New Book: Trust in Transition

June 21, 2014

Trust in Transition Cover060Is it possible to make major organizational transitions without catastrophic loss of trust?  I think there is, but the odds are against you unless you change the conventional thinking process. What is required is a new approach toward navigating organizational change.

My new book, Trust in Transition: Navigating Organizational Change, will be launched on August 18, 2014 by ASTD Press and is currently available for preorder.

The book is about how organizations must do a better job of preserving and enhancing trust when they go through changes such as reorganizations, mergers, acquisitions, or other restructurings.

Your purchase of the book includes access to a set of videos that enhance several of the key points.

There are numerous books on managing change, and many books and articles on M&As. My book is unique in that it focuses on the actions and behaviors needed to maintain the vital trust between people and organizational layers during the process of change.

A link between trust and organizational performance has been demonstrated in numerous studies. The correlation is strong, and the leverage offered by high trust is impressive. Most studies show a two to five times productivity benefit in high trust groups over low trust groups.

Can you name any other single factor that can offer a 200% improvement in productivity?

When organizations contemplate changes, the manner in which the effort is planned, organized, announced, managed, and led has everything to do with the impact on trust.

Unfortunately, in the vast majority of cases, the changes end up having a profound negative impact on the culture just when trust is needed the most. This condition ends up undermining the change effort and leads to a documented dismal track record of almost 80% of transitions not living up to expectations.

Thankfully, failure can be avoided by taking steps right from the start of a change process to act differently and prevent problems from occurring. The old adage of “an ounce of prevention is worth a pound of cure” holds true for this situation.

If some changes in mindset can be accomplished from the earliest plans for a change, the ability to retain or even grow trust during change is possible.

My book is about how to break the cycle of change failure by focusing as much effort on the cultural integration as on the mechanical parts of the change process.

Unfortunately many leaders have had professional training in the MBA schools that emphasizes the mechanical aspects of the change process such as negotiation, due diligence, financial valuation, or legal implications.

These subjects are critical in transitions, but they should not squeeze out the considerations of how to get people to work well together during and after the transition.

The focus on the financial and legal implications of a change are forced on center stage, and what ends up back in the wings is the fragile culture of trust between people in the organization. That is a problem, because the end result is a change effort that works well on paper but often fails to meet expectations in the real world.

The book contains dozens of areas where leaders unwittingly make errors in judgment which undermine the changes all along the way. By following a parallel path that works just as hard on the culture as the deal, leaders can greatly improve the odds of success.

I will provide a series of articles on this blog over the next few months that look at different aspects of the change process to suggest pragmatic antidotes to common problems.

Investing more leadership attention to the culture early in the change process will have a profound positive impact on the success rate.

I hope you find the tips I offer in the book and in future articles to be helpful at preserving trust in your organization. Nothing could be more vital for your ultimate success.

Who is “On The Bus” After a Merger?

December 11, 2010

Whenever two groups merge, there is a change in personnel and positions. Typically, there are fewer slots after a merger, so some staff are let go. Often, this winnowing process goes all the way to the top of the organization. A huge conundrum for the health of the business is how to keep the right people on the bus and get the wrong people off the bus.

During the assimilation process after the merger is announced, there is normally an evaluation period where top brass figure out how many positions there are going to be and then seek to fill those slots with the best qualified individuals from the talent pool of the combined groups. After the selection process, the remaining people will receive some painful but expected news.

This process is what appears to be the ballgame with personnel after a merger. Actually, I believe the real ballgame happens long before the official selection process, and top management had better do the right things then or some of the most talented individuals will not be in the crowd when the selection process begins. Long before the announcement of a merger is made, people in both camps are at least vaguely aware that something is afoot. In most situations, the rumor that there is going to be some kind of a major discontinuity has been circulating for months.

People in both organizations are justifiably nervous when facing some unknown hazard that is bound to create casualties. In my own experience, I have noticed that even the highest performing individuals are unnerved enough to start questioning their longevity, at least to themselves. The very best and most marketable individuals have a good chance to land comparable or superior positions in other, more stable, organizations. So, the most valuable people start looking for alternatives long before any forced ranking of staff members takes place.

On the flip side, the least talented people or the ones who are lazy or have interpersonal issues recognize that they are vulnerable. They also realize they are not going to find many opportunities on the outside, so they hunker down and prepare to defend themselves through legitimate or fraudulent tactics. Their objective is to stay in the game if at all possible, and they will do whatever is necessary to ensure that when the music stops they are near an empty chair. This may involve some unfair pushing and shoving.

