Alignment drives growth
Friend, its time to make an effort
Friend, it’s time to make an effort,
So you become a grown human being,
And go out picking jewels
Of feeling for others.
Ansari
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When Ron Johnson took the reins as CEO of the venerable J.C. Penney department store, times were tough for many retailers. And JCP specifically was spiraling downwards. Johnson saw a chance to reinvent the department store as a great opportunity - he immediately gave store design and pricing an overhaul to attract younger, trendier customers. Sales sank by a quarter, and the stock plummeted by half. By early 2013 J.C. Penney and its CEO Ron Johnson had parted ways. Despite Johnson’s and his supporters’ pleas of “give us more time,” the board finally succumbed and exhaled, “No mas” - meaning, enough!
The dangers of focusing only on execution.
In 2011, Ron Johnson had left Apple to take the reins as CEO of J.C. Penney and everyone began speculating whether he would replicate the Apple Store’s success in such a dramatically different retail setting. He had spent more than a decade at Apple challenging the conventional wisdom that a computer maker couldn’t sell computers. By tossing out the retailing rule book, he built the Apple Store from scratch. “The Apple Store succeeded not because we tweaked the traditional model,” Johnson said in 2011. “We reimagined everything.” Apple stores went onto become the highest performing stores in the history of retailing. At JCP, Johnson had failed to see that a better integration of JCP’s in-store and online operations was far more important. At that time customers could not find in the stores what was being showcased online, and vice versa. The two channels were run separately, each with its own merchandise and supply chain.
Failing to face reality.
Business observers everywhere had noted that the former Apple executive had been too Silicon Valley for the Plano, Texas, retailer. He was arrogant. He didn’t test his ideas, maintained the familiar Apple mantra that customers don’t know what they want until you show it to them. He approved marketing campaigns that told loyal Penney’s shoppers that “you deserve to look better,” basically telling them that they looked less than glamorous wearing the brand they had trusted and been comfortable with for years. He hoarded information so that individual store merchandisers didn’t know how various lines were performing. He mocked J.C. Penney’s ways of doing things. He abandoned the discounting customers had come to expect from retailers. And he, and most of the team he recruited, were commuter leaders, jetting back to California after cramming in marathon work sessions at headquarters. While these factors certainly did contribute, there was one other major reason that Penney would never be “Bloomingdale’s for the mass market,” as Johnson wanted it to be - the mass market was gone. In other words, the middle class was gone, or was at least rapidly going. This reflected a troubling development in the American economy - the “hourglass economy.” And that meant that companies could reach both high-end and low-end consumers, but there was no longer a broad middle to appeal to.
Willing to work on alignment.
Johnson’s eventual replacement, Marvin Ellison, recognized the misalignment and restored JCP to profitability. Under Ellison’s leadership, JCP became nimbler and more responsive to customers looking for deals (who had left in droves because of Johnson’s changes). The retailer then redesigned its shopping app to make it easier for in-store customers to find discounts, improved its website, and caught up with rivals by offering same-day in-store pickup of items ordered online. Having “fixed the plumbing,” Ellison’s leadership team had turned its attention to making JCP more relevant to shoppers in the coming decade.
The gift of humility.
Like JCP many other companies are learning that the costs of setting off on the wrong transformation journey are significant: First, underlying problems persist and worsen as attention is invested elsewhere (JCP fell further behind in online sales as it freshened up store design). Second, new problems emerge (JCP alienated loyal, deal-driven customers with its new pricing strategy and saddled itself with more than $5 billion of debt, which hampered its ability to invest in technology). And third, the executive team risks undermining employee commitment to future initiatives (Ellison had to remobilize a workforce still traumatized by JCP’s near collapse under Johnson). Companies are also learning about one of the biggest barriers to incumbents dealing with market transitions: arrogance. There’s nothing wrong with being proud of past accomplishments. The truth is that becoming a leader in an industry or geography often involves a dose of luck, and significant skill, determination, and hard work. However, its the turning of confidence into arrogance that blinds leaders to the fact that success in the past does not promise the same in the future. The pace of change in today’s world means that job one for every leadership team is to determine how they will manage the dual challenge of maximizing the cash flow from today’s business while investing to create tomorrow’s businesses. Only a handful of companies have demonstrated the ability to do this once; the set of companies that have done this several times is even smaller. And the root cause of failure in the face of disruptive change is the resource-allocation process. A steady stream of incremental decisions, each of which makes sense to the individual making it, leads to companies systematically underinvesting in and mismanaging disruptive change. Grabbing hold of that resource-allocation process starts with a dose of humility. When confidence turns into arrogance it leads to a hidden complacency that makes change impossible. Wait too long and the punishment comes in a swift and brutal form.
