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| Foreword | xi | (4) | |||
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| Preface | xv | (6) | |||
| The Authors | xxi | (10) | |||
| Introduction: The Challenges of Effective Change Leadership | xxxi | ||||
| Part One: Change Leadership in Action | 1 | (52) | |||
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3 | (23) | |||
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26 | (27) | |||
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| Part Two: Setting Directions: Principles to Guide Change Leadership | 53 | (72) | |||
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55 | (32) | |||
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87 | (13) | |||
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100 | (25) | |||
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| Part Three: Taking Action: New Strategies for Transformation | 125 | (144) | |||
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127 | (35) | |||
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162 | (33) | |||
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195 | (26) | |||
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221 | (48) | |||
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| Part Four: Beyond Leadership: Other Essential Elements of Successful Change | 269 | (98) | |||
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271 | (30) | |||
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301 | (20) | |||
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321 | (23) | |||
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344 | (23) | |||
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| Index | 367 |
The New copy of this book will include any supplemental materials advertised. Please check the title of the book to determine if it should include any access cards, study guides, lab manuals, CDs, etc.
The Used, Rental and eBook copies of this book are not guaranteed to include any supplemental materials. Typically, only the book itself is included. This is true even if the title states it includes any access cards, study guides, lab manuals, CDs, etc.
Chapter One
A Success Story
The Case of Lucent Technologies
David A. Nadler
On October 91, 1995, AT&T caught the business world by surprise, announcing plans for the biggest voluntary break-up in commercial history. Within a year, the telecommunications giant would split itself into three independent corporate entities. AT&T would continue as the long-distance communications service company. NCR, the computer company AT&T had acquired and tried unsuccessfully to integrate a few years earlier, would be back on its own. And AT&T's systems, equipment, and technology operations would be grouped in a brand-new company soon to become known as Lucent Technologies, Inc.
Everyone understood what AT&T and NCR were all about. But Lucent was a different story. Rather than spinning off an existing entity, AT&T lumped together four of its least successful and least profitable businesses, throwing in a portion of the demoralized Bell Labs for good measure. Together, this amalgam of disparate operations would be cut off from the mother of all corporate mother ships, launched straight into the heart of the chaotic and hypercompetitive telecommunications industry, and expected to successfully compete as a $23 billion start-up with 130,000 employees around the globe.
The daunting job of managing the spin-off and leading the new company--one of the most awesome change management challenges in recent times--fell largely on the shoulders of newly named senior executives Henry Schacht and Richard McGinn. As a longtime AT&T executive, McGinn was an obvious choice for president and chief operating officer, but Schacht's appointment as chairman and chief executive officer caught many by surprise. He had served several years as an AT&T director, but the sixty-one-year-old retired CEO of Cummins Engine hardly seemed the logical choice to mold a new company capable of doing battle along the far frontiers of communications technology. In retrospect, the decision of AT&T's then-chairman Robert Allen to appoint Schacht as CEO and McGinn as COO was particularly astute, though at the time no one could have predicted just how effective the new team would become.
Now fast-forward to the fall of 1997. Two years have passed since AT&T's announcement. Schacht is in the process of passing the reins of leadership to McGinn, and Lucent is being widely acclaimed as one of the great success stories in the annals of American business, due in large part to Schacht and McGinn's adroit leadership.
The record is remarkable by any measure. Revenue growth has been solid--up 10 percent each year--while net income has risen dramatically. Through the first nine months of fiscal 1997, net income stood at $1.1 billion; third-quarter earnings per share had tripled year over year and topped analysts' projections by more than 30 percent. In the telecommunications marketplace, and in the business world at large, Lucent sped from zero to sixty in record time; in less than two years it had established a presence in the marketplace and the public consciousness, built a record of financial success, and attracted solid backing in the investment community. It had come to be regarded as a dynamic, successful, and growing company that compared favorably with its former parent AT&T.
All in all, it's a remarkable business success story, and one well worth close examination as a classic study in the leadership of large-scale and complex organizational change. Literally thousands of people contributed to Lucent's success, but the single most important factor was the leadership of the organization by its senior executives--and by Schacht and McGinn in particular. Consequently, there are important lessons to be learned from looking at how they led the company through a dramatic, successful and--in relative terms--remarkably short period of massive change.
