Richard Roi brings over 17 years of international consulting experience to his role specializing in leadership development, strategic change implementation and building organizational capabilities. As Right Management’s regional practice leader, Ric manages the development and delivery of leadership, executive coaching, and succession management solutions for clients. He has provided integrated consulting service to a diverse and unique group of corporate global clients including Cisco Systems, Gap, Wells-Fargo, Visa, and HP. HR.com’s Karen Elmhirst caught up with Ric.

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KE: In 2005, you approached HR.com with a research study. We surveyed our members and the results were published in your study called “2005 Leadership, Adaptive Culture and ROI.” Ric, what prompted you to conduct this research?

RR: I first got interested in this topic as a doctoral student and in working closely with a number of HR leaders. Given that HR leaders are looking to become trusted business advisors as opposed to service providers, I felt that it was important for us to find a way to demonstrate the return on investment for human capital investments in a way that is on par with the other types of ROI measures that you find in finance, sales operations, etc. So, the study was to provide one important data point for my partners and clients who are HR leaders to get a seat at the table with some human capital metrics that they can use to help leverage their investments in human capital.

KE: Ric, much of the report focuses on the importance of being “adaptive.” What does that word mean in this context?

RR: Fundamentally, we are looking at building an organization and aligning an organization that has what we call true “sense and respond” capabilities. It is an organization that has a nervous system that reaches out into markets and customers in an efficient way, and translates the shifting requirements in what are now very turbulent and disruptive marketplaces, back into aligning leadership, culture, systems and business processes and capabilities. Being adaptive means to truly sense, respond, and execute in a more efficient way than organizations have done historically.

KE: Of all the things that can impact an organization’s ability to be adaptive, and there are many, why do you focus your research specifically on leadership and culture?

RR: The sustainable and long-term investment for building a truly agile organization lies within the: 1. Leadership practices, and 2. Management culture in creating what we call, 3. Adaptive cultural norms. Those are the three things that are going to carry the organization forward for three, five, 10 years. There are other drivers, of course, new systems, new technologies, new business processes, organizational structure, alignment and changes, which can all increase adaptability. However, our point of view is that those will change year to year in terms of what the lever or drivers for any company would be, but the leadership culture, values, and management culture will be the enduring blueprint, we believe, for creating truly agile organizations.

KE: So, being adaptive means being able to respond to conditions that call forth change, but there are different types of change that an organization is required to experience. How do you classify the different types of change?

RR: I did some work on this a couple of years ago at the request of clients who were trying to get their heads around all of the various changes that were going on in their organization. Strategic, operational and development are the three buckets that work well for us in terms of outlining the types of change that folks are facing. 

Strategic is also called second-order change, transformational change, or revolutionary change. It can take up to three to seven years. It is a highly disruptive, deep change in your organization, changing fundamental things around market positions, strategy, mission, structure, culture, etc. Other examples include mergers and acquisitions and divestitures, and reorganizations. So, we are talking deep, high risk, high investment, long-term change. Strategic change tends to be the most dramatic and many of the changes that are written about (both successes and stunning failures) are of this nature.

The middle category, which is much more common, is what we call operational, or evolutionary change. This is where we are investing to improve our operational and organizational effectiveness; more like strategic adjustments than strategic transformation. Some examples of this type of change include: ERP implementations/upgrades, succession management, new product development, a share services initiative, sales force automation, offshoring/BPO. I typically work with large cap and some mid cap firms and with a large cap firm, an operational initiative will typically take two to three years and is somewhere between a $5 million to maybe $60 million investment and is moderately risky. Operational change typically involves new technologies, new business processes, maybe new systems, along with organizational alignment and some human capital investment to make sure that the people and leaders have the skills to support these operational changes.

Developmental change refers to human capital investments such as performance management, sales force training, management development, teambuilding, competency development, blended learning solutions, executive coaching, etc. The goal here to as a “sense and respond” organization is to look forward three to five years to determine what the business capabilities are. We are focused on closing the gap. Human capital investments really vary in terms of dollar amounts and number of impacted people, etc., but they are fundamentally for individual and team impact with the aim to make them future ready -- prepared to succeed in the market three to five years out.

KE: What is a typical success rate with a transformational change, Ric?

RR: Well, typical rates range between 30% and 60%, as reported by the companies implementing those changes. Mike Smith did a meta-analysis in 2002, which is, in consulting terms, a study of studies. He looked at 49 global studies across consulting firms, public and private companies, and looked at the reported success rates of the executives sponsoring those changes. He found five buckets or categories of change consistently across organizations, and these are global organizations of all sizes. The rates reported ranged from 28% to a high of 60%.

