LESSONS LEARNED FROM LEADING ORGANISATIONAL CHANGE ... · PDF fileLessons Learned from Leading...

LESSONS LEARNED

FROM LEADING ORGANISATIONAL CHANGE:

ESTABLISHING THE MINISTRY OF SOCIAL DEVELOPMENT

Justin Strang Shenagh Gleisner

Tanya Howlett Marguerite Loth

July 2004

Lessons Learned from Leading Organisational Change: Establishing the Ministry of Social Development 2

Introduction

This paper, jointly sponsored and produced by the Ministry of Social Development (MSD) and the State Services Commission, seeks to capture the lessons learned from conducting organisational change in some New Zealand public sector organisations. It is based on incoming chief executive Peter Hughes’ experience of establishing MSD1. It also draws on the change experience of five other public sector chief executives to provide a broader perspective and identify common themes that can offer a point of learning for future public sector change leaders. These chief executives are: David Butler, Commissioner of Inland Revenue; Howard Fancy, Secretary for Education; Garry Wilson, Chief Executive, ACC; Geoff Dangerfield, Chief Executive, Ministry of Economic Development; and Belinda Clark, Secretary for Justice. The content of the paper is based primarily on information gained from interviews with the chief executives, as well as with senior managers and a cross-section of other staff from MSD. In total 19 people were interviewed, the list of which is appended to this paper. We would like to thank all of the people who participated for willingly sharing their views. The following section provides an executive summary of the key lessons learned from leading organisational change by those interviewed. Each of the lessons is then discussed in the context of the MSD establishment and contrasted with the experience and outlook of the other chief executives who were interviewed as part of this exercise. The paper concludes by reflecting on the MSD experience and summarising the salient points. It is not the purpose of this paper to make judgements about the success of the change process or assess the quality of its outcome (except in reflecting the views of those associated with it). To do this would have required objective measures of success at the outset and an independent review of events. Instead, the aim is to present an account of events from which readers can learn and draw comparisons to their experience and expectations of organisational change.

1 The Ministry of Social Development came into existence on 1 October 2001. It was the result of the merger of the Ministry of Social Policy (around 180 staff based almost entirely in Wellington) and the Department of Work and Income (staff of over 5,000 located in 143 offices nationwide).


A summary of the lessons learned

This section summarises the key lessons learned from the interviews. It also includes a brief bibliography of additional material on organisational change. The following sections explain the context in which this experience was acquired and why it proved positive.

Analyse the context of change The objectives of the change exercise, expectations of Ministers and the environment in which the change is taking place determine the options for approaching change. Key points include: � nature of the change, e.g. restructuring or merger � need to establish a sense of urgency for change � need for financial savings and productivity increase � how much time is available � external constraints (e.g. political demands) � history of change within the organisation(s).

Tackle people issues People-related issues during a change process are the most prominent. The change leader needs to understand reactions to change and deal with staff concerns directly. Key points include: � put the organisation’s interests above that of individuals, but place people before structures � understand people’s attitudes to change:

− those who embrace it − those who are unsettled by it but can be led through it − those who are threatened by it and resist it

� deal with resistance � get senior management buy-in so consistent messages go out to staff � if organisations are being merged, form teams of people from different backgrounds to

prevent entrenched behaviours and use neutral staff as facilitators � involve staff in structural changes to build-in ownership of the outcome � reassure staff who are not affected to alleviate their personal concerns so that productivity

is not impacted.

Maintain open lines of communication Build staff buy-in and minimise resistance to change by keeping people informed about the change. Key points include: � take responsibility and act with honesty and integrity to establish trust � communicate all stages of the change process directly, continuously, openly and

transparently and establish open channels for feedback – you can never over-communicate � adapt messages to suit the audience.


Set a clear vision for people to follow Give staff a clear explanation of what the change is seeking to achieve so that they can understand it, own it and make the necessary adjustments to contribute to it. Key points include: � repeatedly explain the organisation’s new vision to gain buy-in � communicate the vision in ways staff can relate to: in their own words and in their own

context; using real-life stories can prove useful � build ownership of the vision by encouraging staff to contribute to its implementation.

Recognise cultural issues Understand how cultural issues can impinge on change and deal to them, especially in merger situations. Key points include: � recognise different outlooks, cultures and operational focuses and do not favour one over

the other – take the best of the old world, but create something new � acknowledge the past and do not make judgements about it � do not deal with iconic issues first – let emotions settle before setting new standards � in big organisations, accept diversity � in merger situations, push people to work in teams with individuals from both sides to

develop a joint approach, taking into consideration the resource-intensive aspect that this approach can have.

Manage stakeholder relationships Successful external relationships are key to the new organisation’s success and have to be actively managed. Key points include: � identify key stakeholders, then actively and systematically manage the relationships with

them; ask senior management to do the same at their level � establish transparency and accountability principles and adhere to them consistently � manage public perception: own the organisation’s mistakes, but stand up for it it when it is

unjustly attacked � anticipate risks attached to public attacks by having response processes in place � communicate publicly about the organisation’s achievements and successes.


Maintain the momentum of change External demands can be useful to reinforce the need for change and create urgency. Once momentum is gained, finding ways to continue to move forward and avoid regressing to past behaviours can prove challenging. Key points include: � progressive change is preferable to “big-bang” restructurings because it minimises risks of

disruption and early errors of judgement � piloting change is a useful way to test it before full implementation � external pressures can be useful for creating urgency � link internal performance to external benchmarks to raise delivery expectations and keep

staff challenged � provide positive feedback when progress is made so that the goal gets closer � empower staff to make them responsible for their future.

