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In 1996, Arctic Timber Engineered Woods Division, a highly mature business unit, faced a market downturn and began losing millions of dollars each month. Before becoming the President of the Engineered Woods Division, Bjorn Gustavsson had already determined that the company could not sustain its commodity business and was not aligned with the new direction devised by Peter Hammarskjöld, the CEO of Arctic Timber. According to Gustavsson, in order to prosper in a more challenging market environment, developing a specialty business was the only viable approach. The goal was to shift 50% of its commodity business into undetermined specialty by 2000. However, the Division had shifted only 10% of its business to specialty products by 1997.
The challenge was to overcome the overall resistance to change and find a way to get the organization behind ArcTech Flooring, the new specialty product. A culture of customer disengagement and communication problems among divisions along with past norms held by key senior managers made initiating radical innovation difficult. These norms made up the division's mechanistic organizational structure, incentives that are based on overall sector performance, operational competencies, and low risk culture, all of which hindered innovation. This paper explores the leadership challenges involved in managing strategic change in a highly mature Arctic Timber Engineered Woods Division.
As John P. Kotter suggests in his article "Leading Change: Why Transformation Efforts Fail," not establishing a sense of urgency is a number one failure for leaders. Lacking a great enough sense of urgency, senior managers in Engineered Woods Division did not cooperate in moving the division from commodity to a specialty business and the efforts remained fruitless. This was a leadership issue that few members of senior team were motivated and passionate about the transition.
In addition to urgency, Gustavsson could not create a powerful guiding coalition. He established a cross-functional team to develop a new moisture-resistant product. But the team did not include a sales manager who knows customers' needs and eventually sells the product. Although the team developed a commercially-viable product, their efforts, at least in the short term, were unsatisfactory, because with sales people's own doubts about the new product, they were afraid of jeopardizing the reputation of current product. Moreover, these cross functional teams operated within the established organization maintained the company's dominate culture and past norms. We know that structurally independent teams that are tightly integrated into the existing hierarchy with different cultures and processes are often more successful.
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Arctic Timber Engineered Woods Division also needed a clear vision that clarifying the direction in which the division needed to move. When Hammarskjöld became the CEO, he launched a set of initiatives for the transitions. He even wanted everyone to memorize the new principals and the mission. His commitment and behaviors alone, however, did not sustain a guiding coalition in the division. For example, the incentive program for executives was mainly based on the commodity product's overall sector performance. Without adding growth oriented incentives, change efforts go nowhere. This was the central reason why manufacturing saw R&D as a blockage to their daily operations. Even if you write the best vision, in such a business environment, leading change will be unfeasible. After creating a vision, communicating this vision and strategies is also very important. However, in the division, though sales began selling the new specialty product, they had still no clear marketing strategies and sales objectives.
After all, this renewal required the removal of obstacles. Like performance measures, hiring, promoting and employee training should be consistent with the transformation vision, but these were obstacles in Engineered Woods Division. Many managers had moved into Engineered Woods from other divisions within the firm. This family oriented culture did not allow employing entrepreneurial mangers who could push innovations. Besides, some key managers were the biggest barriers to change. Again, this was a leadership issue. Hammarskjöld and Gustavsson could have sent a message to all employees by removing those blocking the change path. Instead, they tolerated resistance, discouraged taking risk and conflicted with their goals.
I have already outlined a method for overcoming inertia in Arctic Timber: 1) establishing a sense of urgency by emphasizing, for example, the danger that the division might be sold if it did not become profitable, 2) forming a powerful guiding coalition with creating organizationally and mentally distinct teams that are tightly integrated at the senior executive level, 3) creating a vision to help lead discontinuous innovations now and in the future, 4) communicating the vision adequately with clear strategies and objectives, 5) reallocating incentive resources to new product development as well as financial performances, 6) rather than insiders, promoting and hiring entrepreneurial managers and empowering younger managers while providing leadership training to them, 7) removing or rotating senior managers who are still resisting to change within the company, and 8) creating achievable yearly goals to celebrate and reward the people with motivating incentives while building a clear, compelling and audacious 10 year goal.
Surely, creating structurally independent units allowing for new processes, structures, and culture will play significant role in achieving the goals. As well as choosing different locations, each team may decide its own staff, reward system, processes and culture. Therefore, there may be more than one viable way and good fit to lead the change in every organization. In order to create this fit, the new innovation oriented culture must interact well with critical tasks, the formal organization and the team members.
Finally, institutionalizing the change into the new innovation oriented culture will require showing employees how the new approaches and incentives help improve their performance and making sure that the successive top managements embody these new approaches.