When we think of success rates, we’re really talking about a few different things - how long does it take to get widespread and consistent adoption of the change in the organization, or the business unit that it is affecting? What is the local business impact? In other words, how is that change affecting the front line users and managers? And, then global ROI, which looks for a financial, productivity, or customer service outcome. There is a range of measures you use to arrive at these reported figures.

KE: Given the levels of investment made by companies for all three types of change, why are the success rates so low?

RR: I would say, in general, teams and leaders under-invest in the change management and change leadership requirements involved. They under-invest both in terms of dollars and in terms of time. So, for example, it is not uncommon for companies that do implement change management and integrate it into their projects, whether they are strategic, operational or developmental, to spend just 10% to 15% of a planned budget on what we would call “change management.”

Let’s look at a couple of critical success factors. Executive sponsorship is the first. Typically, the strongest sponsorship we are talking about is operational executive sponsors who are ultimately accountable for the success of these projects. There is actually a well-defined list of probably five to six key priorities and actions that sponsors need to execute on, but they typically need coaching and some direction, because it is not a normal line executive function to be an executive sponsor, in my experience. And then, the second area that is often lacking is around alignment. We find that because of the pace and the complexity of organizations, there is a lot of organizational noise in the system. It is very hard to get your project or program or change set as a consistent business priority, so you constantly have to reset and readjust the competing priorities and competing solutions out there against your particular change. For instance, if it is a corporate-led management development initiative, how do we keep management development value in dollars and resources top of mind and top of business priorities for the various stakeholder groups?

Change communications is the third critical success factor in change management that will move these rates up. Change communication has really developed as a practice or process on its own, beyond executive and organizational or marketing communications. And, it uses some fairly targeted psychology, for lack of a better term, to look at how it is that people adopt change and how is it that we can work to have sustained behavior change for a large group or critical mass of employees and leaders to get a change to stick.

KE:You state in your report, Ric, that adaptive or agile cultures outperform strong cultures. Tell us about that finding.

RR: This idea was originally proposed in 1992 by John P. Kotter and James L. Heskett at Harvard University. They did an 11-year study across 172 companies, mostly mid to large cap global companies, to look at adaptability specifically and then mapped that back to management culture and organizational culture. What they found is that companies that performed consistently better in terms of these long-term financial or economic performance indicators tended to value adaptive management culture and adaptive organization cultures over strong cultures. The rationale behind that goes like this. The strong culture such as HP used to have or IBM used to have originally, before they began to focus more on adaptability, was certainly considered a competitive advantage. But, what happens is, given the turbulence and distributive markets that we operate in, it can take strong cultures too long to readjust and realign when market forces require it. It is analogous to a big ship trying to turn to meet that turbulent market demand. By and large, adaptive cultures can realign and take advantage of market shifts more quickly then internally aligned or strong cultures. This is not true in all cases, of course, because there are companies that work in relatively stable industries (some manufacturing, some financial services) for instance, where strong cultures still do really well.

KE: Let's start to look at the link then between adaptive culture and leadership.

RR: What we found that Kotter and Heskett did not do was look upstream to see if leadership and management culture are key drivers of organizational culture, and if so, what types of leadership are most likely to be correlated with adaptive organizations and long term return on investment.

Given that leadership processes and practices are more strongly correlated to organizational outcomes than are attribute or trait-based leadership, we chose to do our study based on some well-researched and popular leadership practices and processes. We used those listed in Jim Kouzes' and Barry Posner’s leadership system called The Leadership Challenge, which is now the #1 best-selling leadership system in the world. They are: to model the way, inspire a shared vision, challenge the process, enable others to act, and encourage the heart. Looking at transformational leadership practices against the financial indicators for the HR.com study we did last year, we found that organizations with strong transformational leadership practices had much higher economic performance than organizations with weak transformational leadership practices. We also found that when adaptive culture is present, so are transformational leadership practices. It is all about process and practice, as opposed to traits and attributes. Leadership as a process or series of practices is more strongly associated with financial outcomes, at least in our research.

To become a truly adaptive and agile organization you need to create a line of sight between the desired customer relationship or market relationship that you are looking for: your organization culture, management culture, and the leadership practices. The highest performing companies that also demonstrated agility or adaptability had cultures that had strong values around cross unit collaboration and team work, which worked to minimize internal competition. Risk taking, experimentation and innovation were highly valued. Investment in human capital, particularly around organizational learning, and capability development were a top priority. What is interesting is that it may seem counter intuitive but the companies that are most adaptable, that may change everything over time, still have a stable core ideology, and this idea actually came from the Build to Last and Good to Great work by Jim Collins.

