350 BEST PRACTICES IN LEADERSHIP DEVELOPMENT AND ORGANIZATION CHANGE To address these problems, Praxair appointed a new management team in 2000 headed by Wayne Yakich, previously PDI’s VP of sales and operations, and char- tered his new team with delivering on the promise of the new business model. TWO TYPES OF DESIRED OUTCOMES The Yakich team communicated a clear vision, explained the strategy required to execute the business model, and set forth a new set of core values. Among the emphases of the new values was a realization that “this is a people business.” Previously, this concept had been given lip service, but was not taken seriously. It became the cornerstone for an entirely new leadership strategy, one that would enable employees to become part of the differentiation equation in the marketplace. Now the leadership strategy would be as widely implemented as the business strategy and enable nearly 3,000 customer contact employees to truly differentiate themselves from those of all competitors. Therefore senior managers championed the work to develop a new leader- ship strategy just as seriously as they drove the business strategy. In both cases differentiation was the goal. The new management team had to transform a loose confederation of businesses with different cultures, different operating procedures, different values, and different ways of managing employees into a market leader that combines the speed advantages of being small with the scale advantages of being large. In order to execute both the business strategy and the leadership strategy, two skill sets were required. The first consists of traditional business skills— determining what the marketplace wants and how to deliver it. The second con- sists of leadership skills used to mobilize people so that they have an understanding of the requirements for market success and how to deliver on them. 2 Although the ultimate business goal for PDI’s new senior management team was successful implementation of the business strategy, their ultimate leadership goal was a new leadership culture, generally understood as the sum of the habits of leaders. In other words, leaders must begin treating employees differently if employees were to treat customers differently. ASSESSMENT: HIGH INVOLVEMENT BUILDS HIGH COMMITMENT Generally speaking, employees don’t support solutions when they don’t under- stand the original problem and when they aren’t involved in both the assess- ment and the design of a business improvement intervention. This maxim of organizational change is frequently overlooked. Assessment should not be done in the dark. If the assessment activities engage the group targeted for change, resistance is reduced and support for the change is much greater. cart_14399_ch15.qxd 10/19/04 1:17 PM Page 350 PRAXAIR 351 A second maxim of organizational change is that the assessment and design phases should model the new values that underlie the change initiative—in this case, a valuing of the contribution people can make to bottom-line business success. With these principles in mind, Yakich chartered a three-person change team to develop assessment tools for use with PDI’s top 175 managers, including all senior managers, fifteen division general managers (DGMs) and all of their direct reports. The change team, comprising the director of HR, the manager of training and development, and an external consultant, recommended a four- step leadership strategy design process 3 to engage these 175 managers in assess- ing the current state of the leadership practices and the changes required if PDI employees were to become a sustainable source of competitive advantage. Listed below are the assessment tools, the steps followed in the assessment process, and the assessment findings. The assessment process was deliberately conducted to prepare the organization for future changes by engaging more than five hundred employees—175 leaders in the top three levels of management and over 325 employees—across all fifteen regional businesses. Assessment Tools The assessment tools were the following: • An employee survey solicited feedback on the extent to which the busi- ness strategy and leadership strategies were effective. • A tool was used for comparing the current leadership strategy with the one required to differentiate employees in the marketplace. • An assessment tool called a Leadership Philosophy Map 4 was used to define the core assumptions behind the portrait of a new manager. • A leadership cultural assessment tool for use with senior managers and division general managers (DGMs) clarified the change in leadership culture required to support the newly emerging leadership strategy. 5 • Customer focus conferences 6 conducted in each of the fifteen divisions brought representative customers together with customer contact employees. The purpose of these conferences was to clarify the cus- tomer contact behaviors, in terms of both attitudes and actions, that would differentiate PDI employees from all other competitors. Assessment Steps The assessment was conducted in the following four steps: 1. All senior managers participated in a six-hour session to apply the leadership strategy design tool to crystallize their own thinking about needed changes. cart_14399_ch15.qxd 10/19/04 1:17 PM Page 351 352 BEST PRACTICES IN LEADERSHIP DEVELOPMENT AND ORGANIZATION CHANGE 2. Division general managers conducted four-hour sessions with twelve to fifteen managers from the next level of field managers, during which the leadership strategy design tool identified gaps in the current and desired leadership behaviors. This step also resulted in one Leadership Philosophy Map from each session. 