First, a word about methodology. As a consultant to Lucent--and before that, to AT&T--the author worked closely with Schacht, McGinn, and the leadership team even before Lucent's formal creation, up through the present. In addition, Schacht agreed to sit down halfway through his tenure for an in-depth interview that allowed us to document some of his personal perspectives on what he was doing and why. As a result, we had the unusual opportunity to combine the insights gained through our own participation and close observation with the thoughtful reflections of the key principal at the center of the change effort. Together, these two views provide a comprehensive inside look not only at the actions that were taken to effect change, but the thinking that went into them.
With that perspective, we'll begin by briefly describing the situation Schacht confronted as he assumed leadership of Lucent, and then explain the series of critical actions that Schacht and McGinn took to shape and lead the company. Then we'll step back and consider some general lessons their experience offers to all those engaged in the management of change.
The Genesis of Lucent
In the early 1990s, AT&T found itself in an increasingly untenable situation. More and more, it was coming into direct conflict in the United States with many of the regional Bell operating companies and overseas with postal telephone and telegraph companies as they competed to provide the same communications services. Yet those same competitors were among the largest customers of AT&T's equipment and systems businesses.
In effect, AT&T was turning into a company in competition with itself. As deregulation progressed, particularly in the United States, it became clear to AT&T chairman Robert Allen that his company's systems and equipment businesses would be severely devalued unless they were freed to compete aggressively for business from other service providers. As a result, Allen made the difficult but strategically correct decision in 1995 to spin off the systems and equipment operations into a separate corporate entity. That new company, which eventually became Lucent Technologies, would develop, manufacture, distribute, sell, and support communications equipment, systems, and technology for information service providers, for enterprises, and for individuals.
Initially, Lucent was structured as follows (see Figure 1.1). The largest group was network systems, which had developed and provided equipment for information system providers, including switching, transmission, wireless and operating systems, and cable. Business communications systems focused on telecommunications systems, including PBXs, for corporate customers. Consumer products was responsible for a wide range of products including corded, cordless, and wireless phones. Microelectronics was involved in the development of microprocessors and chips for communications applications, both for Lucent and for other customers. Finally, the famed Bell Laboratories would continue to engage in cutting-edge science and technology.
In general, these businesses had exhibited lackluster performance for a number of years. From 1992 to 1995, as new leadership emerged in each of these businesses, significant turnarounds were accomplished. However, many critics would say, with some accuracy, that those improvements had merely started the process of raising performance to target levels. Moreover, these businesses were largely disconnected features of the AT&T corporate landscape. They hadn't operated as a single, cohesive corporate entity since they were part of Western Electric Corp. before the 1984 Bell System break-up.
As the various components of the new company were gathered together, it quickly became clear that there was no sense of identity. There was no strategy beyond adding up the financial results of the four businesses. Within the component businesses, each had developed its own culture and management style to address different challenges. Complicating matters even further, the business unit leaders felt limited commitment to the new enterprise. None had participated in the decision to create it. None had been asked for their opinion about joining it. And in some cases, the leaders clearly would have preferred seeing their own units individually spun off as stand-alone companies.
This was the situation confronting Henry Schacht in the fall of 1995 when he accepted the offer to come out of retirement to lead the new organization, and the situation facing Rich McGinn as he moved from being the operating head of a division of AT&T into the presidency of Lucent. Their immediate and obvious challenge was to separate the businesses from AT&T and meld them into a new corporate entity. That in itself would have been a huge responsibility. But the mechanics of the spin-off created an additional layer of complexity; in early 1996, Lucent would have to orchestrate a massive initial public offering (IPO) in order to raise the capital so essential to launching the new company. And the implication of that was clear: In very short order--within just a few months--the new company would have to produce a sufficiently compelling story to make it an attractive prospect to the financial community and potential investors.
Clearly, top management had to move simultaneously along two tracks: maintaining and improving continuing operations while laying the groundwork for the future. Schacht addressed that issue at the outset, identifying informal and somewhat unorthodox roles for himself and McGinn. Schacht realized that even though he'd served for years on the AT&T board, he lacked McGinn's longtime experience as a manager within the industry. So to a certain extent it made sense for Schacht to focus on the building of the institution while McGinn concentrated on strengthening the existing businesses.
But they both shared in developing the company's future strategy, with Schacht taking the lead on the process for developing the strategy and McGinn immersing himself in the content. To an unusual extent, the two men shared the external responsibilities for dealing with the press, the financial community, customers, and other outside audiences. What's noteworthy is the extent to which they eschewed the traditional CEO-COO division of labor, with a sharp split between strategy and operations, between "Mr. Inside" and "Mr. Outside." From the very beginning, Schacht designed and deployed a model for a genuine team at the top.