This idea is further supported by an extensive research study by Booz Allen Hamilton available through their website (and written about in the book entitled RESULTS). In their study of 30,000 participants, across 23 industries, an organization’s “resilience” is the strongest predictor of company performance. They developed seven different organizational profiles and resilient organizations were determined to be the healthiest of the seven profiles.

KE: If you are interested in knowing more you can look in the HR.com archive for that interview summary I did with Gary Nielson where he described each of the seven profiles and why resilient organizations are the healthiest. 

So would we say that a resilient culture is synonymous to an adaptive culture Ric?

RR: Yes, they are sense and respond organizations. They are flexible. They are forward looking, building capabilities three to five years out. They have a strong balance of supportive culture and results. That is one of the hallmarks of this type of organization, and they have a bounce back capability to them. We did not address resilience in our study but resilience as the ability to bounce back is another hallmark of the agile organization.

KE: So what we have been talking about so far Ric has really been laying a foundation for the summary of results from the study we conducted through our HR.com members. Let's begin now looking at those results.

RR: Let’s begin by looking at the four common entry points for increasing adaptability. These are borrowed from the Balanced Scorecard focus areas. They are: financial processes, customer partner, learning and growth. Participants could consider, depending on the readiness of the leadership team, where the company is in the life cycle of growth/maturation and the values of the leadership team, which of the four they would like to use as their entry point to begin to build agility and adaptability in the organization. Generally, a good place to start is by looking at, given what we know about our company, what is our desired customer relationship three to five years out? What is it currently and how do we close that gap? 

KE: Let’s look at the flip-side for a moment. You also mention in the study some elements that decrease an organization’s ability to adapt. What are those elements to watch out for?

RR:  We called these the adaptability derailers. We tested a number of organizational derailers that actually decrease adaptability and these are four that came to the top.

Perfectionism - that is a culture where mistakes are not allowed. People work to stay off the radar and people spend an inordinate amount of time making sure that things are perfect, or presenting themselves as being right, etc. That type of culture leads to a certain amount of closedness in the system. It does not allow for the kind of free flow and collaboration and openness that you need to truly be nimble or adaptive.

Internal competition - one of my clients said they have enough competition in the marketplace, they surely do not need to create it internally. It used to be that leaders thought that a good dose of internal competition kept everybody on their toes and we called that the Darwin's Theory of Leadership Succession - that a certain amount of competition was healthy. My point of view is that collaboration and team focus are more the norm of a modern adaptive company.

Conflict avoidance - shows up as consensus-based organizations. This is an environment where things can’t be openly challenged, which restricts the flow of ideas and energy in the organization.

Keeping low performers - I can relate to this one because I am a recovering “low performer keeper” as a leader. Having courageous conversations with employees to help them either find their way out of the organization or find their way into being capable and willing to contribute to the organization is something that my experience says that managers have a hard time with. So, we end up keeping low performers and moving them around, without tackling the issues head-on. We put more effort into low performers here than in motivating and rewarding high performers. That situation provides a drain on the organizational system and leads to low adaptability.

KE: Ric, a lot of emphasis is placed on building individual competencies of leaders. What your study showed was the power of leadership practices/processes when applied in the collective. Are we generally putting too much emphasis on the individual leader, and too little on consistent practices across all levels of leadership? What are your thoughts on leadership competencies?

RR: That’s a great observation Karen. I would agree that our study looked at the system of leadership or the culture of leadership more than leadership competency models or success profiles. The leadership competency models that I run into in client organizations tend to have three levels. There is the attributes, which are the personal traits and characteristics. There is the mind set or knowledge set and then there is a skill set. Those three areas then link to strategy, organizational outcomes, down to individual, key performance indicators, performance management, etc. So there is this flow down that goes on which makes sense from a performance and management standpoint. It is very difficult to do performance management around a leadership culture or system.

I think there is merit to that individual focus and the more traditional three-tiered competency or success profiles, but again I would be looking at this as more of an organizational capability. If I were working with a client, first of all my point is you should start with executive competencies and then scale those down to executive capabilities. As you move down the organization to lower level leaders, don’t change necessarily the capabilities of leadership, but change the behavioral levels as you move down. Also, I recommend you go down no more than four levels in terms of front line managers, mid level, functional or business unit heads and executives.

KE: What do organizational values have to do with what we have discussed so far?

