-day eventscalled valentines, a name and concept that he bor-rowed from Ford. In these exercises, gatheringsof 100 salaried and hourly employees split intosmaller groups of peers from each of the major func-tional units within the downstream organization-refining, logistics, engineering, customer service,accounting, and so forth. At issue was the new con-cept proposed in the second strategic initiative out-lined in Kuching-the customer service center.Knight's goal was, first, to give customers a singlepoint of contact with Shell through a toll-free num-ber and, second, to empower the customer servicecenter to break logjams and satisfy customer needs.The second of these twin objectives was the wolf insheep's clothing. It is easy enough to recruit anaround-the-clock staff of operators to cover a toll-free number. It is quite another matter to shift



organizational power so radically that customer-service-center representatives will be able to breakdeadlocks and redeploy resources. This is the stuffover which organizational blood is spilled-and achallenge that did not play into the historicalstrengths of Shell's downstream functions.

The valentines exercise is a vehicle for confiictresolution. Each functional team is required towrite a succinct description of its grievances withany of the other teams in the room, pinpointingwhat it does to inhibit productivity andwhat is likely to get in the way of asuccessful customer-service center.When each group has received, say, halfa dozen of these valentines, its membersare given time to sift and discuss them,and then to select two issues they thinkparticularly important to resolve. Thegroup then gets two hours to come upwith, first, a detailed plan for correctiveaction that it can implement within 60days; second, the name of a member ofits own team who will be accountablefor delivering the action; and third, thename of a so-called committed partnerfrom the team that sent the valentinewho will share responsibility for mak-ing the new solution work.

Back in plenary session, each personassigned an action stands and explainsthe grievance and the proposed solution,and names the team's nominee for com-mitted partner-often the individualseen as most likely to sabotage the pro-posal and therefore the person most es-sential to its success. The committedpartner then stands, and a fascinatingnegotiation unfolds. Tension mounts,and the room falls silent. With coachingfrom the facilitator, the two principalsair conflicts and express their deep-seated distrust of each other's motives.A robust solution is the usual result.

Making good use of these and other techniques.Shell Malaysia reversed its ten-year drift. It fostereda new level of individual power, a new sense ofidentity with the enterprise as a whole, a new kindof open and productive conflict, and a new appetitefor learning that persists to this day.

Leading from a Different PlaceAn organization coming unfrozen under an over-load of experimentation and new ideas is a terrify-ing thing for traditional leaders. Matters seem out

of control, which to a degree they are. But as leadersweather this storm, they begin to undergo a shift inmind-set. From thinking, "I've got to stay in con-trol" or "This is too fast," they develop an ability tooperate outside their comfort zone and accept am-biguity and adversity as a part of the design. Thesecond of the three interventions-a new approachto leadership-requires them to establish focus andurgency, maintain healthy levels of stress, and notfeel compelled to come to the rescue with a lot of

answers. They learn to stay the course until guer-rilla leaders at lower levels come forward with ini-tiatives that address the company's shortcomings.'

Arthur Martinez did precisely all these things atSears. And from the very beginning, he did one im-portant thing that Brennan had not done: he begantelling the truth. For seven successive years, retailexecutives at Sears had lied to themselves. They setannual goals and came back at year's end belowplan. The targets were set lower each time around,but they were never low enough. Market surveysshowed Sears perilously close to breaking its last

HARVARD BUSINESS REVIEW November - December 1997 133


remaining links with its retail customers. It wasthe Sears credit card, delivering 70% of the profits,that was carrying the retail group. All of this waspainful to face. Martinez held up the mirror.

To generate a sense of urgency, Martinez set diffi-cult goals. Within two years. Sears would quadrupleits margins to achieve industry parity, reverse itsloss of market share, and improve customer satis-faction by 15%. Then came the hard part. LikeSears under Brennan, most organizations are sub-merged in their numbing but familiar lethargy,their somnambulant operating state. It's like beingstirred from your dreams by a strange noise in thenight: in the fog of semiconsciousness, one part ofyou struggles to focus on whether it's an intruderor the cat; but another part resists the possibilityof bad news and struggles to go back to sleep. Simi-larly, people in organizations resist undertakingsthat would pull them from their familiar world.When a leader raises an issue and generates urgencyaround it, the guaranteed first line of defense is forthe organization to turn back to the leader for ananswei. "We need a plan...more direction...moreresources" are the words to this predictable refrain.Many leaders take the bait. Martinez did not. Herefused to give his team of top-level managers theanswers, and the authenticity of his refusal waspowerful. He didn't have the answers. No one did.Sears's management had to create the answers onthe basis of what Martinez did provide - which wastruth, urgency, and enough productive stress toalter thinking and behavior.

