Applying Kotter's change model to post-acquisition organizational alignment

Why Transformation Efforts Fail

Background

My current organization was acquired a couple of months ago. Because ownership is a private equity company, they are oriented specifically to getting the parent company (the one that bought us) to IPO either next year or 2021. For its part, the parent company acquired us as one of a series of strategic acquisitions, to acquire products and technologies that will help it to build a technology solution that would be superior to anything in the market. However, acquisitions are not just about technology; they are also about acquiring people and processes. As such, there is a substantial integration project underway to bring all the different business units, most of which have been acquired in the past couple of years (some of which have not yet been announced), into alignment in all areas of the business. This alignment will help the parent company extract value from each subsidiary by applying the optimal processes to each organization, in addition to the benefits of the technology acquisition. This is because each acquired company had an established business in our industry with its own revenue, customers and of course everything under the hood in terms of people, processes and institutional knowledge.
As one can imagine, there is a massive organizational transformation under way, and I am playing a role in this, by bringing about alignment between different business units in terms of my specific area of expertise. I am not at liberty to divulge specifics, in some cases due to NDA, but there is clearly a transformation that is taking place, and I will use this paper as an opportunity to apply Kotter’s model of organizational change to the reality in which I am presently working.
The transformation that needs to take place is to bring about organizational alignment between multiple newly-acquired business units. Each business unit has its own strengths and weaknesses, so what needs to be aligned, and how, will differ for each one. But ultimately, the talent in each business unit needs to be tapped to share knowledge, so that when the alignment arrives, we end up with the best possible culture, processes, technology, and that the combined institutional knowledge becomes overall parent organization knowledge, whereas presently that knowledge is largely siloed.

Brief Overview of Kotter’s Change Model
John Kotter’s organizational model consists of eight steps. The first is establishing a sense of urgency, which Kotter found was necessary to break through the inertia that naturally forms in organizations. The second step is forming a powerful guiding coalition. This is necessary because in Kotter’s vision of organizational change, the change effort is largely driven in a top-down manner. The third step is to create a vision, which Kotter sees as a critical piece in aligning the different stakeholders. While each stakeholder might have their own vision, a common, shared vision will help get everybody pulling in the same direction.
The fourth step in Kotter’s model is to communicate the vision. Having a vision is of course important, but for the vision to hold genuine power during a transformation effort, it needs to be communicated effectively. The vision needs to move down the organization, from the top to everybody else, via the different managerial layers, and this messaging cannot become diluted or the change effort will be put at risk. The fifth step is to empower others to act on the vision. Senior leadership cannot make change happen by sheer force of will, but rather it must empower leaders throughout the organization – formal leaders and informal – to drive the change among their teams.
The sixth part of Kotter’s plan is to plan for and create short term wins. There are times when change efforts are painful, but it is much easier for organizations to handle that pain and remain motivated when there are clear victories that they can point to, to maintain morale and motivation, as well as general organizational belief in the change program. The seventh element of Kotter’s model is consolidating improvements and producing still more change. The reality is that a transformation process is iterative. Rome wasn’t built in a day and neither is a large organization transformed. It is a multi-stage process, so taking the first improvements, celebrating those wins, and moving on to the next phases of the change program is essential to change success.
Finally, new approaches are institutionalized. Change is messy. The reality is that some of the things that a company tried during a period of transformation will fail. So a lot of change can be quite tentative in nature, with bad ideas rejected, but the good ideas once identified need to be learned and incorporated into the day-to-day approaches of the company. Once the new approaches have been institutionalized, the change process can be deemed complete – or at least that part of the process can be complete. Seldom is change a process with a defined finish line, even if the change in all likelihood has a defined starting point.

