News Release: Faculty Experts, Finance and Economics

Aug. 18,  2009

Managing at the Speed of Change

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From Knowledge@Emory

Can business leaders learn a lesson from the president of the United States?

Less than a year into his first term, President Barack Obama appears to be running into resistance as he addresses the worst economic crisis since the 1929 Depression.

Citing the need for rapid, effective change, Obama has called for an overhaul of financial regulations to safeguard against another depression, and he has tirelessly worked to redraft the way the U.S delivers healthcare coverage.

But as his approval ratings slip—only half of Americans support his policies, the “lowest level since Inauguration Day,” according to a Quinnipiac University poll released August 6—some people wonder if Obama is trying to do too much, too fast. It’s a situation that any number of chief executive officers have faced, say faculty at Emory University and its Goizueta Business School.

When it comes to politics, “the short answer is that President Obama is seizing the moment and many people feel the time is right,” says Russell Coff, an associate professor of organization and management at Goizueta.

But the speed with which a leader acts may also hamper his or her efforts, Coff warns.

“Unfortunately, seizing the moment may mean that the policies are not thought through very well, or are not well-reviewed,” he says, citing the anger that erupted over insurer AIG, which received $182 billion in taxpayer-financed bailout money and then proceeded to hand out hundreds of millions of dollars in bonuses to select employees.

“We saw some remorse with the bailout bill when AIG paid out its bonuses,” observes Coff. “It can be difficult to strike a balance.”

One concern is that Obama moved quickly without first gaining consensus from key stakeholders, observes Charles F. Goetz, a senior lecturer in organization and management and a distinguished lecturer in entrepreneurship at Goizueta.

He sees similar problems in businesses.

“A leader has to get key movers and shakers on board before trying to introduce significant changes,” Goetz notes. “Unfortunately it’s easier to talk against an idea than it is to back it, since most people abhor change.”

That’s partly why some American car companies, for example, have long made short-term decisions that backfired, instead of considering long-term trends, he adds.

“Often, long-term gains require some short-term pain, but General Motors Co. was not willing to make the necessary sacrifices,” Goetz says. “Instead, GM tried to leverage profit with economies of scale, swapping parts among its most popular models. The problem was that all its cars started to seem similar, dragging down sales in the long run. Of course it didn’t help that senior executives got their bonuses based on short-term results, which helps to spur short-term planning.”

This kind of self-defeating strategy is less common among smaller startups, Goetz notes.

“An entrepreneur usually launches a business because he or she wants to change the status quo,” Goetz says. “Also, a smaller organization tends to have fewer layers, compared to a big company. When you have more layers, more people are worried about taking responsibility for significant change, so it can be tougher to get things done.”

A notable exception to this was IBM under chief executive officer Louis V. Gerstner, Jr., Goetz adds. Gerstner was CEO of IBM from 1993-2002.

“Gerstner came in and shook things up,” Goetz says. “He reoriented the company from a computer maker to a consulting firm and likely saved it.”

Addressing multiple issues simultaneously may be admirable, but it can also lead to cognitive and other dissonance, says Rick Gilkey, a professor of organization and management at Goizueta who is also an associate professor of psychiatry at the Emory School of Medicine.

The downside is that the human brain appears to be hardwired to juggle only a limited amount of information at any one time, according to Gilkey.

“A classical work by [cognitive psychologist] George A. Miller, titled The Magical Number Seven, Plus or Minus Two: Some Limits on Our Capacity for Processing Information, indicated that people may get overwhelmed by trying to focus on more than a limited number of items at a time,” Gilkey says. “People may be overwhelmed by an aggressive agenda.”

A leader who wants to pursue multiple issues may have to synthesize them into a single, unified agenda that can be more easily digested by stakeholders, Gilkey adds.

Meanwhile, speed may the best friend of leaders who want to facilitate change, says Chip Frame, an adjunct associate professor of marketing at Goizueta and the executive director of the Emory Center for Healthcare Leadership at the School of Medicine.

“Look at what happened in the Clinton administration, when deliberations and a slow pace killed off the attempt to reform health care,” he says, drawing on a political analogy. “Obama’s efforts reach across many issues, and there are many special interest groups that want to influence the outcome.”

When a leader takes a long time to address issues, it means special interest groups have more time to launch their own talking points and their own campaigns, he notes.

But a crisis can work in leader’s favor, observes Jagdish Sheth, a chaired professor of marketing at Goizueta and a corporate strategist.

“A crisis can be a great enabler since people are looking for drastic change and may be less resistant to accepting a new way of doing things,” he says. “This is true for public officials and, as I note in my book The Self-Destructive Habits of Good Companies:...And How to Break Them, it is true in a corporate setting as well.”

For the most part Obama, at least, is scoring points with his leadership style, Sheth says.

“Obama has a calm yet firm manner that projects confidence,” Sheth observes. “That sends a positive message to people, and a CEO would do well to emulate that style.”

On the other hand, a CEO who joins a company from another firm should not make assumptions about the culture of his new home.

“An outsider should not act like a preacher and assume he or she knows everything about the business,” Sheth says. “It’s a good way to quickly develop adversaries, as we’re seeing with President Obama’s efforts at rapid change. It's like antibodies fighting the new intruder.”

A newly installed CEO should also resist the tendency to bring aboard the same set of collaborators present at the old job.

“These consultants and executives won’t know the unique aspects of the new company’s culture,” Sheth cautions. “They’re likely to impose their own outlook and will be resisted for doing so.”

Problems can develop even if the new CEO rises from within the organization.

“One big mistake is when the new leader rewards the people who supported him on the way up, while phasing out the people who did not,” Sheth says. “Instead, a CEO must realize that he or she is the leader of the company, not a clique, just as the president of the U.S. leads the nation, not just the Democrats or the Republicans.”

Perhaps leaders “need to develop a clear simple message, convey it with confidence—a ‘yes we can’ message— and keep cool and composed,” adds Gilkey. “They should also provide ways for people to engage in the process with the maximum potential of achieving some clear and quick wins if possible. This is the ‘low hanging fruit approach,’ which helps give people a sense of efficacy while they deal with potentially overwhelming change.”

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