Leading from a different place always requiresresocialization of the kind Martinez achieved atSears. Nowhere is the transformational power of

Leading from a different placemeans resisting the temptation toprovide the answers. Solutionsmust come from the ranks.

resocialization more evident than at three highlyunusual U.S. Army training centers-at Fort Irwin,California; Fort Polk, Louisiana; and Hoenfelds,Germany. In fact, the training is sufficiently re-markable to have been studied by the chief educa-tion officers at Shell, Sears, Motorola, and GE, andby senior delegations from every country in West-ern Europe, Russia, and most nations of Asia, LatinAmerica, and the Middle East. Perfected over the

past 15 years, the training is widely recognized tohave almost single-handedly transformed the army,the largest employer in the United States.

Over a grueling two-week period, an entire orga-nizational unit of 3,000 to 4,000 people goes head-to-head with a competitor of like size in a simula-tion so realistic that no participant comes awayunscathed. The exercise often alters forever theway executives - in this case, army officers-lead.Critical to its impact is a cadre of 600 instructors,one assigned to every person with leadership orsupervisory responsibilities. These observer/con-trollers, as they are called, shadow their counter-parts through day after 18-hour day of intense activ-ity. They provide personal coaching and facilitate anonhierarchical team debriefing called an AfterAction Review (AAR), in which participants strug-gle to understand what went wrong and how to cor-rect their shortcomings. These AARs are in fact thefocal point of an organizational exercise that canrange across 650,000 acres (at Fort Irwin in theMojave Desert) and cost $1 million a day.

For many, the juxtaposition of U.S. Army withwords like revitalization, experimentation, andnonhieratchical amounts to a contradiction interms. But that view is out of date. According toGeneral Gordon R. Sullivan, the army's recently re-tired chief of staff, "The paradox of war in the Infor-mation Age is one of managing massive amounts ofinformation and resisting the temptation to over-control it. The competitive advantage is nullifiedwhen you try to run decisions up and down thechain of command. All platoons and tank crewshave real-time information on what is going onaround them, the location of the enemy, and the

nature and targeting of the enemy'sweapons system. Once the command-er's intent is understood, decisionsmust be devolved to the lowest pos-sible level to allow these frontlinesoldiers to exploit the opportunitiesthat develop."

A number of factors have con-tributed to the army's extraordinary,sustained transformation, includinghigher-quality soldiers, one outcome

of a volunteer army. But inside and outside ob-servers agree that the National Training Command(NTC) has been the crucible in which it has allcome together. Since the NTC was established, thearmy's more than half a million men and women inuniform have rotated through its programs severaltimes-most upper-, mid-, and lower-level officersand NCOs, five times. As one officer put it, "TheNTC experience leaves no room for debate. Day

134 HARVARD BUSINESS REVIEW Novembtr-December 1997


after day, you are confronted with the hard evidenceof discrepancies between intentions and faultyexecution, between what you wanted the enemy todo and what he actually did."

Leading from a different place requires great re-solve both to stay the course and to resist the temp-tation to provide the answer. The solutions, and thecommitment to deliver on them,must come from the ranks. Leadersmust maintain the pressure untilfollowers see that they are going tohave to make things happen, untilguerrilla leaders step forward andbegin to engage in leaderlike acts.Not everyone is a guerrilla leader,but sustained stress will eventuallyproduce enough such leaders to beginshifting the tide of vital signs.

Leading from a different place also entails a trans-formation in the operating state of leaders them-selves. They become a microcosm of the shift invital signs that they want to see in their organiza-tions. From resigning themselves to the limits oftheir power to make things happen (and to the im-plausibility of expecting middle managers to help),they move toward the possibility of genuinely dis-tributed intelligence; from taking on an identity asthe person in charge, they become clearinghousesfor the different ways an enrolled organization han-dles its responsibilities; from avoiding straight talk,they develop an ability to handle and even encour-age constructive confiict; from assuming that theymust provide a detailed road map for the journey,they begin to accept learning as a form of inquiry inaction. Leaders must place themselves squarely inthe zone of discomfort and learn to tolerate ambi-guity. We are all much more likely to act our wayinto a new way of thinking than to think our wayinto a new way of acting, and that is the essence ofleading from a different place.