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Flagship Pioneering, a company seeming to buzz with activity, thrives on being in constant motion as it aims to create “breakthroughs in human health and sustainability and build bioplatform companies.” Since its founding in 2000, Flagship has often been described as a venture capital firm. Yet, it sees itself as more of an incubator which has helped launch over 140 companies, including Moderna.
Evolving just like the way nature does.
Many people believe that the process for achieving breakthrough innovations is chaotic, random, and unmanageable. But that view is flawed, founder and CEO Noubar Afeyan argues (He has spent the past three decades starting ventures based on breakthrough science and technology). Breakthroughs can be systematically generated using a process modeled on the principles that drive evolution in nature: variance generation, which creates a variety of life-forms; and selection pressure to select those that can best survive in a given environment. Moderna Therapeutics and one of the most widely used Covid-19 vaccines in the United States, employed such an approach. The company has successfully launched more than 100 life-sciences businesses. Its process, called emergent discovery, is a rigorous set of activities including prospecting for ideas in novel spaces; developing speculative conjectures; and relentlessly questioning hypotheses.
Experiment, but with restrictions.
The company is a good example of a culture that embraces contradictions by combining a willingness to experiment with strict discipline. Flagship generally does not solicit business plans from independent entrepreneurs but instead uses internal teams of scientists to discover new-venture opportunities. Flagship’s approach, called emergent discovery, is a structured and disciplined process of intellectual leaps, iterative search and experimentation, and selection. And while it relies on exceptionally talented people, it believes that it does not require the next Leonardo da Vinci or Steve Jobs to produce a breakthrough innovation. In their formal exploration process, small teams of scientists, under the direction of one of the company’s partners, undertake research on a problem of major social or economic importance—nutrition, for example. During these explorations, teams read the literature on the topic and engage the company’s broad network of external scientific advisers to conceive new scientific insights. Explorations are initially unconstrained. All ideas—however seemingly unreasonable or far-fetched—are entertained. According to Afeyan, “Early in our explorations, we don’t ask, ‘Is this true?’ or ‘Is there data to support this idea?’ We do not look for academic papers that provide proof that something is true. Instead, we ask ourselves, ‘What if this were true?’ or ‘If only this were true, would it be valuable?’” Out of this process, teams are expected to formulate testable venture hypotheses.
The collective is more important than the individual.
Flagship’s willingness to experiment does not mean that it randomly throws paint at a canvas. Experimentation is central to Flagship’s exploration process because it is how ideas are culled, reformulated, and evolved. But experimentation at Flagship differs in fundamental ways from what is often seen at other companies. Emergent discovery starts with prospecting for potentially important ideas in relatively novel scientific, technological, or market spaces with the goal of generating speculative conjectures, or “what if” questions. These serve as the starting point for an intensive Darwinian-style selection process to find and validate better ideas, soliciting critical feedback from outsiders to identify challenges and evolving the concept into a superior and practical solution. Emergent discovery requires a culture in which people, particularly leaders, in an organization are comfortable broaching seemingly infeasible ideas and challenging dogma—a culture that views “flawed” ideas not as dead ends but as building blocks and considers the evolution of ideas to be a collectively shared responsibility.
Don’t validate, expose flaws - The company does not run experiments to validate initial ideas. Instead, teams are expected to design “killer experiments” that maximize the probability of exposing an idea’s flaws.
Don’t splurge, be lean - Unlike many established companies that heavily fund new ventures in the mistaken belief that more resources translate into more speed and more creativity, Flagship normally designs its killer experiments to cost less than $1 million and take less than six months. Such a lean approach to testing not only enables the firm to cycle through more ideas more quickly; it also makes it psychologically easier to walk away from projects that are going nowhere. It forces teams to focus narrowly on the most critical technical uncertainties and gives them rapid feedback. The philosophy at the core of Flagship is to learn what you have gotten wrong early and then move quickly in more-promising directions.
