Some optimists are heralding in the age of higher productivity, a transition to a service economy, and a brighter competitive picture for U.S. corporations in world markets. We certainly would like to believe that the future will be brighter, but our temperament is more cautious. We feel that the years it took for most U.S. companies to get “fat and flabby” are not going to be reversed by a crash diet for one or two years. Whether we continue to gradually decline as a world competitive economy will largely be determined by the quality of leadership in the top echelons of our business and government organizations. Thus, it is our belief that now is the time for organizations to change their corporate lifestyles.
To revitalize organizations such as General Motors, American Telephone and Telegraph, General Electric, Honeywell, Ford, Burroughs, Chase Manhattan Bank, Citibank, U.S. Steel, Union Carbide, Texas Instruments, and Control Data — just to mention a few companies currently undergoing major transformations — a new brand of leadership is necessary. Instead of managers who continue to move organizations along historical tracks, the new leaders must transform the organizations and head them down new tracks. What is required of this kind of leader is an ability to help the organization develop a vision of what it can be, to mobilize the organization to accept and work toward achieving the new vision, and to institutionalize the changes that must last over time. Unless the creation of this breed of leaders becomes a national agenda, we are not very optimistic about the revitalization of the U.S. economy.
We call these new leaders transformational leaders, for they must create something new out of something old: out of an old vision, they must develop and communicate a new vision and get others not only to see the vision but also to commit themselves to it. Where transactional managers make only minor adjustments in the organization's mission, structure, and human resource management, transformational leaders not only make major changes in these three areas but they also evoke fundamental changes in the basic political and cultural systems of the organization. The revamping of the political and cultural systems is what most distinguishes the transformational leader from the transactional one.
Lee Iacocca: A Transformational Leader
One of the most dramatic examples of transformational leadership and organizational revitalization in the early 1980s has been the leadership of Lee Iacocca, the chairman of Chrysler Corporation. He provided the leadership to transform a company from the brink of bankruptcy to profitability. He created a vision of success and mobilized large factions of key employees toward enacting that vision while simultaneously downsizing the workforce by 60,000 employees. As a result of Iacocca's leadership, by 1984 Chrysler had earned record profits, had attained high levels of employee morale, and had helped employees generate a sense of meaning in their work.
Until Lee Iacocca took over at Chrysler, the basic internal political structure had been unchanged for decades. It was clear who reaped what benefits from the organization, how the pie was to be divided, and who could exercise what power. Nonetheless, Mr. Iacocca knew that he needed to alter these political traditions, starting with a new definition of Chrysler's link to external stakeholders. Therefore, the government was given a great deal of control over Chrysler in return for the guaranteed loan that staved off bankruptcy. Modification of the political system required other adjustments, including the “trimming of fat” in the management ranks, limiting financial rewards for all employees, and receiving major concessions for the UAW. An indicator of a significant political shift was the inclusion of Douglas Frazer on the Chrysler Board of Directors as part of UAW concessions.
Equally dramatic was the change in the organization's cultural system. First, the company had to recognize its unique status as a recipient of a federal bailout. This bailout came with a stigma, thus Mr. Iacocca's job was to change the company's cultural values from a loser's to a winner's feeling. Still, he realized that employees were not going to be winners unless they could, in cultural norms, be more efficient and innovative than their competitors. The molding and shaping of the new culture was clearly and visibly led by Mr. Iacocca, who not only used internal communication as a vehicle to signal change but also used his own personal appearance in Chrysler ads to reinforce these changes. Quickly, the internal culture was transformed to that of a lean and hungry team looking for victory. Whether Chrysler will be able to sustain this organizational phenomenon over time remains to be seen. If it does, it will provide a solid corporate example of what Burns referred to as a transforming leader.1
Lee Iacocca's high visibility and notoriety may be the important missing elements in management today: there seems to be a paucity of transformational leader role models at all levels of the organization.
Organizational Dynamics of Change
Assumption One: Trigger Events Indicate Change Is Needed
Organizations do not change unless there is a trigger which indicates change is needed. This trigger can be as extreme as the Chrysler impending bankruptcy or as moderate as an abstract future-oriented fear that an organization may lose its competitiveness. For example, General Electric's trigger for change is a view that by 1990 the company will not be world competitive unless major changes occur in productivity, innovation, and marketing. Thus, Chairman Jack Welch sees his role as that of transforming GE even though it does not face imminent doom. Nonetheless, the trick for him is to activate the trigger; otherwise, complacency may prevail. Similarly, for AT&T, technological, competitive, and political forces have led it to undertake its massive transformation. For General Motors, economic factors of world competition, shifting consumer preferences, and technological change have driven it to change.