Selected references The following references offer some useful insights to leading change: Bernhut, S. ‘Managing the Dream. Warren Bennis on Leadership’ Ivey Business Journal, May/June 2001, pp36-41. An interview with an American change guru, which touches on all main contemporary issues. Crainer, S. ‘John Kotter: Has plans to change himself and the world’ New Zealand Management, September 2003, pp48-50. Another American guru reflects on the importance of creating urgency and communicating (including the power of stories). Hamel, G. and Välikangas, L. ‘The Quest for Resilience’ Harvard Business Review, September 2003, pp52-63. A relatively new topic in leadership literature. Heifetz, R.A. and Laurie, D.L., ‘The Work of Leadership’ the Harvard Business Review, December 2001, pp131-140. A reprint of the January 1997 article. Heifetz, R.A. and Linsky, M. ‘A Survival Guide for Leaders’ Harvard Business Review, June 2002, pp65-74. Offers advice to change leaders as well as including tactics for managing your personal frailties. Kotter, J.P. ‘Leading Change: Why Transformation Efforts Fail’ Harvard Business Review, March-April 1995 pp59-67. Kotter identifies eight common reasons why organisational change exercises fail. Considerable alignment with lessons identified in this paper despite private sector focus. Parry, K.W. and Proctor-Thomson, S.B. ‘Leadership, culture and performance: The case of the New Zealand public sector’ Journal of Change Management, May 2003, 3(4), pp376-399. Adopts an empirical approach to test theories about leadership and effectiveness using the New Zealand public sector for context. Scott, G, Public Sector Management in New Zealand (lessons and challenges), Wellington 2001, Astra Print.


Lesson one: analyse the context of change

Context of the MSD establishment Peter Hughes took up his position as chief executive of the Ministry of Social Development on the day the Ministry of Social Policy (MSP) and the Department of Work and Income (Work and Income) merged to form the new organisation. Before his arrival, an interdepartmental group, led by the State Services Commission and comprising senior managers from both founding organisations, had been preparing the ground. The group had been overseeing plans to prepare for the merger, such as establishing the new organisation in legislation, integrating payroll and finance systems, and re-organising supplier contracts. Hughes said that he received few direct instructions when he took up the new role. The Government had decided to merge MSP and Work and Income to provide a better organisational basis for implementing a social development approach, which aimed to deliver more effective solutions to social issues. No fiscal savings were required from the merger. This provided him with flexibility to approach to the change exercise. In planning his approach, Hughes took account of the context in which the merger was taking place. The key aspects he considered included: � The Minister was keen to see immediate progress on his major policy priorities. Therefore

Hughes had to establish a new social development vision while maintaining in the short-term, then improving, the quality of outputs.

� Implementing a social development approach would require increased co-ordination of policy and operational functions within the new Ministry as well as between social sector agencies. Hence, there would be a need to build stakeholder support for the new organisation and its social development role.

� Work and Income had experienced a protracted period of intense media scrutiny over the relationship between its former chief executive and the responsible Minister, placing stress on the organisation and creating a sense of isolation within the public sector.

� The contrasting sizes of the two organisations led many in MSP to believe they would be taken over by the larger Work and Income and tarnished by its public profile.

� There was a sense of distrust between the two organisations, which had developed quite different cultures2.

2 The two agencies shared a common background in the Department of Social Welfare (DSW). In 1992 the then Department had been re-structured into four separate business units – a policy advice function and three operational areas: income support; funding community agencies to provide social services; and direct provision of social services to children, young people and their families. From 1997 these business units had been progressively established as separate government agencies. In 1998 Income Support was merged with the New Zealand Employment Service (then part of the Department of Labour) to form the stand-alone Department of Work and Income. The following year, the Department of Child, Youth and Family Services and the Ministry of Social Policy (incorporating policy and DSW’s corporate functions) were established as separate agencies.


The context in which MSD was established had a major impact on the approach adopted to lead the change. Although the Government was not seeking financial savings, it wanted to see immediate improvements. Hughes said: “In the current public sector environment you have to get cunning about change because you can’t afford to take the organisation off-line while you manage the change.” With these imperatives in mind, Hughes set the following principles to lead the merger: � there would be no redundancies � restructuring was to be initially restricted to the national office, bringing together

complementary functions and putting in place a new senior management team � there would be ‘strong’ centralised corporate functions � there should be as few direct reports to the CE as possible � the service lines (operational groups) were to be left alone so that service delivery would

not be compromised.

The influence of context The view that change management approaches are dictated by context was reinforced by Belinda Clark, who said that she has been involved in three change experiences and has taken a different approach each time, depending on the context in which they were taking place. “For example”, she said, “the timeframe you have to complete the change process may determine the extent to which you are able to consult.” The context of change also influences the extent to which a leader needs to create a sense of urgency within an organisation to see change implemented. John Kotter (1995) identified the failure to establish a great enough sense of urgency as a central reason for the failure of organisational change exercises: “…getting a transformation program started requires the aggressive cooperation of many individuals. Without motivation, people won’t help and the effort goes nowhere.”3 David Butler agreed about the importance of urgency to give momentum to the change process. He said that you need to assess the climate for accepting change amongst staff to determine the extent to which, as a change leader, you need to create a ‘burning platform’ for change. He said that there was a clear need for change when he joined the Inland Revenue Department. However in another leadership role, he encountered strong resistance to change because this management group were achieving the best results in the country, and saw no reason for change. Butler was convinced, however, that they could do better and began working with a third of the management group who appeared to be more open to trying alternatives. New approaches were piloted and when they showed improved results, he brought these back to the whole group. “About another third of the managers came on board then but it took about three years for the rest to accept the change,” Butler said. All six chief executives interviewed were asked what organisational theories or ‘gurus’ influenced their change leadership approach. While some cited prominent thinkers, experience seemed to have far greater influence. Hughes said that his exposure to change thinkers during mid-career study gave him a framework to trust his intuitive thinking. Howard Fancy probably summed up the approach of many when he explained that he has picked up parts of ideas from the change literature and applies them as the circumstances fit.

