Effective Change Management: A Tale of Two Companies
Recently, we have seen the rise and fall of two great companies and the lessons learned for the change management process and leadership involved were very instructive.
Kodak had been a dominant global brand for over 30 years until the past decade. To put this in perspective, over the past decade their workforce shrunk from 64k employees to 17k. They invented digital technology and seemed to have suppressed it for a number of years due to the threat it would have on their core chemical business that we call photography.
In 1996, they decided to launch a product called Advantix. It used digital technology only as a means to help consumers see what they needed to print, but Kodak still had to print their photos. This turned out to be a $500m flop. So leadership at Kodak missed the fundamental change in their consumers’ needs from chemical to electronic, or at least felt they could not compete.
Their company, headquartered in Rochester, NY, became a bureaucratic monolith that was incapable of moving quickly to meet the market needs. This month amid reporting record Q4 losses, they also announced they were shuttering the digital camera business and focusing on printing. They also announced they would come out of bankruptcy in March 2013. Leadership lacked vision, planning and effective change management. Their stock plummeted from about $17 per share to $0.40 per share in the past five years.
Let’s contrast Kodak’s situation with the rise of Starbucks in the past five years. Howard Schultz, CEO, relinquished that title in 2000 when the company was growing 46% per year. In the mid-2000s, when Starbucks’ growth sputtered and they started losing profitability, Howard reclaimed the CEO title in 2007.
He had a tremendous organizational change management task ahead of him and started by taking several important actions. First, Howard started with the usual cost-cutting measures like closing 600 stores and implementing cost controls and operational improvements. Next, he needed to reinvigorate a workforce with low morale by creating a vision that became known as “the third place”, or the place people go to between work and home.
In 2009, he brought 11,000 managers to a leadership conference in post-Katrina New Orleans where they spent one day rebuilding the city as part of their meeting. Howard developed an organizational change management transformation agenda and ensured that his leadership team adhered to this process all the time. He also replaced several of the top leaders in the organization until he had a team in place who believed in him, his vision and the direction of the company.
During the past five years, Starbucks’ stock increased from about $17 per share to $55 per share. Looking at failure and success brings to light a number of change management lessons for leadership.