Step #1 – Establishing a Sense of Urgency
Kotter makes the argument that urgency is an essential component of any transformation program, the first step. The underlying logic is basically that organizations are likely to operate with a mindset of “if it ain’t broke, don’t fix it.” The problem of course, is most people operate largely within the scope of their day-to-day, and don’t really take time to strategically analyze the market realities. As such, those realities can take an organization by surprise, and in some cases by that point it is too late to really avoid major damage. The way that Eastman Kodak was crushed by digital photography stands as a good example of what happens when an organization ignores the major external forces that are changing in its environment. Hence, Kotter built environmental scanning, and imagining both crises and opportunities into this step. (Digital photography could have been either for Kodak, depending on how the organization reacted to it).
In my present situation, we operate in an evolving industry. There is a lot of consolidation among vendors, not just with our organization, and that is creating a certain sense of urgency at least at the parent company level. For the different business units that have been recently acquired, the sense of urgency is probably not where it needs to be. There is a sense of opportunity, certainly. The companies that were acquired were generally successful, however. We were quite profitable, but the owner wanted to cash out to focus on other business ventures. There is little impetus for change when things are going well. But at least in the case of the different business units, the acquisition served as a wake-up call. Whether a young business with strong growth, or an established business struggling with a changing environment, the reality is that if there was any complacency, an acquisition should break that. It might not be the same thing as urgency, but it does provide a mandate for change.
But, in light of our being #1 or #2 in each of our different markets, the urgency is less about looming environmental threats. It is instead being positioned as the opportunity side of urgency. The messaging surrounding the change is that we have the ability to dominate the industry, because we have a head start on our competitors in terms of our vision, and in terms of starting the process of building the assets to execute on that vision. We are targeting a market that is just starting to realize its own opportunity, and mature. Many of our customers are growing via acquisition as that industry starts to professionalize. Thus, the sense of urgency under which we are bringing about our transformation effort is more on the positive, let’s seize this opportunity level.
One of the facets of the Kotter model that often arises is that in situations where management sees looming threats – or to a lesser extent opportunities – in the external environment, it might need to communicate this urgency throughout the organization. Think about when the iPhone was released. Blackberry continued to grow and be profitable for several years after that – it would have been easy for the employees to lack a sense of urgency because they were still growing rapidly and making lots of money. But senior leadership knew that was illusory because they were rapidly losing market share. So the purpose of creating a sense of urgency is to ensure that everybody in the organization, no matter how well their particular unit is doing, shares this urgency and is equally motivated by and committed to the organizational change project.
I would say that the urgency level at present is actually relatively low. The opportunity angle is positive, and certainly is a source of motivation, but for many employees, there is no particular reason to be strongly motivated, at least enough to shake them out of their inertia. I suspect senior leadership is strongly motivated by the planned IPO, but until everybody else gets shares, that’s not going to motivate them to deal with the adversity that change normally brings. So there is risk that step one of Kotter’s model is not being applied fully and sufficiently to drive the change effort across all business units.

Step #2 – Forming a Powerful Guiding Coalition
Kotter made this the second step because he realized that senior leadership needs to buy into any change effort, or it will fail. Organizations take their cues from their leadership, and if leadership does not appear to be fully committed to the change program, that tacitly gives license to everybody else within the organization to lack commitment as well. The nature of transformation efforts is that they inherently disrupt established power structures, which means that there will be pushback and friction. People who are thriving with the status quo might feel the change brings more risk than reward. Some folks just don’t change easily, especially if they have been set in their ways for a long time. To overcome the stronger forms of resistance, which can include outright hostility and sedition, the organization needs to see full commitment from leadership at all levels, but especially senior leadership.
In our situation, there is strong commitment from senior leadership towards the vision. In part, this is because it is their vision – many of them were brought into the company when the venture capital firm bought it, and they created this vision at that time, and have been working towards it ever since. What is less clear is how far down the organizational chart this commitment runs. There is a case to be made that it should run all the way down, because now that we are all in the same company, the only real options are to win or to consistently struggle as a number two competitor. Struggle might be a little harsh, but the change effort has been framed as us having an opportunity to win, so there should be commitment – each newly acquired company plays a specific role in the change effort.
But going down the organizational chart, leaders do seem to have varied levels of commitment. At the parent company level, the vision has been baked into the organizational culture for several years now. But for many of the subsidiaries, this is a new thing. But there has been intensive effort on the part of the parent company to engage the senior leadership teams at each of the subsidiaries in this effort. I am not in a position to know how well those leaders have brought that vision back to their individual teams, but they have certainly been instructed to do so.
The parent company appears to be doing step two the right way, by creating engagement with the senior leadership teams of each subsidiary, to the point where any senior leaders not on board are typically sent packing in short order. The result is that there are few people at the senior levels with any reason to resist the change efforts, This makes the entire change effort flow much more easily. It certainly puts pressure on the senior leadership teams, because there is a lot more communication and travel involved, along with the expectation of continuing with their ongoing duties, but ultimately they probably have a financial stake in the success of the vision. An IPO can be quite the carrot at leadership levels – and at other levels it also matters but those individuals might not be being asked to do the heavy lifting of the change effort.
All told, I feel that even if step 1 is a bit weak for our transformation effort, step 2 is being executed very well, and the engagement level of the different leadership teams appears to be very high. As professionals who can easily move elsewhere, it does seem that anybody who isn’t on board would have exited within six months of the acquisition if not sooner, so all told step 2 is being done well, and that bodes well for the transformation effort as a whole.

