Kotter: „We need a 2nd operating system in our organizations“

To cope with external challenges and hazards John Kotter suggests to implement a network based 2nd operating system within our companies. This sounds like some of the ideas writers of this Blog pursue under the name of “Haufe Quadrant”. Haufe Manager Randolf Jessl therefore digged deeper in an interview with the leadership and change guru. The interview was published in german translation in “Personalmagazin”, 7/2016. Here’s the original version for you.

 

Dr. Kotter, your book “Leading Change” set standards around the world for how we manage change. Now you have published a book called “Accelerate” that picks up many of your ideas of that time but pushes things further. What made you write it and what’s new?

In “Leading Change” we dealt with large-scale, strategic projects. They were done very poorly at that time. I do hope that “Leading Change” is still helping organizations to do better in such projects. However, over the last decade, the number of significant strategic projects has been dramatically going up. And there are differences between taking on one large initiative once in a while and ongoing initiatives. First: It’s no longer about taking tools out of the closet every two years and putting them back after completing the job. They need to be constantly deployed. Second: The organizational structure we use today has not been designed to be fast and agile. Change has really become a new game.

 

What’s wrong about the way we organize our companies?

Traditional businesses operate with a hierarchy of jobs and silos, with policies, procedures and roles, with planning and budgeting systems. They are good at making a lot of people and resources do what the organization has to do each day: make money, build and ship products efficiently and reliably. That is a difficult task that you can’t appreciate enough. Hierarchy, management processes are designed for assuring that in great stability. However, such organizations resist change easily. If you have to see opportunities and hazards quickly, if you have to make intelligent, innovative and creative decisions faster and execute them with speed, you have to learn from successful start-ups. Their only competitive advantage is agility and speed. And they are organized as networks.

 

That is to say we ought to reengineer our companies to network-driven start-ups?

Not quite. We need both in one organization: stability and agility, hierarchy and networks. We need what I call a dual operating system. “Accelerate” explains how to embed such a dual operating system in one organization.

 

In Europe, business leaders tend to separate the one from the other. They set up incubators or special departments in which innovation and strategic change is elaborated and pushed forward. And they keep them apart from the routine business.

That is how people have been taught and how they act. Not just in Europe. It is rather the world norm right now. But this is going to change over time since it is really a matter of who is going to win in their industries, and who is going to lose.

 

Are you sure that the dual operating system works the way you preach?

We tested it in projects led by our consulting company Kotter International. And I studied that closely. The track record of setting up separate units with separate people to try to innovate is terrible. You might find some successful companies, but not many. I saw that 30 years ago with Xerox, but didn’t realize its importance at once.

 

Xerox was deemed one of the most innovative ventures of its time!

Quite rightly. They were growing greatly because they invented a new technology for making copiers. However, whenever they tried to do new things they failed. There seemed to be not enough innovation and creative capacity inside their company. So they set up a new unit near Stanford at the West Coast while still operating the main business at Rochester on the East Coast. They called it the Palo Alto Research Center, staffed it with different people and assigned them a separate budget. They aimed at inventing new copiers, new business models there. And the people from Palo Alto came up with great ideas. But, in terms of helping Xerox grow and succeed, it was a total failure.

 

Why is that?

People in Palo Alto came up with a brilliant idea, but there was nobody who’d market it, manufacture it and sell it at large scale. They had to hand it back to Rochester. But when Rochester was given these ideas, they said the ideas were no good or could not be executed because they needed new procedures and structures.

 

The things which happen between silos.

More than that. Rochester became increasingly suspicious of the guys in Palo Alto, sucking up budget, being impractical and so forth. On the other hand, the people in Palo Alto thought the guys in Rochester were complete idiots who couldn’t see the future if you put it right in front of their faces. You can imagine what happened. The clever people in Palo Alto invented cool stuff, left Xerox and set up their own firms. Some of them failed – mostly because they didn’t have the financial backing that Rochester could have given them. Today, companies are still running into the same problems in various forms.