The Critical Elements of Change
In our experience, it's often difficult to get CEOs to articulate the precise ways in which they go about leading change. For one thing, CEOs by their very nature tend to be more oriented toward action than introspection; having made the decision to forge ahead in a given direction, they rarely have the inclination to pause and replay the set of decisions they made along the way. And even if you could get them to stop and look back, most have a hard time dissecting and describing what they did. By and large, these are experienced executives who have reached the point where they're leading through instinct; most are hard-pressed to describe their specific strategies or techniques, because they don't think about what they do in those terms.
Henry Schacht is unusual on both counts. His approach to change management is clear, deliberate, and explicit. And perhaps because he came out of retirement after leading one successful change to take on another, he's had the chance to pause and reflect on what worked and what didn't. Consequently, he took on his new duties at Lucent with some sharply focused ideas about how to proceed and what pitfalls to avoid.
Given that fortunate circumstance, we're able to draw heavily upon Schacht's own observations to explain what we consider to be the seven critical things he did to design, lead, and manage change at Lucent. As will quickly become clear, some were sequential steps and others involved management techniques he and McGinn applied throughout the process.
1. Diagnosing the Need for Change
Given the tight deadlines Lucent faced as it prepared to go public, one might have expected Schacht to hit the ground running and never slow down. In reality, he did just the reverse. Although he first became involved with Lucent in the late fall of 1995, he didn't start his active work with the senior team until mid-January of 1996. During the intervening sixty days, he spent much of his time talking to people, collecting data, gathering all kinds of information, and forming impressions of the appropriate way to approach the situation. Schacht explained:
My advice to anybody who wants to be a change agent is to do the reverse of what everybody says. Everybody says, "Get in there and get busy." My answer is: stop. Figure out the lay of the land, what it is that needs to be done, and how you're going to be the leader. Figure out what the diagnosis is, and where you can participate.
Schacht went on to describe the importance of organizational diagnosis:
The most fundamental issue about creating or managing change is an assessment of where you are. If you're going to be really successful, it has to be explicit, not implicit. Your assessment of the conditions in which you're operating has to be explicit, and your assessment of what to do has to be explicit.
You've got to decide time frame, current status, current competence. You've got to decide what's the momentum, and what value added you bring as the new person. In other words, what is the nature of change that's required? You've got to start with a fundamental assessment.
Obviously, Schacht wasn't starting from square one; he had the advantage of having been an AT&T board member with a particular interest in the systems and equipment businesses for years. But he also knew there was a tremendous difference between board-level overview and on-the-ground perspective, So he very deliberately invested time in "getting the lay of the land"--figuring out what he and the company needed to do.
One element of his assessment concerned McGinn. Schacht's initial assessment confirmed Bob Allen's view of McGinn as an extremely competent and capable executive who was the obvious choice to be the CEO of Lucent over the long term. Given Schacht's age and McGinn's obvious qualities, Schacht decided right away to support that view of succession, explicitly assuming that McGinn would become the CEO. Consequently, Schacht insisted that he and McGinn not only work together closely in all areas of leadership, but that they be perceived as the team of "Henry and Rich." The idea was to quickly meld the two men as an inextricable unit, rather than drawing sharp distinctions in the eyes of the senior team and the organization at large. Therefore, although Schacht was the senior author of the assessment and the subsequent change strategy, most of the elements were the product of the Henry-and-Rich collaboration.
It was during this period that Schacht and McGinn concluded the company needed cohesion and direction, not emergency surgery. A few years earlier the situation had been markedly different, with some of the businesses in critical condition. But by the time Schacht arrived at Lucent, all were recovering--though hardly robust. They also concluded that the senior team was essentially the right one, that the individuals in key senior jobs were first-class executives. In fact, one of the new Lucent board members remarked that this was one of the strongest management teams he'd seen in his career. Therefore, the circumstances did not call for a CEO to walk in the first day and replace the senior team, shutter plants, and wipe out lines of business.
The problem was more subtle, though no less acute. With the IPO fast approaching, there was an immediate need to sell the idea of the new company as a single entity with a clear direction. But there was no story to tell; there was no strategy, no cohesion, no sense of identity that wasn't tied to AT&T. The impending split was creating confusion and a lack of confidence; people knew they'd be losing their affiliation with a rock-solid company and one of the world's best-known brands. They'd be losing what appeared at the time to be an unassailable core business--long distance service--that had effectively shielded the rest of the company from poor performance and periodic downturns.