Instilling Mental DisciplinesWe know that when incorporation slackens or van-ishes-as it did at Sears for a long time before Mar-tinez or in the army before and during Vietnam-stagnation and entropy are almost invariably theresults. We have seen at Sears, Shell, and the U.S.Army that incorporation combined with a differenttype of leadership was able to reverse an organiza-tion's drift and restore its cultural vitality. But if anorganization is to change the way its people thinkand act and interact, and if this resocialization isnot to evaporate the moment financial results im-prove and people start to believe the worst is over,

then people must internalize a set of principles ordisciplines that shape their reactions and governtheir behavior. Disciplines of this kind might alsobe called enduring social patterns, but they are agood deal more than unconscious habits. Habits areautomatic and therefore mindless. Disciplines aremindful. We can see these disciplines at work in the

Leading from a different placealso requires leaders to stand

squarely in the zone ofdiscomfort and ambiguity.

After Action Review, which constitutes the heart ofthe NTC experience.

Each afternoon, the commander of the brigadeundergoing training receives an assignment, suchas "penetrate enemy defenses" or "defend yoursector against a superior force." Inside crowdedcommand tents, 30 to 40 staff officers and seniorfighting-unit commanders study the situation andendeavor to hammer out a winning strategy. Laterthat afternoon, this strategy begins to filter out to3,000 soldiers dispersed across many square milesof rugged terrain. Tank crews and platoons arebriefed, minefields laid, artillery and helicopterscoordinated, reconnaissance initiated. Commenc-ing at midnight, both friendly and enemy probes getunder way.

By dawn, the day's battle is in full swing. The"enemy" (the n t h Armored Cavalry Regiment) ispermanently stationed at Fort Irwin. It knows theterrain, behaves unpredictably, and almost alwaysdevastates the unit in training. And all the action isrecorded. Perched on mountaintops, powerful videocameras zoom in on the hot spots. An elaboratelaser-based technology precisely tracks when andwhere each weapon is fired, electronically disablingany fighting unit that is hit. Audiotapes recordcommunication and confusion over the voice net-work. By II A.M., the outcome has been decided,and within 90 minutes, the observer/controllershave pulled each combat team together near terrainthat has been pivotal in its piece of the battle.

Let us take a closer look at an AAR in progress.^ Acompany team of two platoons with two tanks, fourarmored personnel carriers, and an HMMV (themodern version of a jeep) have pulled into a tightcircle under the shade of a desert outcropping. Thecrews lean back against tank treads, a flip chart

HARVARD BUSINESS REVTEW November-December 1997 135


slimg over the HMMV antenna. The fighting is inits fifth day. Exhaustion is evident. The observer/controller has created a sand table on the ground, aminiature of the terrain in which this unit was an-nihilated in the day's battle. He asks a gunnery ser-geant to come forward, position the company's ar-mor on the sand table, and explain the unit's mission.

SERGEANT: Our overall mission was to destroy theenemy at objective K-2.

OBSERVER/CONTROLLER: Why was this important?What was your tank's particular role in all this?

SERGEANT; I'm not sure.OBSERVER/CONTROLLER: Can anyone help?A trickle of comments gradually builds into a

flood of discussion. It begins to appear that only the

Frank exchanges are notlikely to occur if enlisted menare holding back out ofdeference to their superiors.

lieutenant in charge understood the mission. Therehad been no coordination of individual tanks andvehicles, and none had been given a particular sec-tor in which to concentrate its fire. No one had un-derstood that the unit's main task was to drive theenemy column away from a weak point in the de-fenses and into a zone where it would be withinrange of friendly tanks and artillery.

Key lessons for the next day are recorded on thefiip chart. The soldiers all come away with a pictureof what they were involved in but could not see.Each soldier has contributed to a composite grasp ofthe engagement, supplemented by video clips andhard data from the observer/controller. Day afterday, particular themes are reinforced: all membersof the unit must understand the big picture; they allneed to think; they must always put themselves inthe shoes of an uncooperative enemy; they mustprepare to the point that surprise will no longer sur-prise them; they must set aside hierarchy, exerciseself-criticism, work as a team.

