Academic journal article The McKinsey Quarterly

The Road to Renewal

Academic journal article The McKinsey Quarterly

The Road to Renewal

Article excerpt

The first step in restoring a company's lost vitality is avoiding the false choice between evolution and revolution

ORGANIZATIONS AGE. As they mature, habits of thinking and doing that once served them well become sacrosanct. They harden into custom, into tradition, whose existence is accepted and value unquestioned. Form triumphs over substance. Means become ends. Layer upon layer of revisions encase processes that used to be simple and responsible. Procedures grow labyrinthine. Things no longer work. People often feel a sense of malaise, but no real urgency to do anything about it.

We have all lived with the consequences. Outdated assumptions constrict our view of the world and permit only those courses of action that fall well within the comfortable boundaries of institutional acceptability. Noble purpose fades. Core values, eroded by cynicism and obscured by expedience, are ultimately discarded as the hollow slogans of an era gone by. Lacking a clear sense of purpose, well-intended people work at cross-purposes, wasting precious energy. Good people are the first ones to drift away in frustration and disappointment. Slowly but surely, vitality -- and, with it, competitiveness -- dies.

Even when managers recognize the symptoms of aging, they find them hard to reverse. As John W. Gardner, a much-respected Standford professor who served six US presidents in various leadership capacities, has observed:

"I once believed that it might be possible to design an ever-renewing organization, one that would never run down, never lose its vitality. It would provide for dissent, it would institutionalize the devil's advocate, it would provide the seedbeds for new ideas and solutions. It would never cease learning and developing. But after many years, I concluded that human beings are much too firmly wedded to the status quo to let anyone get away with such a scheme. They will discount the devil's advocate. They will silence the dissenter by outright punishment, or more commonly through blandishments of good fellowship. They will root out the seedbeds."

Evolution or revolution

The challenge, then, is formidable. Still, it must be faced -- time and again, by all but terminally ill companies. But if the renewal process begins with a determination to restore lost vitality and competitiveness, it has no end. Aging is relentless, remorseless. So, too, must be the efforts to rejuvenate and rebuild. Most CEOs understand this. They accept the challenge.

Their doubts and hesitations usually take a different form. How, they often ask me, can I -- how do I -- make a quantum leap in my organization's performance that will restore vitality, close all major competitive gaps, and at least maintain parity going forward? Should I aspire to do this through a one-time, step-change program, or should I be satisfied with a series of incremental improvements spaced out over many years? In other words, does renewal happen by revolution or evolution?

Current opinion is divided. Some CEOs preach the virtues of evolutionary change toward an evergreen, self-regenerating organization -- one based almost entirely on a host of self-directed, committed, frontline teams, fully empowered and fully engaged in problem solving, learning, and continuous improvement in the context of an essentially boundary-less, hierarchy-free organization.

Others have trouble reconciling this seductive vision with their own managerial upbringing. In their experience, planning and budgeting are powerful tools to achieve predetermined results. In strategy, there is such a thing as the right answer if only you subject the facts to sufficiently rigorous analysis. Power does flow from structure and hierarchy -- so much so, in fact, that a meaningful change in power can be accomplished only through personnel and/or structural changes. Sustained improvements in performance do come from a series of well-planned, decisively-executed, one-off adjustments -- a shift in product market strategy, say, or a reorganization of the marketing department or a redesign of the performance tracking system. …

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