Above all, careers spent within a massive corporation had robbed most managers of the sense that their destiny was in their own hands. No matter what happened, there was always some unnamed "they"--AT&T corporate management--who would make the tough decisions, provide resources, and protect them from disaster. And "they" were always convenient scapegoats for whatever went wrong.
All of a sudden, the security blanket was gone. This group of displaced managers, suddenly robbed of their identity and thrown together with others they didn't entirely trust, were supposed to convince Wall Street of their ability, confidence, and commitment to turn their fragile businesses into a world-class powerhouse. That was the leadership challenge that emerged.
2. Developing a Change Strategy
For Schacht and McGinn, the initial organizational diagnosis was a critical precursor to the next step: the development of a change strategy. In Schacht's view of change management, the first step is always essential to the second, because so many change leaders make the mistake of simply recycling the same strategy that worked at their previous company. That can be disastrous. Schacht readily acknowledged that the change strategy pursued at Cummins in 1971--or for that matter, the strategy that might have been employed at AT&T in the 1980s--would have crashed and burned at the Lucent of 1996. He put it this way:
Do not assume that what's worked for you before will work again. One of the challenges of management is to assess all the techniques and tactics available in the "managerial kit bag." You've got to decide which ones are required and why.
Think: What is it you're trying to do, what is the current topography, what do you need to do first? Of all the experiences you've had, of all the methodologies you've tried over the years, what is most likely to work here and why?
The principles underlying the approach couldn't be more basic: gather information, assess the situation, figure out what has to be done, decide what role you can play to add the most value, and lay out a sequence of steps to get started. Obviously, the hard part is doing it--and doing it in a way appropriate to the situation at hand, rather than falling back on stylistic approaches that all too easily can become a standardized bag of tricks.
Conceptually, Schacht and McGinn's strategy was surprisingly simple and straightforward. They started with the assumption that what looked like a spin-off from AT&T's perspective was, in fact, a start-up from Lucent's. That meant emphasizing a new corporate identity and constantly emphasizing the immense opportunities that lay ahead. It meant working in the short term to seize the "low-hanging fruit"--capitalizing on improvements in operational performance--while building a vision for the long term.
In practice, Schacht and McGinn used the IPO and the multimillion-dollar launch of the new name to build a sense of identity. As we'll shortly see, they developed a shorthand set of goals for operational improvement--the "five simultaneous equations." They began to mold the senior team by having its members work together on the new company's vision, values, and strategy. And they mobilized the company's enormous communications capability to send waves of carefully planned messages to the workforce at large. Taken together, these moves were designed to swiftly demonstrate internal improvements and simultaneously build credibility with the outside world. The specific things they did, which we describe throughout the rest of this chapter, were all part of that simple overall strategy for change.
3. Developing and Sharing a Clear Vision
From the outset, Schacht and McGinn spent much of their time shaping and communicating a vision for Lucent Technologies. That process involved a delicate balancing act. On one hand, they sought to involve as many people as possible in the initial stages of developing and refining the vision, On the other hand, Schacht clearly had some strong ideas of his own--chief among them the primacy of creating and sustaining long-term shareholder value--and he fully intended that those ideas would be reflected in the company's vision (see Figure 1.2).
Almost as soon as Schacht and McGinn began involving the senior team in shaping the vision, they used the preparation for the IPO "road show" to hone and disseminate the same messages. Over time, a shared vision and shared sense of goals began to emerge. The vision continually underscored the notion of a single company working collectively to meet a set of high expectations and achieve best-in-class performance.
In one sense, Schacht and McGinn were intent on replacing the sense of loss over the split from AT&T with a surge of excitement about the challenges that lay ahead. Over and over, company communications with employees during that period included the catch phrase "the opportunity of a lifetime." At the same time, leaders hammered away at the vision of a high-growth, high-performance company that was eager to take on the competition. To do that, the immediate performance challenge was encapsulated in what the leadership described as the five simultaneous equations--specific financial objectives involving criteria such as margins, tax rates, cost reductions, and the like. The role of the five equations was to define specific ways to demonstrate that the long-term mission was credible, understandable, and achievable. These weren't the ultimate goals; they were short-term objectives that set the stage for the more refined strategy that was to follow.
Schacht reflected on the importance of conveying that early vision:
You have to be able to instill that general sense of shared vision and shared goals over a relatively short period of time, right at the beginning. Every signal counts--little signals, big signals, intentional signals, unintentional signals.