3 Kotter (1995), p. 60.


Lesson two: get the people issues right

Attitudes to change There was general agreement amongst the chief executives interviewed about the importance of people-related issues in an organisational change situation. When confronted with change, staff were seen as falling into one of three groups: � those who embrace change; � those who are unsettled by change but can be led through it; and � those who are threatened by it and resist it.

More specifically, Garry Wilson outlined three possible individual reactions to organisational change: � “Change is good for me and good for the organisation’s performance.” This is the best

possible perception. � “Change is good for the organisation but I am not benefiting personally.” This is the

second-best outcome, as the need for change, if not liked, is at least recognised; � “Change is bad for me and it is not clear if it will improve the performance of the

organisation”. This is the most difficult attitude to deal with. Although the chief executives differed in their ways to deal with people issues, they typically tried to win over the majority to the new organisational vision. Butler said that when leading people through change, it is important to deal with resistance. “Don’t burn up too much time with reluctant people, but don’t leave them either. During one change I led we had some disaffected people working on two floors that were separate from the rest of the group. I used to visit them regularly and talk to the most affected. Don’t put up with misbehaviour.”

People vs. structure Hughes said his approach to leadership centred on the view that “if you put the interests of the organisation above your own you are going to win.” A senior manager in the Ministry further explained this approach, “It is about taking individual responsibility. The result is that you involve others in a different way: you seek to understand people; you seek to get the best outcome for the organisation (rather than yourself); and you seek to find win-win solutions.” Hughes said that many change exercises were approached as if one were playing with meccano, with too much emphasis on designing structures. He added, “Organisations are about people. You need to recognise the value of the organisation. If this was a business and you were to try and sell it, it is not the infrastructure that buyers would be interested in, it would be the knowledge of the employees. The jobs in this organisation are unique; knowledge is the capital. If you start from the proposition that people are the most important thing then you approach change in a different way.” Hughes’ belief in the value of people was therefore reflected in his approach to the organisation’s structural review, which encouraged high level participation to build buy-in to the process and ownership of the outcome.


Because of Hughes’ decision not to change the service delivery areas of the Ministry to maintain productivity, he made sure that staff were settled down quickly, which allowed them to proceed with business as usual. This decision enabled frontline staff to adjust to the change without having to be concerned about the way it might impact on their jobs. One Work and Income office manager commented that this allowed the vast majority of the new organisation’s staff to immediately be put at ease. At the time of the change, her concern was that she and her colleagues would be alright. She found it reassuring to know that they would not be at risk.

Senior management and staff involvement in structure design Early on, Hughes presented his combined senior management team, comprising all senior managers from the two founding organisations, with the options of either doing the restructuring in-house or involving an external person. Hughes gave them the opportunity to be involved, even though most of them would be personally affected by the outcome. They took it up. “I chose the most neutral person I could find to lead the structural review, then added the leaders from both sides and made sure the numbers were even”, said Hughes. A participant in this exercise commented: “[the group] worked together very professionally. Some were in positions which were under threat or which had disappeared in the merger. The group however had a goal of doing what was best for the organisation. Self-interest was set aside. The group also knew that it had to get rid of the uncertainty by Christmas to settle staff and get productivity back up.” In spite of the tight timeframe to design the new structure, considerable effort was devoted to eliciting staff comment on the proposed changes. Staff, either individually or as groups, were invited to present comments to the review group. When the review group made its preliminary proposal, it invited all those significantly affected to discuss it again. The chief executive was also available to people who made submissions to the review group. This enabled staff to give their views and hear Hughes’ decision rationale. This approach made those affected feel they had had a chance to influence the outcome, and understand the basis for the final decisions, even if in the end it did not go the way they wanted. When the review group presented its proposal to the Ministry’s senior management team, the discussion continued until everybody had had their say. Finally, Hughes accepted all but two recommendations. Regarding the two changes he made to the final structure, Hughes said: “I felt intuitively that we had to do it a different way and said that it was what I wanted.” Butler expanded on the importance of the senior management team during a change process: “You have to build up a strong [senior management] team beneath you. It is so important to have the same understanding about the direction you want to take the organisation. That way, when you and your team are talking to others, you are giving out the same message.”

Communicating with staff Hughes established his communication mode with staff during the early days of MSD. His initial focus was to inform the organisation about the restructuring, introduce himself and outline his leadership approach. Hughes said that his approach is to use open fora. The format for these is Hughes fronting a room of staff, inviting them to offer items for the agenda and then working through each item. These generally last around two hours. Reflecting on these, Hughes said: “While staff ask a lot of questions, what they are wanting to know is: Can we trust him? What will he do with us? Does he have integrity?” Speaking to some staff members after these events confirmed that their initial concerns were whether they and their colleagues would be safe. They