In a decade of increased information, international competition, and technological advances, triggers for change have become commonplace and very pressing. However, not all potential trigger events lead to organizational responses, and not all triggers lead to change. Nonetheless, the trigger must create a felt need in organizational leaders. Without this felt need, the “boiled frog phenomenon” is likely to occur.
The Boiled Frog.
This phenomenon is based on a classic experiment in biology. A frog which is placed in a pan of cold water but which still has the freedom to jump out can be boiled if the temperature change is gradual, for it is not aware of the barely detectable changing heat threshold. In contrast, a frog dropped in a pot of boiling water will immediately jump out: it has a felt need to survive. In a similar vein, many organizations that are insensitive to gradually changing organizational thresholds are likely to become “boiled frogs”; they act in ignorant bliss of environmental triggers and eventually are doomed to failure. This failure, in part, is a result of the organization having no felt need to change.
Assumption Two: A Change Unleashes Mixed Feelings
A felt need for change unleashes a mix of forces, both a positive impetus for change as well as a strong negative individual and organizational resistance. These forces of resistance are generated in each of three interrelated systems — technical, political, cultural — which must be managed in the process of organizational transitions (see Table 1).2 Individual and organizational resistance to change in these three systems must be overcome if an organization is to be revitalized.3
Managing technical systems refers to managing the coordination of technology, capital, information, and people in order to produce products or services desired and used in the external marketplace. Managing political systems refers to managing the allocation of organizational rewards such as money, status, power, and career opportunities and to exercising power so employees and departments perceive equity and justice. Managing cultural systems refers to managing the set of shared values and norms which guides the behavior of members of the organization.
When a needed change is perceived by the organizational leaders, the dominant group in the organization must experience a dissatisfaction with the status quo. For example, in the late 1970s John DeButts, chairman and chief executive officer of AT&T, was not satisfied with the long-term viability of AT&T as a regulated telephone monopoly in the age of computers and satellite communication systems. Likewise, when Roger Smith became CEO at General Motors in the early 1980s, he could hardly be satisfied with presiding over GM's first financial loss since the depression. In these two cases, the felt need provided the impetus for transition; yet, such impetus is not uniformly positive.
The technical, political, and cultural resistances are most evident during early stages of an organizational transformation. At GM the early 1980s were marked by tremendous uncertainty concerning many technical issues such as marketing strategy, production strategy, organization design, factory automation, and development of international management. Politically, many powerful coalitions were threatened. The UAW was forced to make wage concessions and accept staffing reductions. The white-collar workers saw their benefits being cut and witnessed major layoffs within the managerial ranks. Culturally, the once dominant managerial style no longer fit the environmental pressures for change: the “GM way” was no longer the right way.
One must be wary of these resistances to change as they can lead to organizational stagnation rather than revitalization. In fact, some managers at GM in late 1983 were waiting for “the good old days” to return. Such resistance exemplifies a dysfunctional reaction to the felt need. As indicated in Figure 1, a key to whether resistant forces will lead to little or inadequate change and hence organizational decline or revitalization lies in an organization's leadership. Defensive, transactional leadership will not rechannel the resistant forces. A case in point is International Harvester which appears to have had a defensive transactional leadership. Thus, in the early 1980s, International Harvester lacked a new vision which would inspire employees to engage in new behaviors. In contrast, Lee Iacocca has been a transformational leader at Chrysler by creating a vision, mobilizing employees, and working toward the institutionalization of Chrysler's transition.
Assumption Three: Quick-Fix Leadership Leads to Decline
Overcoming resistance to change requires transformational leadership, not defensive, transactional managers who are in search of the one minute quick fix. The transformational leader needs to avoid the trap of simple, quick-fix solutions to major organizational problems. Today, many versions of this quick-fix mentality abound: the book, One Minute Manager, has become a best seller in companies in need of basic transformation.4 Likewise, In Search of Excellence has become a cookbook for change.5 In fact, a number of CEOs have taken the eight characteristics of the “excellent” companies and are trying to blindly impose them on their organizations without first examining their appropriateness. For example, many faltering organizations try to copy such company practices as Hewlett-Packard's (HP) statement of company values. Because they read that HP has a clearly articulated statement of company values — the HP equivalent of the ten commandments — they want to create their list of ten commandments. The scenario which has been carried out in many major U.S. firms in the past year goes something like this: the CEO wants to develop the company value statement, so he organizes an off-site meeting in order to spend a couple of days developing the company XYZ corporate value statement. The session is usually quite enlightening — managers become quite thoughtful, and soul-searching takes place. At the end of the session, the group is able to list the XYZ company's “ten commandments.” The CEO is delighted that they are now well on the way to a major cultural change. He brings the ten commandments back to the corporation and calls in the staff to begin the communication program so that all company employees can learn the new cultural values. This about ends the transformational process.