 

So setting up a dual operating system helps new initiatives getting better accepted…

…and executed at higher speed. There are too many people who don’t like things they haven’t invented or drag their feet because they want to work on stuff they are being held accountable for. There might be some examples where it worked. But overall the track record is terrible. The same goes for acquisitions. Many companies buy entrepreneurial places at great expense and finally kill them off. The evidence is pretty clear on that.

 

What sort of initiative can be pushed forward within the 2nd operating system?

Anything. Be it to integrate a global supply chain, to set up go to market strategies, develop and execute new business models, to do merger integration, create corporate cultures. Everything that needs a significant number of people doing things better and different from the routine approach.

 

But will you find the right people in your organization to push forward these initiatives?

All you need is 10% capacity over your workforce to engage in these initiatives. We have not encountered a case where an organization didn’t find or didn’t have these people. Even in companies where the managers were very suspicious of what we suggested.

 

No wonder managers are suspicious. Squeezing out these 10% capacity of streamlined, highly efficient organizations seems to be quite challenging.

If you articulate initiatives that people find meaningful, they will be energized. That is how the human animal is. You have to touch the heart. People can expand and they do.

 

How do you launch such an initiative and set up this 2nd operating system?

In terms of getting it started it often is launched from the middle of a company. The way we do it, however, is to bring together the senior management and help them think about the biggest opportunities. They have to find something that is both rationally and emotionally compelling. We start with the Executive Committee and make them write down in a paragraph or two what they deeply believe is needed. If you hand these ideas down to middle management there will be two or three raising hands and saying, “How can I help?”

 

So it’s all about marketing the idea?

It’s all about talking about why the idea is important. There are always too many volunteers to form the guiding coalition, the nucleus of the 2nd operating system.

 

How is such an initiative managed?

It’s not top-down project management. People in the 2nd operating system will decide themselves how they will operate. They will undertake initiatives all within the guard rails that have been defined by top management. That makes them feel comfortable about it. And off you go!

 

Are there any measures and goals given?

No. You cannot set up a guiding coalition around specific targets top management is excited about. It’s the guiding coalition that will determine them. We do nine day projects in which people define their way to do things. They pick measurable goals, they feed them back to top management to ensure that they don’t think it is idiotic. Though that has never happened yet. Management usually is surprised how high they place the goal for a 90-day project. Then they organize and go for it. Finally, it begins to communicate to the rest of the organization and a lot of people who have been skeptical begin to say, “Wow, here is some evidence that it works.” And that pulls more people into this.

 

Can you have several initiatives operating at the same time?

You can have up to seven initiatives going on. Three are in the 90-days cycle and four are running in longer cycles, say months or years. It shouldn’t get out of control, yet.

 

You are really enthusiastic about the liberating power of the 2nd operating system. Aren’t you afraid that the 1st operating system thus appears rather to be the sweat shop of daily life?

First of all, we haven’t seen that happen yet. You give rotations. Somebody who can’t immediately join the 2nd system gets another chance when somebody else drops out. Besides, the new system often finds ways to make the old system more interesting. People go back and kill off rules or procedures that are silly. They make the first system a better place to work.

 

And don’t you lack external impulses if you rely on internal resources only?

Some consultants bring in external realities and do it in a way that catches people’s attention. But the notion that consultants are smarter than the inside people is naïve. Mostly you waste much money on smart people telling your employees what to do though they know better. This is a shame. The most important ideas in organizations never get to a top manager’s ears. You need a system to mine and use them. The 2nd operating system is such a system.

 

Your 2nd operating system creates true leaders, you write. Is it the better way of leadership development compared to our traditional tools and practices?

I don’t know with confidence. In developing and spotting leaders it can be very helpful. But some combination makes sense.

 

To sum it up: Are we really talking about a true change of paradigm or just of the next wave of reengineering our companies?

Technology and global integration are producing a level of unpredictability and speed that is requiring a new paradigm, definitely. You will see more and more business leaders setting up a dual operating system within their organizations. I’d bet a big amount of money that this will happen.

 

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