felt that Hughes was listening to them and hearing them at these sessions. Throughout his communication, Hughes also made regular use of his own experience working in the frontline to show his empathy with the pressures facing many staff. This seemed to reassure them and made them feel he understood their circumstances. These sessions also provided Hughes with good intelligence on the issues uppermost in the minds of staff. Hughes posted regular ‘CE messages’ on the Ministry’s intranet to back-up staff fora and respond to the feedback he would get from these. In an early message he re-emphasised that it was business as usual for the operational groups while most of the changes were going to be taking place in Wellington. He expressed his desire to meet staff throughout the country. “I am very much looking forward to visiting you in your office and hearing your views and issues but if you could cut me some slack while I get things in Wellington sorted out I’d be really grateful.” In the meantime he invited staff to e-mail him and promised to respond within five working days. New e-messages continued to be posted regularly, announcing key events or decisions and explaining his perspective on these. In one e-message he wrote: “I want to thank you all again for the hundreds and hundreds of E-mails I got […]. While I won’t be able to reply to everyone, I said I had a few general comments to make, so here goes. First, some of you said (quite a few actually) that you "wouldn’t normally think about writing to the chief executive". Please do! Knowing what you think and what your issues and concerns are keeps me connected and in touch. So please keep writing and talking to me! It’s very easy to loose the plot in these sorts of jobs if you get out of touch with what happens at the front end of the organisation!” Several other chief executives interviewed also commonly used electronic contact. Butler said he commits to personally responding to e-mails promptly (or phone the author back if this is not possible). “It’s about getting the people issues right.” Geoff Dangerfield said you have to make messages work for you, think about how the person will hear it. This may mean tailoring the same message to suit the different outlooks of the groups you are talking to, for example operational and policy groups within the organisation, to ensure they understand your intent. In summary, for the chief executives interviewed dealing with resistance to change, involving staff and developing effective communications strategies was all about one overriding goal: getting the people issues right.


Lesson three: set a clear direction for people to follow

One objective of establishing MSD was to contribute to realising the Government’s ambition of a different approach to social issues. This approach is underpinned by the concept of social development. Hughes said he saw his role as “painting the big picture and putting people in it. That is what they want to know, where they fit in.” Hughes decided that he would first focus on settling staff concerns about the impact of the organisational change, and then introduce his vision for the new Ministry. Adopting this approach left some staff with questions about where the organisation was heading. This reaction may reflect an experience of restructurings where the long-term vision was a key up-front message during the change process. One said:

Over the first couple of months [Hughes’s] big picture strategy was not clear… At this point it was not clear how we were going to work together – we didn’t know what the shared vision was. What did social development mean? What did social sector leadership mean?

In November 2001, Hughes began responding to a recurring question from staff: “what is social development?” He tried to explain it in his own words, and to link it to what it would mean for staff working in the field. His approach aimed to invite others to contribute to the definition of social development rather than setting out a closely prescribed definition. In his explanation to staff, Hughes again used his own experience. He said: “when I was working on the frontline, the thing I found most frustrating about the job was seeing the same people with the same issues and seeing the same thing happening to their kids. Social development is about trying to do something about this.” This message went out over the intranet and was followed up at staff fora, which Hughes was then holding around the country. His approach seemed to have had a powerful impact, as demonstrated in the following reaction of a frontline site manager:

I really gained a lot from attending the forum. It is better hearing it directly from the CE. I wish he did these more than once a year. He made it sound so simple. He showed how each little job contributes to achieving the social development goal. For example debt – by trying to keep clients out of debt [through] accurate assessment etc, it will make it easier for them once they get into work. It makes sense. I understand clearly now how what I do fits in the bigger picture. It is stuff I already knew, like correctly assessing entitlement, but it has brought it to the forefront of my thinking. Perhaps these messages need to be reinforced because over time you get bogged down in the daily routine and other pressures. Perhaps it helps to be reminded what we are trying to achieve in our jobs – to lift people above just getting the job done.

The other chief executives interviewed described similar approaches. There was agreement about the importance of clearly setting out the goal of the organisation, with many using the analogy about painting a picture for staff. Wilson said that “you need a strategic vision – people will make change easily if they can see how the change links to the big picture and will improve the organisation’s performance. [They will understand] that there’s a reason for change.”


Fancy said his approach has been not only to develop a picture of where the organisation was trying to go, but also to create a link between vision and action. “This sort of vision defines ‘characteristics’ and ‘capabilities’, a desired end-state or outcome, it does not define structures.” The challenge to staff is to both contribute to the vision and to determine what they would need to do help the organisation to get there. Every decision taken then counts towards achieving the picture. Chief executives said this approach to leadership was grounded in giving people ownership of where the organisation was going. The leader’s role was to paint the picture for people and give it to them to fill in. Dangerfield reiterated that because it takes time to sink in, repeating the messages is critical. “You cannot over-communicate”, he said. Wilson added that painting the big picture also helped to answer the question from staff “What’s in it for me?” Having a clear strategic vision for the organisation and being able to describe how to get to that vision ensures that people can answer that question for themselves.


Lesson four: do not underestimate the cultural issues

Bringing two cultures together “Do not underestimate the cultural issues”, said Hughes, reflecting on his experience of merging two very different organisations. Describing the respective cultures, he said: “I think we had to deal with the fallout from the 90s reforms where policy and operations were split [and policy had an operational monitoring role]. They had different outlooks, spoke different languages, distrusted each other. I was dealing with two tribes. When I began the job there was great distrust of me… I did not want to be seen as favouring one side over the other.” To overcome this, Hughes decided he had to drive change at the senior management level first. He said:

If you get the top team working together, this flows through the organisation. During early senior management meetings, the teams [from each founding agency] would line up across from each other. They would hold caucuses before the meeting. They employed [their own] strategies, I saw the eye contact. Sometimes when the environment was getting too intense, I would call a break for five minutes and then start the discussion again. When it got too much, I wanted to clear out the top team and go and ask the Minister for some space to re-build the organisation. We [the senior management team] would make some progress [towards working as a team] and then some issue would pop up and we would slip back again into being the two tribes. I then had to pull them back to thinking about the needs of the organisation.