That is part of getting changes in organizations--having common goals and common targets, and to repeat them over and over again. We start every session by saying, "What are we trying to do? We want to be best in class. What does that mean? We have to lift out growth rate and improve our financial performance substantially." And you just repeat that over and over again.
An important element in building the credibility of the vision was to get an early win, and the road show provided that opportunity. The question was: Can we go out and sell investors on this vision? As it turned out, Lucent's IPO was the most successful in the history of the U.S. financial markets, providing Schacht, McGinn, and their team with an important victory within the crucial first six months.
4. Building Processes That Broaden Participation
One of the key issues Schacht and McGinn identified during their diagnosis was the pressing need to create a shared sense of identity, both within the senior team and across the entire corporation. Consequently, he and McGinn resolved that everything they did from that point on had to involve as much participation as possible. In Schacht's words,
In order to create change, you've got to know where you're going, you've got to know why, and you've got to have buy-in. That's fundamental.
I'm a great believer that if you don't have everybody on board, you're not going to get there. You're pushing the boat through the water sideways. You're far better off to get the boat turned around, get everybody pulling the oars, and then go like hell.
They began right away with the creation of the vision and the development of the investors' road show. At most companies, the road show is conducted by a small group of senior executives, rarely more than half a dozen. At Lucent, Schacht and McGinn appointed three teams to go out on the road at the same time, and made sure that key managers from the operating units were involved to get them used to talking about the entire corporation, not just their own businesses. Indeed, they very deliberately created structures to encourage participation, and used them to involve dozens of managers in developing the vision. The inner circle was the eight-member Business Council. The Executive Council, a group of seventeen people including key operating executives, did much of the most difficult work on the vision, sometimes in off-site sessions lasting several days. They finally took their work to the officers--the top sixty people in the company--who then went over the vision with their own staffs. The same participative process was used to develop first the corporate strategy and then, in Lucent's second year, to begin work on reshaping the company's operating environment. As Schacht explained,
You start with the idea that it's "we." You really have to have understanding with broad rather than narrow groups. You have to have a shared vision, a shared sense of the external community, a shared commitment. You decide what is going to be a manageable group who will be your cohorts, and they become part of all of the decisions. You start through a process of team building with the key managers.
Schacht and McGinn had two goals in mind. The first was to create a shared sense of ownership and a common identity during Lucent's first critical months. Second, they understood the importance of engaging the full leadership team in all the processes essential to running the business. So they looked at participation in two ways: as a method of accomplishing specific tasks and, more broadly, as a fundamental approach to ongoing processes.
They specifically looked for ways to reinforce the sense of team identity by bringing senior people together in ways that would encourage them to talk and work with each other. They began holding Monday lunches where the members of the Business Council would regularly get together. They brought in a noted architect to redesign the executive offices, which were originally housed in cold, cavernous, and isolated suites set apart from the rest of the building. They took over space back in the labs and built a new cluster of executive offices--smaller, brighter and enclosed in glass, and with visitors' offices for the operating unit heads whose primary offices were located elsewhere. Their intent was to create a sense of openness and to stimulate opportunities for chance encounters and informal interactions among top executives.
In addition, Schacht took the unusual step of bringing together the board of directors and the senior executives to begin building their shared identity as a team. In the fall of 1996, he held a meeting in Florida for both the board and the seventeen-member Executive Committee, and invited all attendees to bring their spouse. In addition to working meetings and a major demonstration of new products, a dinner and dance were held--opportunities for people to spend informal time together--all orchestrated to meld the new team.
All those efforts were part of Schacht and McGinn's determination to get the new team to think in terms of "we" rather than "they." Certainly, the effort involved immense time and effort; there were times when people questioned the necessity of so much participation and so many meetings. But they never wavered from their belief that the benefits of broad participation would ultimately outweigh the costs. Schacht likes to contrast the typical American approach to decision making with the more collaborative Japanese approach:
We are very bright, very quick, very impatient. We make decisions quickly, then we execute. About halfway through the execution time we find out that most of the people don't have any idea what we're talking about, the people who have to execute don't have any idea how to get it done, and we have to loop back. We go through another decision-making process, get everybody on board, then we try it a second time and we finally get the damn thing done.
The Japanese drive you crazy. They spend enormous time making sure the decision's right, getting everybody to buy in. They keep going until everybody's all lined up, and then they go like hell and get it done. I think they save 30 to 50 percent of the time it takes us by getting everybody on board to start with.
