Organisational change – On Change… (1 of 5)05 June 2022
Lava from Mount Vesuvius flowing through the village of San Sebastiano in March 1944
Part one of a series of thought pieces by Ben Story, COO of SDCL
“The town was built at the very tip of a tongue of land until now spared by the volcano, but completely outflanked by the tremendous lava fields left by the eruption of 1872, and in effect lying in a valley between the two of them…Here, stranded as it was in the no-man’s-land of the volcano, any outsider would have predicted the town’s eventual destruction as a matter of mathematical certainty, yet apparently no citizen of San Sebastiano would admit even to the possibility of this.”
The town of San Sebastiano was largely destroyed following an eruption of Mount Vesuvius in March 1944. This extract from Norman Lewis’ account of his time as a British Army Officer in Naples(1) highlights how reluctant people are to accept change, even when the need is readily apparent and absolutely critical.(2) I have often been struck by the inability of powerful established organisations to compete against small challengers. I vividly remember the founder of one start-up telling me, “They just won’t” when I suggested that his larger, incumbent competitors could rapidly copy his business model and combine it with their formidable economies of scale. He was right – it took the incumbents more than ten years to adapt.(3)
Like the inhabitants of San Sebastiano, people in any large organisation have toiled to create their way of life. Every day, they invest in established business models, processes and tools, and, most importantly, relationships. It is upsetting to see these challenged. It feels offensive to have something you cherish termed a “learned inability” by an outsider.
Resistance to change is central to human nature. One of biology’s fundamental concepts is homeostasis, the maintenance of a steady internal environment by living systems in the face of external pressures to change. Homeostasis involves keeping key variables within certain limits. Similarly, there is a strong preference for the status quo in organisations. This may be rational behaviour; after all change may not be in everyone’s best interests. However, psychologists and economists, like Daniel Kahneman(4) and Richard H. Thaler, have shown that everyday non-rational cognitive processes also support status quo bias, such as psychological commitment, loss aversion, the endowment effect and, simply, lack of exposure to alternative outcomes. These instinctive brakes on change within an organisation can be extremely powerful.
Next there is the practical challenge of knowing what to do differently, especially in dynamic and complex systems with long lead times and highly uncertain outcomes. The famous conversation between the Chinese Premier, Zhou Enlai, and the US President, Richard Nixon, in 1971 is an irresistible example. Nixon asked Zhou his view on the impact of the French Revolution on world history; Zhou responded, “It’s too early to tell.” Zhou’s answer is frequently cited to demonstrate the profound wisdom and long-term perspective of Chinese leaders. Sadly, contemporaneous accounts suggest that there was a misunderstanding – Zhou was referring to civil unrest in France three years earlier, and not the French Revolution of 1789. In any case, the sheer ambiguity of change can result in “analysis paralysis” and procrastination.
Finally, there is the need to apply deep thinking, resources and time to change. Organisations are surrounded by increasingly vocal and demanding stakeholders, each setting their own formal and informal requirements. Today, large organisations operate in a dense soup of competing short-term stakeholder commands, which require constant administration and attention. It reminds me of my time playing Asteroids on my Atari 2600 games console in the 1980s. Like busy executives today, I found it hard to concentrate on much else.
These constraints on change contrast with an environment that is constantly changing. If the pace of external change is faster than the pace of internal change, then it is unlikely that an organisation will thrive. In my experience, most people in any organisation recognise this need for change. Many are very thoughtful and articulate about what needs to be done. However, announcing a change programme can be toxic: resistance to change increases and productivity and motivation fall. Even for those not directly affected, it can cause a “nocebo effect”, a medical term for a situation in which a patient develops anticipatory symptoms or side effects associated with an intervention. Furthermore, major announcements about change infer that it isn’t innate and ongoing. People may hope that once the change is over “things can return to normal”.
For over 25 years as an investment banker, I was fortunate to participate in strategic decision making at the top of governments, regulators, companies and investors in many industries around the world. In my last two roles, I had the privilege of leading change at the top of two large and well-known organisations: Citi’s UK Investment Banking business and Rolls-Royce. As I start a new role at a much younger, much smaller organisation, I wanted to take stock of these experiences and try to capture what I have learnt about change. My decision to share my thoughts has acted as a useful forcing function. I also hope that my considerations on organisational change may be of some benefit to others.
I believe that leaders should aim to embed a continuous strategic change capability into an organisation so it is constantly exploring, learning and growing. I call this “core momentum”. When I look back through my career, it has been the periods of momentum when I have been happiest.
(1) See Naples’ 44: An Intelligence Officer in the Italian Labyrinth by Norman Lewis.
(2) I was struck by how rapidly society changed during the Covid-19 pandemic. (Some commentators referred to “warp speed”.) For some organisations, such as pharmaceutical companies and their regulators, change was overwhelmingly and unambiguously welcome; for others, change was unavoidable and temporary.
(3) See The Power of Creative Destruction by Philippe Aghion.
(4) See Thinking, Fast and Slow by Daniel Kahneman.