"The After Action Review has democratized thearmy," says Brigadier General William S. Wallace,current commander of the NTC. "It has instilled adiscipline of relentlessly questioning everythingwe do. Above all, it has resocialized three genera-tions of officers to move away from a command-and-control style of leadership to one that takesadvantage of distributed intelligence. It has taught

us never to become too wedded to our script forcombat and to remain versatile enough to exploitthe broken plays that inevitably develop in the con-fusion of battle."

The success of the NTC experience and the AfterAction Review is the result of carefully designedimperatives that can be applied in any organizationor corporation. First, take a team of people whomust work together across functions and hierar-chies and immerse it in a prolonged, intense learn-ing experience. Have the team take on a very toughproject or a very tough competitor. Under the rightconditions, stress and exhaustion will unfreeze oldpatterns of behavior and create an opening fornew understanding and behavior to take root. Sec-

ond, in order to eliminate subjectivityand debate, collect hard data on whathas transpired. Let the data, not thetrainers, point the finger. Third, uti-lize highly skilled facilitators whohave a deep knowledge of what theyare observing. Never criticize. UseSocratic questioning to evoke self-discovery. Fourth, do not evaluateperformance. The experience is notabout success or failure. It is about

how much each individual can learn. Make it safeto learn.

There are seven disciplines embedded in theAfter Action Review, and all seven are as relevantin business as they are in combat.

1. Build an intricate understanding of the busi-ness. An organization's members do best whenline-of-sight understanding bridges the gap be-tween overall strategy and individual performance.This is harder than it looks. On the one hand,troops need to understand the principal aims ofeach engagement ("move to establish contact butdon't precipitate an all-out fight" or "block theenemy at this line but don't commit to a counter-attack") and how it fits into the larger strategiccontext. On the other hand, soldiers need solid in-dividual skills. Both requirements are essential.The idea is to prevent soldiers from behaving likeautomatons. They are not there simply to obeyorders but to apply their skills and intelligence toa larger goal.

The first requirement - conveying the big pictureto the small unit- is easy to overlook in the heat ofpreparing for battle. In the AAR close-up above, wesaw how the lieutenant commanding the armoredunit had neglected to communicate the big pictureand how his men then failed to achieve a goal ofwhich they were unaware. To carry out the secondrequirement, developing individual areas of exper-



tise, the army has borrowed a concept from the to-tal quality movement and has distilled all the facetsof a military action down to three: the key tasks in-volved, the conditions under which each task mayneed to be performed, and the acceptable standardsfor success. [For example, at a range of 2,000 yards,hit an enemy tank moving at 20 miles per hour overuneven terrain at night with an 80% success rate.)

Sears has shown an exemplary grasp of this disci-pline. To convey the larger strategic picture toevery employee, the company useslearning maps - large murals with elabo-rate legends on the borders-to commu-nicate essential business conditions tosmall groups of employees workingwith a facilitator. One map takes peo-ple through the shifts in the competi-tive environment from 1950 to 1990. An-other map, laid out like a game, asksemployees to place bets on the sourcesand uses of funds as they fiow from cus-tomers' wallets to the bottom line. Searsthen asks its employees to use whatthey've absorbed from the learningmaps to come up with a list of three orfour highly practical actions that can betaken immediately at the store level to ,

correct deficiencies and improve cus-tomer service.

Sears anchors the proficiency side ofthis discipline with training to improveits interface with customers, then addsperformance measures that focus atten-tion on individual and team perfor-mance with respect to customer satis-faction. Together, these initiativesenable employees to perform to highstandards and to understand how theyeach contribute to Sears's success.

2. Encourage uncompromising straighttalk. The AAR is predicated on a frankexchange among soldiers as they sortthrough the confusion of battle and fig-ure out where things went wrong. Such an exchangewill not occur if people are showing deference totheir superiors or holding hack for fear of hurtingsomeone's feelings. As we noted earlier, observer/controllers are skilled at using objective data topoint the finger - fostering healthy give-and-takeand creating a safe environment for candor.

Sears practiced this discipline from the top down(Martinez helped his top-level managers confrontthe truth about Sears's past performance) and fromthe bottom up (town hall meetings cultivated anew and much more straightforward style of

communication). We also saw Shell Malaysia em-phasize this discipline with its valentines exercise.

3. Manage from the future. Hardship for its ownsake is clearly not the army's intention, but attain-ing excellence can be painful. Be All That You CanBe is more than the army's recruiting slogan. Itchallenges every element of the institution-fromthe private soldier to the logistics command-tostretch itself. Being all you can be is not a destina-tion to be reached but a mind-set to manage from.