Don’t hide bad news, face it - Experimental data at Flagship is sacred. If an experiment yields negative data about a hypothesis, teams are expected to either kill or reformulate their ideas accordingly. In many organizations, getting an unexpected result is “bad news.” Teams often feel the need to spin the data—describing the result as an aberration of some sort—to keep their programs alive. At Flagship, ignoring experimental data is unacceptable.
Don’t reward individuals, encourage winning teams - Finally, Flagship’s venture team members themselves have a strong incentive to be disciplined about their programs. They gain no financial benefit from sticking with a loser program. In fact, just the opposite is true. Continuing to pursue a failed program means forgoing the opportunity to join a winning one. Again, a comparison of this model with what is common in many companies would lead most of us to conclude that having one’s program canceled is terrible news personally. It could mean loss of status or perhaps even one’s job. Keeping one’s program alive is good for career. At Flagship, starting a successful venture, not keeping the program alive, is good for one’s career.
People think focus means saying yes to the thing you've got to focus on. But that's not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully.
Steve Jobs
Growing a business in an increasingly complex world demands building new forms of advantage that differentiates it in the marketplace, and transforms itself for the future. Prior to the pandemic, studies consistently reported that about three-quarters of efforts to change flopped—either they failed to deliver the anticipated benefits or were abandoned entirely. “Poor execution” was the reason cited often. The reaction, therefore, was to focus on improving execution with the aid of “burning platform,” “guiding coalition,” and “quick wins.” And then the pandemic burst onto the scene, demanding a lot out of everyone. The result - a wall of resistance arose, likely to have played a part in the great resignation. For instance,
In 2022, willingness to support enterprise change collapsed to 43%, compared to 74% in 2016 as revealed by a Gartner survey.
In 2022, the average employee experienced 10 planned enterprise changes — such as a restructure to achieve efficiencies, a culture transformation to unlock new ways of working, or the replacement of a legacy tech system — up from two in 2016.
To make matters worse, this correlates with a lower intent to stay with the organization: Only 43% of employees who experience above-average change fatigue intend to stay with their organization, compared with 74% of employees with low levels of fatigue.
This combination of too many planned changes and lack of interest in supporting them speaks to the impossibility of sustaining efforts to change, at a time when change is the most
“Before worrying about how to change executive teams need to figure out what to change—in particular, what to change first.”
The calling
Intuitive diagnosis is reliable when people have a lot of relevant feedback. But people are very often willing to make intuitive diagnoses even when they're very likely to be wrong.
Daniel Kahneman
Investigation of transformations reveals that misdiagnosis is as much to be blamed as execution for the low success rates. Often organizations pursue the wrong changes, especially in complex and fast-moving environments, where decisions about what to transform in order to remain competitive can be hasty or misguided. Analysis of stalled transformations suggests that failing to examine and align three factors drastically reduces the odds of producing lasting change. Teams of decision makers must first work to understand three things so they can decide which changes to prioritise:
Pursuit of value-creation that calls for improvement in efficiency and investment in growth.
Specific quest that forces management of enablers and derailers related to aspect of the company: its purpose, its operating model including its people, customers, partners, internal processes, or resources.
Development of capabilities so everyone can think, feel and act in shaping the organization as it moves in the desired direction.
It can be useful to think of the pursuit of value generation and development of capabilities as the wheels that support a transformation, and the quest as the rest of the car that gives direction and momentum. Alignment among the three is critical to reaching the destination.
The stalling
One thing we've talked a lot about, even in the first leadership meeting, was, what's the purpose of our leadership team? The framework we came up with is the notion that our purpose is to bring clarity, alignment and intensity.
Satya Nadella
Overwhelmed by the challenge of alignment top teams become stuck. In our work with teams, we have regularly encountered regression to unhealthy coping mechanisms that allow members to escape from anxiety and self-examination. Members of group act like a pack, instinctively looking for ways to alleviate its collective anxiety. It might unconsciously ascribe unwanted roles to one or more members in the hope of containing that anxiety, or it might lapse into other skewed behaviors in an effort to keep it at bay. Rooted in human evolutionary psychology, by seeing the team as a pack we come to understand its deepest concern for its own survival. In times of heightened stress, allaying that concern often overrides all else. With the collective anxiety intolerable, the team is compelled to do something to counter it. Instead of addressing the situation rationally, it often attributes the source of its troubles to someone or something else. This off-loading process is the group equivalent of splitting and projection, observed by the child psychoanalyst Melanie Klein in individual psychology: disowning disliked or uncomfortable aspects of the self and assigning them to another. The becoming of one parent the family disciplinarian because the other parent consistently hangs back is one way to think about this phenomenon. In group situations some people are predisposed to take on certain roles because of early experiences in life, such as family interactions. And they can also often impose roles upon people on the basis of perceived personality or demographic characteristics—especially age, gender, and ethnicity. Once a role has been assigned and seemingly accepted, the team feels relieved. While it can help it move forward in the short term, in the long run it puts tremendous pressure on the person chosen to absorb or otherwise handle the group’s anxiety.