He then sent out a message to staff that there would be no criticism of either of the previous chief executives. “People feel a need to defend their history, which is only natural”, said Hughes. After making his determination public, Hughes said that no cases of this kind were to be brought to him. When conflicts escalated to him, Hughes said he responded by saying: “we will have the best of both and something new.” Hughes said he was presented with many binary questions. Examples included enforcement of Work and Income’s policies of ‘clear desks’, or having no desk plates. “I always tried to choose something new so there were no losers. After 12 months they got the idea,” said Hughes. However, at the time his senior managers almost universally talked about a sense of frustration with this approach. “At the time it seemed like an abdication of responsibility to me”, said one senior manager. A symbolic example of this was the clash over dress standards. MSP had casual Fridays; Work and Income had a corporate dress standard. There were disagreements between senior managers over which policy to adopt. The chief executive would not make a decision and “let the heat and exaggeration settle to its natural level.” After some time, he gave general managers the discretion to make decisions over dress standards. On reflection, the senior manager said that Hughes was “legitimately concerned we would rush some decisions and regret it later. If he had made expedient or opportunistic decisions he would not have earned the trust of his team.” In time the senior managers seemed to understand Peter’s notion of creating something new and accepting diversity. “Diversity is ok in an organisation this big”, said one senior manager, reflecting on the eventual decision to allow general managers to decide on cultural issues. Butler, who has led a change process involving significant cultural issues, echoed MSD’s experience. After joining an organisation under intense media scrutiny, he said he quickly


identified an opportunity to change its cultural dynamics. “We had developed a response strategy,” he said, “but to make it work I felt we needed to draw a line in the sand – own the past but move forwards.” “During our merger 4”, said Clark, “we had to deal with tribalism and a sense of takeover.” She said her response was to put staff (from all levels) together to work on projects. It was important to expose the people to each other, and unless they were made to, this process would have taken more time than was available. She said that she felt the process had been successful when staff no longer identified with their former respective organisations. A fear of takeover was also present amongst many MSP staff leading up to the establishment of MSD. However, this ended up being a largely unrealised concern after the two agencies came together. Reflecting on this fear, a senior manager said: “I recall him [Hughes] saying: look, you guys think you [MSP] are making all the adjustments, but you are not. Work and Income is having to deal with a diversity it has never had to before.” In other respects, the change was also great for the larger agency. By confining the initial change to Wellington, some in Work and Income felt they were being left behind in the initial shift towards the social development vision. Further, in the new organisation, Work and Income had become one of the Ministry’s functional areas leading to it being treated with the same level of consideration as the other parts of the Ministry despite its disproportionate size (staff and budget). This was a considerable change from Work and Income days when it was the dominant focus of the organisation.

Integrating policy and operational functions The cultural differences between the two organisations were mainly caused by the differences between policy and operations roles. There is a natural tension between these: policy wants the best (reflecting the way they would like the world to be), whereas operations want something that is workable (how the world is). Hughes challenged this dynamic and promoted a collaborative approach to policy development, the benefits of which he strongly believed in. He said that if he had been made chief executive of an operational agency, he would have grown a policy capability and sought to influence the separate policy agency. Separation limits the breadth of views of both policy and operational functions. For example, Hughes said Work and Income did not know how to solve the poverty they faced every day, but understood that accommodation costs were a key contributing factor. When Hughes confronted policy about it, they said accommodation costs did not rate as a poverty factor. Hughes initiated research, which found that accommodation costs were in fact a big factor in people needing to apply for special benefits. Hughes insisted on establishing multi-disciplinary teams from the start of the policy process. This meant involving corporate functions as well, to ensure better integrated planning from policy development to implementation. “The challenge was to lead this. We began by getting everyone together – policy, operational policy, Work and Income, IT, finance, HR, external agencies” said a policy manager. “There were about 30 people in one room – very difficult – nobody really enjoyed it, but we knew we had to make it work. The policy people wanted to get together on their own and work through issues faster. I had to tell them not to – more than once. Then they said they would not come back [to the table]. I think the IT and delivery people also found it difficult. We persevered and once we began to get some traction it became a lot easier. A better quality policy has resulted from that process.”

4 Merger of the Ministry of Justice and the Department for Courts


This process proved resource-intensive up-front. IT and Work and Income had to make a significant resource commitment by allocating senior people to the process from the beginning. However, fresh approaches were developed and all learned from each other. “Having policy in our midst has lifted our game”, said an operational manager. He attributed this result to making the operational people think more strategically: “our people now have a sense of outcomes – the wider perspective of social development has given greater meaning to putting the customer in the middle”. A senior manager from an operational area commented that the relationship between policy and operational groups continues to grow today. The process has been largely personality-driven. “It hasn’t been easy but being in the same building means we have to resolve the differences at some point. It has taken extra leadership to get my people involved in the policy process”, he said. “My people felt threatened, dwarfed. There was a sense of superiority on the part of policy.” However, the process was more of a change for the policy people because their model of policy development did not include operational issues. Nowadays, if operational people are not involved in the policy development process it is raised at the senior managers’ meeting and policy is challenged to include Work and Income’s input. The merger also resulted in service delivery parts of the organisation getting support from a larger corporate policy body. Policy helped them through government processes that were unfamiliar to them and took up the relationship with the Minister. Policy also took charge of the activities in which they had expertise, such as the budget process. This resulted in Work and Income placing budget bids that have been more successful. Another benefit from this joined-up approach was that the policy development process could be completed in a shorter timeframe, enabling earlier implementation. An MSD manager reflected, “we are able to carry out several steps at the same time – involve operations, identify practical implementation implications like HR and IT - rather than follow the traditional sequential policy development process”. Another advantage has proved to be, as policy and operations were working together, that they were sometimes able to implement short-term solutions before the overall policy process was completed. Although the integrated process proved beneficial, one manager sounded a word of caution. “We may be seeing the best of the process now, but I am unsure how long it will last. The risk is that we become complacent and that delivery imperatives begin to take over the policy development process. We may have to throw something new into the mix to keep up the momentum, but I am not sure what this is at present.”