One of the very first actions top management should take is to identify the critical few people they need to be around for the afterlife in the merged configuration. These people need to be informed that their place in the new order is assured, and it will mean a better existence for them. Of course, that is a tall order because the truth is that there are far too many unknowns in the months running up to a merger to legitimately assure anyone of anything.

In this situation, some kind of contingent bonus may be helpful. Stock options are often used as a tool here because payment can be substantial, but it only occurs when the organization itself thrives. People will think twice about leaving a $100K job to go to a new organization if they can see a potential $1M payout in stock options if the merger is a success.

The downside of any bonus incentive is that of fairness. Basically, top management is singling out a few of the best people (in their opinion) to incent to stay. That will unnerve the mass of people in the middle who believe they are contributing just as much to the prior organization as the fair-haired individuals, but are not receiving an incentive to stay. That sends a chilling signal that impacts motivation and productivity for the majority of people at the very time when the due diligence process is examining the numbers for valuation purposes. This problem can be mitigated if the performance evaluation system in place is sensitive enough to already single out the top 5% of individuals, so any retention incentive can be thought of as an adjunct to the normal performance management process.

Monetary incentives are not the only tool managers can use to allow key individuals to know they are valued during a merger. Simply having a candid discussion about the situation with individuals can go a long way toward having them want to stay on the team. Of course, it is always a good strategy to let the best people know they are valued, but the benefit of doing it is amplified significantly during the months running up to a merger announcement.

Another idea is to have people serve on planning groups that are charged with assembling data for the due diligence process or in developing the communication roll out. When individuals are included in active work to accomplish the merger, they instinctively know there will be a place for them once the dust settles.

Having the right people on the bus following a merger is the most critical consideration governing the success of the effort. I believe it is essential for top management to take steps to ensure the best people stay. These actions need to be accomplished during the conceptual phase of a merger and not while the formal integration process is unfolding.

Merger Miseries 5 – Mini Mergers

October 4, 2010

This is the fifth in a series of articles on the trials and tribulations of mergers and acquisitions. The topic for this episode is “mini mergers.” Every day in the news we hear about the mega mergers between giant organizations like airlines and automobile companies. These consolidations typically involve billions of dollars and take many months or even years to accomplish. The moves are the subject of constant Wall Street and popular business press analysis. In reality, there are literally thousands of smaller mergers, acquisitions, or restructurings that go on every day. These smaller but more numerous actions, when taken in aggregate, dwarf the mega mergers in terms of total impact, even though they do not get as much attention.

Any activity to change the way a unit goes about accomplishing its mission is a form of change that involves restructuring the roles of people. The activity goes under a wide spectrum of names, like: reorganization, merger, restructuring, downsizing, acquisition, reengineering, work-out, process improvements, Lean Six Sigma, and layoffs. Regardless of the name, each of these efforts is designed to make the resulting organization more effective than the prior pieces. The problem is that in roughly 80% of the cases, the activity consumes more resources than planned and is far more troublesome than anticipated.

Unfortunately, the tendency is to focus on the mechanical nature of the action with little planning on the consequences on people. For example, if a merger of two groups within a corporation is contemplated, far more energy typically will be spent on the timing of the move and the layout of the new office than on what changes will need to be made to the way people work together during and after the merge. The procedural issues and training needed are usually given short shrift until the mechanical merger is consummated, which misses an excellent opportunity for people to become invested in both the process and the outcome. The typical sequence almost guarantees a lapse in customer service and great consternation among the workers while managers try to sort out the mess.

There is a solution to the problem. It is to begin by addressing why we need to do something in the first place. If we need to be more competitive in order to compete with a new worldwide market, then start by discussing this problem with the people in the organization. Take the time to solicit creative ways to solve the problem that may or may not involve a restructuring of units. Let the individuals affected come to the conclusion that if the organization is to survive at all, something significant needs to be done.

Then, when the topic of combining units comes up, it is born out of involvement with the impacted groups. They can help configure the mechanical set up of the merged entity, and also begin to plan for the impact on people long before the actual event. They can set up groups whose job it will be to take care of customer issues with “one voice” while the organizational turmoil is going on. They can establish training programs for individuals who need to learn different functions. They can help people who are impacted find a path to a viable future inside or outside the old organization. In other words, the impacted people can and should help figure out what to do before the mechanical merger begins.