3. The 15 DGMs and senior PDI leaders then analyzed the input from all the sessions to determine common themes and assess the gap between the current leadership strategy and the one required to differen- tiate employees. At this time, the group realized that they did not really have a clear picture of the customer contact behaviors required to make PDI employees distinctive. Rather than settling for a best guess, they authorized a series of one-day, voluntary customer focus conferences so that exemplary employees and customers, working together, could develop the attitudes and actions that would set PDI apart from all other suppliers. All fifteen divisions opted for the customer focus conferences when they realized how energizing they were for employees and how well received they were by participating customers. 4. Fifteen customer focus conferences were held, each engaging twenty to twenty-five employees and two to three customer representatives who shared their views on what customer contact behaviors would set PDI employees apart from those of other suppliers. The output from these conferences was a set of differentiating attitudes and actions identified for each of the different customer contact groups (sales, drivers, inside sales, counter sales, technicians, and so forth). These attitudes and actions were consolidated into a master set for use companywide with each group of customer contact employees. 7 Assessment Findings The assessment phase lasted over fifteen months. But by the time it was com- pleted, there was widespread agreement on the shortcomings of the current leadership strategy and how to improve it. Resistance during the implementa- tion phase was virtually nonexistent. Nearly every leader in the top three lev- els of management understood why his or her current ways of managing employees was deficient. And they all were willing to implement the action plans that they themselves adopted, including prioritized management train- ing, revised performance review procedures, and new performance-based com- pensation schemes—all changes not normally supported by line managers. Below is a summary of the major findings of the assessment phase. The assessment phase was far more than a few surveys or focus groups. It was an intensive set of actions, engaging more than five hundred employees and simultaneously laying the foundation for implementation actions endorsed by those whose behaviors were expected to change. cart_14399_ch15.qxd 10/19/04 1:17 PM Page 352 PRAXAIR 353 1. Senior management leadership strategy design session 2. DGMs conducted four- hour leadership strategy design sessions 3. DGMs and senior team consolidate input from all leadership strategy design sessions 4. Customer focus confer- ences to determine differ- entiating customer contact behaviors Exhibit 15.1. Assessment Steps Assessment Step Assessment Findings • The leadership culture is in drastic need of change. DGMs and their direct reports must be engaged in a process to determine the current leadership strategy and how better to manage employees • 175 managers are in surprising agreement that the leadership strategy will not lead to differenti- ating customer contact behaviors • The industry orthodoxies on the management of people were alive and well in PDI • The new portrait of a successful PDI manager must contain a different people-management component • The leadership values must be changed and incorporated into key management practices • Field managers were skeptical of senior man- agers’ commitment to stay the course on the new leadership strategy • The new leadership philosophy map summarizes the required portrait of all managers in PDI • The new portrait makes it clear that current supervisors have not been trained in requisite management skills • Nearly all of the 175 managers have a strong desire to improve their managerial skills • The differentiating attitudes and actions are too general at this stage to be useful. Therefore, employees and customers must be engaged to add greater specificity • Customers confirm the critical role of customer contact employees in differentiating PDI from other suppliers • Employees are surprised that their opinions count and are being taken seriously • Employees leave feeling highly engaged and will- ing to change their own behaviors. The message that employee opinion matters ripples throughout the company • Employees feel frustrated that some managers tol- erate weak to mediocre customer contact behaviors • Specific attitudes and actions are developed for the different groups of employees who contact customers • Barriers to improved customer focus are identi- fied and local action plans adopted cart_14399_ch15.qxd 10/19/04 1:17 PM Page 353 354 BEST PRACTICES IN LEADERSHIP DEVELOPMENT AND ORGANIZATION CHANGE DESIGN: AN ITERATIVE PROCESS Organizational change of the magnitude undertaken by PDI is often likened to changing the tires on a car that is traveling at 70 miles per hour. The metaphor