Organizational change management: why large-scale transformations fail

Change

There are a few instances were a company tried to institute a large-scale organizational change effort and failed. One recent one was with the FedEx purchase of Kinko's. FedEx had decided that Kinko's would complement its business since they had many mutual customers. The shipping company also felt that if it could professionalize the information Kinko's it would improve the company's profitability. That was not to be. Kinko's had a strong organizational culture that was a bad fit with the FedEx culture. Kinko's culture was informal in nature, while FedEx has a formal culture based on a high level of professionalism. After years of failing to integrate Kinko's into the FedEx culture, FedEx ended up taking a massive writedown on the transaction and rebranding the subsidiary as FedEx Office in an attempt to kill off any remaining Kinko's culture within the organization.

The change was radical, not incremental. FedEx basically made incremental changes to the operations, but that is not why the effort failed. The company's effort failed because the culture change was so completely radical. It change the way that Kinko's employees worked, how they felt about their jobs and their level of engagement. The FedEx culture proved to be a poor fit with low-paying retail jobs in general -- normal FedEx clerks at their stations are paid about the same as couriers on the road. The effort failed because it was not only radical but based on a misunderstanding of why Kinko's had the culture that it does.

There were several objectives behind the change program. The first such objective is that FedEx wanted to have a uniform culture across the company. FedEx has been built via acquisitions and has almost always been able to instill its own culture on its acquired properties. This has even been the case to a large extent with the purchases that created FedEx Ground which is probably the closest corollary to the Kinko's situation. However, there were enough similarities between that business and the core FedEx business that the culture change was able to go through. With Kinko's that simply was not the case.

The second objective was not change for change's sake. It was change because FedEx believed that by adding formality and professionalism to the Kinko's culture, that it could improve operating metrics. Kinko's had been struggling, and FedEx felt that it could improve profitability by bringing some efficiency and exacting customer service standards to the business. This is a more noble objective, and one that might have resulted in some buy-in at Kinko's, if the change was not so radical.

The change failed for a few reasons. The first reason that the change failed is because there was little buy-in from anybody at the top. Certainly the people who were running Kinko's were disinterested in changing the culture. They were from that culture, and they saw its value within the context of the Kinko's business model. But also, there was little from FedEx senior management. While they believed in their own culture, they did not seem to feel that they needed to transmit this enthusiasm to the worker at Kinko's. The result is that there were no real champions for the culture change. Kinko's ended up being treated like a red-headed stepchild, and that is not a good way to encourage culture change within an organization.

There was also a certain inertia within Kinko's, as the people who were originally attracted to the company were in part attracted to the culture. Thus, they were not especially motivated to change. Among Kinko's employees, there was almost a sense that the fit was bad and that they should leave the company, or resist the change as long as possible, in order that they might not have to make the change.

Lastly, the change failed because it did not take into account the differences of the Kinko's business. The staff tended to be part-time, and many worked overnight shifts. They were not particularly well-paid, but they were able to provide a little bit of atmosphere to an otherwise dreary business. Thus, the service staff and its lack of formality were attractions to customers, and having such a culture made it easier to attract workers to a job with such low wages. This stands in contrast to FedEx, which prefers to hire more mature workers, and certainly ones that are willing to adapt to the culture. Moreover, FedEx pays better, so it attracts better workers -- Kinko's needs to give the workers a reason to be there without paying them more; FedEx did not.