1st September 2003

"Culture change: how it works"

By AMIN RAJAN

Culture change - how it works - THE LAST WORD AMIN RAJAN - Fund managers need common sense in attempting a turnround.

The longest bear market in living memory has forced many fund managers to revamp their business culture - "the way we do things around here". They are doing this by shifting the employee mindset from entitlement to performance, from short-term personal gains to long-term business viability.

Some have compared themselves with their most admired competitors - Capital International, Fidelity, Pimco and State Street Global Advisors, to name a few - only to realise that these icons have unique corporate DNA that is hard to replicate. In any event, they offer few insights for those attempting a business turnround in today's pressure-cooker environment. The task is all the more daunting because, for most fund managers, culture is not just about "how we do things"; it is also about "what we do".

What happened at General Electric and ABB is instructive in this context. Both implemented similar sets of actions in the 1990s. Yet, today, one is far more robust than the other. GE was a lot smarter in the way it carried through the changes. What mattered was how senior executives engaged with others and events.

Indeed, most fund managers now find themselves in the situation that banks and insurance companies were in the aftermath of the 1990-92 recession.

They had to restructure on an unprecedented scale in order to achieve differentiation in an unforgiving marketplace. So it is instructive to revisit the lessons learnt.

Some nine years later, when I audited the results, the scorecard looked dismal: only 7 per cent of the transformation programmes had succeeded. The rest were long on intentions and short on delivery; rescued only by a long economic recovery.

I cannot help replaying a conversation that I once had with the European chief executive of a global bank that nearly went bust due to massive losses on sovereign debt. The bank responded by a root and branch culture change, starting in 1990.

I asked him: "How would you describe the bank's culture pre-rationalisation?"

"Then, it was dog eating dog," he said.

"And now?" I asked.

"It is the other way round," he replied.

It was clear that the more things changed, the more they remained the same. In fact, five lessons were learnt which today's fund managers may find useful.

First, focus on outputs, not inputs. Many of these programmes ended up putting undue emphasis on corporate values and mission statements and not enough on actions and outcomes. In contrast, successful institutions such as Barclays, Citigroup and RaboBank reshaped managers' behaviour by setting clear targets, providing the necessary support and rewarding their success.

Second, recognise that corporate culture is like a giant jelly: unless one shakes it hard, it wobbles back into its original position. It is unwise to underestimate the magnetism of the past; or to assume that changing management is smooth and painless. If it ain't hurting, then it ain't working.

Third, mindset change is about engagement of the individual. It is vital for senior executives to be proactive and have convincing answers to the four most frequently asked questions by employees in any business transformation:

* Direction: what are our goals and why?

* Deliverables: do we have the leadership to deliver them?

* Impacts: how will the goals affect individual teams?

* Motivation: what is in it for me?

Fourth, promise only what you can deliver. The history of change programmes is littered with clever words that say a lot about nothing. Hype ended up promising far more than could be delivered. Worse than that, it created corrosive cynicism that frustrated sensible action.

Finally, remember that the genius of strategy is in execution, not design. Clarity of thinking leads to clarity of actions. That means all new ideas about business growth need to be put through a reality check.

The history of business transformation has shown many failures inside and outside the finance sector. That is not because there is anything inherently wrong with the concept but because of the absence of common sense in its implementation. Changing the employee mindset requires deeper insight into human nature and the ability to respond convincingly to those frequently asked questions. Professor Rajan is the chief executive of Create, a research institute specialising in "good practices" in the workplace NEXT WEEK: Philip Coggan.

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