Step #3 – Creating a Vision
Kotter places vision as the third step, though arguably it could come earlier in a given organization. In our situation, it certainly did, because the parent company had its vision set in place long before we were acquired. Our acquisition, and the others, were all the result of the vision that the parent company has. The role that vision plays is as something definable around which all stakeholders can rally. A vision goes beyond leadership, but even beyond the employees. Suppliers, customers and business partners all can buy into the vision, and in fact it is often valuable for them to do so – people like to work with winners. The vision is important in Kotter’s model because even the most committed leaders might have infrequent, minimal or occasional communication with their employees. The vision, therefore, can serve as an anchor even when leadership is not around to reinforce the messaging.
What is good about our present transformation effort is that the vision was actually established several years ago now, and has been fully baked into the parent organization’s culture. This is different from the sort of change effort Kotter imagined, where a company defines new vision for itself and has to change the perception of the company’s vision among all stakeholders. For us, it is really only the acquired companies that have to be introduced to the vision and enculturated into it. Everybody else is already there. So in terms of creating a vision, that is really not a big issue in the sense that we have a strong vision for what we are trying to accomplish.
Further to this, each of the acquired companies fits in with that vision. This is not a situation where the parent company looks for value acquisitions that are struggling – they specifically were willing to pay a high premium to acquire growing, profitable businesses. To do that, the parent company had to be certain that the acquisition target fit within its vision. Thus, there is a clear sense among the senior leadership team of how each subsidiary fits into the broader vision.
Bolman and Deal (2008) elaborate further on what constitutes a vision in the Kotter model – it includes an implementation plan, mapping political terrain, developing an agenda and a hopeful vision for the future. There is little doubt that a hopeful vision exists, and the vision that has been communicated includes an agenda in terms of time frames, in that the organization wants to continue to grow via acquisition, and it wants to do have the current subsidiaries integrated successfully in time to take the company public in a year or two. The political terrain is something that is a work in progress, just because there are really only a handful of senior leaders who are responsible for the integration of the new business units. When I mentioned earlier that leadership teams in the acquired companies need to be on board with the vision or will be exited, part of that is the corporate leadership team meeting with each, and being able to quickly ascertain if they are a fit or not with this new vision. Any failures in that regard might mean that a good person is exited, or a potential resistor or toxic person maintains their role, and ends up undermining the change process. I am not necessarily in a position to judge the effectiveness of senior leadership at this particular part of the vision step.
All told, there is a clarity of vision that is driving this change process. When a company is acquired, ostensibly to contribute technology to this product-driven vision, there is a vetting process that must be undertaken for the acquired company’s leadership to ensure that they will buy into the new vision under which they are being asked to operate, and to ensure that the remaining leaders in the business units are able to perform the next step in Kotter’s model, which is to communicate the vision throughout their organizations.