RR: There has been this ongoing debate between whether, if you are looking to shift leadership and values in organizations, you start with the observable behavioral norms or do you start with the values and mind set? Depending on which school of organizational development you are trained in, you know you would have a point of view on that. My point of view is that if you are truly interested in business transformation and creating significant changes in leadership capabilities, culture and adaptability, we start with a mindset shift for the collective leadership and management group. That mindset shift leads to a shift in re-prioritizing or shifting values, leads to sustained behavioral change in terms of the leadership and in terms of the cultural behavioral norms, so that’s the line of sight you are looking to create if you truly want business transformation now.

The business realities and the readiness of the organization may require that you enter somewhere else, like at the behavioral level and over time, work your way to changing mindset. Shared mindset is the hardest to change. The mindset shift process for us last year (we called it deep tissue work) is difficult and time consuming. People get frustrated with it but it's absolutely worth the effort to shift and create a shared mindset and then internalize that with a leadership team. Out of that came a shift in our values, came a shift in our operating norms and priorities and messaging to all the employees. Now we are in the middle of cascading that.

KE: You have mentioned to me a tool you use for mapping an organization’s values. How would a company get started with the values mapping?

RR: There are a number of validated values mapping processes. The one that I like is the LJ map, which you can see at ljmap.com. A colleague of mine, Scott Bristol, developed this and he has been studying values for 20 to 25 years. His passion is around what he has done to come up with 130 discreet values that are oriented toward business and organizational life. As the customer relationship continues three to five years out, he has developed seven value cycles from foundation up to navigation. We can survey an entire population or invite a sample to complete the value survey, which is the forced ranking online assessment process and then we can literally plot, fairly accurately, the different value distributions for each level of leaders or for different functional groups.

KE: If you were to say, in just one sentence, the benefit of values mapping in building an adaptive culture, what would that one sentence be?

RR: It sets your desired customer relationships three to five years out and creates a language around it -- it baselines where the leadership is and where the employees are relative to those aspiring values, so that you can then use leadership and culture to begin to pull the organization forward into that desired customer alignment.

KE: Terrific, thank you, nice summary. What final thoughts would you like to leave with us today?

RR: I think it is important to come up with your own teachable point of view about how leadership and culture can impact long-term capability and performance. Mindset shapes leadership behavior, which shapes culture, which shapes agility or performance. I think it is important to develop a teachable and compelling point of view to become business advisors to other line executives in the organization. In that regard, keep an eye out for the derailers, both from the leadership side as well as the culture side and the level of agility. I do not think that all companies should aspire to be highly agile. I think that the level of agility that you aspire to should be determined by your desired customer relationship and your market conditions.

Audience Question: How do successful organizations develop their leaders so that they build the skills to achieve the desired results?

RR: It is a combination of mindset, skill set, and tool set shift. Go back to my original suggestion, which is look three to five years out with organizational and leadership capabilities and what is your desired market or customer relationship. Then work backwards from there to develop a custom executive competency model, with no more than three to five focus areas and some behavioral descriptors to anchor those, and then scale that down.

The book, The Leadership Pipeline, by Ram Charan and James Noel is an excellent place to read and get started on this.

Audience Question: Would you please comment on pay for performance pay systems and ranking as related to internal competition? 

RR: I do have several clients who use what is called a “manage out” strategy, where they literally bell curve employees and manage out the bottom 10% a year. I find those really demoralizing and part of the problem is the lack of courageous conversations that are going on. They are defaulting to this kind of empirical, numerical system to manage out people that could very well be turned around or become high performers if we had a performance improvement plan and process along with the courageous conversations and support for that development.

Audience Question: Please say more about how you define a company as an adaptive culture versus a strong culture.   

RR: Strong cultures tend to have management systems that reinforce and value a specific way or personality. The HP way is a consensus-based alignment culture. There are certain management norms that show up as HP culture personality. That is changing though, and there is more adaptability entering into HP. I have been working with them for quite a while around that. Cisco Systems is a long-term client of mine. They have never gone for the strong values orientation, in my view. What they are all about is benchmarks for adaptability and agility. They have a management culture that has values for innovation, risk taking, autonomy, entrepreneurship, etc. So the value set and corresponding management culture is more aligned to breakthrough innovation, speed, autonomy entrepreneurship, whereas in the strong cultures they tend to be more values reinforced. Levis is an example of a strong culture that has more of the classical values, which are integrity, respect for the individual, excellence, etc. If you look at the seven cycles you will see more quality related values in those companies and in adaptive cultures you will see more service values. 

To access the survey, visit crm.hr.com/hrleadershipstudy. If you encounter problems opening up the PDF, click save rather than open.