Lesson five: manage stakeholder relationships

On taking up his role, Hughes knew that the effective management of stakeholder relationships and the wider perception of the Ministry were critical to the success of MSD. He identified that there was repairing to be done with the Minister, other public sector agencies and to the public profile of Work and Income. A senior manager said that Hughes set about trying to restore the Minister’s trust and confidence in the organisation and its senior managers, particularly those from Work and Income: “His approach was to regularise and systematise the approach to keeping the Minister informed and apprised of potential issues.” Hughes set a very high standard for the quality of work going over to the Minister, re-vamped the regular reports and adopted a transparent and ‘no surprises’ policy to deal with issues. “My approach was to be open and act with integrity. I made a point of telling the Minister when we had stuffed up,” said Hughes. Another senior manager commented that Hughes made a very positive impact on the quality of the relationship between the Minister and MSD. Hughes made it a high priority to develop interpersonal relationships with stakeholders. He put considerable effort into relationships with central and other agencies and gave senior and other managers the same priority. In particular, Work and Income Regional Commissioners were expected to expand their relationships and improve local networks. Public perception was a major issue for the incoming chief executive given the high media profile of Work and Income. “I tried to identify the issues and then look for opportunities to address these. Work and Income had a beat-up mentality about the media – they were so used to it they had come to expect it. I wanted to do something about it.” Over the first few months in the job, Hughes had the opportunity to react to public stories about Work and Income. In each case he fronted up to the media with statements correcting the impression created by the story and standing up for staff actions. For instance, during a radio interview a community group threatened to name staff members it thought were not telling clients about their entitlements. Hughes phoned the radio station to condemn this idea, reiterating his role of maintaining staff safety. Hughes also concentrated on increasing public transparency and accountability by publicly owning the mistakes made by the Ministry, but defending it when it was in the right. After a criticism of MSD in the New Zealand Herald, he sent the following intranet message to all staff:

I've said to you before that when we make mistakes I want us to own them, fix them and learn from them. We should not try to defend ourselves when we're in the wrong. We're a big organisation and we will make mistakes. The test of an organisation like ours, I think, is how we behave when things go wrong. I want us to behave with integrity and own our mistakes. In my reply you will see that I've done that in respect of one of the criticisms made of us. But on this occasion most of the claims made are wrong, unjustified and very damaging to our reputation so I've tried to set the record straight. As I've said "we're just ordinary people here trying to do our best". You work hard at your jobs and I won't let unjustified criticism go unchallenged.

Hughes closely linked restoring the Ministry’s image to managing risks. His approach was to establish a process for handling issues that might pose a risk. He introduced twice-weekly meeting of senior managers over issues and implemented a ‘war room’ for special issues, where all the


right people would be working together. Hughes said that this proved very effective. “You can be a high performing organisation but if your stakeholders do not believe this then you are dead in the water. Perception is a big part of reality.” Other chief executives interviewed echoed these comments. In particular, they saw great importance in being able to demonstrate publicly that performance had improved. The significance of managing stakeholder relationships following the establishment of MSD was determined by the particular circumstances surrounding the founding organisations. However, other chief executives agreed with the importance of managing stakeholder relationships. Fundamentals, such as effective communication with responsible Ministers, maintaining positive relationships with other government agencies and dealing openly with the public were commonly referred to. Reflecting on the significant proportion of time spent on managing stakeholder relationships, Hughes commented that he has found his job to be “as much about leading out as leading in”.


Lesson six: maintain the momentum of change

Setting the pace of change There was consensus amongst the chief executives interviewed that major organisational change causes disruption and leads to the common perception that once the major structural changes have been completed, the change process is over. They favoured a process of continuous improvement whereby change becomes part of everyday management, making big change processes less likely to be required. In addition, continuous change, if managed positively, energises staff and lifts performance. Describing himself as a ‘relentless gradualist’, Fancy said: “Change is inevitable so the best approach is to plan for it.” Change at MSD has been almost continuous since its establishment. Combining both organisations in the Wellington national office necessitated significant structural changes early on, but had little impact on the service delivery parts of the organisation. A year later, a review of the two policy groups and the research and evaluation group led to a re-configuration of these functions. A review of the IT group followed, as well as the establishment of three semi-autonomous Offices for functions where the Ministry had advocacy and sector representation responsibilities5. More recently the Ministry of Youth Development has joined MSD, sharing in the Ministry’s infrastructure, and a new Family Services service line has been established. As a consequence, organisational change has been taking place almost continuously since October 2001, but in discrete parts of the organisation. This approach has significantly reduced the impact of change on overall organisational performance. Another aspect of this approach was to initially allow newly merged functions to operate alongside each other, rather than designing a new structure right away. This was the case with the policy groups. Reflecting on this approach, a senior manager said:

It is not always clear on day one where functions best fit together, or the most effective way of achieving the goals of the new organisation [which might not yet be well understood]. Co-locating groups as a first step offers the opportunity to experience how they might best work together before committing to a structure. There is also a danger of fitting new functions into rigid structures where the decision is based on a limited functional fit. This leads to longer-term problems. The alternative is to take an open approach to the structure – maybe the existing structure has to change in response to taking on the new function. From this approach comes a sense of continual change.