5. Using the CEO's Role for Teaching and Coaching
In a sense, much of what Schacht, in particular, did during his two years was to conduct a series of tutorials for his top managers. In a variety of ways--private sessions, meetings both large and small--he consciously worked at helping people understand the business and their own roles within it. Without question, he was motivated in part by his knowledge that he would be there for only a limited period, and he saw part of his role as helping those who would remain after him to learn and grow professionally.
At one executive off-site meeting, for example, Schacht helped the group prepare for an upcoming board of directors meeting by spending nearly an hour explaining his theory of corporate governance, and describing the proper relationship between the board and the senior team. Afterward, people expressed their amazement at his unprecedented discussion, acknowledging that he had exposed them to issues they'd never even considered. When asked later why he had devoted so much time to the discussion, he simply responded, "They have to learn." And his teaching went beyond talking; he actively encouraged his executives to serve on other company boards so they could enrich Lucent with experiences gained elsewhere.
In hindsight, Schacht regularly employed four teaching techniques. First, he constantly made a point of putting issues in context, rather than just diving in. He often sounded like a professor reviewing the previous material before starting on a new chapter. Second, when he made a decision or took action he always explained the rationale behind it. Third, he regularly engaged in reflection; in other words, he'd make his people step back and consider why something had worked or why it hadn't so they could learn from the experience. Finally, he engaged in constant repetition--repetition that could occasionally seem maddening to his subordinates, who occasionally complained about it. But his repetition was conscious and purposeful, intended to drive home important lessons.
Schacht also understood that in order to learn, people had to believe they were operating in an environment that would occasionally allow them to fail and learn from their mistakes. He could be unyielding in his demands for superior performance, yet he avoided letting people feel personally embarrassed or degraded. He was both demanding and supportive, and in the process created a climate that fostered teaching, learning, and growth.
6. Understanding the Value of Symbolic Acts
Like other successful leaders, Schacht and McGinn demonstrated a deep appreciation of symbolic acts and the powerful role they can play in supporting large-scale change. Through personal gestures and sweeping decisions, they generated momentum, energy, and a sense that a new era had begun and there was no turning back.
Take the Bell Labs situation. For decades, Bell Labs had been the crown jewel of AT&T, arguably the world's most renowned research complex. In the years immediately preceding the spin-off, the crown had accumulated a little tarnish; spending on fundamental research had been flat for ten years, the once formidable torrent of innovations had slowed, and morale was sinking. So one of the new leadership's first decisions was to locate Lucent's corporate headquarters in Bell Labs' main facility in Murray Hill, New Jersey. Schacht explained:
We could have gone anywhere--downtown New York, out in the woods somewhere. This isn't the most convenient place to be; it hasn't been fixed in years, it's depressing. But we wanted to send a signal to the external world and internally that this was the heart of the place.
What else did we do? I decided we would spend one percent of sales on fundamental research, year in, year out. Rich and I spend half a day, every other week, in the laboratories. They'd never done that before. And we set up a venture capital company here. We said, "You don't have to quit because you're so frustrated you can't get your ideas to market."
On a more personal scale, Schacht and McGinn resolved early on to break with the AT&T corporate culture by being more informal and accessible. Both made a point of eating whenever possible in the company cafeteria, being seen in their shirtsleeves, and getting out on the road and meeting as many of their employees as possible. To reinforce their role as a team, Schacht insisted that McGinn always be present with him for press interviews; at one point early on, McGinn had to helicopter into Manhattan for an interview and photo shoot for the Sunday New York Times , because if he hadn't made it Schacht would have canceled the interview rather than allow himself to be photographed alone.
Some of the most memorable symbolism was conveyed through Lucent's ubiquitous advertising campaign, which bore much of the weight of introducing the new company to its customers, employees, the financial community, and the hordes of AT&T retirees who would become Lucent shareholders once the spin-off was completed. There were a lot of subtle messages to convey in a short period of time, Schacht noted.
First you have to get through all the clutter. It has to catch people's attention. It has to be in keeping with our values. It has to say forward-looking, modern, new, different, exciting--all that stuff. Second, we wanted to make a clean break from AT&T--therefore, a different color, a different look, nothing in the name to remind you of AT&T.
Indeed, by the spring of 1996, it was impossible to turn on the television or open a business publication without running across that easily identifiable red circle and the simple slogan, "We make the things that make communications work."