The problem with the ten-commandments quick fix is that the CEOs tend to overlook the lesson Moses learned several thousand years ago — namely, getting the ten commandments written down and communicated is the easy part; getting them implemented is the challenge. How many thousands of years has it been since Moses received the ten commandments, and yet today there still seems to be an implementation challenge. Transformational leadership is different from defensive, transactional leadership. Lee Iacocca did not have to read about what others did to find a recipe for his company's success.
Assumption Four: Revitalization Requires Transformational Leadership
There are three identifiable programs of activity associated with transformational leadership.
Creation of a Vision.
The transformational leader must provide the organization with a vision of a desired future state. While this task may be shared with other key members of the organization, the vision remains the core responsibility of the transformational leader. The leader needs to integrate analytic, creative, intuitive, and deductive thinking. Each leader must create a vision which gives direction to the organization while being congruent with the leader's and the organization's philosophy and style.
For example, in the early 1980s at GM, after several years of committee work and staff analysis, a vision of the future was drafted which included a mission statement and eight objectives for the company. This statement was the first articulation of a strategic vision for General Motors since Alfred Sloan's leadership. This new vision was developed consistently with the leadership philosophy and style of Roger Smith. Many people were involved in carefully assessing opportunities and constraints for General Motors. Meticulous staff work culminated in committee discussions to evoke agreement and commitment to the mission statement. Through this process a vision was created which paved the way for the next phases of the transformation at GM.
At Chrysler, Lee Iacocca developed a vision without committee work or heavy staff involvement. Instead, he relied more on his intuitive and directive leadership, philosophy, and style. Both GM and Chrysler ended up with a new vision because of transformational leaders proactively shaping a new organization mission and vision. The long-term challenge to organizational revitalization is not “how” the visions are created but the extent to which the visions correctly respond to environmental pressures and transitions within the organization.
Mobilization of Commitment.
Here, the organization, or at least a critical mass of it, accepts the new mission and vision and makes it happen. At General Motors, Roger Smith took his top 900 executives on a five-day retreat to share and discuss the vision. The event lasted five days not because it takes that long to share a one-paragraph mission statement and eight objectives, but because the process of evolving commitment and mobilizing support requires a great deal of dialogue and exchange. It should be noted that mobilization of commitment must go well beyond five-day retreats; nevertheless, it is in this phase that transformational leaders get deeper understanding of their followers. Maccoby acknowledges that leaders who guide organizations through revitalization are distinct from previous leaders and gamesmen who spearheaded managers to be winners in the growth days of the 1960s and early 1970s. Today, Maccoby argues:
The positive traits of the gamesman, enthusiasm, risk taking, meritocratic fairness, fit America in a period of unlimited economic growth, hunger for novelty, and an unquestioned career ethic. The negative traits for manipulation, seduction, and the perpetual adolescent need for adventure were always problems, causing distrust and unnecessary crises. The gamesman's daring, the willingness to innovate and take risks are still needed. Companies that rely on conservative company men in finance to run technically based organizations (for example, auto and steel) lose the competitive edge. But unless their negative traits are transformed or controlled, even gifted gamesmen become liabilities as leaders in a new economic reality. A period of limited resources and cutbacks, when the team can no longer be controlled by the promise of more, and one person's gains may be another's loss, leadership with values of caring and integrity and a vision of self-development must create the trust that no one will be penalized for cooperation and that sacrifice as well as rewards are equitable.6
After transformational leaders create a vision and mobilize commitment, they must determine how to institutionalize the new mission and vision.
Institutionalization of Change.
Organizations will not be revitalized unless new patterns of behavior within the organization are adopted. Transformational leaders need to transmit their vision into reality, their mission into action, their philosophy into practice. New realities, action, and practices must be shared throughout the organization. Alterations in communication, decision making, and problem-solving systems are tools through which transitions are shared so that visions become a reality. At a deeper level, institutionalization of change requires shaping and reinforcement of a new culture that fits with the revitalized organization. The human resource systems of selection, development, appraisal, and reward are major levers for institutionalizing change.