The decision to implement change progressively was also made possible by the fact that MSD was not required to generate financial savings from the merger process, which, in past restructurings had dictated the need for significant up-front structural changes. However, even when financial savings are required, it may be better in the medium term to look at effectiveness before seeking efficiencies. A senior manager from MSD was of the view that going for efficiencies first can often result in effectiveness being compromised later. This can affect morale and staff commitment, generate unnecessary redundancy costs and increase staff turnover.

5 The three Offices are the Office for Disability Issues, the Office for Senior Citizens and the Office for the Community and Voluntary Sector.


Maintaining the momentum of change The challenge in adopting a continuous change approach is to sustain the momentum of change within the organisation. “The key is maintaining the sense of urgency”, said Butler. “Over time, this turns into long-term attitude change and a belief that you can change and improve performance,” said Wilson. Now in its third year of existence, MSD is moving from being an organisation going through a significant merger process, to one that works together in a co-ordinated way. Until recently the Ministry’s leadership structure had been suited to driving performance in individual areas. Hughes said he first chose to have a flatter structure with more direct reports to create short lines of communication between himself, senior managers and staff. However, this approach was less suited for driving strategy, as it had created a large team of people who each had a singular focus on individual areas of performance, rather than a holistic view across the organisation. Therefore, Hughes decided to reduce the number of Executives (re-named Deputy Chief Executives), refocus them on strategic leadership and devolve more of the day-to-day running of the Ministry to third tier general managers. In addition, he included more staff in the strategy development process through the creation of a strategy forum and a national leaders’ group. Hughes said that he aimed for an arrangement that would better include mid-level managers and create more opportunities for emerging leaders. Dangerfield said he had approached the issue of involving staff by creating a ginger group. He asked the organisation to nominate ten non-managers they considered to be the leaders of tomorrow. He brought them together regularly to discuss issues and develop ideas. While he did not take up all of the ideas, he found it useful to maintain a sense of change. In addition, the members of the group became change missionaries for the initiatives they had come up with and were chosen for implementation throughout the business. Other chief executives opted for an option similar to Hughes’ and established ‘leadership groups’. These provide a forum for staff (typically reaching through to third tier managers) to hear the chief executive discuss the organisation’s vision and present ideas that could contribute to achieving it. To be effective, however, these groups need to be small enough (around 100 staff) to facilitate two-way dialogue. This can be a difficult balance to achieve in a large organisation with a national reach. The chief executives emphasised that the momentum for change did not necessarily need to come from the top of an organisation. Wilson said he aims to empower staff and make them responsible for their work and their future. With a clear vision, people can see the changes needed to achieve those goals and can continuously improve to reach them. The conditions for this approach to succeed are creating an environment where staff are empowered to make improvements as well as ensuring that they do so. Critically, staff need to feel safe if their ideas do not work or are not adopted by the organisation. Butler said that in an earlier leadership role, he used to ask at team meetings: “How did you improve your job this week?” When this became exhausted he switched to asking “How can I help improve your job?” The goal was to stop staff slipping back into complacency. However, achieving this state takes time. An important element for this approach to work is to accept that ideas are not always clearly expressed. Heifetz and Laurie (2001) comment that the “voices from below are usually not as articulate as one would wish.”6 Staff speaking to superiors typically feel self-conscious, may compensate by being too passionate or bypassing lines of authority. However, “buried inside a poorly packaged interjection may lie an important intuition that needs to be teased out and

6 Heifetz and Laurie (2001), p. 137.


considered. To toss it out for its bad timing, lack of clarity, or seeming unreasonableness is to lose potentially valuable information and discourage a potential leader in the organization.” Wilson said that one of the most effective strategies for encouraging and maintaining change is to pilot new initiatives in a quiet and measured manner and then evaluate their effectiveness. He said that this approach encourages people to put forward ideas and channels their enthusiasm in the development and management of the pilot exercise. If the evaluation shows that the initiative is effective then it can be rolled out nationally.

Using external levers Another means of creating urgency and maintaining the momentum of change is the use of external levers and benchmarks. Although the chief executives who commented on this approach applied it in different ways, they all found it effective at galvanising people to work together and meet a performance challenge. It also seems to be an attractive tool because it takes the chief executive away from being the focus of performance demands. Dangerfield cited the need to develop a Statement of Intent as a breakthrough for his organisation. This sector-wide requirement was externally driven and had to be completed in a tight timeframe. This created a sense of urgency to overcome the difficulty of defining the role of the organisation and the outcomes it should aim to achieve. The exercise brought the senior management team together to define and agree on the organisation’s vision. However Dangerfield admitted that, at times, he did not think they were going to get there. Clark also found the use of external stakeholders helpful to reinforce to senior management the priorities of the new organisation. At a meeting with all senior managers, the responsible Minister outlined the priorities he wanted the new organisation to focus on. Without it being planned, this reinforced the message Clark had been giving them, creating the jolt necessary for these managers to understand they really had to meet the new expectations. Another approach to using external levers is to set stretched targets linked to external benchmarks. Two chief executives employed this means to lift the level of the performance of their service organisations. The link to external benchmarks avoids the risk of service delivery staff basing their targets on what they can provide instead of what is good for clients. The challenge can be kept alive by celebrating the achievement of intermediate goals and then raising the bar by setting new standards. A third suggestion made by chief executives was the introduction of new appointments to drive change within an organisation. Wilson advocated the rejuvenation of the senior management team as a means of introducing fresh perspectives to the group. His formula is to retain one third of the original team, introduce another third from lower internal positions and bring the last third from outside. This approach provides for an element of continuity and retains institutional knowledge, while encouraging fresh thinking from both within and outside the organisation. Within the context of a no redundancies policy, Hughes employed a variation of this approach at MSD by moving leaders to new areas of responsibility. The learning from these views is that change offers the opportunity to focus people on the organisation. If this focus is positive (such as moving towards a new organisational vision) then it is useful in improving organisational performance and productivity. In the absence of change, the risk is that people become complacent, lose enthusiasm and stop looking for ways to improve. It is a challenge to maintain the impetus of change. The experience of the chief executives interviewed