7. Managing Executive Succession
Unlike most CEOs, Schacht began his brief career at Lucent with a clear sense of his own professional mortality. As a consequence, he said, "We were into management succession the day I walked in here."
Given Schacht's age and the prevailing assumption that he would only remain for a few years--though no deadline was ever stated publicly--the situation could easily have dissolved into an ugly and counterproductive horse race, with ambitions and egos running amok. Instead, Schacht made it clear from the outset that McGinn was the uncontested heir apparent. As mentioned earlier, Schacht made a conscious decision to position McGinn as his partner, and actively prepared him and the rest of the senior group to assume control of the corporation upon his retirement. And he went out of his way to reassure McGinn that he wasn't on trial:
We started off saying, "Rich, there is no alternative in this company to you to be the next CEO. My job is to do everything I can to make sure you are the next CEO. We're not going to hire somebody else to make this a horse race." And I told everybody else in the company, "Look, Rich is my guy. I'm here to help him lead this group."
Obviously, this was somewhat unusual, shaped by the circumstances of Schacht's age and personal goals. Nevertheless, some of the things he did are equally relevant to CEOs in more normal situations. Schacht went out of his way to avoid building a corporate structure that revolved around himself. From the very beginning, he viewed teaching and coaching as an essential part of his job, working closely with McGinn to help him become even more effective in areas such as building senior team identity and managing the board of directors. With succession never far from his thoughts, Schacht constantly looked for opportunities to leverage his strengths in ways that would build the institution and the leadership team, rather than making them increasingly dependent upon him.
Learning the Lessons of Lucent
Despite its initial success, it would be premature for Lucent Technologies to declare victory, as its leaders are well aware. No company in the dynamic telecommunications industry can reasonably think that its future is secure, given the swiftly changing competitive landscape and the rush of new technology. For Lucent, the shifting emphasis from voice-based switching to data networking presents some major challenges.
Moreover, any attempt to distill the lessons of Lucent must take into account a unique combination of circumstances. The first, obviously, is the spin-off situation itself--the rare opportunity to simultaneously choose new leaders, design new governance structures, and develop entirely new strategies for an existing multibillion-dollar business. The second unusual circumstance was the appointment of a new CEO with the express understanding that one of his priorities was to groom his successor to take over within a few short years. Finally, Schacht and McGinn had the good fortune to inherit a highly capable and diverse group of senior managers who had already been tested in some of AT&T's most competitive situations. As a result, the two leaders were able to avoid the trauma of deciding when and how to "pull the trigger" on unacceptable senior executives, a luxury enjoyed by few CEOs.
Nevertheless, the Lucent case offers some important lessons that apply to practically any organization--particularly large ones--engaged in radical change.
The first has to do with the importance of leadership selection. In hindsight, Bob Allen's appointment of Schacht as CEO and McGinn as COO was a stroke of genius. The task of starting up this new $23 billion enterprise, including managing the separation, doing the IPO, building the team, and the rest would have been difficult for one person to accomplish and daunting for a brand-new CEO. Schacht's experience and natural orientation toward being a supportive teacher and coach, combined with McGinn's deep knowledge of the business and strong strategic skills, created an immensely successful team.
The second lesson involves the potential power of leveraging corporate identity and brand-building activities to create internal energy and support for change. One would be hard-pressed to find another situation in which the full range of internal and external communications techniques--everything from advertising and press relations to employee meetings, magazines, and videos--were so thoroughly coordinated to create clear, consistent, and reinforcing messages. From the very beginning, Schacht viewed Lucent's 130,000 employees as one of the target audiences for the company's massive external ad campaign. Too often, companies think of the their internal and external communications as separate functions with different missions. Lucent demonstrated the enormous potential of strategically employing them in concert with one another.
The third lesson involves the design and implementation of shared leadership. Lots of companies talk about it; few succeed. Certainly, not every company can duplicate every factor that led to Lucent's success on this score. But there are lessons that can be applied almost everywhere. The first is to make succession a legitimate topic of discussion and planning. In countless organizations the issue is off-limits and the CEO won't even discuss it with possible successors until the last minute. Second, top leaders need to think about their roles in nontraditional ways and divide their responsibilities according to their abilities and interests, rather than simply accepting established notions of what the CEO and COO are supposed to do. Finally, the leaders must use language, symbolism, and management processes to demonstrate the reality of "the team." Like Schacht and McGinn, they must seize every opportunity to show that they area team in deed, not just word.