is quite apt. No change plan, no matter how well designed, can possibly antic- ipate all the bumps and curves in the road. Consequently, PDI followed an iter- ative design process. Each step of the change was designed, implemented, and then evaluated. The next step was designed based on the outcomes of the pre- vious one. Along the way, business performance, budget constrictions, and mar- ket dynamics, to name just a few of the “bumps” in the road, had to be considered in designing the next steps. For instance, no one anticipated need- ing customer focus conferences to help clarify customer contact behaviors. They were designed as a result of an unforeseen outcome from the previous step— that line managers did not know how employees could distinguish themselves in the eyes of customers. That being said, the PDI change team followed two fundamental principles, a focus on new or revised management practices and visible senior management support. Management Practices Are Central to the Change in Leadership Culture The first three steps of PDI’s leadership strategy design process were actually assessment steps. The true design work took place when the management prac- tices were aligned with the new leadership values. Values mean nothing if they aren’t reflected in how managers actually behave. Therefore, the PDI change team asked senior managers and field managers to prioritize the management practices to be changed first. The intent was to identify the management practices that would have the most impact early in the change process. The priority manage- ment practices were (1) skills training for managers and (2) realignment of the profit-sharing plan to incorporate division performance as part of the formula. Other management practices to be redesigned included: • Employee survey—to include questions about the new leadership strat- egy and the consistent practice of the new customer contact behaviors. • Customer scorecards—to provide feedback from customers on the atti- tudes and actions for each group of employees who routinely talk to customers. The feedback is managed by employee groups who take ownership for the results and formulate ways to improve their own cus- tomer contact behaviors. Managers are consulted when policy questions are involved or when actions may have an impact on other functional areas. • PDI playbook—a desktop reference guide for all employees containing pertinent company information, including PDI’s vision, values, goals, cart_14399_ch15.qxd 10/19/04 1:17 PM Page 354 PRAXAIR 355 business strategies, and department-specific guidelines for what to do and what not to do to help PDI reach its performance goals. • Praxair performance management process—the annual performance review process, including training and development actions, for exempt and nonexempt employees. • Leadership commitment day—a designated day to reinforce throughout all management ranks the importance of implementing the PDI leader- ship strategy and of living the leadership values. • DGM of the future assessment—an assessment process for DGMs to use in thinking about their own development needs as well as subordinates with the potential to become DGMs. Self-assessments are discussed with PDI senior managers, resulting in future development objectives. Visible Senior Management Support The critical role of senior managers in the success of a change process has long been acknowledged. Senior management support is absolutely essential to mak- ing changes in leadership culture. The commitment of Yakich and the entire senior team proved pivotal in the early days of the design and implementation. The PDI change team took advantage of all business meetings, company pub- lications, conferences, and teleconferences to communicate the message that change in PDI’s leadership culture was a vital link to success in the marketplace. Listed below are just a few of the communication opportunities designed into the change initiatives. • DGM meetings. Held twice a year, the meetings provided an update on the leadership strategy work and laid out plans for next steps of the implementation process. • Annual business conferences. The annual meetings of sales managers, operations managers, and functional staff groups provided a forum to communicate expectations for changing how employees are managed in order to support new employee behaviors with customers. • Monthly growth commitment teleconferences. Teleconferences provided direct contact between sales reps and senior managers on the status of marketing and sales plan implementation. They also afforded opportuni- ties for Yakich and his senior team to model new leadership values. • Quarterly town meeting teleconferences. Senior managers spoke directly with employees about business results and progress in the implementa- tion of the leadership strategy. • Division leadership conferences. Senior managers and the human resource change team conducted leadership conferences in each of the cart_14399_ch15.qxd 10/19/04 1:17 PM Page 355 356 BEST PRACTICES IN LEADERSHIP DEVELOPMENT AND ORGANIZATION CHANGE fifteen divisions, and in the functional staff groups, to underscore the linkage between the business and leadership strategies and the role of each manager in their implementation. • In-house publications. The quarterly newspaper, TOPICS, provided