shows that encouraging staff to take individual responsibility for improving the organisation in conjunction with stretched performance expectations has proven effective to maintain a dynamic environment in which an organisation prospers and in which the need for radical change is minimised.


Concluding remarks

Establishment of MSD The settlement of its national office collective employment agreement in April 2004 (replacing the former MSP and Work and Income respective collective agreements) marked the conclusion of the merger process at MSD. During this period there was a strong emphasis on maintaining productivity. This was achieved by carrying out organisational change on a progressive basis, minimising the impact of the merger on individuals not directly affected and engaging with them extensively over proposed changes. Initial fears that the merger would be a takeover of the former MSP by Work and Income were not realised. There was change for both groups. Work and Income became a service line within a broader-based organisation and MSP implemented a policy development process that involved greater input from operational and corporate groups. Restructuring of different areas of the business was then undertaken on a progressive basis. Reflecting on whether he would have done anything differently, Hughes said he might have taken a different line with some appointments. The Ministry has recently moved into a new phase of change, shifting emphasis from driving performance in individual areas to supporting an organisation-wide focus on strategic issues. This shift is being marked by the implementation of a new leadership model. It reflects the fact that the organisation needs to continuously adapt to its environment to effectively meet government objectives. “The key to operating in the public sector is to think strategically but act opportunistically,” said Hughes.

Summary of lessons learned The chief executives interviewed for this paper collectively offered considerable experience in leading organisational change. An overriding message was that their chosen change approach was dictated by the circumstances. Clark talked about having led organisational change processes and each time having adopted a different approach because of the context in which the change was taking place. The chief executives were asked to what extent their thinking has been influenced by organisational change theories. They said that while they would occasionally refer to them, they predominantly trusted the intuition they had developed through experience. Besides the need to adapt one’s change strategy to the context in which it takes place, there was overall agreement on the important aspects of leading change exercises. With regards to getting the people issues right, there was consensus about the need to: � understand attitudes to change and deal with resistance � put the interests of the organisation above that of individuals � place people before structures and involve them widely in the structural review � promptly reassure staff who are not affected by the change � get senior management buy-in and alignment to the leader’s thinking � act with integrity, communicate continuously, openly and transparently; and � invite staff feedback.


There was also consensus about the need for a clear strategic vision, so that staff can understand the rationale for change and what it means for them, buy into its objectives and take individual responsibility for its implementation. For MSD, as a merger was involved, dealing with cultural issues had a strong influence on the change process and consumed considerable time. This example highlights that in merger situations, conflict over cultural norms can arise during the change process. Effective strategies were not to favour one part over the other, not to deal hastily with highly emotional cultural issues and to accept diversity. Actively encouraging staff from both sides to mix and work together was also successful. Gaining stakeholder support was another widely agreed priority. Most chief executives talked about the importance of external support for their organisation to perform. They noted that even if the organisation was performing well, this counted for little if it was not recognised externally. Stakeholders were also useful for driving change or improving performance. Meeting external demands helped galvanise the organisation to achieve new objectives and the use of external benchmarks was a useful way of lifting performance. Finally, all the chief executives interviewed preferred the notion of continuous change to that of major restructurings. This was because continuous change did not generate the same level of organisational disruption and did not impact as much on productivity. Continuous change offered greater opportunities to trial and test options before full implementation, allowing organisations to adapt to the continuous change of their operating environment. Ongoing change also invigorated staff attitude and performance, providing new challenges to tackle – a benefit more readily enjoyed if the change was continuous and non-threatening. The challenge with such a progressive approach, however, was to maintain the momentum of change over time.

Appendix: List of Interviews conducted

MSD7 Peter Hughes, Chief Executive Rob Brown, Senior Strategic Policy Officer Sue Christie, General Manager, Human Resources Ross Judge, General Manager, Strategic Social Policy Natalie Lavery, Director, Office for Senior Citizens Sue Mackwell, Manager, Social Assistance Policy Hamish McIntyre, National Manager, Human Resources Consultancy Mau Moananu, Work and Income Service Manager Nick Pole, General Manager, Centre for Social Research and Evaluation Helene Quilter, General Manager, Corporate and Governance Patricia Reade, General Manager, Specialist Services Megan Roskilley, Work and Income Service Manager Ray Smith, National Commissioner of Work and Income Christine Stevenson, Chief Information Officer

Other organisations David Butler, Commissioner of Inland Revenue Belinda Clark, Secretary for Justice Geoff Dangerfield, Chief Executive, Ministry of Economic Development Howard Fancy, Secretary for Education Garry Wilson, Chief Executive, ACC

7 The job titles listed here reflect those current at the time the people were interviewed.

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