Organizations often "use up" their future, andthat is precisely what happened to the U.S. Armyafter the high-water mark of World War II, to Searsafter General Wood's retirement, and to Shell in the1980s. Once the members of an organization be-lieve they have reached the future, they begin tocodify their past successes. Drift and loss of vitalityfollow "winning formulas" of this kind just assurely as night follows day.

The most essential aspect of managing from thefuture is to alter the institution's point of view. Weall tend to look toward the future as a distant goal.



By contrast, this discipline means internalizingsome future goal so the institution can plant its feetin that future and manage the present from there.At Shell Malaysia, Knight inherited a company thathad used up its future, a company content to keep alow profile as it tried to avoid further market-sharelosses to Caltex, Mobil, and Petronas. Knight shift-ed this mind-set entirely, asserting that the futureof the industry was regional, not national. He in-sisted that Shell and Petronas needed to join forcesand make Malaysia the dominant low-cost playerin Southeast Asia. Once this perspective was ac-cepted as a valid view of the future, a stream of ben-eficial results fiowed from it for both companies.

4. Harness setbacks. NTC participants knowfrom the outset that they are fighting an enemy fartougher than any they are likely to meet in thefield. Observer/controllers remind them daily thattheir maneuvers are not about winning but aboutlearning. Harnessing setbacks is a matter of recon-textualizing failure, treating breakdowns as break-throughs, seeing defeat as opportunity. But this re-quires considerably more self-discipline than mostmanagers realize. Human beings are hardwired toreact adversely to mistakes by blaming themselves(guilt or shame), others (finger-pointing), or badluck (resignation and fatalism). Day after day, ob-server/controllers hammer on the benefits of con-trolled failure until every soldier learns to embracesetbacks as windows to learning.

This discipline has been directly applied at Sears,where Gus Pagonis (one in a long line of increas-ingly sought-after U.S. Army generals who havelanded top corporate posts) heads Sears's far-flunglogistics empire. Pagonis has brought the entireAAR process directly to Sears. Daily sessions of ioto 12 employees representing every level from

Observer/controllers hammer onthe benefits of controlled failureuntil soldiers embrace setbacksas windows to learning.

warehouse to headquarters scrutinize 24-hourupdates on late or wrong shipments and chip awayat corrective action.

5. Promote inventive accountability. The tasks,conditions, and standards in the first discipline cre-ate the benchmarks of acceptable performance, andsoldiers are trained to meet or exceed these bench-

marks so that their units can count on them incombat. But there is more to it than that. Close bat-tles are won by exploiting the enemy's brokenplays. Mastery of a combat assignment requires notjust replicable skills but also the capacity to impro-vise. Observer/controllers single out and rewardcreative acts of initiative that are built on a solidplatform of proficiency.

The new emphasis on "the softer side of Sears"has brought the company into competition withNordstrom, which, according to Martinez, sets theworld standard in striking the proper tension be-tween improvisation and accountability. Nord-strom encourages inventiveness with the motto Re-spond to Unreasonable Customer Requests (forexample, delivering an over-the-phone purchaseto a frantic customer at the airport who is about tocatch a plane). Salespeople keep scrapbooks of theirheroics in providing exceptional service, and theseheroics figure into promotions and storewide recog-nition. On the accountability side, each depart-ment tracks the sales per hour of each salespersonand posts the information publicly every twoweeks-from the top of the list (worst) to the bot-tom (best). A sales associate unable to meet athreshold level of sales on a three-month rolling av-erage is dismissed-an infrequent occurrence, sincetopping the list several times in a row leads mostpoor performers to move on of their own free will.

6. Understand the quid pro quo. Organizationalagility and the disciplines that sustain it makeenormous demands on people. Organizations mustmake sure that their members receive commensu-rate returns. Once upon a time, corporations werelike ocean liners. Anyone fortunate enough to se-cure a berth cruised right through to disembarka-tion at retirement. In return for loyalty, sacrifice,

and the occasional aggravating boss,employees at Sears, Shell, and thearmy, among others, enjoyed implic-it or explicit job security.

We have now witnessed a decadeof continuous job attrition in whichcompanies have downsized, delay-ered, reengineered, and outsourced.From 1980 to 1996, Sears has laid offmore than 100,000 employees. TheU.S. Army has reduced its ranks by

300,000 soldiers from a high of 1.2 million duringthe Gulf War. Worldwide, Shell has cut 150,000jobs since 1980.