an excellent opportunity to highlight success stories, expectations for man- agers, and the critical link between the business strategy and the leader- ship strategy. Critical Success Factors in the Design of PDI’s New Leadership Strategy The following factors proved to be critical in the successful implementation of PDI’s new leadership strategy. Some critical success factors are structural, some relational, and some are procedural. • Broad involvement in the assessment phase. Engaging the group targeted for change in the assessment and design phases enabled the incorpora- tion of their thinking in the design but also began building a readiness for change. • DGM participation. Asking DGMs to conduct four-hour leadership strat- egy design sessions proved critically important in helping these man- agers understand the new leadership strategy while advocating its importance. • Customer focus conferences. Perhaps the design element with the most impact, the customer focus conferences engaged customers and employ- ees in a dialogue that echoed throughout the company. • Senior management support. In meetings, publications, teleconferences and one-on-one discussions, senior management conveyed that the new leadership strategy was for real. • Local champions. Customer focus champions were designated in each division to assist in the implementation of customer focus conferences. This local resource was an invaluable design element to the overall suc- cess of the new leadership strategy, because the champions provided feedback and support for local implementation. They served as an extension of the change team, as did field human resource managers, who fulfilled a critical role in the training and implementation phase. • The change team make-up. The change team comprised the HR director, the manager of training, and an external consultant, and possessed a complementary mix of expertise, experience, and knowledge of the orga- nization’s people. • Link to the business strategy. At all times the work on the leadership strategy was linked back to the business strategy. This provided a cart_14399_ch15.qxd 10/19/04 1:17 PM Page 356 PRAXAIR 357 constant reality check for the change team and those involved in implementation. • Momentum. The change team quickly realized that an essential element in all design and implementation components is momentum. If it is lost, managers begin to think that the change agenda no longer matters. Maintaining momentum is especially critical in the early stages. IMPLEMENTATION: ALIGNING LEADERSHIP STRATEGY WITH BUSINESS STRATEGY In PDI’s effort to transform its leadership strategy, the implementation phase was quite straightforward. By the time the implementation phase was reached, there was enthusiastic support for the pending changes. Most of the changes were in the form of new management practices, as mentioned earlier. Another core implementation activity was the training of nearly five hundred frontline managers and supervisors. They had not been exposed to either the business strategy or the leadership strategy during the assessment and design phases. As the focus of implementation shifted to these frontline managers, the DGMs once again played a critical role. Using presentation materials developed by the change team, the DGMs and their local human resource managers presented an overview of the business strategy and a more extensive explanation of the lead- ership strategy. Frontline managers were also introduced to the new attitudes and actions for their customer contact employees. The focus of these sessions was the critical role frontline managers play in achieving marketplace success. Another feature of the implementation phase was the launching of a six- module supervisory skill-training program. Performance coaching, conflict man- agement, and communications modules were scheduled for all PDI field managers over a period of fifteen to eighteen months. This was the first train- ing of its kind offered to many of these managers. Taught by human resource managers, this training reinforced the message that PDI was serious about instituting a new leadership strategy. A third element of implementation was the gathering of baseline data on the extent to which PDI managers were currently following the new leadership phi- losophy and values embedded in the leadership strategy. These data were col- lected at national conferences of sales and operations managers and during the fifteen division leadership conferences. The data serve as a means of tracking the progress in implementing the new leadership strategy. One unexpected event during a DGM meeting proved quite beneficial in the long run despite being disconcerting at the time. The DGMs voiced candid cart_14399_ch15.qxd 10/19/04 1:17 PM Page 357 358 BEST PRACTICES IN LEADERSHIP DEVELOPMENT AND ORGANIZATION CHANGE concerns about how well the senior team actually followed the new leadership philosophy and values. Their feedback essentially expressed frustration that the “walk” of senior managers didn’t match their “talk.” This discussion served to reinforce the importance of the leadership strategy and to heighten the aware- ness among senior managers that they, too, must change. In addition to agree- ments reached during this meeting, subsequent sessions among senior managers led to additional