Individual Dynamics of Change
The previous section outlined requisite processes for organizational revitalization. Although organizational steps are necessary, they are not sufficient in creating and implementing change. In managing transitions, a more problematic set of forces which focuses on individual psychodynamics of change must be understood and managed. Major transitions unleash powerful conflicting forces in people. The change invokes simultaneous positive and negative personal feelings of fear and hope, anxiety and relief, pressure and stimulation, leaving the old and accepting a new direction, loss of meaning and new meaning, threat to self-esteem and new sense of value. The challenge for transformational leaders is to recognize these mixed emotions, act to help people move from negative to positive emotions, and mobilize and focus energy that is necessary for individual renewal and organizational revitalization.
Figure 1 provides a set of concepts for understanding the individual dynamics of transitions. The concepts, drawn from the work by Bridges, propose a three-phase process of individual change: first come endings, followed by neutral zones, and then new beginnings.7 During each of these phases, an identifiable set of psychological tasks can be identified which individuals need to successfully complete in order to accept change.
The Three-Phase Process
All individual transitions start with endings. Endings must be accepted and understood before transitions can begin. Employees who refuse to accept the fact that traditional behaviors have ended will be unable to adopt new behaviors. The first task is to disengage, which often accompanies a physical transaction. For example, when transferring from one job to another, individuals must learn to accept the new physical setting and disengage from the old position: when transferred employees continually return to visit former colleagues, this is a sign that they have inadequately disengaged. The second task is to disidentify. Individual self-identity is often tied to a job position in such a way that when a plant manager is transferred to corporate staff to work in the marketing department, he or she must disidentify with the plant and its people and with the self-esteem felt as a plant manager. At a deeper personal level, individual transactions require disenchantment. Disenchantment entails recognizing that the enchantment or positive feelings associated with past situations will not be possible to replicate in the future. Chrysler, GM, AT&T, or U.S. Steel employees who remember the “good old days” need to become disenchanted with those feelings: the present reality is different and self-worth cannot be recaptured by longing for or thinking about the past. A new enchantment centered on new circumstances needs to be built. Finally, individuals need to experience and work through disorientation which reflects the loss of familiar trappings. As mature organizations become revitalized, individuals must disengage, disidentify, disenchant, and disorient with past practices and discover in new organizations a new sense of worth or value.
To help individuals cope with endings, transformational leaders need to replace past glories with future opportunities. However, leaders must also acknowledge individual resistances and senses of loss in a transitional period while encouraging employees to face and accept failures as learning opportunities. Holding on to past accomplishments and memories without coming to grips with failure and the need to change may be why companies such as W.T. Grant, International Harvester, and Braniff were unsuccessful at revitalization. There is a sense of dying in all endings, and it does not help to treat transactions as if the past can be buried without effort. Yet, one should see the past as providing new directions.
The key to individuals being able to fully change may be in the second phase which Bridges terms the neutral zone.8 This phase can be interpreted as a seemingly unproductive “time out” when individuals feel disconnected from people and things of the past and emotionally unconnected with the present. In reality, this phase is a time of reorientation where individuals complete endings and begin new patterns of behavior. Often Western culture, especially in the U.S., avoids this experience and treats the neutral zone like a busy street, to be crossed as fast as possible and certainly not a place to contemplate and experience. However, running across the neutral zone too hurriedly does not allow the ending to occur nor the new beginning to properly start. A death and rebirth process is necessary so that organizational members can work through the disintegration and reintegration. To pass through the neutral zone requires taking the time and thought to gain perspective on both the ending — what went wrong, why it needs to be changed, and what must be overcome in both attitude and behavioral change — and the new beginning — what the new priorities are, why they are needed, and what new attitudes and behaviors will be required. It is in this phase that the most skillful transformational leadership is called upon.
A timid, bureaucratic leader who often reels in the good old days will not provide the needed support to help individuals cross through the neutral zone. On the other hand, the militaristic dictatorial leader who tries to force a “new beginning” and does not allow people to work through their own feelings and emotions may also fail to bring about change. The purported backlash toward the “brash” Archie McGill at American Bell in June 1983 may have been an example of trying to force people through the neutral zone in order to get to a new beginning. Archie McGill was known to rant and rave about the stodgy, old fashioned, and non-innovative “bell-shaped men” at AT&T. While he was trying to help and lead individuals to become innovative and marketing orientated, he may not have allowed them to accept the endings inherent in the transition. Although his enthusiasm may have been well placed, he may have lacked the sensitivity to individual endings and neutral phases of transactions.