Understanding the quid pro quo is a demandingdiscipline. A genuinely transformational employ-ment contract has four levels-three more than thereward-and-recognition that was once considered



adequate. The second level is employability-thetraining and skills that enhance people's mar-ketability. Valuable as this element of the contractmay be over the long run, it is nevertheless over-rated as an incentive. Enhanced employability willinspire no one to offer the kind of deep, creativecommitment and enthusiasm that companies

1 1must understand1 . . . 1

the enterprise is going andin its destiny.

struggling for revitalization so badly need. Employ-ee involvement at that level cannot be bought orenticed, and it is not likely to emerge naturallyfrom the individualistic, transactional employ-ment contracts that are typical for many kinds ofcredentialed experts and specialists.

It takes more than compensation and employ-ability to produce transformational participation. Italso takes a sense of meaning in the work strongenough to generate intrinsic satisfaction. And final-ly, employees must understand where the enter-prise is going and have some say in shaping its des-tiny. Shell, Sears, and the army are all wrestlingwith these four components of the quid pro quo. Inthe army, the AAR is the engine of a powerful learn-ing and resocialization experience, driven in part bypeople's clear perception that defending their coun-try is important work. Senior officers take part inmore dramatic changes of perception than their ju-niors; but even the lowest-ranking soldier has ahand, day after day, in altering the army's cultureand, ultimately, its destiny.

7. Create relentless discomfort with the statusquo. The After Action Review is based on the no-tion that individuals can improve-in most cases,improve dramatically-on everything they do.Observer/controllers continually reinforce the no-tion that AAR disciplines can be applied elsewhereto other aetivities, and a protocol like the AAR doestend to get under a person's skin. Soldiers carry theideas back to their home bases. Once internalized,the discipline of relentless discomfort begins to re-veal itself in repeated, gnawing questions: How canwe do this still better (faster, cheaper)? Is there aradical new approach that we haven't thought ofyet? Day in and day out, throughout the army, theAAR format and disciplines are employed to cri-tique performance and to make improvements assoldiers and employees at every level begin to see

acceptable performance levels as insufficient forsustained vitality.

Sears and Shell struggle to tum episodic atten-tion to improvement into a vigorous daily disci-pline. Among their benchmarks is USAA, long atop performer in the insurance industry. USAA hasadopted a practice it calls "painting the bridge"-

a reference to the fact that the taskis never complete. (As soon as paint-ers on the Golden Gate or any otherlarge bridge finish the job, it's time togo back and start over.) In brief, anindependent team of 14 organiza-tional experts starts at one end ofUSAA and works its way to the oth-er, one imit at a time. Its mission is

to work with departmental teams and questioneverything they do. Is the role teams perform neces-sary? Can it be streamlined or improved? Can theteam be merged with another unit? Can it be elimi-nated? Not surprisingly, people in the companyhave ambivalent feelings about this once-every-two-year regimen. But it reliably delivers improve-ments and, equally important, reinforces USAA'sunending effort to become a better company.

Researchers at the Harvard Business School recent-ly tracked the impact of change efforts among theFortune roo. Virtually all these companies imple-mented at least one change program between 1980and 1995, but only 30% of those initiatives pro-duced an improvement in bottom-line results thatexceeded the company's cost of capital, and only50% led to an improvement in market share price.This discouraging result was not for lack of trying.On average, each of the companies invested $1 bil-lion in change programs over the 15-year period.'

Erustration with such results is naturally wide-spread because the effort and the outcome are sohugely disproportionate. Or to be more precise, theeffort of some people in a company is so muchgreater than the outcome for all. The solution is tofocus on the all to shiit the attention from incre-mental change to the tools that can transform theattitudes and behavior of every last employee.

This article is based on research and consulting work caiziedout jointly with CSC Index.

1. See Ronald A. Heifetz and Donald L. Laurie, "Tbe Work of Leadership"(HBR lanuary-February 1997).

2. The following description is taken from a video presentation of an AfterAction Review at Fort Irwin, titled Mojavia: In Pursuit of Agility (NewYork: Marc Gerstein Associates, 1997).

3. Nitin Nohria, "From the M-form to the N-form; Taking Stock ofChanges in the Large Industrial Corporation" (Harvard Busmess SchoolWorking Paper 96-054).

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