changes in their own actions. What could have been a crisis point for the implementation of PDI’s new leadership strategy turned out to be a recommitment to its strategic importance. ONGOING SUPPORT AND DEVELOPMENT: A SYSTEMS APPROACH PDI realized that behavior change could best be promoted through a systems approach. Without such an approach the new behaviors were not likely to become part of the new leadership culture. The revisions to the many manage- ment practices discussed earlier constituted much of the systems work. As these new ways of managing people were implemented, managers realized that PDI was serious about leading differently. For instance, the revised performance management system will eventually result in all PDI managers receiving feedback on the extent to which they are driving the new leadership strategy in their work groups. And their performance ratings will be linked to their compensation. Likewise, the revised employee sur- vey will provide managers with feedback on how thoroughly their division has embraced the new leadership strategy. Leadership Commitment Day, a new management practice, will further demonstrate that PDI expects managers to lead in such a way that PDI employees distinguish themselves from those of competitors. New management practices will continuously be introduced to reinforce the new behaviors and values inherent in PDI’s leadership strategy. A Perspectives Conference is being launched, for example, for new college hires to help them understand PDI’s leadership strategy and its link to winning in the marketplace. But in addition to new and revised management practices, PDI managers are being provided individual coaching, skills training, and periodic feedback on their progress. PDI employees will receive feedback from customers via the customer scorecards. Ongoing skills training, coaching from their managers, and the annual performance discussions are other sources of support. In summary, a systems approach not only means that current management practices are linked to the business and leadership strategies, but also that all new initiatives are likewise linked. PDI found that establishing this linkage is cart_14399_ch15.qxd 10/19/04 1:17 PM Page 358 the best means of reminding managers and employees that expectations for changed behaviors are real, and that failure to change has consequences. EVALUATION: ARE WE ON THE RIGHT PATH? In the early stages of a change process it is difficult to determine whether your efforts are producing the desired results. Unfortunately, concrete evidence tends to come in the form of lagging indicators. At this early stage, the positive impact on business performance has at least covered project costs. In the early going, the best that one can hope for is that leading indicators signal promising results. The leading indicators to which PDI looked were key stakeholders. More than thirty-five customers, for instance, said during the customer focus conferences that if PDI employees were to implement the differentiating cus- tomer contact behaviors, they would consider PDI to be true business partners, something they want but rarely see among suppliers. The customer scorecards will soon be yielding data from customers as part of the leading indicators of success. An early indicator of business impact is reflected in the following comment from a customer: Good Morning, I have received several comments regarding your drivers. They are helpful, professional, courteous, neat, and respectful of our staff. This is a refreshing change from the service we have been receiving from our other two suppliers. This also extends to the employees I have talked to on the telephone at your service depots. It is nice to hear “How can we help you” rather than a whole explanation of how cylinders and tanks are filled and why we can’t do it. A job well done. This type of service and professionalism will ensure a contin- ued relationship with [our company] and Praxair. Approximately seven hundred managers and more than two thousand employees have been exposed to either the new leadership strategy or the results of the customer focus conferences or both. The early indicators in the form of anecdotal evidence tell PDI that it is on the right path. Stories are surfacing throughout the United States and Canada of employees following the new attitudes and actions to the delight of customers. Managers are reporting delight at seeing their employees take initiative to address long-standing operations issues. PDI suppliers have provided another early indication that PDI is on the right path. A major hardgoods supplier to the industrial gas industry has seen the impact of PDI’s new business strategy in the marketplace and realizes that the leadership strategy has played a part. Inquiries are beginning to come in about how the leadership strategy was developed and whether it could be adapted for use in the supplier’s own business. In a similar vein more than one PRAXAIR 359 cart_14399_ch15.qxd 10/19/04 1:17 PM Page 359 . own thinking about needed changes. cart_1 4399 _ch15.qxd 10/19/04 1:17 PM Page 351 352 BEST PRACTICES IN LEADERSHIP DEVELOPMENT AND ORGANIZATION CHANGE. begin to think that the change agenda no longer matters. Maintaining momentum is especially critical in the early stages. IMPLEMENTATION: ALIGNING LEADERSHIP