Failure to lead individuals through the neutral zone may result in aborted new beginnings. In 1983, International Harvester appeared to be stuck in the neutral zone. In order for International Harvester to make a new beginning, it must enable people to find a new identification with the future organization while accepting the end of the old organization. Such a transformation has successfully occurred at Chrysler Corporation where morale and esprit de corps grew with the new vision implanted by Lee Iacocca. In the end, organizational revitalization can only occur if individuals accept past failures and engage in new behaviors and attitudes.
After individuals accept endings by working through neutral zones, they are able to work with new enthusiasm and commitment. New beginnings are characterized by employees learning from the past rather than reveling in it, looking for new scripts rather than acting out old ones, and being positive and excited about current and future work opportunities rather than dwelling on past successes or failures. When Mr. Iacocca implemented his vision at Chrysler, many long-term employees discovered new beginnings. They saw the new Chrysler as an opportunity to succeed, and they worked with a renewed vigor.
What Qualities Do Transformational Leaders Possess?
So what does it take to transform an organization's technical, political, and cultural systems? The transformational leader must possess a deep understanding, whether it be intuitive or learned, of organizations and their place both in society at large and in the lives of individuals. The ability to build a new institution requires the kind of political dialogue our founding fathers had when Jefferson, Hamilton, Adams, and others debated issues of justice, equity, separation of powers, checks and balances, and freedom. This language may sound foreign to corporate settings but when major organization revitalization is being undertaken, all of these concepts merit some level of examination. At Chrysler, issues of equity, justice, power, and freedom underlay many of Mr. Iacocca's decisions. Thus, as a start, transformational leaders need to understand concepts of equity, power, freedom, and the dynamics of decision making. In addition to modifying systems, transformational leaders must understand and realign cultural systems.
In addition to managing political and cultural systems, transformational leaders must make difficult decisions quickly. Leaders need to know when to push and when to back off. Finally, transformational leaders are often seen as creators of their own luck. These leaders seize opportunities and know when to act so that casual observers may perceive luck as a plausible explanation for their success; whereas, in reality it is a transformational leader who knows when to jump and when not to jump. Again, Mr. Iacocca can be viewed either as a very lucky person or as the possessor of a great ability to judge when to act and when not to act.
The Significance of Corporate Cultures
Much has been written about organizational cultures in recent years.9 We suggest that every organization has a culture, or a patterned set of activities that reflects the organization's underlying values. Cultures don't occur randomly. They occur because leaders spend time on and reward some behaviors and practices more than others. These practices become the foundation of the organization's culture. At HP, for example, Bill Hewlett and Dave Packard spent time wandering around, informally meeting with and talking to employees. Such leadership behavior set the HP cultural tone of caring about and listening to people. Similarly, Tom Watson, Sr., at IBM spent a great deal of time with customers. His practice led to a company culture of commitment to customers. Indeed, corporate cultures exist. Leaders can shape cultures by carefully monitoring where and how they spend their time and by encouraging and rewarding employees to behave in certain ways.
Culture plays two central roles in organizations. First, it provides organizational members with a way of understanding and making sense of events and symbols. Thus, when employees are confronted with certain complex problems, they “know” how to approach them the “right” way. Like the Eskimos who have a vocabulary that differentiates the five types of snow, organizations create vocabularies to describe how things are done in the organization. At IBM, it is very clear to all insiders how to form a task force and to solve problems since task forces and problem solving are a way of life in IBM's culture.
Second, culture provides meaning. It embodies a set of values which helps justify why certain behaviors are encouraged at the exclusion of other behaviors. Companies with strong cultures have been able to commit people to the organization and have them identify very personally and closely with the organization's success. Superficially, this is seen in the “hoopla” activities associated with an IBM sales meeting, a Tupperware party, or an Amway distributor meeting. Outsiders often ridicule such activities, yet they are part of the process by which some successful companies manage cultural meaning. On one level, corporate culture is analogous to rituals carried out in religious groups. The key point in assessing culture is to realize that in order to transform an organization the culture that provides meaning must be assessed and revamped. The transformational leader needs to articulate new values and norms and then to use multiple change levers ranging from role modeling, symbolic acts, creation of rituals, and revamping of human resource systems and management processes to support new cultural messages.
Based on the premise that the pressure for basic organizational change will intensify and not diminish, we strongly believe that transformational leadership, not transactional management, is required for revitalizing our organizations. Ultimately, it is up to our leaders to choose the right kind of leadership and corporate lifestyle.