Step #4 – Communicating the Vision
One of the more interesting aspects of Kotter’s model is that halfway through the model, nothing on the implementation side has been done. The fourth stage is to communicate the vision to the stakeholders, especially the internal ones. Bolman and Deal (2008) explain this step as creating the structure to support the change process, holding meetings to communicate the direction and get feedback, and then to build alliances and defuse opposition. Leadership visibility, Kotter notes, is critical at this stage, because of step 2 – leadership buy-in is not just critical at that level, but is critical to ensure buy-in throughout the entire organization.
From my experiences with the transformation program thus far, the vision has been communicated effectively, though, it can be argued, maybe not in a timely fashion. The initial communications when the acquisition was announced were mainly in the direction of assuring people that no layoffs were pending and that nothing would change. The part about no layoffs was true, but of course change is inevitable, so that part of the messaging was probably defensive in nature to avoid the company losing good people. It was only recently that an all-hands meeting was called with our acting general manager to communicate some of the more positive aspects of the transformation – that employees would receive stock options, company share purchase matching upon going public, and opportunity for advancement in the larger organization. The role that our company – business unit, now – plays in the grander vision was also conveyed, something that had not really been done before. So on that level, communication of the vision is finally underway, and it appears to have helped a lot.
Kotter built several other components into this step. The structure to support the change process is, to this point, still being built out. But there is definitely a plan to make this happen. At this point, much of this is in a fairly nascent form, and only at the executive level, but there have been increasing signs that integration of newly acquired companies is starting to trickle down to more operational levels, something that should increase buy-in, especially in the acquired companies that have not already bought into the grand vision.
We have just now started to have meetings to communicate the vision. Each executive in our company has traveled to head office, and received instructions to communicate this vision to their teams when they return, so the level of communication is definitely starting to ramp up. My understanding that when communications technology is aligned, we will be in a much better position to communicate as a singular company, but this might be too early in the transformation process for that.
Building alliances has certainly happened, again mostly at the executive levels. But at that level, getting everybody on the same page, is probably where this process needs to be right now. I feel that this is something that we are doing quite well to this point, but of course the bigger challenge will be when people start building alliances at the functional level, rather than the business unit executive level. I know that process has not started yet, because I am one of the key players in that process and we haven’t kicked that part off yet. But the people who are going to be driving the functional level alliances are being identified and recruited to contribute to those efforts.
Leadership is highly visible in the messaging, both internally and externally, which I feel helps things, especially because they have all bought in, and have a high level of visibility, and consistency in their messaging. In terms of kickoff ceremonies, there haven’t really been any since we were acquired, but the parent company’s major conference is upcoming in a few months, and will provide the perfect opportunity to deliver this messaging.

Step #5 – Empowering Others to Act on the Vision
Kotter (1995) explains this step as having three parts. These are removing obstacles to change, changing systems or structures that seriously undermine the vision, and encouraging risk taking and non-traditional ideas. There are two clearly different aspects to this step. The first is the part about removing obstacles, which clearly has value in terms of making the change smoother. There are different types of obstacles. Often, they are people, but there are also processes and structures that hinder change, or otherwise do not fit with the greater vision. By removing the major obstacles, bottlenecks and resistors, the change process can run much faster, and with greater fluidity.
The second part of this step is encouraging risk taking and non-traditional ideas. Personally, as a non-traditional thinker, I love this part of step 5. Bolman and Deal (2008) actually don’t talk too much about this step, instead focusing on removing legacy structures and procedures that support the old ways. But for me, this part of step 5 is where the magic happens. A major organizational change is an opportunity, not just to remove old structures, but to envision a much bigger future. That requires creativity. A leader can say to her or his team that there is an opportunity to redefine roles and processes – imagine your ideal and let’s make that happen. By empowering team members to imagine their ideal, and state your commitment to trying to make that happen (within reason), not only does the entire team become engaged in the change process because it is that much more personal, but they are more willing to accept some negative aspects of the change, like moving from a familiar software tool to an unfamiliar one, because they have the opportunity to rebuild the way they work in their own vision.
Engaging the creativity of the team is valuable for getting buy-in, but it also taps into their subject matter knowledge as to how best to do things. When someone joins your company, they bring experiences, but they are typically taught to do things your way. After a time, somebody might have a sense of what works better under your way, and what might be done better another way. That is valuable untapped institutional knowledge, so when the leadership of an organization taps into that knowledge, there is value to be gained. And a major organizational transformation change provides just such a platform.
We are only in the beginning stages of implementing step 5. Part of aligning processes is getting everybody on the same software, and that is just underway now. The other part is removing obstacles. Human obstacles are typically removed quite quickly. Non-human obstacles, such as processes, still remain. Thankfully, my assessment is that senior leadership is aware of the need to define a common set of best practices across business units that can be applied, and is in the process of building out the organization structure to get this knowledge out of its silos. I personally am involved in this project, so have great optimism for its success – and that everybody involved is keenly aware of the opportunity that this presents for improving the output of each business unit.