Involving people is often avoided out of fear that impacted people might get angry and start some forms of sabotage. It is true that there is some risk of that kind of problem, but it is far better to take this risk with eyes open and manage it intelligently. Reason: The vast majority of individuals will act responsibly when they are treated like adults and given some ability to shape their own destiny. Even though considerable pain is involved, a company can get through a transition phase quickly and with grace if top management allows people at all levels to be part of the design process.

Merger Miseries 4 – Do Do Diligence

September 25, 2010

This is the fourth in a series of articles on the trials and tribulations of mergers and acquisitions. The topic for this episode is “due diligence.” In every merger there is a phase where a kind of Kabuki Dance occurs. The outcome is fairly certain, but the parties investigate each other in order to negotiate the deal with higher confidence.

Actually “confidence” is a good word for it because the con-men involved in going through the motions are often more interested in subterfuge than transparency. The exercise has an aura of discovery where the acquiring party obtains lots of data and several tours, so they ostensibly have good data going into the actual negotiation.

The interesting point in this dance is that the level of deception can never be truly known until several months down the line after the deal is consummated. In some cases the disclosure is mostly forthright with only a few areas where the sellers are bending the truth, AKA “putting our best foot forward.” In many cases it degenerates into conscious deception or downright fraud. Let’s examine why this is the case.

Our society is structured with the doctrine of caveat emptor, or “let the buyer beware.” Under the doctrine, the buyer could not recover from the seller for defects on the property that rendered the property unfit for ordinary purposes. The only exception was if the seller actively concealed latent defects or otherwise made material misrepresentations amounting to fraud. The problem with this definition is that what may seem like polishing the brass to one lawyer might constitute deception to another. Let me illuminate a few examples of behavior that is considered OK versus behavior that is marginal or even totally illegal.

You have put your house on the market. You know there is a large problem of termites eating the wooden beams near the foundation. Sweeping up the loose sawdust on the floor to make the problem appear less evident or severe would be simply “staging” the house for sale, and it is perfectly legal to clean a house thoroughly before listing it. Covering up the damaged area with a new board in order to hide the nest is not appropriate, although many home sellers do things like that. They might list the subterfuge as a “cosmetic upgrade.” Certifying that the home is free of termites in a signed statement would be outright fraud. Of course, in buying a house, you would hire an inspector who is trained in how to look for termite evidence and other problems, so the ability to hide a large infestation is limited.

The same phenomenon takes place in due diligence for organizational mergers. Teams of consultants go in to look at the facilities, inventory, and financial records of the seller to protect the buyer from exaggerated or incorrect claims. In a merger situation, it is easier to hide minor or remote problems than it is for a homeowner to hide termites from an inspector.

Smart buyers find the right kinds of experts to gather the right data, do the careful research and forensics, and ask the numerous carefully worded questions that force disclosure of any flaws or potential time bombs. An excellent attorney/legal firm specializing in a particular type of transaction can ensure that both parties in a deal are protected. Scrutiny must go far beyond the straight accounting issues into other areas that could spell trouble for the organization over time.

It is also important to focus on due diligence regarding personnel issues. The intellectual abilities and motivation level of the current workforce are substantial parts of an organization’s assets. These less-tangible assets are no less important than the buildings, physical inventory, and accounts receivable statements of an organization. If the population included in a merger has habitually been abused by the current owner, the buyer is going to inherit these problems on steroids once the merger becomes public knowledge. How can a potential buyer accurately assess the level of human related assets?

Survey assessments of the current populations would be tempting, but there is a high probability of a Hawthorne Effect in doing surveys. A Hawthorn Effect occurs when people change their behavior or input based on the knowledge that they are being surveyed for a certain reason. This renders the data less valid. The information may show a rosy picture only to have the truth of a sweat shop environment come out after the merger.

The use of extant data is a more objective process. This is where existing historical records of HR data are collected and benchmarked with other companies of similar size and structure. These might include the following types of information:

• Wage rates for all levels of employees
• Absentee data going back several years to spot trends
• Safety incidents and accident rates (OSHA reportable and otherwise)
• Turnover rates and length of service trends
• Reports of disciplinary actions
• Union grievances and other labor relations data
• Manager turnover and tenure information
• Training records including the number of training hours per employee per year
• The communications plan of the organization (both internal and external)
• Performance appraisal information and trends separated by individual leaders

The use of extant data is much more difficult for a seller to disguise because the data are available and verifiable. If some of the metrics show alarming trends, these can be used as levers to investigate further with focus groups or individual interviews. The important thing is that the buyer needs to spend as much time and energy developing a profile of the human assets of a proposed acquisition or merger partner as is done with the physical and product portfolios of the other party.