It's worth noting that well before Schacht's departure, McGinn was at work on a design for a second generation of shared leadership. Together with four other senior executives, he was reviewing various models for assigning primary and secondary responsibility within the new team for each of the major executive functions.
Change Leadership: From Theory to Practice
In previous work, we advanced a theory of change leadership that includes three basic elements. In a sense, the successful launch of Lucent Technologies provides an unparalleled example of how the theory of change leadership translates into practice.
At the core of our concept is the ultimate leader of change--generally the CEO--who must demonstrate certain characteristics that set the "heroic" or "mythic" leader apart from those managers who simply maintain the status quo. Second, that heroic or mythic leadership has to be complemented by solid operational leadership, a role that's normally played by the chief operating officer. In the case of Lucent, McGinn clearly provided the operational leadership as he focused on building the business while Schacht concentrated on building the institution.
The final element is the creation of structures and processes that extend top leadership's vision and energy throughout the organization. At Lucent, Schacht and McGinn accomplished that through the use of formal governance structures--the Business Council and Executive Council, for example--and through their commitment to participative processes that built understanding and ownership of the vision, the strategy and the principles of a new operating environment.
All three elements are important, but the role of the top leader is the most crucial. In our previous work, we suggested that the popular notion of "charismatic" leaders falls far short of accurately describing the attributes common to successful leaders of change. Classic good looks, a dynamic speaking style, and bundles of charm don't hurt--but they have little to do with effective leadership. In our view, heroic leadership involves three essential characteristics:
* Envisioning: the ability to develop, articulate and communicate a clear vision of what the future will look like if change is successful
* Energizing: the ability to motivate large groups of people and infuse them with the leader's own sense of enthusiasm, excitement, and confidence
* Enabling: the ability to figure out how to provide people with the necessary support--structures, processes, resources, and rewards--and how to remove the obstacles standing in their way
Now listen to Henry Schacht's description of the role of leaders:
Leaders are here to raise sights; gain commitment; provide help, advice, and counsel; and establish a feedback mechanism that repeats the process. That's my four-step model of a leader--and if you think about it, that's how you get change.
The words are slightly different, but the underlying concepts are the same: envisioning, energizing, and enabling. It's worth taking a closer look at what Schacht means, because his model so closely describes the leadership roles we've seen repeated time and again at organizations where change is successful.
The role we describe as "envisioning" was at the heart of Schacht's approach to building Lucent from the ground up. As he said in 1996,
The most important thing is to establish what it is that we're trying to do, as separate from AT&T, and how are we going to measure ourselves as a corporation rather than as four vertical, stovepipe organizations with Bell Labs loosely connected? What is it we want to do? We said: "We want to be world class. We want to be the best."
In light of the collective trauma created by the break with AT&T, the "energizing" role was particularly critical for Schacht:
One of the most delicate issues here is to create the excitement about being on our own, without in any way disparaging AT&T, and countering what was going to be a cold wind we felt when we weren't part of AT&T. We were taking half of AT&T's people but only a quarter of the revenue; we had to figure out how not to scare these people half to death. So we kept pounding away at "opportunities"--we talked about opportunity, opportunity, opportunity--and it's worked.
The final element is "enabling," which Schacht contrasts with the popular technique of "exhortation":
You can't just say "do it harder" without telling people why you think it's possible. Exhortation only gets you so far. You have to stop and say, "What are your alternatives? What's in the way? Here are some benchmarks that suggest we can do better in this area. Out competitors aren't magicians--we have the same set of capacities, and if we don't, let's get them. What's blocking you? How can I help? What ideas do you have?" That's what empowerment is all about.
In his brief but enormously successful tenure at Lucent Technologies, Henry Schacht, working closely with Rich McGinn, demonstrated what effective change leadership can accomplish. Together, they showed that large, complex organizations can indeed be changed and, when necessary, in a relatively short period of time. For those who stand on the bridge and are confounded by the complexity of change, the lesson from Lucent is clear: yes, you really can steer the battleship. It can be done, and done well. When pursued thoughtfully, energetically, and with total engagement at the top, change can succeed. The key is the role of the top leader--and there's no better description than Schacht's:
It is not a "bully pulpit." It is all the techniques of team building in large, complex human organizations. It means working through complexities. It requires time, patience, willingness to compromise, unbending commitment to your colleagues, and an understanding that you can't get there unless your colleagues are with you and have the same sense of zeal that you have.
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