The Evading
To dare to be aware of the facts of the universe in which we are existing calls for courage
Wilfred Bion
All team’s discussions occasionally stray from the group’s central task of managing conflicting tensions that involves fully recognizing and and skillfully navigating tensions such as risks versus results; internal versus external pull; and top-down versus bottom-up innovation. But such digressions are usually just temporary escapes. The problems begin when a team spends more time avoiding and less on the actual work. The psychoanalyst Wilfred Bion first noticed groups’ extreme patterns of evasion and denial while working with shell-shocked soldiers returning to Britain from the Second World War. He observed that although such coping mechanisms reduce anxiety, they prevent real work from getting done. In other words, a team’s natural defenses start to sabotage its mission. Our own work with top teams corroborates Bion’s findings about the patterns into which teams fall. The four most common ones are:
The savior -In search for direction or protection, a team gravitates to surrendering its autonomy by off-loading it to a single person in the group —unconsciously replicating dependency relationships from childhood. Such inclination can be helpful for alignment and responsiveness in a crisis, but only briefly. The reason is that when casting someone in the role of savior, other members abandon their own initiative. And that is a risky way forward: it creates a set-up-to-fail scenario for the savior, who at some point is likely to have trouble containing the group’s stresses and meeting its overblown expectations. One of the markers of this pattern is the sense of helplessness and insecurity of the members. They wait to see how the savior reacts rather than work on creating solutions themselves. Another telltale sign is a hub-and-spoke pattern of communication: Almost everything must pass through the savior, with only superficial interactions among the other members. If unchecked, saviors may come to overestimate their capabilities, developing a sense of entitlement and invulnerability that leads them to overstep boundaries and eventually results in their downfall.
The duo - In search for deliverance, a team becomes dependent on a related form of dependency when the anxiety of the task is off-loaded to a pair who are cast as saviors. The group functions as if whatever the actual problems and needs of the group, an event in the future will solve them. Furthermore, the pairing or coupling between two members within the group, or perhaps between the leader of the group and some external person, will bring about salvation. The focus of the group is entirely on the future, as it acts out its inability to face the difficulties of the present and take initiative. Typically, decisions in group meetings are either not taken or left extremely vague, leaving the members with a sense of disappointment and failure which is quickly replaced by a hope for a better future. The chief risk here is that the pair gets increasingly carried away with its power, stuck in a folie à deux and out of touch with reality.
The fight - Anxious teams sometimes pursue the opposite of dependency, developing unrealistic expectations of autonomy and unity and off-loading the anxiety to someone or something on the outside. Members seek refuge within the “powerful'“ boundaries of the team, which closes in on itself and discusses only issues with which it is comfortable or finds soothing. It may become fixated on a common enemy, real or perceived, such as the head office, a partner organization, or a competitor. Instead of working to find a way out of its difficulties, it blames that party for its internal problems and mobilizes its forces accordingly. The emotional climate is one of urgency, but the team is fighting the wrong battles.
The flight - A team in flight mode also has outsized expectations of autonomy and unity, but it off-loads its anxiety by trying to escape from a common enemy. Such teams are marked by resignation, fear, and withdrawal. Members become preoccupied with signs of organizational or ecosystem change, and important tasks are postponed or ignored.
“Unaddressed and unresolved interpersonal tensions and toxic behavior can lead to organizational failure. They can impact team performance, collaboration, and productivity, create operational friction among teams, and cause employees to feel disengaged, distrustful, and unmotivated. While conflict at work is inevitable, we often have our own agency to proactively root out problems and stop them from escalating swiftly with empathy, accountability, self-awareness, and courage. ”
